Wednesday, 10 September 2014

Camden's cuts challenge - post 7 - outcomes-based budgeting is for bad times and good

Another advantage of moving to outcomes-based budgeting is it's ability to react both to austerity and to more favourable settlements. 

Compared to salami-slicing (cutting a % from each service), an outcomes-based approach to budgeting is evidence-led, and means that resources are allocated in order to achieve agreed priorities.
 
A traditional salami-slicing approach to allocating savings means that all areas receive a similar proportion of cut, regardless of the consequential effect on services or on the contribution of the service to key outcomes. 

It’s a short-term approach that can lead to long-term problems. Services can become unsustainable over time as they respond to repeated ‘one off’ savings requirements rather than undergo strategic reform.  They can also become ‘top heavy’ with too many managers and senior staff, not responding to the revised needs of an organisation that has shrunk significantly over a few years.

Austerity means it’s more important than ever to target resources in the areas they are most effective, not just doing less of everything.

But conversely, an outcomes approach to budgeting links resource allocation directly to strategic objectives based on evidence of what succeeds.  This evidence base means that there is a strong correlation between the resource allocated and the expectation of what outcomes will be achieved.  

Therefore if the funding envelope changes the organisation can respond by varying the scale of investment in order to achieve more of an outcome or to achieve it quicker, or if required to scale back investment in outcomes that are of less high priority, and can do this with an understanding of what the effects will be. 

Camden's cuts challenge - post 6 - how we are talking to local people

No plan to tackle the massive cuts can be put forward without speaking to residents and local organisations.

Here's a short video explaining the challenge and what we will be doing over the next month:

September and October
During this period we will set out the scale of the challenge and start a discussion about how services might have to change, e.g. how we deliver them differently for less money and how we focus resource better.

This will involve a range of initiatives:

Public meetings - including local budget meetings/AAGs and forums for specific groups.

Service user group - we've already set up meetings with various groups to specifically explain the cuts and how they relate to them (e.g. Learning Disabilities Forum, Youth Council, Faith Forum etc).

Roadshows - these have started and will continue through to October in locations ranging from supermarkets to libraries and community centres.   Camden in Focus events run by the housing department have already started in Regents Park, Kings Cross and West End Sidings.

Written submissions - every household the chance to give their initial views and send their thoughts back by a free-post pull out in the Camden Magazine.

Online -  there are a number of ways for residents to give their views online, including an online survey tool created by local tech initiative VoxUp.

Meetings are all being advertised in a range of ways including the Camden Magazine, posters, direct emails and letters to interested groups and residents and tweets.  We'll try and reach as many people as possible but please help to spread the word.

Feedback will inform our proposals to be published in advance of the December Cabinet meetings.

November - December
We will be clearly and transparently communicating to residents what they have been telling us through September and October.  Actual proposals to balance the budget will be published in the normal way before the 17 December Cabinet meeting and public scrutiny from councillors at the Council will happen on 16 December.

January onwards
This will be when we start the process of formal consultations on specific service changes - we can't say exactly what the timetable will be because those decisions haven't yet been made.

February
Camden council will set the first of three annual budgets which will close the £70m gap by 2017.

Tuesday, 26 August 2014

Camden's cuts challenge - post 5 - why set a long-term budget?

To deal with the extremely challenging financial deficit, as in 2010 Camden is proposing a three year financial strategy.

This means that the three annual budgets set by Camden's Full Council will follow a long term plan outlined in December 2014. 

Long-term planning has numerous advantages over the year-on-year approach tradtionally used by some councils.

First, it means that council spend a significant portion of any year scrambling to find and agree the required spending cuts to balance to following year's budget. This is not an effective use of strategic resource and prevents leadership focusing on the things that matter most for residents.

Second, Annual budgeting can also mean that resources reduced in an ad hoc way across the board. Long term budgeting allows the organisation to consider the funding available for a service and make sure that decisions are made in a more informed way.

Third, long term budgeting provides much greater degree of certainty and allows the organisation to plan and implement changes in a logical and planned way. For example, in Camden we have focused 2015/16 savings on efficiencies so that we have more time to plan for the more radical or challenging savings required in the years beyond.

Fourth, it also matters to our public servants.  The level of austerity cuts mean that significant job losses are inevitable.  In the 2010-14 period we lost 970 posts and large numbers beckon again.  Long term budgeting means that most affected staff will only go through one significant change process in the period.  Under an annual approach they may be subject to the uncertainty of service reviews more often, possibly each year.  To maintain the our services with experienced and committed employees our approach will provide a better way of doing things.  

