Examination of Witnesses (Questions 60-79)
RT HON
PAUL BOATENG
MP, MR GUS
O'DONNELL CB, MS
MARY KEEGAN
AND MS
SARAH MULLEN
9 FEBRUARY 2005
Q60 Norman Lamb: But is this department
actually doing a back office function?
Mr Boateng: Let me give you an
example. We are working with the ODPM and the Cabinet Office on
developing a shared human resources function.
Mr O'Donnell: I have been involved
in this quite a lot. Basically, we are doing this because we think
it is a good idea for us but also we want to do it as a pilot
for relatively small departments in Whitehall to get together
and provide shared services. At the start of this project the
Cabinet Office, ODPM and the Treasury got together, we looked
at our own HR functions and decided what it is we need to change
so that we can have a common aspect to those.
Q61 Norman Lamb: Do you mean one HR department
covering several departments?
Mr O'Donnell: It is not quite
that. What it will mean is, basically, there will be some HR policies
that are specific to departments, so you need within the Treasury,
say, some, what we call, HR business partners who will be there
to handle specific cases, if you have a disciplinary case within
a department, for example. If there is a core aspect of HR policy,
say, to do with appraisal, pay, all those sorts of things, basically
that will be an information service which we hope will be available
commonly to all three departments, so each department will have
a residual core of people in HR but there will be one common service.
Q62 Norman Lamb: So you actually establish
a separate back office HR function which provides services to
each of those departments?
Mr O'Donnell: That back office
function may well not be located in London.
Q63 Norman Lamb: It could be outsourced?
Mr O'Donnell: Indeed, in due course,
once you have sorted out this commonality of the HR functions,
then you can move on to considering whether that is appropriate
value for money or not.
Q64 Norman Lamb: In the pilot you are
talking about, where is that likely to be located?
Mr O'Donnell: I am not sure that
we have announced that yet, I am afraid.
Mr Boateng: Do we take that as
a bid, Mr Lamb?
Norman Lamb: It is going to be outside
Dover; in London and the South East.
Q65 Mr Beard: Have you not just reinvented
the Civil Service Department?
Mr O'Donnell: No. Remember, this
is just looking at this as a cost, there are three relatively
small departments and the idea being that you can have common
services for those three; but it will be different when you are
dealing with, say, MoD, which has military and different aspects.
It is not one department for the whole set of Civil Service. That
struck us as one of those massive projects which was very unlikely
to succeed. We are starting with a pilot, relatively small, which
actually is working already and by the work we have done so far
we have been able to cut the size of the Treasury HR function
already quite substantially.
Ms Keegan: Can I add to that from
the work I am doing on financial management? John Oughton, who
is the Chief Executive of the Office of Government Commerce, and
I, with Ian Watmore, who is the new Head of e-Government, and
Alice Perkins from the Cabinet Office looking after HR are working
together and with departments not only on improving effectiveness
but also efficiency of the corporate services area and looking
specifically at the shared services arena. Gus O'Donnell has given
an example on HR. If I can look at examples on finance, we are
looking at families of entities within departmental groups and
encouraging the larger departmental groups to look at internal
shared services. At the moment we are faced with a condition where
some departmental groups use different software in certain agencies
for their accounting systems and we are looking at trying to bring
a commonality of software and shared services which would have
two effects. One is a saving of cost, because you would not have
a finance function in every individual agency within a departmental
group. The other is greater effectiveness and efficiency because
the combined numbers that provide the departmental measurements
of resource use will effectively be produced more quickly. So
we are looking at the shared services arena not just between departments,
as was suggested, but also in the bigger groupings inside departments
to get better effectiveness but also contribute to the efficiency
savings which Sir Peter Gershon identified in the corporate services
area when he did his report.
Q66 Norman Lamb: Is it right that you
have identified the possibility of a shared finance function between
Treasury, OGC and the Debt Management Office?
Ms Keegan: Yes, indeed. We are
well progressed on that and we hope to be up and running on that
in the autumn of this year.
Q67 Norman Lamb: Could it be extended
to cover the Revenue Department, is that something which is being
considered?
Ms Keegan: The Revenue Departments
are rather enormous, compared with the size of the Treasury operations.
