Localism

Memorandum from the Local Government Association (LOCO 106)

Executive Summary

· The public sector faces a n urgent challenge – how to move from a flawed top-down, target-based approach to improvement and de livery to a system more responsive to the needs and wants of local people , which is able to protect frontline services while delivering the savings that will be required following the Comprehensive Spending Review .

· Radical reform is urgently needed . This must be through a devolved structure which will allow services to be more effectively targeted , allow for services to be integrated, and bring about the removal of the current complexities of fragmented provision stemming from a myriad of public bodies responsible for a multitude of funding streams.

· A place-based budget model will allow for this radical reform, strip unnecessary bureaucracy, and all ow for local economies of scale. It will strip out layers of costly and unnecessary bureaucracy and crucially will also allow for a shift towards prevention, in which the costs and benefits of a policy accrue to the same set of decision-makers , and to increased transparency and accountability.

· The Total Place pilots made it clear that place-based budgeting will allow local areas to focus funding where it will have the greatest impact on overall outcomes, target spending to the most significant local priorities, support strategic spending decisions, reduce a layer of bureaucracy from tracking multiple funding streams, and control the deployment of resources to meet changing local and national priorities.

· A place-based budget holder would play a strategic enabling role, allocate nationally-determined place-based budgets to address both national and local priorities, and strategically commission a set of local services from these budgets to meet these outcomes.

· Government Departments should, where appropriate, pool their budgets into a place-based budget to allow commissioning decisions to be made locally. This would apply to a wide range of departmental spend where spending decisions are currently determined by departments themselves or by Quangos.

· Place-based budgets can reduce the overhead costs of the delivery of public services and see intervention preventing high cost social problems emerging. We estimate that a full place-based budget in every place would save £100 billion over the lifetime of the Parliament.

· A new more effective approach to the oversight of local authority performance is needed, and the LG Group is consulting on this.

· There must be greater accountability on how public money is spent. Unelected officials should not be able to make discretionary decisions about how taxpayers’ money is used without them being subject to strong democratic oversight. Localism can increase that accountability.

The LGA

The LGA is a voluntary membership body and our 422 member authorities cover every part of England and Wales . Together they represent over 50 million people and spend around £113 billion a year on local services. They include county councils, metropolitan district councils, English unitary authorities, London boroughs and shire district councils, along with fire authorities, police authorities, national park authorities and integrated transport authorities.

The Current Problem

For a decade, public service organisations h ave undergone continual reviews in pursuit of better value for money, improved transparency, and increased effectiveness. But the se reviews have all reflected the fundamental assumption that an expansion of state machinery, combined with continual attention to process efficiency, will deliver better services and higher user satisfaction.

These ten years have produced a significant body of empirical evidence which in fact shows that the top-down target-driven approach to improvement and efficiency has delivered neither uniformly better outcomes, though many outcomes did improve, nor higher public satisfaction, while the view has grown that public spending has reached unaffordable levels.

We nevertheless enter the next decade with a public service architecture created on this flawed and over-centralised model, with a public budget and bureaucracy for every issue, alongside an inspection and control regime for each. This means only radical reform can make possible the necessary savings in public expenditure, if frontline services are to be protected. If the current model i s not carefully reshaped, there is a significant threat of collapse as a result of the pressures that it now faces.

The way public services are funded, delivered and regulated will have to change significantly. The public sector faces three significant and interlocking challenges:

· how to restore confidence in public finances

· how to rebuild trust in politics and

· how to tackle entrenched economic, social and environmental problems.

These mean that public services will have to offer:

· much better value for money

· more transparency and

· more effectiveness.

How decentralisation leads to more effective public service delivery

Devolved governance can bring about fundamental reform in the way public services are delivered.

