Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-113)


17 MAY 2006

  Q100  Mr Gauke: Would you say there was one area of the public sector that provides your biggest challenge?

  Mr Oughton: I think they all have different challenges. They all have different circumstances to face. They all have, quite rightly, very significant modernisation and transformation programmes under way, and they are all different in character. It would be very hard to rank them in order of difficulty. They are all very challenging things to do but, as the Prime Minister said to the CBI last night, you have to go through a process which will have some very short-term and painful consequences in order to deliver those benefits, and that is what we are seeing now.

  Mr Fanning: I think it is worth reassuring you that we do not treat every public body equally in that we do focus our attention on the top eight departments plus local government because when we do our numbers, they tend to have the biggest contribution to the efficiency targets, to the value-for-money targets. Indeed, when we look at the mission critical projects, they do tend to be concentrated around the eight largest departments, plus local government. So we do very clearly, and indeed it is one of my responsibilities, make sure that OGC's resources are disproportionately allocated to our highest priorities and they track the progress over the last year in making sure that we are focusing our resources in that way.

  Q101  Mr Gauke: Do you ever find there is a danger of overlap with other organisations that are trying to find efficiency, particularly in local government where there seems to be a plethora?

  Mr Oughton: There is that potential risk. It is a very crowded scene. For example, with the Local Government Association, the Society of Local Authority Chief Executives and IDeA (the improvement agency), we want to work with and in cooperation with them rather than trying to compete with them. I think we have developed a good relationship with those bodies that allow us to do that.

  Q102  Ms Keeble: I want to ask some follow-up questions. I can understand that you might not want to point to any particular groups as being less efficient or less effective than others, but nonetheless it must remain that there are particular difficulties in some areas. In response to David Gauke's question, it must be possible for you to say something about which bits of the public sector pose the biggest challenge. At the time when we have these spiralling deficits in some areas of health, it must be possible to say who is doing clever procurement and who is not, or who is managing their structures and systems better and who is not, and where the challenges are.

  Mr Oughton: May I turn that round and draw attention to the fact that in local government, for example, I think the efficiency programme is going very well. In a sense, I rather expected that to be the case because local authorities have a tradition, leading all the way from the compulsory competitive tendering process, in addressing these issues. Against the target of £1 billion on efficiency, which local authorities were committed to in the first year of the efficiency programme, they report that they are likely to be achieving £1.9 billion; that was the mid-year assessment that the then Office of the Deputy Prime Minister as able to make. I think that is a good example of where a sector is doing very well. That is certainly true.

  Q103  Ms Keeble: There are some very specific things around that. I would challenge some of the points you made earlier about the culture of the public sector not being concerned about the bottom line whereas the private sector is. Since you have mentioned CCT, I was a council leader during that era. I can tell you what our sickness rates were compared with the private sector, what the cost per hour was of the different concepts, and how much fraud there was, in which department it was and in which contracts. Surely you must be able to do that now with different bits of the public sector? I think that is what people want to know. They want to know where the waste is, who is being effective and what other people should do. I am sure our Conservative colleagues want to put down awkward questions to the department that is not doing so well. You must be able to give us some of those specifics.

  Mr Oughton: If I may, I am violently agreeing with you because in the local authority sector, largely I think through the beneficial effect of the comprehensive performance assessments, it is possible to look very precisely at the efficiency and the effectiveness of local authority bodies. Looking at the use of resources block of the CPA tells you a lot about how local councils are using their resources; that is absolutely true. Yes, of course there are some very good measures and some very good benchmarks. You have mentioned sickness as an example, costs of transactions and all sorts of things that can be looked at.

  Q104  Ms Keeble: Shrinkage from the depot?

  Mr Oughton: You could pick any range of examples. I did say at the outset that I have always taken the optimistic view, the confident view, that in some parts of the wider public sector there was already a very well developed approach to efficiency. That is precisely what we found in local government. In that sense, yes, there is a focus on achieving the results. My point about the bottom line was a very precise one, in a sense. It was saying that in the public sector the concept of P&L does not operate in the way it does in the private sector. We have to have different measures of performance. Are we concerned about those measures and whether we do well? Yes, I think we absolutely are.

  Q105  Ms Keeble: What would be the magic bullet that would make public spending more effective? That is what we all want to know, is it not?

  Mr Oughton: I think it is a number of factors. If I have the magic bullet, then we are doing very well. It is a combination of factors. It is being absolutely clear about the outcomes that one wishes to achieve. So you need to have an absolutely clear statement of the end result for which one is trying to pitch. One of the major weaknesses of delivery of big programmes and projects that our gateway review technique has identified and the National Audit Office has identified as well is uncertainty about what we are trying to achieve. Getting that certainty is a very important start point, then resourcing what you are trying to do properly and having good metrics and good methods for tracking performance as you move forward through your programme, and spotting when you are going off track and fixing it. These are basic good programme and project management techniques that you find in well-run organisations in the public and the private sector.

  Mr Fanning: The efficiency programme is actually made up of 300 separate projects, all of which have clear targets, clear milestones and action plans, and they are all individually tracked. David Rossington and his team can identify variances against performance during the life cycle of a project and can take action in order to remedy that. One thing we have learnt from this process is that if you do the fairly obvious routine yet not particularly exciting things, you can make a big difference. You can make a big change. The challenge is to be able to assert that efficiency is happening. We can demonstrate that it is happening. One of the debates emerging around this is in a situation where we wish to increase resources in a particular area, how we know that those resources are not being absorbed in inefficient activity. The answer is that you do what David and his team are doing. Similarly, if you take resources away from a particular activity, how do you know that the result of that is not a reduction in service or quality of service to the public? The answer is that you have a programme similar to the one we are setting up where people are asked to be very specific about how they are going to deliver those efficiencies, and you measure their performance against that and take action where there is a variance against the agreed performance.

