Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 20-39)

14 JULY 2004

MR ROBERT CHOTE, PROFESSOR COLIN TALBOT AND MR DAVID WALTON

  Q20 Mr Fallon: In England is it possible that back-office employment could continue to grow in the Health Service and local authorities outside the Civil Service?

  Professor Talbot: It is possible in the Health Service if the NHS trusts decided not to adopt some of the reforms that are being suggested. In local government, it is certainly possible because it is more difficult for the central government to impose things on them anyway.

  Q21 Mr Fallon: The Spending Review does not include efficiency savings targets. There is going to be a new system of Efficiency Technical Notes, but those are not going to be published until the end of October. Would you not have expected them to have been agreed by departments before they signed up to the efficiency-saving targets?

  Professor Talbot: Yes. The point about all this is that again if you go to Section C of the Gershon Report and work your way through the promises that individual departments have made about how they are going to make these efficiency savings, I have to say they are quite extraordinary in the lack of depth and information that is given about exactly how these things are going to be achieved. If I can just give you an example, again from the Department of Education and Skills, at bullet point 2, which is supposed to save 30% of the $4.3 billion, is by enabling the front-line professionals in schools, colleges and higher education institutions to use their time more productively to generate around 30% of total efficiency gains. I am sure my colleagues in higher education institutions and other educational institutions will look forward to finding out how we are going to improve our productivity by that amount in the time that is suggested.

  Q22 Mr Fallon: You are saying that is pretty difficult to measure?

  Professor Talbot: It is difficult to measure. It is difficult to see how it could be done at that sort of level.

  Q23 Norman Lamb: Following up on Michael Fallon's questions, I note in the IFS analysis of the review that you state that civil service numbers have exceeded Treasury plans in every set of annual public spending projections since 1999. You also mention that there will be some reclassifications going on and that, prior to the reclassification, the Treasury had promised every year since 1998 to reduce administration spending only to see it rise consistently. Is there any substance to suggest that this time it will be different?

  Mr Chote: I guess one argument would be that clearly the stakes are somewhat higher on this occasion and so therefore there may be a greater impetus.

  Q24 Norman Lamb: Why do you say that?

  Mr Chote: I say that because it has been made the centrepiece of the Spending Review and because of the way in which essentially the big picture of the Spending Review is to argue that after a period of relatively rapid spending growth since 1999, we now have the rate of growth slowing down, and the justification for having renewed emphasis on efficiency savings is essentially that the voters will not notice the fact that overall spending growth is slowing because, by reallocating resources into the front line, you can keep that growth as strong as it is. Arguably the incentive, now that overall spending growth is slowing, to actually deliver on this finally is that much greater. It is clearly not impossible to achieve this, and we have had periods in which administration spending has declined as a share of the total in Civil Service numbers has declined. As I say, we simply point to the past record that this is often promised and rather rarely delivered.

  Q25 Norman Lamb: On job numbers, most of the reductions that we are promised, the 70,000 net, are actually jobs that have come in in the last two to three years, is that not right? There has been that sort of scale of increase in jobs over the last two to three years?

  Mr Chote: Roughly speaking in the Civil Service numbers have risen from about 500,000 to 550,000 over the period 1999 to 2003. It depends on which set of figures you look at. If you are aiming for a 70,000 net reduction, then that basically would burst that increase plus a little more.

  Q26 Norman Lamb: If we are looking, say, at the Department of Work and Pensions, there has been nothing that I am particularly aware of which simplifies the system of benefits, so are we simply going to have fewer people administering a very complex benefits system and does that not cause some concern about delivery?

  Mr Chote: It is certainly true that the reduction in DWP numbers is not being justified on the grounds that we are going to a system, as you say, of tax credits and benefits that is more simple. Colin Talbot may know exactly where the DWP back-office savings are coming from.

  Professor Talbot: Again, the implementation of the plan for this in Gershon is extremely thin; there are just five bullet points that try to explain how these savings are going to be made. On the actual staffing numbers, all it says is: the reduction of 40,000 civil service posts with redeployment of 10,000 of these to front-line roles and ensure relocation of 4,000 in all. There is no explanation as how exactly this is going to be achieved or why it is the case that there are reductions or changes in the way in which services are provided, which would allow for these sorts savings.

  Q27 Norman Lamb: The DWP is well advanced to support them because they have brought a lot of extra people in?

  Professor Talbot: Yes.

  Q28 Norman Lamb: To move on to PSA targets and departmental programmes, what evidence is there to show how departments' performance against PSA targets set in the earlier Spending Reviews has affected their spending allocations in this one? In other words, is there any sanction at all, or is it purely aspirational?

  Professor Talbot: I think you will recall from the evidence that you took from the Chancellor after the last Spending Review when this question was asked several times by the Committee that the answer was—how can I put this politely—that there was no clear evidence. The Chancellor kept reiterating the Treasury mantra, which is: yes, of course, this is money being given in exchange for reform and departments will be held to account if they do not deliver reform. I am not aware of, and they certainly will not give any examples of, cases where either departments have been rewarded or sanctioned for failing to perform.

  Q29 Norman Lamb: So no stick and no carrot?

  Professor Talbot: There does not seem to be. It may well be happening behind closed doors, but none of us know about it.

