Public sector mergers – do they work?

Mike Hedges – MS for Swansea East

Since local government reorganisation in 1973 there have been a large number of mergers in the Welsh public sector. There have also been a number of suggestions that there should be a further reorganisation of local government following the 1995 local government changes.

Water

Prior to 1973 Water and sewerage was controlled by local authorities and river authorities plus some small private water companies. Welsh Water originated from the privatisation in 1989 of the water supply and waste water arms of the Welsh Water Authority, which came from  the Welsh National Water Development Authority  created by the 1973 restructuring of the water industry in England and Wales where control of water and sewerage was removed from the control of the local councils.

In 2001, Welsh Water became a not-for-profit organisation with no shareholders. This differentiates it from all the water companies operating in England which are run for the financial benefit of the private entities that own them, with capital regularly removed as dividend, as well as from the organisational status of water utilities in Scotland and the pre-privatisation water supply undertakings in England, which are or were directly accountable to the government

‘Misled’

In March 2024 industry regulator Ofwat ordered Welsh Water to pay £40m upon concluding that the firm had “misled customers and regulators on its performance on leakage and per capita consumption”.

The only large reservoirs built since the merger in1973 are Llyn Brenig in 1975, Llyn Trawsfynydd in 1991 and Marchlyn Mawr in 2007. This compares with nine created between 1945 and 1973.

Whilst those in favour of the creation of Welsh water will argue that we had nearly enough reservoirs and that environmental standards have increased.

What is without doubt is that the cost has increased from being a small part of the local government rates bill to be a substantial water and sewerage bill.

Fire Service

Since 1996, fire and rescue services in Wales have been provided by three Fire and rescue authorities. Each one is run by a committee from the local authorities in its area. Those constituent local authorities are in turn responsible for the membership and funding of the fire and rescue authority.

Fire and rescue authorities raise a levy on each of the councils in the area covered. These fire and rescue authorities replaced the fire services run by the eight county councils.

We have seen extremely critical reports about the culture at north and mid & west Wales Fire and Rescue Services which found gender-based discrimination, as well as bias and favouritism, to be prevailing issues.

Severe criticism was levelled at the mid and west wales service, due to gender-based discrimination and sexism. The service was labelled by one participant as “an operational boys club”, with another claiming women were considered to be “tea-makers” while “men made the decisions.”

This follows on from action on south Wales fire authority which was found to have a culture of sexual harassment and misogyny and was taken over by the Welsh government.

We moved from Fire rescue services being directly run effectively by county councils pre reorganisation to what we have today. The mid and west wales fire authority stretches from Port Talbot to Knighton and Machynlleth. Fire and rescue services cover a large geographical area with limited scrutiny and political control.

Ambulance service

The Welsh Ambulance Service was established in 1998 by the amalgamation of four existing ambulance trusts, and the ambulance service provided by Pembrokeshire and Derwen NHS Trust.

Having the ambulance service run separately from hospitals does not work. Ambulances stacked outside hospitals and unable to attend 999 calls is the responsibility of the Welsh ambulance service not of the local health board.

Quoting from an Auditors General’s report from 2006 “The Trust has generally failed to meet its response time targets and to deliver consistent access to emergency ambulance services across Wales”. Things have not got better since 2006.

Health mergers

We have seven local health boards that now plan, secure, and deliver healthcare services in their areas, replacing the 22 LHBs and the 7 NHS trusts which together performed these functions previously. The population sizes vary between Powys at just over 130,000 to Betsi Cadwaladr at just under 700,000.

What we have seen is a reduction of the share of health expenditure on primary care and an increase in the percentage of health expenditure on hospital care despite approximately 90% of individual health contacts being with primary care providers.

In 2020, complaints against Betsi Cadwaladr accounted for 30% all grievances about health boards sent to the Public Service Ombudsman. It has got worse the  Public Service Ombudsman revealed  that Betsi Cadwaladr University Health Board has been the most complained about in Wales over the last two years.

Since the start of 2024, more than half of the Ombudsman’s public interest reports, which are produced about the most serious complaints, have been about Betsi Cadwalladr.

Natural Resources Wales

Natural Resources Wales was formed from a merger of the Countryside Council for Wales, Environment Agency Wales, and the Forestry Commission Wales. As a justification for the merger, the Welsh Government claimed that the new body would produce savings of £158 million over ten years. For several years after the merger, it needed to use invest to save money to pay for things such as ICT and ICT based services being made compatible.

From the above it can be seen that the direction of travel is to larger and fewer organisations. Those who look at it simply, calculate the savings from reducing the number of senior staff and thus provide more money for front line services.

Mergers are expensive with redundancy costs and the cost of re badging the organisation. More expensive is creating a single ICT system from the systems of the predecessor organisations.

Economic theory predicts that an organization may become less efficient if it becomes too large. Larger organisations often suffer poor communication because they find it difficult to maintain an effective flow of information between departments, divisions or between head office and outlying parts.

Coordination problems also affect large organisations with many departments and divisions as they find it much harder to coordinate operations. ‘X’ inefficiency is the loss of management efficiency that occurs when organisations become large and operate in uncompetitive markets.

Such loses of efficiency include overpaying for resources including  paying managers salaries higher than needed to secure their services, and excessive waste of resources.

This leads to three questions on public services as they are currently configured. Do the larger organisations such as Betsi Cadwalladr perform better than smaller ones? Has the creation of all Wales organisations such as the Welsh ambulance service produced an improved service? Has the reduction in the number of organisations carrying out a function improved the services?