Efficiency savings and job cuts

Tweet It's hard to disagree with the notion that organisations, including public ones, should do things in the most efficient way possible. So the phrase 'efficiency savings' has a nice friendly ring to it; much nicer than the idea of 'cuts'. In practice, however, they frequently amount to the same thing - the way the government achieves its 'efficiency savings' is simply to cut budgets and tell the budget holders to find a way of managing on less money. Whether they do so by actually achieving the same outcomes for less money, or by changing the outcomes, is entirely down to what they can actually (as opposed to theoretically) achieve.

One of the major elements of the government's proposed efficiency savings in this week's budget is something called 'extended collaborative procurement'. A lovely piece of jargon; but what I think it means is that if public bodies work together to buy their goods and services, they can purchase those goods and services in fewer, bigger, contracts, and they can manage both the procurement process and the implementation of the contract with fewer staff, as well as getting lower prices by buying in bulk.

Simple, and effective; and clearly a genuine efficiency saving. But it isn't the whole story, because there are other consequences of this.

The most obvious is that bigger contracts are more likely to go to bigger companies – and bigger companies are likely to be less local – so money flows out of local economies into the 'headquarters' of the organisations concerned. The jobs in those headquarters are often better paid than the jobs of the operatives delivering the goods or providing the services. And that differential in salaries is one of the reasons why those places which serve as headquarters for large companies tend to have higher GVA per head than those areas which only have the staff delivering the goods or providing the services.

I'm aware of two instances recently where companies headquartered in Carmarthen have lost out in bidding for contracts to the public sector, to be replaced by larger companies headquartered outside the county. I don't doubt that proper procurement processes were followed, and that the public authorities concerned have duly made their 'efficiency savings' by awarding the contracts in the way that they have. But is the decision 'right' in overall terms for the local economy?

There are times when, for a slightly higher cost, and by awarding a larger number of smaller contracts, public bodies can keep more of the money and jobs locally, and the overall effect on local GVA per head will be more positive – and I'm utterly convinced that too many public authorities are looking only at the short term cash savings which can be achieved, rather than at the greater picture.

It's not helped by government – including in this case, the Assembly Government. Whilst the left hand of the Assembly Government (Economic Department) has talked a great deal recently, as a result of the economic summits, of encouraging public authorities to 'buy local' (quite rightly), the right hand (Local Government Department) seems still to be encouraging local authorities to join bigger and bigger purchasing consortia to achieve more and more 'efficiency savings'. They can't both be right – and it isn't what I would call 'joined-up' government.