Contents. Page 2 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

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2 Contents 1. Funding scenarios for Welsh public services... 3 Our base case scenario for public spending in Wales... 3 Our worst case scenario for public spending Health Services... 9 What are the main demand and cost pressures... 9 The financial impact of meeting demand and cost pressures Social services Cost and demand pressures on social care Budgetary impacts of meeting demand projections Education Cost and demand pressures Budgetary implications of funding demand The funding gap and other areas of public services Identifying the gap Cost and demand pressures on other services Responding through a more radical approach to efficiency Scope to increase funding for devolved services Better managing existing demand Shifting attention and resources to prevention Implications for public service leadership and workers A priority based approach to scaling-back Moving services outside the public sector, particularly to mutuals Doing least harm through priority based cuts Tracking and mitigating the impact of decisions to cut and ration services Page 2 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

3 1. Funding scenarios for Welsh public services 1.1. The economic circumstances in which the UK finds itself are without precedent in modern times. We have to look back to the great depression of the 1930s for sustained cuts to public spending: a period when the government was much different limited welfare, very little public healthcare and limited education. Other periods since then have seen deeper cuts in spending, but these have been shorter: over a year or two at most Following the banking crisis in 2008, the response of the UK Government, and many other governments around the world, was to adopt a package of stimulus. This involved continuing to spend public money on a range of projects and programmes in order to stimulate demand in the economy. However, with public debt rising, partly due to stimulus programmes and partly due to transfer of private bank debts on to the government balance sheet, governments and markets around the world became increasingly concerned about the levels of public sector debt From onwards, the UK Government, like many other European governments, has pursued a path of austerity, with a view to eliminating the structural deficit. It has cut planned spending on public services and welfare payments. The way in which Wales is funded has meant that cuts to spending on public services in England has resulted in a reduction in the amount of funding available to the Welsh Government to spend on public services. Our base case scenario for public spending in Wales 1.4. In developing our scenarios for public spending in Wales, we have worked closely with the Institute for Fiscal Studies. We commissioned the IFS to produce detailed scenarios for the Welsh Government s budget to 2025 (Institute for Fiscal Studies 2013).There is considerable uncertainty around projecting forwards over such a long period. The IFS report sets out 12 different scenarios for the Welsh Government s budget. Included in these is a base case. Figure 1 sets out the IFS base case for Welsh Government total Departmental Expenditure Limits in real terms ( prices). Page 3 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

4 billions Figure 1: IFS Baseline for Welsh Government DEL Source: IFS (2013) 1.5. For our base case, we use the same assumptions as the Institute for Fiscal Studies: a) funding reductions to in order to reduce the public structural deficit; b) real terms increases from onwards, in line with OBR projections for the UK economy; c) further cuts to welfare benefits and/or tax rises; and d) a real terms increase in spending on healthcare in England, which has positive impacts for the Welsh Government s budget through the operation of the Barnett Formula Because we want to cover slightly different issues, we have adapted the IFS projections for the Welsh Government DEL. Figure 2 sets out our adapted Base case for the Welsh Government s budget. The differences between the two are explained below: a) we aim to cover the full period of austerity, going back to , so we have updated to figures to put them in prices; b) our focus is on the pressures on service deliver, so we have excluded capital funding from our analysis; and c) to ensure consistency across years, we have excluded the funding for Council Tax Benefit, responsibility for which was devolved to the Welsh Government in Page 4 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

5 billion Figure 2: WPS 2025 Base Case for Welsh Government Revenue DEL Source: WPS 2025 analysis of IFS (2013) 1.7. In creating our base case, we wanted to take account of local Council Tax revenues. Figure 3 sets out our base case projections for Council Tax to There is some uncertainty about to overall level of future Council Tax as a result of cuts in the amount that local authorities used to receive through Council Tax benefit. Responsibility for this area has been devolved and in the first year, the Welsh Government funded the cut, but may not do so in future years. In making our projections we have made the following assumptions: a) council tax rises over the period of austerity by 1.5% in real terms, in line with recent history; and b) council tax increases in real terms in and onwards, in line with OBR projections for the wider economy. Page 5 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

6 billion Figure 3: Base case for Council Tax revenue Source: WPS 2025 analysis of IFS (2013) 1.8. Figure 4 sets out our overall base case for devolved funding in Wales. It shows devolved revenue funding falling from 15.1 billion in to 13.6 billion in Overall devolved revenue funding reaches its levels in The Welsh Government s revenue funding would reach its pre-austerity level a year later, in Page 6 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

7 billions Figure 4: Base case for devolved funding Council Tax Revenue Welsh Government revenue Source: WPS 2025 analysis of IFS (2013) and Local Government Revenue Outturn data Our worst case scenario for public spending 1.9. While we are confident that the base case sets out a plausible scenario, based on existing economic data, it is quite possible that the situation will be considerably worse. While the UK economy has returned to growth, it is too soon to conclude that the recovery is sustainable. And there remains substantial uncertainty about the prospects for the global economy. It is therefore sensible to consider a more pessimistic worst case scenario. Figure 5 sets out our worst case scenario. We have drawn from the IFS most pessimistic scenario, alongside an assumption of low growth in Council Tax. Our worst case assumes: a) growth in the UK economy matches OBR forecasts to after which there is no real growth until at which point the economy grows in line with the OBR s low productivity growth forecast; b) public spending reductions last until ; c) UK Government introduces no further cuts to welfare benefits and no tax rises; d) in making cuts, the UK Government decides to cut all Departments by the same amount; and e) Council tax rises is frozen in real terms from to after which it increases in line with OBR low productivity growth forecasts. Page 7 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

8 billion Figure 5: Worst case scenario for devolved finances Council Tax Revenue Welsh Government revenue 2 0 Source: WPS 2025 analysis of IFS (2013) and Local Government Revenue Outturn data Page 8 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

9 2. Health Services 2.1. The NHS is the largest single area of devolved spending in public services in Wales. The WAO reports that the revenue budget for the Department of Health and Social Services in was some 6.1 billion, of which 5.9 billion was allocated to health related spending. Across the developed world, there is a long term trend of ever increasing expenditure on healthcare. This part of the report considers the key demand and cost pressures on the NHS in Wales to 2025.It looks at the financial impact of meeting these pressures to What are the main demand and cost pressures Demographic change: 2.2. There is an overall demographic pressure on health services resulting from a total increase in the population of Wales. The population is set to grow from just under 3 million to 3.2 million by 2025.Put simply; a larger population is likely to mean greater demand for all services including health. In part, these demographic pressures are offset by the fact that a growing population means more people contributing to the economy and the underlying tax base to fund health services. However, the nature of the way in which the Welsh Government is currently funded means there is no direct link between the tax base and public spending in Wales. Page 9 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

10 Thousands 2.3. In addition to general population growth, the so-called ageing population is generally cited as a major factor behind cost and demand pressures on health care services. There is indeed a significant predicted increase in the number of and proportion of older people in Wales. Figure 6: Number of over 75s in Wales Source: StatsWales Figure 7: % of population aged 75 or above 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Source: StatsWales Page 10 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

11 However, the financial impacts of an ageing population depend in part on the extent to which we are living old for longer or getting old later. There is evidence suggesting that it is not age per-se, but proximity to death that is the main driver of cost (Gray 2005; Sheehan 2002). In other words, the main healthcare cost of ageing is associated with the final few years of life, rather than simply being older. If the rising life expectancy is simply an extension of those final years of being very sick and requiring intense healthcare treatment, the implications for NHS finances would indeed be very severe. However, national statistics show that disability free life expectancy in Wales has increased faster than life expectancy (ONS 2011). It therefore seems likely that the very high cost period is being pushed back as we stay healthy for longer The charts below show that the proportion of the population within five years of average life expectancy (or older) and therefore at risk of being in the period of high cost care - is not expected to grow a great deal. For females, the trend is broadly flat, while there is a relatively small increase for men, with male life expectancy expected to grow more quickly than female. Figure 8: % of males within 5 years of average life expectancy (or older) 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Source: Analysis of Stats Wales Data Page 11 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

12 Figure 9: % of females within 5 years of average life expectancy (or older) 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Source: Analysis of Stats Wales Data 2.6. Although the major costs of the end of life seem to be being pushed back, rather than extended, the rising number of older people is likely to have significant financial impact on the ongoing cost of managing chronic conditions. Figure 10 shows that there is likely to be a significant increase in the number of people with a range of chronic conditions. Page 12 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

13 Figure 10: Increase in number of people aged over 65 with chronic conditions 45% 40% 35% 30% 25% 20% 15% 10% Bronchitis and emphysema Heart condition Stroke Diabetes Dementia 5% 0% Source: Daffodil 2.7. It is possible that demographic pressures combined with system pressures in social care may result in increased demand for health services. In particular, if social care budgets and provision is squeezed, older people may end up presenting to health services in or to address what are fundamental social care needs. There is some indication that this may already be happening. In recent years, Welsh councils have put a squeeze on social care with real terms cuts to spending on services for older people. Coinciding with the squeeze on council funding, there has been a significant increase in the number of older people making use of unscheduled health care services. Further work is required to establish whether the pattern of rising demand from older people for emergency healthcare is caused by social care needs increasingly being met through health care services. The increase in demand from older people is much higher than other age groups and higher than would be expected purely as a result of demographic change. Page 13 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

