Examination of Witnesses (Questions 100-119)
14 JULY 2004
MR NICHOLAS
MACPHERSON, MR
JONATHAN STEPHENS
AND MR
CHRIS MARTIN
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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