Examination of Witnesses (Questions 20-39)
OFFICE OF
GOVERNMENT COMMERCE
AND HM TREASURY
6 MARCH 2006
Q20 Kitty Ussher: Whereas in the
private sector very few companies match the size of the entirety
of the UK public sector, in the private sector, with the additional
spur of competition, productivity improvements annually of about
2.5% are extremely normal and have been since time immemorial;
indeed that is the GDP rate of the country, so that is the normal
rate of productivity increase. Is that not what every single organisation
should always be doing? Linked to that, what lessons can be learned
from the private sector in the way that it continually, good companies
anyway, innovates in this way?
Mr Oughton: That is very fair.
One should also recognise that what the Government have been trying
to do with this efficiency programme is to kick-start an efficiency
process across the whole of Government. In a sense it has not
been in the routine of how Government have done business, which
is why a focus was put on efficiency in Gershon's Report and then
the commitments that were made in the spending review 2004. We
needed to gather some acceleration and some momentum around this
programme and that is why again it is very important to recognise
that the three years of this spending review period are not going
to be the end of the story. Part of the challenge is to embed
efficiency for the longer term so that it becomes absolutely embedded
in the DNA of how departments do their business. That is a big
challenge for us and for all departments. Again we are starting
behind where some private sector companies were starting. Can
we learn from the private sector? Yes, we certainly can. One of
the major incentives, if you like, for government departments
is to benchmark their performance against what appears in the
private sector. For example, if I look at our corporate services
activity, how we administer ourselves in government departments,
in finance, in HR, in other corporate services, there are very
good, well-established, clear benchmarks which show performance
in good, well-run, private sector companies and what is achieved
in the public sector. We know we have an aiming point we can strive
for, so yes, we can certainly learn from that.
Q21 Kitty Ussher: Can you also learn
from the private sector however in the entire process? Obviously
there are ways in which HR departments in the private sector are
run that may be more efficient, that our HR departments can learn
from, but in terms of how you conduct a sort of rolling efficiency
programme, what kind of expertise do you have from the corporate
world?
Mr Oughton: There is expertise
inside the efficiency team; it is drawn both from the wider public
sector and from the private sector. We call on private sector
secondees, just as Sir Peter Gershon did to help him with that
process, departments themselves draw on private sector secondees
as well. What reassured me when I looked at the accompanying documents
with the NAO's case studies, the eight case studies they had undertaken,
was that some of those came from very well-run private sector
modernisation programmes: BT's HR programme, the Asda/Walmart
supply chain activity. What reassured me about that was that none
of that came as a surprise to me because we knew about those programmes.
We have researched them, we have talked to the companies, we have
had presentations from them, we have talked to the people who
implemented those solutions so that we can learn from them and
we can implement them also in government and pick the right lessons
from them.
Q22 Kitty Ussher: How long do you
think it will take before the British public sector is continually
innovating to become more efficient in the same way as the successful
global companies like Microsoft, say, always need to innovate
to remain ahead of the competition? I sense we are at the very
beginning of a learning curve; perhaps there are some quick wins
we can make in the next few years, but at some point it is going
to tighten when we are as efficient as we can be given the resources.
How long do you think it will take to get to that stage?
Mr Oughton: It depends how we
go about efficiency. What has happened in this first three-year
programme is that we have identified some specific initiatives,
some opportunities in Gershon's work streams that we can follow.
A lot can be done around procurement, for example. A lot can be
done around maximising the time of public sector workers spent
on frontline-facing tasks rather than administrative support activity.
You can only go so far in adopting that approach. On procurement,
for example, I should argue that we can go a bit further on negotiating
better deals. We can certainly go further on aggregating our demands,
so that we can drive some bigger discounts in appropriate marketplaces.
It is good to try to drive discounts in an energy marketplace
for utilities, for volume commodities such as Microsoft licences,
since you mentioned the company, but it will not always be the
right approach. Some of the benefits will come from using new
process techniques such as electronic auctions, but there will
come a point where, unless you change the model very significantly,
you cannot keep squeezing and squeezing and squeezing and expect
to get another 1% or 2% out of that approach. Apart from anything
else, I should not want to get to a position where, because of
the way Government was doing business, Government was an unattractive
customer for private sector companies to do business with. There
has to be a recognition that private sector suppliers must make
a reasonable return on their investment and they must deliver
a good service and a good product to us. So to move on to the
longer-term efficiency means more than just squeezing and tightening
and negotiating a bit harder: it means changing the process model
in the way that the best of the private sector companies have
done.