14 Figure 11: Number of older people attending major emergency units Age group years 59,505 63,873 68, years 58,215 61,875 65, years 38,022 41,307 44,348 Source: Wales Audit Office (2013) Productivity 2.8. One of the key drivers of rising costs in health care is the slow growth in productivity. The OBR estimates that the long run average productivity growth in health is around 1 per cent, which lags some way behind productivity growth across the wider economy. Since 2000, productivity in healthcare across the UK has actually reduced. Experts posit that health care suffers from Baumol cost disease (e.g. see King s Fund 2013). In essence, the cost disease is that productivity in the wider economy grows more quickly than in the NHS. Recent years excepted, the pay of healthcare staff rises at least in line with growth in the wider economy. But their productivity does not grow in line with their wage increases. What this means in practice is that health care requires above inflationary funding increases each year in order to simply stand still It is worth noting that some recent studies have suggested that productivity in the NHS in Wales may lag behind other parts of the UK, although such a conclusion is uncertain. A review involving the audit bodies across the UK (NAO 2011) showed that Wales fares poorer on areas, such as waiting times, emergency attendances and length of stay in hospital, which could be indicative of lower productivity. A review by the Nuffield Foundation (2010) concluded that crude productivity in Wales was lower than in England, with little evidence of offsetting improvements in other areas of care quality and performance. What lower productivity in the Welsh NHS may mean looking forwards is unclear: it could either suggest low productivity is embedded in the Welsh NHS, or that there is greater scope for re-shaping services to make services more productive. Public expectation The analysis above shows that the NHS faces significant cost pressures just to stand still. But the public does not want a health service that simply stands still. We expect it to get better to cure more diseases and to offer new and better treatments in order than we can have longer and healthier lives. And we also expect to experience better service: especially shorter waiting times to receive those treatments. There is growing evidence that as a society grows more affluent, the public wants to spend an increasing proportion of its collective wealth on health care (see King s Fund 2013). Page 14 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

15 billions Driven by this public desire for more and better health care, technological change is one of the most important factors behind rising health costs. This category includes medical equipment such as better scanners as well as improvements in drugs and other treatments. It is a great paradox that technology always holds out the prospect of greater efficiency and productivity, yet also serves as a major driver of extra cost. This is probably due to the fact that by the time the savings of each new innovation are realised, many new innovations (and associated costs) have also entered the system. The financial impact of meeting demand and cost pressures We have identified two potential scenarios of the cost pressures on the NHS in Wales. In both we have used the budgets for the period to From that point onwards we have used two different sets of assumptions: a) Scenario 1: based on the cost pressures identified by the NHS in Wales itself and used by the Welsh Government for financial planning purposes. This projection covers the period to It identified notional cost pressures of 4% to 4.5% a year, which translate to around 2% in real terms. b) Scenario 2: draws on the work of the Nuffield Trust (2013) to identify cost pressures on the NHS in England. The Nuffield Trust work identifies annual cost pressures of 4% in real terms Figure 12 shows that in Scenario 1, real spending on health would rise from just under 6 billion in to just over 7 billion by In scenario 2 the position by rises further, to just over 8 billion. Figure 12: Revenue spending on health if it rose in line with cost pressures from onwards Nuffield NHS Projection Page 15 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

16 2.14. The 2% estimate is not likely to fully reflect cost pressures on the NHS over the longer term. In particular, the NHS Wales projections are based on an assumption of a 1% nominal rise in wages in the NHS. We consider that such a rise, which is in practice a wage reduction, would not be sustainable. The estimates produced by the NHS were never intended as long term projections. From this point onwards, we therefore use Scenario 2, which is based on the Nuffield Trusts estimate of a 4% annual cost pressure, to update our base case and worst case scenarios. Figure 13 shows that in our base case, revenue spending on health could rise from 42% in to around 57% of the Welsh Government s revenue budget by In our worst case scenario, health revenue spending would take up 67% of the Welsh Government s revenue budget if spending rose to match the cost pressures. Figure 13: Projected health spending as a proportion of Welsh Government revenue budget 70% 60% 50% 40% 30% Base case Worst case 20% 10% 0% Figure 14 shows the impact of increasing spending on health on the total devolved finance for Wales, based on our two scenarios for devolved revenue spending. In our base case, revenue spending would rise from 38% of devolved spending to around 50% by Our worst case scenario sees health taking up around 60% of devolved revenue spending. Page 16 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

17 Figure 14: revenue spending on health as a proportion of devolved revenue spending 70% 60% 50% 40% 30% 20% Base case Worst case 10% 0% In UK terms, Wales has followed an unprecedented path in recent years with real terms cuts to spending on health in and Over that period, performance has deteriorated (see WAO 2013) on elective waiting times and in emergency care. The NHS in England, which has experienced a small real terms increase, has also experienced significant problems in emergency and elective care. It is difficult to establish a direct causal relationship between finances and performance in the NHS. However, the experience so far over the period of austerity suggests that the NHS struggles to deliver the expected levels of service if it does not receive above inflation increases in funding. Page 17 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

18 3. Social services 3.1. This part of the report considers the pressures on social services in Wales. Social services covers three broad areas: care for older people, care for 18 to 64 year olds with, for example, learning difficulties or mental health issues, and services for families and children. Most of the analysis of demand is based on projections for population change and recent patterns of activity. However, there is a lack of data to enable robust projections of costs of social care. We have therefore extrapolated where necessary from English projections. There are some significant differences between the services provided in England and Wales, so the projections can only offer a rough guide. Also, the projections are based on the assumption of continuity of current eligibility for services. In practice, social care is being rationed increasingly tightly through eligibility criteria and there is no guarantee that, in future, currently eligibility criteria will continue to apply. Cost and demand pressures on social care Social care for older people 3.2. Demographic factors potentially play more of a role in contributing to cost pressures in social care than would appear to the case in health. In part, that is because many people will need or desire some form of social care or support, even if they are in sufficiently good enough health not to need medical intervention Based on current patterns of use, the projections below show a significant rise in the most expensive for of social care for older people: residential care. There is an overall projected increase of 71 per cent in the number of over 65s receiving residential care services. While there is an increase across all age groups, the main increase is among those aged 85 or over. Page 18 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

19 Figure 15: Projected demand for residential services 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 People aged receiving residential services People aged receiving residential services People aged 85 and over receiving residential services Source: Daffodil 3.4. A significantly larger number of over 65s use community based services. The Chart below shows a 61 per cent increase in likely demand for community based services to 2030.As with residential care, the major increase in demand is likely to come from those aged over 85. Figure 16: Projected demand for community services 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 People aged receiving community based services People aged receiving community based services People aged 85 and over receiving community based services Source: Daffodil Page 19 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

20 3.5. The projections above may both over-state or understate the potential level of demand. They project current demand on the basis of demographic changes in the likely service user groups. They may over-stated demand if the evidence that the older population is living healthily for longer means that the point at which people need social care is also pushed back On the other hand, changes to the availability of informal care may mean demand for social services, based on current patterns, is under-stated. Where informal support is available to help people with daily tasks, they are less likely to require publicly funded social care (Pickard et al 2000). Demographic changes more generally mean that the nature of informal care is set to change. Informal care from partners is likely to increase, in particular due to male life expectancy increasing faster than females. In short, there will be fewer widows with no partner to care for them. However, this increase in care from partners is offset by a likely decrease in people able to care for their parents. The PSSRU has identified a significant gap between the numbers likely to be providing informal care and the numbers that are required (PSSRU 2008) The PSSRU carried out in depth modelling of demand for, and costs of, social care services in England to support the Dilnot Review of social care (PSSRU 2011). Its analysis takes account of availability of informal care and is based on detailed assessments of the unit costs of different types of social care services. We were unable to find an equivalent financial analysis for Wales. Therefore we have applied the financial projections to Wales, although differences in the funding system between Wales and England mean that the projections need to be treated with some caution and further research is required to develop more robust projections for Wales If costs in Wales rose in line with the projections for England, there would be an increase in net local government spending on social care for older people of around 55 per cent by 2025, with a further large increase in the five years to 2030 taking to the total increase to 101 per cent. There would be an increase in local authority net expenditure from 510 million in to around 794 million in Page 20 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

21 billions Figure 17: Implied spending on personal social services older persons Source: WPS 2025 analysis of PSSRU (2011) and local government revenue outturn 3.9. The above financial projections only offer a rough guide to future costs in Wales. There are some significant differences between the social care systems in England and Wales, in particular the funding. Wales has a more generous system: people with assets of less than 23,750 are able to receive free social care in Wales, whereas in England only those with assets below 14,250 receive such support (those paying between 14,250 and 23,250 pay for part of their care in England). 1 The Welsh Government also caps the amount that someone will have to pay at 50 per week if they are receiving care in their own home. As a result, the precise impact of demographic change may vary and the projections may understate the increase if Wales continues to have a more generous system than England. Adults social care Projections of demand for social care services in Wales for year olds on the Daffodil system show very little change in likely demand for residential or community services for this age group. 1 Note, that whilst social care is provided free of charge for those below the stated thresholds, the local authority funding care can make a deduction from income to cover the hotel costs of care. Page 21 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

22 Figure 18: People aged receiving residential services 2,000 1,800 1,600 1,400 1,200 1, Source: Daffodil Figure 19: People aged receiving community based services 25,000 20,000 15,000 10,000 5, Source: Daffodil Page 22 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

23 3.11. However, the analysis on Daffodil seems to significantly understate potential demand for services from younger adults with learning disabilities and mental health needs. The Daffodil projections use prevalence rates for learning disabilities by different age groups based on a 2004 study in England. The authors of that study have since produced revised estimates showing a significant increase in the rates of learning disability (Emerson et al 2008; Emerson et al 2011).To test the reliability of the underlying prevalence rates, we applied them to historic data, from to The prevalence rates projected an increase in demand of around 0.8 per cent over the period. However, over that period the number of people actually receiving services for a learning disability increased by some 10 per cent. It therefore seems likely that demand for social services to support people with a learning disability is set to rise significantly more than factored into the above projections. Similarly, the number of young people receiving mental health services has risen by around 15% since Again, it would seem appropriate to include an assumption of rising demand for mental health services amongst this age group The PSSRU has carried out an in depth analysis of future demand for adult social services in England (Economics of Social and HealthCare Research Unit (2011)).Its base case shows the net cost of adult social care rising by 66% in real terms between 2010 and 2030.However, in England, there are likely to be some differences in impact. The PSSRU s projections of a 30 per cent increase in users with learning difficulties and a 7.5 per cent increase in mental health seem broadly compatible with the recent trend for Wales. However, the PSSRU projects a significant increase in the number of physical or sensory disabled under 65 year olds in England, while projections for Wales show a decrease. The PSSRU has set included in it sensitivity analysis, cost projections based on a 1% reduction in disability. In the reduced disability scenario, spending would rise by around 44% between 2010 and 2030.Such a rise in Wales would increase spending from 521 million in to 680 million in , rising to 752 million in Page 23 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

24 billions Figure 20: Personal social services - adults aged fewer than Source: WPS 2025 analysis of PSSRU (2011) and local government revenue outturn Families and children s social services Children s social services are also facing significant demand and cost pressures. As a result, Local Authorities in Wales have increased spending on children s social services by an average of 4 per cent each year in real terms, since Page 24 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

