Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)


17 MAY 2006

  Q20  Chairman: You can see the difficulty, Mr Oughton. If headcount is going up and not down and departmental running costs are going up and not down, it is very hard for people to have confidence that this programme is being delivered.

  Mr Oughton: I accept that it is a complex scene. Of course headcount was an issue right at the start of the public debates that commenced on efficiency back in 2004. The point about headcount is that the posts that are being reduced, the posts that are being taken out of the complement, are posts that would have been there were it not for the efficiency changes that are being made. There are always other changes that are happening in departmental programmes in response to policy priorities, in response to events, frankly, that need to be put into that balance, but this efficiency programme is designed to deliver the explicit benefits set out and is doing so.

  Q21  Chairman: Perhaps you would consider publishing it in the summer 2008

  Mr Oughton: I am very clear: we absolutely have to be transparent about this.

  Q22  Mr Gauke: May I ask about the various different workstreams identified by Sir Peter Gershon. In particular, the NAO Report in February identified the procurement and productive time workstreams seemed to be obtaining greatest gains as compared to some of the others. That was the position in February. Is that still the case? What is the position with regard to where we are now and what has happened since?

  Mr Oughton: The February report was based on figures collected up until December 2005. I am just in the process of receiving a further quarter's data from departments, but we have not yet analysed it so I do not yet have a final assessment. I would expect the shape, however, to be much the same. To take procurement, which shows the largest single contribution so far and where my expectation is that we will exceed the predictions that Sir Peter Gershon himself made: he thought something like £7 billion would be secured of the £21.5 billion from procurement and I think it could be quite a bit higher than that. I think the reason for that is because we have got further into a programme with tried and tested techniques. Lots of other organisations in the private sector use the techniques that we are starting to use now: aggregation of demand, using electronic commerce, good purchase to pay systems—all of the things that take both process costs out and costs off the bottom-line deals that are struck. I think that is pretty well-tilled territory, so I would expect us to be making further progress. On productive time, on which Sir Peter Gershon expected to deliver some £6 billion, it is certainly true that we had a challenge at the beginning of the programme in defining and describing precisely how that was going to be achieved. It is about getting the right people to do the right things in the right way and with the right tools. We have had some work underway in the two areas of major contribution, in health and education, working with those departments on frontline reviews to establish precisely how those changes will take place. I now have a much higher degree of confidence that that £6 billion will be delivered, and, indeed, because we have now established a baseline in health on productive time, we can start counting those gains as they occur.

  Q23  Mr Gauke: Are there any of the workstreams on which you feel at the moment you may be struggling to meet the Gershon expectations? For example, transactional services, the figures seem to be low there. Would it be fair to say that is lower than expectation?

  Mr Oughton: The figures are low there because Sir Peter's approach—which he was very explicit about when he wrote the report—was not to add to the already very significant challenges and commitments that government have made in modernising the public services and modernising transactions channels by expecting to put a whole new pile of initiatives on top of the ones that were already underway. He wanted to ensure that this was a managed risk programme rather than a high risk programme. Since what appears in the Efficiency Programme under-reports what is happening across government as a whole, this is the additional bit that he identified in the Efficiency Programme, so that is why the numbers are relatively small. On transactions, of course, the Government is making very good progress. Within the context of the Government's IT strategy, published last autumn, there are some good examples of where transactions are now being done differently, with people doing tax discs on line; filing their tax forms online; delivering services in different fashion. On corporate services, another relatively small element of Gershon's package—but an important one across the whole of the wider public sector—the challenge is there. The reason why I think this is a tough thing to do, is that we are asking individual bodies and organisations to co-operate across existing organisational boundaries. For groups of district councils, for example, putting their services together and sharing corporate services is quite a tough challenge for people to commit themselves to. We are going through the same process in central government with small and medium departments, looking at the best way of modernising and changing those processes, but we now have, if you like—which is very different from where we were two years ago—a cultural change, an attitude change, which accepts that we should be delivering those services collectively and relying on a service provider to do them on behalf of a wider community rather than everybody doing their own thing. That will give us benefit, I think.

  Q24  Mr Gauke: May I just come back on productive time workstreams and your earlier comments. If you look at education, for example, and the various proposals within Gershon, I can see how a lot of those might reduce the amount of time teachers would spend on a bureaucratic task, which is in itself a good thing, but translating that into benefits for the taxpayer is something that can be difficult. How do we go about that? Are we talking about a reduction in the number of teachers?

