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As documents accompanying the Budget claim efficiency savings targets for the public sector set by Sir Peter Gershon in 2004 will be not only met, but exceeded, next month, and with new stricter targets set to kick in, nef analysis shows how the unintended consequence of the government's efficiency drive is the erosion of local public services.
nef's briefing paper, Unintended consequences, released in October 2007, sets out how the efficiency agenda far from delivering 'public value' actually erodes public services, and sets out a public benefit model to restore them.
Unintended consequences, shows how the imposition of centrally driven financial efficiency savings targets, combined with the drive towards greater competition and contestability, is eroding the effectiveness of local public services as commissioners of public services focus on short term costs rather than longer term outcomes for service users.
This undermines the government's stated policy of building strong local communities and economies, and impacts particularly severely on smaller and medium sized providers whose work supports some of the most vulnerable people in our society. For example, a recent survey of providers of children's services revealed that 68 per cent had made cuts in the last 12 months. 40 per cent cited efficiency savings as the single greatest cause of those cuts.
Unintended consequences makes the case that the theory that underpins the drive for ever-greater efficiency is based on four assumptions or myths; about how to create efficient public services.
- Government intervention is justified only where there is market failure. This fails to take account of what most people value in the public sphere and sets up a market model rather than one that, like all government activities, is affected by concerns of equity and social good.
- Public services are best delivered through market style competition and mimicking private sector incentives. This denies and undermines the public sector ethos, and encourages a focus on reducing short-term costs.
- Efficiency gains should be identified and imposed from the centre. When added to the market model, this greatly increases the focus on reducing short-term costs at the expense of the wider public benefit.
- The ‘value for money’ model ensures that efficiency and effectiveness are both pursued.
The easily measured financial indicators of efficiency are dominating the harder-to-measure indicators of effectiveness – particularly those of wider social and environmental benefits that are essential to good local services.
The result is a model which:
- Squeezes services to the most vulnerable and systematically neglects social and environmental impacts.
- Contradicts the Government's own policy to support and build strong local communities and economies, as community benefits are expressly ruled out from being included as Gershon efficiency gains.
- Contributes to a polarisation of the third sector, with the emergence of more, larger players at the expense of smaller organisations (which are often community based and serve the most marginalised groups).
- Undermines trust between commissioners and providers of services and between providers through the competition and contestability model, and potentially destabilises longer-term care for the most vulnerable people.
- Actually raises transaction costs and increases the bureaucratic burden on both commissioners and providers of services.
Instead, nef proposes a new 'Public Benefit' model of efficiency. This would rebalance the role of efficiency in public service provision, moving to measure success in terms of outcomes for people rather than the 'false economy' of short-term cost savings to the Exchequer.
The 'Public Benefit' model assesses effectiveness of outcomes in terms of their benefit to users and the wider community; and service providers are encouraged to cooperate and innovate to maximise these benefits, rather than simply minimise costs. nef's work with local areas across the UK has shown that procurement can deliver additional value and public benefit when a longer view of efficiency and effectiveness is taken.
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