Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-119)

14 JULY 2004


  Q100 Chairman: In Scotland teachers have agreed a deal where there is less class contact time.

  Mr Stephens: I am sorry, as I explained I am not in a position to answer for Scotland. That is the responsibility of the relevant devolved administration.

  Q101 Chairman: I understand. But at the time when you are talking about 30% savings, and you want devolved administrations to save, your suggestion is for more class contact time when the trend in teaching is towards less contact time.

  Norman Lamb: And the agreement is for more preparation time.

  Q102 Chairman: Yes.

  Mr Stephens: I am talking about time spent in delivering front-line service (that is, directly engaged in education of pupils). That can certainly include preparation time. It is intended not to include, of course, time spent on school administration, finance, HREs, etcetera.

  Chairman: You have left us magnificently muddled.

  Q103 Norman Lamb: Mr Macpherson, you talked earlier about the past being a guide to the future. The IFS in its analysis has pointed out that civil service numbers have exceeded Treasury plans in every set of annual public spending projections since 1999. Also the Treasury has promised every year since 1998 to reduce administration spending, only to see it rise consistently. What evidence is there that it is going to be different this time? Those previous commitments were presumably serious, we were supposed to believe them, but they did not happen. The opposite happened. Why will be it different this time?

  Mr Macpherson: There are two points I would make. First, I think there have been serious issues around the definition of administration costs. For example, prison officers, immigration staff, consular staff and personal advisers (in the case of trying to get people from welfare to work) have all scored in admin costs. This spending review reflecting Sir Peter Gershon's recommendations has set out a better definition, so that we will not get this potential conflict that everybody wants to—

  Q104 Norman Lamb: Are you saying that all of these failures in the past just come down to how you define the problem?

  Mr Macpherson: No, I do not, I am just saying that that is a factor. The second point I would make is that over the last year, with the help of Sir Peter Gershon, we have been looking at this whole area of the overhead of government in a far more intensive way. Jonathan was just talking about technical notes and so on, the whole approach to efficiency, where departments will be held far more publicly to account on progress in terms of headcount reductions, and I am very confident that the framework we are putting in place will deliver results.

  Q105 Norman Lamb: We have also heard there are no sanctions. There is no carrot or stick attached to the targets for any of the departments. There is no way of incentivising them to ensure that they meet these targets.

  Mr Macpherson: These staff numbers which have been set out very, very publicly in this document provide a very good—certainly in the early years—proxy for more sophisticated measures of efficiency which I would very much hope departments are held to account for.

  Q106 Norman Lamb: In what way? How are they held to account?

  Mr Macpherson: The main way, I guess, departments are held to account is through Parliament, through the transparency of the reporting system and by the public.

  Mr Stephens: The departments, the public services concerned, retain all the efficiency savings that they make over the planning period. In that sense, they have a direct incentive.

  Q107 Norman Lamb: The evidence we have heard from the outside experts has been pretty damning of the Gershon approach, that it will not achieve the scale of savings in manpower that is predicted and that it is devoid of sufficient detail in how it is going to be achieved. If you take the DWP, a lot of these jobs have come in in the last two to three years and they are now being removed again. What evidence is there that that is actually going to happen?

  Mr Macpherson: There is quite good evidence that progress can be made. Actually, a lot of job reductions are beginning to take place already. But let's focus on DWP, as you say. My recollection of the DWP is that the plan always was that there would be a step up in employment through 2003-04 as the pension credit was got up and running. That was in the sense of a one-off investment in staff. Now the pension credit is successfully delivered, it will—

  Q108 Norman Lamb: So this is part of a plan that has always been there. It is not an efficiency saving, it is believed to have been brought in temporarily.

  Mr Macpherson: No. No, I am explaining the profile, that there is this sort of step-up through 2004. There are already efficiency savings, staff savings, occurring as a result of the setting up of JobCentre Plus. I think that merger created something like 7,000 reductions. As the numbers start falling associated with the pension credit implementation, you will move rapidly downwards. I think it is worth giving an example which is a very good example of efficiency, which is the movement from paying benefits through order books to straight into bank accounts. The fact is that each transaction paid through an order book cost £1 whereas each transaction paid direct into a bank account costs two pence. That is a very real example of how investment in technology, modernising payment systems, can have a very big effect.

  Q109 Norman Lamb: Many of the savings identified in the review stem from economies of scale from joint purchasing of goods and services and rationalising back office functions and so forth—very much a centralised approach, dictating from the centre. Is there not a conflict between that and the idea of providing greater autonomy to the individual bodies at a local level?

  Mr Macpherson: There is always a balance to be struck between centralisation and devolution.

  Q110 Norman Lamb: You are moving more in a centralised direction with these measures.

  Mr Macpherson: I would not necessarily agree with that. We are trying to encourage departments, public sector agencies, to think more actively about this and actually encouraging, in a sense, a sort of bottom-up approach to sharing functions. I mean, there have been very good examples at local authority level in Essex and Kent, where actually the county council has joined forces with district councils to drive out inefficiencies. Even in a very localised level in the Treasury we are actively talking to departments to consider with whom we can join up functions—we are joining up our finance functions with the office of government commerce. So, yes, there will be central holding to account of departments and agencies, and John Oughton, who will be driving forward progress on efficiency, will be asking departments what progress they are making on that, but we are not telling department X to join up with department Y. That can only be done on the basis of a sensible and good business case.