25 000s Figure 21: Trend in spending on personal social services children and families ( prices) Source: WPS 2025 Analysis of local government revenue outturn The story behind the pressures is complicated. On the one hand, the total number of referrals to children s services has reduced very slightly since However, following several high profile failings, like Baby P and Victoria Climbie, around the UK it is clear that the seriousness with which such referrals are treated has been increased. Therefore, despite a reduction in aggregate demand, the number of referrals that go on for assessment by a social worker has increased by 29 per cent between and Page 25 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

26 Figure 22: Referrals to children s services in Wales Total numer of referrals received during the year The number of referrals that were allocated to a social worker for initial assessment during the year Source: Stats Wales There is considerable other evidence of the growing seriousness either in the nature of cases or the response of children s services departments. There has been significant increase in the number of children and young people that go on to receive full core assessments. There has also been a marked increase in activity around the most serious child protection cases. Page 26 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

27 Figure 23: Child protection activity The number of initial child protection conferences that were due in the year The number of initial core group meetings that were due in the year The number of reviews of children on the Child Protection Register that were due in the year Source: Stats Wales In addition to child protection issues, local authorities are also responsible for some children and young people who, for various reasons, need to be looked after. The number of children and young people looked after by local authorities has risen by more than a third between 2003 and 2012.The Chart below includes a simple linear projection to 2025, based on the trend data. It shows that by 2025, the number of looked after children could reach almost double the level in Page 27 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

28 Figure 24: Number of looked after children (including linear forecast to 2025) Source: Stats Wales We were unable to find detailed projections for spending in children s social services. Therefore we have developed our own projections. These are inevitably rough calculations as spending will depend on a variety of factors. Our analysis is that it is clear than costs are rising, although the increase may be tailing off. Our broad projections are conservative and assume a tailing off in expenditure, with real terms growth of 3.2 per cent to , 3.0 per cent from to and 2.5 per cent from to Page 28 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

29 billions Figure 25: Personal social services - children and families Source: WPS 2025 analysis of local government revenue outturn and pressures Budgetary impacts of meeting demand projections Figure 26 sets out the position if the cost and demand pressures were to materialise as projected and be funded in our base case and worst case scenarios. In our base case, the net impact would be to increase the total proportion of devolved spending taken up by social services from around 10 per cent in to around 13 per cent by In our worst case scenario, social services would account for around 15% of revenue spending by Page 29 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

30 Figure 26: Spending on social services as a % of total devolved revenue 16% 14% 12% 10% 8% 6% Base case Worst case 4% 2% 0% Page 30 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

31 Pupil numbers (thousands) 4. Education 4.1. This part of the report considers the pressures on education in Wales. The bulk of education spending covers school aged pupils (4 to 16) (around 2.5 billion in ).Therefore, our analysis focuses on spending on schools. However, we also look at some of the pressures on the further and higher education systems. Cost and demand pressures Schools 4.2. A rise in the birth rate over recent years means that there will be increasing demand for education services. The table below shows that the number of under 16 year olds will peak in 2025: rising from 548,000 in 2010 to 605,000.The number of under 16 year olds is set to rise at a faster rate than the general population of Wales, increasing from 18.2 per cent of the Welsh population in 2010 to 18.6 per cent by The timeframe for changes in demand will vary between primary and secondary. The table below shows demand from primary schools rising from 2010 onwards. Demand for secondary education is declining until around 2015, followed by a period of flat demand for three years, before increasing from 2018 onwards. Figure 27: Projections for pupils of school age Primary School Secondary School Source: WPS 2025 analysis of Stats Wales data Page 31 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

32 4.3. The growth in the school age population is not spread evenly across Wales. The main growth in pupils of primary school age is in Wales three cities: Cardiff, Swansea and Newport. Some rural areas are set to have virtually no growth in pupil numbers or even a reduction. Trends in secondary school follow a slightly different pattern, although the general trend of higher growth in urban areas and reductions in more rural areas can also be seen. Figure 28: % Change in number of primary aged pupils between 2012 and 2025 Newport Monmouthshire Torfaen Blaenau Gwent Caerphilly Merthyr Tydfil Rhondda, Cynon, Taff Cardiff The Vale of Glamorgan Bridgend Neath Port Talbot Swansea Carmarthenshire Pembrokeshire Ceredigion Powys Wrexham Flintshire Denbighshire Conwy Gwynedd Isle of Anglesey Source: WPS 2025 analysis of Stats Wales data Page 32 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

33 Figure 29: % Change in population of secondary school age between 2012 and 2025 Newport Monmouthshire Torfaen Blaenau Gwent Caerphilly Merthyr Tydfil Rhondda, Cynon, Taff Cardiff The Vale of Glamorgan Bridgend Neath Port Talbot Swansea Carmarthenshire Pembrokeshire Ceredigion Powys Wrexham Flintshire Denbighshire Conwy Gwynedd Isle of Anglesey Source: WPS 2025 analysis of Stats Wales data Page 33 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

34 billions 4.4. The uneven nature of the growth in the school age population will necessitate a shift in resources, and there will be a difficult transition in terms of school infrastructure. Many councils have been facing difficult decisions to reconfigure local schools in order to deal with surplus places. However, there is likely to be a need to increase the number of schools in the more urban areas of South Wales. In the short-term these areas are facing the challenge of reducing surplus school places. However, they will need to offset short term benefits from closing schools against the potential longer term costs of having to then recreate that capacity once pupil numbers rise again Predicting future spending is difficult, as much will depend on policy as well as demand factors. Figure 30 sets out three scenarios for spending on schools to 2025: a) the current policy of spending 1% above the overall change to the Welsh Government s budget (in both our base case and worst case scenario); and b) Spending on the basis of spend per pupil in Figure 30: Projected spending on schools Base Case worst case Spend per head Page 34 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

35 4.6. Figure 30 shows spending rising from around 2.5 billion to around 3.2 billion in the scenario where current spending policy is continued. It would rise to around 2.8 billion of policy is changed to sustain spending per head. Further Education 4.7. Overall, demand for further education appears to be falling. The table below shows that although the number of full-time FE students has risen, this is more than offset by a decline in the numbers of part time students and those in work-based learning. Some elements of post 16 learning, notably work-based learning, are funded through EU structural funds. There may be a significant gap to fill if Wales does not continue to qualify for Structural Funding over the longer term. Figure 31: Number of participants in further education Academic year All modes of study Full-time Part-time Work-based learning Total 2006/07 73, ,925 71, , /08 74, ,675 65, , /09 74, ,070 67, , /10 76, ,090 68, , /11 78, ,820 65, ,730 Source: Stats Wales 4.8. People of all ages engage in further education, especially work-based learning. Therefore, demographic trends can only be seen as a general indicator of future demand. The figure below shows significant variation in the change in sixth-form age pupils between 2012 and 2025.The decrease in rural areas is considerably starker than for other ages. Page 35 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

36 Figure 32: % Change in sixth-form age pupils to 2025 Newport Monmouthshire Torfaen Blaenau Gwent Caerphilly Merthyr Tydfil Rhondda, Cynon, Taff Cardiff The Vale of Glamorgan Bridgend Neath Port Talbot Swansea Carmarthenshire Pembrokeshire Ceredigion Powys Wrexham Flintshire Denbighshire Conwy Gwynedd Isle of Anglesey Source: WPS 2025 analysis of Stats Wales Page 36 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

37 4.9. While the demographic changes point to a possible change in patterns of demand, the varied nature of further education demand means we do not have sufficient data to use the data to project the cost pressures on further education. Higher Education The Welsh Government s current policy means that Welsh residents (and EU students from outside of the UK) studying higher education as an undergraduate in the UK pay only 3,500 of the tuition fees. Over recent years, the number of Welsh residents attending as undergraduates has been stable at around 86,000 and has fallen slightly from a peak of almost 90,000 in 2004/05. Figure 33: Welsh residents attending UK higher education as undergraduates Source: WPS 2025 analysis of Stats Wales In part, the static trend could reflect wider demographic factors. As with further education, people of all ages attend Higher Education. However, the majority start undergraduate courses at the age of between 18 and 21.Figure 34 shows that the numbers in this age group are declining and are projected to decline until The extent to which this signals a potential decline in demand depends on wider factors, in particular the propensity of this group in future to reach higher education. Page 37 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

38 Figure 34: Number of year olds 175, , , , , , , , , , , Source: WPS 2025 analysis of Stats Wales Welsh Government currently has a policy of making up the short-fall between the 3,500 paid by students and the actual fees, regardless of where Welsh students go to University. At present, the income from English students coming to study in Wales exceeds the expenditure on top-ups to Welsh students studying in England. The Welsh Government is able to control spending on Higher Education by setting a quota on how many students it will fund. At present, demand for places outstrips supply. As such, demographic changes may not impact directly on spending because Welsh Universities could accept a higher or lower proportion of applicants to match their quotas. Unless there is a significant drop in supply or a major change in both quotas and Welsh student s propensity to attend Higher Education, it seems plausible that Higher Education spending could remain fairly static, in real terms, to Budgetary implications of funding demand Figure 35 below shows spending on schools as a proportion of devolved revenue. Both current policy scenarios show spending rising to 20% by The scenario that sees spending take up the largest proportion of available funding is where spending per head is protected in the worst case scenario for public finances. Page 38 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

39 Figure 35: Schools spending as a proportion of devolved revenue spending 25.0% 20.0% 15.0% 10.0% 5.0% Current policy 'base case' Current policy 'worst case' spend per head 'base case' Spend per head 'worst case' 0.0% Page 39 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