  Mr Oughton: No. It is very specifically about ensuring that the capacity we have invested in by recruiting and training teachers is applied to pupil-facing, pupil-supporting tasks. When I talk to teachers who say to me, "We now have empowerment in the management of our local budgets, so we are taking that empowerment"—quite right too—"and we are now running procurement for our school" my challenge back is to say, "If you do this singly as an individual school, then you will not get the economies of scale. Would you not rather spend your time on your core tasks: teaching children, preparing for lessons, developing your own personal skills to interact as a teacher, and have someone else who can take the specialist procurement task and do it for you?" That, in a sense, is the challenge for us and for the Department for Education, to persuade people to want to operate in that fashion.

  Q25  Mr Gauke: Presumably, the way that the taxpayer gets its return from that is as a consequence of higher quality education being provided at the schools, which would ultimately feed through in better exam results and so on.

  Mr Oughton: Releasing resources to the frontline to improve the public services. Absolutely right.

  Q26  John Thurso: If I may take you back very briefly to something you said in your introductory remarks when you talked of the zero-based review. In my life before coming to this Place I did that in a number of companies, and the start point was with the market and the product and then working out how to build up. The whole point is discounting just the budget-plus approach. How do you do that when you basically do not have a top line?

  Mr Oughton: It is tougher in government. I do have, however, a range of products and services that we provide to departments and to agencies and to other bodies in the private sector: Gateway Reviews; negotiated deals that people can buy into; best practice guidance that people can use to help improve their performance; support for developing skills in programme and project management. So there are specific offerings and we do regularly assess with departments and agencies how effective and useful those products and services are. We are moving to a charging regime for some of those, so I think that will allow us to judge very, very directly whether those products and services are valuable: people will choose to buy them or not, I think. That will give us a better measure of whether the products and the services are valued by our customers. But, for us in government, the particular way I have chosen to go about this is to say, "We must look at those functions, those roles that need to be carried out in the centre of government rather than being carried out within an individual department or agency." We are not saying they necessarily have to be done with an Office of Government Commerce, but just being clear what needs to be done: Is it just giving light touch advice? Is it giving heavier handed instruction? Is it producing a mandate? Mr Fallon, we have had this discussion in the Committee before, about whether the OGC should be advising or directing. Being clear about the role that needs to be played in the centre of government, and then, if we are collectively clear about that, the Treasury, the Cabinet Office, amongst our interested parties in departments who consume our products, we can move on to the organisational design and say: Should the OGC be doing this? Should the Treasury do it?—or whatever. We are at that stage at the moment, just working through that second question.

  Q27  John Thurso: Can I turn to the question of shared services. The Gershon Review identified the greater use of shared service between departments as one of the most important ways to make the planned efficiency savings. How much of the £21.5 billion in efficiency target will be achieved through shared services and where are you along that road?

  Mr Oughton: A relatively small element, between £1 billion and £2 billion, I think, is logged against the corporate services part of this agenda. That was a reflection, I think, by Sir Peter Gershon that we were only just moving into that territory and it would have been unwise to assert very dramatic savings in that area until we had done the work and we had assessed how to go about it. That is what we are going through now. We are developing a number of sector plans, looking at central government as a sector, looking at health, education, criminal justice and local government too, assessing where those shared corporate services initiatives are starting already. There are some very good examples: groups of district councils, for example, co-operating both on their shared corporate services, their finance and their HR, but also on their frontward facing services: revenue collection, benefits distribution. Looking at who is doing that well and seeing how we can exploit that and grow it, and, in central government, looking specifically at the corporate services, the HR, the finance, the IT, the procurement, to see how we can do that collectively. We are just in those discussions now, developing that sector plan and identifying whether the right thing to do for central government is all to buy the same service from one big provider, whether to go into a club and develop a collective solution or whatever. We are looking at all of those options now.

  Q28  John Thurso: Do you think there will come a time when there will be a case for a more compulsory approach? That actually you will say, "No, we have worked out how to do it. Here it is. You jolly well do it"?

  Mr Oughton: I think there is a sense in any large federated organisation, large corporation, that there need to be some common standards that operate. There will be some things that, for the organisation as a whole, in a sense are laid down. You could imagine, in the shared services agenda, if we were looking at our finance function—currently run by every ministry itself, for understandable reasons—every accounting officer needs to be satisfied that he or she can account to Parliament and have a strong finance function that will allow them to do that, but, if you look at where the market place is going, you can see two or three standard platforms, standard products, that everybody is using. So you could very easily see yourself getting to the point—and we have not reached this conclusion yet—where we say that it is one of those two or three: We do it in a standardised form; we do not customize it; we use standard processes—and everybody then should do that. I think that is a potential outcome from the work that we are doing.

