Examination of Witnesses (Questions 40-59)
14 JULY 2004
MR ROBERT
CHOTE, PROFESSOR
COLIN TALBOT
AND MR
DAVID WALTON
Q40 Angela Eagle: Do you then deny that
the DWP's payment organisation programme has now got 65% of all
people in receipt of benefit having their payments made direct
to a bank account, which costs 2p per transaction instead of £1?
Professor Talbot: No.
Q41 Angela Eagle: All of these are savings
that are being delivered now because of this modernisation. Why
the easy cynicism about the scope for further savings? It is easy
to be cynical.
Mr Chote: As I say, I think Colin's
point is to look back at the history.
Q42 Angela Eagle: Look at the examples
in here in front of you that have actually happened.
Professor Talbot: Do those examples
add up to £20 billion?
Q43 Angela Eagle: They are beginning
to make progress towards that. When I first went into the DWP,
we had green computer screens and when we had to try to come up
with management figures, we had to take people off the front line
to count manually. That has changed fundamentally over the last
five years, and it is delivering serous savings. How about acknowledging
that instead of just being cynical about the scope for further
savings?
Professor Talbot: I am not being
cynical. May I say that I also work, and have worked for the last
ten years or so, with a large number of public sector organisations
as a consultant working with them, actually trying to improve
their own services, including government departments? It is simply
not that easy. It takes considerable amounts of time; it often
requires huge amounts of investment, some of which is actually
specifically ruled out by Gershon. I am not cynical for the sake
of being cynical. I am simply saying that the sorts of targets
that are being promised, £21.5 billion now according to the
Chancellor, simply do not seem realisable in the timescale that
is being suggested. If you look at the detail not of what has
been archived in the past but of what has actually being proposed
for each individual department, it is extremely thin. It does
not explain to me, for example in education, how you are going
to improve the productivity of teachers, lecturers and university
staff by 30% over the next three years. There is nothing there
that tells me how this is going to be done.
Q44 Angela Eagle: Would not that detail
be in the financial statement?
Professor Talbot: It is not in
the financial statement. This is the Gershon Review.
Q45 Angela Eagle: You would not expect
there to be an agreement on any of these figures at departmental
level or indeed in the devolved administrations unless they did
not think they could reach them. If they do not agree with them,
they do not agree with the Treasury to do it, and then it does
not get announced. That is how government works. Why have they
agreed to these things if they think they cannot achieve them?
Professor Talbot: If you want
a bit more cynicism, I have had conversations with senior civil
servants in the past in spending departments in reaction to these
sorts of announcements. For example, and one I quote in my brief
from the senior management reviews when they were expected to
reduce senior management by 25% in the 1990s, their reaction was,
"Of course we will agree to them and then we will work out
how we are going to `do it'." Some of it will actually happen
and some things will not.
Q46 Angela Eagle: Do you not think there
is a difference between attempting to make savings during years
of Conservative mass cuts and making savings during years when
the public service is being expanded? Those are fundamentally
different.
Professor Talbot: You could be
right; they are different. I would suggest to you that in a situation
where these budgets have been allocated, departments are going
to get the budgets regardless of whether they make the savings
or not. They are in a position where all departments' expenditure
is going up in real terms, some less than others. The pressure
for them actually to achieve savings, other than by pressure being
put on them directly by the Treasury, is fairly low. The time
when there is huge pressure to improve efficiency is the position
where your budgets is going down, not when your budget is going
up.
Q47 Angela Eagle: On page 19 there is
a very interesting sector on productivity time in the Gershon
Report, which again looks at realising the benefits of reforming
work forces, using ICT investment, process reform, and the shift
to day surgery in the NHS is an example. This is going on all
the time increasing the efficiency of our public services. Again,
why is this not recognised?
Professor Talbot: It is.
Q48 Angela Eagle: So none of this counts
to the total then; it is just all easily dismissed in your cynical
shrug?
Professor Talbot: I do not think
I actually shrugged. No, it is not dismissed. It will lead to
some efficiency gains.
Q49 Angela Eagle: Ah!
Professor Talbot: I have said
this about five times so far and you do not seem to have heard
me saying it. It will lead to some efficiency gains. What I am
questioning is this overall figure of £21.5 billion over
the three-year period of the Spending Review. I simply find insufficient
evidence in the Gershon Report to convince me that that is going
to be achieved, particularly in the context of initiatives in
the past which have attempted to achieve far less ambitious targets
for efficiency savings and far less holistic in terms of involving
the whole of the public sector, which rely on, for example, local
authorities which government does not directly control, NHS trusts,
foundation hospitals, foundation schools and so on, which have
become increasing autonomous. That in itself raises issues about
how some of these things are going to be implemented.
