Examination of Witness (Questions 20-39)
3 FEBRUARY 2005
SIR PETER
GERSHON, CBE
Q20 Mrs Campbell: Can I ask you how real
these savings are? If, for instance, we take the Department of
Health which accounts for almost a third of the total savings,
up to half of the £6.5 billion savings will come from better
use of staff time resulting from IT investments. However, would
these savings not have occurred anyway?
Sir Peter Gershon: I did take
a view in the conduct of this review that said there were a number
of departments where, during the course of the current spending
review, there were a lot of investments being made in IT, in workforce
reform initiatives and trying to promulgate the use of best practice.
They were getting all this money in this spending review period
and I wanted to start seeing in their submissions what are the
benefits they were going to deliver as a result of this investment.
Yes, you could say that some of it was planned but I have to say
that my experience of working in the public sector is that attention
to benefit realisation is not always the highest thing on the
priority list.
Q21 Mrs Campbell: I have to say that
if that is the case then things have changed considerably over
the last 20 years. I remember when I had some contact with the
civil service in the 1980s there was an edict almost that if you
were spending money on IT then you had to be able to identify
the benefits, usually in terms of savings.
Sir Peter Gershon: There is no
difficulty about identifying benefits when you are doing the case
to get the money. What I am interested in is, when you have spent
the money, where are the benefits? Show them to me on the ground.
That is what I am interested in. This is not just an issue about
the public sector; I have seen it in the private sector as well.
Writing acquisition cases to get money and showing the benefits
that are going to arise is one thing, focussing effort and attention
to make sure that the benefits you said you were going to get
are actually going to be delivered and driven out, in my experience,
is something that does not always get the attention that it should
get. I wanted to focus more attention on this to understand what
departments were planning for in their spending review submissions
and the extent to which those plans could be compared to what
was said in the investment cases: was there a difference? Was
it in line with the investment case? If it was falling short why
was that?
Q22 Mrs Campbell: Is that the methodology
you used for identifying IT savings, you went back to see the
cases that had been made for the IT investment?
Sir Peter Gershon: I looked at
this combination of IT and workforce reform and where money had
been spent, for example, on trying to identify and implement a
process of promulgating best practice.
Q23 Mrs Campbell: Do most civil service
departments not do what the Government is suggesting that they
do, which is to make efficiency savings but the work is moved
to the front line so in fact there are not going to be redundancies
as a result of that?
Sir Peter Gershon: Let me give
you an example which I do recollect. If you take the digital mobile
radio system that is now being implemented across all the police
forces you can look at this in two ways. It is a simple replacement
for the old analogue radio systems that the police have used since
time immemorial or you can say, "Yes, it is that, but it
also has a lot more functionality. What are the plans to exploit
that functionality which could enhance the efficiency and the
productive time of policemen on the front line?" That is
not just about the technology, it is about the plans to train
people to use the additional functionality, whether processes
need to be changed to exploit the functionality as well. It goes
wider than the technology.
Q24 Mrs Campbell: I do understand that,
but coming back to the IT savings for a moment—which is
the area I am most interested in—we have seen a number of
total disasters as far as IT projects are concerned. In fact,
one sometimes wonders whether there are any successful IT projects
within government. I suppose the biggest failure has been the
CSA project in recent years. How sure can you be that IT projects
are going to be managed successfully so that savings can be made
whether they are a reduction in staff or different ways of using
time?
Sir Peter Gershon: During my time
in the OGC I had some interest in that particular agenda as well.
There are a lot of IT success stories in government it is just
that we live in a country where the press only writes about failure,
it never writes about success. Success does not sell newspapers
in this country. Look at the Customs and Excise import/export
system, one of the most complex real time systems in the world;
look at NHS Direct; look at the roll out of new technology in
Jobcentre Plus. Yes there are failures and what we did in the
OGC was to try to understand whether this country is unique in
terms of having IT failures and what we discovered was that there
has actually been quite extensive research done in the States
looking at success rates of IT projects across different sectors
in the US and the average success rate across all sectors in the
States now is that 30% of projects are successful if you measure
them against the criteria of: did they come in on cost, did they
come in on time and did they basically do what they were supposed
to do? The US public sector was not significantly adrift from
the rest of other US sectors. There was a study done here by Computer
Weekly and Templeton College, Oxford for the first time trying
to understand success rates in the UK. That pointed to a success
rate across the UK, not just the public sector, which was less
than the US. The OECD have published reports in this area and
there is nothing in them that indicates that the UK public sector
has a worse failure rate than other countries or other sectors.
