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Police  Click here to read this section

Transport  Click here to read this section

Education  Click here to read this section

Environment & Renewable Energy Click here to read this section

Police: The Chancellor has outlined a 4per cent p.a. cut in the police budget whilst stating the aim to have no reduction in police-officer visibility and availability on the streets. He also reiterated the aims of the Winsor Review of police-officer terms and conditions, and the introduction of directly elected Police and Crime Commissioners.

Deloitte view: There is a risk that the budget cut will mean that police officers are taken from the frontline and redeployed into the back office in the near term.

The Winsor Review will not deliver its recommendations until June 2011, and they will take much longer to implement - yet police forces and authorities need to start reducing costs immediately. Over 80 per cent of force costs go on staff, the vast majority of whom are police officers and for whom turnover rates are well below public-sector averages. Because police-officers terms and conditions are much more inflexible than those of civilian staff, many forces will seek to fund their immediate savings from cutting civilian staff doing a range of support and operational support jobs. But these jobs will not go away without wider changes to the way services are delivered, and many forces will need to re-deploy police officers to backfill them. So the proportion of police officers available for ‘frontline’ duties could fall – and forces could be ‘over paying’ for police officers to do jobs that do not require their skills or powers.

The government is expecting to find much of the savings target through greater efficiency in the back office. Yet back-office services comprise a small proportion of force budgets, so forces will have to find new models for delivering their operational services more cheaply. They will need to consider much greater collaboration with other forces and other public services. Deloitte recently supported the forces and authorities of Yorkshire & the Humber to design a pioneering regional collaboration programme, and it was clear that the greatest potential savings lie in collaboration in operating policing capabilities.

Forces will also need to reform their workforces and consider which people, with which skills and powers, are best placed to deliver the re-designed services. Deloitte’s two-year evaluation for the Home Office of the national Workforce Modernisation Programme pointed to the potential benefits forces could realise through re-configuring the workforce alongside policing processes.

The police service has some fantastic leaders. Many excel at crisis-driven leadership in particular, where actions need to be taken quickly, where resources are in direct line command and where, frequently, there are clear right/wrong answers. Policing in the new age of austerity will require new leadership skills – leading without authority (e.g. through partnerships with other public services); the ability to commission services effectively from others, including the private sector; managing risk rather than trying to eliminate it; and, taking decisions when there is no one right answer, leading their teams need to navigate through to the best solution in the context. The police service will need to invest in these new skills.

Transport: Funding for Crossrail is also secure, although the wider Transport for London budget is to be reduced by 28 per cent. The Department for Transport will also have its budget cut by 21 per cent over the period to 2014-15.

Rail passengers will see rising ticket prices as the price cap on regulated fares increases for three years from 2012 and charges on the Dartford Crossing also go up. Bus subsidies paid directly to operators will be reduced by 20 per cent but free passes under the Concessionary Fares Scheme are protected.

Deloitte view: The level of capital spend reflects a strong desire to protect the infrastructure which will support the growth of the economy in both the short and medium term. The Spending Review prioritises capital spending on transport projects which can offer high economic returns when compared to investment projects in other sectors.

It is positive that Crossrail will go ahead in full without cuts to either lines or stations, although with a reduction in budget and a clear message that overruns will not be tolerated. Those responsible for delivery of Crossrail face some very real challenges in delivering the scheme to a very tight budget and an efficient delivery mechanism combined with strong management and financial controls will be required.

The wider TfL budget is to be reduced by 28per cent. Coming on top of cuts already included in the TfL Business Plan brought about in large part by the impact of the recession on fares income, this reduction marks a very real challenge to TfL. Similarly, the Department for Transport will change given its budget reduction and we will see much tighter control of how money is spent in terms of both assessing how monies are dealt out as well as the level of control in how it is spent.

With the cut-backs, new sources of funding will have to be found to plug the gap for transport projects. It is our belief that more complex and innovative funding packages will be required, needing a strong degree of local public-private support and partnership. Public sector transport organisations will be under more pressure to realise cash from the sale of surplus assets, which should include under-utilised land and property.
 

Education

Higher Education: The 40 per cent reduction in the HE budget and the broad acceptance of the Browne report will have far reaching implications for the Universities sector. In a similar way to FE the Government is expecting HE providers to become more market driven and self-reliant. Organisations will be given greater powers to set their own fees and raise money, however the flip side to the opening of this market is the possibility that students may take their business elsewhere, that competition from the private sector and the international markets will increase and Universities will therefore experience corporate failure.
The current budget and Browne report proposals are likely to result in a radical re-think amongst University leaders. The number of Universities and courses are likely to fall as consumerism amongst students rises.

