Community Services / Corporate Performance Scrutiny Committee

Date: 7th July 2005

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Agenda No:

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5

Title of Report:

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The “Gershon” Efficiency Agenda and its links to Comprehensive Performance Assessment

Purpose of Report:

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This report provides a background to the efficiency agenda, details the organisational arrangements established to deliver on this agenda and provides details of the gains included on the 2004/5 and 2005/6 Annual Efficiency Statements. The report then highlights the links between the efficiency agenda and Comprehensive Performance Assessment before outlining the proposed way forward for the authority.

Relevant Policy or Strategy:

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Value for Money / Efficiency Strategy to be formulated

When last seen by Scrutiny and outcome(s):

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Not previously considered

Officer Contact:

/ Mark Spilsbury – Head of Audit and Financial Standards – 01452 426127

Performance Indicators
/ Different performance Indicator information used as quality cross checks for each efficiency category in the Annual Efficiency Statements.
Level of Investment / Consideration is being given to the utilisation of £65,000 from the Resources 2004/5 underspend to fund a one year secondment, as detailed in paragraph 14 in the report.
ISPP Level 1 Objectives/Targets / The delivery of the efficiency targets is a key objective in the Finance ISPP and is referred to in many other ISPP’s.
Key Risks / Failure to deliver on the efficiency targets will have a significant impact on future CPA ratings and will not be in accordance with the priorities of the authority.
Partnership Working / Wherever possible efficiency gains will be identified by working with partners.
Main Service issues identified in MTFS process / Currently processes being developed to link the efficiency targets with the MTFS process.
Staffing Issues / Staffing implications highlighted in the report.
Customer Feedback / Gershon efficiency gains must demonstate that services have not been reduced hence, where appropriate, customer feedback may be used within the quality cross check process set up by the ODPM.
Possible Considerations / That the Committee considers :-
  • the requirements of the efficiency agenda and the proposals submitted in the 2004/5 and outline 2005/6 Annual Efficiency Statements;
  • whether it wishes to receive an update on progress in meeting the 2005/6 target gains at its meeting in October 2005;
  • the links between the efficiency agenda and MTFS process;
  • whether it wishes to consider the value for money strategy, and the vfm self assessment submitted for the CPA, at its September meeting.

Page 1 of 44

The “Gershon” Efficiency Agenda, and its links to Comprehensive Performance Assessment.

The Gershon Efficiency Agenda – Background

  1. The Government has introduced arrangements for the measurement of efficiency gains in the public sector. In the Comprehensive Spending Review 2004, the Chancellor of the Exchequer announced that the public sector as a whole would be required to find efficiency gains of £21.5bn over the period 2005/6 to 2007/8.
  1. The local government share of the £21.5bn is £6.45bn, which amounts to a target of 2.5% of the net budget requirement for each local authority. This target includes efficiency gains to be made in schools, although LEA’s do not have a role in overseeing or reporting on the identification of schools gains.
  1. As part of the new process the Government required each local authority to :-
  • Calculate the efficiency gains to be made by their authority for each of the years 2005/6, 2006/7 and 2007/8.
  • Produce Annual Efficiency Statements in a prescribed format as follows :-
  • a forward looking Annual Efficiency Statement for 2005/6 by 15th April 2005, (albeit that not all of the guidance had been issued by that date)
  • a backward looking Annual Efficiency Statement for 2004/5 by 15th July 2005 setting out the efficiency gains achieved in 2004/5 which meet certain quality checks issued by the ODMP. (For the first year only, 2004/5 gains which continue to 2007/8 can be counted towards the 2005/6 targets).

What can count as a Gershon Efficiency Gain?

  1. The Government has defined efficiency gains in the following terms :-

"Efficiency is about raising productivity and enhancing value for money.

Efficiency gains are achieved by one or more of the following:

Reducing inputs (money, people, assets etc) for the same outputs;

Reducing prices (procurement, labour costs etc) for the same outputs;

Getting greater outputs or improved quality (extra service, productivity etc) for

the same inputs; or

Getting proportionally more outputs or improved quality in return for an

Increase In resources.

Efficiency is not about cuts. A cut can be characterised as a significant reduction in the availability or quality of a particular service that the public receive and value. While councils may have to face hard choices and sometimes implement cuts, the savings that accrue from these will not count as efficiencies".

What is the Gershon Efficiency Target for Gloucestershire County Council?

