This week the 2020 Public Services Hub at the RSA and the Social Market Foundation (SMF) launched a new report on the scale of the challenge for public finances ahead of this year’s Autumn Statement, and what this will mean for public services. The figures, based on Office for Budget Responsibility (OBR) projections and analysis by the SMF, suggest that an additional £48bn of tax rises or spending cuts will need to be made by 2017-18 in order for the Coalition Government to meet its aim of eliminating the structural deficit within five years.
The implications for public services are grim. If health, education and international development continue to be protected, we are looking at cuts of 23 per cent across remaining government departments – on top of the cuts that were already planned by 2014-15. For the Department for Work and Pensions, this would be the equivalent of cutting half of its spending on Job Centre Plus and all employment programmes.
In the report, 2020PSH argues that we need a new approach to public services to meet the challenges ahead. The pressures on public finances will remain even when there is a return to economic growth, as a result of an ageing population and rising demand for services. 2020PSH argues that more strategic spending, rather than unsustainable cuts and short term fixes, can alleviate these. We need real devolution of power from Whitehall to localities, alongside a serious attempt to manage demand for public services and smarter use of public spending and commissioning processes to catalyse social and economic growth. Legitimacy and consent are vital – without effectively engaging with citizens, policy changes on this scale are not possible.
A further three key points emerged from the event’s public launch at the RSA, at which the report authors were joined by public service veteran Lord Michael Bichard:
1. The scale of the challenge ahead has been understated. The dire state of current and medium-term public finances is troubling enough, but the long-term pressures of rising demand are even more serious. Lord Bichard argued that we are not taking this challenge seriously enough and are ignoring the “gaping hole” in the current public service model. There needs to be a far more serious effort at reconfiguring services around early intervention and prevention. We should be managing demand by creating services that strengthen the self-help capacity of citizens: not a smokescreen for cuts, as this has been interpreted, but to enable individuals and communities to take greater control of their lives and meet their personal and collective aspirations. The funding model for services also needs to be transformed, so that social investment and the mobilisation of new forms of social and economic resource are part of a new, more diversified spending model.
2. Localism and social equality can go hand in hand. One question raised in the audience discussion was whether centralism stifles local attempts to address the big issues facing communities. The argument runs that because local councils are assessed based on centrally-set targets, they are less accountable and responsive to local need.
Yet the central-local debate is often focused on the trade-off between localism and equality. There is an explicit or tacit assumption that greater devolution would produce unequal outcomes between different places – the ‘postcode lottery’ effect.
Instead, and as Lord Bichard and Ben Lucas both argued, perhaps the centre should give local government the capability to focus on issues such as inequality and economic stagnation that matter to local people, and which centrally set policies do not effectively address.
3. What type of growth is desirable? What was arguably missing from the discussion was the ecological component of future challenges. Everyone agreed that a return to economic growth was desirable, but there was no discussion of what type of growth this should be. It is clear that traditional consumption-based GDP growth is environmentally and socially unsustainable. To consider the long-term future of public services in the UK, we need to address the viability of the economic model which underlies them.
For this reason, 2020PSH’s argument for an integrated fiscal, economic and public service reform strategy is crucial. It highlights the need to think about growth not for its own sake, but in terms of how it can support and respond to the aspirations of citizens and the needs of society. We make this point in more detail in 2020PSH’s Business, Society and Public Services report on the productive potential of collaboration between businesses, public service providers and civil society.
As the fiscal outlook worsens and our policy options narrow, it is vital that we explore these issues now.
Yesterday saw the launch of our new report on Oldham Council’s co-operative model of local government. What struck us immediately during the roundtable discussions was that despite differences in language and emphasis, people across the political divide share a lot in common. After a month of national party conferences where the central messages were about collective aspiration, social solidarity and the need to become ‘one nation’, it is fitting that those at the frontline of local politics and community action were keen to emphasise a sense of shared direction.
In many ways this is unsurprising. Communities, civil society and local authorities across the UK face many of the same pressures. Rising demand, rapid demographic change, public sector cuts and a sustained period of economic recession have radically changed the context of local government. Councils have had no choice but to try to invent new ways to deliver better outcomes with less money, manage service demand and re-examine the role of public services. Both what we have learned from Oldham and what was discussed at the launch by different stakeholders suggests community leadership should be at the core of a better model of local government that is able to respond to these pressures. Effective community leadership rejects both a centralised, managerial model of executive government and a localism agenda that hands power directly down to communities and liberalises delivery, but bypasses the state and political leaders in the process.