Further education:The reduction in the FE resource budget by 25 per cent from £4.3billion to £3.2billion by 2015 and to remove funding for all level 2 and 3 qualifications for those over the age of 24 is clearly an attempt to rationalise and consolidate the curriculum and qualifications offered by FE providers so that the sector is much more focused on providing the skills necessary to the UK economy. I.e. being more demand led. This will be supported by increased funding to apprenticeships for adults which is to rise by £250million per annum by 2014-15.

The challenge to providers in this sector who have traditionally focused more heavily on their social responsibilities than their economic responsibilities will be to remain viable in the face of greater emphasis on self-reliance and learners as consumers.

Schools: The increase in schools spending and corresponding cut in the wider Departmental budget reflects a shift in the priorities of the DfE towards its core purpose of raising standards in core Education services. The real detail of the wider cuts will come in the business plan, but schools are clearly the government’s priority. The real challenge will be delivering the Free Schools and Academies reform which will accompany the extra spending, and Deloitte looks forward to supporting the Department and the schools to do this successfully.
The spending review represents a challenge to local authorities, to deliver services with smaller budgets. Part of this will be a shift toward becoming primarily a commissioner rather than a provider of services, which will involve building new strategic partnerships and adopting best practice in procurement and performance management.

Deloitte view: The announcement is more positive than expected for education and in particular for schools, where spending is up 0.1per cent in real terms per year, or nearly 10per cent in cash terms by end of the parliament.

The Spending Review marks a transformation in how Education is delivered. The decision to increase school spending and devolve decision making to teachers and Heads, while reducing funding for Local Authorities, transforms local and national government’s role from provider to commissioner of education.
Deloitte believes this transformation heralds an exciting new era for local and national government and particularly for schools. The Spending Review signals the need for a new kind of strategic partnership between Business, government and educators. Everybody who works with schools and government will have a responsibility to help them deliver these new roles effectively. Business should be willing to share best practice in cost cutting, benchmarking and performance management, and should play a key role in helping schools to use their new funding and autonomy to deliver better standards for all pupils.

Higher Education: Universities are vital to Britain. Their research capacity supports economic growth and innovation, and they are engines of social mobility. We note that the spending review has headlined a 40per cent reduction in funding for universities. The impact of this on some institutions, where reliance on government funding is significant, could be greater. This will create a significant challenge for their leadership teams to reduce costs while at the same time respond to increasing expectations from students. The ability of the sector to withstand this level of cuts will very much depend on the extent to which the recommendations set out last week in the Browne report are implemented. Balancing the books will require universities to replace lost funding with increases in direct charges as well as implementing new leaner ways of working. At Deloitte we are already supporting a number of our University clients to work through how they need to change and respond in an increasingly challenging fiscal landscape to achieve sustainable financial improvement.

Further Education: Today the SR has provided further clarification on the important role Government sees the further education sector playing in helping the UK economy return to sustainable growth. The move to focusing funding through a reinvigorated apprenticeship programme provides private training providers and colleges with a real opportunity to work collaboratively with business to address the UK skills gap. An increased expectation from Government on the value for money and the productivity of this sector, and the expectation that more courses will be funded directly by the learner will require FE providers to think differently about how they work together and with business. New models of delivery through the creation of federations and mutual structures will be necessary to achieve the economies of scale and the breadth of expertise needed to survive in an increasingly competitive market.

Schools: It is clear from the announcements on per pupil funding, and particularly on the pupil premium, that the Government prioritises closing the attainment gap between rich and poor children. This challenge applies to delivery reform as much to funding and looks forward to helping support the Free Schools and academies policy work in practice. This could occur particularly in areas such as procurement and financial management, where schools might not have as much expertise.
 
Environment and renewable energy: Over the course of the Spending Review period the Department of Energy and Climate Change will face an 18 per cent reduction in its resource spending and a 41 per cent increase in its capital spending (mainly to meet existing nuclear decommissioning liabilities). It will also have to implement the major market reforms which are proposed in the electricity sector and try and secure the £200billion of investment needed by 2020 to provide secure low-carbon energy.

