It’s past time to stop this plundering

Scottish Policy Jun 15, 2012 Add a comment

A new Audit Scotland report shows that the public is being conned over mergers that are based on lies and distortions. What it doesn’t do is point the finger at who is to blame – a cabal of private legal and accountancy firms which are plundering Scotland. They must be stopped.

Just a very quick follow-up to the piece from two days ago. In that I tried to explain some of the easy-to-deploy but utterly dishonest techniques used to retro-justify ideological decisions that have already been taken. I used the police merger as a jumping-off point but could have used virtually any accountancy-lite business case I have ever seen submitted to the Scottish Government. So it is heartening to find that Audit Scotland, in its usual cautious way, is saying the same thing.

Have a look at Learning the Lessons of Public Body Mergers. There’s lots of useful information in it but let me point to a few examples. First, it looked at four mergers that have taken place over recent years. These were mainly predicated on the idea that ‘efficiency gains’ would be achieved. Well, half of that needs to be based on the cost of merger itself. And here the estimates are always underestimates (like big civil contracts, mergers ALWAYS cost more than is predicted – it is one of those utterly unacceptable things that we simply accept). The predicted cost of these mergers was £30 million. The actual cost so far is not less than £42 million. So that’s nearly a 50 per cent overrun with no guarantee that this is the end of the overrun. Plus we can reasonably assume that the real costs of merger are being understated since people always fiddle down the real costs of things they want to pretend aren’t really expensive.

And the savings? Still £63 million. And of course they’re still £63 million because the number is a made up estimate. Still though, that’s a saving of £20 million. Except that saving is (yet again) is the cumulative savings over five years. Which means that we’re spending £42 million now to save £4 million a year for the next five years. And that’s if you believe the numbers which – a cast-iron guarantee – will not turn out to be true. Which Audit Scotland makes clear when it writes “However, it is not possible to confirm the total costs and savings of mergers accurately because reported costs are likely to be under-estimates and there was inadequate analysis of savings and efficiencies.”

Let me nudge that out of accountant-speak for a second. Audit Scotland says that the claimed costs are being under-estimated (it does not pretend this is accidental) and there is virtually no evidence of actual savings. One more time, imagine if this was a proposal being put by a trade union or a charity. Give us £42 million which in fact will be much more than that and we’ll give you net savings of £4 million a year which in reality will be much less than that.

Where are the savings achieved? Well, “by reducing staff levels through redeployment and natural turnover “. So mergers save money because they reduce the number of jobs. But that could have been done without merger. And it all gets worse when we get down to specific cases. The creation of Creative Scotland cost £3.3 million which probably means it cost £5 million. And it saves £4.9 million, which presumably means it might save £3 million in reality. Over four years. So I’m guessing that it will take six or seven years for Creative Scotland to break even.

Oh, and in case you were wondering, Audit Scotland didn’t really find any evidence of performance improvement.

The big question – in whose interests is this? Where does the money go? Well, a chunk goes in severance packages and the cost of staff changes. But if my experience is anything to go by, most of that money won’t end up in the pockets of ex-staff but of ‘restructuring consultants’. And another chunk will go to UIT systems consultants, another again to image consultants and so on. Oh, and lawyers. Lots and lots of lawyers. This will all be overseen by a KPMG or PWC which will then extract a big management fee. It is also quite likely that they will be the restructuring consultant. And also they will have written the business case.

It is time to call these companies out. Audit Scotland says the numbers are fiddled, the savings unidentifiable, the costs enormous, the improvements negligible and the whole process shrouded in mystery. What it doesn’t do is look at who really benefits. If it did it would find a cabal of big accountancy firms, big legal firms and an assorted group of ‘service companies’ all of which make a very, very good living out of all of this deception. Which would be bad enough if they hadn’t invented the whole scheme in the first place, presenting themselves as ‘independent advisors’.

Mergers are a red herring. There is a case for mergers only where there is a very, very clear strategic benefit. I knew the situation in higher education well, another target of merger mania by commentators who know little about it. In the history of UK higher education the English quango that runs universities were able to find no example of a merger which resulted in a cost base lower than the cost base of the two merging institutions. And they’re very expensive.

We need a moratorium on mergers predicated on cost savings. But more importantly, it is time to shine a spotlight on the private firms that ‘advise’ government and then benefit from their advice (directly or through benefit to their clients). In fact I’ll go further – the Scottish Government should create an independent, independently governed accountancy and legal capacity internally and private firms with ANY vested interest should be banned. This might sound strong but it is the result of a growing awareness of where the corruption of Scottish public life occurs. And it is found here.

We can’t keep turning a blind eye to this. The Audit Scotland report shows just how much a major inquiry into this area is needed.

Robin McAlpine

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