1 The measurement and reporting of
efficiency gains to date
1. The Efficiency Programme is intended to help deliver
high quality public services by making better use of available
resources, particularly in reallocating more to front line delivery.
The Programme's biggest risk is that improvements in the efficiency
of some services are accompanied by unintended falls in their
quality. Demonstrating that service quality has not been adversely
affected is essential if the Programme is to be successful. Departments
measure changes in the quality of public services in a number
of ways. The most recent Public Service Agreements, published
at the time of the 2004 Spending Review, include about 100 or
so targets across public services not just to maintain quality
but to increase it in services such as health, education and criminal
justice. The Treasury continues to monitor and hold departments
to account against these targets but acknowledged that more needs
to be done particularly in having specific quality of service
measures for the full range of efficiency projects.[3]
2. In the last Pre-Budget Report the Government announced
that efficiency gains of £4.7 billion had been achieved at
30 September 2005 (Figure 1), compared with a figure of
£2 billion reported in the March 2005 Budget. In the Pre-Budget
Report, departments also reported a reduction of over 25,000 civil
service posts. Efficiency gains should be, however, regarded as
provisional and subject to further verification. While some claimed
gains are robust and greater confidence can be placed in the September
figure than in the £2 billion reported in March 2005, delays
in obtaining data on service quality, other time lags in reporting
and limitations in measurement methodologies mean caution must
be applied to reported gains.[4]
Of the 20 projects reviewed in the C&AG's Report, only two
were considered to have methodologies with a low risk of reporting
efficiencies inaccurately.[5]
Following the Committee hearing, the Government announced in the
2006 Budget that efficiency gains of £6.4 billion had been
achieved by 31 December 2005.[6]
Given the latest announcement was made only two weeks after our
hearing, the latest claims should be treated with the same level
of caution as the £4.7 billion reported in the Pre-Budget
Report.Figure
1: Reported efficiency gains at September 2005
Note: Other departments reported gains of £0.3
billion
Source: C&AG's Report, Figure 15
3. The OGC did not validate or check departments'
claimed efficiencies when it prepared the March 2005 Budget announcement
on progress to date. It recognised that there was insufficient
independent challenge in the early stages of the Programme and
has since sought to do more to ensure claimed gains are based
on proper baselines and audit trails. Progress has also been made
in improving measurement methodologies, but there is still a significant
way to go. At the start of the Efficiency Programme around 180
of the 300 major projects lacked baselines. This has now reduced
to just over 100 and the OGC expect the number to decrease further.
Until baselines for an efficiency project have been agreed with
the OGC, a department should not be able to record efficiency
savings against it.[7]
4. The headcount numbers reported by departments
are not subject to the kind of formal review and challenge that
the OGC is now applying to reported efficiency gains. The C&AG's
Report cross-checked the reported reduction of 25,000 posts against
headcount data for the Civil Service collected by the Office for
National Statistics. The data showed that Civil Service posts
had fallen by only some 15,000 posts. The difference was explained
by the Efficiency Programme and the ONS counting changes in posts
in different ways and the two sets of figures could only be reconciled
by a series of complex adjustments, which were outlined in the
C&AG's Report.[8]
5. There is inconsistency over whether efficiency
gains are net or gross of upfront capital costs. In line with
the Gershon Review, while departments should report efficiencies
net of additional ongoing costs, they can report gains gross of
one-off expenditure costs. Most efficiency projects do not currently
take account of such costs. The Gershon Review identified opportunities
for delivering efficiency in a way that recycled resources rather
than requiring cuts in public spending. At the time, however,
much of the current expenditure on public services had been committed.
There was little opportunity for new expenditure to generate efficiencies
through, for example, modernisation and the Gershon Review decided
that there was little point, therefore, in reporting efficiencies
net of set up costs. Such an approach, however, potentially overstates
efficiency gains and the OGC now takes the view that future efficiency
projects should take into account the capital expenditure needed
to modernise public services.[9]
6. Information on changes in inputs and outputs was
not always collected on a regular basis from every part of the
public sector. In schools, for example, data was collected only
on an annual basis and, as a result, no efficiency gains had been
reported so far. While the risk of over-reporting efficiency gains
exists because of the absence of baselines and limitations in
measurement methodologies, the OGC claimed it was also the case
that time lags in collecting information could lead to under-reporting
of efficiency gains.[10]
Less than half of reported efficiencies
were cashable
7. The target of £21.5 billion of efficiency
gains by 2008 is a mix of cashable and non-cashable gains. Although
around two-thirds of the £21.5 billion target is expected
to be cashable, only some 48% of the £4.7 billion reported
to September 2005 represented cashable efficiency gains. The OGC
did not consider that this was a problem as both cashable and
non-cashable efficiency gains contribute to improved frontline
service delivery. Furthermore, the rate at which the two types
of efficiency gains are reported would depend very much on the
nature of the workstream they came from. For example, procurement
efficiency projects generate a much higher level of cashable gains
than other projects, such as those designed to increase the productive
time of public servants. Departments' forecasts for the three
years of the Efficiency Programme included their expectations
for gains from procurement, for productive time and for the other
elements of the Programme. In monitoring departments' forecasts,
the OGC expected that, over the full term of the Programme, cashable
gains will account for two-thirds of the efficiency target.[11]
3 C&AG's Report, para 16; Qq 9-10 Back
4
C&AG's Report, para 10 Back
5
ibid, Figure 24 Back
6
2006 Budget Report, para 6.13 Back
7
Qq 3, 78, 108 Back
8
C&AG's Report, paras 2.8-2.9 Back
9
Q 107 Back
10
Q 109 Back
11
C&AG's Report, paras 1.16, 2.2; Qq 67-69 Back
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