Service transformation and the deficit
Following the Chancellor’s emergency Budget delivered on 22 June 2010, the scale of the cuts facing local government has emerged. It is clear that significant staffing issues will be faced by local authorities over the coming months and years, write Huw Jones, Judith Barnes, and Mark Hammerton.
The Budget in June revealed that public sector net borrowing will be reduced from £149bn this year to £20bn in 2015-16. However the pain does not look like being shared equally amongst all areas of the public sector. The NHS will see continuing real increases in resources throughout the parliament. Other departments will face an average real cut of around 25% over four years. But since certain departments (eg education and defence) have particular pressures which will be recognised, some departments will inevitably face cuts in excess of 25% over four years.
The split will be announced on Wednesday 20 October 2010 in the Comprehensive Spending Review (CSR). Local government is likely to have to make savings in excess of 25% (ie in four years’ time, the budget for local government will be more than 25% less in real terms than it is now).
Although formal clarification is expected, the two-year public sector pay freeze only looks to be applicable to pay deals which ministers agree directly, and therefore is not applicable to local government. That said, the sector will no doubt be under pressure to exercise similar pay restraint. It is not therefore clear whether the flat £250 pay rise for lower paid workers will be agreed for local government.
Commensurate with the pressure on local authorities to make substantial cost savings, there will be pressure not to diminish the quality and availability of front line services. Local authorities will therefore need to make tremendous efficiency savings as a result of which the same, if not more, is delivered for less. Staff and staffing issues will have to be integral to this.
Local authority legal and HR departments will face pressures on their resources to deal with the change which inevitably needs to take place in a relatively short timescale. We recognise that there is no common set of problems for each authority, still less a common solution.
Likely issues for local authorities to be considering in the HR context are:
Redundancies
Are redundancy policies up to date? In particular, what selection criteria would be used in any redundancy situation, and does objective evidence (eg in relation to performance) exist which will allow selection decisions to be taken properly and fairly? Is any redeployment/displacement policy fit for purpose in light of what may be required? Will authorities offer voluntary severance packages, and if so, on what terms bearing in mind the statutory discretion available? What is the authority’s policy on compulsory redundancy of those over 55, who will be likely more expensive to make redundant? Cost alone is unlikely to be a sufficient objective justification to prevent successful claims for age discrimination. Are reorganisation and assimilation procedures up to date and do compatibility percentages of old and new jobs need to be revisited? Finally, does a redundant member of staff have the constitutional right to make representations before the post is abolished or to appeal to the members? If so, would this be workable in times of large scale redundancy?
Changing terms and conditions
The authority may have to consider possible reduction in some remuneration packages and an overall reduction in certain contractual benefits, such as sick pay and automatic incremental salary increases. It may be that increased hours of work may be required for the same pay, or that out of hours work is required, with or without the benefit of additional overtime payments. Do existing contracts retain sufficient flexibility to allow the authority to make necessary change, or will 90-day consultation with unions be necessary? Diminishing the value of the contract could risk a loss of talent to private sector, and this risk will be heightened if changes are made to pension benefits: the goodwill of local authority employees will only stretch so far. If terms and conditions are changed, authorities should undertake audits to ensure that additional equal pay risks are not created (and if they are, to ensure that Genuine Material Factor defences are established).
Increasing use of shared service and shared management arrangements and greater use of private sector outsourcing
There are many forms of joint/collaborative working that differ according to their formality, legal underpinning and permanence. Each of these will have its own advantages and disadvantages. Careful consideration from both strategic and operational perspectives should be given to the selection of the type of joint working arrangement that is appropriate. There are tricky issues to consider in terms of existing secondment and transfer of staff as well as proposed arrangements. Unless partners identify what the common objectives are, they are unlikely to succeed in delivering any real benefits.
Our experience shows that there is no common solution for each authority. Each authority must therefore develop, in conjunction with its partners (whether private or public sector), a model which achieves the desired outcomes locally. It is also recognised that delivery of the agenda requires high level commitment in each organisation from senior managers and other stakeholders such as elected members.
The success of any innovative arrangements will depend to a great extent on effective working by all employees, especially those directly involved in the arrangements. It is of the utmost importance, therefore, that account is taken of the impact on employees in any arrangements and that the parties are clear about the way in which employee issues are handled before, during and after the life of the arrangement. Arrangements with the private sector may become attractive because the private sector may be better placed to make tough staffing decisions (eg in relation to changing uneconomic terms of employment) without concern for political criticism.
More aggressive performance management
Dealing with poor performers – in terms of those not good at the job and those with poor sickness records – might be considered to be an essential part of making efficiency savings. It may be that HR policies and procedures need reviewing to assist with this. This may necessitate a change of culture in the authority.
Strikes and industrial action
The traditional strength of public sector unions will likely be of great concern where unparalleled change becomes necessary. Will national rhetoric be matched on the ground or will local union representatives be more understanding and realistic? Will senior managers remember the winter of discontent in 1978/9?
Potential impact on the equal pay agenda
Notwithstanding that implementation of single status is often a cost for local authorities, failure to implement single status will lead to continuing equal pay claim liability. Ironically, increased financial pressures may actually assist negotiated settlements with the trade unions, since the risk of further redundancies increases if full awards are made by a Tribunal (as a result of the additional financial pressures on authorities).
Pensions issues
Many of the issues referred to above also have pension implications such as the triggering of expensive redundancy related benefits, the exercise of discretions and the protection of pension rights when staff are transferred as part of a shared services or outsourcing project. If you have not already done so, then you may wish to review your policies on voluntary severance and pension entitlements.
In a wider context the future of the Local Government Pension Scheme (as well as other public service pension schemes including the Teachers, Police and Fire-fighters schemes) is under review by the Independent Public Service Pensions Commission headed by Lord Hutton. The Commission has been tasked by the coalition government to conduct a fundamental structural review of public service pension provision. The Commission will produce an interim report by the end of September 2010 and a final report in time for the 2011 Budget. It goes without saying that any resulting changes to LGPS benefits or contributions will be controversial.
Threats to national pay bargaining
Some authorities (eg Surrey County Council, Kent County Council, Canterbury City Council) have opted out of the National Agreement on Pay and Conditions of Service. The announcement of regional pay deals in the Civil Service (5/6 July 2010) are a further development in this area. Authorities will need to consider whether the perceived necessity to be responsive to local market conditions will deliver savings overall. But local collective bargaining processes will need significant and experienced local resource, and many authorities do not have this at their disposal.
In some authorities voluntary reductions in pay have been agreed with staff to avoid job losses. Flexible working is also key and may help to rationalise accommodation costs.
Huw Jones, Judith Barnes and Mark Hammerton are partners at Eversheds (www.eversheds.com).
