Examination of Witnesses (Questions 100-119)
OFFICE OF
GOVERNMENT COMMERCE
AND HM TREASURY
6 MARCH 2006
Q100 Mr Williams: That is a different
matter; that is a different matter. This is why it is a bit of
an illusionary thing, is it not? How far has the Gershon Review
contributed, as opposed to trying to identify what was already
happening? If the bulk of the investment was already underway
and if that is not going to be reflected in net efficiency gains,
what is the review worth?
Mr Oughton: The important difference
as a result of Gershon is that efficiency has moved centre stage
in departmental planning and departmental agendas. Two years ago,
before Gershon, you would not have heard efficiency being talked
about in the same way, so it has become a much more prominent
issue. That means there is more focus, there is more effort, there
is more likelihood of achieving it.
Q101 Mr Williams: What you are saying
in effect is that over recent years departments have been making
these massive investments oblivious to the issue of efficiency
gains. That cannot be right, can it?
Mr Oughton: No, I would not say
that, because all investments have to be justified by a business
case which is subject to very rigorous scrutiny. The benefits
which are postulated from many of these major investments are
service delivery benefits rather than efficiency benefits.
Q102 Mr Williams: So the £21.5
billion is the result of that investment with a marginal contribution
by the Gershon Review.
Mr Oughton: No, I would not say
that. Gershon was about bringing focus to this so that we can
be more likely to achieve delivery.
Q103 Mr Williams: Do you mean that
these projects have all been drastically reformed since Gershon?
Drastically reformed as opposed to what they were when the money
was allocated to them?
Mr Stephens: What has happened
as a result of Gershon is that there has been an increased emphasis
on securing the efficiency gains as a result of the investment
that has already gone in, particularly to IT investment. What
Sir Peter Gershon also saw was the need to develop a pipeline
of efficiency projects and gains in which the early ones, yes
they will have been ones in train and under development, but in
the later years of the programme and as we roll forward, particularly
into the comprehensive spending review years, these will be new
projects and new efficiency gains that are coming out as a result
of the embedding of efficiency into the public sector.
Q104 Mr Williams: We are told in
paragraph 1.15 ". . . most of the targeted £21.5 billion
of efficiency gains will come from these projects" which
were already underway or planned. Then we look at figure 10 and
remember that most of the £21.5 billion is coming from investment
which has already been made. Read the first sentence you signed
up to. The first sentence you have signed up to is "The majority
of efficiency projects within the Programme require additional
investment". So in addition to the investment already gone
in, more investment is needed but nowhere are you taking past
investment or new investment into account in judging whether you
have made efficiency gains or not.
Mr Oughton: We are not taking
past investment into account; that was not the approach Gershon
was asked to take: he was asked to identify the opportunities
for securing efficiency. We absolutely shall take new investment,
additional investment, into account and we shall expect to make
a judgment on whether we are getting a decent return on that investment.
Q105 Mr Williams: But you signed
up also not just to the first sentence of figure 10 but you signed
up to the last sentence of figure ten. The last sentence of 10
says "Without such matching of capital costs against gains,
the £21.5 billion target overestimates the efficiency gains".
Mr Oughton: That is right.
Q106 Mr Williams: That includes the
past as well as the present and the future.
Mr Oughton: And the Report also
says, which is again very fair, that where new initiatives are
calculated net, they will likely under-record the efficiencies
being secured based on using the same Gershon methodology. So
it does cut both ways actually as we move forward.
Q107 Mr Williams: If you do not mind
me saying so, that sounded like gobbledygook. I do not know whether
it will read like gobbledygook. I shall read it with the greatest
attention and give you credit for it at the moment. I just do
not see how you can reconcile the final sentence and the first
sentence in paragraph 1.15 with any claim to have produced any
miraculous transformation of a way in which public resources are
being used.
Mr Oughton: Let me have one more
go, if I may. What Gershon did was to answer precisely the exam
question he was asked, which was to identify opportunities for
delivering substantial efficiency in a way that then could use
those resources to be recycled into frontline service delivery;
not to produce cash cuts out of budgets, but to recycle those
resources so that we could continue to improve public services.
That is the exam question he was asked to answer. A lot of the
modernisation of public services which is underway at the moment
follows from investments which have already been decided upon
and are being made at the moment. Therefore, he has adopted a
gross not a net approach and that is what he was asked to do.
As we move forward, we take the view that it is now proper to
take account of any investments, any decisions we make on new
investments, bearing in mind the likelihood that they will deliver
the modernisation of public services and efficiency as well. We
shall adopt that net approach to judging those investments.
Q108 Mr Williams: Taking the exam
question you were set, I am not certain on the answer that you
would quite achieve a CSE grade five. If you look at what the
National Audit Office tells us, there are deficiencies in the
management information system which mean that their ability to
measure changes in output quantity and quality as well an input
still lags behind the needs of the programme. It is getting even
more nebulous now, is it not? You are not even sure what figures
you are producing.
