Generating savings and income opportunities

Report of the Budget Scrutiny Committee

September 2016

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Chair’s Foreword Cllr Alistair Strathern Recent years have been an especially challenging time in Local Authority funding, with cuts from central government ushering in an era of unprecedented funding pressure. Here in Waltham Forest alone, we’ve been forced to identify necessary savings totalling some £110m since 2010. In the face of this challenge, we’ve had to look for increasingly innovative and creative ways to provide and fund the services we all rely on. To this end, the council launched its ambitions Redefining Waltham Forest program, a fundamental review of the services we provide and the way we provide them.

This report, Generating savings and income opportunities, aims to provide a mid-program ‘check in’ on how the project has been delivered, challenging ourselves to consider what lessons can be learned, and to think of ways we can be even more ambitious and inventive in maximising the services we are able to provide.

This report highlights many positives in the program, with the council’s proactive, strategic approach to addressing funding challenges enabling services to be designed in a thoughtful and creative manner, minimising where possible the knock on impact to residents and in some cases even improving the service provided. We also highlight some opportunities for improvement, from firming up the links between savings targets and service performance tracking to challenging ourselves to be more ambitious in our approach to generating revenue through other means. This latter aspect perhaps offers the greatest area of opportunity for Waltham Forest, with additional revenue generation providing valuable independence from central government to fund and protect the services we all rely on locally. We would challenge the council to be as ambitious as possible here, evaluating what opportunities the continued regeneration of

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the borough offers us to capture value for the benefit of all current and future residents of Waltham Forest.

To conclude on a personal note, I would like to thank my fellow committee members and officers without whose engagement and insights this report would not be possible.

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Members of Budget Scrutiny Committee 2015/16

Councillor Jenny Gray

Vice Chair

Councillor Kastriot Berberi

Councillor Peter Herrington

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Summary of recommendations

Recommendation 1: Performance reporting against the Council’s Key Performance Indicators should be linked with savings achieved through the Redefining Waltham Forest programme to enable the Council to see clearly how savings impact on the delivery of outcomes.

Recommendation 2: Ensure elected members and the Management Board continue to provide strong and high-level leadership for the Redefining Waltham Forest programme, particularly as it is becoming increasingly harder to find savings without even greater impact on the borough’s residents.

Recommendation 3: The Council should consider options for strengthening the support that is provided to staff who are affected by organisational change, with a particular focus on supporting individuals and teams to understand, influence and adapt well to the changes the Council is making.

Recommendation 4: Develop an income generation strategy, covering the development of opportunities arising from the Council’s charging and trading powers. The strategy should set out consistent processes for setting and reviewing fees and charges, and for developing business cases for new commercial opportunities. It should also explore the suitability of setting Council departments income generation targets.

Recommendation 5: Explore further the potential of using the Housing SPV as the Council’s trading company; considering not only a more ambitious approach to acquiring land, developing, owning, and managing housing and other property assets but also opportunities to enter into wider commercial acquisitions which could both support the council's growth strategy and support the funding of future service provision.

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Recommendation 6: Elected members and the Management Board should provide strong leadership for the Council’s income generation strategy. A progress report on income generated from council services should be made available to the Cabinet and Management Board on a quarterly basis.

Recommendation 7: Invest in staff training to develop commercial awareness and skills within the organisation to explore and exploit income generation opportunities.

Recommendation 8: Develop fundamental principles in an income generation strategy to ensure that the Council can achieve some of its income potential whilst protecting organisational integrity.

Recommendation 9: Elected members and the Management Board should provide strong leadership for contract management to ensure that the new strategic approach is prioritised across the Council, and ensure that investment in the appropriate systems is in place to allow for robust comparative assessment of contacts. A report on contract management should be made available to the Cabinet and Management Board on a quarterly basis.

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Introduction1.1.The combination of funding and cost pressures that have faced local government over

recent years has led to a situation where the Council is expected to have identified and delivered savings totalling some £110 million in the period 2010/11 – 2016/17.

1.2.The impact of austerity on its budgets has created significant challenges for the Council to maintain quality services which deliver strong outcomes through more efficient and innovative ways of working.

