7. IMPROVING PERFORMANCE AND REDUCING COST
Reform is required to ensure that all public services constantly seek to improve performance and reduce costs, and are open, transparent and accountable.
7.1 The economic downturn and subsequent squeeze on public finances have exposed and exacerbated a series of challenges and structural tensions relating to our current system of public services (as discussed previously in Chapters 2 and 3).
7.2 In the post-devolution era of buoyant public expenditure, many of the design shortcomings of public services - for example: complexity, duplication and weak accountability for outcomes - were manageable. To a large extent, they were masked by rising inputs and the willingness of staff to work around system imperfections. However, the financial tide has turned and the purchasing power of the Scottish budget is retreating fast.
7.3 In this new and more challenging environment, it is essential that maximum value is wrought from every pound of public money spent in Scotland and, furthermore, that the public can be assured that this is so.
7.4 The Commission has heard how strongly people in Scotland value public services as an expression of the type of society in which they wish to live and, therefore, high levels of confidence in the quality of those services are crucial to sustain public support.
7.5 Public assurance is necessary to underpin the legitimacy of government and its partners to raise revenue and take bold and far-sighted actions to address society's problems, in circumstances where households' budgets are under pressure. Moreover, a high degree of public confidence in the efficiency and effectiveness of publicly-funded services helps to encourage individuals and communities to engage positively with those services.
7.6 The Commission is aware of a range of shortcomings in the current system preventing public services achieve maximum public value and deliver continuous improvement in outcomes for individuals and communities (these are set out in greater detail in Chapter 3).
7.7 To improve performance and reduce costs, and continue to secure public confidence, we believe that public service systems need urgent redesign to:
- improve transparency and consistency;
- improve oversight;
- improve procurement and commissioning;
- improve shared services;
- improve organisational structures; and
- improve long-term, strategic planning.
7.8 The sections that follow describe the type of reforms we believe are required to drive up performance and drive out costs to improve the financial sustainability of Scotland's public services. They are necessary to maintain high levels of public confidence, trust and legitimacy in Scotland's public services when budgets and services are under such strain.
TRANSPARENCY AND CONSISTENCY
7.9 Current practice in relation to budgeting and performance management was criticised in much of our evidence for being hidden and obscure. Too often decisions about public services and processes for explaining and challenging their performance are opaque and distant from the public and competing providers.
Many commentators have discussed the breakdown of trust between the public and government at UK level. There is a risk that this trust will be further eroded as decisions are made that impact on local people, particularly if these decisions are seen as remote and ill-considered.
Consumer Focus Scotland
7.10 We believe the drive for improvement and better accountability can be enhanced through greater openness and transparency surrounding budget decisions, analysing the costs of service delivery and the degree to which services achieve their stated objectives.
…national funding arrangements lack the required standards of transparency and involvement of all key stakeholders leading to a clear accountability deficit.
Association of Chief Police Officers in Scotland ( ACPOS)
7.11 To bolster challenge and accountability, public service organisations must be required to show the logic of how public money is supporting the achievement of better outcomes. They must demonstrate coordinated multi-agency strategies and collaboration with individuals and communities. Clarity about outcomes is a vital element in improving public services.
7.12 Often effective challenge and external scrutiny is frustrated by poor data availability or the incomparability of basic information about the costs, quality and performance of public services. Clarity is also needed on how organisations will act to improve performance on the basis of their analyses.
7.13 The Society of Local Authority Chief Executives in Scotland ( SOLACE) and the Improvement Service among others argued that increased and consistent benchmarking between public bodies, replacing the current patchwork of approaches, would help drive better performance and support learning. The Commission is also aware of the ongoing work of SOLACE, the Improvement Service and others ( e.g. Benchmarking for Improvement Toolkit) to facilitate and promote systematic benchmarking in different public service organisations.
7.14 However, we note too that the Chartered Institute of Public Finance and Accountancy in Scotland ( CIPFA) said in their submission to the Independent Budget Review Panel that currently benchmarking " is not widely used by public bodies in Scotland". 19
Audit Scotland has found it difficult to assess whether reported efficiency savings by public bodies have been achieved and can be replicated across the public sector because there is not a comprehensive approach to benchmarking either between or within different areas of the public sector. It called for further work to develop benchmarking programmes which would provide more consistency in reporting efficiency savings and may allow better sharing of good practice.
Scottish Council for Development and Industry ( SCDI)
7.15 The Commission recommends all public service providers are required to:
- demonstrate clearly how their expenditure is driving the achievement of better outcomes through coordinated, collaborative working; and
- undertake regular benchmarking against comparable services and report publicly and annually on outcomes achieved and financial performance.