The challenge is to harness the power and influence of the council and councillors in a new way. This is less about council process and performance, and more about mobilising and catalysing communities through a more reciprocal relationship between the state and citizens. Jon Cruddas, who is heading Labour’s Policy Review, argued the report was right in highlighting the need for a new social contract between citizens and the state. This new type of community leadership is a central strand of Oldham Council’s co-operative model. The council is working on instituting a radical shift away from a model of centralised control and managerialism to a greater enabling role that empowers community leaders and citizens to take greater responsibility for their neighbourhoods. This in turn is indivisible from the imperatives of reducing dependency and managing demand, redesigning services and leveraging the assets of a local area to achieve better social and economic outcomes in tough times. Oldham Council Leader Jim McMahon spoke honestly and eloquently about how local politicians, including from his own party, had in the past created a dependency culture. Back then, significant levels of grant masked the entrenched social and economic problems that existed in the borough. But a new approach under his leadership and the reality of austerity has shown only a new form of engaged leadership can really meet the challenges facing many of the UK’s towns and cities.
Councillors are crucial to making this happen. Oldham has recognised this by providing ward councillors with new forms of support and power through devolution, and a mandatory training programme that is helping to ensure that councillors have the right skills to become more effective community leaders. Christina Dykes compared their role to a spider’s – knitting everything together by identifying and leveraging available resources and opportunities to give communities a stronger stake in local politics. In many ways councillors have been the missing ingredient in the current government’s localism agenda. What Oldham’s experience demonstrates and what our conversations suggest is that a ‘Big Society’ without strong local leadership is unlikely to work. How councils leverage community leadership and to what degree they help councillors play a more constructive role in their communities is just as important as – and closely connected to – questions about new delivery models, a renewed focus on productivity and efficiencies, and the need to get ‘more with less’. In short, community leadership should be at the core of a new localism.
Many have spoken of the potential value of social investment, or investments that include both financial and social returns. Building on initiatives from the previous government, the current government has articulated a vision and strategy for growing the social investment market. The Big Society Bank (now renamed Big Society Capital) forms a core part of this, but the underlying aim is to provide the infrastructure and support necessary for the social investment market to overcome various barriers to its growth. While social investment has been growing, there are several problems that limit its potential scale, such as a lack of investment readiness on the part of social ventures, lack of market information, and cultural and behavioural barriers among both those running social ventures and potential investors. This is why much of the debate on the feasibility of social investment has revolved around the importance of ‘social market intermediaries’ that are able to provide the expertise and infrastructure required to connect funds to appropriate social ventures, and to enhance the market readiness of social ventures.
A fundamental shortcoming is the lack of a focus on giving citizens a greater stake in social investment. Social investors are predominantly rich individuals (such as philanthropists) or large organisations, and social investment is typically associated with social enterprises
But it might also be argued that an even more fundamental shortcoming is the lack of a focus on giving citizens a greater stake in social investment. Social investors are predominantly rich individuals (such as philanthropists) or large organisations, and social investment is typically associated with social enterprises. In comparison, citizens have very limited opportunities to become social investors, which isn’t helped by the lack of engagement with social investment by institutional investors such as pension funds.
This absence of a democratic space for citizens to develop a greater stake in social investment has led Bristol City Council to pursue its forward-looking Building a Better Bristol programme (which 2020PSH will be assisting), which is working on developing credible investment products and governance structures to support ‘socialised investment’ – getting the wider public, businesses and institutional investors involved in investing in the social and economic development of the city while ensuring financial feasibility and investor confidence.
Bristol City Council’s Building a Better Bristol programme is working on developing credible investment products and governance structures to support ‘socialised investment’ – getting the wider public, businesses and institutional investors involved in investing in the social and economic development of the city while ensuring financial feasibility and investor confidence
At a time of austerity and debates about how public services and economic and social development can become more sustainable, productive, and locally relevant, ‘socialised investment’ raises some very interesting long-term opportunities for local government, including:
- A new role for local government. As localism becomes more embedded in statutory and policy frameworks, local government can carve up an enabling local leadership role (possibly having a ‘social market intermediary’ role of its own) to catalyse social change and public service reform.
- Public money can be combined innovatively with pooled socialised investment funds and leveraged to collaboratively finance services and developments, which could also help relieve pressure on cash-strapped local authorities.
- The commissioning and delivery of services will theoretically be more intertwined with what citizens want from their services. While tax is a legal obligation, social investors will expect not just a financial but also social return – and this will need to be negotiated with citizens. Expectations of social returns will also have implications for the degree to which commissioning is based on the generation of social value. It will also have the potential to reshape how we should think about productivity in public services – something 2020PSH will be exploring soon.
- Greater local accountability and transparency, and greater local distinctiveness.
2020PSH has long argued for social productivity as an organising principle for public services – that is, public services should be judged according to the degree to which they help citizens, society and local communities achieve the social outcomes they desire. If it works, and if it is able to successfully scale out across the country in the long term, ‘socialised investment’ could be a fundamental part of socially productive public services. While it certainly is at its very infancy, the potential is also great.