Examination of Witnesses (Questions 80-99)
OFFICE OF
GOVERNMENT COMMERCE
AND HM TREASURY
6 MARCH 2006
Q80 Greg Clark: That particular incident
worries me: why the NAO were not invited to take a view and why
they felt compelled to say that the Office of Government Commerce,
which you head, were not sufficiently challenging, in other words
did not scrutinise properly the figures that were offered up.
Mr Oughton: It would not normally
be the case that we would go to our external auditors to seek
validation of information for a ministerial statement.
Q81 Greg Clark: They said that you
did not challenge them effectively.
Mr Oughton: There are two parts
to the answer, if I may; the first in relation to the National
Audit Office. It would not be normal to go to our external auditors
to seek a prior check on information that was disclosed in a ministerial
statement. The external auditor of course has the absolute right
and access to that information to conduct an audit after the event.
The NAO and the Audit Commission were however involved in the
process of developing the methodology by which we measure the
efficiency gains and were satisfied with the methodology process
that we had set up.
Q82 Greg Clark: The Report, page
33, paragraph 2.11, says on the question of methodologies ".
. . we have significant concerns over whether the adopted measurement
methodologies can be relied upon to substantiate efficiency gains
effectively". So you are trying to give us comfort that these
efficiency gains, whilst they were not looked at by the NAO and
indeed the NAO said that you did not challenge them sufficiently,
were based on robust methodologies. The Report directly contradicts
that.
Mr Oughton: What I am saying is
precisely what the Report itself says and that is that progress—
Q83 Greg Clark: I have just read
out a quote from the Report. Do you accept that?
Mr Oughton: Yes, and if I could
take you to—
Q84 Greg Clark: ". . . we have
significant concerns over whether the adopted measurement methodologies
can be relied upon".
Mr Oughton: Yes, and if I could
take you to page five Mr Clark, paragraph ten, you will see that
the Report also says ". . . greater confidence can be placed
in the September figures than the £2 billion of efficiency
gains reported in March 2005".
Q85 Greg Clark: This is my point.
I concede that things have improved since then, but it worries
me that in March 2005 some figures were put into the public domain
at a very sensitive time which were beset by methodological flaws
to the point that the NAO say they cannot be relied upon, that
the NAO were not consulted as to whether they were accurate and
that they feel the need to conclude in their Report that you,
at least your Office, were not sufficiently challenging. Going
forward, it is true, is it not Sir John, that we can still only
rigorously validate half of those savings?
Sir John Bourn: That is right.
Q86 Greg Clark: So going forward,
Mr Oughton mentioned in his earlier remarks that the Chancellor
no doubt, and no doubt the Office, will be publishing figures
in future. Would it not be helpful for everyone's sake, because
these figures are extremely important, to have the National Audit
Office look at them before they are put in the public domain,
rather like you audit the assumptions in the Budget? Would you
think that would be helpful Sir John?
Sir John Bourn: If the system
were changed and Parliament asked me to do it, then I certainly
would do it.
Q87 Greg Clark: Do you think it would
be useful?
Sir John Bourn: I do think that
it would be useful in relation to this instance. Though of course
as a general proposition it is not right to use the external auditor
as part of executive management and tick things off as they go
along, there can be particular exercises, of which this might
be one, where that could be useful.
Q88 Greg Clark: Finally, of the £21.5
billion savings, how much of those will come from projects that
existed before the Gershon Review?
Mr Oughton: A significant element
will result from projects which started before Gershon.
Q89 Greg Clark: Does "significant"
mean "most"?
Mr Oughton: I would not say most.
What I would say is that—
Q90 Greg Clark: Just on that point,
if you turn to page 19, paragraph 1.15, "Prior to the Gershon
Review, the major Departments already had efficiency projects
underway . . . and most of the targeted £21.5 billion . .
. will come from these projects". So it is "most".
Mr Oughton: Yes, I am agreeing
with that; I did say most. However, the point is this—
Greg Clark: You said "I would not
say most".
Q91 Chairman: Did you say "significant"
or "most"? I thought you said "significant"
and you now say "most".
Mr Oughton: I agree with the Report.
I signed off the facts of the Report. If I may answer Mr Clark,
the point is this—
Q92 Greg Clark: What I am keen to
get at is the percentage more or less. "Most" is over
50%. Are we talking 90%, 75%? You must have a point for this,
you survey the whole scene.
Mr Oughton: My feel is as follows.
The existing projects which were in place before Gershon undertook
his work were designed to deliver a range of benefits. Mr Bacon
has referred to Connecting for Health for example. That is a very
good example, a £6 billion investment to deliver a range
of benefits including improvements to—
Q93 Greg Clark: The point is that
I want to know how many were new in Gershon.
Mr Oughton: The point is this.
Those projects when they were set up were not primarily designed
to deliver efficiencies. The change that has resulted from Gershon
is that there is now much greater focus on the importance of delivering
efficiency and we now have a much higher confidence that an efficiency
benefit will be delivered alongside the other benefits that were
originally postulated for a programme.
Q94 Greg Clark: According to the
NAO, of their sample, which again was meant to be representative,
of 20 projects between one and three were new efficiency projects.
Would you concede that the sample was designed to be representative
of the whole? Is that a reasonable feel?
Mr Oughton: You need to drill
down into it a little bit further because you can have a very
broadly described initiative in a department which may, nonetheless,
take on new elements as a result of the efficiency programmes.
You may not see many new big programmes but you may see new activity
taking place within them which will result from the efficiency
drive.
Q95 Greg Clark: But one to three
out of 20 is not a high proportion.
Mr Oughton: Not of that particular
sample, but that is a very small sample of the 300 or so major
contributing initiatives across the programme as a whole.
Q96 Greg Clark: Sir John, the sample
was designed to be representative was it not and that is why one
chooses it?
Sir John Bourn: Yes, it was designed
to be representative.
Q97 Mr Williams: It is a little bit
vague how much of this is a review rather than an initiative,
is it not? What is coming over increasingly from the evidence,
as with the last answer, is that you are assessing rather than
necessarily initiating. You agreed this Report, as you have already
indicated, and on page 19 the headline there is "The target
excludes most investment costs" and it makes the point that
most of the target of £21.5 billion of efficiency gains will
come from projects which were already underway.
Mr Oughton: Yes.
Q98 Mr Williams: At the final sentence
the point is made "... the £21.5 billion target does
not therefore reflect the net efficiency gains that may, in practice,
be achievable". What is the point of them if they do not
reflect the net efficiency gains? What are they reflecting?
Mr Oughton: Sir Peter Gershon
had to deal with the circumstances as he found them when he was
invited to do this work by the Prime Minister and the Chancellor.
So he looked across government departments as I described in answer
to previous questions. He looked across what was happening in
departments and he identified opportunities for securing efficiency.
He took account of what was happening already, but what he did
was to put more emphasis on delivering an efficiency benefit alongside
a public service improvement benefit. He started therefore, absolutely
correctly, you are right Mr Williams just as the Report is right,
looking only at benefits, £21.5 billion, which was the gross
figure. It was not net of the investment; much of that investment
had already taken place. What I expect to do with new initiatives
as they are developed in departments is to ensure that those are
calculated net of the investment costs, so that we can see the
residual efficiency figure which is developed from that.
Q99 Mr Williams: So what you are
saying is that all this money was invested, but it was not intended
to obtain any of the targeted £21.5 billion which somehow
has come about as a result of your initiative?
Mr Oughton: I am saying that was
not primarily the purpose.
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