40 5. The funding gap and other areas of public services 5.1. This part of the report sets out the funding gap in light of the analysis of spending on the main areas of public services in the previous sections. It also goes on to consider the squeeze on the other areas of public services. Identifying the gap 5.2. There are many variables that make up potential spending pressures and future budgets. Therefore, any attempt to precisely identify a single gap is uncertain. However, based on the analysis so far, we can pull together some broad scenarios for the difference between the projected spending required to meet cost and demand pressures and the funding that may be available in different circumstances. In developing our scenarios, we have made the following assumptions on demand: a) demand and cost pressures in health rise in line with the Nuffield Trust s estimates of 4% in real terms each year (Chapter 2); b) pressures on social care rise in line with the projections of the PSSRU and our own projections on children and families social services (Chapter 3); c) spending on schools rises in line with current policy of increasing spending at 1% above the change to the overall Welsh Government budget (Chapter 4); and d) demand and cost pressures on other services rise in line with economy wide inflation (we discuss this assumption below) Figure 36 sets out our assessment of the funding gap in both our base case and worst case scenarios. In both scenarios the funding gap continues to rise, despite a return to increases in the available funding. This is because the projected cost and demand pressures outstrip the projected increase in spending. In our base case the funding gap reaches around 2.1 billion in , after which time the funding cuts end. Nevertheless, the gap continues to increase to 2.6 billion by In our worst case scenario, the gap reaches 3.4 billion in , and continues to rise, over a period of budget increased, to 4.6 billion by The analysis below suggests that these projections may be optimistic in assuming that pressures on other public services reflect inflation. Clearly, if this proves not to be the case, the funding gap will increase. Page 40 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

41 billions Figure 36: The "funding gap" between projected funding and cost pressures Worst case Base case Source: WPS 2025 Cost and demand pressures on other services 5.4. Figure 37 shows that if Welsh public services were to fully fund the cost and demand pressures in health, social care and schools, the amount of funding for other services would decline sharply. In our base case, the level of funding would fall from 5.3 billion in to 2.8 billion by In our worst case scenario the fall is much sharper, with just 0.8 billion available for other services by Clearly, in practice it is highly unlikely that such a scenario would arise. However, the analysis serves to show the difficult choices facing policy makers as they seek to protect certain large areas of spend. And as the analysis below shows, far from being easy areas to squeeze, many of these other services themselves face significant cost and demand pressures. Page 41 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

42 billion Figure 37: Funding left for other services Base Case Worst Case 1 0 Source: WPS 2025 Environmental services Waste/recycling 5.5. There will be growth pressures on waste services. After education and social care, waste is the largest area of local authority spending 2.Pure demographic pressures more people and more households will add to the demands for waste services The nature of waste services is also driven by policy. The European Union has set stringent targets for recycling that all countries are required to meet. In theory, an increase in recycling should result in lower costs for councils, sending waste to land fill is increasingly expensive due to the landfill tax while councils can generate income from recycled waste. However, between and (a period of rising levels of recycling), Councils revenue spending on waste services has increased by around 18 per cent in real terms. 2 This excludes housing council fund which includes Housing Benefit which Councils have administered rather than had direct control over. In 2013, Housing Benefit was changed as part of the UK Government s welfare reforms. Page 42 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

43 Miles (billion) Transport Roads maintenance 5.7. Responsibility for maintaining and upgrading the road network in Wales is shared between the Welsh Government and councils. The Welsh Government is responsible for trunk roads : motorways and the major A roads. Councils are responsible for local roads. In , the Welsh Government spent around 110 million repairing, renewing and maintaining the trunk roads network. In that same year, Councils spent around 250 million on roads and highways In , the Welsh Government made a 71% reduction in the funding it provides to local councils for roads maintenance. Local Government offset this reduction by using prudential borrowing to invest in roads maintenance The projections below show that there is set to be a significant increase in traffic on Welsh roads between 2010 and 2035.Extra traffic, of course, means more wear and tear on the roads. There is therefore set to be significant growth in demand for roads maintenance in the coming years. Figure 38: Projections of Welsh traffic Source: UK Government Department for Transport Page 43 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

44 5.10. The figure below shows that a significant part of the increased comes from increased miles by commercial vehicles: with the miles travelled by Large Goods Vehicles and articulated vehicles set to almost double between 2010 and 2035.These larger vehicles tend to cause greater damage to the roads than cars (although the financial impact is at least partially offset by the additional tax, for example in road tax and fuel duty, these vehicles pay). Figure 39: Projections of miles travelled (millions) on Welsh roads Car Large Goods Vehicle Rigid Articulated Public Service Vehicles All Traffic Source: UK Government Department for Transport Research by the RAC Foundation (Bayliss 2012)) identified that many local authorities in England plan to significantly reduce spending on roads. While councils in Wales were spared the scale of cuts in England, there was a real terms reduction in spending on roads and highways in The RAC is concerned that a potential growing gap between spending and need will result in a significant deterioration of the UK road network. Page 44 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

45 million Bus travel The Welsh Government offers free bus passes to every resident of Wales aged over 60.In , the Welsh Government s grant to local authorities for concessionary travel was 61.1 million 3.We could not find published projections of likely demand and cost pressures. We have set out our own rough projection in the chart below. This projection only considers demographic projections. It does not include other inflationary cost pressures, in particular rising fuel costs that far outstrip inflation across the wider economy. It is possible that such increases will be offset by changes in travel habits, especially if older people travel more by private car than is currently the case. Figure 40: Projections for Concessionary Fares - pure demographic Source: WPS 2025 analysis of Welsh Government Statistical Release 3 Revenue out-turn data shows that local government reported spending 72 million on concessionary fares on Page 45 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

46 5.13. The other major form of public transport is rail. The 2007 Wales Rail Planning Assessment forecast increased growth in rail passenger number of 38% between 2005 and 2026.In , the Welsh Government spent 172 million on rail services (plus 12 million capital investment). Housing Welfare reform is likely to have a significant impact on demand for housing, although that impact is as yet unclear. The changes to Housing Benefit, the so-called Bedroom Tax potentially means a mismatch between supply and demand. Ahead of the introduction of welfare reform, research for the Welsh Government had identified a need for 101,000 new units of housing by 2026.Welfare reform is likely to have impacted the shape rather than level of demand, with the need for more one bedroom accommodation for those currently under-occupying the home that they live in. Figure 41: Increase in housing requirements from 2006 to There could potentially be a significant increase in demand for housing advice services from those affected by the bedroom tax. There have also been concerns that welfare reform could lead to an increase in homelessness as people struggle to cover the gap where they have had their benefit reduced as a result of under-occupation. It may be that such impacts will take time to filter through as people initially manage to get by through short term measures, such as borrowing, that are not sustainable in the longer term. Page 46 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

47 Economic and community development With its post-industrial legacy, Wales has significant need for economic and social development. Against a variety of economic indicators, Wales features as the worst, or amongst the worst, regions in the whole of the UK.GDP remains far below the UK average. Unemployment and economic inactivity is above the UK average, and earnings are lower than average. Wales has a lower Poverty, particularly child poverty, is higher than the UK average One of the key social and economic issues in the coming years will be the impact of welfare reform on people in Wales. Wales has a higher number of people dependent on welfare benefits than in most other parts of the UK. Research by Sheffield-Hallam University (Beatty and Fothergill 2013) shows an overall net loss to Wales as a result of welfare reform around 1 billion by , equivalent to 550 per working age adult. The more detailed analysis shows that three out of the ten areas hardest hit are in south Wales: Merthyr, Blaenau Gwent and Neath Port Talbot The Welsh Government (2013) has carried out its own analysis of the impact of welfare which identifies a loss to Wales arising from: a) 600 million loss by from changing from RPI to CPI; b) 113 million loss by from up-rating working age benefits by 1 per cent instead of prices; c) million loss by from changes to Disability Living Allowance; and d) 190 million a year from other changes, including housing benefit, tax credits and council tax There is very little evidence on the impact of welfare reform for public services and demand. The position is uncertain: if the net effect of welfare reform is to enable more people to enter employment, then the positive benefits may offset some (or all) of the impacts. The Welsh Government s analysis identifies a range of areas where there may be a potential, though un quantified, impact: a) Health Noting the link between income and health status, and also the fact that some benefits provide a passport to health-related benefits that may be removed from some people. b) Social care Impact of welfare reform on carers, and also migration (people move to smaller properties) disrupting social support networks thereby shifting demand from informal family/community support to public sector. c) Housing (see relevant section). d) Education Migration patterns due to HB reform, potentially impacting on local schools, also potential loss of free school meals may impact attainment. e) Social justice Impact on crime and communities. Notable likely impact in terms of advice given the scale of changes to the welfare benefits system and also to legal aid. Page 47 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

48 6. Responding through a more radical approach to efficiency 6.1. In considering the options for public services it is helpful to separate out the two main sources of pressure: financial and demand. With limited tax and borrowing powers in relation to funding for services, there is limited scope for Welsh public services to increase funding. There is the possibility of increasing charges for some services and perhaps trading with other countries. There is also scope to make traditional cash releasing efficiency savings, in non-pay areas such as better asset management and procurement. Research for the Public Services Leadership Group identified scope for Welsh public services to make 200 million of procurement savings over 5 years. Scope for savings on asset management is less certain Addressing the demand side of the equation is all about transforming services to be more efficient: to protect and even improve outcomes with fewer staff. In pure financial terms, savings are probably going to come through reductions on staff costs. The Office for Budget Responsibility (2013) predicts an 18% reduction (around 1 million) in public sector posts between 2011 and 2018.Applied to Wales, an 18% reduction would equate to around 58,000 public sector posts. Cutting staff is not in itself an efficiency saving. It is only a saving if the same outputs or outcomes can still be secured with fewer staff Efficiency is perhaps one of the dullest, and most misused, words in the public service lexicon. When used politically it is often a misleading euphemism for cuts. When used by technocrats it conjures up a mechanistic view of service delivery, focused on inputs, processes and outputs. Such an approach to efficiency is uninspiring and can also be dangerous and costly. A system that focuses on processing people more efficiently can lose sight of its purpose delivering an effective service that improves peoples lives Yet the concept of efficiency, getting more or the same from limited resources, is fundamental to the future sustainability of public services in Wales. A more radical approach to efficiency focused on what outcomes can be achieved for inputs, starts us asking more searching questions. Efficiency is not then about processing people as widgets in public service factories. It becomes about how best to organise and provide services to ensure better outcomes for individuals, society and communities There is a considerable degree of convergence on thinking among the UK think tanks and policy organisations about the kinds of transformations that are needed. For example, the Commission on 2020 Public Service Social Productivity model, the Innovation Unit s model for Radical Efficiency, INLOGOV s New Model of Public Services, and the Birmingham Policy Commission s system of Local Public Support. These approaches share a similar agenda around a co-productive model of locally directed, user and community led services that better meet demand and focus on prevention of future demand. The analysis below sets out a bit more what this agenda looks like, and the evidence base. It also considers how it fits with some of the ideas Page 48 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

