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					                                                                             REFORM
Reducing the deficit and
improving public services
Improving public sector productivity
Public sector management
A new era: the rights and
responsibilities of individuals
and the government
Government as commissioner not
provider?


With Colin Barrow CBE, Aidan Connolly, The Hon Sir Roger Douglas,
Alan Downey, John Fingleton, Allister Heath, Rt Hon Margaret Hodge MBE MP,
Michael D M Izza, Bernard Jenkin MP, Rt Hon Francis Maude MP,
Colm McCarthy, Tony McGuirk QFSM, John McTernan, Amyas Morse,
Paul Pindar, Colm Reilly and Julie Spence OBE QPM


The London Stock Exchange
10 Paternoster Square
London EC4M 7LS

Wednesday 7 July 2010
Public Sector Productivity / Reform


Contents
Programme                                                   1
The Reform team – setting the agenda                         2
Improving public sector productivity                         3
Public sector management                                     5
A new era: the rights and responsibilities of individuals
and the government                                           8
Government as commissioner not provider?                    10
Reform – join us in 2010-11                                 15



Kindly sponsored by:




         Reform
         45 Great Peter Street
         London
         SW1P 3LT

         T 020 7799 6699
         info@reform.co.uk
         www.reform.co.uk
Public Sector Productivity / Reform


Programme
08.15 – 08.45   Registration and tea and coffee
08.45 – 09.00   Welcome and              Andrew Haldenby, Director, Reform
                introduction             Michael Izza, Chief Executive, ICAEW
09.00 – 09.30   Keynote speech           A keynote speech by Rt Hon Francis Maude MP, chaired by Andrew Haldenby, Director, Reform

                                         As Minister for the Cabinet Office and Paymaster General, Francis Maude is responsible for
                                         ensuring that public spending is brought under control without damaging public services. Mr
                                         Maude will make a keynote speech setting out the Government’s plans for reducing the budget
                                         deficit and improving public services.
09.30 – 10.30   Improving public         A panel debate chaired by Andrew Haldenby, Director, Reform
                sector productivity
                                         All public budgets will come under increased pressure as public spending is brought under control.
                                         The good news is that the fiscal crisis presents an opportunity to drive innovation and productivity in
                                         the public sector. But how can more for less be delivered in practice? What can be learnt from those
                                         who are already cutting costs while improving quality? How will the front line of services have to
                                         change?

                                         Bernard Jenkin MP, Chair, Public Administration Select Committee
                                         Aidan Connolly, Chief Executive, Sodexo UK & Ireland
                                         Colm McCarthy, Chair of Irish Special Group on Public Service Numbers and Expenditure
                                         Programmes and Lecturer in Economics, University College Dublin
                                         Alan Downey, Partner and Head of UK Public Sector, KPMG
10.30 – 10.45   Coffee
10.45 – 11.45   Public sector            A panel discussion chaired by Greg Rosen, Consultant Director, Reform
                management
                                         Reforming public services will involve reshaping the front line. Management is the key to a new era of
                                         greater productivity. A culture of poor performance management presents a barrier to those effective
                                         managers who do want to bring about change. What is needed is to transform the structure of our
                                         public services to support these leaders and to change the behaviour of the rest of the public service
                                         workforce. The key problems with current performance management structures and the changes
                                         needed to improve them will be discussed.

                                         John McTernan, former Political Secretary to Tony Blair
                                         Michael D M Izza, Chief Executive, ICAEW
                                         Tony McGuirk QFSM, Chief Fire Officer, Merseyside Fire and Rescue Service
                                         Julie Spence OBE QPM, Chief Constable, Cambridge Constabulary
11.45 – 12.45   A new era: the rights    A panel debate chaired by Lucy Parsons, Senior Economics Researcher, Reform
                and responsibilities
                of individuals and the   The link between taxation and public services has been broken, with the expectation that the UK can
                government               have high levels of public spending for moderate taxes. The British public are waking up to the
                                         realisation that we cannot have it all. The fiscal crisis will give way to new era of smaller government
                                         and balanced budgets. But this will require a radical shift in people’s expectations of the services and
                                         benefits available to them, and clarity from political leaders over the role of government.

                                         Rt Hon Margaret Hodge MBE MP, Chair, Public Accounts Select Committee
                                         The Hon Sir Roger Douglas MP, New Zealand Finance Minister 1984-88
                                         Colm Reilly, Head of Government Practice, PA Consulting
                                         Allister Heath, Editor, City A.M
12.45 – 13.30   Lunch
13.30 – 14.30   Government as            A panel discussion chaired by Nick Seddon, Deputy Director, Reform
                commissioner not
                provider?                In the new era of fiscal discipline government will have to do less. What it does do will have to be done
                                         in different ways. This session will examine how the government can best deliver those areas of public
                                         services that it is responsible for. How can it become a commissioner of more public services, rather
                                         than a provider, and how would this improve value for money? What is needed to improve
                                         procurement capabilities in the public sector? How can the private sector help drive innovation in
                                         public services?

                                         Cllr Colin Barrow CBE, Leader, Westminster Council
                                         Paul Pindar, Chief Executive, The Capita Group plc
                                         Amyas Morse, Comptroller and Auditor General, National Audit Office
                                         John Fingleton, Chief Executive, Office of Fair Trading
14.30 – 14.45   Close                    Closing remarks on the day’s discussions from Andrew Haldenby, Director, Reform and
                                         Nick Seddon, Deputy Director, Reform

                                                                                                                  www.reform.co.uk                   1
    Public Sector Productivity / Reform


The Reform team –
setting the agenda


    Andrew Haldenby,      Nick Seddon,           Dr Patrick Nolan,     Lucy Parsons,          Kimberley Trewhitt,    Greg Rosen
    Director, Reform      Deputy Director,       Chief Economist,      Senior Economics,      Researcher, Reform     Consultant Director,
                          Reform                 Reform                Researcher, Reform                            Reform




