Examination of Witness (Questions 1-19)
3 FEBRUARY 2005
SIR PETER
GERSHON, CBE
Q1 Chairman: Good morning. Could I call
our Committee to order and welcome this morning's witness, Sir
Peter Gershon. It is very good to have you along to help us with
our inquiries into the effectiveness of the civil service. We
are also interested in the report that you have done on public
sector efficiency. Would you like to say anything by way of introduction
or shall we go straight into questions.
Sir Peter Gershon: I suggest we
go straight into it.
Q2 Chairman: Having had experience of
the public sector and the private sector and having done this
major review, tell us how inefficient the public sector is.
Sir Peter Gershon: I guess I do
not start from that framework; I start from a framework that every
organisation in the public or the private sector is capable of
being more efficient tomorrow than it is today if you apply management
effort to it. Even if you take private sector organisations which
people would regard as being at a peak of efficiency they do not
rest on their laurels; they try to find ways of being even more
efficient tomorrow than they are today. What I did was to identify
across the public sector the scope for some efficiency savings
that are deliverable by March 2008. I also indicate in my report
that I believe that if the public sector can build momentum up
on this efficiency programme there will be scope to seek further
efficiency improvements in the period after March 2008. What you
can say is that on the delivery of this programme there will be
an excess of £20 billion of efficiency savings delivered
in 2007-08. There will be savings in 2005-06 and 2006-07 so that
cumulatively over that three year period of SR04 there will be
in excess of about £40 billion of efficiency savings. What
I would like to see is that this momentum is sustained. The problem
I saw about this was about trying to kick start a renewed focus
on efficiency in the public sector against a background that there
has been much more focus since 1997 on effectiveness and this
is about trying to get a better balance between efficiency and
effectiveness in a period where potentially the Government now
has to find more money from efficiency savings than it does through
being able to raise taxation or increase public borrowings.
Q3 Chairman: I understand all that and
we shall come back to aspects of it. I simply want to get a judgment
from you. You have a huge background in the private sector and
have done massive work in the public sector, I just want you to
give the Committee a sense of how inefficient you think the public
sector is. Very inefficient? Not very inefficient? What would
you say?
Sir Peter Gershon: Clearly I believe
there is scope for it to be more efficient. That is what this
report sets out.
Q4 Chairman: Because it is very inefficient?
Sir Peter Gershon: No.
Q5 Chairman: Because it is slightly inefficient?
Sir Peter Gershon: Because there
is scope to improve its efficiency.
Q6 Chairman: We just want to know the
scale of the task.
Sir Peter Gershon: All I can say
is that the scale of the task I identified between now and March
2008 is a task that leads to the delivery of the savings that
I identified.
Q7 Chairman: If it is a hugely inefficient
organisation then it would be easier presumably to achieve efficiency
savings against that huge inefficiency; but if it were only a
moderately inefficient organisation then it would be harder to
achieve such savings.
Sir Peter Gershon: I do not think
that is a question I can answer, Chairman, because you also have
to view this against the structure of the whole public sector,
and the autonomy of many different parts of the public sector.
This is not like a private sector organisation; this is not like
a Tescos where there is a very direct line of command and control
between the corporate centre and an individual supermarket. The
lines of command and control in the public sector are much more
subtle and sophisticated than they are in a private sector organisation.
I cannot make that judgment; I can only tell you what I thought
was the art of the possible within this timeframe.
Q8 Chairman: Let me try it in a slightly
different way. Do you think the public sector—again based
on your experience and knowledge and so on—is intrinsically
less efficient than the private sector?
Sir Peter Gershon: The private
sector does not have the complexity of the challenge that the
public sector has. I do not view efficiency in isolation from
everything else. Running the public sector is a much harder and
a much more complex task than running a private sector organisation.
Having spent a limited period of time in the public sector I would
characterise managing the public sector like trying to manage
in a four dimensional world. Managing in the private sector is
about managing in a three dimensional world. It is an inherently
more complex environment.
Q9 Chairman: Is that a yes or a no then?
Sir Peter Gershon: I cannot answer
your question.
Q10 Chairman: You just find it impossible
to compare the efficiency of the private sector and the public
sector.
Sir Peter Gershon: There are some
areas where it is valid to do benchmarking between the public
and the private sector and we did that during the course of the
review. For example, I think it is perfectly valid to compare
the number of HR professionals in a public sector organisation
that are needed to support every hundred employers and to benchmark
that against the private sector. We did that and we discovered
that the wider public sector is pretty close to the median for
the UK private sector; central government was significantly adrift
and was operating with a much lower ratio: 1:30 to 1:40 whereas
the median in the wider public sector and the private sector would
be about 1:100. Yes, that did focus attention in the review as
to why can central government not achieve the sorts of ratios
that the wider public sector and the private sector are able to
achieve. By focusing attention on that we were able to make some
progress during the course of the review. So yes, I think there
are areas where it is valid to do that but I am unable to answer
the general question that you have asked me.
Q11 Chairman: In your report you say
that you want to promote a culture of efficiency in the public
sector. Is that because a culture of efficiency does not exist
in the public sector now?
Sir Peter Gershon: In a period
where you have tight public sector expenditure constraints there
is always going to be more attention paid to efficiency because
there is pressure on people to try to find ways of doing things
more efficiently. There has been a period where there have been
big increases in resources that departments have had, a focus
on trying to improve effectiveness and the quality of public services.