Q23 Kitty Ussher: Two quick questions
on procurement. Would you agree the characterisation that I guess
I had in my head, that one of the historic problems with departmental
procurement is the way the Civil Service works, particularly the
senior Civil Service, full of lots of very bright, capable people,
but where jobs tend to rotate that are not necessarily linked
to the individual's own personal experience and training? You
could get a situation where a head of procurement in fact is the
policy generalist and does not have the same type of expertise
that a private sector procurement person would have. That is question
one: what are you doing about that, if you agree? The second one
is a bit of a personal bug-bear of mine and I have put forward
a 10 minute rule bill on this very point, namely procurement of
innovative technologies. There is a lot of brainpower in our universities
and in smaller companies that could solve public policy problems
in a way that is beneficial to the taxpayer and we have not been
using that sufficiently by not going and seeking the kind of bright
start-up companies which can solve public policy problems, particularly
in Home Office or Health and that type of area. Anecdotally I
have heard a lot of people say that they fear trading with the
Government because they fear they will lose their intellectual
property. They come to Government with an idea, Government say
"That is all very interesting, let us issue a call to tender
with that very idea" and they have lost their intellectual
property. I do not know to what extent you are investigating that
area as well, but I should be grateful for your views.
Mr Oughton: On the first point,
yes, absolutely, the professionalisation of our procurement activity
is a key essential part of delivering on this. We have been on
this for longer than the Gershon efficiency programme. The Professional
Skills for Government programme across central government is designed
to improve these specialist skills. So within the Office of Government
Commerce, for example, we operate as the head of profession both
for procurement and for programme and project management skills,
both of them absolutely essential to delivery of any major programme
and this efficiency programme is clearly one. Part of my role,
part of the responsibility we have, is to work with departments
and to challenge them on the reinforcement of their commercial
profession. We also have to make sure crucially that that commercial
director position has connection with, and access to, the very
top of the office so that we move away from what traditionally
used to be done in government departments, which was that the
procurement man, the contracts officer—who was usually a
man—was brought in really quite late in the day when we
had reached the point of going out to invitation to tender, placing
the advertisement and then starting negotiation. We should like
to see proper commercial expertise brought in at the start of
the process when the major investment decision is taken at the
outset, so that the commercial and procurement strategy can be
determined up front as an integral part of deciding to go ahead
with the programme. That is what we are trying to do, working
with departments to improve their skill and their professionalism
in that way. Innovation is a very important way of securing efficiency.
I did read your 10 minute rule bill and I did see your remarks
in the PAC debate on 26 January and my own view is that we can
achieve many of these objectives without the need for a particular
set-aside in terms of investment. Why do I say that? I say that
because we have done quite a lot of work to remove the barriers
to entry for small and medium-sized companies to gain access to
government procurement. We ran two pilots in the West Midlands
and in Haringey about a year to 18 months ago, looking at how
we could remove the disincentives for small companies, many of
whom are offering innovative new solutions and how they could
get their foot through the door and secure more government business.
The interesting thing, rather counter to what you might think
is happening in the efficiency programme, where we are aggregating
our demands, placing bigger contracts, which only the big companies
can therefore win, is that if you remove the barriers to entry,
if you shorten the tendering process, simplify the documents,
have better advertisement of the opportunities so that people
get access to the information, more small companies can get through
the door. In fact, we pretty much doubled the amount of business
in the West Midlands that was being won by the small innovative
companies.
Kitty Ussher: Thank you. I hope time
proves you right.
Q24 Helen Goodman: I should just
like to go back to the beginning of the process and ask you how
the targets were set, because I do not think I have fully grasped
this. In table five on page 14 there is a very straightforward
list of targets by money and targets by post. Could you just say
briefly how the targets for money were set?
Mr Oughton: There was a three-stage
process in the Gershon Review. The first stage from the set-up
in September/October 2003 through to the end of the year was around
identifying what was happening in departments at the time and
looking outside for ideas on good efficiency activities which
could be pursued in Government. When Sir Peter Gershon and his
team had established an agenda, things that could be done, they
put that to departments in the period between Christmas and about
February/March to say "Can you come up with ideas based on
these proposals that we have set out that could form the basis
of your efficiency commitments in the next spending round?".
