· 12 min read · Features

Public execution: HR directors struggle to find the panacea to the public sector cuts

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It's like a runaway train: another week, another 'budgets slashed' announcement from public sector bosses and yet another HR department learns its fate.

 

At the close of February, it was Haringey Council's turn - £41 million of savings needed, 1,000 job losses; the week before, it was Essex County Council - one in three jobs threatened. According to the Local Government Association, not only will town hall HR staff have the grisly job of cutting 140,000 English and Welsh jobs by 2012, their public sector fellows will also have to chop an estimated 53,000 posts in the NHS over the next five years and up to 10,000 police and back-office roles. And, at the same time as doing all this, 10% of all public sector HR professionals will themselves have to go.

It is a process that is already taking its toll. "At this point, we are all in deep disillusionment," says Graham White, HR director, Westminster City Council - £30 million of savings needed this year, meaning some 2,800 posts have to go. "We're clinging onto our best people with our fingernails. It's tough."

As if this wasn't bad enough, it is HR professionals who are being vilified as the public sector's executioners. Manchester city council's HR team was described by Unison as adopting "savage tactics" (all staff were asked to consider voluntary redundancy, older staff to ponder early retirement); while Essex county council's director of people and transformation, Kier Lynch, was branded as having done "nothing to put to rest employees' anxiety about jobs" by Unison Essex branch official, Sue Gainey. With unions passing motions to name and shame all bodies that uphold compulsory redundancy decisions, public sector HR professionals have never been so tested.

The TUC's much-anticipated 'March for the Alternative' national demonstration against cuts on 26 March has ratcheted up the pressure. Although marred by violence afterwards, the march saw up to half a million people protesting peacefully, in what was being billed as the biggest demonstration since the one against the Iraq war in 2003.

"The problem is private sector ideals around cost-cutting - and expecting that to be transferred to the public sector," observes Dean Shoesmith, joint HRD of Sutton and Merton Councils. "The problem is, the public sector is a service driven by people, so does this concept of cutting suit our model?"

At Sutton and Merton, Shoesmith needs to find £10 million in savings this year and £35 million over the next three. Headcount at both councils (now 12,000) will be cut by 25%. "The average saving councils need to find is about 28%," he adds. "The problem for HR practitioners is that back-end support services only comprise 5%-10%, so it is impossible to make HR savings alone. The scale of cuts requires the creation of entirely different sorts of organisations. You can't just salami-slice bits off. While we have made savings - reducing HR staff from 129 to 108 - this is mainly from reducing duplication. Without some sort of transformation process, I can't see how the public sector will be able to cope."

Shoesmith is well known to have adopted a shared HR solution. It has already saved £700,000 on an HR budget of £4 million, but he admits this is "not a panacea. It has worked for us because our Ts & Cs were largely the same between the councils. Government needs to make it easier for the shared services model to occur; at the moment, it happens more down to serendipity."

Despite practitioners acknowledging HR cannot assuage public sector woes by its own cost reductions, overall pruning of the public sector is once more focusing attention on what HR's contribution is and the extent to which the revolution it will have to go through is 'future-proofing' the profession. According to White, whose HR budget is being cut from £6 million to £4 million and who is joining forces with Kensington & Chelsea and Hammersmith & Fulham to share HR and other services, the route HR will have to take - including reducing its own headcount, as well as employees as a whole - will have irreversible and profound effects.

"This is a one-way street," White says. "Public sector HR will never return to where it has been." Although he rejects the notion that HR had allowed itself to get 'fat', saying it merely became "the right size for how the public sector became set up to be", he acknowledges HR will permanently be done by fewer people, who in turn will have to up their game: "We have been called to account," White adds. "HR's future is not about its size - we had previously measured our worth by our girth. Now we need to be measured by our influence."

White argues that every decision involves HR, in part because every process has had to be minutely reviewed to see where cost can be stripped out. While it might not be the ideal way to reach the top table (inductions for new staff have been dropped, for instance, because it saves the HR department 500 days a year), he says this new way will stay. "We started asking, 'why do we need two HR people at interviews? To look important?' They certainly weren't needed." He adds: "To my team, I have said this - 'you are as important as you want to be' - but those who remain will have to be more focused. There are those in the public sector who worked in a department that may have changed its name to HR, but nothing else; those people will find it hard to survive and will be the first to be cut."