Q68 Norman Lamb: In a way, it is a very
limited proposal, is it not?
Ms Keegan: It is. On the other
hand, it will drive efficiency and those savings are some of the
numbers identified in our own Efficiency Technical Note within
the Treasury group. We are making sure that in our software choices
for the Treasury group we look at other compatible departments
and make sure we do not make software choices which would stop
us doing shared services elsewhere in due course. Basically, there
are only two sorts of software available for the finance market.
We are opening possibilities whilst taking steps that we can do
in a measured and careful manner to make sure we keep the processes
under control.
Mr O'Donnell: One obvious point
relating to your earlier question about Revenue and Customs is
clearly the fact of bringing them together. There is now a single
Finance Director who is trying to do all of that, for those two
very large departments.
Q69 Norman Lamb: Just returning to the
point about outsourcing, and you said that is an objective longer
term, you sort out your back office function and then you look
to see whether it is possible? I am not trying to put words into
your mouth.
Mr O'Donnell: Value for money.
Q70 Norman Lamb: Do you see considerable
scope for outsourcing, once you have got those functions properly
sorted out? Is that a plan?
Ms Keegan: My own view would be
to take that carefully and cautiously. I think we ought to take
all the savings we can ourselves and not outsource before we have
driven the efficiencies in ourselves and I think there are various
ways of doing outsourcing. Departments with very different activities,
not accounting departments, if I can put it like that, could outsource
potentially within Government but to a specialist financial function
for transaction work. I think we need to explore all the options
very carefully and that is exactly what this forum of the four
of us is doing at the moment.
Q71 Norman Lamb: Recognising the size
and importance of the overall efficiency programme, we recommended
in our report on the PBR that consolidated progress reports should
be produced in the forthcoming Budget and Pre-Budget Reports.
What conclusions have you reached on that, Minister?
Mr Boateng: The Chancellor has
said I think to the Committee, and it remains the case, that he
will report on progress at Budget time. We will report on efficiency
progress across Government as part of our reporting against PSA
9 and that will mean providing information in the HM Treasury
departmental report and, of course, doing what we do now as a
matter of course, which is providing regular updates on our PSA
performance website. Obviously, in our next departmental report
we will have to report against our own efficiency target, as will
other departments.
Q72 Norman Lamb: Will it become a regular
feature, do you think, of Budgets and PBRs that monitoring and
reporting on efficiency savings will feature? Mr O'Donnell was
nodding.
Mr Boateng: That is fine, but
Mr O'Donnell is a permanent official, I am Chief Secretary and
I am not about to commit the Chancellor, in any respect, to the
content of the Budget after next.
Q73 Norman Lamb: It is not a one-off
thing, is it?
Mr Boateng: He said to you that
he will report on progress and efficiency at the Budget. This
is an ongoing process. I would be surprised if you did not receive
future reports on efficiency, if I can put it in that way.
Q74 Mr Plaskitt: How many incidences
of slippage have been reported to you by departments against their
efficiency targets?
Mr Boateng: We have not started
yet, of course, in terms of the actual counting of the target.
What we are witnessing actually is already considerable progress.
I gave you an example in terms of our own target in relation to
posts. We are a third of the way there already and we have not
yet begun the formal timing of the target.
Ms Mullen: The financial savings
of efficiency targets are for the SR04 period, so they will start
April 1 this year, so departments are in a planning phase at the
moment, working very closely with the OGC efficiency team to make
sure that they are ready to implement.
Mr Boateng: We can give you some
early examples of progress. If you look at local government, I
think the expectation there is that we will be releasing some
£30 million of resources this year through better use of
e-transactions, and the universal application of e-procurement
across local government is expected to deliver £1 billion
of savings by the end of 2005, so people have not been standing
still. The Department of Health has negotiated savings on medicines
which will save the NHS £1 billion per year from 2005-06.
There has been considerable saving already through better procurement
deals and the use of e-auctions, which I believe you have either
taken some evidence about or certainly have referred to in previous
hearings, and that has delivered £2 billion.
Q75 Mr Plaskitt: That is fine. It is
likely, however, in the future that there will be some reports
of slippage against these objectives. What will happen if you
receive a report of slippage?
