devolution from central to local government - managing the risk
TRANSCRIPT
devolution from central to local
government - managing the risk
key figures at the roundtable
Rob Whiteman, Chief Executive,
CIPFA (Chair)
John Baker, Senior Claims Manager,
PwC
Angela Beechey, Risk & Insurance Manager,
Shropshire Council
Tim Devine, Managing Director Public Sector and Education Practices,
A J Gallagher
Philip Farrar, National Development Director,
Risk Management Partners
James Fawcett, Partner,
Browne Jacobson
David Forster, Head of Risk,
Zurich Municipal
Emily Giles, Policy Adviser – Public Services,
CBI
Mark Nicholson, Insurance and Risk Manager,
London Borough of Lambeth
Neil Pearson, Risk Insurance & Loss Control Manager,
Walsall Council
Robin Powell, Risk and Insurance Manager,
ACRE Risk Consulting Limited
Sharon Roots, Finance Director,
ALARM
Bill Sulman, Director for Public Sector,
Aon Risk Solutions
Bridget Tatham, Partner,
Browne Jacobson
Devolution from central to local government - Managing the risk | Contents page | 3
contents
About the roundtable
Foreword
Introduction
Executive summary
Remodelling public services
Collaboration and engagement
Fiscal devolution - reality, uncertainty and risk
Insurance risk management
Recommendations
About Browne Jacobson
4
6
8
10
12
14
16
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So are local authorities prepared for greater devolved powers? How will local authorities balance the challenges and risks associated with fiscal devolution against a backdrop of long term austerity? What are the specific challenges from a risk perspective and do senior management and elected members currently take risk management as seriously as they should do? Are current insurance risk arrangements fit for purpose?
Our latest report on the devolution debate, ‘Devolution from central to local government – managing the risk’, reflects the thoughts and views that emerged at our roundtable and puts forward a series of key recommendations for further consideration by stakeholders on managing the risks associated with this issue.
The content of this report does not reflect the views of any one individual who attended or the organisation they represent. The information and opinions expressed in this report are no substitute for full legal advice, it is for guidance only.
about the roundtableThe devolution juggernaut is gathering pace. The present government is single minded in its commitment to deliver on its programme of devolving ever greater powers from Westminster to local councils, community groups and individuals. A commitment that has already seen more than seven ‘devolution deals’ signed since the May 2015 election.
Chaired by Rob Whiteman, Chief Executive of CIPFA, our roundtable discussed these issues and more with key public and private sector stakeholders including: representatives from ACRE Risk Consulting, A J Gallagher, ALARM, AON Risk Solutions, CBI, London Borough of Lambeth, PwC, Risk Management Partners, Shropshire Council, Walsall Council and Zurich Municipal.
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Devolution from central to local government - Managing the risk | Foreword page | 6
On this occasion of particular value has been the participation of private sector stakeholders. The CBI, for example, were able to provide a perspective on the particular challenges of the private sector which on the one hand is being encouraged to play its role in devolution and growth, but on the other is discouraged by the efforts of government to transfer risk to them. In fact, this is the first such discussion I have heard which has considered the question of opportunity risk in the context of devolved powers.
Clearly there are some new risks developing through devolution which can be assuaged by clearer regulations from government. For example, the Combined Authority for Manchester has an exciting £300m pot for housing under its devolution deal but does not have non-transport borrowing powers. The solution of back to back agreements with the 10 unitary authorities that will do the borrowing is a creative one, but where will risk really lie? The audit and risk committees of the 10 authorities will see money borrowed by their councils but delivered and accountable to the audit and risk committees of the combined authorities. Similarly, how best will auditor judgements be formulated?