Both White and Shoesmith say it's folly that the private sector will be there to mop up displaced HR professionals who don't make the cut, signalling a poor outlook for these and a shrunken public sector HR profession as a whole. Those who do stay, though, will have gained an untold amount of business transformation sense.

Where the public sector does a shared services model, many police/NHS/council HR professionals could find themselves 'TUPEd' across to outsourcing organisations gobbling up contacts from the cut-cutting sector. "We are noticing a huge upturn in business," says Owen Morgan, commercial director of HR consultancy Penna. About 15%-20% of its business comes from a broad spectrum of the public sector: for example, Devon & Cornwall Police, Leicester council and Exeter university.

There is an irony here. If councils aren't cutting all their staff, they don't need to pay for outsourcing, resilience advice etc, while if they are cutting, they often make distress purchases. In theory, they are cost cutting, but are having to pay for stuff they wouldn't otherwise need to buy...

"HR professionals are required to facilitate a level of change never seen before," says Morgan. "It takes skills and leadership to bring bruised and battered people with you." However, Andy Cook, CEO of employee relations and communications consultancy Marshall James, says there just isn't the skills base in public sector bodies to deal with this change. "Managers need specific industrial relations confidence, knowing how to deal with unions, managing how messages are communicated internally," he says. "Making cuts when you're being cut too is huge pressure and employees are demanding information that HR staff can't yet give."

Bravely though - and precisely because they want to keep core HR skills, not throw them away - some bodies are resisting the outsourcing model. Anne Gibson, HRD at Norfolk County Council, which is making 750 posts and 1,000 people redundant, outsourced IT and payroll to Capita between 1999-2005, but brought it back in-house - and plans to keep it this way, despite the lure of cost savings from outsourcing providers (see various boxes). "Outsourcing will leave us weaker. We want to drive efficiencies for ourselves," she says. "We think this is a better way for HR to grow as a profession - by enhancing its competencies and business partner credentials. Our reaction has been, 'there's a big job to do here, so let's do it, and do it ourselves'."

Norfolk has chosen an 'internal' shared services platform, bringing together HR, finance, legal, customer services, IT and organisational development into a single function. It has meant that the council has "ruthlessly looked at everything" and she is open about the fact some things have had to be put on the back burner. "We have only just started a self-service programme - which should take £350,000 of costs out this year [25 HR posts out of 250] and £410,000 next year - but that is only because we were doing a piece of work on reward. We didn't have the resources to do both."

Gibson stresses that many public sector organisations are "making their cost savings from different starting points and with different levels of internal support", which means there is no catch-all model for how they should go about organisational change. "We are starting leadership development, but that is because we are at the point where we have engaged with staff about what we need to do and now we need to do it. It is budget we would have spent on other things - it's not on top of what we were already spending. We are having to make choices."

Public sector HR will undoubtedly be run differently. Even those HR departments which merge with each other will have to work out who is going to take the lead and, more importantly, which department shoulders more change/redundancies than the other - not an easy dialogue.

Amanda Attfield, who is assistant director of HR and organisational development at Cheltenham Council, is part of the team that will link HR, finance and IT in Cheltenham with Oxfordshire District, Cotswold and Forest of Dean councils. She says: "We all have different HR:staff ratios - ours is about 11.9:700 - and we all have different services. But we knew clipping around the edges wouldn't have worked; transactional and professional advisory sharing was the only way, and the only way we could set the model was by asking each council to do its own resourcing assessments and setting an overall savings target - around 15% - based on that. The deal is: if we get more savings, councils agree to getting a percentage of this back, but we are still working out which people have to lose jobs from which council." She adds: "The whole process has simply had to be extremely transparent and honest up-front."

Between now and the autumn, when the shared partnership project goes live, Attfield is preparing for who will take the overall lead, but it is likely the four councils will vote in a measure to create a brand new oversight organisation - again, another project to manage. "The whole point is that whatever system we chose, we still have to be capable of flexing up or down to respond to further organisational change."

