Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40-59)


17 MAY 2006

  Q40  Mr Gauke: Do we know yet whether future savings by the departments I have mentioned will be reported net of any expenditure from the modernisation fund?

  Mr Oughton: As I think we have tried to make clear, the approach that we want to move to for the Efficiency Programme for all new initiatives will be that they should be calculated on a net basis from a clear starting baseline.

  Q41  Mr Gauke: In 2004 you told us that the mechanisms for departments being held to account will be first of all through the Spending Review settlements themselves. Does this mean that departments who fail to meet their efficiency targets will be penalised in the forthcoming Comprehensive Spending Review?

  Mr Oughton: I think that all aspects of departmental performance are relevant when judging the resources that are required for the next Spending Review period.

  Q42  Mr Gauke: And that is certainly going to be a factor that will be relevant?

  Mr Oughton: I would expect so because, again, as I think the Chief Secretary made clear last summer in announcing the approach to Comprehensive Spending Review 2007, one of the important elements that the Treasury wish to address was a judgment on the effectiveness of public spending across all departments. My colleagues in the core Treasury will be handling this, of course, but I would expect them to want to take a very close look at how money is being spent and what we are getting for it. That is how the public service agreement system operates.

  Q43  Mr Newmark: I have a couple of points of clarification and then I have a separate question. This £21.5 billion figure by April 2008, you said, is not all cash. You said that roughly 50% of it is under private sector provision, so that is the way I think about it. Gershon is ultimately £10.5 billion or £10.75 billion of cash savings, and the rest of it is, sort of, other savings, is that correct? So the real cash element of Gershon is really closer to £10 billion than the £21.5 billion which is the headline figure that Gershon and the Chancellor use.

  Mr Oughton: I would not compartmentalise it to those precise numbers.

  Q44  Mr Newmark: Well, roughly. £10-£11 billion, then.

  Mr Oughton: Sure. What we have said is that a bit more than half we expected to be hard cash and the rest would be non-cashable resource. It is an unusual construct, so it is worth unpacking it slightly. The point here is that the whole of the £21.5 billion benefit is to be used to support the delivery of government programmes in the departments where that benefit is generated. It is to help achieve the public spending commitments that—

  Q45  Mr Newmark: I am thinking about it from the taxpayer's standpoint. From the taxpayer's standpoint, in real cash terms, there is £10-£11 billion of cash savings, as opposed to other efficiencies, which is what you are talking about with the other half.

  Mr Oughton: The taxpayer should see £21.5 billion of improved value secured in the delivery of public services.

  Q46  Mr Newmark: But in cash terms—that is, what is being saved in cash terms—it is really half that figure.

  Mr Oughton: Yes—and I do not think there is anything between us, Mr Newmark, because that is absolutely what we have said throughout.

  Q47  Mr Newmark: I understand what you are saying now. I do not think the public was aware. I think when the public think of this £21.5 billion figure that was announced, they think of it in real cash terms.

  Mr Oughton: The end result should be £21.5 billion of benefit to the public services, either through real cash being invested in new programmes or released capacity that can be used to deliver those programmes more effectively.

  Q48  Mr Newmark: Thank you. That clarifies that point. I would like to pick up on a point Peter Viggers made. The figures he was talking about were figures based on April 2008. That is the benchmarks that were being used. If we go back to the DWP—and I appreciate they have a problem because of the cock-ups on tax credits and everything, so they are a bit behind on that—and we look at 2007-08 figure, there is still going to be a 17,000 headcount shortfall from Gershon in 2008, which was his target date. So it is not a short-term glitch: we are talking about two to three years now. It is the same thing with the Home Office. That is also an April 2008 figure, which shows that there are going to be 4,000 more civil servants, as opposed to what was originally set out in Gershon. Therefore—and I am asking you to make a judgment here—would you not say that the gulf between prospective staffing levels outlined in the departmental account and the cuts as laid down by Gershon is really an embarrassment for the Government, and for the Chancellor, in particular, because this was his baby? He took ownership of Gershon and already we are hearing a number of excuses as to why they are not going to meet their target in 2008.

  Mr Oughton: I do not think, Mr Newmark, I have said that I expect departments not to meet their targets announced in the budget reports.

  Q49  Mr Newmark: These are figures announced in the departmental reports.

  Mr Oughton: I know the figures to which you are referring.

  Q50  Mr Newmark: These are real figures; they are not ones I am making up.