7.16 Oversight has a vital role to play in improving the performance of public service organisations. Many of the issues we encountered chime with significant themes in the 2007 report of Professor Lorne Crerar, in particular the recognition that well designed external challenge can be "a catalyst for improvement where it influences behaviour and culture of providers, leading to improvements in the way that services are delivered." 20
7.17 To promote collaborative performance, the Commission believes national and local government need to ensure robust scrutiny of performance, costs and outcomes. The adoption of common powers and duties (proposed in Chapter 5) would also provide a more holistic approach to oversight of the collective efforts of public service organisations.
7.18 We recommend that Audit Scotland should be given a stronger and more proactive role in improving performance and reducing costs across all public service organisations.
7.19 In particular, this should include:
- oversight of the collective performance of public services in achieving outcomes around a common set of powers and duties;
- promoting better, more consistent and transparent use of data, including benchmarking to support continuous improvement by individual organisations and partnerships;
- certifying information on performance, costs, budget assumptions and projections of future demand (based on prevailing delivery models and national entitlements);
- driving the integration and better presentation of financial and performance information within business plans and accountability systems;
- identifying opportunities for improvement through streamlining functions, simplifying governance and accountability arrangements, changes to organisational structures and boundaries, sharing services and other initiatives such as co-location; and
- having the power to initiate reviews in support of its functions and to require joint work between organisations.
7.20 The Commission recommends that the Scottish Government and local government seek to amalgamate the functions of the Auditor General and the Accounts Commission to support an integrated approach to oversight.
PROCUREMENT AND COMMISSIONING
7.21 Several submissions, notably from the third sector, argued for improvements in public sector procurement and commissioning practice. They suggested greater value for money and innovation could be achieved by:
- reorienting commissioning further towards outcomes and away from tight specification of service volumes ( e.g. hours of activity) and costs; and
- improving transparency around comparing competing providers.
7.22 Recent progress on outcome-based commissioning ( e.g. Social Care Procurement Guidance) and assessments of the social return on investment were highlighted by several respondents, though improvements remain patchy.
The language of outcomes, and approaches to measuring and evidencing them, are steadily being adopted and developed in care and support services. However most services are still commissioned and funded on the basis of units of cost and volume (for example, hours of support and rates per hour) with little attention paid to the value of those services in terms of their contribution to the outcomes identified by individual services users and families in support plans, or by community planning partnerships in Single Outcome Agreements.
Coalition of Care and Support Providers in Scotland
We would also draw the Commission's attention to progress made by the Scottish Government to support the development of a qualitative social impact measurement tool with the Social Return on Investment ( SROI) programme. This tool provides a financial value to the social and environmental outcomes delivered by the third sector. The development and mainstreaming of SROI will allow third sector organisations to demonstrate their added value to public sector and identify what projects deliver the greatest social outcomes per pound spent.
7.23 The Commission recommends a rebalancing of procurement and commissioning from cost efficiency towards effectiveness, with contracts focussing on promoting positive outcomes.
7.24 Third sector organisations, private businesses and competition regulators have highlighted competitive commissioning issues, especially transparency around comparisons between competing providers. There is a widespread belief that the Scottish Government and local authorities are less diligent about scrutinising and costing in-house services than those contracted out to external providers.
7.25 We recommend the same standards of scrutiny and transparency must be applied to procurement of goods and services from all providers. Public bodies must ensure that this is provided for in all contracts.
A further factor that has proved to be a stumbling block is creating a level playing field, or ensuring 'competitive neutrality', between different providers. There is still much to be done to ensure that when competition takes place between the public and private sector it is on an equal footing.
Office of Fair Trading ( OFT)
7.26 The Commission recommends there is a requirement of competitive neutrality between all potential suppliers of public services - that is, a consistent and transparent application of commissioning standards to all providers, including in-house bids from public bodies.
7.27 There are examples of public service organisations working together to develop shared services - both for support functions and operational services - as a response to organisational complexity in public services and to achieve economies of scale.
7.28 Much of the recent focus on collaborative working has centred on securing efficiencies from shared 'back office' services, such as record-keeping systems, human resources, finance, procurement and facilities management. For example, health boards are working together to introduce an e-health patient management system, and local authorities have introduced collaborative procurement contracts through Scotland Excel and a recruitment portal 'myjobscotland'.
7.29 We also found examples of integrated approaches, developed locally between operational services such as health and social care, allowing for better joint working and minimising duplication without compromising democratic accountability.
7.30 For example, plans are being developed for NHS Highlands to become the lead agency for delivering services for adults with community care needs while Highlands Council becomes the lead agency for children's services. In West Lothian, the Community Health and Care Partnership ( CHCP) has brought community based health and social care services closer together and is working towards a fully integrated management structure. And, Clackmannanshire and Stirling Councils have announced the appointment of a new Head of Joint Social Services and a Head of Joint Education, with each role spanning the two councils, representing a new way of delivering services in those areas.
