Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 1-19)


17 MAY 2006

  Q1 Chairman: Mr Oughton, welcome back to the Committee. Could you introduce yourself and your colleagues formally, please.

  Mr Oughton: Yes, of course. I am John Oughton, the Chief Executive of the Office of Government Commerce. On my left, Peter Fanning, the Deputy Chief Executive of the Office of Government Commerce, and Martin Sykes, Executive Director, board member, Office of Government Commerce. On my right, Hugh Barrett, the Chief Executive from the Office of Government Commerce Buying Solutions, our trading fund arm, and on my far right, David Rossington, Executive Board Member, Office of Government Commerce and Head of the Efficiency Team.

  Q2 Chairman: Thank you very much. You are very welcome. We may have some specific questions for buying solutions a little later on and we will hear from Mr Barrett. You said when you came to your appointment hearing that you wanted to continue "to deliver a high level of service to our existing customers in civil central government". You have been in charge for two years now: how would you assess your progress?

  Mr Oughton: I think the progress has been good. I think the Office is valued still by government departments and, indeed, more widely because we have taken on a remit now to work with the wider public sector as well as central government. There are many specifics around our successes, which are set out in the departmental report on efficiency, on achievement of our value for money targets a year early and in developing best practice. Perhaps the bigger picture point, though, is more important, and that is that with the strong support of both the Prime Minister and the Chancellor and, indeed, all of the Cabinet we have been developing a new rather more demanding approach in the Office of Government Commerce to the delivery of the efficiency programme and improvement in performance across government. The message now is very much that choosing not to improve is not an option: we do expect to see continuous improvement. Embedding that strong message is a great strength. It would be fair to mention a couple of the challenges: most importantly, that we are going through a zero-based review, as part of the Treasury group's own zero-based review process, at the moment. I am having a thorough-going look at the activities of the whole of the organisation. That is unsettling for staff, of course, but we are determined to produce an organisation that is clearly focused, concentrating on the issues where we can make a real difference and running our own business more efficiently in the future.

  Q3  Chairman: Extending your remit across the wider public sector, how can you reassure us that has not spread you too thinly and that you still have the focus you originally were given?

  Mr Oughton: That is an issue that we are addressing in the zero-based review. Some of our departmental contacts do say that they worry that we are spread too thinly and it is a concern for me too. The way we do this in the wider public sector, of course, is by not having the same depth of relationship with every one of 400 local authorities or 43 police forces or the health trusts or 25,000 schools. We cannot possibly do that in the way we have a relationship with central government departments, so we work through agents in the sector. We have accredited the use of Gateway Reviews, for example, based in the Health Service and in local government, so we work through a multiplier effect by agents working on our behalf, as well as ourselves working directly.

  Q4  Chairman: You said when we appointed you that you thought the Efficiency Programme would be about half the Office's work. Has that turned out to be true, two years on?

  Mr Oughton: Yes, I think that is right. My original expectation was that we would manage the Efficiency Programme very much as a freestanding additional element of OGC's activity. That is why I appointed David and we set up the efficiency team. In practice, a lot of the work of the core OGC on procurement, on the development of our approach to productive time, in supporting departments in developing their own plans and managing the projects that are needed to deliver the efficiency programme well, means that a lot of the resource from across the whole of the OGC is now brought to bear, so I think that original prediction has turned out to be right.

  Q5  Chairman: Mr Fanning, you have arrived from the private sector. What are the cultural differences you have identified that threaten the drive for more efficiency in the public sector?

  Mr Fanning: I think measuring efficiency in the private sector is a great deal easier. You have income and you have cost. You try to operate on both of them, but at the end of the day you are looking at the net position. In the public sector, it is very much more difficult to measure efficiency and I pay tribute to my colleagues who have made a great deal of progress in that. It is very easy to cut costs in the public sector; it is much harder to recycle resources, because you have to establish at the same time a performance measure as to, for example, the consequence of the removal of resources and the impact that will have on the quality of service the public are receiving. The efficiency measures that we use, the techniques that have been developed, enable us to assert with a great deal of confidence that the recycling of resources is done with no deleterious effect on the volume or quality of service that the public receive. That is one big difference in measurement. Another issue would be that people come to work in the public sector to deliver services to the public, whereas people in the private sector, particularly senior management, have a very clear numerical focus. I think, therefore, that introducing an efficiency culture into the public sector is more difficult. We have some extremely good examples, for example, in education and health and the police services, where, for example in the area of productive time, changes in management culture have resulted in improvements to the quality of service that the public are receiving and a recycling of resources into the frontline. In a North Wales police force, for example, the introduction of activity-based costings—a financial management technique—have resulted in the saving of, I think, 145 police officers' time which would have been spent on administrative tasks and now is being allocated to performing police duties that the public recognise as important. That is an example where better measurement and modern management techniques have resulted in a recycling of resources from administrative tasks to tasks which the public would recognise as being of interest to them.

