Examination of Witnesses (Questions 20
- 39)
MONDAY 17 OCTOBER 2005
MR NEIL
KINGHAN, MR
RICHARD MCCARTHY,
MR ROB
SMITH AND
MR PETER
UNWIN
Q20 Mr Olner: I come from industry
and efficiency savings are usually acknowledged in one word and
one word only and that is redundancy. How many staff has the Department
lost over the time that these efficiency savings have been put
forward?
Mr Unwin: We have today, as it
happens, put out to staff an offer for voluntary severance, under
which we anticipate being able to offer up to about 80 people
voluntary severance. That offer has gone out today and we would
aim to have decided by the end of the year which of the staff
who apply for it will be able take it up. That should reduce our
manpower by about 80. In addition, of course, we have a turnover
of about 5% a year and, by not replacing people, we can use that
as well as voluntary severance as a way of losing people.
Q21 Mr Olner: Eighty out of how many?
Mr Unwin: Eighty out of about
2,300.
Q22 Mr Olner: That is just centrally
and nothing in the regions?
Mr Unwin: Yes. Most of those will
be in headquarters in areas which are restructuring, which are
mainly around corporate services, some in the Fire Directorate.
Those are the primary areas, but the offer will be open to all
staff from the Department to apply for.
Q23 Mr Olner: Moving on to efficiency
savings in the NDPBs, the non-departmental public bodies, a lot
of the efficiency savings that you outline were to be made in
those sorts of areas, for example, the RDAs, the Housing Corporation
and Registered Social Landlords. Are they going to make the savings
which you have envisaged they are going to make?
Mr Unwin: The £620 million
is primarily programme expenditure, which is, for example, money
spent by housing associations, and other bodies. Within the total,
there are also running costs which, in absolute terms, obviously
are much lower than our programme costs. We need to save about
£25 million in total and a lot of that will come through
head-count reductions in ODPM headquarters, in the Government
Offices and in our agencies and non-departmental public bodies.
Q24 Mr Olner: That is all fine but
most of us, I think, are very concerned sometimes now about the
length of time that things seem to get stuck at the RDAs before
anything actually happens. Are you saying to us that you are seeking
efficiency savings in these organisations by cutting staff, which
will mean a longer wait for areas that are going to benefit from
RDA monies?
Mr Unwin: No. The head-count reductions
I was talking about were in our agencies and non-departmental
public bodies and that does not include the Regional Development
Agencies. The Regional Development Agencies do have an efficiency
target. It is about £130 million, but they have to do that
by producing the same outputs for less money, so they have an
efficiency programme which will deliver the same outputs in terms
of service to the regions as they have always been required to
give.
Q25 Mr Olner: Finally on this issue,
what steps are you prepared to take if those organisations fail
to produce the savings that you require of them? Are you going
to let them go to the wall, or what?
Mr Unwin: If you go back to the
non-departmental public bodies you were talking about, our head-count
reduction within our headquarters and agencies and non-departmental
bodies, our target is about 400 and at the moment we have proposals
now from the non-departmental bodies and from headquarters which
will deliver about 700. We may not be able to achieve that 700
but certainly I believe we will achieve more than the 400 target
we have got, so I would hope we would not have to get into those
sorts of measures with them. At the moment we are working with
them on their efficiency programmes, looking at the reductions
they can make whilst still maintaining outputs. Those are the
numbers that are coming out and they are suggesting we will be
secure in making our overall head-count target reduction.
Q26 Mr Olner: At the end of the day,
there is going to be no reduction in the service that you are
able to offer to our constituents?
Mr Unwin: Certainly not through
any of our bodies, no. The whole point of efficiency savings is
to reduce costs without reducing outputs and if they reduce outputs
then that does not count as efficiency savings.
Chair: I think we would agree with you
on the definition of an efficiency saving and the difference between
it and a cut.
Q27 Mr Lancaster: Mr Unwin, if I
can take you from the detail back to the general, having listened
to the answers to many of the questions from my colleagues, I
cannot help but feel that when you take together the historical
nature of the data, the lack of transparency, the potential level
of costing, the extremely large contingency funds, the end-of-year
flexibility, I think was your term, or indeed perhaps, potentially,
the lack of clarity, I wonder really whether or not your organisation
lacks the level of detailed financial control it requires, or
indeed if perhaps, as a cynic I would say, you are preparing the
ground to fail for your efficiency targets. Is it a case of, Mr
Olner asked, if you fail to meet them, and I have a sense it is
when you fail to meet them, so can you reassure me that is not
the case?
Mr Unwin: With respect, the list
of things you gave I would say indicate that many of those are
very sound financial management. To have a contingency is surely
sensible planning. I would have thought you might want to criticise
us if I came along and said, "We've got £620 million
of savings," and you said to me, "Well, what happens
if for some reason you don't make these savings that are anticipated
on the Fire Service?" and I said, "I don't know."
