Select Committee on Treasury Minutes of Evidence


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.


 
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