How we calculate public sector savings. Taking a pragmatic evidence-based approach avoids publishing figures that are wildly optimistic.

When budgets are being cut everywhere, it’s important to make decisions based on evidence not guesswork. But the question ‘how much will this save’ isn’t an easy one to answer. Do you consider the direct savings in isolation, such as reduced administration, or also include the indirect savings, such as the tax revenue from someone moving into work?

Fiscal, economic and social value

New Economy is an advisory organisation that works on behalf of the Greater Manchester Combined Authority and the Greater Manchester Local Enterprise Partnership. It’s produced guidance on the difference between fiscal, economic and social value, along with a database of over 600 unit costs.

It explains that “when looking at the financial case for a project, only the fiscal values should be considered.”

  • Fiscal value — “savings to the public sector that are due to a specific project (e.g. reduced health service, police or education costs).”
  • Economic value — “net increase in earnings or growth in the local economy.”
  • Social value — “wider gains to society such as improvements to health, educational attainment, access to transport or public services, safety, or reduced crime.”

To put this into context, in Peterborough, the Integrated Offender Recovery Programme (IROP) helps people with mental health and/or drug and alcohol issues by bringing together a range of specialist partners. Many of the individuals involved are caught in a vicious cycle of low-level crime, such as shoplifting.

All activity is managed through E-CINS, which gives practitioners the tools they need to provide wraparound support and review key indicators. Significant savings can be made by addressing the root causes of specific issues.

New Economy provides figures for the savings associated with drug rehabilitation, which are derived from a paper by the National Treatment Agency for Substance Misuse. Average annual fiscal savings from a “structured, effective treatment programme” are £3,772 per person. With Economic value being £9,345 and social value at £3,980.

In addition to this, IROP practitioners are reducing their administration time by using E-CINS. With a secure multi-agency case management system, practitioners send less emails and make fewer calls. On top of this, referrals happen automatically, which can save up to an hour each time (according to the Troubled Families Team in Warwickshire).

So ultimately the savings resulting from the drug rehabilitation aspect of our work with IROP depend on two factors:

  1. The level of reduced administration.
  2. The number of people that are successfully rehabilitated.

These figures will become apparent over time, but even if we estimate conservatively, the fiscal savings are considerable.

  • 15 hours a week in reduced admin (across the partners) = £19,500 per year
  • 10 manual referrals removed per week = £13,000 per year
  • 5 people rehabilitated per month = £226,320 per year

If you include the economic and social values, the total is £1,058,320 per year.

Pragmatism

Unfortunately, not everyone takes this kind of pragmatic approach to calculating savings.

Figures quoted in the press are often misleading and based on wild assumptions.

For example, Barnet Council came under heavy criticism for its bold claim that a contract with Capita had resulted in savings of £31 million. Reacting to this, Campaign4Change highlighted Barnet’s lack of proof.

“There is no evidence that the figures for savings have been independently verified as accurate. Neither is there independent verification of the methods used by officers for obtaining the figures.”

As a not-for-profit, we’re careful with our balance sheet. Hopefully, over the challenging times ahead, the public sector will adopt a similar methodology with its digital transformation.