Spend less, create more social value

David Cameron delivered a speech today which has been reported as being another relaunch of his 'Big Society' policy. Towards the end of his speech, though, he mentioned something which might have a fundamental effect on public services in the UK. He said:

We are revising the Green Book – the basis on which the Government assesses the costs and benefits of different policies – to fully take account of their social impact. We are developing a new test for all policies – that they should demonstrate not just how they help reduce public spending and cut regulation and bureaucracy – but how they create social value too.

Nothing was said about how social value would be assessed but the previous government's Cabinet Office was involved in the production of a paper on social return on investment which identified several ways that monetary values can be estimated for intangible costs and benefits. I assume that whatever method is recommended in the new Green Book (which perhaps will be a Blue Book) it will result in social value being estimated in money terms. 

If we assume that public bodies only wish to spend public money on projects or services that they believe will generate some intangible social value then an evaluation process that includes the social value is likely to indicate that more projects are worth while than an evaluation process that focuses only on the cash payments and subsequent income and/or cash savings. Such a situation would be a problem for the government, though, because it wants to keep public spending down. It does not want its own departments, local authorities, police forces, hospitals, etc putting forward proposals for all sorts of schemes that would create lots of social value but require lots of investments.

Hence, I think, Cameron's comment about projects reducing public spending. What the government wants, it seems, is to invest in projects which both save money and create social value. Such projects are difficult to find. We have seen over the last few weeks as the impact on budget cuts take effect that spending less money on public services means that less social value is produced. Indeed, it is exactly what one would expect because it is the reverse of the situation where a government minister is under pressure to tackle a social problem they say they will deal with it by announcing some additional spending. 

Cameron suggested that the review of the Green Book might be 'quietly radical'. It remains to be seen whether it is radical in the sense of resulting in more and better investment by the government or radical in the sense of cutting back on public investment.

Not all bureaucracy is bad

We're hearing a lot about the Government encouraging community groups and social enterprises to get involved in the delivery of public services and that this will remove bureaucracy and waste. And David Cameron was open about not having all the answers but wanting to try things out.

Well, it seems a positive thing, doesn't it, that local people take over the running of a swimming pool or library or even school. There's this idyllic notion that if we free these community organisations from the tyranny of local government (much of which is under the control of Conservatives or Liberals) they will flourish. Perhaps they will, but they will also still have plenty of bureaucracy to contend with. Here's just a few examples of red tape that I feel sure will still apply even to the smallest of community organisations:
  • HM Revenues and Customs will require Pay As You Earn and National Insurance to be collected and paid over in respect of any employees (and as the owner of a business with just one employee I can assure you that there is plenty of electronic form filling required);
  • VAT rules will apply (and this could cause an increase in costs because, for instance, local authority schools can recover the VAT paid on their supplies and City Academies can't);
  • having employees will mean that health and safety and working time legislation applies so there will be risk assessments and so on to complete as well as keeping adequate records about employees;
  • equalities legislation (because we can't have the local community running facilities that are discriminating against one group or another); and
  • if the organisation chooses to be a charitable one then the requirements of the Charity Commission will apply in terms of annual returns and publishing information

These organisations won't be part of the local council's decision-making machinery so there will be a saving in time and effort there, but I suspect that there will have to be at least one board or committee in place to make sure that the organisation is being run properly. If these are to be run in the public interest rather than as private fiefdoms then there will at least have to be published agendas and minutes.

Which reminds me, there'll have to be audits, too. Currently a small establishment might have an internal audit every five years and its accounts are audited as part of the local council's corporate audit. As a separate organisation, unless it is very small it will have to have its accounts independently examined every year. A proliferation of small audits will be a useful source of new business for the smaller accounting firms.

Given our risk aware and litigious times anyone running such a community organisation will surely seek to have insurance. As part of a big organisation the liabilities would have been grouped together with the aim of getting a competitive insurance premium. Hundreds of small organisations, generally without a claims history, is going to find itself faced with significant insurance premiums and I suspect the aggregate premiums will exceed what the public sector is currently paying. Good news for City, but not so good for the the rest of us.