  Q30 Norman Lamb: Should the Treasury include in the Spending Review a document outlining which targets have been met, partially met and failed, preferably audited by an independent body such as the NAO?

  Professor Talbot: On the first point, yes, and a large number of other administrations already do something like this. In the United States, the Federal Government, for example under GPRA, federal agencies and departments, have to publish their results and their plans alongside one another, so that it is fairly clear what they set out to do in the past, what they have achieved, what they are intending to do now, and how they are going to get to that.

  Q31 Norman Lamb: Are those actually measurable targets, though, because often the problem is that it is also vague that it is not possible to measure whether you have achieved it?

  Professor Talbot: There is more detail in the American federal system than there is in ours. PSA targets have been slimmed down in number and they have become less and less useful in terms of knowing whether or not departments are actually achieving.

  Q32 Norman Lamb: So we are moving away from accountability in terms of the PSA targets?

  Professor Talbot: In terms of PSA targets, I think we are. They are becoming so vague and so long-term and so outcome based in most cases, that that really does not tell us a great deal about how departments are performing. Getting rid of service delivery agreements, although a lot of the information about that will have been published anyway—and the Treasury may well still be collecting a lot of that information, I do not know—tends to suggest a lot of the detailed information that you would need, so knowing whether or not a complex department like DWP or the Home Office or Education is actually delivering, is simply not being collected. May I just add, the point was raised earlier about the Atkinson Review, which is looking at how we measure the output in the public sector. Certainly up until now the figures on which ONS have been basing their measurement of output have been extremely crude for most areas of public sector activities and only based on a small handful of measures. Unless you start to measure an awful lot more than they are doing at the moment, then we simply do not know what the output levels are for most government activities.

  Q33 Norman Lamb: You have said in the past that the system of PSA targets is fundamentally flawed. I was going to ask whether the changes in the last two years have changed your view but, from what you have said, if anything, it has made it worse; it has made the targets less measurable and therefore there is less accountability. Is that your view overall?

  Professor Talbot: I think overall that would be correct. There has been some small improvement in consultation over what goes into the PSA targets within some departments, but it has been pretty marginal. Certainly, the Government has not done what I would regard as being a way of making this a much more open and democratic system, which would be, for example, to publish PSA targets as Green Papers and open for consultation and involve parliamentary committees in that and involve key stakeholders before the final targets are actually published, which is what happens, for example, in the public sector.

  Q34 Angela Eagle: Why this easy cynicism about spending? The public sector has always been told it ought to be more efficient and as soon as there is something like the Gershon Report, which I think is a serious attempt to look at how you can get economies of scale that the Government ought to be getting especially with its procurement suppliers, how it should re-engineer its systems to take account of the vast investment in IT, there is all this easy cynicism about how it is all a load of rubbish and nothing is going to happen anyway. Does the public sector get beaten when it does and beaten when it does not?

  Professor Talbot: I would not say it is easy cynicism. It is more of a weary cynicism in that governments frequently promise more than can actually be delivered. It is possible to reform public services; it is possible to improve efficiency; it does not help when governments make promises which are not going to be delivered.

  Q35 Angela Eagle: Why are you so certain of that?

  Professor Talbot: The reason I am so certain is because the history is so clear.

  Q36 Angela Eagle: You have a little crystal ball in front of you?

  Professor Talbot: No. The Rayner Scrutinies, which were very high profile and backed by a very dynamic Prime Minister, promised £600 million worth of savings; they delivered about £300 million worth. The market testing initiative similarly promised about £600 million and delivered about 50% of that. The FMI promised huge savings and delivered nobody knows exactly how much but probably around 40% to 50%. The Executive Agency has promised £60 million worth of savings; no figures have ever been published. My calculations suggest that it is considerably less than that, if anything at all.

  Q37 Angela Eagle: Do you think that some of the things that Gershon concentrates on, such as back -office functions and procurement functions, transactional services and the use of civil servants' time in a more effective way are not likely to come up with savings? There are some examples in the Gershon Report of where this has already happened.

  Professor Talbot: I think I have just said that they will come up with savings. I am saying that the levels of savings that have been projected do not seem to be supported, to me, by the evidence in the report.

  Q38 Angela Eagle: Box 2.2 on page 14 of the Gershon Report gives an example of the amount of money that has already been saved by creating the Office of Government and Commerce, which was something I certainly supported when I was a Minister, looking at the mess that was going on with all sorts of people trying to procure without talking to each other and the suppliers knowing more about what contracts the Government had than government departments. This has already nearly doubled the amount of savings it was meant to produce so far and has a fairly modest target to continue to do so. Why are you cynical about that?

  Professor Talbot: I am not cynical about that. What I am saying to you is that I think there is scope for making efficiency savings in all of these areas. I think there are two problems about Gershon essentially. One is that it is promising very large-scale savings and we have to be clear about the scope of this. Most of the big efficiency initiatives that have been taken in the past have aimed for certainly less than £1 billion worth of savings.

  Q39 Angela Eagle: Let us look at Gershon because there are some potentials here that are quite new that are actually being delivered. Again, if you look at box 2.2, the NHS is procuring extra surplus operations from the private sector and there is clear evidence that they have managed to drive the price down for operations significantly because of some of the changes that have been made. You do not deny that, do you?

  Professor Talbot: No.


 
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