These are not unsolvable problems but it demonstrates that the potential revolution taking place in English regions and local government throws up new and emerging issues. Of course the market will work out a solution in this case. If insurers can soon work out where accountability rests when driverless cars collide, it can formulate where it sits when one set of parties is doing the borrowing and another party is doing the spending. But this might be at a premium and the better solution would be for combined authorities to have local authority borrowing powers. Government must not just ensure the headlines on devolution are attractive, but the detail behind the scenes is as well.
forewordWhen Browne Jacobson invited me to chair this roundtable, I saw it as a perfect opportunity to engage with key players on the devolution stage and improve the chances of successful integration of services in a devolved environment. There are important governance, planning and resourcing issues to tackle in these arenas, and even if the parties are working positively together, these are not simple matters - so it is helpful to learn lessons from participants’ ongoing experiences.
I warmly welcome this new report by Browne Jacobson and hope it will ignite the risk management debate in the context of greater devolved powers amongst all interested stakeholders.
Rob Whiteman
Chief Exectuive Officer, CIPFA
Devolution from central to local government - Managing the risk | Foreword page | 7
Devolution from central to local government - Managing the risk | Introduction page | 8
introduction
Devolution, underpinned by increasing fiscal autonomy, is the cornerstone of the changing landscape. The ‘Northern Powerhouse’ is said to be the exemplar, with the move towards a directly elected mayor taking fiscal responsibility and accountability. In 2015 we also saw Cornwall Council became the first rural authority in the country to sign a formal devolution deal with Westminster. Under the terms of the deal, Cornwall Council will be working with local partners to develop an integrated health and social care system as well as delivering sustained economic growth through enhanced support for businesses, improved access to employment and training opportunities, improvements to infrastructure and efficient use of public buildings.
This revolution in the devolution of political or fiscal responsibility brings with it huge responsibilities, challenges and risks. This will involve developing an appetite for risk that for many is unprecedented. Stakeholders will need to be innovative in managing local finances, shaping collaborative agreements, designing alternative service delivery models and managing governance to make devolution work.
We asked our panel to consider what role does risk management have to play and how those now responsible for the management of risk can ensure that their skills are used in the new world, by asking the following questions:
‘The Path to Greater Regional Devolution’ and ‘Our changing state: the realities of austerity and devolution’ published by Browne Jacobson, considered the changing landscape in which local government now operates. The challenge to devise and embrace new ways of delivering public services are being shaped by political ambition, against the background of continued cuts to central government funding as George Osborne continues on his drive to ‘balance the books by 2020’.
1. Are we seeing forward thinking implementation of systems and procedures to facilitate greater powers and responsibilities resting with local authorities?
2. Are there adequate working relationships in place with third party service providers that would allow a smooth transition during any period of greater fiscal autonomy, whilst maintaining a service to the community that is ‘fit for purpose’?
3. Alternatively, is there a need for an overhaul of third party providers and the contractual arrangements in place to minimise financial/reputational risk to local authorities?
4. Are current insurance arrangements adequate, or is innovation needed to meet risks arising from devolution?
5. Will innovation be required to ensure risk is managed effectively in the age of increased partnership working, devolved powers and continued budgetary constraints?
6. Should those responsible for risk management within local authorities properly be at the forefront of informing strategies in line with devolution?
Devolution from central to local government - Managing the risk | Introduction page | 9
In publishing this report, we hope it will stimulate further serious debate about the risks and challenges associated with devolution powers amongst all key stakeholders – both public and private – to ensure we have processes, systems and ultimately public services that are fit for purpose in the 21st century.
Bridget TathamPartner, Browne Jacobson LLP
This revolution in the devolution of political or fiscal responsibility brings with it huge responsibilities, challenges and risks. This will involve developing an appetite for risk that for many is unprecedented.
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page | 10Devolution from central to local government - Managing the risk | Executive summary
We are perhaps on the cusp of the most significant change that we will see in our lifetime, in terms of the relationship between central and local government. We have already seen greater collaboration with the creation of combined authorities, the continued transition to directly elected mayors for those combined authorities, and significantly greater control of and influence over health and social care by local authorities, such as the decision to allow the Greater Manchester Combined Authority to control £6 billion of health and social welfare budget. The pace of change was considered by the panel to be ‘extraordinary’, with a feeling of rapid evolution within authorities, both in terms of their composition and processes. So it is no surprise that a recent survey by Grant Thornton found that 72% of CFOs confirmed that council members and officers had submitted bids or had been in encouraging discussions about forming a combined authority.