  1. The Gershon Efficiency target for Gloucestershire (excluding schools whose gains have to be identified separately and reported by schools directly to the DfES through a process to be advised) is £8.05 million annually from 2005/6 through to 2007/8. Although, as reported earlier, gains identified in relation to 2004/5 can be counted towards the 2005/6 target.
  1. At least half of the gains identified have to be “cashable”. “Cashable” efficiency gains release funding for use elsewhere, either for reinvestment in services (including within the areas where the gain was generated) or for holding down the Council Tax. “Non-cashable” efficiency gains are achieved by getting more or better services for the same amount of money or achieving the same results for less money. Cuts in service do not count as efficiency gains.
  1. Hence, the cumulative efficiency targets for Gloucestershire County Council are :-

Year / Cashable
£000 / Non-Cashable £000 / Total
£000
2005/6 / 4,025 / 4,025 / 8,050
2006/7 / 8,050 / 8,050 / 16,100
2007/8 / 12,075 / 12,075 / 24,150
  1. The total Gershon efficiency gains to be achieved to 2007/8 amount to £24,150,000. We can now achieve these savings over a 4 year period since on-going 2004/5 savings are now allowable. However, savings must be “on-going” and any “one-off” savings will need to be replaced.

Scope for Efficiencies

8.Although local authorities are free to identify efficiency gains in all areas of their business, the Gershon report identified six main areas for gains :-

Back office

/ e.g. Finance, HR, ICT support, legal services, facilities management, communications
Procurement / Goods and services such as ICT, professional services, temporary staff, social care, construction
Transactional services / Payment of bills, collection of income, collection and exchange of information
Productive time of front line staff / Front line staff deliver key services and reducing time spent away from this is part of efficiency
Policy, funding and regulation / Strategy, policy and inspection needs to be at a level proportionate to their added value
Policy, funding and regulation of the private sector / Compliance costs of legislation and regulation

Cross cutting issues

9.Gershon identifies a number of systematic issues where action should be taken to support the delivery of efficiency plans and promote a culture of efficiency, as follows :-

  • Financial Management

-“Strong financial management is essential to the efficient use of resources an a pre-requisite to the delivery of major efficiency programmes”

  • Procurement

-Strategic management of major supply markets is underdeveloped

-Lack of strategic visibility of and influence over totality of spend

-Too much procurement undertaken without professional support

-Little evidence that procurement of professional services is managed to ensure value for money.

In view of the above the review recommends enhancing procurement capacity by improving leadership and professional skills. Furthermore, in relation to major supply markets “ensure all procurement is conducted either (a) via a process (framework agreement, catalogue or procurement card) that has been put in place by a procurement professional; or (b) has the direct support of a procurement professional”.

  • Modernising transactional services

-Ensure high take up of e-enabled transactional services

  • Efficiency delivery

-Cascade savings and planning

-Set targets and monitor delivery.

Reporting of Efficiency Gains

  1. Efficiency gains have to be reported to the ODPM under the following standard headings :-

Service Based / Cross Cutting
Adult Social Services / Corporate Services
Children’s services / Procurement
Culture and sport / Productive time
Environmental services / Transactions
Local transport / Miscellaneous efficiencies
LA social housing
Non-school educational services
Supporting people
Homelessness
  1. The gains then need to be subdivided between “cashable” and “non cashable” and those which relate to revenue budgets or capital budgets.
  1. Finally, with regard to backward looking AES’s, the authority has to demonstrate that the gain is an efficiency gain and not a service cut. The ODPM has come up with a simplistic method regarding quality checks, with authorities having to demonstrate that for each of the gain categories there has not been reduced performance in relation to one key performance indicator selected from a list formulated by the ODPM.

Organisational Arrangements

  1. The requirement to measure and report to the ODPM on efficiency gains, coupled with the commitment of the authority to improve efficiency and deliver low council tax rises, together with the significant impact that value for money will have on forthcoming Comprehensive Performance Assessments (covered later in this report), has necessitated the identification of lead officers in relation to the efficiency agenda.
  1. The Executive Director (Resources) has been designated as the lead Executive Director in this area, and the Head of Audit and Financial Standards as the lead officer. These officers are supported by “efficiency champions” within each Directorate, and an efficiency officer appointed, initially on a one year secondment from August 2005, as detailed below :-

Officer name / Designation
Stephen Wood / Lead Executive Director
Mark Spilsbury / Lead Officer / Lead for Resources
Jim Atkinson / Lead for Education
Pippa Dickinson / Lead for Environment
Chris Cooke / Lead for Social Services
Andy Knight / Lead for Community Services
Rodney Semple / Lead for Chief
David Dale / Performance Link
David Brown / Efficiency Officer

It is stressed that the requirement to deliver on the efficiency targets set is an organisation wide task. Hence, although officers from Resources are leading on the coordination of this task, all senior officers within the authority have to be accountable for the identification and delivery of efficiency gains.

