It’s the demand, stupid

Hard fiscal reality means that managing surging demand for public services is the name of the game. This requires whole systems thinking and radical innovation by public bodies

The famous jaws of doom graph – which shows demand surging whilst revenue plummets – is now etched in the minds of many in local government. ‘It’s the demand stupid’, is its main message.  The central issue for public service reform over the next few years will be how to manage this.

Or, to put it another way, how to change the behaviour of both citizens and services so that we can support an ageing society, improve public health, mitigate the effects of climate change and reduce carbon emissions. And do all this when there will be no new money for public services.

To be sure, doing things more efficiently will be part of the answer. But it won’t come close to responding  to the triple whammy of declining revenue, rising demand and greater expectations. The New Public Management solutions of the last two decades have run their course. The status quo will result in service retrenchment and residualisation.

A different approach is needed if we are to avert this grim prospect. The report which we published this week with the LGA, ESRC, Collaborate and iMPOWER (‘Managing Demand: Building Future Public Services’) begins to outline what this could look like.

The good news is that our report draws heavily on some very innovative new practice emerging from councils across the country. Seeking to understand the dynamics of citizen behaviour and the role of family and social networks lies at the heart of this.

There is an ‘emerging science’ of demand management methodologies – ranging from ‘nudge’ through building insight based on ‘values modes’ analysis of service users and applying behavioural  insight in areas like recycling and littering.  And we document different examples of this in the report.  We argue that the game changer will not come from individual approaches alone, however imaginative they are  – but from combining these in whole system, whole place reform.

We examine what’s been learnt so far from some of the whole place budget pilots like Greater Manchester, Cheshire west and Essex. In different ways they are all grappling with the same issues. This includes how to get beyond services to understand the needs of people in the places where they live and the way these then translate into demand.

And it also involves exploring how to reconfigure service systems so that they better support families and the wider networks of which they are part, and are organised around communities rather than vertical silos of traditional delivery organisations.  Core to this approach is the belief that demand management has a key role to play in helping places to become more socially and economically productive.

Underpinning demand management is the hard fiscal reality of the need to achieve more for less.  The financial case for demand management is based on a combination of early evidence of specific savings with predictive modelling about the potential scalability of these.

EY modelling for the LGA, based on the four community budget pilots, predicts a potential 5 year net benefit of between £9.4bn to £20.6bn.  Meanwhile, Greater Manchester has carried out some very interesting analysis of all public spend across the combined authority to conclude that 35% of expenditure is reactive – thereby establishing that part of expenditure which could potentially be reduced by more effective demand management.

But more work is needed on the investment case for demand management and early intervention. Longer term settlements and single pot funding will be necessary, but not sufficient.  The local government finance community will need to become much more engaged in helping to develop new financial models for enabling a switch to prevention.

Demand management sounds technical and managerial, but ultimately it’s about people, what they need and want from public services and what they should do for themselves in and with their communities.  As our report concludes, this is the proper stuff of politics. A demand management approach will place a greater emphasis on the role of local politicians in leading a conversation with citizens about the terms of a new social contract, based on reciprocity as much as on entitlement.

Ben Lucas is chair of public services at the RSA. The new report is available on its website.

This article was originally published by Public Finance.