It is light on detail and firm policy positions. More disappointingly, the relationship between the Government’s public sector reform agenda and local economic growth is not explored at all. As the White Paper says, £42 billion was spent by local government on external contracts. Rather than thinking in terms of spending billions on the supplier base, Government should be shifting mindsets towards thinking about how these billions can be invested in local businesses, local neighbourhoods, local assets and local networks.

Managing for local outcomes is the key to establishing and maximising this relationship between public sector reform and local economic growth yet, as with the other good ideas in this White Paper, there is no real insight into the challenges and opportunities this new approach to managing contracts presents. There is frequent reference to the Localism Bill – why did this legislation not make it a duty, rather than a power, to include social and environmental criteria in public service contracts, thus making it a legal requirement to commission beyond cost?

My fear is the lack of detail at the policy level suggests, at best, a lack of coherence at the strategic level. Despite the many years of contestability in public services, the market remains immature. The White Paper itself suggests this: it both implicitly endorses the increased contestability over the past twenty years and highlights the drop in productivity in public sector performance since 1997. Reading this, why would anyone expect an extension of the ‘modernisation agenda’ to result in increased productivity?

An immature market will, by its own volition, bring neither innovative, high quality public service models to market, nor those that lead to investment in local organisations and neighbourhoods. Whether it is managing the supply chain, or commissioning beyond price for social and environmental value, current market structures and the wider macro-economic climate reinforce the commissioning bias towards large providers who can win contracts on price.

The Government’s intention to remove barriers to entry and exit represents the classic British liberalising approach to creating and managing markets – open them up and then disengage. Other countries, such as Germany and Japan, opt for a more strategic approach. Generally, they assess the number of organisations the market can bear and manage entry and exit accordingly. Once stable market share is achieved, strategic intervention by the government is withdrawn.

Diversity, innovation and recognition of the role for local government are all vital for the delivery of quality, responsive local services. However, without both the policy detail on how to manage markets for local public services, and the strategic awareness of why we must do so, this once in a generation opportunity to crack public sector reform will pass us by.

‘Over the past decade, local government has become ever more efficient at managing its financial and physical assets. Now it must become just as good at managing its social capital and civic assets – the under-utilised wealth that is hidden in English communities.’

The report looks at the role for local government in building stronger communities, focusing on the development of social capital in local communities, the transfer of small-scale initiatives into mainstream services, and the management of risk in new service commissioning and delivery models.

You can purchase the report here.

David Cameron has heralded the Open Services White Paper as the beginning of the ‘decisive end of the old-fashioned, top-down, take-what-you’re given model of public services.’ Considering the deficit reduction narrative, the longstanding and negative perceptions of our public services and welfare dependents, one can see why liberalising a public services market is an attractive political strategy for the Conservatives.

There are, certainly, economies of scale to be gained for certain types of products and services. When it comes to social services, quality – ‘getting it right first time’ – is more important. Service models that respond to the range of needs of vulnerable client groups are more likely to produce positive outcomes. Knowledge of the local context, making the most of local networks, the rapid and flexible use of resources: these factors are crucial in delivering quality services to citizens, crucial in capturing those efficiency gains.

How can the Coalition encourage such offerings to market? An industrial policy for the entire public services market could frame the types of providers we want to see in particular service areas, and then apply the relevant policy instruments to encourage innovation and quality. It is not about introducing another statist measure, nor protectionism. It is not about ‘planning’, nor ‘dirigisme’. It is about basic principles being established in terms of incentivisation, risk, reward, and an unrelenting focus on quality services. It is about harnessing best practice in these areas, building on the work we have seen taking place at the local level. It is about drawing the link between public sector reform and local economic growth.

In terms of ‘getting it right first time’, East Devon and Stroud housing services are a case in point. They have achieved huge productivity gains, with claimants processed in half the target time. The newly released capacity has meant they have been able to respond to increased demand.

There are other examles. Local authorities are thinking about how to better share risk and reward with and between providers. The collaborative approach between buyer and seller has found its ultimate expression in the joint venture vehicle, a new model for managing risk and reward, epitomised by Croydon’s Local Asset Based Vehicle. And front line children’s services are being shared by Kingston and Richmond; a service area traditionally riven by political sensitivities has been innovated.

