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How was the Budget for you?

22 April 2009

Facing a difficult economic future, yesterday's Budget had some opportunities for the FM sector in supporting public sector efficiencies and cutting carbon emissions but included no reform for the procurement process and public sector pension liabilities.

BRUCE MELIZAN, Executive Director
Comment on conclusions by Treasury-commissioned reviews that the public sector can save a further £9bn a year through efficiencies:

"These reviews and the higher efficiency targets that are being introduced commit the public sector to the greatest efficiency drive in decades. It's understandable that many organisations' non-core activities are inefficient - for example, in the way they manage their facilities and, in our experience, the public sector can make a great deal of progress through the better use of outsourcing - not only to cut costs but also to achieve a higher quality of services. One way of driving this value is to bundle facilities services together and outsource to just one supplier. This often reduces expenditure, de-duplicates administration, allows for better co-ordination of services and reduces wasted management time. We are already working with Defra on the Operational Efficiency Programme to deliver significant cost savings and help them meet their business objectives of efficiency, value for money, sustainability, service improvement and a transformed work environment."

WADE BARKER, managing director
Environmental consultants, Envos, welcomed the Government's commitmemt to cutting carbon emissions by 34% by 2020 and the announcement that it is making additional funding of £435 million available for energy efficiency schemes in UK buildings, all announced in yesterday's budget.

"If the UK meets the targets set out by the Government and reduces carbon emissions by 34% by 2020 it will be a significant achievement which will enable this country to demonstrate that it is genuinely committed to developing a low carbon economy and acting in an environmentally responsible way. However achieving this will be a significant challenge which will require residential, commercial and public sector property owners to take energy performance and carbon emissions far more seriously than they currently do. Too many homeowners and commercial property owners still fail to act on the information contained within Energy Performance Certificates and we urge the Government to give these schemes more teeth and to ensure that property owners are incentivised to make the improvements outlined in these audits. If they did it would play a key role in helping the UK meet these stringent carbon reduction targets."

RICS comments:
1. £435m for energy efficiency improvements to homes, businesses and public buildings: "We support the Government's commitment to reducing carbon emissions by 34% by 2020. £435m to support energy efficient measures is welcomed but a specific strategy is needed to ensure this money is spent wisely to provide the greatest carbon saving as soon as possible. The measures must be available for buildings, transport and energy infrastructure to help both business and individuals."

2. Government efficiency savings: "As Lord Carter's report recognises, property professionals will play a vital role in any attempt to make major improvements in strategic asset management. Advice from both the private and public sectors can help bring about major efficiency improvements in the use of government property. One of the key proposals is the introduction of a central property function to provide strategic support. If this is to work effectively it must be led by experienced senior property professionals."

The Review's findings echo those of HM Treasury's recent Professional Services Global Competitiveness Report. This found that professional property advice on strategic asset management is vital in both the public and private sectors but that a longer term shift in attitudes towards professionals in the public sector will be necessary for this new approach to be successfully implemented.

MARK FOX, Chief Executive
“I welcome the Chancellor’s emphasis on gaining greater efficiency from the public sector. It is right and necessary. The Chancellor could have leveled the playing field between the private and public sectors – by reforming procurement processes, tackling the increasingly unrealistic pension burdens and driving from the top in a determined way a culture throughout the public sector that looks to work in partnership with the private sector in a more ambitious and energetic way.

In our 2009 Budget submission the BSA wrote to the Chancellor to emphasise the biggest single deterrent to companies entering public sector markets – namely that of the transfer of public sector pension liabilities to the private sector. The Chancellor did not address this pressing matter in the Budget so today I have written to him to request a meeting at the earliest opportunity and outlining again why this matter needs to be addressed swiftly.

"BSA members are involved across the full range of public sector service delivery – education, food, health, waste management, housing and defence. They transfer staff from the Local Government Pension Scheme, the NHS Pension Scheme, the Principle Civil Service Pension Scheme and increasingly the Teachers Pension Scheme.

The BSA has been a long-time supporter of the concept behind Fair Deal and in particular of pension rights for former public sector workers. Over the years we have worked closely with the Government Actuary’s Department and the Treasury to ensure the Fair Deal regime is effective. However, we believe this is no longer the case. The social and economic circumstances have changed significantly over the nine years since the introduction of Fair Deal. The inherent conflict between the Fair Deal policy and wider changes to pension’s legislation is now:
.. not providing the public with the best service or the taxpayer with value for money,
..putting employees’ pension benefits at risk, and
.. seriously threatening the viability of a number of public sector outsourced service companies, especially those that are SMEs.

In addition, as the single biggest deterrent to private sector companies entering public sector markets it threatens the competitiveness of these markets.

BSA members have two key areas of concern:
1. The increasingly onerous requirements for providing expensive and volatile defined benefit schemes in relation to future service for former public sector workers. This is in direct contrast to other areas of public policy. Further, the requirement under current policy that contractors have to accept and credit on a day-for-day equivalent service basis the benefits the transferring employees have built up in the public sector scheme (should those employees so elect) adds to the risk and volatility for the contractor.
2. Significant pension scheme deficits which crystallise into debts due from contractors when a contract is not re-let to them. For example, one contractor has a local government equivalent scheme currently fully funded on both the technical provisions (so pension scheme members are protected) and a FRS 17 accounting basis. However, should the contract not be re-let the contractor will be liable for a £30m debt based on an annuity buy-out cost. The company in question has a market capitalisation of £20m. If only one of its contracts comes to an end it will be forced to cease trading. Clearly this is a desperate situation for the contractor, but it also has damaging consequences for the transferred staff and the sustainability of the public sector outsourcing programme.

In light of ongoing economic difficulties it is absolutely crucial the Government takes action on this. Pensions are a long-term commitment, but the regulations around public sector outsourcing have lost this focus. Of key concern is the security of employees’ pension benefits, but also the long-term viability of public sector markets.

Some kind of compromise with industry is essential otherwise the whole public private partnership regime will become unaffordable for contractors and possibly for government. We believe that most of these concerns are solvable but will require co-ordinated HMT and DWP action to drive unified changes across Whitehall.”

Richard Beamish, Chief Executive
Asset Skills supports budget measures to boost the skills and training of young people. The Chancellor will spend more than £260m of new money for training and subsidies to help young people get the skills and experience needed for work. This funding has been pledged for sectors with ‘strong future demand’.

“If we are talking about industries with strong future demand, facilities management should be top of the agenda,” said Richard Beamish, Chief Executive of Asset Skills, the Sector Skills Council for the facilities management (FM) industry. “Now, more than at any time before, this growing sector should be given the recognition it deserves from helping tighten public spending through outsourced government contracts, to ensuring buildings meet tough new environmental regulations.

“FM allows businesses to focus on their core work – never more crucial than at this testing time. We welcome the continued focus on improving skills during the recession - it is raising the level of skills in the workforce that will help employers survive the downturn and emerge stronger when it’s over.”

Many new jobs resulting from the budget will be green with investment in wind power and home insulation. A further £1 billion will be allocated to low carbon industries while almost £1 billion will be invested in housing supply and construction. A £435m programme to improve the energy efficiency of social housing, businesses and public buildings was also announced.

“The cash boost for housing will increase future demand for staff with the right skills,” said Beamish. “We are working with housing associations to help them access funding for the right sort of training that meets their needs and in reforming vocational qualifications for the sector.”

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