Services can be targeted more effectively on need, removing deadweight costs. For example, there are considerable variations in the level of adult skills between places and a pressing need to improve skills in some communities. National programmes have failed to do this effectively. Around half of the employers whose employees received subsidised training through the Train to Gain programme (which spent £876 million in 2008-09) would have arranged similar training without the subsidy. Over the lifetime of the programme this amounts to a deadweight cost of £1.7 billion

Decentralisation will allow for an integrated, whole public service approach to intractable problems like unemployment. For example, JobCentre Plus is failing to get many of its clients into secure employment: of the 2.4 million Job Seekers Allowance claims each year, around two-thirds, or 1.6 million, are repeat claims. These repeat claimants typically experience barriers to employment– in childcare, housing, personal finances, transport, mental health or alcohol and substance use – that cannot be fixed by Job Centre Plus alone. But the current departmentalism removes the incentives for Job Centre Plus to enlist the help of health, transport or housing bodies, or for those bodies to volunteer their help

Decentralisation will help in the removal of the complexities in provision that arise from a multiplicity of public bodies involved in commissioning and funding. For example, a fragmented approach based around 49 separate funding streams and policies, totalling around £9 billion a year, has failed to reduce the number of young people who are not in productive work or learning. Around 10 per cent of young people are not in education, employment and training (NEET) – this is higher now than when the previous Government’s Social Exclusion Unit coined the term and set a target to reduce the rate. Around 1 million young people aged 16 to 24 years old are not in either work or learning. Localised responses could secure better results with less money.

Decentralisation will also give the freedoms for innovative local approaches to behaviour change. Progress on a number of social and environmental issues, such as reducing obesity or tackling climate change, will involve individuals and families to changing their behaviour. With constrained public resources, there will be much less scope to do this through national programmes, and there will be a much stronger reliance on local and voluntary action. Local action works. For example, one of the biggest changes in recent years has been councils’ success in persuading and enabling people to recycle more.

Devolved governance further allows:

· layers of bureaucracy to be stripped out and particular services and functions including procurement, back office and transactional services to be integrated and jointly commissioned, saving money

· scale economies to be brought to bear on functions where the geography of the problem requires it

· single assessments of the same clients,

· data-sharing, and client-centred, rather than organisationally focussed, working

· budgets to be moved between programmes, putting an end to multiple ring-fenced budgets and the constraints that imposes on moving funds from budgets with under spends to those that are subject to pressure.

Prevention rather than cure

Looking at the totality of spending in a place – even where budgets are demand-led or allocated by consumer choice – enables a shift towards prevention and early action on the intractable issues that blight places, such as inter-generational worklessness, poor educational performance, drug and alcohol dependency, and re-offending.

It becomes possible to invest in long-term prevention because:

· the costs and benefits accrue to the same set of decision makers managing a place based budget. The classic market failure of split incentives (an entrenched feature of departmental bureaucracies – where the short-term costs fall to one department, whilst the longer term benefits fall to another) can be overcome by benefit sharing rather than cost-shunting

· services can be de-commissioned safely without unintended costs and consequences passed from one part of the public sector to another. Cuts in spending can be viewed in terms of their wider impacts and costs rather than their impact on a single organisation’s balance sheet.

Local areas have already identified several themes where services could be rebalanced towards prevention securing value for money over the long-term:

· in Birmingham, 93 per cent of public spending on employment is on out-of work benefits and less than 7 per cent on supporting people into work;

· in Manchester, the Early Years pilot is the subject of longitudinal cost benefit analysis to determine the long-term savings of early intervention, exploring the financial efficiencies of ensuring children that begin their schooling "school ready", reducing expensive specialist support (a place in a pupil referral unit costs £22, 873 per year) with wider savings to the criminal justice, health and benefits systems;

· in Leicester and Leicestershire the estimated costs to the public sector of dealing with alcohol misuse are £89.3 million annually, compared to just £4.9 million to prevent misuse;

· In Bournemouth, Dorset and Poole the key to improving services for older people at lower cost is to shift provision from acute care (emergency admission to hospital) and an over-reliance on secondary care for older people to investment in well-being, early intervention and prevention (including telecare and telemedicine).

Evidence from abroad and in England suggests a strong case for family based interventions – targeted work with families likely to create a high costs to a wide range of public services. This work requires a range of public sector organisations to invest – police, courts, the NHS, local councils and so forth. This integrated work is difficult to undertake with organisational budgets, but much simpler with a place-based budget.