Then you would rightly say, "You haven't really got a grip
of that and how do you know you're going to make it?" If
on the other hand we say, we recognise that efficiency programmes
over three years with the best-laid plans may not produce everything
we intend so we have set up an additional contingency in order
to ensure that we meet our target then I would say that is sound
financial management. Similarly, end-year flexibility is not an
ODPM creation, this is a cross-government arrangements for Departments
to be able to carry forward underspends from the past and helps
us to carry out good financial management. For example, this year
we had a very big land purchase deal between English Partnerships
and NHS Estates, which will lead to a very large improvement in
our output of social and shared-ownership housing. That deal we
had planned to finish in March but it was not quite ready to finish
then. Under the old system, before end-year flexibility was available,
we might have been in danger of rushing through a deal simply
to spend our money by 31 March. Now, we were able to sign it in
the first week of April instead, by which time we could be sure
that we had a deal that was good for English Partnerships and
good for the outputs we were looking for. And it did not cost
us any penalty with Treasury because we were able to carry that
money forward. Again, that is good financial management. On financial
management overall, this Committee's predecessors have rightly
criticised the Department in the past for large underspends and,
associated with that, had a question about our financial management.
We have made great efforts to improve that financial management
and, at Board level, now monitor across the piece all our programmes
very closely. So I would say we have improved financial management
significantly.
Q28 Mr Lancaster: I accept that,
but historically you will accept that we have had problems. Really
it is the scale, and we can take the contingency fund as an example,
having run a business, it is the scale that concerns me, the scale
of the fund. A contingency fund, of course, is sound business
practice, but it is the scale of the fund?
Mr Unwin: We have got an efficiency
target of £620 million and we have a contingency of £66
million, which is about 10%. What sort of contingency would you
think would be right?
Q29 Mr Lancaster: Less than that,
I would like to think. Actually, your contingency is not 10%,
is it, it is about 13%, 66 from 620?
Mr Unwin: It is about 11% What
you are saying is that we should not have looked for further savings
beyond 620 million or we should have looked for only 5%, which
would have been about 30 million. If we could make that 66 million,
I would have hoped we would all welcome it, as long as it meets
the definition which you rightly say we must stick to, that this
has actually increased output for less money rather than simply
being a cut in expenditure.
Q30 Chair: Can I clarify something
arising out of one of the questions that Mr Olner asked. I think
you outlined, basically, how you were reducing levels of staff
at the centre and yet the figures given in the table that went
with the memorandum demonstrate that the number of staff in ODPM
in 2005-06 is just fewer than 50 bigger than in 2004-05. How do
those two statements square?
Mr Unwin: That was part of our
profile and we are now starting to make the reduction, which is
why we brought in the severance programme which I spoke about
earlier, which will lead to the 80 staff being moved out and put
us on the downward trend towards the 2,239 that was shown in the
table.
Q31 Dr Pugh: Can I ask you just briefly
about monitoring and go back to this end-of-year flexibility or
what in local authority terms they call slippage, and so on. A
lot of this can happen quite fortuitously. Programmes get underspent,
delayed, or whatever, but they do not represent real efficiency
savings if they occur. Am I right in thinking that your savings
are going to be monitored by the Treasury, so that when they look
for efficiency savings they look for real efficiency saving not
for actual underspends and if slippage or end-of-year flexibility
occurs fortuitously you cannot count that as an efficiency saving
towards your total?
Mr Unwin: That is absolutely correct.
End-year flexibility and efficiency savings are two completely
separate things. End-year flexibility deals with slippage, in
the way you have said. Efficiency savings have to be audited and
agreed with the Office of Government Commerce and Treasury.
Q32 Dr Pugh: The Treasury will not
let you get away with starting one and another?
Mr Unwin: It will be genuine efficiency
savings rather than simply underspend or cuts.
Q33 Dr Pugh: Turning to specific
savings, you have got some savings down in housing, Housing Corporation,
which I think are due to partnership arrangements, you say. I
was just trying to get a handle on what this could actually mean.
One thing it could mean, I think, is that the Housing Corporation
spend less but provide some of the housing by going into a partnership
with a private firm. The net effect of that, obviously, is that
the property, when it is built, will have an equity share for
the private firm as well. In other words, the same amount of houses
gets built but the Housing Corporation make a lesser contribution
to it. It is one of the efficiency savings. Is that how it works?
Mr Unwin: My colleague Richard
McCarthy might want to answer that one.
