Reformers and wreckers

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This report presents evidence from eight case studies of successful public service reform in the UK and overseas. They show that reform of the workforce is an essential means of improving public services as well as reducing their costs.   The case studies suggest that the key outcomes of successful workforce reform are:

Reduced headcount

Successful reform achieves more productive public services.  When budgets are constrained, higher productivity delivers a higher quality, better developed and smaller workforce. For example, between 1997 and 2007, Merseyside Fire and Rescue Service reduced the number of full time firefighters by nearly 40 per cent while reducing the number of fires and fire deaths.  Between April 2010 and March 2011, Birmingham City Council reduced the size of its workforce by nearly 10 per cent, reduced contract agency use by 32 per cent and overtime by 37 per cent.

> New types of role beyond the traditional definitions of “front line” workers.  The examples of excellent healthcare in the Indian healthcare system set out in this report are based on specialisation in cardiac care and optical care.  Doctors carry out high numbers of operations, supported by skilled teams,  and so achieve higher rates of quality.  In the cardiac Narayana Hrudayalaya hospital in Bangalore, the complication rate is typically 1.7 per cent.  By comparison, in the UK, the re-operation rate for bleeding or other problems was 4.9 per cent for 2004-08.

> Continuous professional development (CPD).  Effective CPD is less common in the public sector but is a much faster way to improve the quality of staff than improved recruitment alone.  For example, following the introduction of a comprehensive CPD programme at Denbigh High School in Luton in the 1990s, the proportion of children achieving the standard benchmark at age 16 has risen from 27 per cent of pupils in 1998 to 100 per cent in 2010 (achievement of five GCSEs at grades A*-C).  The school also outperforms the average on the new English Baccalaureate measure.

> Reduction in sickness absence.  Sickness absence is not inevitable.  It can be reduced by effective management.  Between 1995 and 2008, Merseyside Fire and Rescue Service reduced the average sickness absence from 19 shifts per firefighter to just under five, saving £2 million per year.

> Reduced costs.  As well as reduced headcount, successful reform reduces costs associated with wasted effort and poor performance.  Greater Manchester Police’s reforms have saved £20 million while reducing the time taken to investigate a crime from 50 days to 15 days.  Birmingham City Council’s reduction in headcount saved £56 million in 2010-11.

The exception rather than the rule

Unfortunately the efforts of these excellent public sector managers remain the exception rather than the rule.  Commonly, public sector managers oversee a corrosive employment culture where poor performance is tolerated and good performance is unrewarded. Employers are much more likely to resist external appointment and to pay by length of service rather than performance.  Evidence shows:

> Only 8 per cent of private sector organisations pay by length of service, compared to 57 per cent of public sector organisations.

> Only 7 per cent of private sector service organisations operate a pay spine, compared to 64 per cent of public service organisations

> 38 per cent of public sector organisations offer bonus and incentive schemes, compared to 81 per cent of private sector service organisations.

> On most recent figures, the average job tenure in the public sector is 10.1 years compared to 7.7 years in the private sector.  On average, teachers have worked for 23 years when they retire and police officers nearly 25 years.

> Only 25 per cent of job vacancies in the private sector are filled internally, compared to 45 per cent of public sector organisations.

> 9.6 working days are lost in absence in the public sector per year, compared to 6.6 in the private sector.  Public sector workers are much less satisfied with their employment than private sector workers. The public sector workforce is by far the greatest cost of UK public services.   In 2010-11, the cost of the public service workforce accounted for £200 billion of the near £700 billion of public spending.  Any genuine reform programme for public services must mean a new settlement for the public sector workforce.

Policy debate

The strikes of June 2011 have brought the reform of the public service workforce to the top of the political agenda.  The goal of policy should be a high productivity public sector.  A high productivity public sector would deliver greater value to taxpayers and would justify higher wages for public sector workers.

The agenda for the 2011 TUC conference shows that the leaders of the trade union movement actually favour a low productivity public sector.  Its recommendation of wider national bargaining would reduce the ability of managers to link pay and performance.  Its recommendation of a toleration of sickness absence would reduce the output of the public sector and increase management costs.  In the former Prime Minister Tony Blair’s contrast between “reformers and wreckers”, it amounts to a wreckers’ charter.  The Government  should reject these recommendations.

The TUC should accept reductions in public sector employment because they are manageable.  The Office for Budget Responsibility has forecast public sector job losses of 400,000 by 2016.  Research shows:

> Because of high levels of turnover in the public sector, reducing headcount by 400,000 can be achieved in five years by not replacing just 11 per cent of workers who leave.

> 400,000 job losses represents just eight weeks of job losses in the private sector.

Recommendations

This report makes several recommendations to Government and also acts as a submission to the second stage of the Winsor Review. Its recommendations are:

Headcount and pay

> All of Government needs to adopt the Home Office’s argument that the quality of service is not determined by the number of public servants employed. Ministers should support public service managers who reduce front line headcount and pay for the right reasons.

> The Government should abandon the ban on salaries above the level of the Prime Ministers’ salary. It is an own goal which is entirely contradictory to the goal of a high productivity public sector. The transformation of public services will need committed leaders with reasonable salaries.

Whitehall

> The Government should reverse its decision to ban government departments from taking consultancy advice. It is another own goal to restrict the pool of skills available to Ministers as they face the considerable challenge of reforming public services.

NHS

> Negotiate pay locally. NHS consultants and GPs are among the best paid in the world, yet productivity, quality and responsiveness vary significantly. National contracts make it impossible to innovate with performance related pay, while merit awards and incentives in the Quality and Outcomes Framework have demonstrated very poor value for money.

> Make clinicians financially accountable. Clinicians are responsible for using medical resources, but rarely accountable for the costs of delivery. Some Foundation Trusts have identified the costs of individual procedures and units (“service line management”, “patient level costing”) but there is still significant variation in health spending on similar procedures.

> Use existing flexibilities. NHS Trusts, PCTs and Foundation Trusts are free to depart from Agenda for Change. However so far only Southend Foundation Trust has developed alternative terms and conditions.

Schools

> Abolish the School Teachers’ Review Body and give all schools autonomy to set pay and conditions for all staff. The Government has already rightly abolished the School Support Staff Negotiating Body.

> End the remaining regulations into the size and quality of the teaching workforce, for example those to be overseen by the new Teaching Agency. The Government’s reforms to performance management are a step forward but do not represent the fundamental shift in the responsibility for teaching performance from government to schools.

Police

> Give senior police officers flexibility over pay, to reflect the role staff are performing, their value (determined by a range of factors including experience, skills and commitment) and how well they perform.

> Support senior officers who impose more rigorous and quantifiable performance measurement than currently. For example, it makes little sense for police officers to undergo a fitness test on recruitment but not again during their employment.

> Make much greater use of shorter commissions. The police service is jeopardising its own quality by making it difficult for excellent people to enter and leave policing more flexibly.

> Allow compulsory redundancy for officers as well as staff. Because of reductions in police staff, forces are likely to be more dominated by police officers by the end of this Parliament, reversing the recent improvements in workforce mix.

> Reform officers’ pensions to remove the financial penalty for early retirement.

> Make the national apparatus of pay negotiation redundant given the changes above.