    The October Spending                         The October Spending Review will see         Reform will also require a redrawing of
                                                 all public budgets come under increased      the boundary between state and
    Review will set out                          pressure as public spending is brought       individual responsibility. The link
    unprecedented cuts in                        under control. There is a right way and a    between taxation and public services
    departmental spending.                       wrong way to cut public spending. As         has been broken, with the expectation of
    These cuts will not be pain                  Ruth Richardson – who eliminated a           the British public that the UK can have
                                                 deficit in New Zealand between 1990          high levels of public spending for
    free. They will be felt by                   and 1993 – has warned, “eliminating          moderate taxes. The fiscal crisis will give
    public sector workers, by                    waste and salami-slicing existing            way to a new era of smaller government
    users of public services                     budgets tend to be the politician’s stock    and balanced budgets. Individuals will
    and by recipients of                         answer, but none of these approaches         need to take greater responsibility for
                                                 go to the heart of the problem”. The right   things like their healthcare, their post-
    benefits. But done in the                    way involves structural reform to allow      retirement savings and their choices
    right way, they could lead                   services to offer value for money.           over higher education.
    to better public services                    Improving public sector productivity
    and sustainable public                       requires a radical redesign of public
                                                 services.
    finances.                                                                                 In this new era of fiscal discipline, what
                                                 This approach will not be possible           the state continues to do it will need to
    Reducing the deficit and improving                                                        do in different ways. Many of the UK’s
                                                 without good public sector
    public services is a huge challenge. But                                                  public services are still provided as
                                                 management. Reform has spoken to
    it can be done. Reform is bringing                                                        state-run monopolies. This means that
                                                 good managers in the public sector.
    together leaders from the public sector,                                                  they have weak incentives for better
                                                 They are acutely conscious of costs to
    from private sector organisations and                                                     management and lower costs.
                                                 the taxpayer and want to be held
    from New Zealand and Ireland who have                                                     Government should more often limit its
                                                 personally accountable for performance.
    successfully improved the quality of                                                      role to funding public services, rather
                                                 But they do this despite the system, not
    services and increased fiscal credibility.                                                than both funding and providng them.
                                                 because of it. Accountability to the users
    Their lessons will be welcomed as the                                                     Government as commissioner not
                                                 of services to local electorates or to
    UK sets out to restore its economic and                                                   provider will lead to an improvement in
                                                 Ministers will improve management and
    fiscal position.                                                                          quality and a reduction in costs.
                                                 performance.




2              www.reform.co.uk
Public Sector Productivity / Reform


Improving
                                                                            increasingly difficult to find        implemented without
                                                                            efficiency savings. PASC will be      fundamental change in the way
                                                                            scrutinising the role of the          public services are managed and



public sector
                                                                            Efficiency and Reform Group           delivered, the consequences will
                                                                            within the Cabinet Office which       be severe. Valuable front line
                                                                            has been tasked with finding          services will be damaged and
                                                                            more efficiencies and                 inefficiency will continue to be



productivity
                                                                            disseminating best practice           endemic.
                                                                            throughout Whitehall and                 It does not have to be like
                                                                            beyond.                               that. We have an opportunity to
                                                                                PASC has already identified       address problems that have
                                                                            three key elements for achieving      become increasingly apparent
As policy makers turn to the October                                        efficiency savings and I hope to      over the last 30 years. If we
Spending Review, they need to focus on the                                  be working on each of these           grasp the nettle of reform, we
                                                                            during the coming months and          can make the required savings
difference between cuts and reform. The                                     years.They are political support      without compromising the most
traditional British response to a deficit crisis                            effective processes and Civil         important public services. We
is to reach for the salami-slice – that is, to                              Service capacity. PASC has            can implement a model of
leave the structure of public services intact                               already identified a need to          public service delivery that will
but shave off a pay increase here or a benefit                              provide better in-house training      drive continuous improvements
                                                                            for the Civil Service to avoid        in productivity, yielding benefits
increase there. George Osborne wielded the                                  expensive outsourcing, and also a     long after the economic crisis
salami-slice in his emergency Budget, for                                   need to remove under-                 has passed.
example through a public sector pay freeze.                                 performing staff more quickly,           It is clear that the current
But such an approach leaves the structural                                  rather than simply shuffling them     approach has failed:
causes of inefficiency untouched. What                                      to another part of government.
                                                                                                                  • We are paying a lot more for
                                                                                As important as improving
successful companies and successful                                         efficiency, however, will be
                                                                                                                  our public services, but the extra
                                                                                                                  money is buying less. According
countries do is to change the whole business                                innovation. PASC will want to         to the Office for National
of service delivery, securing savings and                                   look particularly at innovations      Statistics, productivity in the
better performance for the long-term.                                       such as free schools and reforms      public sector declined by more
                                                                            to the welfare system, but also at    than 3 per cent between 1997
                                                                            the effects on productivity of the    and 2007.
                                                                            plan to publish more data on          • There are huge variations in
                                                                            government spending in                efficiency across the public
                                                                            individual areas.                     sector. If the average UK public
                                                                                Finally, PASC will be looking     service provider were as efficient
                                                                            at the experience of countries like
                         Andrew Haldenby,                                   Canada, Ireland and Sweden, to
                                                                                                                  as the top quartile there would
                                                                                                                  be a 20-30 per cent saving.
                         Director, Reform                                   see how “doing less with less”
                                                                            can be achieved and what the          • Instead of challenging public
Bernard Jenkin MP                    defining some of the outputs that
                                                                            likely impact will be of              service providers to do more for
                                     the public sector produces, but
Scrutinising                         scrutiny of it is long overdue and
                                                                            government withdrawing from           less, through tougher prices and
                                                                                                                  greater freedom to respond, we
value for money                      improving productivity has now
                                                                            areas in which it is currently
                                                                                                                  have tried and failed to manage
                                                                            involved.
in Whitehall                         become an imperative rather                                                  the efficiency problem from
                                     than a luxury.                         Bernard Jenkin MP Chair, Public
                                                                                               ,                  Whitehall.
                                         PASC’s work in this area is        Administration Select Committee
                                     likely to focus on two key areas.                                            • Public sector funding is far too
                                     The first is doing “more with                                                “sticky”. Once providers have
                                     less” and the second is “doing                                               funding, they tend to keep it and
                                     less with less”. “Doing more with
                                                                            Alan Downey                           have it increased every year.
                                     less” will become a mantra over        Payment for                           Attempts at public sector reform
                                     the course of this Parliament and      success                               have failed to link good ideas
                                     PASC will be in a prime position                                             with financial consequences and
                                     to focus attention on the                                                    vice versa.
As Chairman of the Public            Government’s efforts to both                                                 • Performance management has
Accounts Select Committee            improve efficiency and to                                                    improved significantly, but has
(PASC), how the Coalition            promote innovation within                                                    focused on eliminating the worst
Government delivers greater          Whitehall and throughout the                                                 performers rather than
productivity in the public sector    public services more generally                                               liberating the best to thrive and
will be a key part of my brief and       Before the election, PASC                                                grow.
we will be scrutinising the          heard evidence that there
                                     remained significant fat still to be                                         • Public service reform has not
Government’s progress very
                                     trimmed in the public sector.The                                             been radical. The underlying
closely. Measuring public sector                                            Public sector organisations are
                                     Committee also heard that as                                                 structure and culture of public
productivity is still a developing                                          facing unprecedented cuts in
                                     time goes on it will become                                                  service professions, institutions
area, given the difficulties in                                             funding. If these are

