Jo Armstrong

Introduction

The Fraser of Allander Institute profile of Jo Armstrong states:

Jo Armstrong is well connected in political, financial and academic circles. 'After almost 20 years working as a business economist, holding senior posts in the UK's financial and government sectors, Jo is now operating as an independent consultant. She was a Policy Adviser to the First Minister of the Scottish Parliament providing both financial as well as economic advice. Whilst an employee of the Royal Bank of Scotland plc, she established two new analytical units. The Business Economics Unit provides microeconomic analysis in support of bank lending and the Project Finance Analysis Unit is responsible for undertaking cashflow and risk analysis in support of major project finance deals world-wide. Jo was project manager to the Allander Series team and was one of the contributors to the accompanying book'

Jo Armstrong and Scottish Water

Fraser Allander Institute and Scottish Council Foundation

Jo Armstrong has managed to locate herself as a key strategic player in the lobby to change the ownership model of Scottish Water. In 2006 she called for the Privatisation of Scottish Water in a book, 'Raising the Return: Scotlands Public Assets' co-published by the Fraser of Allander Institute and the Scottish Council Foundation.

The Four pamphlets in the book consider the following

• "1. The nature of the challenge facing the Scottish Executive to show its Efficient

Government Initiative is delivering its promises;

• 2. How activity and productivity in Scotland’s health services have adjusted to the

50% real increase in centralised funding since devolution;

• 3. The reasons why it is desirable to revisit Scottish Water’s ownership structure as

a publicly-owned monopoly-supplier of water and sewage services;

• 4. The challenges facing Scotland’s civil service to develop and deliver policy whilst

remaining part of the Whitehall civil service" .

Her central assertion, in her re-visitation of the Scottish Water ownership model, was that the system of calculating the block grant from the UK government to the Scottish Executive (known as the Barnett Formula) did not include any funding for Scottish Water. Thus meaning the Scottish Executive were opening themselves to an open ended risk in promising to fund Scottish Water over the long term; given how, at some point, the block grant could decrease or if Scottish Water was not as efficient as expected. And, moreover, that if the Executive was to continue giving loans to Scottish Water the money to pay for it had, and would continue to, come out of the budgets of other public services .

David Hume Institute

Her focus on Scottish Water did not end with 'Raising the Return: Scotlands Public Assets' however. In 2007 the David Hume Institute commissioned her to undertake research considering how to use competitive and/or regulatory pressures to drive efficiencies in the Scottish public sector. The report titled Improving productivity in Scotland’s public services has applied, what Ms Armstrong percieves to be, the progress and improved efficiencies by Scottish Water wrought by the strict regulatory pressure of the Water Industry Commission for Scotland.

According to Jeremy Peat Director of the David Hume Institute the research undertaken by Jo Armstrong "evolved from a seminar delivered for the David Hume Institute by Sir Ian Byatt, Chairman of the Water Industry Commission for Scotland and the subsequent paper by Sir Ian that we published. It was evident that there were lessons to be learned across the Scottish public sector from the experience with water – and obvious that productivity in public services would be increasingly important as demands upon these services increased while public sector resources became scarce" . In short her position in this paper is that the practices and policies resulting in economic efficiencies within the Scottish Water Industry can and indeed should be applied across other sectors of the public sector.

The coalition formed to fund the project and to steer the direction of the research is as follows.

Funders:

Water Industry Commission for Scotland, Audit Scotland and The Office of Fair Trading.

Support was also provided in practical form by

Shepherd and Wedderburn and DTZ Consulting and Research.

The steering Committee was as follows

• David Simpson, formerly a Trustee of the David Hume Institute and Deputy Chairman of the Water Industry Commission for Scotland
• Kyla Brand of the OFT
• Barbara Hurst of Audit Scotland
• Gordon Downie and Fiona Parker of Shepherd and Wedderburn
• Professor Brian Main the Academic Director of the David Hume Institute,
• Martyn Evans of the Scottish Consumer Council,
• Tom Harvie Clark of the Scottish Government and Fabian Zuleeg, initially of DTZ Consulting and Research, now with the European Policy Centre .

The ideology and premise of the research undertaken by Jo Armstrong, alongside those outlined above, is indicated by the remarks of David Simpson, he stated how

"Governments’ efforts in the past to achieve such an improvement have been hampered by what has been perceived as the ineffectiveness of the public sector bodies delivering the services. The culture of the public sector is noted for its unnecessary bureaucracy, and for its lack of focus on new and better ways of doing things or on improving customer service. Despairing of any improvement, governments have often resorted to privatisation, or to arrangements such as PFI and PPP".

He then goes on to say that, "however, the recent experience of the water industry in Scotland, a public sector monopoly, has demonstrated that improvements in the delivery of public services can be achieved without privatisation. In this industry, innovation and customer service have improved and costs have been reduced. Bills are coming down" .

What David Simpson does not make clear is how the Scottish Water Industry has commercialised its operations, still within a public sector ownership model: for a conderation of this commercialisation see . The research undertaken by Jo Armstrong thats being reported here considers how these commercial practices can be applied in other areas of public services. In particular in the areas of Social Housing, Personal Care and Waste Management.

