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In 2003 Sir Peter Gershon conducted a cross-cutting review of efficiency in the public sector. The Gershon Review was published to coincide with the 2004 Spending Review in which the Government announced an Efficiency Programme designed to achieve ongoing efficiency gains across the public sector which would release £21.5 billion a year by 2007-08 to improve front line services. The Programme also aims to reduce Civil Service posts by more than 70,000 and to reallocate a further 13,500 posts to front line services.
Departments are responsible for delivering and quantifying the efficiencies achieved while the Office of Government Commerce (OGC) checks the robustness of figures put forward and provides support to help departments deliver their gains. The £21.5 billion target is a mix of ongoing cashable and non-cashable gains. Cashable gains consist of reductions in inputs which do not adversely affect the quality of outputs. Overall, around two thirds of the £21.5 billion target is expected to release resources in this way. The remainder of the £21.5 billion target will be in the form of non-cashable gains, where additional outputs such as enhanced quality of service are obtained for the same level of inputs.
When the Committee took evidence on 6 March departments had reported efficiencies up to 30 September 2005 of £4.7 billion, of which just under a half were cashable. While some of these reported gains are robust, delays in obtaining data on service quality and limitations in measurement methodologies mean they must be treated with caution. In addition, deficiencies in departments' management information systems mean that their ability to measure changes in output quantity and quality as well as inputs lags behind the needs of a Programme that is aiming to deliver real efficiency gains rather than just spending cuts.
Two weeks after we took evidence, the Government announced in the Budget that, by 31 December 2005, £6.4 billion of efficiency gains had been achieved. Given the limited opportunity for action between then and the Budget announcement, the latest claims should be treated with the same level of caution as the £4.7 billion reported in the Pre-Budget Report.
The Gershon Review concluded that the public sector did not have the capacity to deliver on-going efficiency gains of more than 2.5% a year. Although embedding efficiency into the public sector is a major objective of the Programme, activity to date has focused on delivering the 2007-08 targets. As the private sector and some overseas public sector experience has shown, however, there is potential to go a lot further than the targets set for the current Efficiency Programme, if deeper and more systematic changes are pursued.
On the basis of a Report by the Comptroller and Auditor General,[1] the Committee took evidence from the OGC and the Treasury on the measurement of efficiency gains, the early implementation of the Programme and the longer-term embedding of efficiency in departments and the wider public sector.
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