With change comes risk. There was a telling comment in the discussion that “there is no room for error, but there will be errors”. The evolution in local government is new territory for all involved and with no blue print to reference, there is enthusiasm and apprehension in equal measure - there is genuine anticipation within authorities at the opportunities which devolution brings with it, balanced by unease from pressure to ‘get it right first time’.
Opportunity and risk are two sides of the same coin - there is now an even greater need for sharing of good practice and experience to maximise innovation, growth and ultimately success.
We are likely to see a transformation of local authorities as we know them during the course of the next five years. Although the move towards devolution is increasingly seen as being personality driven (with the political pitfalls that obviously entails), the overriding view of delegates was that devolution to local government is seen as inevitable, with some authorities far further forward in the process than others. There is a risk that some will be left behind, with other established combined authorities taking control of their own affairs and finding strength in numbers – those authorities with less financial resilience are considered at risk of becoming ‘extinct’ as we potentially move towards a new world of survival of the fittest (or possibly the largest) authorities.
“The landmark agreement between NHS England, the local NHS and local government leaders charts a path to the greatest integration and devolution of care funding since the creation of the NHS in 1948.”
Simon StevensChief Executive of NHS England
executive summary
Based on our research, experience and discussions at the meeting, Browne Jacobson’s conclusions are as follows...
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Non public sector organisations delivering public sector services will increasingly be part of the solution to smaller local budgets but increased demand on services. There is a need to ensure that commissioning organisations have the skills and training to interface effectively with their commercial counterparts to ensure successful transformation of public services.
James FawcettPartner, Browne Jacobson LLP
We are perhaps on the cusp of the most significant change that any of us will see in our lifetime, in terms of the relationship between central and local government.
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Devolution from central to local government - Managing the risk | Remodelling public services page | 12
remodelling public sevicesThere are five established combined authorities, of which all bar one have agreed to establish a directly elected mayor as part of their devolution deals. Greater Manchester is the model of central government’s willingness to devolve greater powers and fiscal autonomy where there is an elected mayor to be held accountable.
This is a step change from shared services, partnership or outsourcing whether public to public, public to private or public to third sector, which has featured as alternative service delivery models in the sector for some time as a response to deep cuts to budgets.
The strategic and operational structures are likely to be more complex, which may expose the authority to risks flowing from complex lines of responsibility, accountability and governance over a number of mixed structures: local authorities, NHS, private and public. Regardless of whether services are run by combined authorities, community groups or delivered as part of an outsourcing contract, ultimately the statutory responsibility will fall on the local authority. The Cities and Local Government Devolution Act 2016 provides some protection, requiring each combined authority to set up at least one overview and scrutiny committee. These committees will have the power to suspend decisions of the combined authority if needed. But the panel asked if this was enough protection when considering:
• possible geographically diverse member organisations with different (potentially conflicting) agendas
• the political make up of each organisation
• combinations of constituent members with voting rights and non-constituent members with no voting rights
• local v regional tensions
• political differences between member authorities - who is to lead / can they lead and on what areas?
• infrastructure (both IT, processes and people) - how are they, if at all, to be integrated?
The view from the panel is that strong leadership and governance was critical in order to avoid the potential for chaos. But the real challenge is how to manage the increasingly diverse risk profile. Risk from day to day operational management, the competing portfolios of each member authority and contracting public to private businesses. The private sector sees the opportunities ahead, particularly SMEs sector. According to a recent national YouGov survey, 51% of businesses polled said that local government having powers over major infrastructure projects such as transport and housing would be an advantage to their businesses. However 79% did not feel they have had an opportunity to contribute to the devolution agenda. For business, serious questions remain as to whether some within authorities are equipped to move from procuring paper clips to saving lives!