  1. Although this is an evolving process, the expectation is that the lead officer and efficiency officer will be responsible for ensuring the delivery of corporate and cross cutting savings, efficiency reviews, coordination of the whole programme, providing advice and support to Directorate lead officers, including advice on measurement, the general dissemination of information on the efficiency agenda, the submission of returns and the formulation of officer/member monitoring reports. These officers will also be responsible for the co-ordination of the value for money self assessment required annually under the CPA regime.
  1. Directorate Lead Officers will have a significant role in support of the above, to include :-
  • overseeing the delivery of the efficiency savings and efficiency reviews in their service areas
  • undertaking quality crosschecks to demonstrate that cashable gains have not led to reductions in service quality
  • providing a regular update on progress made against each efficiency proposal included in the Annual Efficiency Statement (AES) in relation to the service area covered and/or new savings identified which were not included in the forward looking AES
  • providing costed evidence to substantiate all savings which will satisfy the requirements of External Audit;
  • input into the annual VFM self assessment.
  1. In terms of monitoring on the delivery of the efficiency agenda, at an officer level it has been agreed that update reports will be submitted to the Corporate Management Team. Decisions are still required regarding the monitoring arrangements at Committee level.

The Backward Looking Annual Efficiency Statement for 2004/5

  1. In accordance with the timetable laid down by the ODPM, a backward looking AES, agreed by the Chief Financial Officer, Chief Executive and Leader of the Council, has been submitted to the ODPM.
  1. A copy of the AES, together with a more detailed attachment providing details on how each gain was generated are provided at appendices 1.1 and 1.2. From these appendices it can be seen that the gains can be sub-divided as shown on the table overleaf :-

2004/5 Backward Looking AES

Area / Cashable / Non Cashable / Total Gain
Service Based
1. Adult SS / £231,920 / £1,624,200 / £1,856,120
2. Children’s Services / £400,000 / - / £400,000
3. Culture and Sport / £99,000 / - / £99,000
4. Environmental Services / £176,000 / £13,000 / £189,000
5. Local Transport / £2,000,860 / - / £2,000,860
6. LA Social Housing / - / - / -
7. Non school Ed services / £30,000 / £113,000 / £143,000
8. Supporting People / - / £560,000 / £560,000
9. Homelessness / - / - / -
Cross Cutting
10. Corporate Services / £176,000 / £76,350 / £252,350
11. Procurement / £365,000 / £50,000 / £415,000
12. Productive Time / - / - / -
13. Transactions / £61,300 / - / £61,300
14. Misc / £361,000 / £30,300 / £391,300
TOTALS / £3,901,080 / £2,466,850 / £6,367,930
  1. At some point in the future the backward looking AES will be audited by the External Auditors of the authority. The scope and extent of this audit coverage is, as yet, unknown.
  1. It should be stressed that, in relation to the cashable gains identified in relation to 2004/5, these have already been re-invested in other service areas during 2004/5 and/or base budgets have been reduced to reflect the gain/saving identified. Hence, for budget purposes, these gains/savings have already been accounted for. However, the identification of these gains means that the authority has already identified over 75% of the first year gains required under the Gershon target.

The Forward Looking Annual Efficiency Statement for 2005/6

  1. Given the timescales involved, and the fact that by the deadline for submission (15th April 2005) some of the rules and guidance subsequently issued by the ODPM was not available, GCC, like many other authorities, submitted an “overview” forward looking AES. This “overview” identified savings which could be treated as reportable efficiency gains which had already been taken into account within the 2005/6 budget, known areas where significant efficiencies were being worked upon to contain expenditure within budget, e.g. Supporting People, and other areas where gains were thought to be achievable.
  1. A copy of the forward looking AES for 2005/6, together with a more detailed attachment supporting the summarised proposals in the AES, are provided at appendices 2.1 and 2.2. From these appendices it can be seen that, at this stage, the gains are forecast as shown in the table overleaf. However, it should be stressed that, given the timetables involved, the lack of guidance, and the fact that the ODPM has now indicated that it may accept amended backward looking AES’s for 2004/5, the expectation is that all authorities will be given the opportunity to submit amended AES’s for 2005/6 when updates are required in November 2005. It is also stressed that there is a degree of double counting between the 2004/5 backward looking AES and the 2005/6 forward looking AES, however, the “bottom line” is that the combined 2004/5 and 2005/6 gains will significantly exceed the first year target figure.