This local integration avoids the cost (and customer) shunting between organisations which can result from a narrow focus on sub-sectoral efficiencies.
National Community Planning Group
7.31 Despite these positive examples, evidence from national audit bodies, unions and business groups suggests overall progress on shared services has been slow and success difficult to verify.
Our work suggests that there is limited evidence of significant progress on shared service initiatives. The Accounts Commission recognises that councils are participating in a number of nationally- and locally-led shared service projects but has commented that there is scope for more progress to be made.
CBI Scotland's Public Services Group engaged with the Arbuthnott Review, and were encouraged that eight local authorities in west central Scotland examined the opportunities arising from shared services. However it has yet to prove a tangible catalyst for change across Scotland, with the overall pace of reform on shared services remaining slow.
Sadly shared services are frequently pushed by private consultants as a way to improve services and save money. They are in fact extremely costly and have high upfront costs. The previous Executive's original report into shared services showed an investment ratio of 2:1 - an initial investment of £60m is needed to save £30m. The UK National Audit Office report indicates that so far projects have taken five years to break even.
7.32 Given the current budgetary imperatives, the Commission believes a much sharper focus and stronger incentives need to be applied to developing shared services as many opportunities are not being maximised. The 'myjobscotland' recruitment portal, for example, though used by all 32 Scottish local authorities and fire and rescue services, is not being used to advertise NHS vacancies.
7.33 The Scottish Government has commissioned John McClelland to review ICT infrastructure in the public sector to improve value for money and support multi-agency working and shared services. We have engaged with this review and believe it will provide a sound basis for taking forward shared services based around new technologies.
7.34 And, as recommended above, we propose the Scottish Government and local government seek to amalgamate the functions of the Auditor General and Accounts Commission to support an integrated approach to oversight, identifying and promoting opportunities for collaborative arrangements across public services.
IMPROVING ORGANISATIONAL STRUCTURES
7.35 A consistent theme in the evidence was the view of a fragmented and poorly coordinated system of public services. Scotland's patchwork of bodies delivering public services is a complex product of its political and social history. It includes 73 central government bodies, 23 NHS bodies, 32 councils and 45 joint boards and committees among the 200 organisations covered by Audit Scotland and the Accounts Commission.
7.36 Complexity of organisations and systems was said to undermine their effectiveness, particularly at the local operational level, by:
- complicating the organisation of joint working;
- generating unnecessary cost and delay; and
- causing difficulty in navigating through the system of public services.
7.37 At the same time, we saw evidence which demonstrated that Scotland has the lowest number of local councils among European countries of similar population size, This suggests that it is the joining up of discrete service functions at a local level rather than the number of discrete council areas that is the key issue.
If we look at other European countries with comparable populations (Sweden, Finland, Denmark, Norway, etc.), they have at least 3 times the number of councils we have, and in some cases more than 6 times. As importantly, these small councils are running a complex array of services (community health, social care, schools, local policing) and often raising the bulk of their income through local taxation.
7.38 Attempts have been made to address this fragmentation and complexity by grouping and reducing the number of public bodies 21 and through collective recognition of priorities and joint planning of activities ( e.g. through the Concordat, National Performance Framework and single outcome agreements).
7.39 We are also aware of current work on specific service reform, including the Scottish Government's consultation exercises for police and fire and rescue services - the results of which are not yet available. We also received information on current work to achieve the integration of health and social care services, as highlighted in our remit.
7.40 Also, proposals for a 'single public authority' model are being developed in Orkney, Shetland and the Western Isles. Members of the Commission visited all three areas to discuss these proposals with local partners. Our view is that these are interesting and positive ideas, which provide a valuable opportunity to explore and possibly pilot alternative models for the governance and organisation of public services.
7.41 We call on the Scottish Government to engage positively with local partners in the further development of proposals for a 'single public authority' model, and other options, with a view to putting in place one or more pilots.
Scope for improvement
7.42 Despite ongoing reforms, the public service landscape remains crowded with multiple points of authority and control.
7.43 We encountered contrasting views about how to improve coherence and coordination within public services. Some advocated wholesale structural solutions based on the merger of public bodies while others emphasised the potential benefit of altering the 'internal wiring' of systems ( e.g. funding streams, duties, inspection and accountability regimes) while leaving organisational boundaries largely untouched.
7.44 Proponents of structural reorganisation call on the Scottish Government to reduce the number of local authorities, agencies and NDPBs (Non-Departmental Public Body) - the current number being deemed too many for a population of Scotland's size.
