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.   

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