  Q6  Chairman: That is the police force that is investigating the Prime Minister for making an anti-Welsh remark.

  Mr Fanning: It is not the same police force. I think it is the North Wales police.

  Q7  Peter Viggers: Are you making enough use of private sector skills in the Efficiency Programme?

  Mr Oughton: I think we are. Indeed, last night at the CBI dinner the Prime Minister made the point that we are very keen across the delivery of all the public service to involve the private sector in that delivery. In my own Board team, I have a mixture of public and private sector skills. We are split about 50:50 in terms of our experience, over 100 man years of experience in the public sector and the same in the private sector. If I may take the specific work that we are doing on efficiency, the procurement workstream is headed by a recruit I brought in from the private sector, from GNER, working around procurement. He is supported by others who have come in from the private sector, from BT and elsewhere, and they bring private sector skills to bear to help us to develop the approach that we are taking in the public sector.

  Q8  Peter Viggers: But of course in some areas they are chalk and cheese because they are aiming to achieve different things. Do you find that you are up against this private/public interface? How easy do you find it to measure performance in the public sector?

  Mr Oughton: This is not the first time I have used private sector support to deliver our outcome. I remember doing this very much in the efficiency drive we ran in the mid-nineties, so for me this is a perfectly natural way of doing business, I think. In the private sector, of course, the profit motive is a very clear one and the bottom-line numbers are very much clearer. The commitments we have entered into on the current Spending Review and the commitments on efficiency are about the recycling of resources to improve frontline public services. The key challenge for us—and it is very hard, I accept that—is the measurement of the output: the quality of the public services that are being delivered, as well as measuring the money savings that are achieved in the Efficiency Programme. So it is a more complicated thing to do, I accept.

  Q9  Peter Viggers: You mentioned the previous Efficiency Programme. What is special about the current Efficiency Programme? What is different between this and what has gone before?

  Mr Oughton: I think the NAO Report that was published in the middle of February sums it up, because they talked about this programme as, in their view, being probably the most ambitious Efficiency Programme that they had seen operating in government anywhere, and it was taking a very broadly based approach across central government and the wider public sector. So they judged that the ambition was greater, the breadth was greater, and the achievements that were being sought were more substantial—so many of the same techniques being used as previously, but on a much broader scale.

  Q10  Peter Viggers: We were told in evidence that departments are being encouraged to measure new efficiency initiatives in net terms where this is possible rather than gross terms. Was it a mistake to use gross terms initially? What has the progress been in switching to net?

  Mr Oughton: Not a mistake, I think, Mr Viggers, as the NAO Report itself acknowledged, but some of the work that was captured in Peter Gershon's original report was work that was already being developed in departments. At the point at which the decision was taken and the commitments were entered into in the Spending Review, we were working on and building on a number of initiatives that already existed. So, working back to a point at the start of those initiatives, before the investments were being made, to make change happen would have been a piece of very complicated reverse engineering, if you like, to produce those calculations. We have said very clearly—it was said, I know, in the sessions of evidence on Budget 2006—that, as we move into the next Spending Review period, into Comprehensive Spending Review 2007, we aim to move to a net basis.

  Q11  Peter Viggers: You have a dual role of developing relationships with departments and also policing them. Does this cause difficulty?

  Mr Oughton: Yes, I think sometimes it does. It requires a much more sophisticated management of relationships between the Office of Government Commerce and our clients, the departments and agencies with whom we work. In a sense, the first phase of OGC, a brilliantly successful set-up phase, was also a very straightforward one because we were majoring on advice and help and guidance and support. That was a benign relationship, in a sense, and not a terribly intrusive one. As I explained to Mr Fallon, the approach we take now is a more demanding and more intrusive one, really challenging organisations who are not improving their performance. That requires a skill in the staff in OGC who can manage that approach. That is harder to do, of course.

  Q12  Peter Viggers: We were told earlier that the number of projects within the Efficiency Programme without baselines is down to just over 100. How many projects are still without baselines and how are you seeking to move forward on that?

  Mr Oughton: We are reducing that number below 100. I will ask Mr Rossington to comment in detail. We have made very clear that, until a project has successfully established a baseline, we will not count savings against it, we will not count gains against it. There are examples now of where new baselines have been established for health productive time, for example, so we can now start counting those gains in, but we have made absolutely clear that we will not attempt to measure and score and take credit for gains until we have baselines established.