Departments did that, they were then challenged, scrutinised both
by Sir Peter Gershon's team and by the spending teams in the Treasury
and as a result of that, firm commitments were then agreed in
the spending round settlement that was published in July.
Q25 Helen Goodman: In the first phase
of that, when Gershon was getting the ideas, was it a bottom-up
process? Was he saying that the Department of Health spends so
much on procuring drugs, so much on hospitals, so much on social
care and these are the kinds of efficiencies which are being achieved
in these areas in other countries or in the private sector? Was
it that kind of process?
Mr Oughton: It was a bit of both.
There was clearly a bit of drawing on the experience of the individuals
in the team who worked in their own organisations and tried to
deliver efficiency. In that sense, there was a piece of top down,
"Here are some ideas that we should like you to try to pursue".
There was also a very, very broad consultation exercise and indeed
a very well set out annex in Gershon's Report describes the consultation
process, and explains the very wide number of public bodies, both
inside central government and indeed in the wider public sector
which contributed to that process with their own ideas. So there
was quite a bit of bottom-up as well.
Q26 Helen Goodman: Of course it is
attractive for politicians of every complexion to say that they
have achieved fewer civil servants than there were last year,
but speaking as somebody who used to be a civil servant, personally
I think this is a bit crude. I wonder how much the constraint
on reducing numbers ties in with the financial targets and to
what extent it does not sometimes cut across the financial targets?
Mr Oughton: The head count reductions
come really as a consequence of the initiatives identified in
Sir Peter Gershon's report and other initiatives that were already
underway in departments which were all brought together in the
spending review 2004 settlement in July 2004. There is a table
in the Public Spending White Paper from July 2004 which sets out
the departmental commitments to headcount reductions. As I say,
they are a product of the decisions that those departments were
taking to modernise the way they do their business, most obviously,
the Department for Work and Pensions. There the reductions of
40,000 gross, 30,000 net, were not figures that were simply plucked
out of the air, they were a consequence of the end-to-end modernisation
of the delivery process that DWP had underway. They were a consequence
of those changes, rather than being a completely isolated and
separate target in their own right.
Q27 Helen Goodman: One of the things
that will disrupt these objectives is if there is a great deal
of conflict within the organisations. In some of these there is
at the moment quite a lot of conflict with the trade unions and
I wonder whether the trade unions were consulted at the outset.
My experience is that people on the ground often have quite a
lot of good ideas about how to make savings and I wonder whether
those ideas were used or whether other ideas were imposed upon
them.
Mr Oughton: No, the trade unions
were indeed involved in the exercise and they have been involved
with us in the implementation phase ever since. The answer to
that is yes.
Q28 Helen Goodman: Can we move on
to figure 12 on page 21? The way you have divided this up is very
useful in terms of work stream by department, both from the point
of view of doing the work and in terms of helping us to understand
it in this Report. One of the things which concerns me as a constituency
Member of Parliament is the kind of complaints I get from my constituents
about dealing with the public services. I want to address some
of these quality-of-service issues and in particular I see, in
terms of the transaction stream of work, that a great deal is
expected of the DWP and also something from HMRC. Looking at what
you mean by transactions, which is somewhere else in the Report,
this could be interpreted as the public sector saving money because
the private individuals will do the work themselves. Would you
like to comment on that?
Mr Oughton: Many of the changes
do result from change in the way transactions are undertaken.
For example, in the Department for Transport being able to apply
for—
Q29 Helen Goodman: Could you possibly
focus particularly on the DWP because I have lots of problems
with the DWP.
Mr Oughton: Yes; certainly. In
DWP, a number of things have happened. The first is that with
the payments modernisation programme, payment of benefits is now
done directly into bank accounts rather than by other methods,
so the delivery channel has changed in a way that is less labour
intensive. Something like 95% of all payments now go directly
into bank accounts. That is saving something like £250 million
a year this year, but with no degradation in the service being
provided to people; in fact, one could argue that it is a surer
way of putting money into people's hands.
Q30 Helen Goodman: You say that very
smoothly, but we had a debate the other day on the fact that the
banks charge people for withdrawing their money and for people
on low incomes there has definitely been a very significant reduction
in the quality of service. Was that taken into account when the
OGC promoted this idea with the DWP?
Mr Oughton: Yes, because conversations
were undertaken with the banks.
Q31 Helen Goodman: So you took it
into account that people would have to pay to get their benefits
and you are still telling me that there is no reduction in the
quality of service for benefit recipients as opposed to under
the previous system when they got their money in full?
