Second Formal Complaint - Rhondda Cynon Taff CBC failing to provide

Value for Money to Taxpayers

This is a complaint on behalf of all Taxpayers of the Rhondda Cynon Taff
CBC area.
In my complaint and the attached second report, I have used language
suitable for understanding by those without a financial background, to
ensure clarity to all.
This Complaint
The report in my initial complaint on the same subject dated 18 September 2014
identifies that there are highly significant annual cash savings available to
Rhondda Cynon Taff CBC (RCT), in the area of Management and Administration
costs, approaching the annual value of 26 million.
The main 3 areas where there is potential for saving significant sums are in the
areas of Education, Social Services and Local Environmental Services.
If Rhondda Cynon Taff CBC were to take full advantage of the savings available
in these 3 areas alone, they could achieve total savings approaching 20 million
p.a.
As its annual savings target currently stands at around 20 million, this means
that all savings can be found without the need to cut Frontline Services.
My complaint is that because RCT has failed to provide Value for Money to
Taxpayers, in not cutting the Administration and Management costs, they have
instead chosen to cut Frontline Services. These Frontline Service cuts were
entirely avoidable, and this complaint is to state that RCT should now recognise
the error, reverse all Frontline Service cuts, and adopt the best practice
alternative methods available to them from the better-performing sister LA's
identified in my original report.
This will involve reduction of manpower numbers and adoption of revised staff
structures and operational methods; also adoption of revised methods and
sources of provision of Supplies and Services.
Response given to my first Complaint by RCT
On the 27 October 2014 Mr Paul Lucas (Monitoring Officer) responded to
my first formal complaint, stating that having undertaken a full
investigation of the matters raised, he could not uphold any aspect of
my complaint.
He stated that the reason for this was:
The Councils included in the comparison were "totally incomparable"
because of
- Significant variation in the LA Population size
- Significant variation in the LA Annual Budget size
- Differences due to whether Council Housing is provided by the LA's
- Different Education Funding arrangements between England and Wales

My response to these points is as follows:

Background explanation:
Understanding Unit Costs and Cost Drivers:
The reason we might seek similar Local Authorities in this report is in order to
seek two outcomes:
- To identify sister LA's whose manpower and operating structures can be
adopted by RCT directly and straightforwardly, in order to implement the greater
efficiencies that they have achieved.
- To identify sister LA's from whom better practice can be learned, when they are
confirmed to demonstrate better Outcomes (e.g. average wider points per pupil
in the Education area) and better Unit Costs. RCT will then be able to implement
the same practices in terms of Procuring Supplies and Services and methods of
operating, in order to improve performance.
Identifying LA's which are identical to RCT in both population size and total
Annual Budget spend, of course would not be useful, as no model for change
would result.
Ideally we would like to identify LA's with better performance and lower Unit
Costs per Resident, with roughly similar aspects in terms of key cost drivers.
A cost driver is a significant feature that has been proven to directly influence
the level of costs for the organisation type involved.
In my first report I listed the 3 cost drivers which are central to the Local
Authority model. These are:
- Level of Multiple Deprivation
- Population density or spread
- Demographic profile
Interestingly, Lesley Griffiths, Minister for Local Government days, in the White
Paper of 8th July this year, "Reforming Local Government, on page 8 of the
report, item 13, "The Commission finds performance (of Local Authorities) is
poor and patchy, with a wide difference between best and worst, and significant
variations in efficiency. The Commission accepts some variation in performance
is inevitable, because different Local Authorities face different challenges of
demography, deprivation, and geography. However, it describes the
differences as often inexplicable."
Thus the key challenges identified above by the Commission are the chief
distinguishing aspects in terms of driving costs, entirely consistent with the
statements in my initial report.
We would expect economies of scale to result from the figures for Local
Authorities with a larger size of population served. In principle we would expect
Unit Costs per Resident to fall with increasing Population and Annual Budget
size.

Taking each of Mr Lucass points in turn:

Mr Lucas stated in his response as his first and second points that:
The Councils included in the comparison were totally incomparable
because of
- Significant variation in the LA Population size
- Significant variation in the LA Annual Budget size
It is impossible to achieve true benchmarking-based improvements in cost by
targeting Local Authorities with a very similar population AND annual budget. For
example, a Local Authority A with 2,500 unit cost and say 200,000 population
equals a 500 million spend. If we were to identify Local Authority B with 500
million annual spend and 200,000 population, then no benefit is possible to be
identified, as the unit costs are exactly the same!
An everyday example to illustrate this would be to consider a man and his wife
with 8 children, i.e. a family of 10, who spend 1,000 each month. The couple
wish to reduce their family spending, but to affect their quality of life as little as
possible.
They will look for families of the same size who spend less, or they will look for
larger families who spend the same as them. They can then ask them what they
are doing, and will adopt any changes that achieve their objective.
They will not look for the same size families who spend the same as them, as
there is nothing to be learned from them.
The search is therefore for Local Authorities with similar sets of attributes of
either:

Population size, multiple deprivation, population density, AND demographic

profile

OR

Annual Budget size, multiple deprivation, population density, AND

demographic profile.