Mr Stephens: The Report also recognised
that significant progress has been made in improving the quality
of measurement. We absolutely agree with that. Measurement is
critical to delivery of this programme. As the Report recognises,
this was an ambitious programme which set out to approach efficiency
in a new way and established a potentially new and more accountable
and more transparent system of measuring efficiency. That is very
clearly our objective from the beginning. The Report helpfully
points out that there is still a significant way to go. We fully
accept that, we continue to focus on improving our measurement
methodology. Further suggestions from the NAO and others will
be extremely helpful in that regard but significant progress has
already been made.
Q109 Mr Williams: What it says in
the briefing we have is that inadequacies in measurement methodologies
adopted and the data mean it is very difficult to measure changes
and efficiency reliably. So we now have a past investment which
is ignored, future investment which is not specified and a data
collection and a methodology of assessment that is not up to par.
It is really a matter of "Go away and try to do better next
time", is it not?
Mr Oughton: On the data collection
and the methodology, again as the Report is clear, significant
improvements have taken place there. We now have, and have had,
since the formal start of this programme in April last year, quarterly
returns of information from departments which are signed off and
approved at very senior level either by ministers or by accounting
officers. We have a degree of surety around the data that is being
delivered to us. Where that data is deficient, and we accept this,
is in two respects. In one respect because baselines have not
been established for every programme; there will be gaps in what
is being reported, that is certainly true. Secondly, because the
information is not always collected on a quarterly basis from
every part of the public sector—in schools for example,
no data is collected on more than an annual basis, so we are not
reporting anything on schools yet and there will be a gap in the
coverage there—there could be over-reporting, there could
be under-reporting. We know that we need to do more to ground
those figures out. I certainly should not draw a conclusion from
this that these are unreliable and shaky figures.
Q110 Mr Williams: You talk about
departments, but we are told that 65% of the projects and £13.5
billion, that is 70% of delivery, will come from local bodies.
Mr Oughton: That is right.
Q111 Mr Williams: Are you saying
that the local bodies are doing a better job at assessment and
providing data than the central departments are able to do?
Mr Oughton: In some respects there
are very well established systems in local bodies. In local authorities,
for example, the annual efficiency statement system which has
been set up requires local authorities to make both a report on
the efficiencies they have achieved so far but also a prediction
of the efficiencies that they will achieve in the year to come,
a forward look if you like.
Q112 Mr Williams: If that is so good,
why on earth is it not being applied in central government?
Mr Oughton: The same approach
is now being applied in central government because we have quarterly
reports from departments on what has been secured, what is being
reported and in their forward plans they also have to predict
what they expect to achieve for the rest of the programme. I should
argue that the position is much the same.
Q113 Mr Bacon: Just to pick up where
Mr Williams left off, local government finance officers or finance
directors have required a professional qualification since 1988.
I understand there will be a requirement by December 2006, is
that right?
Mr Stephens: That is right.
Q114 Mr Bacon: What does it say about
central government that it imposed this obligation upon local
government 18 years ago, but it has still not got round to doing
it itself? This is perhaps one for Mr Stephens?
Mr Stephens: It is. As a matter
of importance we are addressing the increasing professionalisation
of finance within central government.
Q115 Mr Bacon: That was not my question.
My question was not: are you addressing this as a matter of importance?
My question was: what does it say about central government that
this was imposed on local government 18 years ago and you still
have not got round to doing it for yourselves?
Mr Stephens: It says that we need
to get round to it and we are. By December 2006 I fully expect
all main departments to have a professionally qualified finance
director sitting on the board. That is what we want to achieve.
Q116 Mr Bacon: That is terrific.
Do you think you will meet the December 2006 target?
Mr Stephens: Yes, I fully expect
to; there may be one or two smaller departments which lag behind.
Q117 Mr Bacon: Does every department
now have a commercial director?
Mr Oughton: Not sitting at board
level. Every department has an individual who is responsible for
commercial and procurement activities. In some departments they
will be at very senior level, either at board level or closely
connected to board level, but in some departments no, there is
a lighter touch. In exactly the same way as Mr Stephens has described
for financial qualifications we are pushing departments to improve
on the professionalisation of their commercial functions.
Q118 Mr Bacon: Are you expecting
to have more commercial directors at more senior level? This Committee
has recommended this before.
Mr Oughton: Yes, that is my expectation.
Q119 Mr Bacon: When do you think
that it will be standard that there will be a commercial director
at board level?
Mr Oughton: I could not give you
a target date. All I can say to you is that what I am doing at
the moment, as every appointment comes up in government department,
is expecting to look at the appointments process to see that a
more professional, qualified person is appointed. That is exactly
the same approach as is being taken on financial management as
well.
| 
