THE LAST WORD


How the new government should tackle public sector borrowing


The government needs to take urgent action in three key areas to reduce public sector borrowing, and avoid long- term damage and a loss of confidence from the international community, says Clive Sparrow


to them, there is evidence that reorganisations often result in failure.


Clive Sparrow is director, government and infrastructure advisory, Grant Thornton UK LLP


T


he three areas are: implementing deep cuts in government spending; delivering


a step change in the productivity of public services; strengthening the incentives and removing the obstacles currently in place to encourage the private sector to drive economic growth and recovery.


Deep cuts in spending


The pace and focus of rationalisation across


government needs to accelerate sharply in order to maximise the public money that goes to frontline services. Smaller government is the prerequisite here, with significant reductions in the number, size, and remits of central government departments and agencies, local authorities and NHS bodies.


Boards and chief executives need to be ready to respond to an unprecedented scale of challenge. Whilst little practical guidance on successful implementation is available


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The National Audit Office reported recently that central government departments and agencies are weak at identifying and systematically securing the benefits they hope to gain from such reorganisations. Their track record of quantifying implementation costs is quite poor, they consider alternative options only rarely and frequently do not plan implementation or share learning.


The rationalisation agenda is therefore a minefield with the potential to deliver huge benefits but with significant risks of failure. A critical success factor for prospective mergers is to apply more rigour, attention and radical thinking to other options before ‘rushing’ to the politically expedient solution.


These options include: stop doing certain activities altogether or, at least, time- limit and review remits; keep organisations separate but strengthen their governance; and outsource more services and share back-office services. There is a real opportunity to grasp here, which the new government cannot afford to let go.


Step change in the productivity of public services


Greater innovation across the public sector is essential. If the public sector had matched the private sector’s productivity performance over the last ten


years, then we could now have significantly more public services for the same money.


The new government should consider a package of measures for stimulating innovation and raising productivity, including:


· Finance directors of Whitehall departments having clear accountability for delivering productivity improvements in the way that they are held to account by the City in the private sector


· More market testing, and much more engagement with the private and third sectors in the delivery of public services


· Managers at all levels being empowered and incentivised to change their ways of working in order to deliver more with less


Managers across the public sector need stronger incentives to be innovative and take risks; if they did so, then cuts in spending would not have to mean cuts in services.


The current fear of humiliation and potential damage to their careers explain why managers might prefer to maintain an inefficient status quo than appear before the PAC having tried something different.


Departments should publish scorecards every six months which benchmark productivity and track how well they are progressing against others and their own business plans.


The scorecards should include department-specific measures which can be compared internationally, so we can see how the UK is performing against the rest of the world, and see where we can learn lessons.


Incentives and obstacles in the private sector


The growth of the economy will almost exclusively depend on the performance of the private sector.


The economy needs rebalancing. As the public sector retrenches, it will have to be the private sector that pulls the country out of the doldrums.


Financial services have taken a heavy hit, so high-end manufacturing looks ever more an appealing prospect, having shrunk from a 24% share of GDP in the mid 1980s to just over 12% now.


There are four levers for the new government to apply: (i) incentives in the form of grants, co-investment, or subsidies; (ii) taxation, which can be made to favour investment, research and development, or certain industries; (iii) education tipped again in favour of science and technology, and of manufacturing skills in general; and (iv) improving regulation.


A top priority for the new government is to come up with a credible action plan for each of these three areas and to make a start on implementation without delay.


Jul/Aug 10


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