AC310 Assignment 4 LT [201408994]

“The introduction of austerity policies should lead public service organization to reconsider their
accountability, reduce their reliance on rules and procedures and introduce performance
management based on targets, monitoring and incentives.”

Discuss and critically evaluate the above statement drawing on the work of Kurunmäki and Miller
(2008) and Bracci et al (2015).

According to a report from McKinsey&Company, titled ‘Transforming the UK public sector in an era of
austerity’, the UK government is facing a daunting challenge on how to deliver services that meet the rising
public expectations while planning to reduce expenditure by up to £50 million over the next five years. The
issue of austerity has drawn many heated arguments over recent decades with some favouring and some
against it. In this essay, we will look at how austerity has impacted three areas of public sectors, namely
accountability, reliance on rules and regulation as well as performance management. A critical analysis will
also be discussed on whether each of the impacts has been beneficial or detrimental to the public sector.

The introduction of austerity policies, undoubtedly, has led public sectors to reconsider their accountability
in many areas. One of the main impacts would be the shifting accountability emphases from public
managers, departments, and organizations level to the nation’s public sector as a whole (Bracci, 2015).
With the austerity policy, the government reduced their spending on audit and accountability structures that
were previously in place for local authorities. It also stopped assessing in much detail whether local
government delivered desired outcomes, but rather concentrating on the processes of financial and
economic control both within nation states and a transnational state. In transnational arenas, accountability
exists in a world of multiples, including legal systems, reporting and stakeholders dispersed across countries
and cultures. Consequently, accountability can be too complex and ambiguous in terms of expectations and
standards involved (Anheier and Hawkes, 2007). This is not an easy change especially for developing
countries such as Nigeria who still struggle with the lack of accountability on their corrupted public
officials.

Moreover, in light of the centralization tendencies, the impact of austerity observes a growing significance
of attachment to official public sector auditing institutions. This is necessary as auditing help assess whether
policies have desired effect and thereby, help hold government accountable. (Bovens, 2005) Apart from the
increasing accountability on a nation and transnational state, it is also important to give private citizens or
‘armchair auditors’ access to information about how their taxes were being spent by having public sectors
publish vast amount of data relating to public bodies. The reduction in public spending and increasing
efficient services provided by Amazon and Uber will lead to citizens questioning as to why they have to
pay more taxes but do not receive same level of services. For instance, every central government department
is now required to publish details of contracts worth over £5,000, and the Treasury’s Combined Online
Information System (COINS) database, which lists over £24 million financial transactions involving
government departments, was published online in 2010. Although these initiatives may seem to improve
transparency and accountability, the reality is, it has an adverse effect on accountability as according to
O’Neill (2006), the non-expert citizens are unable or unwilling to analyse the sheer volume of data
presented to them.

Additionally, the introduction of austerity policy would lead to a changing content of accountabilities
towards a strengthened focus on financial issues such as expenditure, deficit and debt. Accountability will
be much more focused on managing spending (financial conformance) rather than on what has been
achieved for such spending (operational performance). This would lead to public sector adopting private
sector accounting approaches such as accrual accounting which is beneficial as it provides a complete and
reliable picture of the financial and economic position and performance of a government, by capturing in
full the assets, liabilities, revenues and expenses of the entity. It also helps consolidate all institutional units
under government control and provide a complete picture of the financial position of the public sector as a
whole. This would improve the transparency regarding cost of public services and subsequently, improved
accountability by results.

Nevertheless, the increased budget complexity due to adoption of accruals accounting and the increased
emphasis on financial indicators will eventually lead to public sector focusing more on getting the
“balanced-budget” and eventually non-financial aspects of austerity being marginalized (Sapir et al., 2014).
This can be seen as a problem of myopia where short term goals such as reduction in spending is seen more
important than long term goals such as social impacts, equity and fairness. For instance, the United Nations’
investigative committee raises concerns about human rights issue that arises from the government’s
austerity policy which led to reduction in legal aids, cut in social security benefits, increasing homelessness
figures and even increasing unemployment amongst young people with disabilities. In this case, the
government’s short-sightedness plan to sacrifice social goals in order to reduce budget deficit is highly
questionable.

Moreover, public sectors often have rules and regulations in place in order to make sure that it is run
efficiently, effectively and deliver prominent services to the public. For example, regulatory bodies such as
National Institute for Health and Clinical Excellence (NICE) which serves the NHS, is in charge of
promoting clinical excellence by developing guidance and recommendations on the effectiveness of
treatments and medical procedures. NICE is also in charge of ensuring that treatment decisions were based
on the best available clinical evidence by making calculable societal costs and benefits of particular drugs
or treatments. Whilst regulatory bodies help public services provide better quality of services, there are
potential clashes of expertise within the regulatory complex of healthcare. For instance, strict adherence to
NICE guideline may come into conflict with the financial risk management emanating from Monitor, the
Payment by Results regime and even the Audit Commission. According to the Audit Commission, NHS
bodies need to be aware of how much NICE guidance will cost to implement, assess whether it is affordable
by considering it alongside other competing priorities and then include it within their financial plans
(Kurunmaki and Miller, 2008). With the implementation of austerity policies where public spending is cut
and budgets are tighter than ever, hospitals may be reluctant to rely on these guidelines even if it meant
improving the effectiveness of the hospital. For instance, in an era of austerity, it is unlikely that the
investment needed to fund surgery for morbid obesity to the level recommended by NICE will be
forthcoming. Also, the use of NICE guidelines require costing expertise and this again, would incur
additional cost. Therefore, in the long run, the reluctance to rely on these rules and regulation could be
detrimental as the quality of services provided could be severely compromised.

