Public Sector – Council services threat

Activity-based costing, a key part of the government’s best-value initiative in Scotland, could lead to more council services run by the private sector than under the Conservatives’ compulsory competitive tendering regime, finance directors north of the border have warned.

As CIPFA’s Scottish Directors of Finance best value working group published guidance on ABC, the group’s chairman, South Ayrshire council financial services director Tom Cairns said there would be nowhere to hide from the findings of the costing initiative.

‘ABC will help us become clearer where services should not be delivered in-house,’ said Mr Cairns, who believes best value is far more challenging than CCT. And if hard data showed a service to be inefficient, it would be difficult to ignore.

Without accurate costs, Cairns said it would be impossible to demonstrate best value and leave services vulnerable to criticism.

But Cairns added that councils should not fear the technique. ‘ABC is just a tool that will lead to best-value decisions that say we are good at these services and we’ll outsource these and rechannel the savings into our priorities – that’s the gain,’ he said. ‘ABC is not a threat. Inefficiency is the threat and ABC may help root out that inefficiency.’

In Scotland, best value is being driven by a joint taskforce, including the Scottish Office and the Convention of Scottish Local Authorities.

Its first report back in 1997 identified activity-based costing as ‘an essential tool for sound financial management and continuous improvement’ and led directly to CIPFA’s work on the technique.

A less prescriptive approach is being taken in England where CIPFA, on behalf of the Local Government Association, is developing an accounting framework for best value that talks of harmonising costing practices rather than the specific use of any technique. CIPFA has said the practical difficulties of introducing ABC for the diverse range of councils in England and Wales could outweigh the benefits and has questioned how easy it would be to find common, comparable activities.

But this week Pam Shaw, CIPFA’s technical accounting manager, admitted ABC could have some use for transaction-based central services, such as payroll and council tax collection. ‘ABC has a role, but we will look at it among other suggestions,’ she said.

Related reading