                                                                                                                     www.reform.co.uk                  3
    Public Sector Productivity / Reform

    and management have not been         11.5 per cent of GDP in the          public service re-structuring, to      public services are delivered.
    fundamentally challenged.            current year, despite fiscal         which there is trade union             Whilst there are beacons of
                                         cutbacks which commenced in          opposition.                            excellence across the UK, all too
    • Performance management has,
                                         July 2008. The banking collapse          Politicians have shown             often we see wide variation in
    in most cases, been undermined
                                         has been system-wide – every         readiness to contemplate               performance standards – in
    by its disconnect from financial
                                         single domestic credit               unpopular tax increases and            productivity, in consistency and
    management, which remains
                                         institution required rescue,         expenditure cuts to a degree           in outcomes.
    poor in many parts of the public
                                         several collapsed altogether,        which has been contrasted                  Outsourcing can have a
    sector.
                                         and the total cost to the            favourably with fiscal                 critical role to play in driving
        To address these problems,       taxpayer could approach 20 per       consolidation efforts in other         transformational improvements
    we need to move from “payment        cent of GDP. Since the first         European countries, but reform         in public services. Simply
    for activity” to “payment for        quarter of 2008, real GNP has        is a slower process, and cannot        opening up a service to
    success”. By focusing on three       fallen 17 per cent and the           quickly be dictated from the top.      competition can in itself drive
    simple principles, we can effect     unemployment rate has gone           Immediate expenditure savings          cost savings and innovation.
    an historic improvement in the       from under 5 per cent to 13 per      do not always follow re-               Tapping into the accumulated
    way public service providers are     cent. Ireland’s sovereign            structuring, but can absorb            experience of third party
    incentivised and rewarded:           borrowing costs have risen           ministerial time and deplete           providers can help to re-think
        1.Three distinct customer        sharply and the AAA credit           political capital to a degree          the way things are done. At
    roles should be created for each     rating has been a casualty. If the   which, perhaps paradoxically,          Sodexo, for example, we can
    of the different types of service    medium-term fiscal                   can make reform a low priority         draw on our many years of
    – personal, local and national       consolidation is delivered by        during periods of fiscal austerity.    supporting clients across private
    – with each of the customers         2014, the exit ratio of gross                                               and public sectors in 80
    radically empowered to decide        debt to GDP could be around          Colm McCarthy, Chair of Irish          countries in responding to
    what they want and from whom.        100 per cent.                        Special Group on Public Service        challenges, no matter how large
        2.“Payment for success”              Government fiscal actions        Numbers and Expenditure                    No example illustrates this
                                                                              Programmes and Lecturer in
    should be implemented across         included expenditure reduction                                              better than our recent experience
                                                                              Economics, University College
    the public sector without            packages in July 2008 and            Dublin                                 with the £12 billion Defence
    exception. Where it exists           January 2009 as well as full                                                Training Review for the Ministry
    already, it should be made more      Budgets in October 2008, April                                              of Defence. Through building a
    forceful and sophisticated;          2009 and December 2009. The                                                 consortium of “best in class”
    where it does not exist, it should   cumulative impact has been to        Aidan Connolly                         companies, we have developed
    be introduced rapidly.               stabilise the underlying deficit     Breaking the                           an integrated solution for a
        3.Public service providers       at a level which is acknowledged     cultural inertia in                    brand new military training
    should be given almost total         to be unsustainable, but it is       the public sector                      estate that will deliver world-class
    freedom to respond effectively       clear that without these                                                    technical training, whilst at the
    to their customers and the           measures access to sovereign                                                same time releasing over 1,100
    “payment for success” regime,        credit would already have been                                              military personnel back to front
    supported by the active              lost. The government intends to                                             line duty and saving at least
    divestment of public sector staff    cut the deficit to 3 per cent of                                            £500 million over the project’s
    into independent providers in        GDP by 2014.                                                                lifetime.
    control of their own future.             Without the banking                                                         So outsourcing can bring
                                         collapse Ireland would have                                                 tremendous benefits. But we
    Alan Downey, Partner and Head        experienced a deep contraction,                                             were lucky to have a Ministry of
    of UK Public Sector, KPMG            but the credit-fuelled property                                             Defence client with a
                                         bubble has made things                                                      sophisticated approach to
                                         considerably worse. It came on       The gaping £156 billion hole in        procurement. Elsewhere in the
    Colm McCarthy                        top of a steady decline in           the public finances will not get       public sector it is still too
                                                                              filled by burying our heads in the
    Tough lessons                        competitiveness since 2000, an
                                                                              sand and so we broadly welcome
                                                                                                                     common to find a risk-averse,
                                         excessive reliance on volatile                                              prescriptive approach which
    from Ireland                         property-related tax revenues        the strong medicine prescribed         inevitably creates a race to the
                                         and a high Euro exchange rate.       in the new Government’s                bottom at the expense of quality
                                         Fiscal adjustment to date has        Emergency Budget.                      and innovation. Fine for
                                         included tax increases, public            The headline 25 per cent cuts     cost-trimming, but no good for
                                         service pay cuts, reductions in      to spending by non-protected           paradigm shifts.
                                         social welfare payments and          government departments are,                To really deliver on the
                                         restrictions on programme            frankly, needed to bring the           quantum of spending cuts
                                         expenditures. The Special            books back into balance, but the       required, the ultimate obstacle is
                                         Group report made extensive          manner in which the cuts are           not the potential of the private
                                         proposals for streamlining           made will be absolutely critical.      sector to help, but the cultural
                                         public service delivery,             Salami-slicing this deep will risk     inertia in the public sector to do
    The macroeconomic downturn           including the abolition of           causing serious damage to public       things differently.
    in Ireland is more severe than in    quangoes and the merger of           services and risk delivering
    almost any other European            those which survived. Public         “much less for much less”.             Aidan Connolly, Chief Executive,
    country. The budget deficit,         service numbers have not                  If “more for less” is to remain   Sodexo UK & Ireland
    excluding the Exchequer cost         declined noticeably despite          an achievable goal, the public
    of the banking collapse, has         recruitment embargoes and            sector must have the courage to
    gone from near zero in 2007 to       progress has been limited in         be radical in reforming how