So, to seek out a Local Authority with a similar population size, and a lower
budget by say, 20 percent, for example, from say a 586 million p.a. base for
Local Authority A, we would target a Local Authority with a budget of 469
million, and assuming the population was 234,400, this would form the basis to
target a reduction in unit costs from 2,500 to 2,000 per resident.
Calculations:
586,000,000 234,400 = 2,500 per resident (RCTs figure)
586,000,000 20% (586,000,0000.20)
= 586,000,000 - 117,200,000
= 468,800,000
468,800,000 234,400 = 2,000 per resident

The converse of this is also true of course. To illustrate, if we had an annual

budget of 500 million, and a population of 200,000 in Local Authority A, then to
seek economies of scale we would include in our comparisons Local Authorities
with populations of 200,000 plus approximately 25%, that is 230,000.
In order to gain any useful information from benchmarking, we have to begin by
exploring organisations with a range of characteristics which is quite wide.
If we are really committed to reducing costs, we will explore organisations with
characteristics which are different by up to say 40% of the original organisation,
for both population size and Annual Expenditure, but as close as possible in
terms of the 3 true cost drivers (as detailed above).
Of the 4 sister LAs selected, all have populations within 25% of RCT, and the 4 th,
County Durham, is included because although approximately twice the
population, the key cost drivers are almost exactly the same, thus it provides an
interesting model for an expanded County size, as well as offering models for
adoption without that change.
In order to make this point indisputably, using the actual figures for the
4 sister comparison LA's in my report, I have drawn up a series of 4
graphs, shown on the following pages:
For all England and Wales LA's:
Average Unit costs per Resident vs Population (graph A)
Average Unit costs per Resident vs Annual budget (graph B)
The 2 above graphs, highlighting separately those LA's with and without
Transferred Housing stock (graphs C and D)
The 4 comparison sister LA's are shown in the colours stated on the graphs and
RCT is shown in red.

Average Unit Cost per Resident vs Population

All Wales and England LA's
4,500
4,000
3,500
3,000
2,500
Average Unit Cost per Resident p.a.

2,000
1,500
1,000
500
0
0

100,000

200,000

300,000

400,000

Population

500,000

600,000

700,000

800,000

Average Unit Cost per Resident vs Annual Budget

All Wales and England LA's
4,500

4,000
3,500

3,000

2,500
Average Unit Cost per Resident p.a.

2,000

1,500

1,000
500

0
0

500,000

1,000,000

1,500,000

Gross cost of LA operations k p.a.

2,000,000

Average Unit Cost per Resident vs Population

All Wales and England LA's
Analysing seperately LA's with Transferred Housing Stock
4,500
4,000
3,500
3,000
Gross cost of LA operations2,500
per capita p.a.
HOUSING Transferred
Average Unit Cost per Resident p.a.

Gross cost of LA operations per capita p.a.

HOUSING NOT Transferred

2,000
1,500
1,000
500
0
0

100,000

200,000

300,000

400,000

Population

500,000

600,000

700,000

800,000

Average Unit Cost per Resident vs Annual Budget

All Wales and England LA's
Analysing seperately LA's with Transferred Housing Stock
4,500
4,000
3,500
3,000
Gross cost of LA operations 2,500
per capita p.a.
HOUSING Transferred
Average Unit Cost per Resident p.a.
2,000

Gross cost of LA operations per capita p.a.

HOUSING NOT Transferred

1,500
1,000
500
0
0

500,000

1,000,000

1,500,000

Gross cost of LA operations k p.a.

