Examination of Witnesses (Questions 1
- 19)
MONDAY 17 OCTOBER 2005
MR NEIL
KINGHAN, MR
RICHARD MCCARTHY,
MR ROB
SMITH AND
MR PETER
UNWIN
Q1 Chair: Welcome to this meeting
of the ODPM Select Committee. As I understand it, you have left
one of your colleagues behind on the basis that we had not put
in any questions beforehand on his subject area. It may be that
Members may have questions on his subject areas that they would
have wished to bring up, in which case they will send it in writing,
I think; that seems to me a sensible way forward. I would like
to start the questioning, if I may, and turn to the issue of efficiency
savings. The first question I would like to ask relates to the
scale of the efficiency savings which the Department is committed
to over the next few years and contrast that with the relatively
small savings which appear to have been made thus far and ask
you if you could clarify the efficiency savings which have already
been made?
Mr Unwin: Our efficiency programme
is, in one sense, in two parts, in that we have the departmental
efficiency programme, where we have a target of £620 million
efficiency savings by 2007-08. Then, along with other departments,
we are also responsible for the local government efficiency programme
from which the target is £6.45 billion by 2007-08. I will
say a word on the Department's efficiency programmes and then,
if you want to go on to the local government side, Neil Kinghan,
my colleague, can talk about that. As I say, our target is £620
million by 2007-08 and our profile for the target, from the start,
has always been that we would have very few savings in 2004-05,
the year that has now finished. In 2005-06, we should have £279
million efficiency savings by the end of the year and across the
board we are on target for reaching that. We have had few recorded
to date. If I take an example, the social housing new supply,
where we have £160 million due over the three years, £130
million of that is due to be achieved this year and we are confident
it will be achieved but has not yet been recorded because these
things are recorded in arrears. I think the short answer to your
question is that by the end of 2005-06 we expect to be on track
to deliver against the profile that was set and the small savings
that we have actually banked to date is in line with what we had
always expected.
Q2 Chair: What were the small savings
that were made in 2004-05?
Mr Unwin: They were savings, for
example, on the administration side, the merger of the Internal
Audit Services with Cabinet Office, which was a £50,000 administration
saving. On Firelink, Phase 1, that work is now complete and we
have got £1.5 million on that so far, against a target of
£8 million by the end of 2005-06, again next March. I have
not got a full list.
Q3 Chair: The £1.5 million is
not within the 2004-05 year, is it?
Mr Unwin: I have got it down as
"achieved to date" but, I must admit, I have not got
in my paper here whether it was achieved in 2004-05 or 2005-06.
In fact, I think the answer is that very little was achieved in
2004-05 but that was always our expectation. I think the figure,
from memory, is possibly £1 million in total but, as I say,
that was what we had anticipated.
Q4 Chair: I think it would be very
helpful, given that we have now asked this question twice, once
in writing and now subsequently, to have the details of precisely
what savings were made in 2004-05, accepting that it was always
intended that those savings would be relatively slight. We have
not succeeded in pointing out exactly what it was and obviously
it adds to a certain lack of confidence in the way in which the
efficiency savings will be achieved in the year thereafter, so
if we could have that in writing thereafter. We are somewhat concerned
also about whether there may have been some double counting of
the efficiency savings which have been set out for the whole period,
not necessarily in the year 2004-05. In particular, referring
to the departmental report, where there are separate targets for
the efficiency savings in ODPM Central and in the social housing,
capital works, management and maintenance (it is on page 45 of
the report), one is for £620 million and the other is for
£835 million efficiency savings. Are those two commitments
completely separate? Is there any overlap between them, is there
any double counting?
Mr Unwin: There is overlap between
those two, and there was always intended to be. The £620
million is the ODPM programme, the local government one, which
would include, on social housing, for example, the new social
housing supply through the Housing Corporation, which is £160
million. The social housing Registered Social Landlord spend on
capital works, etc., is £195 million. I think those two in
total come to £355 million. They would be in the £620
million and they would also be in the £835 million figure.
The rest of that £835 million would be from local authorities
and would be included in the £6.45 billion for the local
government efficiency programme. In a sense, the £620 million
and the £6.45 billion are separate but the social housing
figure goes across the two and has some from Registered Social
Landlords on housing associations, which is part of the ODPM total,
and some from local government, which is part of the local government
total.
Q5 Chair: I think, in future, it
would be helpful if there were not any double counting, if it
were made absolutely clear, so that it was easier for Members
to be able to see where the efficiency savings were being intended
and whether, subsequently, they had been delivered?