4               www.reform.co.uk
Public Sector Productivity / Reform

                                                John McTernan                          Michael D M Izza
Public sector                                   The punch-bag of
                                                lazy politicians
                                                                                       Fiscal responsibility

management
Voters were told by all Parties that while
cutting the deficit they would safeguard the
“front line” by securing savings from
efficiencies and waste. Yet barely weeks
after the Coalition takes office there is
                                                                                       At ICAEW, we believe that
already speculation that the Home Office        Public service managers are the        encouraging greater fiscal
budget will be reduced simply by axing          punch-bag of the lazy politician       responsibility in government will
thousands of police officers. What could        or commentator. How often              only be possible through
be more front line than that?                   have we heard the absurd and           informed public debate and a
                                                inaccurate statement that “it is       spirit of collaboration across
 History shows that no government has           shocking and shameful that there       government, the public sector
                                                are more managers in hospitals         and society at large. Crucially,
achieved the holy grail of protecting the       than there are beds”? A cheap          this dialogue requires a clear
“front line” while cutting costs purely         attack is all too often a substitute   understanding of both the costs
through slashing waste and boosting             for clear analysis.                    and the value of public services
efficiency. Sometimes this reflects a failure       The reason is that sadly most          ICAEW members – over
                                                mainstream politicians have an         4,000 of whom work in the
of ministerial will. More often, Ministers      inadequate understanding of the        public sector – have a key role to
have simply failed to recognise the             role of management in modern           play in advising and encouraging
fundamental changes needed in public            organisations and the crudest of       this public debate. We recently
services and the operation of Whitehall to      theories of motivation and             asked for their views on what
                                                execution. This is not surprising      scope there is to deliver better
enable real improvements to take place.         given the backgrounds and              value for taxpayers’ money. The
Margaret Thatcher’s Government was most         experience of the political class,     results suggest that there is room
publicly engaged in the quest to cut waste,     but can be disastrous when             for manoeuvre. Over 80 per cent
but it too found it more convenient to          married to their “heroic” model        of public sector members
                                                of leadership – that is, their own.    interviewed believe that further
salami-slice and to cut capital investment          Public services in the UK          efficiency savings could be made
than to achieve real efficiencies. The          have become increasingly good          in their organisation without
mechanisms to enable Ministers to identify      at incremental change –                affecting the current level of
where efficiencies could actually be found,     particularly when their                service they provide.
                                                consumers have been                        The scale of possible savings
such as through better performance              empowered by choice and as             is significant: 34 per cent of
management of public servants, were             providers they were challenged         respondents believe that between
simply insufficient. And Ministers failed to    by new private and voluntary           2.5–5 per cent of discretionary
invest the time to build them for their         competition. Today, what is            budget could be saved; 24 per
                                                needed is transformational             cent cite possible savings of
successors. Will this Government do any         change.                                between 6–10 per cent; 7 per
better?                                             Powerful public service            cent cite possible savings of over
                                                leadership, at senior and middle       11 per cent. Improved use of IT
                                                management levels, will be             and reduced staff headcount
                                                essential, as will a high degree of    costs are viewed as the major
                                                operational skill. We need a new       opportunities for efficiency
                                                language to recognise and              savings.
                                                reward genuine achievement in              The overall message is that
                Greg Rosen,                     public service management.             there is scope to spend public
                                                    At the same time we need           money better. The Government
                Consultant Director, Reform     tougher and swifter action to          has an opportunity move
                                                remove bad managers. Not only          beyond simple salami-slicing of
                                                will they fail to deliver the          public expenditure to take
                                                transformative change that we          forward cost reduction in a
                                                need to see in services, they          strategic manner that best
                                                demotivate staff, reducing             delivers value for taxpayers’
                                                productivity and quality of            money.
                                                service.                                   The expertise of public sector
                                                                                       finance professionals will be
                                                John McTernan, former Political        critical in order to achieve this.
                                                Secretary to Tony Blair