What has the Coalition done to encourage such innovative and flexible service offerings? When it comes to managing risk and reward across the supply chain, the Coalition must get to grips with the Prime Contractor Model, which has tended to result in an unfair share of risk and reward between different types of providers. The Merlin Standard, introduced by the Department for Work and Pensions, sets out principles and behaviours, but it has no teeth.

Local authorities are still not duty bound to commission on anything other than price alone. While cash strapped authorities can be forgiven for doing this, they should also be compelled to commission on the grounds of social and environmental value, which would bring more innovative and sustainable service offerings to market.

There is also the challenge of payment by results. Providers should always be incentivised to produce outcomes agreed in the contract, and paid accordingly. But it is clear that providers with limited cash flow – such as those without access to debt finance – will be disincentivised from entering such a market place. A commissioner has said to us that such a system would, ‘not create the sustainable economy we want. When the local economy is ready, then we can make that link.’

Rather than just lifting barriers to entering the market, the Coalition should consider the evolution of the public services market. Liberalisation of an immature market will exclude service offerings that bring real value to citizens. Quality services need to be incentivised, risk and reward need to be shared equitably across the supply chain, and research and development must be given appropriate resource to ensure the proliferation of innovative service models . An industrial policy could catalyse these interventions – with due attention to sequencing and timing – at the local level.

The market has always been managed and always will be – there is nothing inevitable about it. What is important is that it is managed to encourage innovation, quality and genuine competition. Those three things are key to economic growth and public sector reform. National and local industrial policies can deliver both.

The truth is that, as with any other western economy, the UK’s last significant period of infrastructure investment came more than 50 years ago in the aftermath of WWII. Since then the approach has been piecemeal at best and managed decline at worst (and not managed particularly effectively as maintenance budgets are ever further trimmed to focus only on the most immediate of problems).

The Local Government Association suggested the bill to address the UK’s Infrastructure needs is £50 billion a year for the next decade. However, capital investment from Central Government capital programmes is to be almost halved to £21 billion per annum by 2015. Area-based regeneration models based on cross-subsidy from private sales have also been thrown into disarray. This has been accompanied by ever tightening revenue budgets in council Development Directorates, Environmental Management and Planning departments, as schools and critical adult care services are prioritised. So if infrastructure is critical to our future and yet the public spending squeezes mean less funding, what are local authorities to do?

A little quick research suggests that over the next 15 years London Boroughs could raise £2-£2.5 billion of Community Infrastructure Levy from housing development alone. That’s in the region of £150m per year. That will go along way to meeting some of the capital’s needs to remain competitive and address man of the wellbeing issues its less well off residents face.

Unlike some other infrastructure funding mechanisms such as TIF (Tax Increment Finance) Community Infrastructure Levy isn’t just for high growth areas. Community Infrastructure Levy spreads the cost amongst the vast majority of developments (all those producing 100m2 or more additional floor space). That’s both fair and equitable, in that those who benefit financially from infrastructure share the burden of its cost. That means it is relevant to all of our cities and rural areas.

It’s not just the income from Community Infrastructure Levy that matters. The levy mechanism will simplify and reduce some of the uncertainty in the planning process, consequently reducing the need for negotiation. That will save staff costs (and legal fees) for developers and local authorities alike.

Whether in the spirit of Community Infrastructure Levy or not, the Levy can and will be used to influence development markets. The Levy fee will never have as significant an impact as factors such as sales price shocks, hikes in borrowing costs or material inflation, but it will impact around the margin of development viability. Consequently, Local Authorities need to manage Community Infrastructure level, not just as a tax, but also as a strategic place-making mechanism. In managing the Levy public service leaders will need to answer important questions: Is your area open for business? Are you committed to investing in infrastructure the place needs to thrive?