“The government’s strategy is clear in that those areas that don’t want a mayor will keep the powers they have. Those areas who accept a mayor will get more powers and ultimately when there are enough mayors, they will force the others with the reserved powers they have.”
roundtable delegate
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Cornwall: turning over a new chapter
Cornwall Council has provided its face to face (library / one stop Shop) service through a variety of locations and approaches including combined library / one stop shops, stand-alone libraries, standalone one stop shops, a mobile library / information van and micro-libraries.
In November 2015 the council proposed devolving its libraries and one stop shops to local councils and community groups. Following a comprehensive consultation, it received expressions of interest from parish councils and community groups in delivering a local library service in 27 locations. Whilst it is not clear how many of the expressions of interest will actually materialise into formal devolved agreements, the council has had to consider a number of significant challenges and risks when weighing up the various options as it balances its new devolved powers with its statutory duty to provide a local library service which is both “comprehensive and efficient…for all persons desiring to make use thereof”.
These include:
• effectively monitoring and managing service delivery under multiple local arrangements, as well as running the remainder of any service which has failed to generate any interest locally
• failing to deliver the necessary budget shortfall should all the initial expressions of interest not materialise into ‘devolution deals’ or the anticipated staff and property savings fail to be realised
• its ability to discuss, negotiate and agree 27 potentially separate deals within its existing resources
• the consequences of individual devolution agreements faltering and the potential risk of a legal challenge against the provision of a statutory duty
• future political changes in town and parish councils and local community groups that may threaten the viability of the service
• ensuring town and parish councils have the necessary statutory powers and capacity to run services under the Localism Act 2011.
It is expected the council’s library devolution / one stop shop programme will be fully operational by 1 April 2017 with new community led models of service provision delivering circa £1.8m savings per annum.
Devolution from central to local government - Managing the risk | Collaboration and engagement page | 14
The continued drive towards devolution, together with prolonged austerity, is compelling a momentous shift in the composition of local government. There is a clear steer from central government towards greater collaboration across authorities and external organisations, aligned with a number of current initiatives. Examples include multi-agency working in the safeguarding of children and the blurring of boundaries in the revised Highways Code of Practice. The draft COP clearly states: “All authorities…..are encouraged to collaborate in determining levels of service, especially across boundaries with other strategic and local highway networks”. In this time of opportunity – but risk – can authorities find strength and resilience in numbers?
Collaboration is a pooling of common interests, assets and skills for the benefit of those using the various services - the relationship is not solely based on contractual obligations which defines partnership working. Collaborative working felt more joined up and seamless than partnership working.
In theory, cross-organisation working brings with it real benefits, with the prospect of the sharing of ideas, good practice and skill sets – something that is of increasing importance in light of widespread redundancy consultations throughout local government. Against the challenging environment authorities find themselves in, might an answer be identifying and pooling resources across member organisations and also potential partners?
We have already seen motivation for partnership working arising out of the comprehensive spending review. But it was the view of the panel that in order that combined authorities can realise their opportunities, a collaborative approach at all levels and across all organisations is necessary. This would go some way to ensure the sustainable delivery of public services - thereby minimising financial and reputational risk to authorities.
collaboration and engagement
“Most local authorities are going through voluntary redundancy and actually losing people with those skill sets.”
roundtable delegate
page | 15Devolution from central to local government - Managing the risk | Collaboration and engagement
For there to be effective collaboration, sensible lines of communication need to be opened up between authorities and also external organisations. For some this may require a shift in mind set, but what was encouraging was an appetite for greater engagement across the panel and an appreciation that there needs to be commitment from all to work together towards a common goal – “an understanding that there needs to be a deep partnership between these [third party] providers and the local authorities”.