                                                                                         www.reform.co.uk               5
    Public Sector Productivity / Reform

        Ahead of the Comprehensive      government will have to find          Julie Spence                          be left to performance manage?
    Spending Review, the ICAEW is       savings and make cuts on a scale                                            Will standards need to flex? Will
    calling for greater civic and       that is unparalleled. And now a
                                                                              Performance                           we stop doing some things? For
    parliamentary accountability of     new coalition Government is           standards                             example, can we really stop the
    public expenditure and for          established, the “phoney war” of                                            police service being a 24/7 social
    spending decisions to be based      an election is over.                                                        service? Particularly as the
    on clear, transparent statements        Many observers are having a                                             consequences of cuts biting in
    of costs and objectives. We         field day as they wave their                                                other sectors will manifest
    suggest that all legislation and    cloaks of doom and compete to                                               themselves on the streets.
    major spending programmes           guess how savage and far-                                                       The time has come to review
    should be accompanied by clear      reaching the cuts will be, without                                          the necessity of legislation such
    business cases, linking proposed    beginning to offer a practical                                              as data protection, freedom of
    costs to statements of what it is   solution.                                                                   information, health and safety
    that the government hopes to            This type of doom-laden                                                 and so on, that create industries
    achieve. At an early stage of       posturing in an attempt to avoid      Who should decide the                 in all public sectors and ask if the
    development, major                  change and modernisation is an        performance standards that            value and safeguards given are
    departmental spending               anathema to the leadership of         public services work towards?         commensurate with the cost of
    programmes could be referred        Merseyside Fire and Rescue            That’s easy: the public, of           compliance. We need a rethink
    to respective select committees,    Service (FRS) where we have           course.                               on how to achieve the safeguards
    encouraging Ministers to justify    determinedly stayed fixed on              But do the public really know     without the bureaucracy. I
    the relevant expenditure on the     radically developing the scope of     enough to set the standards and       would suggest that life has risks
    basis of the business case.         the Service through very              is it feasible to deliver what they   but we are over-engineering the
    Parliamentarians, in any case,      difficult financial times and not     want or will it result in             risk reduction. Removing these
    should have access to the           succumbing to self-pity when          inequalities for those less able to   costs will enable public services
    financial expertise and resources   times get hard.                       make their case? The pragmatic        to concentrate on their core
    they need to provide effective          With that experience, we          middle ground is for a                businesses and allow for a wider
    scrutiny.                           believe it is a perfectly             partnership between the public        range of services to be
        We hope that the                reasonable expectation of             and the professionals – where         performance managed.
    accountancy profession can play     government that leaders in the        the professionals give advice and         Ultimately those that pay for
    its role in helping build           public sector should be looking       leadership on possibilities and       public services must decide
    understanding about the current     to work with government to face       consequences and help the             what they want from their
    state of public spending. Only      this challenge and still deliver      public to set informed standards.     services. But professionals must
    through a shared awareness of       great services to the community,          So yes, the new political         play their part, by explaining the
    the financial difficulty we face,   particularly those most in need.      landscape of local accountability     “art of the possible” and the
    and of the opportunity for              The leadership experience in      would seem to hit the spot. That      available choices, risks and
    meaningful reform, will we be       Merseyside could be of                said, can “X-shire” sit in            consequences.
    able to take the necessary steps    significant use to this emerging      splendid isolation? If there is to
    to restore our public finances in   coalition. In the last eight years    be a culture of continuous            Julie Spence OBE QPM, Chief
    the long-term and create a          we have finally tackled deep-         improvement, a benchmark for          Constable, Cambridge
    culture of genuine fiscal           seated structural and cultural        services based on their cost and      Constabulary
    responsibility in the UK.           problems within the fire service      results must be set.
                                        that had defied change mainly,        Consequently real public value
    Michael D M Izza, Chief             ironically enough, as everything      needs local services to be set
    Executive, ICAEW                    before had been measured in           within a national framework – or
                                        terms of the numbers of               do they?
                                        firefighters employed.                    A key consideration for all
    Tony McGuirk                            Over the last eight years we      mangers is the prevention of
    QFSM                                have enjoyed our most                 perverse behaviours and
    An approach for the                 successful period ever with some      outcomes in which public sector
                                        of the largest reductions in fires,   staff are more concerned about
    future                              fire injuries and fire deaths of      chasing any targets or achieving
                                        any FRS in the UK and we find         the public or government
                                        ourselves in the unusual and          standard. The motivator is
                                        slightly unsettling position of       getting approval from
                                        being nationally and                  politicians, the media and
                                        internationally recognised as a       leaders rather than delivering
                                        leading FRS.                          better services the public value
                                            All this has been achieved            The challenge is to enshrine
                                        whilst reducing the number of         public service in its truest,
                                        firefighters by nearly 40 per cent    sleekest, most efficient form. In
                                        from over 1,500 to less than 900.     this time of deep cuts this is even
    It has been clear for some time                                           more important as difficult
    that the legacy of rescuing the     Tony McGuirk QFSM, Chief Fire         decisions will be needed and
    banks from collapse has been an     Officer, Merseyside Fire and          taken about what services can be
                                        Rescue Service
    unprecedented level of                                                    delivered and to what level. All
    government borrowing. To repay                                            public sectors are currently
    the debt, the national and local                                          considering what exactly will we

6              www.reform.co.uk
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    Public Sector Productivity / Reform


    A new era:                                        The Hon Sir                              • How you intend to achieve
                                                                                               those objectives.
                                                      Roger Douglas MP
                                                      Reform New                               • What the costs and the

    the rights and                                    Zealand Style                            benefits of that action will be.
                                                                                               • Why your approach will work


    responsibilities
                                                                                               better than other options.
                                                                                             • Don’t blink, public confidence
                                                                                             rests on your composure.