49 and models for re-thinking service delivery, like lean/systems thinking and Results Based Accountability, that already have traction in Wales The critical point is that there is not a no risk, do nothing option. Doing nothing means making reactive cuts, salami slicing services, and heaping more and more pressure on frontline staff without making the changes needed to enable them to cope and potentially doing significant harm to outcomes for people and communities. The more radical approach to efficiency outline below at least offers the prospects of acting pro-actively to try new approaches and experiment with new models that could secure better outcomes for less. Of course, there will be risks that will need to be carefully managed. But the risks of doing nothing are probably greater. Scope to increase funding for devolved services 6.7. The Welsh Government does not, at present, have tax raising powers, so its scope to impact directly on the financial pressures is limited. The available funding is set by decisions made in Westminster. The Silk Commission has recommended devolution of some tax raising to the Welsh Government, but the scope to significantly increase the funding available for spending on public services is relatively limited. Local Council Tax could be a source of additional funding, but is limited significantly by political viability, and rises that significantly outstrip growth in the wider economy and wages are likely to be deeply unpopular There is scope to increase income in some areas. There is variability in the amounts that councils charge the public and businesses for various services, such as parking, weddings, planning applications, cremations. But again, the scope to increase is sensitive to the extent to which the public will accept what is essentially a pay more for the same agenda. In the short term, with business facing an anaemic recovery and evidence of real wages declining, public appetite for increased charges for services is unlikely to be strong. Some Welsh public bodies may also be able to trade their services to generate income. The Wales Audit Office, for example, generates some income from using its expert skills to bid for and secure work in other countries Although it is not being considered at present, long term there may be a need to revisit the basic funding model of the largest areas of spending. In its look at health and social care over the next 50 years, the King s Fund raises some serious question over the fundamental affordability of the tax based NHS system across the UK (King s Fund 2013). It identifies a potential lack of appetite on the public to increase taxes to fund the kinds of cost pressures projections show. Other models, such as increased use of health insurance and user charging may be required if the public funding is not available to meet to rising demand. Page 49 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

50 6.10. In England, there are significant changes afoot to the funding of social care. Following the Dilnot Commission, the UK Government has agreed to introduce a cap on care costs in England. While there is recognition that the social care system in England needs additional funding, the UK Government is yet to resolve the fundamental question of where that funding will come from. The funding mechanism is important as it will have consequences for Wales through the Barnett formula. An increase in direct funding from the government would be beneficial for Wales through the Barnett formula. However, the King s Fund (2013) identifies that simply increasing funding through taxation is unlikely. It reports that the UK Government is more likely to look to realise greater contribution from the property wealth that many older people have some kind of charge on their estates and re-directing spending away from universal benefits (TV licence, winter fuel payments) which could have mixed impacts for Wales. The debate about reform in England could act as a spur to fundamental re-thinking about the funding of social care, and how that fits with funding of health-care, in Wales. Better managing existing demand Co-production Co-production is an area where there has been a huge amount of interest amongst those that are thinking about the reform and re-shaping of public services 4. It is an approach where service users and the wider community play an active role in the design and delivery of services. In essence it is a shift away from a model of doing services to of for people to one of designing and delivering services with people. There are many different models and theories of co-production. For the purpose of this report, we have adopted NESTA s working definition: Co-production means delivering public services in an equal and reciprocal relationship between professionals, people using services, their families and their neighbours. Where activities are co-produced in this way, both services and neighbourhoods become far more effective agents of change. (NESTA 2009) In terms of the pressures on public services, co-production seems to offer potential to help better manage demand and protect or improve outcomes for less through two key mechanisms: a) clearly defining what it is that services users value and need, thereby providing a basis for identifying and eliminating activity that does not contribute to delivering that value; and 4 See for example: NESTA (2009; 2010); INLOGOV (2012a; 2012b); Birmingham Policy Commission (2011); Innovation Unit (2010); Commission on 2020 Public Services (2010); LARCI (2010) Page 50 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

51 b) recognising service users and the wider community as an asset, with skills and capacity that can help to deliver services and support people so that professional skills can be focused in the areas they are most needed There are several case studies and evaluations reporting improved impacts and outcomes as a result of co-production across the world and covering many different areas of public services. In this report, we will look at a small number of examples that have been included in lots of the literature: a) youth courts; b) self-management for patients in healthcare; and c) community networks in a range of settings, including health, social care and housing. Co-production and better results/outcomes Youth Courts: One of the earliest areas of co-production was the development of youth courts in the USA. Young offenders are referred to teen courts to be sentenced by other teens, some of whom may themselves have been offenders. In some cases teens themselves act as jurors, advocates, administrators and judges in the courts. A 2002 review of outcomes showed that in two out of four areas rates of recidivism in the teen courts were lower than in mainstream systems. In the other two, the data was inconclusive one suggested lower recidivism in teen courts but the difference was not statistically significant whereas the other pointed in the opposite direction. A 2008 study of youth courts noted that the wider literature on evidence of outcomes was ambiguous and noted considerable variation between different youth courts in terms of recidivism rates. The 2008 study noted that recidivism rates were probably now worse than other parts of the youth justice system Self-management: Self-management involves health professionals and patients working together to help patients to better manage long term conditions. Examples include the Expert Patient Programme in the UK. The evidence base for self-management suggests that there are positive benefits for patients in terms of clinical improvements, but the research is not conclusive. Examples of the kinds of benefits identified improved lung function in children with asthma, better glycaemic control for diabetes patients, and reduced pain and disability and functional limitations in arthritis patients. However, the Health Foundation (2011) notes that many of the studies have been inconsistent and suffer from methodological weaknesses. Therefore, while suggestive of benefits, further work is needed to confirm definitively Community support networks: Peer support networks are a form of co-production where intervention by professionals is either supported or replaced by activity delivered by a network of peers (Box 1). Page 51 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

52 Box 1: Examples of community support networks KeyRing scheme to enable independent living for vulnerable people in the UK; local area co-ordination in Western Australia, which helps disabled people and their families and carers to develop support networks in their communities; and family by family, a peer-support Australian scheme co-designed by the Australian Centre for Social Innovation (TACSI) and programme participants There are independent evaluations attributing improved outcomes to peer support networks. A 2002 review concluded that the KeyRing programme was Considerably beyond most organisations in terms of focus and outcomes. A case study for the UK Department of Health s care network reports how KeyRing programmes have enabled people to move from intensive support environments to independent living. A 2003 review of the Local Area Co-ordination (LAC) scheme in Western Australia reported that Based upon measures of consumer satisfaction, family/carer satisfaction, consumer outcomes, service coverage, and cost effectiveness, LAC has proven to be a highly successful program over an extended period of time. The first evaluation of the Family by Family programme found that the changes that families make appear to generate positive outcomes for both adults and children, the latter including some that are potentially very significant for longer term child development outcomes. Co-production drawing in additional capacity from service users and communities Youth Courts: Youth Courts in America draw in a significant amount of additional voluntary capacity. Youth Courts across America were supported by around 16,500 adults and 117,500 teens. Of those, more than 20,000 were former teen offenders (Hamilton Fish Institute (2008)) Self-management: The evidence on additional capacity from self-management in health is ambiguous, but suggests that service users own capacity to manage their conditions is helping to reduce capacity on healthcare services. The Health Foundation (2011) identified several studies showing that self-management led to a reduction in healthcare use. However, there are also studies showing the opposite: that despite benefits self-management has not led to reduced use of healthcare. The Health Foundation concludes that Overall however, despite some conflicting findings, the evidence suggests that proactively supporting self-management and focusing on self-efficacy and behaviour change can have an impact on clinical outcomes, crises and unplanned admissions or other costly emergency service use. Page 52 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

53 6.20. Community support networks: The Family-by-family programme has engaged 26 sharing families who provide support to other seeking families. In the programme, the sharing families receive a small payment for their contribution. While the 26 families clearly represent additional capacity, the extent to which they have enabled other professional capacity to be redirected is not reported in the evaluation. Co-production and cost savings Youth Courts in the USA have made a significant budgetary impact on the delivery of justice. The 2008 study found that the average cost of a youth case in the traditional justice system is around $1,635 compared to an average cost of $430 for youth courts. The study acknowledges that the ambiguity over comparative recidivism rates makes it difficult to do a robust cost/benefit comparison between the two systems. However, it also notes that while recidivism rates may be no better than other parts of the juvenile justice system all the indications are that they are (probably) no worse. Doing at least a comparable job with much less money should make youth court a contender for programme of the year Self-management: NESTA has developed a business case for its co-production based model of Patient Powered Healthcare (NESTA 2013). The business case draws on a range of studies to show the case for significant financial savings of around 7% of the commissioning budget. Extrapolated to the health revenue budget in Wales, the reduction would be in the order of 385 million. However, there is a need to be cautious about that figure. Underpinning NESTA s business case is an assessment of evidence for savings arising from self-management programmes. As noted above, the balance of evidence appears to suggest some reduction in healthcare use, but there is contradictory evidence. Also, it can be quite difficult to translate reductions in, for example, A&E attendances, into hard savings or new capacity sometimes it just means that healthcare staff end up struggling a little less Community Support Networks: The KeyRing case study reports savings in the order of 1,500 per full time member. A 2003 review of the LAC in Western Australia (Disability Services Commission (Australia)) found that it supported more people than the average across Australia but a lower total cost. Despite being cheaper, the LAC had customer satisfaction rating significantly above the Australian average. The Family by Family Scheme is still in an early phase of delivery so has not been evaluated for cost effectiveness, although TASCI claims that every $1 (AUS) invested saves $7 (AUS) by keeping kids out of state care. Page 53 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