1.3.Recognising the significance of this challenge, our Committee launched a review into the effectiveness of the council in managing its ongoing financial sustainability as part of our 2015/16 work programme.

1.4.Our focus has been on three key aspects of the Council’s approach to addressing the reduction in the funding it receives from central government, whilst continuing to deliver services that meet residents’ needs:

Generating savings Generating income opportunities Contract management

1.5.The Committee received evidence on the Council’s approach to these three key areas at regular intervals throughout 2015 and the early part of 2016. This report details the key issues and findings of the review undertaken by the Budget Scrutiny Committee during the 2015/16 municipal year into the Council’s approach to generating savings and income opportunities, and managing contracts.

1.6.The review was led by Cllr Alistair Strathern, Chair of Budget Scrutiny Committee during the 2015/16 scrutiny cycle. Evidence was gathered across the 2015/16 meetings of the Committee.

1.7.The report puts forward a number of recommendations, which it is hoped will support the Council to continue to maintain quality services which deliver strong outcomes for residents, whilst operating with significantly reduced budgets.

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Generating savings

Redefining Waltham Forest programmes

1.8.Due to the austere financial times the public sector has experienced, the Council has faced the challenge of reducing its budgets on an annual basis over a number of years.

1.9.In the four year period following the government’s 2010 Spending Review, the Council identified and delivered savings totalling some £65 million - equivalent to a budget reduction of 28%. These reductions in budgets were achieved through the Council deciding to identify and implement the funding cuts as early as possible in order to stabilise the Council’s financial position and focus on delivering resident’s priorities. This strategy enabled the Council to avoid year on year budget saving activities and created the environment to plan how the Council might respond in the event of further funding reductions.

1.10.Additional funding reductions were announced in the Chancellor’s 2013 budget and the Council estimated that it would need to achieve a further savings of £45m during 2015/16 and 2016/17. As it was becoming increasingly difficult each year to find savings while continuing to deliver services that meet residents’ needs the Council identified the need to change its strategy for reducing budgets.

1.11.To assist in this process, the Council commissioned Price Waterhouse Coopers (PWC) to conduct a review of key corporate and operational services within the Council to identify potential cost reductions and service improvements that could be achieved.

1.12.Based on the key findings of the PWC review, the Council instigated a an organisational change programme known as Redefining Waltham Forest [RWF] in October 2013 which aims to deliver sustainable services that meet residents’ needs while managing on significantly reduced budgets. The programme focused on tackling eight themes: Local Democratic Leadership, Commissioning for Outcomes, Customer Insight and Digital Services, Business Support Functions, Innovation in Service Delivery, Procurement and Contracting, Efficiency, and Business Change.

1.13.As subsequent reductions in local government funding have come to light the Council has developed and agreed a new savings schedule RWF2 in July 2015, which itself was refreshed and renamed RWF2020 following the 2015 Comprehensive Spending Review.

1.14.The total volume of savings in delivery through RWF is currently estimated at £36.854m of which £17.714m is secure (i.e. requires no further action); £6.58 million is

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considered on track to be achieved (no senior management intervention is required); £10.514 million can realistically be expected to be achieved (however, senior management intervention is required or underway); and £2.046 million is not on track to be achieved either partly or in full.

Assessment of RWF

1.15.The Committee considers that the impact of austerity on budgets has created a significant challenge for councils to maintain quality services which deliver strong outcomes through more efficient, innovative and collaborative ways of working.

1.16. Whilst reductions in budgets have previously been achieved through a process whereby Services identified potential savings year on year, the sheer scale of cuts in government funding to councils since 2010 has made this ‘salami slicing’ approach ineffective and redundant. Councils have needed to place increased emphasis on achieving efficiencies through a more corporate and managed approach.

1.17.RWF represent a wide-ranging service transformation programme, comprising a number of reviews of the Council’s services and ways of working to improve the performance and standards of service and provide value for money for local people.

1.18.It was recognised at the start of this review that it was unlikely the Committee would be able to make a full assessment of whether the RWF was meeting its objectives at this stage. However, discussions with the relevant officers suggest the approach is sound and that the priority areas being considered are those that would be expected in a council context.