That is comforting in one sense and it is not comforting in another.
Success rates have to be improved. Yes, the Child Support Agency
has been a very unsuccessful project but there have been some
very, very successful projects in the UK for which there is no
publicity. At the moment there is no balance in this debate.
Q25 Mrs Campbell: 30% success is hardly
a shining example. Surely most people would consider that to be
pretty abysmal.
Sir Peter Gershon: Yes, it is.
What we were trying to do in the OGC—and that work is continuing—is
to get things done that can help improve the success rate. The
highest risk thing that you can do is what is called a "big
bang" implementation. Every time the public sector tries
to do a "big bang" implementation you get very high
profile failures, for example: Tax Credits, Criminal Records Bureau.
Probably the one shining example of a "big bang" implementation
that went okay was congestion charging in London which was "big
bang". Yes, there were some teething problems, but compared
to other "big bangs" in the public sector it was a massive
success. These things are inherently high risk so part of this
is about trying to get very, very far upstream to get the people
who are responsible for delivery to be much more influential with
the policy makers so that at the time key policy decisions are
taken there is a much greater awareness about the likelihood as
to whether that was leading potentially to a very high profile
failure. If you take, for example, something that is referred
to in the report which is basically migrating away from the DWP
system of order books to paying as many people as possible through
the banking system and through the Post Office Card Account through
post offices, that was a massively complex IT project. It required
work in Inland Revenue, DWP, the banks, the Post Office, but it
was phased; it was not done as a big bang. That has gone very
smoothly; you hear very little about it. In terms of complexity
it was enormously complex. Has there been any credit for it in
the press? No, not a dickey bird.
Q26 Mrs Campbell: It is comforting to
know that there are some successes. Phasing does not necessarily
lead to success.
Sir Peter Gershon: No, but it
can help.
Q27 Mrs Campbell: Yes, I am sure that
is the case. However, the CSA system was meant to be phased, was
it not, in that new cases brought on stream were going to be processed
first and then the historic cases brought in on a phase basis
but we do not seem to have got to the starting point with the
CSA computer system.
Sir Peter Gershon: I am not here
to defend the CSA; it has been a very, very unsuccessful project.
The issue as to the extent that that was a technology failure
also related to the complexity of the policies that the technology
was trying to support. One of the things we were trying to do
through the OGC—and my successor is continuing to do so—is
also about trying to get the private sector bidders to be much
more realistic about what the technology can do. If the technology
cannot do something then the contract should not be taken just
to fight a losing battle all the way during implementation which
involves significant reputational damage and potentially financial
loss which does not help anyone.
Q28 Chairman: Just so that we are clear
on one of Anne's questions, the question has arisen about where
your benchmark is in the savings figure. What I want to know is
are the existing efficiency savings built into the system, for
example the fact that the Health Service has to save 2% a year?
Are these incorporated into your figures or are your figures beyond
the existing efficiency saving?
Sir Peter Gershon: My starting
point was the 2004-05 base line. That does include clearly efficiency
savings that were being planned for 2004-05 and from that 2004-05
base line the efficiency agenda overall looked for 2.5% per annum
savings from the 2004-05 base line. What emerged at the end is
a combination of benefits that come through as a result of investments
in things like technology or workforce reform which are already
under way. Going through the process I have already indicated,
what was being planned for was in line with the original case
for spending the money and sometimes during the course of the
review we found that what was being put into the submissions did
not quite match the original case and that caused a number of
challenges to departments as to why that was the case. However,
it also includes a whole bunch of new things which have arisen
as a result of the review.
Q29 Chairman: How much of your total
figure is accounted for by efficiency savings already programmed
for?
Sir Peter Gershon: I never did
that analysis. I was concerned with the deliverability of the
programme because historically it has been very difficult to assess
in most cases. I was concerned with measurability and deliverability.
