Examination of Witnesses (Questions 20-39)
MR JOHN
OUGHTON, MR
PETER FANNING,
MR HUGH
BARRETT, MR
MARTIN SYKES
AND MR
DAVID ROSSINGTON
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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