Posted on Wednesday 13 November 2013 by Ulster Business

Simon Hamilton

Government departments and public sector bodies will have to axe services that don't produce results as budget cuts imposed by Westminster start to bite, according to Finance Minister Simon Hamilton.

Speaking to Ulster Business the day after delivering the first of what will be an annual Budget-style statement following the October monitoring round, the Minister said reforming the public sector could no longer be about reprioritising spending but would require tough decisions and innovative thinking.

The part of his address that raised eye-brows were the forecasts that departmental resource budgets at Stormont could be cut by 10.4% in real terms by 2017/18.

Mr Hamilton told Ulster Business reductions in current budgets each year could put pressure on day to day expenditure on essential services like running schools and hospitals unless less successful services are cut.

"You either come at it from the perspective of 'we've less money so we're going to provide less' – which I don't think we'd get away with – or you take a critical look at some services and ask 'are those services working, are they providing the outcomes we desire' and if they're not departments should be asking themselves should we provide them?" he said.

"We haven't got the money any more to squander on providing services that aren't working."

Public sector reform is the issue Hamilton has focused on most since succeeding his DUP colleague Sammy Wilson as Finance Minister at the end of July.

He believes that while it has been difficult for departments in recent years, Northern Ireland has yet to feel the full force of the Coalition government's austerity policies – something that will change as Chancellor George looks to achieve his goal of running a budget surplus by 2020 by reducing resource expenditure as tax receipts rise in an improving economy.

"The platform is not burning but it looks like it could catch fire. If you compare us to the Irish Republic, their platform is on fire so they're having to reform. But they don't have time to reform in the right way, they're having to cut very quickly. But I can see five years down the line where pressure is really going to hit us and we've got to start thinking about what we're going to do now to avoid that," he said.

REFORM DIVISION

To shape the transformation agenda Hamilton has formed a unit called the Public Sector Reform Division within the Department for Finance and Personnel.

Its aim is to provide support to Northern Ireland departments in the implementation of reform across the public sector and to encourage innovation in service delivery by identifying and sharing best practice. Responsibility for planning and implementing reforms will remain with departments but the Minister says the Division will not just be a toothless tiger or a talking shop.

"We are the department that has the money. Reform always requires some investment up front so it's good for departments to work with us from the outset," he said.

Colin Sullivan, formerly of DSD, is heading up the new division and it has been questioned in some quarters whether installing someone from a public sector background to reform the public sector will really engender change.

"I've heard the argument that we should have had someone from the private sector heading this up and I can see superficially why that might appear to be a good idea. But the risk of that is the person would not have an understanding of how the public sector works and might take the view that, this is the way we do it in business, this is how you should do it here," the Minister said.

"We have different rules and standards and there's politics involved. Politics can frustrate people from the private sector. I think it needs someone with a private sector approach but a public services background. It is not about turning the public sector into a business, it is about us being much more business like."

One of the Division's projects will be to look at the potential of using social investment models and payments by results contracts. Hamilton sees potential for such contracts in health, social development and justice.

"Instead of paying for failure, which is what we have been doing sometimes, we'd start to pay for success. We construct contracts in such a way that the company or charity or social enterprise who are delivering for you only get paid when they hit certain measured outcomes," he explained.

"People are critical of government because they are paying a fortune in taxes and rates every year and they are seeing, in many cases, minimal change in the standard of the services that are being delivered. That doesn't have to be the way. It will require a complete mindset change within departments, but the role of the division is to champion that change."

Having visited the OECD's public service innovation observatory in Paris as well as Estonia, Denmark and Wales, Hamilton says there is a lot of "best practice" that Northern Ireland can draw on while also sharing its own successes.

"When I've visited other countries or parts of the UK, one of the things that is reassuring is that everybody is grappling with the same issues that we're grappling with. We're not doing this in isolation, other states are dealing with cut budgets, less resource expenditure, the public demanding more for less. If you look at comparable states like Wales, the Nordic countries, what they are doing to solve those problems probably has more of a read across to Northern Ireland than Germany does or Italy or UK government nationally," he said.

Plans are underway to emulate a Danish unit to which civil servants are encouraged to take ideas for improvement to be tested, scaled up and potentially rolled out across government.

"Some of the best reforms are going to come from lower levels within government. But often you hear from civil servants that they don't feel comfortable taking ideas to their superiors or they don't have time to take it forward, they don't want to take a risk. So you have to almost create a physical environment for them to go to," said Hamilton.

The Minister also expects procurement – an area that has been the subject of many less than successful reforms – to feature heavily in the Division's remit.

"I want to use the £3bn we spend every year on goods and services to be generating more opportunities for the companies delivering those services to be creative," said Hamilton.

"If you have a problem how do you use the power of the public purse to solve that problem. If that problem is solved by a local company then that company can sell that product or service elsewhere and it starts to grow their business. So instead of the public sector being a benign purchaser of goods and services it becomes an enabler for economic growth. The best area that can happen in is probably local government."

After the Review of Public Administration, 11 new super councils with extended powers will be operational by 2015, and the Minister believes they can use those powers innovatively, particularly in capital infrastructure investment. He notes that unlike Stormont, the councils are not constrained in terms of borrowing and could conceivably go to the European Investment Bank for funding, raise bonds and use Tax Increment Financing or other innovative financial instruments.

"If you're a council and you have regeneration powers, power of community planning, you are the planning authority, there's no reason if you wanted to shape your council area better that you couldn't go out and look at those instruments. They might not be appropriate but we want to get them at least thinking that way," he said.

Hamilton believes that with better collaboration within the public sector, a lot of reforms can be set in motion sooner rather than later.

"I don't expect the public sector's contribution to the economy or the number of people it employs to drop drastically over the next number of years," he added.

"Our strong public sector has been something of a cushion over the last number of years but I think the message is now that it is going to be continually under threat so we have to be innovative and creative to deliver services."

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