More transparency and accountability

Localising governance also improves transparency and accountability, re-building public trust in government. When they have a complaint about public services, 48 per cent of people go first to their local councillor, compared to 29 per cent who go to their MP. The arrangements for complaining about non-departmental bodies and the health service are opaque.

The Parliamentary and Health Service Ombudsman received over 16,000 individual complaints last year but has said that many of these complaints could be resolved locally – "essentially, we want people to be able to make the right complaint at the right time to the right organisation, and to achieve a good outcome. It is evident we are nowhere near that position yet." [1]

We need a simple system for complaining about public service failure. After a complaint has been raised with an organisation directly, if the complainant is not satisfied with the response we would like people to look automatically to the local councillor to complain about the local services, and to their MP for national services.

The lessons for decentralisation from Total Place

Before the start of the ‘Total Place’ work there was a critical conversation about the need for an offer to help council leaders in a time of severe fiscal crisis. This conversation was sparked by the nature of public finances and the increasing expectation of the public. Its context was one of complexity in local service provision and national government policy, a shift to outcomes and whole customer experience, and a belief that an innovative approach to produce better customer experience through enrolling the ‘customer’, ‘citizen’ or ‘consumer’ of public services in the resolution of their own problems would lead to a better deal for the taxpayer.

One of the biggest challenges will now be moving this beyond the excellent work already done and establishing it as common practice throughout the public sector. This is going to require significant involvement across places that have only so far been peripherally involved, and a deeper engagement from key Whitehall departments, as well as a fundamental shift in the nature of the relationship between central and local government.

Place-based area budgets are the next logical step from Total Place. They would ensure that local and accountable decisions on what public services are commissioned locally, and from where, can be made. Initiatives outlined in the Total Place report are a solid starting point, for example:

· Coventry, Solihull and Warwickshire – a concordat between the place and central government based on an agreed level of savings in exchange for significantly greater local flexibility.

· ‘Budget for Birmingham’ – to increase focus on preventing problems and tackling underlying issues, alongside a shift towards longer-term investment and financial planning return across public services.

· Worcestershire has proposed that principal local authorities should be the accountable bodies for greater levels of devolved funding and that they should have a strategic commissioning role.

The Total Place pilots made clear that greater flexibilities over the use of resources can support local partners to:

· focus funding where it will have the greatest impact on overall outcomes;

· target spending to the most significant local priorities;

· support strategic spending decisions;

· reduce a layer of bureaucracy from tracking individual pockets of spend; and

· flex the deployment of resources to meet changing priorities

New models of leadership will challenge senior leaders to work in a way that devolves authority for single outcomes against a single expenditure flow. Cambridgeshire propose a shared leadership team operating with a pooled budget and a single strategic plan that will be enabled to coordinate resources and allocate them based on local needs. This could produce efficiency savings of around £19 million per annum for all partners.

The role of local leaders in work on local budgeting is critical to its success. Strong political and managerial leadership throughout public services is required to enable sustainable, fundamental change in the way people and organisations work together to shape services for the benefit of citizens. Leaders who have looked beyond the boundaries of their organisations and their authority are already shaping the future of partnership working. Leaders must be supported in this change, both individually to help them cope with systemic change, and together to build a culture with shared values, aims and behaviours.

The Role of a Place-Based Budget Holder

The place-based budget holder would exercise 3 principal roles:

· play a strategic enabling role for those services which do not rely directly on public sector organisations holding budgets and instead allow money to follow citizens’ choices;

· allocate place-based budgets, determined nationally, between outcomes to address national and local priorities and need;

· strategically commission a set of local services from these budgets to meet these outcomes (and effectively de-commission and enable voluntary action).

Crucially it will involve ensuring the conditions are in place locally to make sure choice-based models work effectively (so, for example, addressing constraints that prevent the development of responsive service providers and encouraging the growth of the voluntary sector).

What do Whitehall and Government Departments need to do?

The Government has said that it will give people more choice and control over public services provided in hospitals, schools and colleges. There are two key aspects to making this policy a success.

First, the decisions about broad budget allocations should be made nationally, typically by formula that take account of local circumstances. The decisions about how those budgets are spent must then be made locally, or determined by the choices people make themselves or in the case of the NHS the clinical and commissioning decisions of General Practitioner consortia.