  Q111 Norman Lamb: On the efficiency technical notes you talk about the NAO and Audit Commission scrutinising the ETNs before publication. Will the outturns against these targets be subject to independent validation as well?

  Mr Macpherson: The model we have chosen for this is exactly the same as that with public service agreements, namely that the NAO will audit the systems and measures and it will be then for the departments to report regularly on performance against those measures.

  Q112 Norman Lamb: But it must make sense for those independent bodies to see outturns as well. Can you give a commitment to ensure that that independent scrutiny takes place of the outturns?

  Mr Macpherson: I think getting the NAO involved in the measures is the critical thing.

  Q113 Norman Lamb: So the answer is: No, they will not be scrutinising the outturns.

  Mr Macpherson: As I said, they will focus on the measures.

  Q114 Norman Lamb: The answer is: No.

  Mr Macpherson: No. I mean, they will not be involved in that.

  Q115 Angela Eagle: There is mass cynicism about the public sector savings that have been announced—by our advisers, the press, absolutely everybody. What can you do to reassure these cynics out there that all these savings are actually there to be had?

  Mr Macpherson: I think by putting in place a framework which will not be one to disappear just as soon as there is another initiative. By putting in place a framework which will stand the test of time. We are modelling this framework quite closely on the public service agreement framework which, when it was introduced, people may have argued was a gimmick but which has now been in place for six years. It has evolved. There is far greater transparency. We have a website which tells anybody who wants to know how the government is doing against public service agreements. We want to see an approach to efficiency which is very much in line with that, where departments are very clear how efficiency is being measured and then report very regularly against it. Select committees and other bodies can then hold those departments to account.

  Mr Stephens: Another way of looking at how realistic and achievable these are is the approach that Sir Peter Gershon took, to look around at best practice, best in class achievements, in both the public and private sectors. In respect of, for example, back office and the delivery of HR services, he found the best practice suggested a ratio of perhaps 1 HR staff to 100 staff. The current ratio across the public sector is something like 1:45. The plans that underpin these efficiency commitments envisage raising that to 1:55—which, I am sure, in the circumstances will be stretching across all the myriad bodies in the public sector but does not suggest that this is a wholly unrealistic and unachievable target. Another example might be the area of procurement, where the OGC can already point to significant savings achieved by its current focus on central government, and, as a result of Sir Peter's proposals, its focus will be widening out. But, again, the sort of levels of savings we are talking about, one-third of the £20 billion on a public sector procurement bill of £100 billion, suggest an improvement of slightly less than 10%, which again is not over this period of time a wholly unreasonable and unrealistic target. It will be stretching but is grounded in the evidence and approach that Sir Peter has outlined.

  Q116 Angela Eagle: What is different about the Gershon report? We have had the cynics saying, "It has all been suggested before. It has all been done before. We have had Rayner, we have had this, we have had the other, and it has never been achieved." Why are you so certain that these significant figures will be saved in the spending review? Because they are big values.

  Mr Stephens: They are big but so is total expenditure. The first point I would make is that it is always a mistake to think of efficiency as a one-off; it is part of an ongoing process and we want to make sure as a result of these proposals and Sir Peter's approach that it is an ongoing process that is increasingly embedded in management across the public sector. The approach which Sir Peter Gershon has taken is, first of all, to gather the evidence; to look at comparable performance and best practice, whether in the public or the private sectors; to then identify a number of cross-cutting approaches. This was not just a simple parcelling out of efficiency savings by departments but to identify a number of cross-cutting approaches—the transformation, for example, of the back office; the stepping up across the public sector of effectiveness of procurement; looking hard across the public sector at the amount of time spent on policy and funding and regulation of the centre; a new approach to productive time. He gathered the evidence, took a cross-cutting approach and then engaged with departments, and in effect challenged them, on the basis of his cross-cutting analysis, to develop proposals of their own.

  Q117 Angela Eagle: This is a very different from what has gone before. The interesting thing that has come out here is that I did not realise you had actually changed the rules so that the departments could retain the savings that they make. That is a significant change which will increase incentives at departmental level to produce these savings.

  Mr Stephens: Yes. We have set fixed three-year expenditure plans and within those fixed three-year expenditure plans—

  Q118 Angela Eagle: In the past, they would have had to give you the money back.

  Mr Stephens: That is right. Every penny saved on efficiencies by departments can be retained and reinvested by them.

  Q119 Angela Eagle: There is one other issue I wish to raise and that is the very significant civil service job cuts: 104,000 if the devolved administrations go along with the figures. Are you worried about the morale issues that a significant reduction like that would create amongst the very people that you are hoping to motivate to produce increased, more efficient public service? Not only do they have to move location and change the way they do the job, but they have to worry about whether they have got a job. How do you think this can be managed?

  Mr Stephens: Clearly with any significant programme of change like this, the commitment of staff and management is very important. But this does go alongside continued commitment to investment in public services and in the delivery of those public services. The spending review announced significant real terms investment in a wide range of public services. Across the public service there is a high level of commitment to public service and although of course there will be issues to be gone through and departments are individually committed to and engaged in consultation with their staff and with unions on these matters, the outcome of this programme is to ensure that more resources are released into direct delivery of public services.

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