An introduction of austerity policy has led public sectors to place their focus upon regulating by accounting
numbers through adaptation of an outcome-based payment. The outcome-based payments regime help to
increase efficiency of service provision by aligning incentives with government objectives. For instance,
the Payment by Results (PbR) adopted in NHS policy promises to pay healthcare providers for each patient
seen or treated, taking into account the complexity of the patient’s healthcare needs by using a ‘standard
national tariff’. Under this system, total hospital revenues will depend on the volume, type and mix of
activity undertaken. It improves efficiency by forcing hospitals to pay more attention to costs as they are
being paid a fixed reimbursement. According to Samuel et al (2005), since 1950s most physicians have no
idea of the costs of the things they order, no reason to care and physicians were seen routinely prescribing
unnecessary treatments. With PbR in NHS, hospitals have to keep costs within a certain set of amount and
by breaking down costs, hospitals are able to eliminate steps or processes that did no improve outcome. For
instance, Schon Klinik, one of the leading providers of inpatient care in Germany reduced their costs after
learning that many of its tests were not able to improve outcome. The success of PbR is also evidenced in
a study done by Farrar et al (2010) where introduction of PbR in England has led to a rapid reduction in
lengths of stay and in the proportion of day cases than in Scotland, resulting in cost savings of one to three
per cent.

Whilst PbR is intended to promote efficiency, regulating by accounting numbers and implementing a
performance measurement that is based on financial target can be risky. Ideally, the welfare and the views
of the patient should be paramount and cost should not be an issue. However, with the pressure generated
by the lack of funding, providers start prioritizing the costing component over curing in order to meet
performance target. Providers can act to reduce costs in various ways: by selecting patients who need less
resource intensive care, or by reducing the level of resources in the provision of care, which has a lowering
effect on the quality of the patients’ care. For example, in Kurunmaki and Miller (2008)’s paper, the costs
of hospital-dialysis is much lower than home-based care, and even if home-based care is more beneficial
for patients, under regulatory regime of PbR, ‘trusts are likely to focus increasingly on profitability of
individual treatments’. Moreover, if the healthcare system’s compensation system attaches certain
incentives towards the achievement of financial targets, this could further promote dysfunctional behaviour
amongst employees to reduce cost instead of doing what is best for the patients. Ultimately, financial
considerations may impede clinical objectivity when deciding the best treatment for the patient and this can
compromise the quality of care provided.

The implementation of austerity policies affects many other areas of public sector besides accountability,
performance measurement and others. Therefore, it is important that government design suitable policies
in light of austerity measures to ensure that public sector is run efficiently and simultaneously, achieve its
social goal, which is to ultimately bring about benefit to the public.

References

Anheier, Helmut & Amber Hawkes (2008) “Accountability in a Globalising World: International Non-
governmental Organisations and Foundations”, in Martin Albrow et al (eds) Global Civil Society 2007/8,
London: Sage.

Bovens, M.A.P., (2005), ‘Public Accountability’, in: E. Ferlie, L. Lynne & C. Pollitt (eds.), The Oxford
Handbook of Public Management, Oxford: Oxford University Press.

Bracci, E., Humphrey, C., Moll, J. and Steccolini, I. (2015), “Public sector accounting, accountability and
austerity: more than balancing the books?”, Accounting, Auditing & Accountability Journal, Vol. 28 No. 6,
pp. 878-908.

Farrar S, Chalkley M, Yi D, Ma A (2010). “Payment by Results: Consequences for key outcomes measures
and variations across HRGs, providers and patients.” Aberdeen: HERU. Available at:
www.abdn.ac.uk/heru/uploads/files/pbr-report-2011.pdf (accessed on 20 September 2012).

Ferry, L. and Eckersley, P. (2015) “Budgeting and governing for deficit reduction in the UK public sector
: act three `accountability and audit arrangements”, Public money and management., 35 (3). pp. 203-210.

Kurunmäki, L. and Miller, P. (2008), “Counting the costs: The risks of regulating and accounting for health
care provision”, Health, Risk and Society, Vol. 10 No. 1, pp. 9-21.


McKinsey & Company (2015), Transforming The UK Public Sector In An Era Of Austerity: Five Lessons
From Around The World, pp. 1-53 (available online at
http://www.mckinsey.com/~/media/mckinsey%20offices/united%20kingdom/pdfs/world-
class_government_transforming_the_uk_public_sector.ashx.)
O’Neill, O. (2006), ‘Transparency and the Ethics of Communication’, in C. Hood and D. A. Heald (eds.),
Transparency: The Key to Better Governance?, Proceedings of the British Acaademy 135 (Oxford
University Press, Oxford)

Pickles, E. (2011), ‘Armchair Auditors Are Here to Stay’, DCLG (available online at
http://www.communities.gov.uk/news/localgovernment/1941304, accessed on 10 April, 2012).