54 Lean/systems thinking and RBA The kinds of radical change implied by co-production will require significant transformation of existing public service provisions. Many of the existing examples of co-production involve new projects or organisations that are not part of mainstream services. In the current funding climate, developing new projects is probably not the answer: we are looking to re-shape the existing systems. The difficulty is that there are often many factors in the systems that can inhibit, block, delay and ultimately destroy efforts to re-shape services The public sector in Wales has focused on several different methods for transforming services, notably methods such as Lean/Systems Thinking, the Kafka Brigade Method and Results Based Accountability. It is worth examining briefly how these methods can be built on and adapted to help deliver the radical changes to services that are currently being proposed. Given the scope of this work, it is not possible to go into great depth but the analysis that follows shows how, in principle, the methods that already have traction in Wales could be used to support the delivery of the new models of delivery being discussed. Figure 42 shows how it could potentially fit together. Figure 42: How co-production could align with lean/systems thinking and RBA Outcomes agreed with services users/ community and across different services/ departments/ organisaitons Clarity over who is responsible for what including responsibilites of users and communites Framework for measuring progress and acting across services and boundaries Service users themselves identify value/ what matters to them Detailed reviews of system of delivery to identify barriers Re-shaping of systems to address barriers, reduce waste and allow staff and users to jointly deliver service RBA as framework for shared accountability Whole systems methods to reshape service systems Services users involved in shaping the services they receive so they deliver better value/ outcomes Service users and wider community capacities recognised and harnessed Public experience new coproductive service models Leadership to support culture change New management styles to encourage staff to use initiatve/ innovation Transferof knowledge/ experience between services Support and explain benefits of move away from professional as expert seeking compliance to recognising capacity of service users and commnuites Potentially involve service users themselves to make case for change Page 54 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

55 6.26. John Seddon (Seddon 2008) in particular has been prominent in adapting Lean - a method designed for manufacturing in Japan (Box 2) and applying it to public sector service delivery in the UK. The Systems Thinking approach is based on a relatively simple premise of re-designing services to meet demand. Box 2: Principles of lean a. define value from the customer/user perspective; b. identify the value stream by understanding the service as a system, which may cross Departmental and organisational barriers, and by distinguishing between value adding and non value adding activity; c. make the value stream flow by redesigning and improving the end-to-end system to design out and reduce non value adding activity; d. introduce customer pull for value creation by providing a tailored service to meet demand as it arises; and e. strive for perfection of the first four principles through a commitment to continuous improvement building on staff expertise and understanding of demand and how the system can be improved One of Systems Thinking s great insights is to understand the demand coming in to the system in terms of whether it is value or failure demand. Value demand is about providing the service that matters to the service user. Failure demand is activity that is required to resolve problems caused elsewhere in the system. If we can get it right first time for people, we can strip the failure demand out of the systems. By identifying and eliminating such waste, services can free up staff capacity, giving them the choice of: a) cashing in savings by reducing the workforce or not replacing staff who have already left; b) re-allocating staff capacity, for example, to develop and deliver prevention services that could further reduce demand over time; and c) retain the capacity in order to absorb future demand without further recruitment (cost avoidance). Page 55 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

56 6.28. Identifying and stripping out failure demand, or waste, is not a simple exercise. If it was, everybody would have done it years ago. It requires detailed analysis to develop an understanding of what matters to service users. It requires a robust assessment of the service as a system, understanding the systems constraints and the design features such as rules and targets that cause certain behaviours. Sedan s assessment is that often public services do not get it right first time because, as systems, they are designed to comply with rules and targets rather than deliver what matters to the service user. Delivering what matters means public services need to be better able to response flexibly to the variety of demands and circumstances of service users, rather than try to offer one-size-fits all service to everybody There is a body of evidence demonstrating the benefits of lean/systems thinking in both the private and public sector. The most obvious example is the Toyota motor company, who developed the lean method and philosophy. It grew from a relatively small company on the verge of bankruptcy after World War two to the largest car manufacturer in the world. Seddon has published a range of case study evidence in his books on Systems Thinking. In addition, the Wales Audit Office commissioned the Lean Enterprise Research Unit to carry out a review of systems thinking in three areas: Neath Port Talbot Disabled Facilities Grants, Blaenau Gwent Housing Benefits Portsmouth Housing services. The research found significant improvements in both cost and service delivery as a result of the interventions (Radnor and Bucci (2008); Zokei et al 2010) The bulk of the evidence for lean relates to relatively simple transactional services. The Wales Audit Office commissioned LERC to research the scope for lean to be applied in a more strategic way, and LERC developed a model for System Lean drawing heavily on the work of John Bicheno. It sets out a range of analytical and conceptual tools for understand and reforming service delivery. The idea of using the philosophy and method of lean/systems thinking for more strategic change, combined with co-production, is logical but novel The transformation of services that cross organisational boundaries is particularly challenging. In truth, the work on Lean so far has had a limited amount to say about these complex systems. In Wales, Based Accountability (RBA) (Friedman 2005) has gained some traction in helping to understand the complexity of service delivery systems and to provide a framework for cross-cutting transformation. The influence of RBA is evident, for example, in Welsh Government strategies for social services and tackling poverty and also in legislation on improvement in local government RBA, arguably, provides a framework that is compatible with a more co-productive model of services in Wales. RBA does not prescribe models of service delivery or methods of improvement. RBA s great insight is that individual organisations can rarely impact the big population outcomes a more healthy, wealthy and well-educated population that we want to see. Therefore, responsibility and accountability needs to be shared amongst those that can contribute to those outcomes, including service users and communities themselves. Page 56 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

57 Using ICT to support more radically efficient services The emphasis of lean and co-production is on making use of human ingenuity, inventiveness and commitment. However, that does not mean there is not scope for well designed and implemented ICT to support services at a lower cost, where those services are genuinely designed to meet need. The landscape is littered with ICT projects that promised to save a fortune and ended up costing more. Often the financial case for online services is made on the basis of unit costs (cost of web interaction vs. face-to-face).where people can get the value they want from a web visit, it makes sense. However, too often the web is just an extra step in the journey towards getting the service people want, with people then needing to make face-toface contact as well as web contact (and potentially a telephone call as well to set up the face-to-face. Part of the problem is that automation of what are complex systems makes ICT less able to absorb the variety of demand that presents to public services. That is why some observers criticise the idea of digital by default instead calling for greater personalisation through humanisation by default Where ICT perhaps has the greatest potential is in: a) its ability to engage the public and service users in designing services; and b) the predictive power of big data to enable more targeted services and interventions. Shifting attention and resources to prevention The case for shifting resources to prevention : to addressing the underlying social and economic causes behind demand for public services is clear. Spending data from around the UK shows that public spending is lowest in those regions where the population is prosperous, well educated and healthy. So, if we want to manage with less in Wales, the best way is for us all to become healthier, richer and wiser. Of course, the reality is that generating that level of social and economic change takes decades, and not without significant upfront cost. This poses a major challenge for policy makers: is it worth the risk of the pain today (from reducing spending on remedial services and therefore leaving unmet need) in order to pursue uncertain but potentially large benefits in the future? Focusing on prevention is not simply a technical matter of shifting emphasis. Really focusing on prevention is a different role for the State. The State will take a more active interest, for example, in people s behaviour: diet, weight, personal habits and vices, and parenting skills will increasingly become a focus of State interest and intervention. Page 57 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

58 Health prevention In the UK, it is common to talk of prevention in terms of public health and the savings better public health deliver as a result of reduced demand on acute services. The underlying assumption is that a healthier population uses healthcare less. However, the position is more complex. Two of the main areas for public health are obesity and smoking. Often, the case for tackling obesity and smoking are made in terms of the healthcare costs of treating obese patients and smokers. However, simply focussing on the direct costs does not take account of life-long costs associated with obesity and smoking Research for the Dutch Government (van Baal et al 2008) shows that it is not unfit, over-weight smokers who incur highest health costs over their life-time. It is healthy people who are ultimately the most expensive because they live longer & experience chronic diseases in old age. The remaining lifetime health-care costs of a healthy living person is around 281,000 Euros, compared to 250,000 Euros for an obese person and 220,000 Euros for a smoker. There is a higher cost associated with treating conditions associated with obesity and smoking. But that cost is more than offset by the increased costs that will incur as a result of living longer. It may be that such increased costs are offset by the contribution to the wider economy, and of course there are significant health benefits to the individual, but in terms of direct health costs, an assumption that better public health leads to lower healthcare costs is not entirely sound. Figure 43: Comparison of lifetime costs of obesity, smoking and healthy living Source: van Baal et al (2008) Page 58 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

59 Prevention through integrated health and social care There has been a considerable political focus on the integration of health and social care in recent years. With demographic changes, it is no surprise that there has been a focus on the sometimes artificial divide between an individual s health need and their social care need. Also, the clear links, for example, between so called- bed blocking in hospitals and the availability of appropriate social care support suggest considerable scope for a more integrated approach to deliver benefits for citizens and for the public purse However, there is a lack of robust evidence demonstrating the financial or user benefits of integrating health and social care services. A 2010 review for the Scottish Government found a lack of evidence for either cost savings or improved outcomes as a result of integrating health and social care. However, the researchers cautioned that the lack of evidence should not be interpreted as evidence of absence. The Institute for Research and Innovation in Social Services (2011), Turning Point (2010) and the BMA (2012) also refer to a lack of clear evidence to support integration of health and social care The Scottish Government review points to tentative evidence of benefits and financial savings. Both the Scottish G and IRISS reviews refer to the same projects in the USA, Canada and Italy that led to reduced bed days in hospital for older people. The key evidence of savings in the UK comes from the review of the Partnerships for Older People Projects, although these were specifically funded projects, rather than re-focusing of mainstream budgets. The national review concluded that for every 1 spent, the projects had saved an average of 1.20 on additional hospital bed days. The results varied between different types of projects, with some saving just 0.80p per 1 (less than cost) and others saving On balance, it seems intuitively right that integrating health and social care should be a priority to deliver better outcomes at a lower cost. However, given the lack of clear evidence, it would be best, as Manchester has done in its approach, to assume a proof of concept approach and ensure that evaluation of cost-effectiveness is built in to any changes from the outset. What is clear from the reviews is that delivery of integrated health and social care is very difficult. There are a myriad of institutional, cultural, professional, governance, financial and practical barriers that need to be overcome. There is no doubt they can be overcome, but it is likely to take time and investment. If the driver is better services over the longer term, then such an approach may well bed in. However, as the RCN in Scotland (2011) concludes integration is not a quick or cheap option so if the drivers for integration are a need to reduce costs and ease pressure on secondary care, it may fail. Page 59 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