  Mr Oughton: Sure. I do, indeed, know that the figures you are referring to are in departmental reports. That is every department's current statement of the position on headcount. The point I was trying to make in response to earlier questions is that the commitments that were entered into, the 84,000 gross (74,000 net) reductions in posts, were changes that would occur as a result of implementing the initiatives, the lines of activity, that Sir Peter Gershon identified in his report. In the absence of taking that action, then those posts would not be reduced from central government headcounts. There are other changes going on. There are other reasons why changes, both plus and minus, happen in departments. I have, for example, a headcount agreement with the Treasury based on a number for 2008. I confidently expect to have fewer people in my organisation for that period than I planned on, so there will be an example of changes in the other direction.

  Q51  Mr Newmark: With due respect, that is in your backyard, but if you look at transport, the Home Office—

  Mr Oughton: Yes, we do it.

  Q52  Mr Newmark: —the DWP. I read here in the Times that one of the worst offenders is the Cabinet Office, the main supporting department for Tony Blair, which was supposed to cut running costs for the financial year just ended, 2005-06, by 5.2%: "Instead, in an embarrassment to the Prime Minister the Cabinet Office administration bill rose by 1.4% to £882 million." For each department I seem to be looking at, there seems to be a mismatch between what they say they are going to do and what they are achieving. Mr Fanning is from the private sector, like myself originally, and if one were up before the board of directors at the end of the year or the end of two years, one would be held accountable for this mismatch. It seems to be there is a slightly cavalier attitude: "Don't worry. Mañana. Tomorrow we will get there." I do not share your confidence, given what I am seeing in the departmental reports and what I am reading.

  Mr Oughton: No, and I do not think I share your description of what is happening. I am not saying, "Don't worry. Man¯ana. We will deal with this." I am saying that the plans that were set out and committed to in the efficiency programme we monitor and we need to be satisfied that they are being delivered.

  Q53  Mr Newmark: But they are already out of sync.

  Mr Oughton: No. Are the departments taking the actions that they said they would take and delivering the benefits? The answer to that, set out very clearly in Budget 2006, is that against the original targets 33,000 posts have been removed from the central government headcount and another 7,000 posts have been redeployed so that those activities were now in frontline facing tasks. In terms of: Are the actions being taken that people promised they would take? the answer is, "Yes, they are and we are tracking them." Are they having the effect on the overall headcount that we expected? "Yes, they are." Are there changes happening in departments as a result of new priorities and different circumstances? "Yes, of course." But my responsibility and my concern is to ensure that the changes in headcount that were promised in the Gershon report and in the Spending Review 2004 are being delivered and the evidence shows that they are.

  Q54  Chairman: These are not changes in overall headcount.

  Mr Oughton: They are changes in headcount in the activities that are being looked at in these initiatives. As I think I said before, Mr Fallon, without the actions the departments are taking those headcounts would not reduce.

  Mr Rossington: I would add one further point on running costs. I think it is worth pointing out that overall running costs for Whitehall departments have increased by less than 2% compared with a target of 2.4%. I think that is also mentioned in the material from the press yesterday. To my mind, that is the most important figure in that article.

  Q55  Mr Newmark: I would like to touch on another thing. We heard the Chancellor claim that £4.7 billion of economies have been secured already. Going back to my point, is this £4.7 billion in cash savings or these other savings to which you referred?

  Mr Oughton: It will be a mixture of both. Some of it will be hard cash from procurement; some of if will be improvements in output because resources have been redeployed.

  Q56  Mr Newmark: Is it roughly half and half again?

  Mr Oughton: It is about half and half. Those proportions will vary over the period.

  Q57  Mr Newmark: To what extent are the headcount reductions reported by departments subject to review within OGC?

  Mr Oughton: They are reviewed as every other part of the programme. Again, Mr Rossington can describe precisely the review process we operate.

  Q58  Mr Newmark: The reason I am asking is because I have gone through five departments and seen a mismatch. Mr Rossington, you seem to have tremendous confidence, because you look at a sort of headline figure. Are you reviewing things department by department, so you are staying on target?

  Mr Rossington: Every three months, OGC is sent a set of data by departments covering efficiency gains (that is, contributions to the £21.5 billion), relocations and also headcount. When we get those figures, we check them. Where there are any questions that we have, we go back to the departments. We look at them with Treasury colleagues as well until we are satisfied that they are robust. It is because of that approach of grinding out the detail, frankly—which is what my team does as programme managers—that we have confidence in the data that we produce.

  Q59  Mr Newmark: It is interesting that you say it is "grinding out the detail" and I will focus this next question on you again, Mr Rossington. The NAO indicated in February 2006 that the OGC does not validate departments' reported headcount reductions as rigorously as the reported efficiency gains. Why is that the case? You say you grind things out but the NAO seems to be indicating a different perspective at least.

  Mr Rossington: The NAO's report came out in February 2006, and that is obviously three months ago now. Specifically on headcount reductions, we are—

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