CRC Energy Efficiency Scheme: The Scheme will be reformed such that revenues from the sale of carbon allowances are no longer recycled to participants, significantly increasing the financial impact on the approximately 4,000 public and private sector originations within the scheme. This will particularly affect larger energy users with an estimated increase of at least 7per cent on organisations’ energy bills in 2011/12. The Government estimates this will create revenues for the Exchequer of £715m in 2011/12, rising to £1,020m in 2014/15. There is an indication that some of these funds will be spent on protecting the environment, however, as with other environmental ‘taxes’, there is no formal ring fencing planned. In addition, the first allowance sales from government for 2011/12 emissions will be deferred from 2011 until 2012 to improve organisations’ short term cash flow.

Carbon Capture & Storage (‘CCS’): The funding promised in the Coalition Agreement to finance the first CCS project is secure and up to £1billion will be provided from the public purse, rather than a levy on electricity supplies, thus being funded by taxpayers rather than electricity users. The Government is still committed to funding four projects but it is not yet clear where the additional funding required will come from and whether it will be sufficient to attract business interest, particularly following the recent withdrawal of a potential participant.

Offshore Wind: The £60m pledged by the Government for the upgrades to offshore wind manufacturing facilities at port sites has survived, which should help to maintain the UK’s position as the largest offshore wind generator and help to secure the required investment in the supply chain for renewable energy in the UK. There will also be funds available for research into offshore wind turbines.

Green Investment Bank: Funding of £1billion for the Green Investment Bank in 2013/14 has been secured, potentially supplemented by additional funding from the sale of Government owned assets. However, significant investment from the private sector which dwarfs the £1bn commitment from Government is still needed if the UK is to obtain the investment levels required to move to a low carbon economy. The role of the bank with this limited level of funding will also need to be carefully considered if it is to be effective.

Green Deal: As expected the Warmfront scheme will be phased out, saving approximately £345 million by 2013/14 to be replaced by a Green Deal allowing householders to improve the energy efficiency of their house at no upfront cost. The Green Deal represents a significant opportunity for the private sector to provide funding to and implement this initiative.

Feed in Tariffs (FiTs): The announcement that any changes to FiTs, for renewable energy microgeneration, will be delayed until the next formal review will be welcomed by the renewable energy industry after rumours of retrospective reductions. However the threat of changes remains, particularly since the focus of reforms will be to support more cost effective carbon abatement technologies. Savings of £40m are expected by 2014/15. The next review is scheduled for 2012, or earlier if there is higher than expected deployment. In addition uncertainty still remains around the tax implications of FiTs in many business models and clarification is eagerly awaited by the industry.

Renewable Heat Incentive: After a long series of consultations, there is confirmation that the Renewable Heat Incentive is being implemented in 2011/12.

Energy Efficiency Technology for Buildings: There is a key focus on the role of technology in reducing emissions including funds for energy efficiency technology for buildings, although the extent of these funds is not clear.

Carbon price: There was also confirmation that consultation on reform of the Climate Change Levy to provide support to the carbon price, being considered as part of the Electricity Market Reform project, will be published in November.

Other measures: Other relevant measures included investment in flood defences as part of the UK’s climate adaptation planning and protection of the science budget which may assist low carbon research in the UK.

Deloitte view The Prime Minister had previously pledged to make this the greenest Government ever and overall the Spending Review contained good news for the UK’s renewable energy and cleantech industries. Despite fears of swathing cuts across the board the Government has confirmed its commitment to a low carbon economy, although the cost of energy continues to rise. This comes at a time when the impending reform of the electricity market could further affect energy cost to businesses, consumers and other organisations.

Perhaps the most significant measure is the unexpected announcement that revenues from allowance sales in the CRC Energy Efficiency Scheme will be used to support the public finances to the tune of approximately £1bn by 2023/14. This will prove a significant cost to the organisations covered by the scheme and the Government is likely to come under increasing pressure for energy from renewable sources to be excluded from the Scheme; currently organisations must calculate the carbon emissions from energy purchased at grid average, regardless of its source.

With the changes to CRC some UK businesses will now be paying multiple levels of ‘taxation’ on their energy (potentially CRC, VAT, Climate Change Levy and EU ETS are all applicable). In the context of strategic priorities for corporates and public sector organisations, the bar for measuring, managing and monetizing energy has been significantly raised.

Last updated 568 days ago by Deloitte