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Deloitte report: reducing the size of the public sector will also require reshaping it

  • An age of austerity has already begun with widespread cuts evident across the public sector
  • Public sector has a choice on how to respond to the challenge of the deficit and economic context

The current focus of Government and the public sector is the delivery of considerable efficiency savings and not achieving its recently stated aim of becoming one of the top performing administrations in the world by 2012i. The dilemma of achieving top performance while simultaneously taking billions of pounds of cost out of the civil service and local government is at the heart of a new report by Deloitte, the business advisory firm.

New shapes and sizes: Reshaping public sector organisations for an age of austerity argues that to develop government that is fit for purpose in an age of austerity there also needs to be a focus on redesigning the shape of the public sector as much as reducing its size. Without changing the public sector’s organisational shape, budget reductions risk either staff being asked to do more, or simply less being delivered.

Keith Leslie, Deloitte partner and report author, said: “Too often, organisations focus on reducing their size, assuming that if staff numbers are cut, everything else will take care of itself. The result will be a public sector locked into a spiral of decline for years to come. A more proactive approach is required that acknowledges that shape is equally important.”

The report counters current short-term thinking with the view that traditional cost cutting and uniform budget cuts, although producing cost savings, are a trap that may prove unsustainable and damaging to public service quality in the long run. Such tactics, already in evidence in the public sector, will also serve to undermine core capabilities and employee morale.

Deloitte urges the Government and the public sector to use the opportunity, presented by conditions that are arguably the worst since the Second World War, to review each area of public policy and reshape and resize public sector structures and organisations accordingly. The result will be the removal of duplication and layers of management superfluous to frontline delivery and also the merging of numerous public bodies. Such a process may well involve headcount reduction but it could also involve the public sector simultaneously bringing on board new skills and talent, the report argues.

Unlike the 1980s - that shaped many of today’s public sector behaviour patterns - reducing capital spending, slowing growth of operational spending and state asset sales will not be sufficient.
Economic context and fiscal pressures on the public sector:

  • UK public sector net debt is currently £799bnii or 56 per cent of GDP and could reach 93 per cent of GDP by 2013iii .
  • Deloitte estimates that interest payments for the government deficit will rise to £56 billion per annum by 2013, greater than the current budget for defence, transport and home security.

The public sector age of austerity has already begun, as evidenced by:

  • Capital investment curtailed by 10 per cent over the year to 2010/11iv .
  • Indicative budgets being issued to frontline managers in health, education and local government imply reductions of five to 10 per cent year on year over the next three years.
  • 59 per cent of local authorities have cut staff in last six months and 60 per cent plan staff cuts in the next yearv with 14,000 councils jobs threatened in the next three yearsvi .

Keith Leslie added: “New realities are emerging and, although it will be far more challenging for public sector leadership, a re-evaluation of purpose and corresponding redesign of public sector structures and organisations will present a real and viable alternative to damaging the UK’s public services.“

The Deloitte report outlines the benefits of resizing and reshaping public organisations, including the potential to develop more agile organisations with the ability to respond effectively to new priorities. The report warns of the challenges and emphasises the difficult questions that public sector leadership will need to face:

  • Are reactive cuts and uniform cuts with minimal prioritisation) going to deliver the necessary savings?
  • How can headcount be cut while avoiding the loss of core capabilities?
  • How can leaders use new structures and ways of working to respond to budgetary pressures more strategically?

New shapes and sizes: Reshaping public sector organisations for an age of austerity includes four case studies of successful public sector reorganisation and redesign on a major scale in central and local government.



A copy of New shapes and sizes: Reshaping public sector organisations for an age of austerity can be found online:


iPutting the Frontline First: Smarter Government. Page 51. 7 December 2009.

iiPre Budget Report 9 December 2009

iiiProspects for the UK economy: NIESR’s latest forecast for the UK economy, National Institute of Economic and Social Research, 19 October 2009:

ivPre Budget Report 9 December 2009

vSurvey of Local Authority Staff Reductions, Local Government Association, April 2008. See:

viFrontline council service cut due to £1bn black hole in council funding, The Daily Telegraph, 18 April 2009.

About Deloitte

In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see for a detailed description of the legal structure of DTT and its member firms.

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