Second, in the case of services determined by individual or provider choice, democratically accountable local government should have a role as a strategic market maker, championing the citizens’ interests, to ensure that there are excellent services for local people. Councils can ensure these services fit with and provide value for money alongside other local services, where there are interdependencies between services.

Making the local market work is about the classic role of the state in managing market failures and:

· helping people make informed choices about services;

· encouraging improvement and excellent provision;

· ensuring redress for citizens where services fail;

· encouraging providers to enter the market and in cases of systemic failure, managing exit; and

· ensuring services provide for those people with more complex needs.

Local councils bring democratic legitimacy to the discharge of these roles.

The Government’s proposed health service reforms recognise that local authorities should play these roles. The budget for local health improvement will transfer to local authorities who will jointly appoint the Director of Public Health with the Public Health Service. Health and Well-being Boards will be established to join up the commissioning of local health services with social care and health improvement. Local authorities will play a strategic role in promoting integration across health and adult social care, children’s services and wider local authority services.

This strategic role applies to the reforms to schools, colleges, adult training and health.

Where budgets do exist, Government Departments should pool them into a place-based budget to allow commissioning decisions to be made locally – this would apply to a wide range of departmental spend where spending decisions are currently determined by departments themselves or by Quangos. For example, DWP budgets for employment support or the housing and regeneration budgets of the Homes and Communities Agency.

The impact of decentralisation on the achievement of savings in the cost of local public services and the effective targeting of cuts to those services

Place-based budgets can reduce the overhead costs of the delivery of public services. They can release resources to be focussed on front-line services, enable services to be targeted on local needs, and allow innovative early intervention to prevent high-cost social problems emerging.

The LGA estimated in July that a full place-based budget in every place would save £100 billion over the lifetime of the Parliament, with the savings back-loaded towards the end of the Spending Review period.

Further work with councils supports this estimate – in steady state the savings are in the range of 8 to 15% of the total public sector spend in a place – the equivalent in a large county of between £1 billion and £2 billion.

Place-based budgets could make a significant contribution to the savings required to reduce the national deficit and enable places to manage public spending reductions with less impact on frontline services.

There are a number of service areas where the potential to make savings is greatest:

· over £6 billion in savings from integrating health and social care budgets enabling a co-ordinated approach to hospital admission and long-term care;

· £0.5 billion to reduce re-offending by stripping out duplication and working across the public sector to provide the varied support people need to rehabilitate;

· targeted local approaches to tackling unemployment focussed on communities with high levels of benefit dependency could save over £1 billion cumulatively each year,

· there are nearly 1 million young people aged 16 to 24 years old not in education, employment or training. The annual benefit cost alone of this group of young people is over £5 billion. Evidence from Essex County Council suggests that a place-based approach would save £104.7 million from a total cost of £855 million, including £44 million in housing benefit alone. At a national level, this would save nearly £1 billion annually;

· more modest savings could be made on other issues, using cautious assumptions to gross up evidence from individual councils, for example

o Westminster City Council could save 20% on neighbourhood policing – nationally this would represent a saving of £175 million;

o Evidence from Gateshead, South Tyneside and Sunderland, and Leicestershire suggests a £100 million saving could be made in responding to alcohol and drug misuse.

There are around £5 billion in savings to be made on the running costs of public sector assets and from rationalising public sector assets through reduced running costs and the capital receipts from asset disposals.

The oversight of local authority performance

The way local public services have been assessed over the last decade needs to change.

· Inspection has been helpful in stimulating improvement but is subject to diminishing returns as performance in the sector has risen markedly over recent years.

· The compliance costs are no longer affordable in the current economic climate.

· The constraints imposed by the panoply of targets, assessment and inspection regimes and data returns prevents councils and their local public sector partners developing innovative joined up and cost effective approaches to local service delivery.

A new more effective approach is needed based on the principles that:

· councils are accountable to the communities and people that elect them;

· councils are responsible for their own performance and for leading the delivery of improved outcomes for local people in their areas;

· councils have collective responsibility for performance in the sector and to collaborate through peer support, benchmarking and sharing good practice. The role of the LG Group is to facilitate and support this approach.