  Q29  John Thurso: Would you consider outsourcing that as another option and just say that every department has to outsource? We will have lots of players in the market competing and there will always be one or two different players and they will be vying to bring the price down.

  Mr Oughton: We could choose that. I will ask Mr Barrett to comment, if I may, since he is closer to the market place issues. I think one of the issues we have to assess first of all is the degree to which there is an internal market in government: Are there large ministries who could provide this service to other colleagues already and can they price their product? If we are going to go out to the market place and outsource, there will be issues around whether we each go separately or once as a group. There will be issues, as has always been the case, as to the degree to which we put our own house in order before we go to the market place There is always an issue about who takes the gain when we are going to an outsourced solution. We need to work through all those issues before going to the market place, but a market-based solution is certainly one possibility.

  Mr Barrett: May I build on John's comment about the timing issue. One of the key rules of outsourcing is that you do not outsource a mess. If you do, the person who makes the money, a disproportionate amount of money, is the private sector contractor. You get your own house in order and then you outsource it. That would be where we would be on shared services, on finance in particular.

  Q30  John Thurso: I understand the Cabinet Office, Treasury and ODPM sought to create a shared human resource function that has been described as an "abortive attempt".

  Mr Oughton: Yes.

  Q31  John Thurso: What is being done to share the lessons of that with other bodies planning similar shared services?

  Mr Oughton: I am afraid I have to admit to being the surgeon in the case of this particular procedure. It is an example of where the new, more demanding and intrusive approach is at work. We had a piece of independent review work done. When we looked at that proposal, the fact of the matter was that it was sub-optimal, even putting those three departments together. I pay credit to them for wanting to collaborate—that is an important signal here—but it was still too small. Something like 2,000 workstations would have been included in the final outcome. That really was not attractive enough for the market to respond, so the business case, frankly, did not stack up. It would have been a lot of investment for minimal return. How did we learn lessons from that? Those three departments are participants now in the wider work that I have described. Of course, in the work we did in the review, looking at this solution with the eGovernment Unit and the Cabinet Office, we have picked off those lessons and they will form an important part of our approach this second time.

  Q32  John Thurso: May I turn back to something we touched on earlier, headcount, and ask how useful headcount is as a measure of efficiency.

  Mr Oughton: I think it is useful for two reasons. When, as I say, the public debate started on efficiency, way back in 2003/2004, there seemed to be the commonly shared view that headcount mattered, and pictures of civil servants were very prominent in that debate at the beginning of the process. It is something we felt we could use as a measurement, and of course many of the changes we are introducing, many of the process changes that are being introduced, will deliver the same or better public services but at reduced cost. Frankly, some of that reduced cost will be by requiring fewer people to be engaged in traditional processes that have been running in the past. Tracking the changes in numbers of people involved, I think, can give you a very good indication of whether a process is being run more efficiently.

  Q33  John Thurso: Surely it has to be balanced at the same time with a measurement of the outcomes rather than output.

  Mr Oughton: It does.

  Q34  John Thurso: If I may give you an example of the new JobCentre Plus. In my part of the world there was an office in Wick and an office in Inverness and an office in Glasgow. The Wick office has been closed and the work has been parcelled out to all sorts of offices round the UK. It is now impossible to get an answer from anybody, whereas I used to be able to get an answer on the same day service. Two people, who have been made redundant from other programmes, have now been employed to try to co-ordinate, and they have come to see me to say they cannot get answers. It seems that instead of any greater efficiency there is a massive inefficiency in output that ultimately must lead to extra cost in the system—but the headcount has gone down.

  Mr Oughton: I would not defend an outcome that did not produce a better service at affordable, controllable cost. That is precisely what this programme is intended to achieve. I will not try to comment on the specific example you have quoted, Mr Thurso, although I recognise the general proposition. In the work we do with every government department, one of the important things we do is to test the quality of the end result, very much in the way the Prime Minister's Delivery Unit—Sir Michael Barber and now Mr Ian Watmore—does, in the way we have the conversation. An important element of that conversation is: "Show us how the service is going to be delivered. Show us the quality of the outcome." Where we spot examples of service quality potentially changing in a detrimental fashion, I would challenge that, we would challenge that, because the outcome from this programme has to be improved service quality.