With these deep structural changes, Attfield's view that "there is no going back" for the public sector is even more apt. Alan Foley, director of HR services provider, Equiniti, argues that once such solutions, or outsourcing, are set up, it will be harder to unravel them and take them in-house again, because the sector will have been reorganised to operate HR on smaller headcounts.

But while most HRDs and their teams are being tested and while the sector will never be the same again, they are sanguine about the opportunities too. "I used to be HRD of a haulage company," says White. "Staff taught me that there were two types of employees: steerers and drivers. Steerers just do what they are told; but drivers love the road, love their cabs and keep their vehicles clean. It reminds me about public sector HR professionals today. The profession will need fewer steerers. The drivers have nothing to worry about." 

Outsourcing: Big promise or big con?

With promises of savings of around 30% for back-end HR tasks, it is no wonder public sector HR is being tempted by outsourcing. "NHS bodies in particular are reviewing very seriously the effectiveness of running HR functions from within," says Alan Foley, director of HR services provider, Equiniti, which has just signed a deal with Imperial College. He admits: "For those who are outsourcing for the first time, there is concern about whether the private sector can do as good a job as an internal one." However, he argues that companies such as his actually set service targets (99.8% accuracy in payroll, for example) which they can be judged on. Internal HR teams might not have had to work to service-level guarantees. Equiniti also has dedicated teams that get to know councils and work exclusively with them, so they become just as expert, he argues. "The jury is still out on public bodies pairing up and adopting shared services, rather than outsourcing. It takes time for these arrangements to be set up, while we can have an implementation set up within three months. We outsourcers are currently sticking to transactional services. The next level of value will be more service provision - advice to managers, for instance, on how to implement disciplinary procedures or other such HR-to-line manager advice."

Case study: A fair cop - Surrey Police goes outsourcing

Several UK police forces are choosing the outsourcing route to make their cuts. Cheshire Police Authority recently signed a framework agreement with Cap Gemini to transform its back-end HR activities, including payroll, duty management, performance management and enterprise resourcing planning.

The deal has been developed in collaboration with the National Policing Improvement Agency, which has produced a 'Transform Police' blueprint that forces are encouraged to follow, to help them avoid disjointed, ad hoc solutions.

Surrey Police has also entered the fray, partnering with Exeter-based provider HumanConcepts to install its OrgPlus software to develop better organisational design. As Zoe Latimer, HR business systems manager at Surrey Police, explains: "Police forces tend to have a complicated structure and many movements of people between roles. We wanted a way to be able to view the organisational structure and move away from HR teams maintaining this data in time-intensive spreadsheet form.

"Although we began implementing this before we knew about the budget cuts, we were already starting to restructure our human resources function and this tool was to allow us to cut headcount in an area that had previously been undertaking this work via spreadsheets. Now that we can see staff hierarchies better, we are investigating how we can improve or cut the data to give us better resourcing information.

"We admit we are not yet using the product to its full capacity, partly because we have to undertake a full review of it to gain maximum benefit. But we should be reviewing OrgPlus this year, to ensure we are getting maximum benefit," says Latimer.

HR cuts: The opposition

Trade unions: Heather Wakefield, head of local government, Unison

"HR staff are doing a really tough job. At the same time as having to make people redundant, many of them are also facing growing dole queues. But public body chiefs must make sure they have considered all the alternatives before giving HRDs the task of job cutting. Councils have more than £3,000 million in reserves: surely this is the rainy day these emergency funds were put aside for? We also call on council bosses to let their HR staff explore all possibilities with unions to avoid compulsory redundancies, including retraining and redeploying for staff."