The emphasis on broader stakeholder collaboration and engagement also needs to extend to greater community engagement. There is the potential of an ever widening gulf emerging between the new combined authorities and constituents. In a recent Ipsos MORI and PwC survey (2015), three quarters (76%) of people surveyed knew little or nothing about the government’s devolution plans. Awareness levels were only slightly higher in those areas working to agree potential deals with Whitehall and according to the same survey, only 21% of those interviewed admitted to knowing a “great deal” or a “fair” amount. Authorities will want to ensure that perceived lack of awareness is addressed and constituents have full and proper involvement in the process.
an appetite for greater engagement
Authorities will want to ensure that perceived lack of awareness is addressed
Devolution from central to local government - Managing the risk | Fiscal devolution - reality, uncertainty and risk page | 16
The panel considered that real fiscal devolution is required to unlock its true potential.
The panel considered the real possibility of central government, which currently retains half the taxes raised by business rates, deciding that this should be retained wholly by local government as a means by which to facilitate fiscal devolution. Further, if authorities are to take responsibility for areas such as health, the panel suggested that general taxes raised may be retained locally.
It was suggested that this posed a number of risks. Authorities with a demographic of high need are likely to have relatively low tax strength - whereas historically they may have looked to central government for funding, this may now no longer be available. Rural areas are also likely to have low tax strength, due largely to the nature of the rural economy and the focus placed by central governments on delivering strong city growth. Will such areas fall behind combined authorities who have fiscal strength and sustainability?
Solutions discussed, such as equalisation of business rates across regions, underpins the devolution model of combined authorities. The panel suggested that those authorities with less financial resilience may become ‘extinct’ as a top down operational model unfolds and eventually become attached to urban areas. Government has a responsibility to ensure the devolutionary changes impact positively on all areas – rural and urban.
Rates and taxes - an equal playing field
fiscal devolution...... reality, uncertainty and risk
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“If you had previously said to me that the Chancellor of the Exchequer would devolve £6bn of NHS funds to a regional authority, I would have thought that was inconceivable, absolutely inconceivable.”roundtable delegate
A regional NHS
The Kings Fund reports that 9 in 10 trusts have forecast deficits and calls for central government to release sooner rather than later the £8bn extra spending promised by 2020. Local authorities have warned of a £4bn funding gap. With further significant cuts and social care funds not ring-fenced, there is real potential for tension on the ‘pooled’ funds, resulting in a risk of reduced service provision impacting on those users who are at the heart of the principle of prevention and not cure - the low paid but with high need.
We have already seen £6bn of NHS funding devolved to Manchester, where the proposal for the ground breaking agreement is said to be based on a ‘pooling’ of budgets between social care and health. One of the panel members highlighted the shift in thinking towards prevention rather than cure and that Manchester’s agreement embodies that principle.
Speaking on BBC Radio 4’s ‘Today’ programme, Richard Humphries, Assistant Director of the King’s Fund think tank, said a full transfer of responsibility would be a reform “on a breath-taking scale” and could pose serious risks:
With responsibility comes accountability and it was asked: who is in charge and where does the ‘buck stop’, especially against a backdrop of:
• financial overspend in the NHS
• potential cultural differences over how deficits are perceived by health organisations and local authorities
• local health boards with responsibility and funding, but held accountable to national standards.
“Depending on the detail - and the detail is really crucial and we don’t have that yet - you could either see this as a triumph for local democracy or creating real risks of yet another reorganisation of the NHS when it’s barely recovered from the last one.”
But concerns were raised. Which organisation will control the budget or take responsibility for the commissioning decisions that are made: NHS England and Clinical Commissioning Groups, local authorities or the Shadow Greater Manchester Health and Wellbeing Board?
Devolution from central to local government - Managing the risk | Insurance risk management page | 18
insurance risk managementIn this collaborative world and continued devolution of powers, there is greater scope for conflict and uncertainty as to which insurable risks are covered by whom. With a sense of inevitability about devolution, the changing landscape will require innovative insurance products if they are to remain fit for purpose.