Mr Unwin: Apologies if that is
misleading and I can see we could have made that clearer. The
two numbers were given to us as formal numbers which came out
of the Spending Review and are both targets we have to report
to, so we need to report to both, but I accept that we could make
clearer in the presentation that there is, and is intended to
be, overlap between them.
Q6 Chair: To quantify what the overlap
is?
Mr Unwin: Yes.
Q7 Chair: The next question I wanted
to ask was about the phrase of having a "contingency fund"
within the savings plan. Can you explain what you mean by a "contingency
fund"?
Mr Unwin: Our target is £620
million and we had that £620 million broken down to a series
of programmes, which we have given you. Obviously, as we develop
those programmes, in some cases we hope we will exceed those targets.
In other cases we may fall short, and it is sensible to build
in a contingency to make sure that we meet, and hopefully exceed,
the £620 million overall. That is what we have been doing
and the main area which we have brought in as a contingency is
on the homelessness programme, which was not included in the original
estimates we used as part of the £620 million. We are planning
to make efficiency savings there of about £66 million. Our
running total now, if we make all the savings that we are trying
to make, will be about £681 million, that is about £61
million headroom over our target of £620 million. Primarily,
that is because of the £66 million additional savings that
we are hoping to make on homelessness.
Q8 Chair: Your intention is to make,
and you believe you could make, £681 million efficiency savings
but your target is a smaller figure?
Mr Unwin: That is right. The programmes
we have got in place at the moment aim for £681 million and
clearly there might be some underachievement against that. That
is why we have got in a contingency to ensure that if we do underachieve
against that £681 million we will still be above our target
of £620 million.
Q9 Chair: Can you explain what would
happen, apart from failing to reach your target, if in any of
the areas where you have set out targets for efficiency savings
you do not deliver? Are there penalties on the programmes which
fail to make those efficiency savings?
Mr Unwin: The main penalty in
effect is loss of output, because the outputs that we are aiming
for and the targets that we have got in the Spending Review, for
example on new units of social housing, assume those efficiency
savings. Spending the amount of money we have got, if we do not
make those efficiency savings overall then we will find it difficult
to meet the targets that we have been set and the targets that
we are aiming for. The main penalty is therefore lack of achievement
of programme outputs.
Q10 Chair: As the year progresses,
if it is becoming clear that a particular programme, which has
an extremely high priority, is not going to achieve all its efficiency
savings, are there any mechanisms for a decision to be taken to
transfer resources within the Department so that the reduction
in outputs can occur somewhere else which is of a lower priority?
Mr Unwin: Yes, and that is the
case on a broader front than just with efficiency savings. We
have our three-year programme from the Spending Review and our
series of outputs and priorities that we need to achieve and we
are continually monitoring against those. Obviously, particularly
as you get to the later part of the three-year period, there are
uncertainties there and we have the ability to adjust between
programmes, if necessary, by coming back through Supplementary
Estimates to the House, we can make adjustments between programmes
to ensure that our priority outputs are met. If one area is overachieving
and the other area is underachieving, we can switch between those
two to make sure we hit our outputs.
Q11 John Cummings: In your Business
Plan for 2005-06, you indicate that, and I quote: "In the
last business planning round, we budgeted to draw down a significant
amount of our entitlement to end-year flexibility during 2004-05.
With only a small end-year flexibility remaining we need to bring
spending back down to our baseline." Can you tell the Committee
what you mean by "end-year flexibility" and also why
did you draw down a significant amount in 2004-05 and what proportion
of this year's money did you spend?
Mr Unwin: End-year flexibility
is the term that is used to describe the permission we have from
Treasury to carry forward an underspend from one year and use
it for expenditure in a following year. Clearly, we aim to spend
as closely as we can to our departmental expenditure limit, but
we must not overspend it so it is an upper limit. Our aim is to
underspend by less than 5%, and we have achieved that in the past
two years, unlike in earlier years when we were having much bigger
underspends per year. Because of those big underspends, we had
built up quite a stock of end-year flexibility and on the administration
side, which was what the Business Plan was covering—we are
talking now about our staff running costs and the costs of running
the department rather than our programmes—we had quite a
big pool of end-year flexibility. Against that, we face a lower
baseline in future years, figures for administration costs for
running the Department because, as part of the efficiency review,
the Government, through efficiency, is trying to squeeze down
on the administration costs in order to free up money for programme
expenditure. In order to manage our way down from this higher
administration spend to a lower administration spend by the end
of the Spending Review period, we are using our end-year flexibility
in a gradual way through the Spending Review to achieve that.