7.45 Given the obvious complexity of our current system of public services we believe that a programme of reform is likely to include some streamlining and simplification of public bodies. However, experience and research provide us with many examples when changing organisational boundaries, seen as an end in itself, has failed to impact on service outcomes and proved costly. 22
7.46 Balancing these twin concerns, we believe that all proposals for redrawing organisational boundaries should emerge from a full, outcomes-based, cost-benefit analysis and should be assessed against the criteria for reform we set out in Chapter 8. We would expect new and adapted organisational forms to emerge from this process.
7.47 In addition, we believe altering organisational boundaries should be seen as just one aspect of any resultant reform. As discussed earlier, the reform of oversight systems alongside the adoption of a common system of duties for public bodies (see Chapter 5), could have the potential to be a major driver of improved outcomes by incentivising collaborative working.
7.48 The Commission recommends the Scottish Government, local government and partners take forward a rolling programme of bottom-up, outcomes-based reviews across service areas to improve performance and reduce costs.
7.49 These should identify opportunities to drive out costs through for example: streamlining functions, exploring organisational mergers, sharing services, co-location and simplifying governance and accountability arrangements. Projected cost savings should be assessed and verified by the Auditor General and the Accounts Commission.
LONG-TERM STRATEGIC PLANNING
7.50 The Independent Budget Review ( IBR) highlighted the immediate pressures on the Scottish budget and identified a range of policy options with the potential to contribute to balancing the Scottish budget over the next three years. 23 Our task in contrast is to consider changes in the delivery of public services that will improve outcomes and ensure financial sustainability over the longer term.
7.51 The IBR Panel themselves remarked that "the developing response to future challenges needs to be set in a more strategic, longer-term framework". Their Report makes the case that without such a framework public services are vulnerable to short-term tactical responses and year-on-year, non-prioritised 'salami slicing'.
7.52 We aim to move the debate on from limited and polarised options focussed on contemporary finances to a much wider agenda with the potential to produce better returns over the longer term.
7.53 However, given the scale of the budget reduction imposed, we believe that our work needs be considered alongside the IBR and the conclusions and recommendations of that Report should remain part of the ongoing debate on public services. For instance, the issue of universality is usually posed as free provision for all versus means testing, whereas there are several other mechanisms - such as varying the age of eligibility - which can also reduce the spend.
7.54 We think it more logical to examine each area and option on its individual merits in terms of the positive effect on society, impacts on the budget and opportunity costs rather than supposing all proposals - on welfare or taxation - must be subjected to an identical approach.
7.55 We call on the Scottish Government to support long-term planning by ensuring all operating plans and budgets for public services:
- are directed towards outcomes and support integrated models of service provision;
- are made on the same multi-year basis; and
- are informed by credible analysis that illustrates the long-term fiscal consequences of current approaches.
7.56 The first of these points is discussed in Chapter 5 where the Commission makes recommendations to increase flexibility, pool budgets and develop integrated models of service provision.
7.57 We heard evidence on the benefits of multi-year contracts for service providers to provide stability, and underpin quality and innovation. The Fairer Funding Statement, signed by the STUC, SCVO, CCPS, UNITE and UNISON, calls for five-year contracts for third sector providers. 24 The Statement notes that many current contracts fall short of the official recommendation of three years. Points were made too about the need for Government to provide greater certainty by setting multi-year national budgets.
"Planning to implement the scale of the reforms necessary requires three-year budgeting, not the one-year budget announced by the Scottish Government."
Scottish Council for Development and Industry ( SCDI)
7.58 The Scottish Government should provide all public services with forward revenue and capital budget projections on the same multi-year planning cycle.
7.59 The Commission believes long-term strategic planning needs to be grounded in projections of future demand patterns. Yet, as we outlined in Chapter 2, there are no authoritative data on the likely growth of total demand for public services over the medium term or the costs involved.
7.60 We believe that the absence of such comprehensive and independent projections, and balance sheet information, based on current models of delivery and entitlements is a serious deficit. This must be addressed to improve resource allocation and transparency, and to inform public debate.
7.61 We note that the independent Office of Budget Responsibility ( OBR), set up by the Coalition Government in the UK to provide independent analysis of UK public finances, is preparing to publish a 'fiscal sustainability report' this July. 25 The OBR's report will illustrate the long-term costs of policy choices ( e.g. changes in pensions and benefits), highlight spending pressures linked to demographic change and look at the sustainability of sources of government revenue. It will also examine the overall shape of the UK public sector's balance sheet - that is, valuations of present and future assets and liabilities.
7.62 The Commission recommends the Scottish Government should replicate the Office of Budget Responsibility's ( OBR) independent fiscal sustainability analysis in Scotland, publishing annual statistics.