  Q35  John Thurso: The concern I am driving at is that, when I ran a company and I basically needed a better bottom line, I was looking at a cash-on-cash approach and, very simply, a saving was where less cash went out. When I look at many administrative programmes, a saving is a reallocation of cost. In fact, the best training, I think, for a session like this is to watch the Yes Minister DVD of Sir Humphrey achieving 5% in exchange for honours.

  Mr Oughton: Surely not!

  Q36  John Thurso: I am sure you will know the particular episode. But the point is that all those savings were because people were reclassified. I sometimes feel it is a bit like punching a blancmange: you get in one end and it pops out somewhere else. How do you feel that you are getting a real cash saving and the same outcome for less money?

  Mr Oughton: Of course, I am not trying to get a cash saving for the whole of the £21.5 billion. Again, Sir Peter Gershon was very clear when the report was written: the outcome in gains would be a mixture of hard cash off the bottom line and . . . . That is typically what I would expect to see in a procurement deal: you negotiate a better deal, you reduce the price and the money comes off the balance sheet. I think we have good measures for tackling that. We can see the deals that have been negotiated; we can see how they compare with what went before. The NHS drugs deal, for example, and everything that we are doing in electronic reverse auctions: that shows you the before and after case and that is real cash that you can have confidence can be reallocated to the frontline. A large element of this programme is not about cash reductions; it is about releasing capacity that can be used in different ways. Peter Fanning has quoted the example of the police, and there are similar examples in education. It is about using that time more productively. We value it. We value it and we calculate it, but it is not real cash that we take away from the programmes. There is nothing in this Efficiency Programme that is designed to take money away from departments. It is all about recycling money in budgets that in the Spending Review 2004 were designed to increase in real terms to deliver real improvements.

  Q37  John Thurso: Just for clarity, how much of the £21.5 billion we talked about is what you and I in the private sector would bank, and how much is shuffling around this and that?

  Mr Oughton: It is all banked, in the sense that it is all being used in different ways. Something like 50% or a bit more will be in hard cash and you could directly recycle that into activities in the same department. The rest is non-cashable, but it is still recyclable resource which goes to support the programme. I would not use the term "shuffling" Mr Thurso. It is a reallocation to support the delivery of the spending plans that the Chancellor announced in the Spending Review 2004.

  Q38  Mr Gauke: Could I ask about the Comprehensive Spending Review, the proposals that the Chancellor mentioned in his budget for the early financial settlements in respect of the Cabinet Office, the Treasury, HMRC and DWP. Have you had any discussion with those departments as to how that will be pursued?

  Mr Oughton: I have not yet. I think the important element about those settlements is that it gives each of those departments, including my own, the Treasury—I am part of the Treasury group, so I have taken the same settlement as the core Treasury—certainty over our budgets from now until March 2011. That is really quite extraordinary and allows us to plan on the changes that we need to make to deliver services. The Chancellor also announced, of course, that coupled with those settlements was an element of modernisation fund money to enable those changes to take place. That is what we have to work through now.

  Mr Fanning: It is important to point out that, although we are focused very clearly on the SR 04 targets, we have seconded some staff, in particular a senior member of OGC who used to work also in PMDU, to support the work on CSR, so that the lessons that were learned in the current spending round can be learned in the CSR spending round. Indeed, he is coming back to OGC at the end of this month. It is also significant that his work will be taken forward by a team which includes someone from the OGC Efficiency Programme. That shows there is joint working between ourselves and colleagues in the Treasury to make sure that lessons learned in SR 04 are in fact brought through and delivered as part of the Comprehensive Spending Review.

  Q39  Mr Gauke: If I may just come back to the £800 million modernisation fund. At what sort of stage are we in working out how that money is going to be spent and how that is going to work?

  Mr Oughton: At the very early stages, for the simple reason that that is to cover the Comprehensive Spending Review 2007 period, which does not start, of course, until April 2008. It is right at day one, in a sense, of working out how that will be managed. If we can make progress ahead of time, of course no one is going to hold back from making the changes and securing the efficiencies if they can be secured. But I think the Chancellor made clear in the Budget and in speaking to this Committee that he wants to see embedding efficiency for the long term and improvement in performance. As Mr Fanning has described, we want to make a strong link between what we have learned in the Efficiency Programme we are running now and what will happen in Spending Review 2007.

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