Saving money by doing the right thing: Why ‘local by default’ must replace ‘diseconomies of scale’

Reports

This report published by Locality shows that the UK public sector is wasting millions of pounds on services that do not meet people’s needs. When people’s problems go unresolved, their needs remain the same or get worse, creating unnecessary demand and spiralling costs. The human cost is incalculable but can be felt by reading the true stories of Child A, Melvyn, Ruth and Jake in Part Ic.

The financial cost to the public sector can be measured empirically as the groundbreaking studies in this report show. By tracking multiple demands from individuals over time and across public services, it is possible to quantify the actual costs of a service from start to finish for each individual. Analysing hundreds of thousands of demands from many individuals makes it possible to confidently draw conclusions on where and how to reduce costs. If the experience in the few areas we have studied is typical, initial calculations suggest that potential cost savings for local authorities alone from a move to locality working could run to as much as £16 billion annually across England, with even further savings in other parts of the public sector.

This differs from previous studies of public sector resources because it starts from the service user and then counts every demand they make across organisational boundaries. The counting only stops when the original need has been met, crucially, as perceived by the individual, not by the organisation. It is also the first study of its kind to discriminate between artificial demand for public services, generated only as a result of an organisation not taking the right action, and the real demand experienced by the person who needs help. This artificial demand is called ‘failure demand’ (‘demand caused by a failure to do something or do something right for the customer’, John Seddon, 2003).

This report shows why public sector organisations fail to meet people’s needs and why demand is rising. The two main causes, discovered empirically in the studies, are the belief in ‘economies of scale’ and the belief in the standardisation of services. Together, these beliefs prevent organisations from understanding and meeting people’s needs.