1. IMPROVING PRODUCTIVITY IN SCOTLANDS PUBLIC SECTOR JO ARMSTRONG Scottish Policy Innovation Forum February 29 th 2008

2. Presentation outline Ø Why competition / contestibility Ø Scottish Water Ø Lessons to apply to 3 chosen sectors –Social housing –Care services –Waste management

3. Why competition Ø Competition delivers effective allocation of scarce resources Ø 2007 Budget settlement very tight SG spending rising at 1.5% pa in real compared to >5% pa historically Some facing a real terms cut & feels like a cut for many more? jo@jo-armstrong.co.uk

4. Scottish Government DEL £ million, nominal prices 07-0808-0909-1010-11 HMT Scottish DEL26,57827,60228,75630,141 SG DEL26,82428,00229,25630,339 Overspend66400500198 Funded by: EYF / reserves-66-300-400-174 Over-allocation0-100 -24 Balance0000

5. Why competition Ø 2007 Budget settlement very tight Ø Demand for services keeps growing COMPETITION = PRIVATISATION

6. Scottish Water experience Ø Monopoly provider established in 2002 Ø Economic Regulator sets price caps within which Scottish Water must operate Ø Delivered: –40% reduction in operating costs –undertook record investment AND –increased output and quality

7. Actual Vs Target operating costs (£m, 03-04 prices) Source: WICS

8. Lessons for wider application Ø Clear Objectives Ø Effective competition and regulation Ø Effective benchmarking Ø Incentives drive performance

9. Social Housing

10. Care Services

11. Waste Management

12. Conclusions Ø Efficiencies no longer nice to have Ø Competition & contestibility offer routes to greater VFM (economic regulation 2 nd best option) Ø Scotland fears competition – how do we reduce the fear?

13. http://www.davidhumeinstitute.com / Improving Productivity in Scotland's Public Services [Data-light version out soon!]