2005/6 Forward Looking AES

Area / Cashable / Non Cashable / Total
Service Based
1. Adult SS / £3,500,000 / £1,750,000 / £1,750,000
2. Children’s Services / - / £52,000 / £52,000
3. Culture and Sport / - / £80,000 / £80,000
4. Environmental Services / £271,000 / £13,000 / £284,000
5. Local Transport / £630,000 / £291,000 / £921,000
6. LA Social Housing / - / - / -
7. Non school Ed services / £111,000 / - / £111,000
8. Supporting People / - / £1,300,000 / £1,300,000
9. Homelessness / - / - / -
Area / Cashable / Non Cashable / Total
Cross Cutting
10. Corporate Services / £600,000 / £1,000,000
11. Procurement / £355,000 / £75,000 / £430,000
12. Productive Time / - / £100,000 / £100,000
13. Transactions / £7,000 / £60,000 / £67,000
14. Misc / £600,000 / - / £600,000
TOTALS / £4,324,000 / £4,121,000 / £8,445,000
  1. It is intended that the outline proposals which support the 2005/6 AES and/or new proposals to be included, are examined in more detail during the summer period, with the aim being to produce more detailed, costed proposals for monitoring during 2005/6, and for inclusion with the update required by the ODPM in November 2005.
  1. In terms of comparison with other County Councils, an analysis of the Gloucestershire 2005/6 forward looking AES compared with the average for all counties is provided at Appendix 3. From this appendix it can be seen that Gloucestershire has identified slightly higher potential gains than average, although the proportion of cashable gains is lower than average.
  1. It is suggested that the Committee receive an update on progress in meeting these target gains at its meeting in October 2005.

The Efficiency Agenda and its links with CPA

  1. Under the new arrangements for CPA, effective from 2005, GCC will receive an annual assessment for “Use of Resources” which, given that “Use of Resources” has now been categorised as a level 1 service, will have the same impact on the overall authority CPA rating as Education and Social Services.
  1. Members of the Committee may be aware that GCC currently has been given a score of 4 out of 4 for “Use of Resources”. However, since the last assessment there have been some major changes in the methodology adopted for future “Use of Resources” assessments, notably :-
  • “Raising the bar” by changing the scoring system use, e.g. “adequate arrangements” previously received a score of 3, under the new arrangements “meeting minimum requirements” now only scores a 2.
  • Significantly enhancing the criteria to be satisfied to achieve each score level.
  • Introducing two new categories of assessment :-
  • Financial Reporting
  • Value for Money

It has been widely reported that the expectation is that the introduction of these changes will see a major reduction in the number of authorities awarded scores of 4, or even 3 out of 4 for the “Use of Resources” CPA.

  1. In terms of the efficiency agenda, it is central to the specific value for money judgement that will be awarded under CPA, since the key lines of enquiry to be followed for the VFM assessment include an examination of the achievement of the Gershon gains. Indications from the Audit Commission are that, from 2006, authorities which do not achieve their efficiency targets will be awarded low scores 4 for VFM. Low scores for VFM would see the overall rating for “Use of Resources” fall significantly, which would guarantee a fall in the overall rating given to the authority. Hence, failure to deliver on the efficiency targets would have a significant and direct effect on the overall CPA rating awarded to the authority.
  1. In terms of the “Use of Resources” CPA for 2005/6, a similar approach will be used in relation to the submission of a self assessment, with supporting evidence, in relation to the four assessment headings with strong financial links, these being :-
  • Financial reporting – how good are the council’s financial accounting and reporting arrangements?
  • Financial management – how well does the council plan and manage its finances?
  • Financial standing – how well does the council safeguard its financial standing?
  • Internal control – how well does the council’s internal control environment enable it to manage its significant business risks?
  1. With regard to VFM, the authority is required to submit, by the end of July 2005, a detailed self assessment which provides a clear understanding of relative costs of services and comparisons with other County Councils. This self assessment has to address all of the key line of enquiry questions detailed in Appendix 5 to this report. In summary, we have to satisfy the following criteria to achieve a high score in this area :-
  • Sound procedures are in place for reviewing and improving value for money, which have led to significant improvements.
  • Targets are set to improve efficiency and value for money.
  • Improvements in value for money can be demonstrated from significant procurement activities.
  • Options for joint procurement have been explored.
  • Efficiency / Best Value reviews are undertaken.
  • Investment is made in poorer services.
  • External funding is sought.
  1. The process of producing the VFM self assessment, and the assessments for the other four areas have commenced, with the intention being that the VFM assessment is finalised following input from the Senior Managers Conference in mid July 2005.

Taking forward the efficiency agenda