Fifth, It also fits with our new approach to budgeting, described in a previous post.  Our outcomes approach to budgeting links funding directly to evidence of what succeeds. This evidence-base means that there is a strong correlation between the resource allocated and the expectation of what outcomes will be achieved. Therefore if the funding changes the organisation can respond by varying the scale of investment in order to achieve more of an outcome or to achieve it quicker, or if required to scale back investment in outcomes that are of less high priority, and can do this with an understanding of what the effects will be. This just isn’t possible with the repeated use of a one-off approach to delivering savings.

Finally, a long term budget is a response to the length of austerity budget which, by 2017, will be in their 7th year.  Critics of the public sector often make comparisons with the private sector, but tell me how many private firms deal with the same amount of reductions without being taken over, merged or fail?  None of these options are open to councils charged with delivering services, often universally, often by law. 

Of course, the political pressure on Labour councils from the left will be to avoid setting long term budgets (a.k.a. implementing cuts) in the expectation that an incoming Labour government will 'turn the taps back on.' 

I've argued elsewhere that this is unlikely.  The Labour frontbench is looking at how we can spend money better - looking at all of the money available locally, rather than just by local government grant and how it can be better planned. 

This doesn't mean we can't make a strong case and protest about the cuts and their impact. Certainly a Labour government should reverse the unfair redistribution of funding away from poorer areas to richer ones, as highlighted by the Guardian yesterday.  

Fundamentally local council services compete with hospitals and schools for resource.  Sadly, it is likely that both Conservatives and Labour will maintain some sort of ring-fence protecting health and education funding within their deficit reduction strategies in the next few years.  

So if non-protected areas such as local government are likely to continue to bear the brunt of deficit reduction plans - then we need better long-term plans in place to spend the money we have and control other local funding as well. 

Thursday, 21 August 2014

Camden's cuts challenge - post 4 - poll discussion: who is to blame for the cuts?

Yesterday I wrote for Progress on cuts and the need for more decentralisation of powers from Whitehall.  Those in Labour local government who have been working hard throughout the summer on next year's budgets know that this round of cuts promises to be more punishing than the last - because most of the early efficiencies have already been taken and there is much more pressure on services.

Urban and deprived areas have been hit the hardest, due to changes in government funding formula, meaning that these areas will see more reductions or substantial changes in services like local libraries, street cleaning, homelessness, apprenticeship schemes and youth work. 
There will also be significant job losses.  
‘Salami-slicing’ funding from services hoping they will survive won’t work - it’s more likely that where services don’t change, they could close.
What do the public think? A YouGov poll released today asked people about who they thought responsible for the continuing cuts.  The results are not as clear cut as you might think - 
  • 40% think "Central government is mainly responsible, because it is cutting sharply the money it gives to the council where I live
  • 26% think "My local council is mainly responsible, because it could achieve most of the savings it needs by cutting costs, without cutting services"
  • The remainder are not aware of cuts/don't know.
Labour and Lib Dem voters in 2010 are more likely to blame central government, much Tories less so.  There's also a gender gap and a slight difference in awareness between London and other regions.

Locally here in Camden this poses an interesting dilemma for the retreating Lib Dems - their attack on council cuts, evident in the run-up to the election is out-of-step with people who vote for them.  For the Camden Conservatives, it's more straightforward - the people who vote for them are more likely to think that it's all the fault of the Town Hall (interestingly more Tory voters also feel that they haven't experienced any cuts).    
 
The poll underlines what some have suspected: outside of the SW1 bubble, in a different economic context and with 'round one' of the cuts over, don't assume people will see responsibility for austerity as intensely as they did in 2010 - or even that awareness is that high.
 
Next to the economy and the NHS, funding for local public services threatens to become part of the dominant narrative of the 2015 election for Labour.  There is, of course, an inter-play between all three: simply put, extra money for the NHS means less money for other areas of spending, like local government.   ‘Turning the taps back on’, as some argue on the left, raises a question about management of public finances which is central to that of economy competence.  (Note that the high point of spending for local services was in 2008, seven years from the 2015 ballot).
 
With over 70% of funding for local services reliant on central government, and that funding being cut dramatically - it's not just Town Halls who have a job to explaining how local public services are funded, Westminster politicians will.

Tuesday, 12 August 2014

Camden's cuts challenge - post 3 - Camden's 4 spending tests for Budget 2015

Alongside the Outcomes-Based Budgeting approach set out in the last post, we wanted to create a framework for spending decisions which could be more easily understood by the public than last time.  

In the 2011 Budget, like others, we adopted a general test to 'protect the most vulnerable' and, generally speaking, then proceeded to cut all service budgets by approximately 20% (except for early years, which we cut by only 10%).