Consequently, her research in this field has been used by others in Scottish public life as evidence of the need to commercialise and liberalise public services in Scotland. Bill Jamieson executive director of The Scotsman wrote how "The emerging critique of the need for greater productivity and efficiency in public spending has been most ably set out in a paper by the public finance economist Jo Armstrong for the David Hume Institute(*). I wrote warmly about this paper here some months ago. It showed how productivity gains obtained at Scottish Water, if applied to other public services in Scotland, could release annual savings of £1.9bn. This paper is a vital starting point for anyone engaged in public policy in Scotland. Its recommendations are an urgent but now insufficient first step.

So what is the crunch, exactly? Scotland's public services have enjoyed a golden era on the back of Westminster funding that is now unsustainable. In the five years to 2007-08, Scottish Government spending has risen from £21.5bn to £31.3bn. The real-terms (after inflation) increase works out at almost 30%. The 2007 Comprehensive Spending Review (CSR) aims to throttle back the growth in funding to the Scottish Government from around 5.5% to 1.8% a year in real terms out to 2010-11" .

Prior to this article Bill Jamieson also wrote how Joa Armstrong's "research draws on the recent experience of the Scottish water sector, where the introduction of effective economic regulation and management incentives has benefited Scotland's public-service users. The research applies lessons learned from the water industry to three quite disparate public services - social housing, personal care and waste management. It demonstrates that common themes are to be found in all three which point the way to improving the efficiency of delivery of public services more generally".

"Be in no doubt that this is the dollars 64,000 question now facing the administration. Expenditure on Scotland's public services has grown substantially in recent years, benefiting from the record levels of fund-ing from Whitehall. In just five years, the Scottish Government's spending has risen from GBP 21.5 billion to GBP 31.3bn in cash terms by 2007-8. In real terms the increase is almost 30 per cent, up from GBP 23.8bn to GBP 30.5bn".

"An analysis of the public sector's share of both spending and employment illustrates further the key and growing role it plays in Scotland. In 2004, the public sector accounted for 23 per cent of total gross value added (GVA) compared with only 19 per cent for the UK as a whole. Both are marginally higher than the 2001 levels of 22 per cent and 18 per cent respectively. Of the 2.5 million employees in Scotland in 2005, some 580,000, or just over 23 per cent, worked in the public sector, an increase of more than 9 per cent in five years".

"Competition in product or service delivery, Armstrong observes, appears a necessary condition for the efficient allocation of resources. "Competition - or even the threat of competition - leads to increased effi-ciency, be it applied in the public or the private sector," she said. "Critically, it offers the opportunity to benefit financially from discovering new, innovative and cost-effective ways of delivering goods and services." More contentiously, she adds that "it is not necessary to have private ownership to ensure service provi-sion is efficient and what consumers want" .

Perhaps not private ownership, but if the example of Scottish Water is to be replicated it will certainly mean an increase in providers and practicioners from the private sector.

Other Activity

PPP

Jo Armstrong has also involved herself in other areas of concern to the Scottish people. For instance the area of Public Private Partnerships (PPP'S) is one that she has written on. She appears to be a proponent of PPP despite evidence that they are a bad deal for the people of Scotland see refs below .

She herself says that she has had,

'Key roles:

• advising on the development of partnerships and projects
• ensuring financial viability & acceptability to the private sector
• assuring value for money & public sector affordability'.

This advice has been given to both the Scottish Executive and the Royal Bank of Scotland; one of the main beneficiaries of PPP's. Her relationship with the Royal Bank of Scotland encompassed,

'The provision of analysis and advice in support of the Royal Bank of Scotland’s Structured Finance deals covering

• PFI/PPPs for UK hospitals, roads, prisons and housing
• gas and coal-fired power projects worldwide
• oil, mineral and petrochemical installations world-wide
• leisure and hotel projects in the US and the UK' .

Despite this business relationship with the Royal Bank she also took on an, 'an initial review of the Scottish Executive’s experience of, and role in Public Private Partnerships (PPPs) in Scotland reporting to the Scottish Cabinet through the Minister for Finance' . The then Scottish Executive saw no issue with Jo Armstrong doing work for both them and the Royal Bank of Scotland. Yet the Royal Bank of Scotland were, and no doubt still are, looking to profit from PPP contracts that the Scottish Executive were putting out to tender.

Glasgow Housing Stock Transfer

Another contentious issue that Jo Armstrong has been involved in is the Glasgow Housing Stock Transfer from the council to the Private Glasgow Housing Association, an organisation that is effectively financed by the Banks. This plan met with serious opposition from a great deal of people in Glasgow. Not least because of a bafflement of why the debt write off and the soft loans and grants could not have been provided to a council landlord. Unlike Armstrong, who will not nor never be affected, they also worried that this would lead to a deterioration of the housing stock and a loss of democratic control over housing in Glasgow.

According to Armstrong her role incorporated;

'Negotiating the Scottish Executive’s funding package with the Glasgow Housing Association (GHA) and its private sector banks to secure the transfer of 80,000 houses from Glasgow city council’s ownership. The funding packaged secured the write-off of £900 million of public sector debt, raised £700 million of grants and soft loans and £700 million of private sector debt to contribute to a £6 billion redevelopment programme. This involved extensive liaison and negotiations with the Scottish Executive’s law officers and senior counsel, the funders’ lawyers and the many technical advisors working on the project of this complexity' .