  Q106  Mr Gauke: My supplementary is to return to the issue of cash and non-cash savings. Clearly, it is very easy to measure cash savings. With regard to the non-cash savings, it must be more difficult. How confident can you be that the assessment of the non-cash savings is measured correctly?

  Mr Oughton: The answer is: more than I could have said six or nine months ago. I will ask Mr Rossington to come in on this. We have done some very specific work with both Health and Education, front-line reviews as they are called, looking very closely at working practices and ways of working, for example in health, looking at the top 10 clinical interventions where the processes can be changed and streamlined to deliver good clinical outcomes with a more effective, efficient use of the resource in question. We now have some evidence. We have a much clearer understanding of what those changes need to be in order to deliver the end result. That allows you then better to track them. That is why we are able now to set some base lines from which we can calculate the benefits.

  Mr Rossington: We have done work, particularly with the Departments of Health and Education, in this area. The answer is that for each of the 300 programmes delivering a set of benefits you have to set up a separate measure of efficiency.

  Q107  Mr Gauke: I am sorry to interrupt. On education, for example, is the end measure going to be exam results and is that not going to take years to come through? You are not going to be able to measure that accurately for a very long time.

  Mr Rossington: It depends on the programme. For example, there is a significant amount of efficiency saving in education that comes from better procurement. You can set up a system to measure the benefits that you are getting from those procurement savings and so on.

  Q108  Mr Gauke: Is that a cash saving as opposed to a non-cash saving? The problem is the non-cash savings.

  Mr Rossington: Yes. In the non-cash area, an example from education would be looking at the benefits that you get from changing the school workforce and freeing up teachers' time. You have to devise a specific set of measures to capture that. The way in which departments have set out these methods is in documents called Efficiency Technical Notes, which are publicly available. Those have been through two stages. There was a first stage in the autumn of 2004 and a second one a year later, last autumn. In the report that the NAO produced earlier this year, they pointed to significant improvements between those two periods. That is not to say that, given that this is a very difficult area, everything is absolutely perfect. There is more work to be done.

  Mr Gauke: My issue with the Efficiency Technical Note, to come back to education, is that it provides measurements that show more time being freed up for the teachers, which is great, but to get through to savings for the taxpayer, either improved output or cash savings, it seems to me it is not giving us the answer because that is still some way off.

  Q109  Mr Newmark: The question is: how are you measuring that financially? It seems so amorphous that, at the end of the day, I suspect it is going to lead, once again, to some fairly creative accounting by the Chancellor in terms of achieving that target, and that is what worries me because it is a non-cash item.

  Mr Oughton: Mr Gauke and Mr Newmark, you have to accept the proposition that the use of trained, experienced teacher resource engaged in teaching pupils, preparing lessons, producing a high quality support and intervention with children in the classroom is more likely to deliver a better outcome than not.

  Mr Newmark: Those are all important things but how do you measure that financially?

  Mr Gauke: I agree with that, but the question is how you measure that.

  Q110  John Thurso: I have one very short question I want to ask. Does your remit run in Scotland—i.e. through the devolved administration—or are you simply concerned with the reserved departments where they happen to operate in Scotland?

  Mr Oughton: No, our remit does not run in the devolved administrations, although it happens that I have a small office in Edinburgh where I have staff who are deployable actually in the north of England. It is a convenient geographical base from which they can operate. However, that said, we do have very close relations with the Scottish Executive, the Welsh Assembly, and indeed in Northern Ireland, both in devolved mode and in Westminster Government mode, and we exchange evidence; we exchange experience; we exchange good practice. David Rossington has regular planned contact with the Scottish Executive that is of course running on a parallel track with an efficiency programme.

  Mr Fanning: For the avoidance of doubt on this point, the European Procurement Regulations are negotiated by OGC on behalf of the United Kingdom as a whole. It is a very narrow technical matter.

  Mr Oughton: That is in one specific sense.

  Q111  Chairman: Finally from me, the Treasury's Departmental report last year included some information on your seven key priority targets. I cannot find anything in this year's report. Is there a reason for that?

  Mr Oughton: The reason for that is that, in assessing how to set the targets for OGC, I made a judgment that widening our remit meant that trying to operate to seven key priorities was not, in the future, the right way of looking at the OGC. The problem would have been quite simply, Mr Fallon, that in order to take on a wider remit, I would have had to have taken on an eighth, ninth or tenth priority, and that did not seem to me to be a good way of giving a management signal to the organisation. What I have done now is to focus the attention of the organisation on three key targets. I think people will remember three but they cannot remember seven or ten. Those three key targets are around: first, delivery of the efficiency programme of £21.5 billion; secondly, our PSA target on value for money; and, thirdly, achieving a significant improvement in the successful delivery of major programmes and projects. Everything we do in the Office of Government Commerce has to be focused on supporting one or more of those targets for it to be worth doing.

  Q112  Chairman: In which official publication will we see information on how well you are doing that?

  Mr Oughton: You will see that in future in the Departmental Report. That is how I will measure myself, but we will continue to measure ourselves formally against the PSA targets for this spending round. Those will not change. Those do not change during the period.

  Q113  Chairman: Thank you very much. You have promised us at least one note. I would ask you to continue to think about an answer you did give on the March 2008 positions. The longer this process goes on, I think you sense the importance of bolstering its credibility and whether you can publish at the end of June/July 2008 a final outcome I think is something you really ought to consider.

  Mr Oughton: We will certainly do that.

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