We are spending quite a bit of it up front because we have some
big efficiency programmes on the administration side, covering
our IT systems, our human resource systems, our finance and our
accommodation. We are introducing programmes which will save us
considerable money in running costs in future years but which
require up-front investment now to do that. So we are using that
end-year flexibility for those sorts of projects in order to bring
savings in later years.
Q12 John Cummings: What sums of money
are we talking about, in relation to a significant amount?
Mr Unwin: For example, this year
we have what we call an Efficiency and Capacity Fund, which over
the period of the Spending Review is about £15 million. We
will be spending about £15 million over the next three years,
quite a bit of it in this financial year, on, for example, as
I say, accommodation, where we are trying to reduce the number
of buildings that we use. But that costs money to improve the
space efficiency in the buildings.
Q13 John Cummings: What was the significant
amount in the year 2004-05?
Mr Unwin: I would imagine it was
at the order of £10-£20 million, but I can let you have
the precise number, if it is different from that.
Q14 John Cummings: What proportion
of this year's money did you spend?
Mr Unwin: This year, as I say,
we will have on our efficiency programmes probably between £10
million and £15 million that we will spend. If I understand
your question, we did not spend any of this year's money last
year, if that was what you were asking. We have not borrowed from
future years. End Year Flexibility is spending money that, in
effect, we have in the bank from previous years' underspends.
Q15 John Cummings: What plans are
you making for year one of the next Spending Round now that the
Comprehensive Spending Review has been deferred?
Mr Unwin: Year one of the next
Spending Round will now be 2008-09 and between now and next summer
we will be carrying out a review of all our programmes. I should
say that, since the election, the Deputy Prime Minister and our
new ministers have been taking stock of all our policies, setting
them against our Sustainable Communities Plan, the five-year plans
that we published previously, and our strategic objectives. They
want to look at all those programmes to ensure that they are properly
aligned with the goals that we have set. When we have carried
out that exercise, by next summer, then we will be in a position
to decide what we should be talking to Treasury about for our
expenditure needs in 2008-09, but at this stage we will not have
formed a view on that.
Q16 John Cummings: Is the deferring
of the Comprehensive Spending Review easily managed by the Department?
Mr Unwin: Because of this stock-take
that ministers have been having, looking at the Department's priorities
and taking a fundamental look at all our programmes, the fact
that the Treasury had decided, and the Government has decided,
to do that as a whole over Government programmes and to have a
Comprehensive Spending Review which looks at not just its actual
programmes but looks at all programmes across the board and decides
how we are doing in terms of meeting our priorities, that suited
us rather well. We had undertaken that exercise ourselves and
now we are well placed to carry that forward into the Comprehensive
Spending Review. We will have a good idea of which of our programmes
we should be pushing to increase and which maybe have reached
the stage where we should be sun-setting them and winding them
down.
Q17 John Cummings: You also provided
the Committee with details setting out and linking departmental
priorities in relation to the Spending Review 2004 targets and
programmed expenditure across a number of your strategic programmes.
It is still not clear what specific activities and resources underpin
these programmes. How do the Committee know that you are allocating
sufficient resources to activities which help you to achieve your
priorities?
Mr Unwin: I think we discussed
this last year, I recall, how we can best provide this information
for you. It is a very complicated issue to try to present this
information in a way that we can all easily understand.
Q18 John Cummings: Are you finding
it difficult to provide information with the degree of clarity
that will be understood by people?
Mr Unwin: We discussed with the
Clerk, I think, after our session with you last year, how we might
best do that and that is why we have reframed the Annual Report.
This year's Annual Report follows a different structure, with
the strategic priorities, the PSAs and the programmes all set
out in Annex A of the Report in a way we thought you would find
more helpful. We hope you have found that more helpful; if you
have not then please say and we are happy to look at that again
and try to improve it further. Beyond that, in our two five-year
plans which we have published since we were here last year we
have tried to set out in there as clearly as possible how our
programmes contribute to our priorities.
Q19 Mr Olner: I am in a heightened
state of confusion now, Mr Unwin. I thought your early answers
to the Chairman were saying, sort of, "Well, we did what
we did last year but the next few years are going to be catch-up
time if we're going to make all the savings that have been forecast
and committed to by the Department." In the answers to my
colleague, Mr Cummings, it seemed to me an awful lot of smoke
and mirrors and I am wondering exactly what the situation is.
Is the Department committed to ensuring that very important public
services get funded in the same way as they have been in the past?
Mr Unwin: Absolutely; certainly
we are. On the efficiency savings, I am sorry if I was not clear
enough. We will let you have a table showing the annual profile
of what we anticipate to save each year. As I say, because we
had never anticipated making significant savings in 2004-05, the
fact that we had only made small savings for 2004-05, I would
say, is not slippage against the programme.
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