The development industry might reasonably question the Levy given that some Authorities have significant amounts of unspent s106 monies. In our experience it is often unspent not because it is not needed but because of a lack of clear, sufficiently resourced delivery mechanism. In our view the success of Community Infrastructure Levy relies on solid local infrastructure delivery programming. So it is excellent news that the Levy enables Local Authorities to use 5% of the monies raised for management costs. In our view this should be spend on strategic program management to deliver your infrastructure projects (as well as the financial administration and enforcement).

Community Infrastructure Levy is neither just another Tax nor something that should be left solely in the hands of an isolated planning department. Community Infrastructure Levy is a strategic policy move that should be on every corporate management team’s priority list.

The legislation is in place, so every day without CIL is potentially lost contribution towards much needed infrastructure in our villages, towns and city neighbourhoods.

…House is a partner in CILknowldge.com a new service of Local Authorities seeking to take a strategic approach to Community Infrastructure Levy.

Over the past few weeks House has looked at:

• How the Local Authority must ensure its operations are outward looking and place-based
• How the Local Authority must signal its intentions to its local economic partners
• The importance of strategic land use and asset management, and a corporate strategic and investment framework that is relevant at subregional, borough and local levels.
• The importance of solid delivery capabilities – getting the strategy right is nugatory if it cannot be delivered effectively and intelligently.

The emphasis has to be on ‘common sense commissioning’ and procurement processes that are sensitive to the needs of a vibrant and mixed economy; and portfolio prioritisation and management, working with the Local Authority’s service areas to realise benefits. The key ingredient is robust and accessible management information.

Common sense commissioning

A lot has been said about ‘strategic commissioning’, and about public services converging around a ‘commissioning model’. Unfortunately, there has not been much action, with the debate reflecting the historically poorly designed markets. The focus should be on guaranteeing contestable markets, aligning commissioning to strategic priorities and a robust, transparent commissioning process. Easier said than done, yes. The magic ingredient is simply having canny commissioners who are able to spot and broker deals across service areas and, increasingly, across organisations. Procurement must be subservient to commissioning needs. And commissioning must be outcome based, otherwise there will be a race to the bottom in terms of cost. Several consultancies we know of are working for free to maintain market share. This is not good for a vibrant market place. One tactic may be to ask voluntary and community sector organisations to co-design the commissioning frameworks, especially in the wider context of the up and coming Open Services White Paper.

House argues that Local Authority should develop an in-house corporate commissioning capability. Corporate in that commissioners are afforded a global view of citizen needs, but one which looks to the services for vital business intelligence – those at the front line will know more about the needs of their service users than the corporate centre. To achieve lock in to the commissioning process, all service plans and strategies must respond to the strategic objectives of the corporate strategic framework. The corporate policy and performance function, with support from the Corporate Management Team, could lead on this.

The sequencing, re-commissioning and decommissioning of capital projects and programmes, and the responsiveness and flexibility in the system, will minimise the risk of sub-optimal returns on investment. A lot of that flexibility will come from the rationalised funding streams (preferably a single funding source), one of the core principles in the investment framework.

Engaging Local Authority service areas

The Local Authority service areas have a key role to play in the commissioning process, as outlined above.

However, if the Local Authority is to deliver large scale capital projects and programmes that are going to explicitly target economic growth, then the delivery of such work has to be co-ordinated and managed by competent delivery teams.

Can this be done in the service areas? Quite possibly. There will be, in all likelihood, pockets of solid commissioning and delivery capability across the Local Authority. If working in isolation from each other, and without a shared vision, this may result in a blinkered perspective on what is needed for the borough and neighbourhoods – particularly if the service strategies are not explicitly responding to the corporate strategic framework. The lack of a global view of commissioning and delivery objectives will result in missed opportunities to meet shared outcomes. It also means that corporate priorities are not addressed in a measurable and manageable way.

There are a number of ways of ensuring the service areas are engaged. The need is for common sense commissioning that works with the service areas, and solid delivery capability. If there is a move to centralising the commissioning and delivery capability, as we advocate, there will be significant culture change as project managers in the services will have to play a changed role in the lifecycle of the project or programme.

The final instalment in this series of blogs will pull these elements together into an integrated approach, one that can can inform a model for targeting private sector growth in the local economy.