Delivering Savings

1.19.The Committee noted that total volume of savings in delivery through RWF is currently estimated at £36.854m of which £17.714m is secure (i.e. requires no further action); £6.58 million is considered on track to be achieved (no senior management intervention is required); £10.514 million can realistically be expected to be achieved (however, senior management intervention is required or underway); and £2.046 million is not on track to be achieved either partly or in full. The Council’s approach to savings has been to plan ahead and deliver change as early as possible and this has left it in a strong financial position.

Consideration of impacts on service delivery/performance

1.20.The Committee heard evidence that savings have been achieved largely without impacting on the quality of services delivery for majority of Waltham Forest residents.

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The Committee did however note that in 2015, 80 residents had been reported to have been impacted by changes to Adult Social Care (savings relating to the Independent Living Fund, with 17 of these residents also impacted by other savings as part of Welfare Reforms). Some families will also be affected by the ‘benefits cap’ so it may be a while before the full situation can be accurately assessed.

1.21.The Committee noted that some of the issues relating to Adult Social Care are complex, involving multiple agencies and funding streams. The Families Directorate will be undertaking a major project to individually review impacting issues and the Committee requested for an update at a future meeting.

Monitoring and reviewing outcomes

1.22.Committee noted that RWF is led by the Leader of the Council and the Deputy Leader and a programme office has been formed to coordinate and monitor the work being undertaken.

1.23.The programme office regularly monitors delivery of agreed savings and provides performance reports to Cabinet and the Budget Scrutiny Committee, which indicate the Council is on track to achieve the required savings.

1.24.The Committee noted, however, that the Council’s reporting systems did not make links between savings achieved through RWF with performance against Key Performance Indicators (KPIs). As the Committee’s remit is expanded in 2016/17 to include monitoring and scrutinising the Council’s performance, the Committee considers that reporting on performance and savings achieved through RWF should be linked to enable it to see clearly how savings impact on delivery of outcomes.

Recommendation 1: Performance reporting against the Council’s Key Performance Indicators should be linked with savings achieved through the Redefining Waltham Forest programme to enable the Council to see clearly how savings impact on delivery of outcomes.

1.25.Regular reviews of outcomes are also carried out at highest level – in particular the Council had demonstrated it is maintaining a ‘big picture’ view of financial pressures affecting it and continuously reviewing how these might impact on RWF. For example, as subsequent reductions in local government funding have come to light the Council has developed and agreed a new savings schedule RWF2 in July 2015, which itself was refreshed and renamed RWF2020 following the 2015 Comprehensive Spending Review.

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1.26.The Committee considered that continued strong and high-level leadership from elected members and the Council’s Management Board is essential for the success of RWF, particularly as it is becoming increasingly harder to find savings without even greater impact on the borough’s residents.

Recommendation 2: Ensure elected members and the Management Board continue to provide strong and high-level leadership for the Redefining Waltham Forest programme, particularly as it is becoming increasingly harder to find savings without even greater impact on the borough’s residents.

Communications

1.27.The Committee noted that the most recent whole Council staff survey showed that 87% of staff are aware of RWF and 79% understand what the programme is aiming to achieve. Moreover, the committee noted that a range of measures have been put in place to provide staff with regular information about RWF and progress with programme delivery, including weekly Management Board blogs, a monthly RWF blog and poster campaign, and service-specific briefings. In addition, the committee noted plans to invite all Council staff to a briefing with the Leader and Chief Executive in June/July to hear about the Council’s future direction, including the plans for RWF2020.

1.28.The Committee also considered the approach to communicating with staff when their roles are directly affected by organisational restructuring. It noted that the Council has a clear approach to communicating and engaging with staff in these circumstances; nevertheless, it recognised that this can be a very challenging time for affected staff, especially as many will have now been involved in more than one restructure since 2010. Within this context, the Committee considers the approach to communicating, engaging and supporting staff affected by change as an important priority – during both the consultation and implementation processes. It therefore recommends that the Council considers options for strengthening the support that is provided to staff when their roles are affected by change, with a particular focus on supporting individuals and teams to understand, influence and adapt well to the changes the Council is making.