The starting point has to be clarity from the organisation on how, as a combined authority, it will deliver services at an operational level. It is the detail of whom, when and how services will be delivered that may present obstacles to effective and efficient insurance arrangements. The market calls for early involvement in the devolution deals that are being struck so that an effective understanding of responsibilities and insurable risk is determined in order to facilitate the innovation and flexibility the public sector seeks.
Authorities will want a viable product before procuring insurance and that product may not be currently available. Again, the process will involve greater engagement within combined authorities and their partners – it is only following a detailed assessment of risks to which authorities are exposed (with a full and frank review of historic data) that the extent of risk and scope of cover required can be properly identified.
This will require an insurer and/or combined authority to demonstrate a real appetite for change in developing a product to fit this new world of local authority. It is a bold step, but one that could well transform insurance arrangements and provide, it will be hoped, much needed savings. Whilst recognising the significant challenge the new models of local authority working creates, it must be seen as an opportunity for innovation and revolution of current insurance arrangements.
This will be a demanding process, with a real need for ‘buy-in’ by insurers, and only time will tell if there is the appetite in the insurance market for overarching insurance arrangements embracing combined authorities. As an alternative, the default position for central government has been to self-insure for losses. We have also seen the introduction of a voluntary risk pooling scheme which all academy schools are eligible to join - might we see a move towards a similar scheme for combined authorities?
only time will tell if there is the appetite in the insurance market...
...for overarching insurance arrangements embracing combined authorities
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Devolution from central to local government - Managing the risk | Recommendations page | 20
recommendationsOur discussions clearly indicate that if we are to successfully devolve powers to the regions then the ability of central government, local government, the public sector and the wider community to manage risks is critical. This report makes the following recommendations for all key stakeholders to consider:
• there is a real need for greater engagement and support from central government. The momentous change local authorities are going through (coupled with a perception of very significant risk) requires meaningful interaction and guidance from central government; something which our panel did not consider they currently have the benefit of
• it must be recognised that with the progression towards devolution, it is not a case of ‘one size fits all’. We were fortunate to have representatives from a range of authorities at the discussion, from major cities through to rural communities, and clear guidance from central government bespoke to the needs of the individual authority is fundamental to the success of the process
• it is crucial that there is a step change involving those managing risk within authorities, to ensure they have a voice in the devolution process. With greater collaborative working / scrutiny of risk, there is an opportunity for risk managers to have a positive influence, sharing their knowledge and experience in ensuring implementation of appropriate steps at an early stage. So, whilst there needs to be buy-in at all levels of the authority in the process, those on the front line of risk management must have a seat at the top table and a clear division of responsibility and accountability within authorities and third party service providers must flow from deliberations. This should be accompanied by a thorough review of current governance arrangements and structures both internally and across their key partners
• there is an urgency around ensuring that the right people are in the right positions with the right skills to maximise the opportunities. Whilst one solution is to ‘buy in’ the right people, with shrinking budgets it would be far more prudent for strategies to focus on developing knowledge and skills of existing staff, building capacity through training for new staff and having robust structures in place for shared learning between combined authorities and other stakeholders
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• the role of elected members should be reviewed with a greater emphasis on shaping risk management decisions and in particular greater engagement of elected members in the area of financial risk management
• there is a need for a palpable shift towards a more commercial approach by local government to the delivery of public sector services, where there is an increasing need for private sector to fill funding gaps. This is a shift in behaviours, where ‘deep partnerships’ are demonstrated by a move away from risk transfer to joint risk management to stimulate innovation and investment. We are currently working with the CBI to develop some practical guides for sample contracts
• the insurance market is already sitting down with the public sector to better understand the changing landscape. However, it is apparent that there needs to be even greater understanding of the likely risk profile to facilitate a rethink on how insurance is procured, so that innovation is encouraged to safeguard a competitive insurance market.
facilitate a rethink of how insurance is procured
there is an increasing need for private sector to fill funding gaps
Devolution from central to local government - Managing the risk | Recommendations page | 22
Rob Whiteman
Government must not just ensure the headlines on devolution are attractive, but the detail behind the scenes is as well.
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