Mr Oughton: I am saying that we
took all of the issues into account, all of the factors and the
DWP, whose programme this is, judged that that was the right thing
to do and I support them in that because that has produced a better
outcome.
Q32 Helen Goodman: May I ask you
a question about adult social care? This also is a very fraught
issue. In County Durham at the moment, we have significant cuts
in our residential care. One of the things which is very noticeable
from this chart is that significant savings are required from
the Department of Health on something called "productive
time". I wonder whether you could say where exactly that
productive time is meant to be found by the Department of Health.
Mr Oughton: We did a study with
the Department of Health in the autumn of last year to look at
exactly this issue. It will come from changes, for example the
reduction in hospital time for a number of common operations,
so reducing the amount of time of a hospital stay. That is releasing
something like one million additional bed days each year by reducing
the amount of time. It is coming from, for example—
Q33 Helen Goodman: Sorry, you are
talking there about the amount of time that people spend in hospital,
are you?
Mr Oughton: That is correct.
Q34 Helen Goodman: So you are not
talking about the use of the time of the staff, you are talking
once again about the use of the time of the general public.
Mr Oughton: I am talking about
the use then of the clinicians and the nurses and the staff in
the hospitals who can treat more patients and get as good or better
clinical outcomes, but in less time, so their time is being used
more productively. That is exactly what I am getting at. To give
you an example, many operations that required overnight stays
can now be done as day surgery. That reduces the amount of time
that clinicians, nurses, people in hospitals have to spend with
each patient whilst still getting the right clinical outcome;
that is a benefit. I give you another example, very briefly—
Q35 Helen Goodman: My time is up.
I should just like to ask you whether you could possibly provide
the Committee with a note on which particular areas of work, funded
by the Department of Health are producing these productive time
savings.
Mr Oughton: Yes, I can certainly
do that.[1]
Q36 Mr Bacon: Kitty Ussher referred to
rotating civil servants and it is a problem which is not new:
Sir Peter Gershon some years ago in evidence before this Committee
talked about the problem, Andrew Turnbull when he became Cabinet
Secretary talked about increasing posts to four years. Why is
this still a problem?
Mr Oughton: It is less of a problem,
because, certainly in the senior Civil Service, the normal terms
of appointments now are for four years: sometimes in Defence Procurement
five years is an upper maximum. That is the typical length of
time now when an appointment is taken up.
Q37 Mr Bacon: Could I ask you to
turn to paragraph 2.40 on page 47? It says "By the time the
report" that is the Gershon Review "had been published,
most of the Review team had left the project. Today only one member
of the Review team works full time on the Efficiency Team".
In other words, a lot of the expertise had already gone by the
time the thing was published. Why did you allow that to happen?
Mr Oughton: When Sir Peter Gershon
recruited his team, most of whom came from outside Government
I hasten to add—if you look at his report, he lists the
members of the team and they mostly came on secondment from outside
Government for a fixed, limited period of time—the expectation
was that they would stay for nine months and they would do the
review. At that stage, the Government had not decided how it was
going to move into implementation. When it announced in July 2004
that it was accepting Sir Peter Gershon's recommendations and
wished to implement them, I set up an efficiency team. I did in
fact manage the transition by holding back and reacquiring some
members of Gershon's team for short periods to manage that transition
and then we built a team of our own. That team is on an engagement
now for the full three years of implementing this programme.
Mr Stephens: If I may, from the
Treasury's point of view clearly there were lessons to be learned
from that transition and we are making sure that in the comprehensive
spending review, we think about implementation in the course of
it.
Q38 Mr Bacon: That is not a new point
either, is it Mr Oughton? Getting people to implement rather as
in the classic example of management consultants turning up in
Eastern Europe and throwing fat reports from the steps of aeroplanes
as they left the country as quickly as they could, leaving behind
them just a large invoice, is a very old-fashioned style of consultancy
and we have been moving towards actual implementation, getting
it done, for a very long time. You had to go back and re-acquire
some of these people did you?
Mr Oughton: Yes, we did and we
did that for a short period to help us over that transition. We
now have a much more stable team which has a mixture of public
and private sector skills and that will see us through the duration
of this programme and, as Mr Stephens says, we are already thinking
about how we manage the longer-term implementation.
Q39 Mr Bacon: It says that in paragraph
2.42 that you are unable to recruit a head of efficiency measurement
from within the Civil Service.
Mr Oughton: Yes, it does.
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