Recommendation 3: The Council should consider options for strengthening the support that is provided to staff who are affected by organisational change, with a particular focus on supporting individuals and teams to understand, influence and adapt well to the changes the Council is making.

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Generating income opportunities1.29.As has been stated elsewhere in this review, the Council’s current financial situation

is exceptionally challenging. The Council’s reduced its budget by £65m in the four year period following the 2010 Spending Review and is on course to deliver a further £36 million reduction by 2017.

1.30.With the expectation for the withdrawal of direct central government funding by the end of the decade and an increasing reliance on localisation of business rates, it is essential for local authorities such as Waltham Forest – predominantly residential in nature with a comparatively small business base - to plan proactively for generating income opportunities that will contribute towards their own sustainability, and fund future service delivery.

1.31.The recent Local Government Association (LGA) report Under Pressure suggests maximising income from investments, fees and charges is now one of the most common budget strategies being followed by local authorities. The report states that some of the strategies being adopted include:

Ensuring investments generate the maximum possible income Changing fee charging structures to ensure that, while remaining equitable, service

charges move closer to recovering the full costs of providing those services. Maximising the income generated by assets.

1.32.Specific powers to charge for services are contained in a variety of local government statutes. Under the Local Authorities (Goods and Services) Act 1970 councils were given powers to enter into agreements with each other and with a long list of other designated public bodies. The Local Government Act 2003 added further possibilities. It enables councils to trade in activities related to their functions on a commercial basis with a view to profit through a company. In addition, the 2003 Act empowers councils to charge for any discretionary services on a cost recovery basis. Originally, trading through a company was confined to certain categories of councils but a Trading Order, in force since October 2009, removed such restrictions.

1.33.The new General Power of Competence (GPC) contained in the Localism Act 2011 now sits alongside local government’s existing powers to trade and charge. The General Power of Competency states that councils have the power to do anything an individual may do unless specifically prohibited. This has allowed councils additional flexibility but there are still substantial constraints as under the GPC they are only

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allowed to charge for discretionary services and fees must be limited to recovering costs and not to generate a profit or surplus. These limitations to the ability of councils to generate profit have meant that many have set up trading arms or limited companies in order to generate a profit that can affectively be fed back into a council’s general fund.

The Waltham Forest approach

1.34.The Committee’s brief look at the Council’s approach to developing revenue opportunities during 2015/16 was underpinned by three core questions:

What evidence is there of the Council’s activities relating to the development of new revenue opportunities

What are the challenges faced by the Council in maximising income generation within the existing framework?

What options are available for improving these processes (i.e. what are other Councils doing)?

What evidence is there of the Council’s activities relating to the development of new revenue opportunities

1.35.Income can be generated for the Council in the following ways:

Charging for certain statutory or discretionary services or goods linked to current business

New business ventures linked to current business New ventures outside of current business Sponsorship and/or advertising of current assets and/or services

1.36.The Committee received information from officers of the Council’s activity aimed at maximising income that it can raise at a number of its scrutiny meetings, including:

two fundamental reviews of fees and charges relating to leisure and parking services, with subsequent introduction of new charges in some areas

the creation of the Neighbourhood and Commercial Services Group to enable the Council to deliver more of its universal services through the neighbourhood model, and develop opportunities to generate new income from some of the Council’s core public realm services, while also creating scope to explore new commercial opportunities especially within Business Support.

development of a new sponsorship strategy aimed at leveraging more advertising income

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utilising assets for new income generation opportunities, for example holding wedding fairs and patenting William Morris

pursuing shared service arrangements exploring trading services with schools in the borough

1.37.There were also plans for exploring additional income generation opportunities relating to the Council’s new Private Sector Licencing Scheme and from the Council’s Housing Special Purpose Vehicle (SPV) over the next year.

1.38.The Committee noted that although there are a number of plans and a great deal of activity underway, there did not appear to be a consistent strategic approach employed across the Council for maximising income generation. It considered that the Council could benefit from developing an income generation strategy, covering the development of opportunities arising from the Council’s charging and trading powers. The strategy should set out consistent processes for setting and reviewing fees and charges, and for developing business case for new commercial opportunities. It should also explore the suitability of setting Council departments income generation targets.