2,000,000

Commentary on the graphs above:

Graph A highlights clearly that right across the range of populations in the
report, there is a significant number of examples of LA's where the cost per
resident is low, i.e. from 2,000 per resident to 2,200.
RCT's figure is significantly more costly, at 2,500 per resident (a full 25% above
the achievable 2,000 per resident figure).
Thus population size, within, say, a 25% margin of difference, (as are 3 of the 4
comparison LAs shown in my original report) does NOT preclude direct
comparison for learning through benchmarking.
Graph B highlights clearly that right across the range of Annual Budgets in
the report, there are a significant number of examples of LA's where the cost
per resident is low, i.e. from 2,000 per resident to 2,200. Again, RCT's figure
is 2,500 per resident.
Thus Mr Lucass statement that the sister Local Authorities are not
comparable on the grounds of Population size or Annual Budget is
demonstrably totally without foundation, in terms of simple
mathematical fact, simple logic, and in terms of the actual data.
Mr Lucas stated in his response as his third point that:
The Councils included in the comparison were "totally incomparable"
because of
- Differences due to whether Council Housing is provided by the LA's
Graph C analyses further the data in Graph A, showing a different symbol for
those LA's with and without transferred housing stock.
Graph D analyses further the data in Graph B, showing a different symbol for
those LA's with and without transferred housing stock.
If there was a significant and common element that caused a difference in the
cost per resident consistently, we would expect to see all the data points for
either the Transferred or the non-Transferred housing stock grouped above the
other set.
Simple inspection of the actual data shows that this is absolutely not the case,
with a seemingly random mix of Transferred and non-Transferred Housing spread
around the data points.
Thus again,
Mr Lucass statement that the sister Local Authorities are not
comparable on the grounds of whether Council Housing is provided by
the LA's is demonstrably totally without foundation, by simple
inspection of a straightforward presentation of the easily-available data.

Mr Lucas stated in his response as his fourth point that:

The Councils included in the comparison were "totally incomparable"
because of
- Different Education Funding arrangements between England and Wales

To take our simple everyday example from above, the source and structure of
the family income for the couple with 8 children is immaterial. The important
information is how the family budget is spent, not where it comes from.
Using a graph showing a comparison of the 5 LA's in our comparison group (on
the next page), it can clearly be seen that RCT is spending significantly more
per resident the other 4 LA's on each of the key services.
Paradoxically, it can also be seen that outcomes, as measured by average Wider
Points per pupil, are far worse, despite the higher average spend, within RCT.
The officially reported figures always show that the average expenditure per
pupil in England is higher than the average for Wales. However, RCT can
significantly reduce expenditure in the Administration and Management costs of
this Service if it follows the model provided by the 4 comparison sister LAs
included in my report.
Of course, to reduce expenditure alone is not sufficient, RCT must also adopt the
methods and practices of the sister LA in order to significantly improve
Outcomes.

10

Expenditure per Resident ( p.a.) and Education Outcomes (Wider Points per Pupil) for similar LAs in England and Wales
1,000

700

900
Education
591.4
800
574.5

582.3

700
600

600
Social Services
585.8
500
515.3
400

500
Local environmental services 400 Roads and transport
Expenditure per Resident p.a.

300

300
Libraries, culture,
heritage, sport and recreation
Average Wider Points per pupil
200

200
100
Local tax collection

11

0 Other revenue expenditure

100
Average Wider
0 Points per pupil

Mr Lucass statement that the sister Local Authorities are not

comparable on the grounds of Different Education Funding
arrangements between England and Wales is demonstrably totally
without foundation, in terms of simple inspection of a straightforward
presentation of the easily-available data for the 4 sister LAs selected in
my reports.
Any adviser who has actual experience of identifying improvements in
costs and efficiency through benchmarking with a full comparison base
of both England and Wales LA's would not make such incorrect and
baseless statements.

The original table of data of significant aspects of the 5 LAs compared in my

original report are reproduced below for reference

Conclusion
All four points that Mr Lucas raised in objection to my initial complaint have been
shown in the above report to be completely baseless.
RCT should now accept this, my second formal complaint.
RCT has failed to provide Value for Money to Taxpayers, and has instead chosen
to cut Frontline Services. As these Frontline Service cuts were entirely avoidable,
RCT should now recognise the error, adopt the best practice alternative methods
available to them from the better-performing sister LA's identified in my reports,
and reverse all Front-Line Service cuts.
An Action Plan should be published publicly and advertised widely, and progress
towards it reported monthly in the same place.

In the unlikely event of RCT not following the above course of action, the two
complaints will be elevated to the Public Services Ombudsman without delay.

David Stoneman
30 November 2014

12

Local Authority

Gross cost of
LA operations
per capita
p.a.

Gross cost
of LA
operations
k p.a.

Population
(Residents)

Population
per
Hectare

Area Hectares

County Durham

2,032

1,042,701

513,242

2.31

222,606

Sefton

2,094

573,277

273,790

17.88

15,314

Gateshead

2,149

430,291

200,214

14.06

14,235

St. Helens

2,186

383,288

175,308

12.85

13,638

Rhondda Cynon
Taf

2,501

586,300

234,410

5.53

42,413

David Stoneman
30 November 2014

13