Through the next round of budget cuts we wanted  to take a less hurried approach, setting out how decisions would to a greater or lesser extent meet the tests below.  So in order to provide clear principles against which options, recommendations, and choices regarding investment decisions can be measured, in July the Council proposed a number of Investment Tests. These Tests are consistent with the aims of the Camden Plan and Finance Strategy and will act as reference point for  residents through the autumn that will inform many of the difficult decisions  as our funding continues to decrease.      

The idea was developed as a response to the tests set out in Fabian Society Commission on Future Spending Choices last year.   

The four Investment Tests are as follows:

Test 1: Tackle Inequality 
Inequality blights lives and creates a financial burden for taxpayers in future years. Camden's Equality Taskforce sets outs how growing inequality has social costs and is unfair. Tackling inequality and ensuring Camden is a place for everyone is at the heart of the Camden Plan. A key test for spending decisions will be 'how does investment reduce inequality among our residents'?

Test 2: Focus On Outcomes 
The financial strategy will implement a new way to budget resources based on aligning our spending choices to the outcomes we want to achieve. Services will work backwards from the outcomes set out in the Camden Plan, and then ask how these can be realised by working together across the council, and with other partners and residents. The Council will work more creatively with local people to achieve our goals, make greater use of technology, and be better at sharing assets with other partners to make them go further. Investment decisions will be made that will have the greatest impact on improving the lives of Camden's people. The key test will be ‘How does investment meet these outcomes?’

Test 3: Invest in Early Intervention Where Possible and In The Capacity to Act Decisively Where Necessary 
The Council will save money in the long-term by focusing on prevention and the cause of problems wherever possible, rather than just managing acute demand when it arises. This is cheaper, more sustainable, and leads to better results for everyone. However, we recognise that we will need to maintain some acute services to help resolve serious problems, even when the focus on early intervention reduces demand. We will make better use of the council's data and work to ensure early intervention is targeted where it has the biggest impact. We will reach beyond the end of the Camden Plan taking on board climate change, our demographic changes and the impact of the Digital Revolution. The key test will be ‘How does investment focus on prevention’?

Test 4: Make Every Pound Count
Left unchecked, organisations can become risk-averse or make perverse decisions. Making every pound count means improving productivity by providing effective solutions to residents’ issues. Problem-solving for the benefit of local people and getting it right first time will be hard-wired into everything the Council does. The Council will continue to make the best use of its assets, protect the public's money at all times and seek out opportunities to generate income to support public services. The key test will be ‘How effective is the investment?’

Camden's cuts challenge - post 2 - Outcomes-Based Budgeting

My first post on Camden's new strategy to meet another round of austerity budgets was set out here.  This set out the scale of the challenges and new measures we have undertaken to meet them.

Camden's new Outcomes-Based Budgeting (OBB) approach ensures that not only does the Council meet its financial challenges but that it still delivers the core objectives set out in the Camden Plan.  As the chart below illustrates, it marks a departure from traditional 'incremental' budgeting, especially when combined with a new approach to 'systems thinking.' 

Whilst the traditional approach to budgeting focus on incremental changes in detailed departmental categories of expenditure, the OBB process creates the potential for more innovative solutions just when we need them. 

So for example when we consider how we support communities, one option is that rather than simply investing in services run from many public buildings in one area, we'll look at how we can work with partners and other agencies, social enterprises and community organisations.  

While reducing investment is undoubtedly a difficult decision, it is preferable to closure and enables the council to save money while maximising the impact of the reduced investments that we make.


The Council has undertaken an evidence based analysis to collate the activities performed by each team across the Council, and to map how these activities contribute to the delivery of key strategic outcomes.  As well as the outcomes listed explicitly in the Camden Plan officers have used the data analysis to add outcomes that fully capture the work of the organisation, e.g. the core requirements to fulfil statutory obligations and provide good governance.

Each outcome was allocated a specific Delivery Lead in the council, who has worked in conjunction with a support team consisting of officers from operational services, Finance, Strategy, and Performance to develop alternative medium-term investment choices through which the Council could seek to achieve our strategic outcomes under a range of funding reductions - 'low', 'moderate' and 'substantial.' 

Over the summer preliminary meetings have been held with Cabinet members and officers to develop proposals to meet the £70m deficit based on this new model.  

Such is the challenge that all discussions we have had contain proposals for reducing, changing or stopping services.

Monday, 4 August 2014

Camden's cuts challenge - post 1 - the background to our next Budget

This will be the first in series of posts over the next few months where I will give some observations on the very difficult process Camden councillors and others are going through when setting the budget for local public services over the next 3 years.

First of all, a recap and some background.

