Cutting smarter to maintain vital public services

Mon, Nov 5, 2012, 00:00

INNOVATION PROFILE PWC:While severe cuts to public expenditure will be implemented in the budget PwC consulting partner David McGee argues for a more innovative approach to the cuts.

“The budget will be one of the toughest in recent years and there is a legitimate debate in terms of what cuts should be made and how they should be made,” he says.

Part of this debate centres around austerity. “One of the questions up for debate is about austerity – if it has run its course or if we should continue on our current path. But we have to accept that we have no choice in relation to a lot of what needs to be done. We can argue the rights and wrongs about how we got to where we are, but the scale of the deficit in the public finances will remain with us. Even if we could ignore the banking debt, the Anglo promissory note, and the rest of the national debt we would still have that underlying deficit to contend with.”

This is the core issue for McGee: “We can’t make the required corrections without the support of the markets and to get that support we have to keep trying to balance the books. That’s the fundamental issue. The question for the policymakers is if you treat it as a top down or a bottom up problem when seeking a solution.”

McGee says the numbers are clear from a top down perspective. An annual deficit of €17 billion-€18 billion, or more than 12 per cent of GDP, emerged in the early part of the fiscal crisis and this is now down to 9 per cent of GDP. The Government must bring this to 3 per cent of GDP within the next three to four years. The difficulty lies in where and how to find those cuts.

“The challenge comes from the bottom up and how to execute cuts and adjustments,” says McGee. “With the greatest of respect, it can be easy to sit in Merrion Street and decide on cuts, but if you’re a manager in a public service department implementing them it can be a lot more difficult. That’s where smart cuts come in.

“The real question facing us is how to maintain or even increase service levels but with less money. There are a number of things we can do to support the ability of the public service to implement smart cuts but we should acknowledge that a lot of this is already going on. We also have to come to a greater understanding of the nature of the increase in public expenditure which happened over the past decade.”

His point here is that only a relatively small proportion of the increase was accounted for by pay rises for members of the civil and public service. “While it is generally acknowledged that the level of increase in expenditure was huge over the past decade only some of this was due to benchmarking and other pay increases,” he says.

“Quite a bit of it was due to increased demand for services from society as well as the introduction of new services. Society now expects a lot more from government and the public service than it did a decade ago.”

He cites a change within the Garda as an example: “Ten or 12 years ago the Garda had no specialist child interviewers; now they do. As a society, do we expect children taken into custody for questioning to be treated as if they were adults? I think we all know the answer to that question. And would we now go back to a situation where they are? I don’t think so. This is one example of how it is not possible to go back in a straight line and say that we are going to bring public expenditure back to 2003 or 2002 levels and why smart cuts are needed if we are to achieve the overall goal.”

And there is considerable evidence out there of smart cuts already being made. “Take a look at the Department of the Environment, Community and Local Government and what has been happening there. We have seen agreement on minimum working hours for local authority workers – that was a significant achievement.

“We have also seen the establishment of Irish Water to take over water services and the water charges issue. On top of that we now have proposals for local government reform being implemented. These are all very important and will result in reduced expenditure while maintaining services.”

He also points to reforms in the prison service and in the Garda as cases in point. “Garda rosters have been substantially reorganised to deliver increased availability of officers during periods of peak demand at no increased cost at a time when numbers in the service are decreasing. This is another significant achievement.”

Even the oft-maligned Department of Public Expenditure and Reform and the Croke Park agreement come in for praise.

“I have to admit to being somewhat sceptical at first but the Department of Public Expenditure and Reform has been a success and has driven initiatives like the shared services agenda, which may not have been possible without it. There have been a few stumbles of course but overall there’s lots of evidence of transformational change being made. And much of this would really not have been possible without the Croke Park agreement.”

But applying smart as a prefix will not make the cuts more palatable when they come. “I don’t want to belittle the scale of the cuts needed, but we do have a lot going for us as a country when it comes to making smart cuts,” he adds. “I would sum these up as the four Es and one T. We are English-speaking, entrepreneurial, educated, extroverted, and have a high quality tax regime. And these are the things we must focus on for the future when it comes not only to attracting investment but also in terms of reforming our public service.”

He believes the public service has responded well to the crisis and is continuing to do so. “There are lots of stories and anecdotes of people in the public service pushing themselves to the very limit to continue delivering services in the face of ongoing and quite severe resource cuts. This should be acknowledged and we need to create an environment which fosters the bottom up thinking which leads to this sort of performance.

“There is already evidence that this is happening, but performance management will be key in the long term. We need to create a structure that rewards success and performance.

“Ultimately, the way to make smart cuts will be to change our focus from one which measures activity to one which measures outcomes. If we can do this we will go a long way to achieving the necessary spending adjustments at the same time as continuing to provide the services demanded and expected by society.”