  Mr Rossington: That is exactly the position. The issue about baselines is one that is diminishing over time. For example, in the most recent information that we have from the 10 biggest departments contributing to the Efficiency Programme, it looks as if the latest figure is less than 5%. The Office of Government Commerce has a programme of work underway with departments to eliminate those remaining problems and that will conclude by the end of the summer, along with a lot of other work on measurement following the NAO's recent report.

  Q13  Peter Viggers: At what periodicity do you receive reports to enable you to monitor performance?

  Mr Oughton: We monitor on a quarterly basis. We have, in a sense, increased the rhythm and the frequency of reports because we are at the end of the first year of the three year programme. The time available to us, therefore, to make any corrections if we feel that the programme is falling short of its objectives, is relatively short. Quarterly reports, we think, are right. I report to the Prime Minister and the Chancellor every six months and I do so making an assessment, making a judgment, on progress against the targets. That is advice to the Prime Minister and the Chancellor department by department, but we collect information and we monitor the numbers quarterly.

  Mr Rossington: It is perhaps also worth adding that, in between the collecting of information, there is continuous contact between the OGC and departments; for example, in the past 24 hours I happen to have met three management board members from three different major departments contributing towards the Efficiency Programme to talk about aspects of their work. That is a regular occurrence. The OGC is very much here in close contact with those who are delivering the efficiencies.

  Q14  Peter Viggers: Recent press comment has indicated that some departments have increased their headcount when they undertook to reduce them. Are these reports correct or did they come as a shock to you?

  Mr Oughton: Some of the changes in departmental headcounts, of course, have occurred as a result of redefinition or reclassification. If you were to take the Department of Constitutional Affairs, for example, bringing the magistrates' courts inside central government has increased the numbers for a perfectly clear and transparent reason. In the Department of Work and Pensions, for example, in response to particular policy issues that need to be tackled in the Child Support Agency, ministers took the decision that in the short-term, in order to deal with those issues, headcount should be increased in the agency while Sir David Henshaw was conducting his longer-term review into child support. I think we have good visibility. I am not surprised by the fact that there are changes in both directions. The overall picture, however, is the one that is described in the Budget Report on 22 March, and that is that we are well on track to achieve the 84,000 gross (70,000 net) reductions in headcount across central government.

  Q15  Peter Viggers: You did not mention the Department of Transport, which was intended to reduce its headcount by 650 but it has gone up by 1,400. Can you comment on that?

  Mr Oughton: I would expect the department to meet its targets by the end of the three-year period. This is a three-year programme. In any three-year programme, you will expect there to be variations in both directions to reflect circumstances, but the departmental commitments are absolutely clear and entered into for this three-year period and I would expect them to be delivered.

  Q16  Peter Viggers: The Home Office was intended to reduce staff by 2,700 and it has gone up by 4,000.

  Mr Oughton: At the moment, yes, but I would still expect those commitments to be met, and we do monitor this very carefully. Mr Rossington has described the process we use. We underpin that by a very intensive scrutiny process that I run. I am about to do it now with the permanent secretaries of those departments—the Home Office is one of the first to be done—where we will go through all of those numbers and all of that performance in each of the departments.

  Q17  Peter Viggers: It is fairly difficult to believe that something is going to change in the Home Office which will enable the rise to suddenly become a diminution.

  Mr Oughton: I will be better able to answer that question, Mr Viggers, when I have had my conversation with Sir David Normington and his team, which I will be having in a very short period of time.

  Q18  Peter Viggers: The verification of totals at the end of March 2008, how long do you think the verification process will take and when will the results be known?

  Mr Oughton: I hope quickly. We are developing better ways of measuring. In response to the NAO Report, we have developed further guidance and further methodology on the measurements, which is currently under consultation in departments, and my intention is to have that methodology nailed down before the summer recess. If we can successfully achieve better measurements and combine that with the accountability that the accounting officers and their finance directors currently have for signing off the numbers before they are submitted to me, then I hope, when we get to the end of the programme, that the audit and the eventual verification can be done relatively quickly. It will be more of a routine by that point than it is now.

  Q19  Peter Viggers: Will that be a transparent process? When you clear this by the end of the summer, will that be visible and transparent?

  Mr Oughton: We can make it so because I think it is extremely important that there is a high level of confidence around our method of measurement. The NAO, with my full encouragement, will be looking at the programme again next year. They will want to probe, I am sure, whether we have made progress on the measurement issues that they identified in their report in February. I will want to be able to satisfy them openly and publicly and transparently that we have a good process operating.

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