Based on these principles we have set out our proposals for a new sector-owned approach to regulation and improvement ("Sector self-regulation and improvement". September 2010 – copy attached). Our proposed approach – on which we are currently consulting councils - comprises three key elements.

· Transparent performance information: in order to strengthen accountability to their communities councils will make on-going performance management information publicly available in a meaningful way and in a format that local people can understand and use. Because there is a strong desire in both councils and communities to compare performance between places the LG group is developing a new approach to benchmarking unit costs, productivity and outcomes.

· Robust self assessment and peer challenge: councils would report annually to local people about the quality of life of the area and performance – including services to vulnerable adults and children - based on a self assessment. This would be backed up by a regular cycle of robust peer challenge with the option to invite representatives from the local public sector, businesses, community and voluntary groups, the inspectorates and local community representatives to be part of the challenge team. The LG Group is developing an updated self-evaluation tool and peer challenge offer.

· Managing the risk of underperformance: as external inspection and assessment diminishes in the light of improved performance the challenge will be to manage the risk of falling or under performance. We are therefore committed to putting in place the mechanisms that will allow the sector as a whole to spot councils facing performance challenges at an earlier stage so that support can be provided and service failure avoided. The LG group will work with councils, the Inspectorates, political parties and others to develop agreed "early warning" signals and the necessary arrangements to share intelligence. Where performance risks are identified the sector will offer support – but where, in exceptional circumstances, this is ineffective or declined then we accept the right for external inspection and/or intervention.

This is a robust approach that invests primary responsibility for assessing performance in the hands of local people and gives them the necessary tools to do so. It also allows for further reductions in inspection and government monitoring through data returns.

Accountability for expenditure, especially to Parliament

Accountability is vital and there is not enough of it in the system of government the country currently operates. It is not right that unelected officials should be able to make discretionary decisions about how taxpayers’ money is used without them being subject to strong democratic oversight. Localism can increase that accountability.

The spending of money voted by Parliament raises particular problems. Most voted money is dedicated by the ambit of the Vote to specific departmental objectives. Over the last few years, those objectives have been expressed as constraining targets. Accounting officers have put in place detailed controls in order to give themselves the assurance they feel they need in order to do their duty to Parliament to assure propriety and regularity. This degree of targetry, specification and control is seen as a brake on localism and the assertion "but I am accountable to Parliament for that" has become the argument of last resort of Whitehall officials who are reluctant to decentralise or devolve.

This perceived Parliamentary barrier to decentralisation is, however, a delusion made possible by the failed culture of central control. Even at the height of the target fad, some £25 billion of unhypothecated grant was allocated through CLG to local government through the formula grant settlement without central control over the purposes to which it was put. It is perfectly possible for place-based budgets to be achieved simply by increasing the amount of unhypothecated grant paid to councils and correspondingly reducing departmental funding streams for local activity.

We see four possible routes for achieving proper Parliamentary accountability for place-based budgets; they are not mutually exclusive and could be combined.

1) Scrapping centrally-controlled funding programmes and increase the formula grant settlement to correspond; this is simple and very attractive; it trusts councils themselves to work in a decentralising way and to commission diverse provision locally.

2) Creating a "local vote" with specific outcomes set out in the Estimate, with an accounting officer nominated on a place basis rather than departmentally; this provides a more powerful level for Parliament to scrutinise what is taking place locally.

3) Pooling departmentally-owned budgets locally under delegations from departmental accounting officers; this is needlessly complex and would be very difficult for Parliament to scrutinise; it is the weakest model of accountability, putting complexity between Parliament and expenditure, and between the local pool and local voters.

4) Devolving both the responsibility for the services and the tax base to fund them, with locally-elected councillors accounting directly to local voters for local spending, improving transparency by clearly dividing democratic accountability between Parliament’s national role and councils’ local democratic role; this is the simplest, clearest and most decentralising option, and reflects the position in many of our international comparators, but would also represent a seismic shift both in accountability and in control of the total national tax base.

October 2010