· 2 min read · Features

A shared-services public-sector model will ease the pain of the cuts

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Over the past 60 years there have only been 13 years when the total cost of public services (including debt interest and welfare payments) has gone down on the previous year and there have never been more than two such years in a row.

Under the Budget announced by the Government on 22 June 2010, the next six years are intended to see such falls in expenditure on public services every year.

For areas other than health and international development, cuts of up to 25% in total are envisaged over the next four years. As we teeter between the era of ‘doing more for less’ and the era of ‘doing less for less’ the demands on public- sector HR departments to be creative in delivering solutions for their organisations are going to increase. 

Given the length of notice periods and the size of redundancy payments in the public sector (particularly the six-month notice provision for civil servants), there is great disincentive against compulsory (and indeed, voluntary, redundancies). There are a number of obvious strategies that can be adopted and that, provided effective consultation is followed, should be relatively easy to achieve:-

  • Freezing pay
  • Freezing bonuses
  • Freezing recruitment and natural wastage
  • Making existing allowances and weightings non-consolidated to save on pension costs
  • Tightening rules on sick pay, for example, removing contractual sick pay for employees going off sick after being notified of disciplinary hearings
  • Less tolerant and earlier use of capability and disciplinary processes
  • Offer of unpaid leave and sabbaticals.

To make the types of cuts that are being suggested by the Government is likely to require a more radical approach.  For example, some public-sector bodies are cutting their estates budget by reducing office space and thus the amount of time that staff are working in the office to three or four days a week. This expectation that the workforce will work the rest of the week from home requires careful handling as, in effect, the employer is renting the employee’s home as office space for free. 

The more brutal approach may lead to putting forward competing unpalatable alternatives to the workforce. For example, an organisation could suggest an across-the-board, real-terms pay cut or reduction in hours as an alternative to compulsory redundancies. Rather than say, making one in 10 of the workforce redundant, the wage bill is reduced by 10% by pay cuts. This would be a shared pain model where there is genuine pain inflicted on the workforce. This was a popular measure in the private sector during the 2008/9 recession, partly because it avoided the mistake of 1990s downsizing when organisations got rid of significant numbers of employees who had considerable experience, so when the upturn came, they were not in a position to benefit from that experience.

An alternative model to the shared pain is to focus on particular activities within each public-sector organisation to see if those services can be shared between different public bodies to generate what is euphemistically called ‘cost savings’ but, of course, in reality will be redundancies.

The Total Place model bringing local bodies for a particular area together, such as local authorities, primary care trusts, police and fire authorities, to merge back- office functions such as HR, ICT and finance, has been piloted in 13 areas and will be seen by the Government as an attractive solution to budget cuts. Similarly, such central services can be shared between non-departmental public bodies that are not tied to a geographic area. For example, Research Councils UK has a shared services centre for all seven independent research councils.

The target areas for the shared service approach so far have been the back-office functions but as the crunch bites harder, we anticipate more front-office staff such as customer contact centres being joined together so at the front line the end-user is dealing with one individual representing multiple organisations. This could extend beyond the current Total Place public-authority approach to include local quasi-public providers such as housing associations.

This will post particular challenges for HR professionals because, at the same time as they are likely to be the subject of the shared services process, they will be required to lead on creating an effective TUPE and redundancy consultation process and creating a secure stable employment structure for the new model, either a single, central entity as the employer or a complex series of secondment arrangements, disciplinary and grievance procedures and performance management processes. 

James Lynas is a consultant within the employment practice at Winckworth Sherwood