60 Intervening in the lives of children and families Early intervention is an area where there is again considerable political interest. Research shows that the most important phase of an individual s emotional development is during the first 18 months of life. Providing support to young people and their families at the earliest point possible can help to prevent problems further down the line and ensure better outcomes for children and their families. The National Foundation for Educational Research (Easton and Gee (2012)) identifies that while there is evidence of impacts, there is a paucity of UK-based evidence of the financial savings as a result of early intervention NFER s research identifies a range of individual programmes and projects that report cost savings as a result of early interventions. One such example is the Incredible Years Programme (developed in the USA but used around the UK, including in Wales).It targets parents and children with disruptive behaviour with a 12 week programme. The evaluation of the programme found that after the twelve week periods, the children s behaviour was below clinically disruptive levels.the cost of delivering the course was around 1,500 per family. In contrast, the costs associated with someone aged 28 years who has a conduct disorder are over 60,000. Other approaches which report financial benefits include: a) Family Nurse Partnership, which provides support to vulnerable mothers from pregnancy to the age of two. NFER report that in USA the programme has delivered a $5 saving for every $1 invested. In the UK the Family Nurse Partnership. b) Social and Emotional Aspects of Learning (SEAL) programme, which is a whole school intensive approach to social and emotional development of young people. It reports savings of 80 for every 1 spent. c) Parenting programmes to prevent conduct disorders: Research showed a saving of 5,837 per intervention to public services over a 25 year period at a cost per intervention of 952 to 2,078 (Bonin et al (2011)) Linked to early intervention in work to prevent young people from falling into the category of not in employment, education or training the so-called NEETS. Research for the Audit Commission (Coles et al 2010) identified the cost to public sector of a person becoming NEET is in the order of 64,000 over lifetime with wider costs to the economy taking the total to over 100,000.Preventing people from becoming NEET can potentially reduce costs. However, it needs to be acknowledged that many of the financial benefits from reducing NEETs will fall to DWP/HMRC. Nudge : behavioural change and choice architecture There has been a significant interest in Nudge or choice architecture where public services subtly attempt to influence the public to make better choices (as judged by themselves) (Thaler,Sunstein and Balz 2010). It is beyond the scope of this report to consider the detail of behavioural change theory and practice. Both the UK Government and the USA Government have dedicated government units to take Page 60 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

61 Use of norms and social saliance Changes to default policy Changes to physical environment Provision of information Persuasion Non-fiscal incentives and disincentives Fiscal incentives Fiscal disincentives Restrict Choice Eliminate choice Intervention Examples of policy intervention forwards the Nudge agenda. One much quoted success of the approach in the UK has been in self-assessment tax returns. On the advice of the UK Government Behavioural Insights Team HMRC changed the wording of its letter to include details of the proportion of local people who had already filled in their forms. This creates a form of social pressure. The change resulted in an additional 200 million tax being collected on time (RSA 2013) The Birmingham Institute for Local Government Studies (INLOGOV undated discussion paper) has produced a helpful diagram showing how Nudge fits with other approaches that have been taken to encouraging behaviour change (Box 3). Both INLOGOV and the Public Services 2020 identify the need to move beyond nudge. INLOGOV in particular argues that the Nudge approach changes the environment in which people make choices, but does not fundamentally change the underlying attitudes, values and motivations (INLOGOV undated). Therefore a deeper approach is required to fundamentally change public ideas about public services and their own responsibility to make better choices about their own lifestyles and contributing to improving their communities. Box 3: Behavioural change interventions (from INLOGOV undated) Regulation of the individual Fiscal measures directed at the individual Non-regulatory and non-fiscal measures with relation to the individual Guide and enable choice { Choice architecture Nudging } Prohibiti ng goods and services e.g banning certain drugs Restricti ng the options availabl e e.g banning smoking in public places Fiscal options to make behaviou rs more costly, e.g 5p plastic bag levy Fiscal measure s to make behaviou rs more beneficia l e.g tax breaks on the purchas e of bicycles Policies which reward or penalise certain behaviou rs e.g time of work to voluntee r Persuadi ng individual s using argumen t e.g GPs persuadi ng people to drink less Providing informati on in e.g leaflets on carbon use of househol ds Altering the environm ent e.g traffic calming measures or designing building with fewer lifts Changi ng the default option e.g requirin g people to optout rather than opt-in Providin g informati on about what others are doing e.g providing informati on about an individua l s use of energy compare d to others in the street Page 61 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

62 Implications for public service leadership and workers The sorts of changes being considered in this report and more widely are likely to have profound implications for the public service work-force. Public servants face a period of major upheaval through the reduction in their numbers. They could then be asked to go through a major period of transformation that questions their role and to some extent their identity. Approaches like co-production and systems thinking and a shift to prevention will require public servants to drop some of their long held ideas, for example: a) from professional knows best to one where the professional is a facilitator of the user to identify their own solutions; b) from professionals, like fire fighters and police, seeing themselves as heroes rushing to the rescue to one where they are community workers helping people to avoid problems; and c) from managers controlling staff and monitoring compliance to inspiring staff to use their initiative to help people solve problems The Birmingham Public Services Academy, building on the Work of the Birmingham Policy Commission, has carried out work looking at the requirements for the 21st century public servant in an environment of greater co-production and diversity of delivery. Box 4 sets out the key roles. Box 4: The 21 st Century Public Servant A radical change in public services will need to start with a radical change in the way those staff that plan, manage and deliver services think about and carry out their work. The Birmingham Public Services Commission has identified the following new roles for the 21 st century public servant: Storyteller Will play a key role in authoring and communicating stories of how new worlds of Local Public Support might be envisioned in the absence of existing blueprints, drawing on experience and evidence from a range of sources. This is about the ability to fashion and communicate options for the future, however tentative and experimental and will be crucial in engaging service users, citizens and staff in the project of redesign. Resource weaver This is the ability to make creative use of existing resources regardless of their intended/original use; weaving together miscellaneous and disparate materials to generate something new and useful for service users and citizens. Systems architect Someone who is able to describe and compile coherent local systems of public support from the myriad of public, private, third sector and other resources. This is an ongoing task as system resources are likely to vary over time and space. Navigator This specifically focuses on guiding citizens and service users around the range of possibilities that might be available in a system of local public support. This is similar to the sort of role that some area based regeneration workers have developed in the past. These new roles sit alongside three evolving roles: Commissioner Although much is known about this role already a key issue here will be Page 62 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

63 in ensuring there are sufficient commissioners with the right range of skills to be able to commission services and support on a system rather than service basis. Broker A role similar to but distinct from an advocate. Involves working closely with and on behalf of service users to access the appropriate support. Linked to personalisation and individual budgets. Reticulist This role is one element of the collaboration domain and focuses on the development and use of networking skills to identify new sources of expertise and support and/or to bring together agents who together can achieve desired outcomes Source: Birmingham Public Services Academy While many staff may embrace the kinds of change implied in this report, it is inevitable that many will resist. Greater freedom for frontline staff and changes to the system of controls will inevitably make some managers, particularly middle managers, uncomfortable. Also, a system that rests on recognising the service user as an expert in what works for them is a fundamental challenge to the role of the professional as the arbiter of what is best. Managers and professionals may object in terms of the risks involved in change and also because their own roles are threatened. There will need to be clear strategic leadership and communication on the nature and model of management in Welsh public services for the future, and a programme of equipping managers with the skills to inspire staff and to thrive in this new environment The extent to which a radical programme of efficiency will enable Welsh public services to address the major challenges we face and avoid damaging cuts to services - depends to a large degree on the extent to which the public service leadership and work-force are able to deliver transformation. Taking a bruised and depleted workforce on a journey that potentially puts their roles and even identity at risk is going to test the leadership qualities of policy makers and senior management across the Welsh public sector. The thinking, planning, communication and engagement will need to start now if the changes are to be made before it is too late. Page 63 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

64 7. A priority based approach to scaling-back 7.1. We remain cautious about the extent to which even radical change can deal with all of the financial pressures public services face. The scale of the challenges faced, and the level of change required, is daunting. Given the risks and uncertainties, public services need to expect that a significant part of their response will need to be a managed reduction of service provision in some areas. In this part of the report we examine options in terms of scaling back some areas of public service delivery. Moving services outside the public sector, particularly to mutuals 7.2. One of the options available to public services is to move a service or function outside of the public service. There is a growing interest in the idea of mutualisation of public services. The UK Government set up a Mutual Task Force to develop public sector mutuals. It has introduced a Right to Request to enable employees to spin out parts of the public service by turning them into mutuals. In Wales, there is a Welsh Mutuals and Cooperative Commission looking into the role of mutuals and co-operatives. The Think Tank, Res Publica has recently published an extensive compendium of case studies of successful mutuals operating in different parts of the private and public sectors. The UK Government s Mutual Task Force make the case for mutuals thus: There is a significant body of reliable evidence suggesting that well-designed mutualisation in the public services has the potential for yielding considerable benefits in a wide variety of contexts. Such mutuals could be directly beneficial for their employees, with higher well-being, lower staff turnover and absenteeism than their competitors, and for the users of the service they provide, offering a higher quality service with superior customer satisfaction. The mutuals concerned could also be more innovative, more efficient, more productive and more resilient to turbulence. Our Mutual Friends: UK Government Mutuals Task Force (2011) 7.3. There are case study examples of mutuals reporting positive benefits, such as the City Healthcare Partnership CIC in Hull, which reports savings of 600,000 a year since setting up as a mutual as well as improves staff and user satisfaction. ResPublica has published a compendium with case study material reporting the benefits of mutualisation in public and private spheres of the economy (ResPublic 2013). Over recent years, there has been a growth in the number of mutuals in the culture and leisure field, notably libraries in England (e.g. Social Enterprise London and 2020 Public Services Hub at the RSA (2011). Welsh examples include a Leisure Centre in Gwynedd and Celtic Leisure a not for profit service running culture and leisure services in Neath Port Talbot The argument for mutualisation is certainly impressive. Proponents hold out the prospect of not only saving money, but also improving services to the public. Mutualisation promises to be able to offer greater efficiency and productivity, so saving Page 64 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