Mr O'Donnell: We will be working
then very much with OGC. OGC and our spending teams and our efficiency
teams will work with the departments to help them get back on
track.
Mr Boateng: I will tell you one
thing that will certainly happen. It will be the subject of adverse
comment at PSX, which the Chancellor chairs, there will certainly
be adverse comment there. The reality too is that, in terms of
Chief Secretary bilaterals with Secretaries of State, if there
is slippage we will want to discuss why and what we can do to
help.
Q76 Mr Plaskitt: Will there be any consequences
beyond adverse comment? Do you own any sanctions?
Mr Boateng: I do not need to tell
members of this Committee that Ministers know very well what they
are expected to deliver. Permanent Secretaries know very well
what their Ministers expect them to deliver and everyone is clear
about the adverse reaction if one does not.
Mr O'Donnell: Permanent Secretaries'
objectives are about delivering, making sure the departments deliver
their PSA and efficiency targets.
Q77 Mr Plaskitt: I am just trying to
get a flavour of what will happen when there is a problem with
slippage?
Mr Boateng: We will get alongside
and help address it.
Ms Mullen: Ultimately, departments
have an incentive to deliver these efficiencies because it means
they have more resources for their front-line services, so there
is a carrot and a stick in here as well.
Chairman: It is not clear about the stick.
Q78 Mr Plaskitt: Does it go to the other
extreme, that if there is slippage and there is not much progress
on getting it reported you use the opposite and say "We might
have to withdraw resources from your department. If you can't
spend it efficiently, you can't have the money."?
Mr Boateng: I give you my experience,
for what it is worth. I have done two Spending Reviews now and
my experience in the interim between the two Reviews is that Secretaries
of State and officials have very much in mind the sorts of judgments
that will be made of them and their departments in the course
of the negotiating process of the Spending Round to come. If you
are not able to satisfy your colleagues either within the Civil
Service or as Ministers that you can spend your money wisely and
effectively then you are not likely to make a very convincing
case for more resources next time round. That is the reality.
Mr O'Donnell: Exactly the same
techniques that were used with the Prime Minister's Delivery Unit
are being used by the Efficiency Unit, so they will be doing regular
reports to the Chancellor and Prime Minister, John Oughton will
be doing that, so that process will be going forward as well when
there is scrutiny at that level with Secretaries of State.
Mr Boateng: It concentrates the
mind wonderfully knowing that your failure is unlikely to be made
clear.
Q79 Mr Cousins: Some of the Treasury's
own objectives are drawn very, very broadly, drawn so broadly,
in fact, that they do not actually have targets associated with
them. Is that something that you are going to put right? I am
thinking here of Objective V, which refers to fair dealing in
financial services, and Objective X, which refers to improving
the environment. There are no targets for that; the Treasury objectives
but without targets?
Mr Boateng: I will make a general
point about the nature of the objectives and then perhaps colleagues
would like to come in on some of the specifics, and I would like
to share with you a specific about the environment. The Treasury
objectives are designed to cover the whole remit of the Treasury's
activities. If they were very precise and narrow, and one understands
the attraction of that, Mr Cousins, the downside would be that
they would not reflect the full remit of what the Treasury does
or would be so numerous that, in fact, they would not be particularly
effective management and performance tools. One of the things
we have been trying to do is get smarter about our targets and
to have fewer of them so that they are that much more useful.
As a policy-making department, as a department which contributes
towards policy-making, we have a choice of having broad targets
based on outcomes or narrow targets based on process, and we prefer
not to hide behind the process. We accept that we do not control
all the external factors which influence outcomes but we have
to take into account, as you rightly said, Mr Cousins, the environment
in terms of, for instance, the input that we make into something
like the Energy Policy Review. I was acutely aware, as Financial
Secretary making an input into that Review, about three and a
bit years ago now, that we needed to have regard to environmental
considerations. We had other considerations too and we came at
it from the wider perspective that the Treasury has. I would say,
in my experience, that Defra, for instance, would come in and
make their contributions to that Energy Review with a much greater
specificity around the environment. I would expect that, but it
would be quite wrong for me simply to be concerned, as a Treasury
Minister, with those issues of spending and the economics without
actually having, as I was required to do, that wider remit around
the environment. That was my interpretation, going about my job.
| 