It’s just been published – click on the front page to take a look at the rest of the strategy.

House are proud to have worked alongside Croydon to create a more efficient and intelligent system of capital allocation – amounting to £200 million over the first 5 years.

We are confident Croydon Council will continue to deliver the strategic capital programmes its neighbourhoods and residents need.

The Local Authority needs to consider how its operating model can support the borough’s growth aspirations. It is essential there is a vision for the borough, and that it has ‘spatial expression’. Ideally, the Sustainable Communities Strategy and the LDF Core Strategy would have been developed in concert, and are mutually dependent.

Or, why not combine the two into a single framework for your ‘place’?

To ensure ‘vision’ and ‘spatial expression’ make it off the drawing board, we need to have a long term infrastructure delivery plan that make strategies deliverable. Too often such plans are just an appendix to the main strategy documents.

We must also consider what makes for an effective investment framework – how can the Local Authority ensure investment in the local economy is targeted and sustainable?

The corporate vision must set the parameters for action at the local level

The Local Authority vision must be informed by the spatial characteristics of the area and towns, villages or neighbourhoods within it.

The localism agenda provides an opportunity to reconsider the nature of need in particular places and communities. Specifically, there is an opportunity to link the organisation of services much more closely to the needs of a neighbourhood, as well as considering the opportunities for co-location of services within neighbourhoods.

We advocate a response to the Localism Bill and reduced budgets that uses neighbourhood planning processes integrated with existing Local Development Frameworks to determine what services are best organised at a local level. As no communities make a distinction between what is traditionally a ‘Planning’ function and what is an ‘Environmental Services’ function, a joined up approach makes sense in terms of the customer, and back office operations.

Infrastructure is more than just a bolt-on

Getting strategic and local infrastructure right is related to successful economic growth. An area’s starting ‘condition’ in terms of infrastructure age, quality and accessibility, along with its ambitions, need to be considered if the Local Authority is going to achieve growth in the local economy. Lower direct capital expenditure from the Government means more private providers will need to be enabled to step in. This may mean the Local Authority needs to rebalance its capital and revenue expenditure in the short-term to invest in local infrastructure that enables enterprise and growth.

Create a framework to manage your assets and investments

The Local Authority leadership should create a capital investment framework that adheres to some clear principles:

Portfolio management - with first class management information sequence the commissioning, delivery and recommissioning of capital works within the portfolio to ensure maximum return on investment over the medium and long term. Revenue funding must be

linked through whole life costings. Strategic commissioning will enable an effective procurement process

Tailored procurement frameworks - a key element, the revision of existing frameworks and the introduction of a fully considered needs based framework, one that favours cost effective and preferably local suppliers. Ensure the provision of open data and robust management information to support the development of vibrant local markets from which to commission

Funding stability – increase stability of funding in uncertain times by making long term commitments in segmented delivery cycles. The long-term commitment provides the stability, and the medium term delivery cycles provide portfolio management control. And exploit other funding opportunities that agreed and stable funding stability inevitably provides

Rationalise funding streams – local government will have to manage its funding in a far more straightforward manner in the future, and the current Localism Bill has made provision to further reduce ring-fenced funding. This will require a performance management system that can support both the transition from single to multiple funding streams, as well as the final rationalised funding stream – with corresponding objectives and targets.

Is it consciously going to be a market manager, guaranteeing, where appropriate, contestable markets with low barriers to entry, and develop a procurement approach to suit?

Will the Local Authority choose to de-risk the local economic environment through targeted infrastructure investment and positive land use planning systems?

Will it provide a clear and consistent planning framework in accordance with the Localism Bill and subsequent legislation?

Will the borough look to attract private developers, firms, individuals and families who all see the area as a place of opportunity, with good education and health services?

The Local Authority has, potentially, four very clear market roles. It:

- Buys goods and services
- Provides goods and services
- Regulates the market for certain goods and services
- Makes markets and influences market activity, beyond a regulatory role.