Q50 Angela Eagle: Mr Chote, one final
question: what do you think of the new long-term measure on child
poverty that has been announced?
Mr Chote: It is a testing target
and the first point to make is that it is very welcome that the
Government has laid down clearly what the target is. It is also
quite welcome that they have done so in a way that sticks, with
the long-term target for 2010 and 2020, rather than having too
many staging posts in the near term. The danger perhaps in the
past is that that led perhaps to an allocation of money more in
the direction of direct cash transfers versus services, such as
SureStart for example, which might have more beneficial impact.
Essentially speaking, the implication of the child poverty target—
Q51 Angela Eagle: Not the target, the
new long-term measure which is announced?
Mr Chote: Whether moving to a
measure which is before housing costs is more sensible I think
is debatable in the relative low income measure. I do not have
any problem with the move to the new equivalent scale, which is
weighting the needs of different members of families. As for the
idea of combining the multiple targets so that you have relative
low income, absolute and material deprivation, clearly poverty
is a multi-dimensional concept and it is sensible to look at it
on a number of levels. The danger obviously of having multiple
targets is that it is less easy to hold people to them. With material
deprivation, I would have some more doubts about defining particular
items that people should or should not have; it is a difficult
concept. It would be interesting to see how the measure comes
out on that when it is clarified in the next Spending Review.
Q52 Mr Cousins: I wondered if anyone
had any idea about this. For example, the number of people entitled
to pension credit rises by about 100,000 each year because of
the technical way that the credit is calculated. Do we have any
idea what assumptions the Government is making about under-spending
on delivering pension credit to people that are entitled to it?
Mr Chote: I do not have that information
on me. That is the answer. I can check that. I think the assumption
would be that the level of take-up is probably constant over time,
but I can check that.
Q53 Mr Cousins: At the moment, we are
seeing a growth of under-spend, and I am sorry to change the topic
so dramatically from forecasts of doom. Personally speaking, I
am rather cynical about doom. There is a growth of under-spending
in several key departments, including those like Education and
Work and Pensions. In Scotland, the Scots seem to have considerable
difficulty in spending the money they are given. Do you think
this is likely to be an increasing factor? We do not have this
year's figures, of course, or rather last year's outturn figures.
Mr Chote: I would not necessarily
have expected it to be an increasing factor. One of the good things
to say about accumulated under-spending is that the system is
clearly doing less to force departments to spend money at the
end of the year just for sake of it to ensure that they are not
penalised the following year. In a sense, it would suggest that
the end-year flexibility, if you do not have to float money out
of the door just to ensure you get more later, is actually hitting.
If the argument is that some of this under-spending is taking
place maybe for example on the capital side because sensible decisions
are being taken about let us not go ahead with spending which
does not look like value for money, and the system is allowing
departments to make those sorts of sensitive decisions, then I
do not think that is necessarily a bad thing.
Q54 Mr Cousins: Do you think we are seeing
the emergence of something which in effect is quite a sizeable
contingency reserve spread around the departments because of the
existence of this accumulated under-spending under the end-of-year
flexibility schemes?
Mr Chote: Whether you count it
as a contingency, it is a contingency reserve in the sense of
departments having this money which is available to them, but
in terms of if the departments then went out and spent it, the
aggregate figures would clearly look that much worse. It is not
as though that money is being carried forward within the spending
totals in a way which would suggest that if the departments came
out, then there would be a genuine increase in public spending
if some of that under-spend was used up.
Professor Talbot: The really big
under-spend problem we had was when the Chancellor turned on the
faucet, or the tap, in terms of public spending—
Q55 Mr Cousins: Professor Talbot, this
is a British parliament; we do not use terminology like "faucet".
Professor Talbot: When the Chancellor
turned on the taps after the 2000 Spending Review, if you remember,
at one point the under-spend was around £8 billion. I suspect
some of the problems that we are experiencing at the moment are
of the sort that Robert Chote has indicated, and I very much doubt
that we are going to get into that sort of territory again, given
that for most departments, spending is only growing marginally
above inflation in real terms. It is very unlikely that they are
going to get into major under-spending problems. The two places
where that might happen obviously are Education and Health where
resources are continuing to increase fairly substantially.
Q56 Mr Walter: I have just one question
that I wanted to go back to and this is the whole question of
choice. Choice seems to be a major factor in what the Chancellor
has talked about. Choice implies that there is capacity elsewhere
which you can choose from. How have you seen that being enacted?