65 money. It also promises greater freedom and control for staff, thereby improving satisfaction. So what is not to like? 7.5. There are some reasons to be cautious. The number of organisations that have actually taken up the UK Government s Right to Request has been relatively small. Much of the analysis to support the conclusions of the UK Government Mutuals Taskforce came from the private, rather than public sector. Whilst there is some case study evidence, the Association for Public Service Excellence reported in 2011 that there is little evidence base to support the claims being made for mutuals If mutualisation is to be a major part of the response, the implications for staff will need to be carefully managed. Much of the benefit of the mutual model is described in terms of its ability to be more innovative and productive because of greater staff engagement. But the APSE 2011 review noted that mutualisation seemed to lead towards a downwards trend for staff terms and conditions. The Trades Unions Congress (2013) has also expressed concern that when balloted, staff in the NHS have generally voted overwhelmingly against mutualisation. It is therefore clear that if mutualisation is to deliver significant financial benefits, the staff implications will need to be very carefully managed Mutualisation is not the only method of moving services outside of the public sector. The private sector has played an increasing role in public service provisions across the UK. While there is limited use of the private sector by the NHS in Wales, its use has been growing in social care. In local authorities provided the majority of hours of social care, but in the decade that followed the position reversed, and local authorities now provide around 1/3rd of hours of care, with the majority being provided by the independent sector. Figure 44: Split between local authority and independent provision of social care 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Independent sector Local authority Source: StatsWales Page 65 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

66 Doing least harm through priority based cuts 7.8. Despite the potential for transformation, the scale of financial challenges and the difficulty of achieving wholesale systemic change, means that a significant part of the reductions will come from savings that do not come about as a result of greater efficiency. Into this category falls stopping doing things, reducing the level of service or the quality or restricting access. The challenge is to make sure those cuts are made in the right way, following a robust process that takes account of both the financial savings and the impacts for citizens. Prioritisation 7.9. In making cuts, prioritisation is clearly the place to start. However, it is important that the basis and criteria for prioritisation are clear. Mark Friedman who developed the RBA approach emphasises the need to identify potential areas for cuts using outcomes as the guide to setting priorities. In particular, the goal should be to identify areas to cut that make the least impact on population wellbeing and service performance. Box 5 sets out the key questions that need to be asked, as part of an RBA approach to cutting budgets while doing least harm to outcomes. Box 5: Exercise 1: Least Harm to Quality of Life: Population Accountability 1. Identify a population outcome that your organization contributes to. 2. What is your organization's role in improving/achieving this outcome? 3. What do you do that causes the greatest contribution? 4. What do you do that causes the least contribution? (Least harm cut candidates) 5. How could you fulfil this role by changing what you do or how to do them with existing resources? With reduced resources? 6. How could you be a leader in helping your partners improve outcomes with existing resources? Reduced resources? Exercise 2: Least harm to customers quality of life: Performance Accountability 1. Identify one service. 2. Identify the primary customer group. 3. What are you doing that is most effective in improving the lives of your customers? 4. What is least effective? (Least harm cuts candidates) 5. How could you work differently to produce the same effect? 6. What partners do you need who are not currently engaged? 7. How could you work differently with new or existing partners to make a difference in the lives of your customers? Source: Mark Friedman RBA Least Harm Cuts Exercises, Page 66 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

67 7.10. Prioritisation based on political criteria, rather than outcomes, potentially complicates the process. In Wales, the Welsh Government has introduced a small number of universal services : free prescriptions, free bus travel for over 60s, free parking at hospitals and free school breakfasts. The Welsh Government has decided to protect spending on these universal services. The costs of these schemes are in the order of 100 million: less than 1% of the Welsh Government s revenue budget. While the amounts are relatively small, they assume a symbolic significance if those services are seen to be protected at the expense of other areas that could have an equal, or perhaps greater impact, in improving outcomes for the population Some organisations have engaged the public in identifying priorities and non-priorities for spending cuts. Overall, this is probably a positive and necessary step, but there are some significant risks. Many public services are targeted at a relatively small part of the population who are vulnerable. For the majority of the population it may be easy to underestimate or even ignore the importance of these services. Public engagement in priority setting therefore needs to be sophisticated and supported by the provision of sufficient information to enable to the public to understand the detailed implications of spending and budget choices. Rationing Many services are already prioritised to those that are considered to be most in need. Social care services have eligibility thresholds that are interpreted by local authorities. The Independent Commission on Social Services in Wales reported that there was variability in the criteria used, and some concern that the financial conditions would lead to further raise eligibility criteria. Several education, culture and leisure services are delivered free to particular groups while other groups pay a fee Rationing of services is not simply about gate keeping deciding who gets a service. The King s Fund (2012) has identified five different elements of rationing that are applied by healthcare commissioners in England, most of which can also be found in Wales in some form and in different services: a) slowing down treatment rates by increasing waiting times (rationing by delay); b) introducing eligibility thresholds for treatments in order to limit the number of referrals (rationing by selection); c) reviewing spending on continuing care and diverting demand to social services (rationing by deflection); d) capping the number of treatments hospitals can provide (rationing by denial); and e) developing exclusion lists of treatments that will no longer be funded (rationing by denial) As with priority based cuts, rationing services may be unavoidable. The challenge is to ration services in such a way as to do least harm to outcomes and service performance. Page 67 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

68 Tracking and mitigating the impact of decisions to cut and ration services Cutting and rationing services involves significant risks that need to be managed, in particular: a) the risk of doing significant harm to population outcomes; and b) the risk of cost shunting so that cuts actually result in greater costs across the whole system Looking at the risk of impact on outcomes, the Joseph Rowntree Foundation (JRF) identified a lack of impact assessment as part of budget decisions in Scotland.It found that many public bodies carried out equalities impact assessments, but that these did not cover many of the vulnerable groups most likely to be impacted by the decisions.use of Social Impact Assessment (SA), as used in international development, could potentially help to fill this.the United National Centre for Good Governance defines, Social Impact Assessment in terms of efforts to assess or estimate, in advance, the social consequences that are likely to follow specific policy actions (including programs/projects and the adoption of new policies), and specific government actions. (United Nations (2006: 6)).While many of the toolkits and frameworks for SIA have been developed to test planned investment they could be adapted to planning and monitoring reductions in services.the Social Impact Assessment process, as adopted from the UN Centre for Good Governance sets out the overarching framework. Figure 45: Social Impact Assessment process adapted for austerity 1) Identify those likely to be effected and perform stakeholder analysis 6) Ensure monitoring with active stakeholder monitoring and update 2) Identify social risks / variables 5) Implement mitigative plan and public participation 3) Analyse data and establish baseline 4) Consult stakeholders and develop mitigative plans Source: UN Centre for Good Governance (2002), adapted by WPS 2025 Page 68 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

69 7.17. Linked to the impact on outcomes is the risk that efforts to cut services actually create additional costs elsewhere in the system.this report has previously referred to the emerging evidence that real terms cuts in spending on social care for older people may have resulted in additional demand on health care services.the same could potentially be true of other forms of rationing: a) increasing waiting time in health could lead to a deterioration in the person s health, requiring more costly treatment further down the line; and b) restricting access to social services for those with the most acute needs could mean that more people with low grade needs deteriorate and their issues become more expensive to respond to further down the line The potential for negative consequences means that public services will not be able to simply cut and forget.they will need to keep track of the impact of decisions to reduce or ration services, and be prepared to amend their decisions where it turns out to have had unintended consequences.one example of this is the case of speed cameras in Oxfordshire (see Box 6) where the local partners were able to reverse their decision and identify new ways to fund the services. Box 65: Oxford Speed Cameras In late 2010, the Thames Valley Safety Partnership decided to turn off 72 fixed speed cameras and 89 mobile sites in Oxfordshire.The decision was taken due to a cut in funding from the local council as a result of its own budget for Road Safety being cut by the UK Government.The Partnership monitored the situation and found that in the six months after the cameras were turned off injuries and fatalities on the roads had increased.the Partnership, which includes Thames Valley Police and Oxfordshire County Council, decided to switch the cameras back on.in order to fund this decision, the police made a contribution from back office savings.more innovatively, the police changed the level at which it would require drivers caught speeding to take a speed awareness course instead of a fine.while the latter involved funding going directly to the Treasury, the local police force could use funding raised from participants required to pay for the awareness courses.the local Council reports that the change has the benefits of increasing funding available for the speed cameras and also enabling the police to more directly engage with drivers to help address their spending behaviours. Sources: BBC and road.cc While this section has focused on avoiding the negative, there are examples where cuts have led to new services emerging that are an improvement on what went before.nesta s The Art of Exit sets out a positive approach to Creative Decommissioning of services, including a range of international case studies where the decommissioning of services and institutions led to better results or outcomes. Page 69 of 76 - Future Pressures On Welsh Public Services - Financial and demand pressures on

70 Bibliography Association for Public Service Excellence (2011) Proof of Delivery?, APSE Bayliss (2012) Local Road Maintenance Recent trends and prospects, RAC Foundation: London Beatty and Fothergill (2013) Hitting the Poorest Places Hardest: the local and regional impact of welfare reform (16/09/2013) Birmingham Policy Commission (2011) When Tomorrow Comes - The Future of Local Public Services, (16/09/2013) BMA (2012) The Integration of Health and Social Care, BMA Bonin et al (2011) Costs and longer-term savings of parenting programmes for the prevention of persistent conduct disorder: a modelling study (16/09/2013) Butts, Buck, Coggeshall (2002) The Impact of Teen Court on Young Offenders, The Urban Institute, Washington DC Cambridge Centre for Housing and Planning Research (2010) Housing Need and Demand in Wales 2006 to 2026, published by Welsh Government, Merthyr Tydfil Coles, Godfrey, Keung, Parrott and Bradshaw (2010) Estimating the life-time cost of NEET: year olds not in Education, Employment or Training (16/09/2013) Commission on 2020 Public Services (2010) From social security to social productivity: a vision for 2020 public services (16/09/2013) Disability Services Commission (Australia) (2003) Review of the Local Area Co-ordination Program Western Australia, Friedman, M (2005) Trying Hard is not good enough: how to produce measurable improvements for customers and communities Trafford publishing, Victoria (Canada) Page 70 of 76 - Future Pressures On Welsh Public Services Financial, demand and other cost pressures and a review of potential responses

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