Some of it was a result of things that were already intended as
a result of money being spent and some of it was a result of things
that arose directly as a result of actions that were triggered
by the efficiency review.
Q30 Chairman: If you talk to health service
providers on the ground as we do all the time, they have to deliver
this 2% addition to saving every year.
Sir Peter Gershon: Some of the
things like the deal that the Department did with the pharmaceutical
industry which by 2007-08 will lead to a reduction of a billion
pounds a year in the pharmaceutical bill for this country, that
is a billion pounds that would not have been there if it were
not for the result of the efficiency review. If you look at what
has been announced about the rationalisation of NDPBs in health
which is going to generate half a billion pounds a year by 2007-08,
that is not in your 2% savings.
Q31 Chairman: I am not suggesting for
a second that it is all contained in there. I am trying to get
a sense of what is genuinely new here because otherwise you are
going to be hit with the charge that this is smoke and mirror
stuff. If a lot of this is already embedded in the system for
planned efficiency savings and when you say as you did just now
that you had not done the calculation to work out how much of
this is genuinely extra stuff, people would be surprised by that,
would they not?
Sir Peter Gershon: My aim was
to stick to the remit I was given. My remit was very clear and
I operated within that remit.
Q32 Mr Hopkins: I must say that I remain
very sceptical about the whole exercise and I wonder if you could
reassure me on a number of aspects of your report and what has
followed. My impression was that you were invited to do a job
by Downing Street and that it is to an extent public relations.
The Government wanted to give the appearance at least of some
very substantial savings by getting rid of bureaucrats, so they
pick from the private sector a well known, good, swashbuckling
entrepreneur, someone with a first in mathematics from Cambridge
who could deal with big numbers—because they wanted big
numbers—and someone who could do a report which would be
unimpeachable and pass the Daily Mail test. Would that
be unfair?
Sir Peter Gershon: At the time
they asked me I was not in the private sector; I had just spent
three and a quarter years in the public sector. I do not think
I would describe myself as a swashbuckling entrepreneur. I am
not a politician; my experience is in general management. I regarded
this as a management exercise. I was therefore as concerned about
identifying the potential for savings as I was concerned about
deliverability. I was in this building with my colleagues on the
Treasury Management Board in front of the Treasury Select Committee
when the Treasury was asked about its own Service Delivery Agreement
in SR 2002 to find efficiency savings and was unable to answer
the question, which is a matter of record. What I learned was
that just setting targets is no good; you have to have the follow
through. You have to have a framework in place that makes those
targets a reality and helps drive people to deliver. Then you
also have to have in place a mechanism that is measuring what
they deliver to see that those things are coming good and they
are actually delivering what they said they were going to deliver.
I do not know whether you would call that smoke and mirrors or
not; it is not to me.
Q33 Mr Hopkins: That is one area of scepticism.
The second is whether there is in fact enormous scope for cutting
jobs in the broad public services public sector. I have seen the
public sector suffer decades of squeeze from successive governments.
I have seen eyes water because of financial pressures and pressures
of work. Would it be unfair to say that the public sector has
already been sweated quite badly and that in general terms Britain
spends less on its public services—or has done until very
recently—than other comparable countries on the continent
of Europe? To give you an example, I know about sixth form colleges.
I am the governor of a sixth form college and I have seen the
college squeezed year after year with serious financial pressures
and under-funding yet doing a fantastic job within their tight
financial constraints. There is no scope for cutting spending
in that area. There are, of course, other examples.
Sir Peter Gershon: If you just
do a sort of blanket efficiency cut, people salami slice, they
cut training and I do not think that is a very good way of doing
it. That is why we developed this concept about work streams and
to understand what was going on in work streams and how that might
drive efficiency improvements. The head count reductions are a
consequence of that work. If you take further education, if you
got more aggregation of demand between colleges or whatever, could
they get better deals on procurement because they would get economies
of scale? My intention is about trying to find savings by looking
sometimes at things in a more holistic way than they have been
done before and using that to drive an efficiency programme. Do
I think there are significant improvements for getting efficiency
savings in public procurement? Absolutely, I do.
Q34 Mr Hopkins: That suggests more centralisation.
Sir Peter Gershon: No, this is
neither about centralisation or de-centralisation.