    of individuals                                                                           • Incremental policies are useless
                                                                                             when you have a fundamental


    and the
                                                                                             structural problem.
                                                                                             • Politicians need to keep clearly
                                                                                             in front of people what reform


    government
                                                      New Zealand’s experience
                                                                                             policy is designed to achieve for
                                                      provides an important insight
                                                                                             them.
                                                      into the nature of political
                                                      consensus. The fact of the matter
                                                                                             The Hon Sir Roger Douglas MP ,
                                                      is that the interests of the various
                                                                                             New Zealand Finance Minister
    In the UK, we want to have it all. In the         groups who will be affected are
                                                                                             1984-88
    surveys done in the run up to and following       complex and diverse. None of
                                                      them welcome the idea that their
    the General Election, when asked if we            privileges may be removed.
    need to tackle the deficit with spending              Consensus in these
    cuts, members of the public have answered         circumstances for quality
    yes. But when they are then asked if that         decisions does not arise before
                                                      they are made and implemented.
    means cuts in the health budget, they say         It develops progressively after
    no. Less spending on schools? Of course           they are taken, as they deliver
    not. A smaller welfare system? Absolutely         satisfactory outcomes to the
    not. This is not surprising. The huge             public.
                                                          Important lessons from New
    increases in public spending over the last        Zealand include:
    decade have not been matched with a
                                                      • Only quality reform delivers the
    similar rise in taxes. People have seemingly      results that a country needs.
    come to believe that ever increasing
                                                      • Do not try to advance one step
    benefits and public services can be made          at a time – quantum leaps will be
    available to them at little or no extra cost.     required where you remove
    The result is a soaring level of debt and         privileges of various groups all at
    what will be a period of real pain as the         one time. It is simply harder for
                                                      them to complain this way.
    country adjusts.
                                                      • Speed is essential.
    The new era of balanced budgets will
                                                      • It is uncertainty, not speed, that
    require a shift in people’s expectations of       endangers the success of any
    the services and benefits that government         reform programme.
    provides, and the costs associated with           • Let the dog see the rabbit.
    them. Individuals will need to take more          People cannot cooperate with
    responsibility for things like their health and   the reform process unless they
    their post-retirement income. Politicians will    know where it is heading.
    need to provide leadership, explaining the        • Never underestimate the public
    tough choices ahead.                              ability to buy into a well
                                                      developed programme.
                                                      • Take the public along with you.
                                                      Tell them:
                                                        • What the problem is and how
                                                        it arose.
                       Lucy Parsons, Senior
                       Economics Researcher,            • What damage it is doing to
                                                        their personal interests.
                       Reform
                                                        • What your own objectives are
                                                        in tackling it.


8           www.reform.co.uk
Public Sector Productivity / Reform

Colm Reilly                               What we need to do is to       It is vital that the role of ICT in       Finally, the government needs
                                      reframe the debate so that         public service provision is           to look at creating a new
Creating a thinking                   reform is focused across           reassessed dispassionately            “enterprise” infrastructure that
economy                               government departments and         without the distortion of the         will support the development of
                                      not just within them. Equally,     self-interested view of               all types of enterprise, ranging
                                      there should be a recognition      suppliers, who all too often          from entrepreneurs to large
                                      that successful reform in          capture public sector                 companies and rebuild our
                                      government is achieved             procurers. The confusion in           attractiveness as a location for
                                      incrementally, when small steps    ICT projects is the most visible      real foreign investment – not
                                      are taken and where, over time,    manifestation of lack of clarity      simply investment that acquires
                                      all these changes consistently     in the specific government            assets but investments that
                                      build on one another.              objectives and plans.                 develop and sustain employment
                                          This should be accompanied         A broader challenge lies in       and value added within the
                                      by the development of a real       the need to tackle public sector      economy.This will be essential if
                                      understanding of where             pensions. Government has              we are to meet the requirements
It is a critical time for the UK      services need to be centralised    recognised the problem but a          for economic growth, which will
economy and for our public            and where localisation is a        radical approach is needed            be as important as cost reduction
services, and the Government’s        viable option. This would result   which builds a new social             in cutting the deficit.
main focus has, understandably,       in a balanced government           covenant. In this, workers and            In times of crisis, it is hard to
been on tackling the deficit.         where these options are seen as    taxpayers are gaining a new           create the space to think radically
Clearly that is a vital and           complementary, not                 understanding of their roles          but now, more than ever, we need
necessary task, but we also           contradictory – not total          and responsibilities. Addressing      to take the time to think about the
should take this opportunity to       centralisation and not total       this issue will reduce direct         reforms we need to put in place
look beyond the narrow                localisation but a balanced,       costs but it will also help to        to create an economy and a
question of whether we invest or      co-ordinated approach that         involve more private sector           public sector which truly meets
spend more. We know we need           recognises when government         companies in the government           our future needs.
to spend less, but we should be       must be central and when it has    supply chain (including front
looking at how we build a             to be local.                       line services).                       Colm Reilly, Head of Government
different kind of economy and,            There are five key areas                                             Practice, PA Consulting
with it, a different model of         where this process could start
public service delivery.              and where real benefits could      “While there is a broad consensus that the budget deficit
    This process could be             be achieved. The first is in       needs to be reined in, there are plenty of influential
described as creating a “thinking     combining centralised              commentators who argue that spending cuts at this time
economy”, in which we assess          procurement and localised          would endanger the recovery, hurt Britain’s long-term fiscal
the real levers of change within      purchasing. This would see         and economic prospects, send unemployment soaring again
our society. These are unlikely to    government centralising            and hit the poor disproportionately. I’m not convinced by any
be grand programmes of change         sourcing and procurement           of these claims: it seems that the opposite is true and that the
but will be focused policy            (contracts and catalogues)         UK can no longer afford to live beyond its means, with the
changes that help people to take      whilst putting purchasing in the   state borrowing vast amounts of money to finance a badly
ownership and accountability          hands of local organisations.      managed and oversized public sector. It is not moral or
for service provision at a local      This combination approach          progressive to borrow as if there were no tomorrow,
level. The “Big Society” concept      could apply across all of          shackling unborn generations with massive bills and risking
outlined by the current               government and could yield         a continental-style sovereign debt crisis.”
Government can perhaps, be            savings of billions without        City A.M., 22 June 2010
seen as an initial attempt to         impacting front line services.
address this issue. However,              The second area of focus is    Allister Heath, Editor, City A.M.
more clarity is now needed on         on improved performance
the specific levers that can be       management. The previous
deployed to create that kind of       government had a very clear
society and to reform the way         focus on particular targets and
public services are delivered.        that approach is now being
    Driven partly by the              reassessed, but whatever the
pressures on government               new policy framework, those
spending, there is now a real         delivering it will need a
clamour for transformation,           performance management
reform and even revolution in         framework. A clear objective
the way government operates.          process and giving people clear
The default position is that the      goals can be a very effective
whole of government needs             driver of change.
overhauling immediately.Yet this          The next area to address is
is too simplistic a starting point.   government spending on
Government is a large                 Information and
organisation with varying levels      Communications Technologies
of capability and this kind of        (ICT). It is currently too high
generalised drive for reform is       and is not delivering the
likely to be unachievable and         outcomes it should in the
counter-productive.                   current demanding climate.