Recommendation 4: Develop an income generation strategy, covering the development of opportunities arising from the Council’s charging and trading powers. The strategy should set out consistent processes for setting and reviewing fees and charges, and for developing business case for new commercial opportunities. It should also explore the suitability of setting Council departments income generation targets.

1.39.Committee considered that the Council’s should explore further the potential of using the Housing SPV as the Council’s trading company; considering not only a more ambitious approach to acquiring land, developing, owning, and managing housing and other property assets but also opportunities to enter into wider commercial acquisitions which could both support the council's growth strategy and support the funding of future service provision.

Recommendation 5: Explore further the potential of using the Housing SPV as the Council’s trading company; considering not only a more ambitious approach to acquiring land, developing, owning, and managing housing and other property assets but also opportunities to enter into wider commercial acquisitions which could both support the council's growth strategy and support the funding of future service provision.

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1.40.The Committee noted that the Council had recently set up a new Strategic Commissioning Board (SCB) to scrutinise and approve business cases and delivery strategies for all high value, high impact and complex projects, and to track delivery of these projects to ensure that the benefits are realised, whether savings, income or community benefits. It considered that the SCB had a very important role to play in ensuring that approaches for income generation are prioritised consistently, and consider their whole council potential fully.

1.41.The Committee did however consider that the Council’s elected members and Management Board should provide strong leadership and direction on income generation as this is increasingly an essential Council activity and vital to sustaining services and to meet policy aims. The Council’s Cabinet and Management Board should receive regular reports on income generated by council services.

Recommendation 6: Elected members and the Management Board should provide strong leadership for the Council’s income generation strategy. A progress report on income generated from council services should be made available to the Cabinet and Management Board on a quarterly basis.

What are the challenges faced by the Council in maximising income generation within the existing framework?

1.42.The Committee is aware of the challenges faced by the Council in introducing a more commercial approach, which include a lack of resources, meaning that Council managers may tend to focus on core service delivery, rather than maximising income. It considered that there was a need to change the culture of the organisation so that staff are able to generate and exploit income generating opportunities for the Council. The Committee are of the view therefore that there should be investment in staff training, in order to develop commercial awareness and skills within the organisation and develop expertise across the Council to determine what other services could compete in the market place.

Recommendation 7: Invest in staff training to develop commercial awareness and skills within the organisation to explore and exploit income generation opportunities.

1.43.The need to maximise income through charges also has to be balanced by consideration of the current economic climate and in particular the ability in the current climate for charge payers to be able to afford increased charges. Many of the charges

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made by the Council affect some of the poorest and most vulnerable of our citizens and the potential impact of any proposed increases on such groups always needs to be considered before any increases are implemented. An income generation strategy should set out some fundamental principles for the Council to follow to ensure that it can begin to achieve some of its income potential whilst protecting organisational integrity.

Recommendation 8: Develop fundamental principles in an income generation strategy to ensure that the Council can achieve some of its income potential whilst protecting organisational integrity.

What options are available for improving these processes (i.e. what are other Councils doing)?

1.44.The Committee considers that an increasing number of local authorities are pursuing strategies for generating more income, as highlighted in the LGA report Under Pressure. The report also sets out a number of innovative practices from councils focussing on: fees and charges; the commercialisation of staff; mutuals; generating income through assets, concessions and advertising; and setting up trading arms.

1.45.The Committee considers that it would be informative for the Council, in developing its income generating ideas, to explore what other councils are doing to maximise the generation of income and would any of these initiatives be suitable for implementation in Waltham Forest?

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Contract Management1.46.The Council spends approximately £250 million on third party goods and services. It

is therefore essential that there are robust processes in place to ensure that supplier performance is managed appropriately and effectively. Effective contract management ensures that the contracts which underpin services to residents are of the expected standard in terms of performance, quality and cost as agreed when initially awarded.