Q35 Mr Hopkins: I am not against centralisation.
Sir Peter Gershon: For the record,
I did not advocate further centralisation. I did advocate more
co-ordination, more willingness of autonomous bodies to get together
either through regional consortia or participating through framework
agreements where there are potential benefits of economies of
scale. I am not about compelling people to enter into these arrangements;
I am about that if these arrangements are available and, for example,
you can buy this bottle of water through a national arrangement
at half the price you can if you buy it yourself, then what I
would argue is that you should explain to the public, to your
auditors, why did you go and do this yourself instead of taking
advantage of a national framework agreement where you could have
got it for half the price? People should explain why they did
that.
Q36 Mr Hopkins: Could you not then have
said to government that local financial management for schools
is not a sensible idea and you would eventually take all their
ordering back to local authorities?
Sir Peter Gershon: People have
to decide what they need. There are certain things, for example,
that schools buy which are reasonably common. They buy electricity;
they buy water; they buy Microsoft software for their PCs; they
buy electronic whiteboards. As we have seen with outfits like
Microsoft, unless the public sector uses its collective clout
no individual small autonomous body can ever have leverage with
the likes of Microsoft. If you do aggregate demand for electricity,
you go into the market, you run an electronic auction and you
have a big amount of potential demand, you will do better than
if you are a single little body going out with a minuscule amount
of demand. On the other hand, for things like local repairs, it
is absolutely right that people should be able to make local decisions
and use their money because those are potentially things where
there is no benefit by working in an aggregated way. I did identify
something where what I called a more strategic approach to the
management of key supply markets would benefit the public sector.
That does not mean that there are centralised buying arrangements
but it does mean that the autonomous bodies who are doing the
buying are more informed, have more knowledge and have at least
as much knowledge as the suppliers do. I fundamentally believe
that if you have an asymmetry of information between a buyer and
a supplier and the supplier has more information than the buyer
does, it is unlikely that the buyer is going to be able to get
an optimum deal. That is not about centralisation; it is trying
to get collective knowledge and in the light of that collective
knowledge to be more informed and to do things that help get better
value for money. It is not about someone in Whitehall saying,
"We have done this deal and everyone has to buy pencils from
this particular supplier".
Q37 Mr Hopkins: As a Member of Parliament
I come across difficulties in my advice surgeries with immigration,
with benefits, with tax credits and a whole range of public services
where it is very clear that they are under very serious pressure.
You may say these are front line staff rather than back office
staff—I do not think the distinction is as clear as you
would make it—but nevertheless there is a problem there.
My impression is that they are understaffed not overstaffed. Taking
IND with which I deal on a regular basis, the delays in dealing
with immigration cases are dreadful. It has got slightly better
but it is clear to me that they are understaffed and not overstaffed.
Is that not the case?
Sir Peter Gershon: My task was
to identify areas where resources could be freed up and be re-allocated
to the front line. It is a political decision where you then allocate
those resources that have potentially become available. I cannot
comment on your question, Mr Hopkins, because whether you put
more resources into one part of the public sector front line as
opposed to another is a political decision and was not within
the remit of my review. My remit was to identify what could be
re-allocated; it is for the politicians to make that re-allocation
decision.
Q38 Mr Hopkins: I would say that suggesting
that there is scope for massive job cuts in the public sector
is pretty political and certainly the Chancellor has used that
in his pre-budget statement. However, setting that aside, are
there not other areas where you could make sensible proposals
which would actually save substantial sums of money for the Government
but would be seen to be very political, for example re-nationalising
the railways? I do not want you to respond to that immediately
but the fact is that the subsidies to the railways have tripled
since privatisation and under the cash limit basis of operations
in BR's day it was much more efficient.
Sir Peter Gershon: Even if that
had been in my remit hypothetically it would not have passed the
test because it would have required legislation to get it through.
Mr Hopkins: Fair point. I could pursue
this but I have probably had more than my fair share of time.
Q39 Mr Liddell-Grainger: Following on
from that, you say it is a decision for politicians as to whether
or not redundancies should happen.
Sir Peter Gershon: No. I said
that my task was to identify where it was possible to free up
resources. It was for the politicians to determine how you then
redistribute the cake.
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