In 2014/15 the Council will spend around £858m. This is bigger than lots of corporate businesses and we provide hundreds of important services.   The majority of council funding (72%) has historically come from central government. In recent years there has been significant change to the services Councils provide, for example, with the transfer of Public Health from the NHS in 2013/14, and to the way we get our funding.  

The Council has limited or in some cases practically no control over much of the money it spends. Of the £858m total spend, for example, £195m is spent on Housing Benefit payments according to government eligibility criteria, and £185m is ring-fenced for Schools spend.  Council Tax makes up only a small portion (10%) of the overall money we receive to provide services.

Over the last four years, austerity measures have changed the shape and size of Britain’s public services. 

The Government’s Comprehensive Spending Review 2010 was the beginning of the largest cut in government spending for local authorities since the Second World War.  

Despite an improving economic picture nationally, local government has never faced a tougher financial climate with all local authorities forced to make difficult decisions about how to continue to deliver for local residents. 

The scale of public spending retrenchment the country faces means that local authorities across the UK have to make exceptionally tough choices; removing or reshaping some services in order to protect others.

I strongly suspect the government has not fully understood the impact of another 3 years of full austerity to local public services - will cuts announced from 1 April 2015, weeks before a General Election.

Here's how it plays out in Camden.  

In 'phase one' (up to 2014/15) like-for-like external funding from Whitehall reduced by 28% from 2010/11 levels. 

By 2017/18 the cumulative like-for-like reduction with 2010/11 funding is expected to be around 48%. The stark reality of our financial settlement means we will need to save an extra £70m a year by 2018: a total of £163m off our budgets - the 8th worst impacted in England.

In the first phase of these cuts, most local authorities focused on traditional cost reduction approaches and the delivery of operating efficiency gains. Camden opted for a different approach making large reductions in some areas (including some support services) in order to protect others.  

To a large extent Camden’s approach was resiliently delivered and the aim to protect the most vulnerable largely achieved, see for example research undertaken by the LSE (but also see Young Foundation for a different perspective).  

While these cuts were made using long-term (rather than just annual) budgeting - and a focus on protecting the most vulnerable - they were in a recognisably traditional form - 20% of all service budgets.  However, during this process we became concerned that traditional savings reviews lacked the sophistication to look beyond predicted budgets and explore all activity that contributes towards an outcome. 

Note that our situation is worsened by the increased pressure of an ageing population and rising demand for key services (more on this in later posts).    

Anticipating that further austerity budgets would challenge this approach - could we carry on 'salami-slicing?' - we started to develop a different approach which would allow us to target money on where its impact mattered most.    

So in 2012 Camden's approach to austerity became more focused on core values and objectives, as a result of the development of the Camden Plan.  This laid out our ambition to address some of the most challenging social issues that we have struggled with for decades, while continuing to deliver high quality services for local people.  From 2012 our future spending decisions were therefore informed both by the need to balance our budget and by the wider aims and aspirations presented in the Plan, namely:
  • developing new solutions with partners to reduce inequality, 
  • creating and harnessing the benefits of economic growth,  
  • ensuring sustainable neighbourhoods, 
  • providing democratic and strategic leadership and 
  • delivering value for money services by getting it ‘Right First Time’. 
In 2013 we launched the Equality Taskforce - a version of the 'Fairness Commissions' undertaken elsewhere - which went further than the Camden Plan in examining how, with limited funding, public services could best impact on inequality.  

The Taskforce identified that preventative services with a specific focus on attainment, housing, employment, and community resilience were key levers by which inequality could be reduced. Through intervention in these areas it was proposed that the Council and its partners could have a real impact, securing improvements including increased availability of quality affordable housing, improved achievement at school and increased local employment prospects.

Developing a sense of 'real impact' of spending triggered a move away from traditional departmental budgeting and towards Outcomes Based Budgeting - where all funding is treated as 'investment' towards delivering the outcomes agreed in the Camden Plan.

This methodology therefore led to proposals which we think will facilitate a better use of Council 'levers' such as housing, procurement, technology and governance arrangements with other local public services. 

This process has culminated in a basket of proposals for Camden's elected representatives to consider which would simultaneously address our need to reduce expenditure and continually improve the services we provide for residents.  Proposals are currently being reviewed by Cabinet members in 'clusters' of outcomes, for detail to be surfaced with the public before our Cabinet and Scrutiny meetings in December this year.  Our general approach is set out here, highlighting future decisions and when we will be discussing principles and proposals with the public. 


The above is set out in the July Medium Term Financial Strategy.  The next set of decisions outlining preliminary efficiency savings will be in early September.

My next posts will look at Outcomes-Based Budgeting in more detail, Camden's new 'investment tests' for spending, demographic pressure and make some early observations about the depth of the cuts to front line services.