Each of these roles can have a profound impact on the local economy, facilitating or constraining economic growth. This takes economic development way beyond a small team providing business support and puts economic development at the core of a Local Authority’s operations.

In this respect, it is important the Local Authority articulates a clear narrative, signalling to stakeholders – potentially through the nascent Local Economic Partnerships – its role and intentions with respect to the local economic environment.

We need to ensure the Local Authority:

- To focus sufficient strategic and delivery capability on the needs of its ‘customers’
- To recognises the role of place – neighbourhood, borough and / or sub-region – in the development of strategy, and to set a strategic framework that clearly aims to optimise growth at and between all spatial levels
- To clearly understand and articulate internally and externally its role in the local economy, signalling its intentions to key stakeholders, ensuring its decision making and actions are joined up and not counter-productive.

The next piece of the pie for the Local Authority is its internal capabilities and identify the strategic and operational levers that will enable it to deliver economic growth.

There is, of course, an increased awareness of ‘place’. Take the localism agenda for example, with the focus on neighbourhoods, even parishes and wards. And Total Place  – an initiative developed by the last government which looks at a whole area approach to the funding, design and delivery of public services.

In practice, this has not led to a qualitative break with the past in terms of thinking about place. It begins to identify specific places as the backdrop for the funding of services. Does it look at place as a constituent factor in the development of public sector strategy and policy?

Take the economic perspective. The IMF have shown how physical infrastructure can increase economic growth, particularly in response to an economic shock. Take the social perspective. Ground-breaking research by Oscar Newman in 1970’s New York has demonstrated the positive impact of social housing design on behaviour. Or other findings that suggest hospital patient recovery times are faster when they have views of natural landscape.

Understanding how places work – how they have evolved, their use, their condition and their future – and responding to place-specific needs, is intertwined with the localism agenda. The challenge will be to balance the needs of the very local – at the level of the neighbourhood – with the priorities at borough and sub-regional levels. Effective consultation, engaged debate and a clear decision making framework will be required to ensure the balance is struck. We will need ‘localism not vocalism’.

The quality and scope of services a typical local authority is able to deliver are determined in too large a part by its own functional constraints.

This post continues to set out House’s thoughts on how the Local Authority should respond to the reductions in public sector spending and the Localism Bill.

The challenge for the Local Authority is to identify their customers and what they value. This is no easy task. However, we contend that asking such questions at the local level provides an opportunity for more responsive and quality public services.

The challenge then is to balance the very local with borough and sub-regional priorities. Indeed, the Local Authority model must respond to the needs of all the places and people within the borough. One size does not fit all. Networks of sensors around the city in places, building and even on people (mobile phones / watches) will give instant feedback on issues such as pollution, transport, usage patterns. A step closer to our current reality is ‘citizen based monitoring’ where people report potholes and litter, for example, through digital channels – mobile and web. This provides live hotspot data for management services.

Meeting citizen needs is the beginning

The term ‘target operating model’ is jargon for an abstract model of processes, organisational structures and supporting technology to delivery value in line with stated strategic aims and objectives. It is a model to which organisations move towards.

An example is the customer services driven model. This model focuses organisational capabilities on meeting citizen needs, and centralises all transactional shared services. Through this model, the Local Authority interfaces with the citizen via a series of access points, including call centres, one stop shops in the community, and single points of contact for a range of services. The back office is invisible and the citizen journey simplified.

House believes the focus on the citizen or customer is the starting point for the Local Authority. The challenge is as much cultural as it is operational. The Local Authority, and all those who work within it, need to redefine the work of departments, functions and staff to focus on giving value to the citizen or customer, and not be constrained by internal demarcations imposed by departments or role. Child centred care is an example of how services can be designed in this way.

Organising to meet the needs of the citizen is an invaluable step for the Local Authority to take. But it is a step. While we accept that in the current economic climate the provision of quality public services is a challenge, it must be seen as the minimum requirement for local authorities. It can only be one part of the Local Authority’s role in the coming years. The Local Authority must look beyond its own organisation to develop growth in the local economy. The Local Authority can relieve the pressure on public sector resources, manage demand for services through a proactive approach to economic growth in the local economy.