Mr McCarthy: Which I am happy
to do. Your analysis is broadly correct. At this stage though
we are not funding private sector organisations; that will be
happening in the future. What the Housing Corporation did with
its first two-year programme was actually focus most of that on
a set list of partner housing associations to which it allocated
a fixed level of resource for an agreed level of outcome, or output.
What it sought to do was drive up efficiency by concentrating
more of its development programme on some of the larger players
and that is what the term "partnership housing" is about.
As you know, we are now moving into an era where we are inviting
not only Registered Social Landlords, housing associations, as
you may know them, to bid to build new social rented housing and
affordable housing, we are also extending that to the private
sector, which we hope will drive up further savings. Then the
unit cost, if you like, to Government falls through greater efficiency
without reducing the quality of the homes that are provided, because
they have to meet scheme development standards set by the Housing
Corporation.
Q34 Dr Pugh: At the end of the day,
with a private developer, this efficiency saving has greater equity
in it?
Mr McCarthy: No, it does not.
What we get, through these partnership arrangements, are more
homes for the same amount of money. If you remember, all of our
new, social rented housing pretty well is provided through housing
associations, which will own more properties, at the end of the
day, as the non-profit-making bodies which provide that housing.
We are now moving into an era, which no doubt we will discuss
at future meetings about our level of performance in terms of
working with the private sector.
Q35 Dr Pugh: If I can move on to
RDA savings, it seems to me that an easy way of an RDA saving
money would be to spend less on its programmes, go back to you
and tell you that is an efficiency saving of some kind. Do you
monitor the RDAs in such a way that you can differentiate between
genuine efficiency savings and actually just simple cutting back
on programmes, which obviously is the easier task? How are the
RDAs to be monitored when they make savings?
Mr Unwin: The RDAs, are sponsored
by DTI. Although we and a number of other departments put money
into the RDAs, and in fact we are their main funder; they are
sponsored by the Department of Trade and Industry and they have
to submit to DTI and to the Office of Government Commerce detailed
efficiency plans which show that they are achieving genuine efficiency
savings exactly as you suggest.
Q36 Dr Pugh: Not doing less?
Mr Unwin: Not doing less. They
are achieving the same outputs for less money. Those efficiency
plans are scrutinised by DTI and OGC. Because we are the main
funders, we will also sit on that scrutiny process to make sure
we are satisfied that we are getting the same outputs for our
money.
Q37 Dr Pugh: I am relieved to hear
it. Can I turn to local government now. Local government was scheduled
to make a £1 billion saving, actually it has volunteered
£1.9 billion. Obviously, a lot of the local government section
is schools, over which you have no direct control, but the local
authority section is £1.9 billion of volunteered savings
or potential savings. When you look at the areas from which those
savings are coming, apart from corporate services, and so on,
you have got some major local authority services featuring as
savings: adult social services, children's services, environmental
services. Commonsense would say, with the Children's Act, with
the effect of higher recycling targets, the environmental services,
a whole range of new initiatives going through local government,
that those savings would be very, very hard to achieve by virtue
of efficiency and could only really be achieved by virtue of making
some substantial cuts in service. What is your view?
Mr Kinghan: What local authorities
have done is give us an estimate of the efficiency savings they
made in 2004-05, which added up to £750 million, and of the
efficiency gains that they expect to make in 2005-06, which is
£1.2 billion. They are accredited by the chief executive
and the leader of the authority, and are submitted as part of
their annual efficiency statements. They will be audited by the
Audit Commission, so there is no question that they can get away
with things which are not really efficiency gains. I agree with
you that it looks as though things like adult social care or children's
services are areas where it is difficult to make efficiency gains.
Some of this is about better procurement and the potential for
better procurement in local government is very large. We have
150 social service authorities. The more that they can work together
to procure both things, actually buying material, and the more
that they can work together to do deals with the private sector,
the more efficiencies they can achieve.
Q38 Alison Seabeck: I would like
to come on to PSA 4, local government finance, which states quite
clearly: "the Lyons Inquiry concludes and Sir Michael provides
findings to ministers in December 2005." We know that has
been postponed and I imagine, therefore, nonetheless, that the
Government and indeed Sir Michael have considered the data which
they received prior to the decision to postpone. What exemplifications
on the impact of the delay on local government finance and funding
did the Department prepare prior to that announcement and what
do they show, how many net gainers were there and how many losers?
Mr Kinghan: You are asking about
the work that Sir Michael did in the first year of his inquiry
to look at the potential effects of the valuation. That information
has not been published yet but he is looking at the possibility
of making available his findings later this year, and I think
that is probably what will happen.
Q39 Alison Seabeck: Has the Department
shared his thinking thus far; have you had access to that?
Mr Kinghan: The Department has
not had the report from him on what his findings are but we provide
him with some staff to help him do his calculations so we are
involved to that extent, but ministers have not yet had the report
from him.
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