1.47.The Committee heard evidence that Strategic Contract Management has been established as a discipline within Service Design. There is a distinction between operational contract management which focuses on day to day service delivery and Strategic contract management which deals with delivery against the contract, takes account of trends and innovation, and includes monthly, quarterly and annual performance review against Key Performance Indicators (KPIs) and overall delivery of the outcomes required.

1.48.As the Council has some four thousand suppliers, the approach to contract management is flexible and can be tailored accordingly. For example, the approach need not be so rigorous in an area such as stationery supplies, where the contract can easily be changed, compared to the major, more long-term commitments in Neighbourhoods or residential care which have sophisticated KPIs.

1.49.The approach to managing key contracts is improving supplier performance and delivering innovation and enabling interventions where appropriate although further work needs to be done to embed the approach consistently across the organisation and this has been highlighted in the Council’s new Procurement Strategy, agreed by Cabinet in April 2016.

1.50.Savings already achieved through strategic contract management include savings in Homecare (£350k) and Transport (£250k) which were as a result of one-off negotiations; saving of over £1 million on Homelessness, which was the result of a “whole service” review and the decommissioning of services not delivering the intended outcomes. Further savings are anticipated from a new single contract for the Council’s Information, Advice and Advocacy (IAA) services, which had previously been provided through a number of different contracts with significant duplication and fragmentation across Waltham Forest.

1.51. As already noted earlier in this report, the Council has recently set up a new Strategic Commissioning Board (SCB), chaired by the Director of Supply Chain, to scrutinise and approve business cases and delivery strategies for all high value, high impact and complex projects and ensure they are linked to outcomes. SCB will track

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delivery of these projects to ensure that the benefits are realised, whether savings, income or community benefits. SCB will also monitor the performance of Council services, whether delivered in-house or by third parties.

1.52.The Committee commended the Council for implementing a strategic contract management approach, although this approach now needs to be applied consistently across the whole organisation – a crucial initial objective for the SCB. The Committee also praised the Council for setting up the SCB to ensure that there is an independent commercial challenge for its major commissioning activity and that the new strategic approach is applied consistently across the Council. The Committee did, however, raise some concerns that there is as yet no overall contract management system in place, so that information is collated to show which contracts are likely to perform well or poorly.

1.53.As in its review of Council’s approaches to generating savings and income opportunities, the Committee considers that to ensure approaches for contract management are prioritised and applied consistently across the whole council there is a need for elected members and the Management Board to lead on this work from the centre. A report on contract management should be made available to the Cabinet and the Management Board on a quarterly basis.

Recommendation 9: Elected members and the Management Board should provide strong leadership for contract management to ensure that the new strategic approach is prioritised across the Council, and ensure that investment in the appropriate systems is in place to allow for robust comparative assessment of contacts. A report on contract management should be made available to the Cabinet and Management Board on a quarterly basis.

1.54.The Committee also felt that although savings already achieved are impressive, it wanted to be assured that the new approach to contract reviews will produce genuine savings rather than back-door costs down the line.

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Conclusion6.1 Following our short review, the committee concludes that the Redefining Waltham

Forest project is progressing well, with the council’s proactive approach to addressing financial challenges enabling services to be delivered in a cost effective way which minimises the adverse impact on residents.

6.2 The committee have also set out some clear recommendations for improvement which the council should explore, which cover the continued drive for savings, and challenging ourselves to be more ambitious in our approach to generating revenue through other means.

6.3 We know that by 2020 Councils will be expected to be financially self-sufficient, as funding will come exclusively from council tax and business rates rather than central government grant. This means that it is more important than ever that the Council generates more income from trading services with business and partners, and offer some enhanced, paid-for services to residents.

6.4 This move to generate more income offers the greatest area of opportunity for Waltham Forest, with additional revenue generation providing valuable independence from central government to fund and protect the services we all rely on locally.

6.5 Through the recommendations in this report the committee would challenge the council to be as ambitious as possible in coming years, capturing the opportunities the continued regeneration of the borough offers us to ensure good value for money services for the benefit of all residents of Waltham Forest.

Policy and Public Affairs Team

Communications and Communities Directorate

Waltham Forest Council

Waltham Forest Town Hall

Forest Road

London E17 4JF