                                                                                                                  www.reform.co.uk                     9
 Public Sector Productivity / Reform




 Government as
 commissioner
 not provider?
 As the physicist Ernest Rutherford once said, the money has run out
 so we have to think. Government will have to do less; and what it
 does do it will have to do better and at a lower cost. Yet our public
 services suffer from major structural issues that prevent them from
 delivering value for money. Many services are still provided as state-
 run monopolies, which means that the incentives are all wrong.
 Consequently the increases in spending over recent years have not
 been reflected in a proportionate improvement in outcomes. The
 right kind of reform will address the structural causes of inefficiency.
 Government should more often limit its role to funding public
 services, rather than both funding and providing them. This would
 mean opening up the supply of services. It would also mean putting
 money back in the hands of consumers and giving them incentives
 to save money when they purchase government services. This will
 give us what we need: better quality at a lower cost.




                    Nick Seddon, Deputy Director, Reform

10       www.reform.co.uk
Public Sector Productivity / Reform

Cllr Colin Barrow                     commissioners jointly agree the       hand experience of leading an        activities that fall outside of
                                      areas of greatest need and            organisation through a sustained     these “core” functions,
CBE                                   oversee the discretionary spend       period of cost reduction, there      October’s Spending Review
Big ambitions in                      on employment and skills              are relevant examples from           needs to use a clinical lens to
Westminster                           programmes in the city. We take       other sectors of the economy         assess how savings and service
                                      a neighbourhood-focused               where savings have been              quality can be delivered. This
                                      approach to delivery and use a        delivered whilst also improving      can be achieved either by
                                      consortia of social enterprises       front line services.                 discontinuing activity or by
                                      who have the local know-how               One relevant sector that has     openly competing service
                                      and expertise to understand the       experienced huge cost and            delivery to gauge other
                                      complex needs of our clients          competitive pressures over the       prospective providers’ capacity
                                      and help them back into work.         last decade is the life and          to deliver savings and service
                                      In the future, we have ambitions      pensions industry. Some long         level improvement. When all
                                      to expand this model to oversee       established and respected            public, private and voluntary
                                      all statutory as well as              businesses have disappeared in       sector enterprises are being
                                      discretionary spend.                  mergers that have aggressively       challenged to deliver more for
Too often in the past local               To make this work in more         sought to reduce administration      less, now is the time for the most
government has chased                 service areas, and in more            costs and boost returns for their    enterprising ones to step up to
government grants, trialling          councils, there are development       policy and shareholders alike. At    the mark.
initiatives here and there as long    implications for local authorities.   the same time, these policy
as there is a pot of money up for     The traditional bureaucratic          holding customers have seen          Paul Pindar, Chief Executive,
grabs. This approach doesn’t          approach to procurement will          quantitative and qualitative         The Capita Group Plc
take a strategic view of local        be a significant barrier to a         improvements in the service
need, nor does it consider what       thriving, local social enterprise     received, benefiting from the
forms of service provision will       market. An element of risk will       convenience of checking the          John Fingleton
deliver local outcomes. Often, a      always be present in                  value of their policies and having   Competition and
trial finishes and the money          relinquishing direct control over     queries answered online.             choice
goes, but the service continues       public services, but there is         Customers are either served
because it’s now deemed to be         much that local authorities           immediately or in timescales
essential. The result is that local   could learn from the private          that were unimaginable under
government gets bigger and            sector.                               the bureaucratic and paper
bigger.                                                                     laden processes of a decade ago.
    Westminster City Council          Colin Barrow CBE, Leader,             Firms like ours have worked
recognised some time ago that         Westminster Council                   collaboratively with clients to
the public services of the future                                           deliver these improvements,
had to change and would not
necessarily need to be delivered
                                      Paul Pindar                           whilst also being able to reduce
                                                                            the annual cost of administering
by local councils. In October         The Spending                          a policy from £30 to £13 over
2009, we re-organised ourselves,      Review – an                           eight years.                         The UK Government public
creating a commissioning              opportunity to                            So how can public sector         finances are precarious and
council to analyse and
understand the overall needs of
                                      unleash enterprise                    bodies with large scale operations   reducing the public expenditure
                                                                            drive similar value for money? It    share of GDP is imperative. For
the city and commission the           in public services                    has to start with clear and          the next decade the most urgent
services required to meet these                                             decisive leadership, coupled with    public policy question will be
needs.                                                                      a keen commercial sense of how       how can public services
    In order to maximise the                                                savings can best be delivered and    continue to meet people’s needs
public funding available, we                                                by whom. A clear and consistent      while costing less?
mapped the totality of public                                               appreciation of the inherent and         Research recently
spending in the city. We now                                                respective strengths and             commissioned by the Office of
know how much is spent on                                                   weaknesses of public, private and    Fair Trading highlighted that
public services in Westminster                                              voluntary sector bodies’ delivery    choice and competition, when
and what the money is spent on.                                             capability is crucial.               they well, can increase
We also know what demand                                                        Of course, there are areas of    efficiency, improve the quality
there is for particular public        From the Coalition’s first few        public services that must            and range of services on offer
services. This confirmed the          weeks in office, it is evident that   continue to be delivered by the      and create a better allocation of
need for a joint commissioning        the pendulum has swung from           state. There is no rationale for     resources. In the long-term it
approach.                             an era of “investment led” to         armed service personnel, police      can also lead to greater
    One successful area in            “cost reduction led” public           officers and those charged with      innovation. However, the unique
practice is our efforts to tackle     sector reform. During my 23           safeguarding the vulnerable not      character of public service
worklessness. Our Westminster         years at Capita, this is only the     to be on a payroll other than a      markets means the benefits of
Works Board brings together all       second time that I have               state one. Policy making and         choice and competition are by
the key public sector                 witnessed such a change and           commissioning or contracting         no means guaranteed. In some
commissioners with an interest        tried to predict how Westminster      activities, for example on tax,      cases, these mechanisms will
in reducing worklessness,             and Whitehall will implement          welfare and the environment,         simply not be appropriate; in
including representatives from        reform across the various public      should always be “core               others, careful design will be
the local authority, the NHS and      sector bodies. While many senior      business” for the Civil Service.     needed to deliver the beneficial
Jobcentre Plus. The                   officials will not have had first         For those Civil Service          incentives of competition.

