Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 60-62)

14 JULY 2004

MR ROBERT CHOTE, PROFESSOR COLIN TALBOT AND MR DAVID WALTON

  Q60 Chairman: Put it this way: we do not have the whole picture but is there sufficient of a picture there?

  Professor Talbot: I do not think there is. The existing output information for the public sector is extremely weak. It is based on fairly shaky foundations but I think everybody recognises this is an international problem; it is not just a UK problem. Statisticians in a number of countries are trying to address this. I think it is going to be a considerable time before we get a system in place which has the level of detail or measurement of public sector outputs, of very specific outputs across a range of different services, which would give us the sort of robust information we would need to get the real picture of public service and real output levels and then start to establish some trends on that. I really do not think that sort of information is going to be available in a robust enough form within the lifespan probably of this Spending Review.

  Mr Walton: Just in a macro-economic sense, there is complementary information. For instance, we know what is happening in the labour market. We know that unemployment is falling. Whatever the actual published GDP numbers say, and those are always revised through time, we have another indicator from the economy which suggests that slack is being taken up. Obviously, if you observe wage inflation and price inflation, we have another indication of where output is relative to some notional potential. We never know precisely what actual output is or indeed what potential output is. There is evidence from other bits of the economy, from surveys, which help to give you handle on some of these things from a macro perspective.

  Q61 Chairman: Lastly to Colin Talbot, going back to what is said in Gershon about £21 billion savings, the CBI have identified £5 billion. Could you recap on the rest for us?

  Professor Talbot: Most of the rest, the £5 billion that the CBI suggests, is going to come from the staff savings; most of the rest is going to come from improvements essentially to processes and back-office services. One key element is improving the productivity of those staff that are actually doing the job. The figures that are being suggested there seem in some areas to be wildly over-optimistic. The second is in delivering better procurement and other back-office services, and again the history of this has been that we keep pointing to the fact that both the procurement systems and the numbers of people within the public sector with the requisite procurement skills are at a very low base. To get those in place and get them working in the timescales involved I think is going to be extremely difficult. Again, if I can come back to the departments, the Department for Education is suggesting that it its going to put in place a new procurement centre of excellence to be established by April 2005 to strengthen the procurement practice across the education and children's services sectors.

  This will deliver around 35% of the entire efficiency gains for the Department of Education which is £4.3 billion. That is only going to start operating from April next year. In reality, to improve procurement across the whole of the education system will take three or four years. Anybody involved in management change initiatives knows these things take a long time to put in place and a long time to embed, particularly where cultural changes are involved as well. To think that is going to deliver 35% of that £4.3 billion in the timescale seems to me to be wildly optimistic. It will deliver savings—I am not suggesting it will not—but I just think it is extraordinarily optimistic.

  Q62 Norman Lamb: Spending is front-loaded, is it not? The bulk of spending comes next year and then dropping off after that.

  Mr Chote: Under the three years of the spending review, that is right. The year which overlaps with Spending Review 2002 is a higher growth rate than the two subsequent ones.

  Professor Talbot: But that is just an increase in the overall spending. Procurement savings are going to come from the whole of the spending pattern and it will take a lot longer to deliver.

  Chairman: Thank you very much for your time.





 
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