Finance: Incredible shrinking council

THE FIRST virtual local authority is on the horizon with "hot desking", a telecentre, video conferencing, home working and the most advanced call centre in local government.

It is significant that the council taking these steps is Surrey, regarded as one of the most efficient authorities in Britain and whose management initiatives have been widely copied. Equally significant is the fact that the the re-engineering of Surrey was generated by a potential deficit and that new systems are cutting millions of pounds off the council's annual expenditure.

For several years Surrey had been spending above its income. In 1996 there was a fundamental review of expenditure examining every service, reducing the base budget by pounds 25m. What Surrey did not predict was that this would become the model for all other councils - under the Best Value policy every authority will be expected to conduct its own fundamental review.

The outcomes for Surrey are radical. At the heart of it is the desire to rationalise the council's property portfolio and convert fixed into variable costs. The council owns 90 office buildings, but in five years this should be reduced to about 35. There is even an open question about whether the council will sell County Hall, which is in Kingston-upon-Thames, now part of London, and hence outside the area it serves.

Surrey has already conducted what it believes is the largest private finance initiative contract signed by a council when it disposed of half of its residential care homes. The county has also brought libraries, adult education and youth services together. "These services were really doing much the same thing," says Michael Jennings, director for partnerships and community affairs, and previously assistant chief executive in charge of corporate management. "They were all about recreation, life-long learning and public information."

Bringing services together means fewer buildings and reduced costs - as well as helping generate income; one of the new integrated centres contains a Post Office, and discussions are taking place about installing cashpoints in others.

A programme of transferring ownership of community buildings is under way. A parish or town council might buy a property, and residents have formed trusts to take over community centres. Grants may be obtained from the county council for running costs, and applications are encouraged from other bodies, such as the lottery. "Hot desking" also emerged from the review, encouraged by the desire to achieve a big reduction in office space. Even Mr Jennings now operates without sole use of a desk, sharing an open-plan office, conducting some work in meeting rooms, sometimes working from home and using a lap-top to communicate with the council's intranet

The next step is to create a call centre. Many councils talk of call centres, but most really mean one-stop shops, which the public can drop into about any problem. Surrey has dismissed this option because of the cost. Instead it is modelling itself on the private sector, where an increasing proportion of business is handled over the phone. This will cut costs, while producing a more integrated service, believes Surrey.

But saving money is, in a sense, the easy part. Doing so without damaging service provision is the crunch. According to Audit Commission performance indicators, Surrey is still one of the better managed authorities. Those indicators, however, have been criticised as giving well-heeled areas, like Surrey, an easy ride compared to deprived centres like Liverpool. Surrey has been approved as a Best Value pilot, specifically to develop a set of indicators that will measure both the level of need in each community in the county and the quality of service. Consultation will judge how effective the council is in delivering services. That in the end will be the acid test.