                                                                                                                    www.reform.co.uk              11
 Public Sector Productivity / Reform

     For public service markets        Commenting on the second televised leaders’ debate:
 to work well, the decline and
 even exit of less efficient           “It was a case of ask not what you can do for your country;
 suppliers is critical. But it can     ask what the government can do for you. We live in a culture
 be very difficult, practically and    where most of the public wants to extract as many goodies
 politically, to run down or close     as they can for themselves, rather than accepting the need
 down individual public service        for serious belt-tightening.”
 suppliers such as schools and         City A.M., 23 April 2010
 hospitals, even if they are
 performing badly. Where exit is       Allister Heath, Editor, City A.M.
 impossible, the government
 should seek ways to allow new         Budget 2010




                                                                                                   REFORM
 entrants, or existing market
 participants with a strong track
                                       Taking the tough
 record, to take over the              choices
 management of these services.
     A number of public service        “A specimen Budget to be
 markets already contain               published tomorrow by the
 competing providers and yet           exciting and intelligent think      Budget 2010
                                       tank, Reform… Reform                Taking the
 the market does not work as                                               tough choices
 well as it could. Where public        outlines cuts that will spark a
 services have only recently been      reflex of horror in most
 opened up to choice some users        politicians. However, they also
 may not be aware that choice          observe economic realities.”        Dale Bassett
                                                                           Thomas Cawston
                                                                           Andrew Haldenby


                                       Simon Heffer, The Daily
                                                                           Dr Patrick Nolan

 exists, or may not be in a                                                Lucy Parsons
                                                                           Nick Seddon
                                                                           Kimberley Trewhitt


 position to choose effectively.       Telegraph                           June 2010



 This can make the role of
 intermediaries in advising            “Charging patients a ‘token’ £10 could save the NHS
 individuals very important.           £1.6billion by 2014, the centre-right group Reform said in a
     There is also an issue around     controversial report published today ahead of next week’s
 ensuring competitive neutrality       Budget.”
 in markets which contain public       Daily Mail
 and private sector players.
     Value for money could be          “Experts cited by Reform, the think tank, say £20 billion
 better achieved by introducing        could be cut [from the NHS budget] without harming
 a level playing field into this       patient services”
 equation. Barriers to                 Editorial, The Sunday Times
 competitive neutrality include
 differences in tax and
 regulation, and incumbency
 advantages enjoyed by existing
 firms irrespective of whether
 they are delivered by private or
 public agencies.
     Both user choice and
 competition between providers
 need to function effectively in
 order to secure overall benefits
 for users. Enabling choice is
 important, but on its own is not
 enough. At the same time,
 potential competition between
 providers will not be effective
 unless users can effectively
 exercise that choice.
     Competitive pressure
 provides enormous incentives
 for efficiency and improving
 customer service. Properly
 executed, competition could
 help improve the quality and
 efficiency of UK public
 services.

 John Fingleton, Chief Executive,
 Office of Fair Trading


12           www.reform.co.uk
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 Public Sector Productivity / Reform




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14     www.reform.co.uk
                                                                                                    1455-27
Public Sector Productivity / Reform


Reform
Join us in 2010-11
Reform is an independent, charitable,                    Comment on Reform
non-party think tank whose mission is to set
out a better way to deliver public services              “The exciting and intelligent think tank, Reform”
                                                         The Daily Telegraph, 16 June 2010
and economic prosperity. We believe that
by liberalising the public sector, breaking              “With the exception of Reform, which has outlined big
                                                         cuts to middle-class welfare, the think-tanks have been
monopoly and extending choice, high                      almost equally silent”
quality services can be made available                   Financial Times, 29 April 2010
for everyone.                                            “Can this cosy consensus survive the storm clouds brewing
In 2009 we stepped up our activities,                    over the state of the UK economy? History suggests not.
                                                         Today the centre-right think-tank Reform attempts to
gaining significant media coverage and                   puncture the prevailing complacency with a radical
making an impact with leading politicians.               programme of cuts to shift more NHS care into the
In 2010 our programme has continued to                   community, obtain more bang and save extra bucks”
focus on public policy solutions to the                  Jeremy Laurence, The Independent, 17 March 2010
deepening fiscal crisis and reform of public             “I read with interest the tax reform proposals unveiled last
services to achieve value for money and                  night by Reform, the think-tank… one of the few
                                                         organisations in the UK with the guts to call for the scrapping
better outcomes.                                         of the vindictive and counterproductive 50p tax rate”
                                                         Allister Heath, City AM, 5 March 2010
                                                         “The most detailed contribution to the debate [on public
                                                         spending] yesterday – a report from Reform”
                                                         Financial Times, 16 September 2009
                   Anna Calvert,
                   Communications and
                   Events Manager, Reform


Current Corporate partners include:




                                               Black Version




                                                                                             www.reform.co.uk              15
 Public Sector Productivity / Reform


     Register your support




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     or on 020 7799 6699, or visit www.reform.co.uk


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16              www.reform.co.uk
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21366 Capita CSW Covers_AW_14.indd 2                                                                                 26/6/09 12:29:54
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