Professor Talbot: I think the
issue about choice versus efficiency is a very interesting one.
I have already indicated that one of the aspects of choice obviously
is that you need to create as many autonomous bodies in the sense
of foundation hospitals, foundation schools and so on to be able
to compete with one another, which means granting them a degree
of autonomy to manage their own affairs. That in itself then raises
issues about how do you realise some the economies of scale that
are talked about in Gershon in terms of convincing autonomous
bodies to adopt central initiatives on purchasing, on bankruptcies
and so on, and that is not an easy problem to crack at all. I
think that is one issue where there is an obvious tension. There
is another issue in relation to performance information. There
has been a lot of talk because of the headline figures about PSA
targets and reducing them to 110 from some of the statements that
have been made, for example by the Secretary of State for Health
about reducing overall target levels. I do not believe actually
the amount of measurement of performance in the UK public sector
is going down at the moment. Some people want it to do so. Some
people want to get rid of measurements but I think if you are
going for a choice agenda, then you need a great deal of measurement;
otherwise how can people decide which school to choose or which
hospital to choose if they have no information about how well
those institutions are doing and delivering services? Not only
do you have to have that information but it has to be comparable
information. The idea that you can decentralise performance measurement
to these institutions along with their operations' management
seems to be fallacious if you are going to try and introduce choice
because people need to have comparable information between different
schools and different hospitals in order to make any sort of decision.
There is a number of ways in which I think there are tensions
between the agenda for having increased choice at the public service
delivery end and increased efficiencies in back-office services
and efficiencies of scale, and issues about measurement as well.
All of those need to be addressed. They do not seem to be even
recognised adequately at the moment.
Q57 Mr Walter: Is there not a contradiction,
or are you suggesting there is a contradiction, that if you are
going to provide choice and also have central purchasing and common
systems and so on, surely those who are providing the choice think
they can provide it better? If B thinks it can provide it better
than A, they may say, "We can provide it better than A because
we are not bogged down by this central purchasing system; we have
a much smarter way of acquiring these assets"?
Professor Talbot: You are talking
about two different areas of choice, choice in terms of consumer,
user, end user choice. That requires that there is some sort of
competition, that there is some sort of difference between different
public service providers. That in turn implies that they have
some autonomy and organisational and operational management independence.
If they are all having the same back-office services imposed on
them, and Gershon proposes for example developing common personnel
systems again when most public services have spent the last 15
years getting rid of common personnel systems and devolving those
down to front-line organisations, and putting back in place a
whole series of those standardised back-office and support services,
then that minimises the amount of scope for operational managers
within individual units to change the way in which they do things.
We have been through this before. If you go back to the early
1990s when market testing was introduced and all executive agencies
were told that they had to market test a certain proportion of
their services regardless of whether it was necessary or not,
I remember having a conversation at the time with the then Chief
Executive of the Employment Service saying that he was wasting
huge amounts of management time doing market testing, which was
completely irrelevant to what he wanted to achieve in terms of
improving the efficiency of the Employment Service because he
had been told centrally that is the initiative which is going
to save money. In his view it was not within that particular organisation.
So there is always a tension between these centralised initiatives
which are going to achieve economies of scale and local autonomous
management. That is a difficult problem to deal with. Again, taking
Gershon, all the way through most of the big areas for saving
money are in more centralised purchasing, more centralised back-office
services, more standardised personnel systems and finance systems
and so on. At one point he even suggests standardising the actual
finance package that all the departments use. That is not choice
of local managers in determining what is best for their particular
organisation.
Q58 Chairman: David Walton, you have
not had a chance to come in on this issue of efficiency targets.
Are there any points you want to make?
Mr Walton: I do not have anything
in addition to what the others have said.
Q59 Chairman: On the issue of the timetable
of the Spending Review and the issue of scrutiny here, we have
yet to see the Atkinson Review published. We are still waiting
for that. There is no public expenditure outturn White Paper until
next week. How difficult does that make your job as an expert?
Mr Chote: We have to make do with
the numbers that we have at any given moment. There is clearly
a problem at the moment as well on the public finances. Judging
from what has happened to spending in the past, the number are
wobbling around quite a bit in terms of the outturn for 2003-04
because of the links between the national accounts numbers and
the numbers that the Treasury is coming up with. For example,
the last set of monthly public finance data is explicitly flagging
the possibility of further announcements on the changes of numbers
and depreciation. The state of knowledge is always imperfect.
Obviously with each new bit of information we get, that will make
things easier. As I say, we still do not know what public spending
was last year.
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