That is always going to create an environment in which people
pay less attention to efficiency than they do when the going gets
tougher. That happens in the private sector as well; it is not
a unique phenomenon in the public sector. We are now entering
a period where efficiency becomes more important to help generate
resources which the Government wants to reallocate into investment
in front line services and that focuses more attention. Given
that there is no proxy for profit in the public sector I would
like to see a situation where efficiency has a higher priority
on the management agenda in the public sector in order that you
can sustain this programme beyond the next three years. This means
trying to get a more equal balance between the efficiency agenda
and the effectiveness agenda whereas we have come from a period
where effectiveness has been much higher priority than efficiency
has been, in my view, in some parts of the public sector.
Q12 Chairman: Knowing all that and given
the fact that you have come up with this programme of a £20
billion-plus saving to 2007-08—84,000 jobs—and if
we are talking about promoting this culture of efficiency is your
sense that this is something that the public sector needs to experience
periodically, a kind of periodic shock therapy? We have had such
episodes in the past which have tended not to produce the scale
of gains that were anticipated at the time and they clearly have
not, to use your word, "embedded" a culture of efficiency
otherwise we would not be talking about the need to embed it now.
What I am really asking you is, are these exercises something
you think the public sector has to experience from time to time
as a kind of shake out exercise? Or, is the objective now to embed
an efficiency culture in such a way that such exercises will not
be needed in the future?
Sir Peter Gershon: Certainly as
I have said it was my objective to do that. You will have to ask
the Government whether it is their long term objective; I cannot
answer for them.
Q13 Chairman: Do you think that is a
do-able objective?
Sir Peter Gershon: That is why
in my report I gave quite a lot of attention to the whole issue
of deliverability of the recommendations and to look at what mechanisms
and actions need to be taken to help create this culture. One
example would be the recommendation that I made about finance
directors: professionalizing the finance director function in
central government, and getting heavyweight professional finance
directors who sit on departmental management boards and have the
same status as their other colleagues because those animals in
my experience act as a natural point for challenging internally
an organisation about whether it is using its resources efficiently
or not. If you can create a cadre across Whitehall of these sorts
of people then I think you have gone a step towards creating this
longer term culture which is as much focussed on efficiency as
it is on effectiveness. Ultimately what this depends on—I
made this clear in my covering letter to the Prime Minister and
Chancellor—is that there needs to be sustained top level
political and management commitment to efficiency. That is what
you see in very well run private sector organisations; whatever
else is going on, top management always spend time worrying about
and driving for efficiency inside their organisation. As long
as you keep getting those signals driven down from the top, that
helps create the culture around the place that says that this
issue is important and we have to focus on it.
Q14 Chairman: You say in terms of embedding
this culture that it will be important to reward those who deliver—that
is under the efficiency agenda—in just the same way as those
who deliver improvement in effectiveness have been rewarded. How
do you see that operating?
Sir Peter Gershon: Within the
reward system of the civil service what I would say is that there
is scope for senior civil servants, if they are high performers,
to get bonuses on top of pay increases. The people who deliver
very well against their efficiency objectives should be as much
eligible for a good bonus as someone who delivers successfully
on a PSA target by improving the quality of a public service.
Q15 Chairman: You want to build those
into the reward criteria at each level.
Sir Peter Gershon: Yes.
Q16 Chairman: Some people might say that
we live in a context where everyone is terrified of putting any
taxes up and therefore we are in the era where we have to sweat
the state. Is this not about sweating the state in a serious way?
Sir Peter Gershon: Any organisation
is always capable of improving the efficiency of the way it uses
its resources and if it is not subject to those pressures then
it will always look for other ways to create additional resources,
whether that be getting new income through raising prices, raising
taxation or borrowing.
Q17 Chairman: There is a bidding war
going on between everybody at the moment as to how much of the
state they can dispense with. What judgment have you formed of
the other bids that have been made?
Sir Peter Gershon: Which bids?
Q18 Chairman: Mr James and his £35
billion.
Sir Peter Gershon: The thing about
the David James report is that it is totally silent on deliverability
and therefore I cannot comment. He has claimed the bulk of the
£20 billion I identified but, in my view, my £20 billion
are only achievable if you accept my delivery recommendations.
He has said nothing about how his recommendations would be delivered
and therefore it is impossible to comment.
Q19 Chairman: He said that we are going
to take bits of the state away; you are saying that the state
is going to do what it is doing now but is going to do it more
efficiently.
Sir Peter Gershon: A significant
part of what David James identified is basically that he will
take Gershon's £20 billion and then he has some other bits
around taking away some parts of the state. To get to my £20
billion you have to say something about deliverability; he has
not said anything so I cannot comment. Until I understand his
delivery framework I do not know whether it is achievable or not.
I did consider some of the things—not all of them, but some
of them—that David James looked at. If you recollect one
of the criteria I set myself was that nothing I recommended would
be dependent on legislation. I believe some of the recommendations
he has put forward require legislation to bring about, for example
privatising the Met Office. To plan on something like that happening
by March 2008 you have almost got to guarantee the priority that
you are going to give to that legislation and you are making all
sorts of assumptions about the time to get that legislation through
Parliament. Whether that is achievable or not I do not know, but
there are parts potentially which you could do, but I was very
focussed on what can you plan for by March 2008, not in some longer
time frame.
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