Protestors: Robin Clapp, Bristol representative, Anti-Cuts Alliance

"Two-thirds of the public deficit could be saved just by clawing back money owed to the Treasury from the £120 billion in unpaid corporation tax. HR professionals are simply rubbing people's noses in it and nobody has yet realised just how bad things are going to get. While our sympathies are with HR managers who are carrying out diktats from above, the Anti-Cuts Alliance is resolved to protect all threatened jobs and it calls on HR practitioners to join us. We call on HR professionals to refuse to comply; they could abstain and see what happens to them…"

Council cuts: A time line

  • 10 February 2011: Birmingham City Council announces it will cut £212 million over the next 12 months, with 2,500 jobs being lost, but 4,300 posts will be scrapped altogether in the next four years
  • 8 February 2011: Manchester City Council announces job losses of 2,000, 17% of its workforce, as it has to make savings of £110 million (£60 million more than expected). Staff over 55 are asked to take early retirement
  • 3 February 2011: Sheffield County Council to lose 270 jobs on top of the 400 posts already cut this year as a result of voluntary redundancies and unfilled vacancies
  • 2 February 2011: GMB union announces number of council jobs earmarked for redundancy has passed the 150,000 mark, including 10,000 in the previous week (including: Rotherham Council, 893 jobs; Wigan Council, 820; West Sussex County Council, 800; South Wales Police Authority, 688; Wakefield Council, 504; Suffolk Police Authority, 300; Westminster City Council, 250; Wiltshire County Council, 250; Wandsworth Council, 210)
  • 30 January 2011: Aberdeen Council announces plans to introduce compulsory redundancies to cut 900 jobs after staff earning more than £21,000 rejected a 5% pay cut
  • 27 January 2011: Liverpool Council announces job losses of 4,500 (1,300 of which will go by the end of March 2013) after having to find £141 million in savings between now and 2013, £91 million of them in 2011-12
  • 6 January 2011: Portsmouth City Council CEO David Williams announces 400 job cuts and says he is beginning negotiations to introduce a mixture of pay cuts and pay rises of £250 for staff on less than £21,000
  • 10 December 2010: Trafford Council to axe 150 jobs to meet savings of £60 million over the next four years
  • 8 December 2010: GMB Union says 66,000 jobs have been lost so far
  • 24 November 2010: Tameside Council to shed 800 jobs to make savings of £100 million over the next four years. It is running 58 separate service reviews to identify savings
  • 18 November 2010: Bury Council begins three-month consultation period to cut up to 420 jobs to make £7 million of savings in the period 2011/12
  • 1 November 2010: Essex County Council announces plans to cut 275 managerial posts throughout the authority - amounting to 2.5% of the organisation's core workforce of 10,900 employees (16.5% of the council's 1,648 line managers)

Public/private interaction

For infrastructure support services company May Gurney, savage cuts in the public sector - particularly in local government - are not bad news, but rather an opportunity.

The Norfolk-based company maintains more than 37,000km of roads, 500,000 street lamps and has interests in utilities (water and gas) as well as contracts for refuse collection and recycling. As more councils have struggled to keep costs down, May Gurney has increasingly had more business outsourced to it, including an 18-month extension to its Norfolk Strategic Partnership contract (worth £35 million annually) in February this year, as well as recent contract extensions with Essex County Council and Torbay Council. In fact, to the man or woman on the street, there is very little to distinguish May Gurney employees from those specifically working for the councils they help, as they are invariably council-branded.

Even though he is a beneficiary, May Gurney HR director Neville Hounsome, who has a public sector HR background himself (he was assistant chief officer, people, with Norfolk Constabulary), says he find himself sympathising with the plight of his HRD clients.

"My heart goes out to my colleagues in the public sector," he says. "The scale of change must be shocking. But what I think will make things smoother is the fact that HRDs, in my experience, are a professional bunch of people and I think they will go about change in a professional way."

He says: "We have just won our first outsourced environmental services contract in Wales and are also in the process of setting up joint venture companies with a number of different councils. These are the sorts of solutions HR professionals in this sector are having to come up with to work with us."

As well as gaining contracts in Wales, the company has just completed the £13.6 million acquisition of Scottish utility company Turriff, which ensures its entry into the Scottish support services market. Turriff's 550 employees will TUPE over to May Gurney and Hounsome believes he can offer its clients (which include Scottish Water and Scottish and Southern Energy) savings of up to £300,000 per year. It may be business, but this is certainly a case of one HRD helping a whole bunch of others in difficult times.