Examination of Witnesses (Questions 60
- 79)
WEDNESDAY 16 NOVEMBER 2005
MR NICHOLAS
MACPHERSON, MR
JONATHAN STEPHENS,
MS MARY
KEEGAN, MS
SUE OWEN
AND MR
JOHN OUGHTON
Q60 Jim Cousins: If you were serious
about the target, Mr Macpherson, it would have been mentioned
in this, would it not?
Mr Macpherson: We are very serious
about this target. If we were not serious about it we would not
have the target. Actually, we adopted this target in the 2002
Spending Review. We rolled it forward in 2004 as a demonstration
of the seriousness with which the Treasury takes regional growth.
That was a departure for the Treasury, which historically it is
fair to say has not taken regional development as seriously as
it should have.
Q61 Jim Cousins: These regional funding
allocations when they are set up—it is very interesting
to look at the text. All projects of national significance are
left out of them; so the Thames Gateway, Crossrail, if it ever
gets built, the contribution to the Olympics—all of that
is excluded from the regional funding allocations. 10% of the
expenditure on all of those things goes to Scotland under the
Barnet formula; 7% goes to Wales under the Barnet formula; I think
4% or 5% goes to Northern Ireland under the Barnet formula; but
the regional funding allocations for the English regions—nothing
comes there. Is that not right?
Mr Macpherson: I do not accept
that.
Q62 Jim Cousins: Is it right?
Mr Macpherson: Is it right that
nothing goes to the regions?
Q63 Jim Cousins: No, is it right
that projects of national and strategic significance, like Crossrail,
the Thames Gateway, the Channel Tunnel fast link and all these
other projects are left out of these funding allocations because
they are of national significance? A share of that public expenditure
is passed on to Scotland, Wales and Northern Ireland under the
Barnet formula, but there is no reflection of it in the funding
allocations to the English regions. Is that correct? Yes, it is
correct!
Mr Stephens: Yes, because they
are projects of national significance the Barnet formula and the
arrangements for funding devolved institutions are well-established
and well set out. I would just point out paragraph 3.17 of the
departmental report makes reference to publication of the consultation
document in the course of reporting progress on this particular
target; so that demonstrates that it was clearly contextualised
in the context of working on that target.
Q64 Jim Cousins: In December 2003
you published a government guidance note on progressing local
pay. The only policy in that document is set out very clearly.
It reads as follows: "Within existing national bargaining
frameworks the policy is to increase the amount of regional and
local pay flexibility and variability across the public service
labour market." Is that still your policy?
Mr Macpherson: Yes.
Q65 Mr Love: I want to take you on
to the efficiency agenda. When you last came to the Committee
earlier this year you indicated that you were still developing
a measurement framework to monitor the delivery of efficiency
gains across departments. Is this framework now in place?
Mr Oughton: In most respects,
yes. We have been through a two-stage process, first of all to
measure departmental capability to deliver on their plans, the
first phase of this programme from the announcement of the Spending
Review commitments in July of last year through to April of this
year, when the clock started running on real delivery. It was
about ensuring that the plans were well established. We were clear
what actions were going to be taken by departments. We were clear
the milestones they had to hit, and we were clear about the trajectory
for the delivery of the gains, so that we could measure whether
we were on track or off track. We went through three stages of
that process, in July of last year, in September and then again,
at the Prime Minister's insistence, at the end of the year, to
develop robust plans. These were tested by a moderation panel
including a very significant element of outside involvement, the
Chancellor's productivity panel involving individuals such as
Sir Andrew Foster, formerly of the Audit Commission, John Smith,
Financial Director of the BBC, Sir Ian Byatt, formerly of Ofwat,
and a number of other private sector specialists. We were satisfied
that the plans were in place. When the clock started running on
real delivery, in April 2005, we instituted a process of quarterly
reports on data from departments, looking at the gains in terms
of cash, the gains in terms of value for money, non-cash releasing
benefits, as described by Sir Peter Gershon in his original report,
tracking the headcount reductions to meet the Chancellor's target
of 84,000 gross set out in the Spending Review, and also tracking
the delivery of asset disposals, also set out in the report. In
the Budget in the spring we announced progress so far, progress
ahead of the start of the formal period of reporting, of £2
billion in efficiency gains, 4,300 relocations, with 7,800 further
commitments made, and 12,500 headcount reductions. The methodology
that underpins that, the way in which these numbers are calculated,
has been worked out between ourselves in the Office of Government
Commerce, my efficiency team, the Spending Team from the Treasury,
Jonathan Stephens' teams, with support from the National Audit
Office and the Audit Commission, which assessed the methodology.
We believe we have a robust methodology and we are now calculating
progress quarter by quarter. I would expect the Chancellor to
want to report further progress in the Pre-Budget Report.
Q66 Mr Love: You are talking specifically
about the Gershon efficiency gains.
Mr Oughton: Precisely so, the
21.5 billion.
Q67 Mr Love: I was also asking in
relation to the PSA efficiency savings.
Mr Oughton: The £3 billion?
Q68 Mr Love: Yes.
Mr Oughton: The £3 billion
PSA target, which is called Value for Money Gains is a
mixture of cash-releasing gains and non-cash. It would be made
up of, for example, reductions achieved through direct negotiation
with suppliers on procurement. It will be made up from reducing
process or transaction costs for doing Government business—basic
procurement contracts. It will be made up of improvements secured
through better contract management and better asset management.
It will be made up through joint procurement activity. There will
be a mixture of real cash savings off the bottom line through
the negotiation of deals and a mixture of non-cash reduction in
overheads and costs through the other methodologies I have described.
Q69 Mr Love: I understand that each
department's annual report will give an update both on the Spending
Review 2002 and 2004. Has your Department identified any departments
that are not living up to their commitments? Have you developed
a comprehensive programme; and if there are departments in that
position, are there any penalties or sanctions that you can impose
upon them?
Mr Oughton: No, I am satisfied
that in every case the departments have produced clear plans.
It was a struggle—this was new territory for many departments.
We asked them to produce their plans really very quickly after
the Spending Review settlements were announced in July 2004. We
regarded that as work-in-progress. We wanted to see where the
gaps in the capability were. This is a major mission-critical
programme that has to be delivered across the whole of government.
In exactly the same way as we would look at the skills required
to deliver other major programmes, we wanted to see the skills
issues that needed to be addressed here. At the earlier stages
plans were not in terribly good shape. They have developed very
considerably over the intervening period. I am satisfied that
all departments have now clear plans. They have a clear understanding
of the actions they need to take and a clear understanding of
who is accountable for taking those actions, and a clear understanding
of the milestones they have to hit period by period. In terms
of progress, I have only at the moment one quarter's return for
the period from April through to July of this year, which we have
assessed. We are in the process of assessing the second quarter's
returns that came in in October, and I have not yet completed
that process so I cannot yet form a judgment.
Q70 Mr Love: You did not mention
in all of that whether there were sound data systems in place.
If you think back to the debate we have had, there has been some
questioning over the validity and timeliness of some; but stepping
aside from that, are there adequate data systems in place so that
they can demonstrate to you that the gains that they claim to
be making have been delivered?
Mr Oughton: I think there is a
bit more to do on that. I think at one end of the spectrum the
area where I am most confident is in terms of procurement deals.
You can see the costs paid before and after the intervention and
the use of the new technique, a better negotiation such as the
Department Health reduction in the cost of drugs through their
re-negotiated contract. You can see the effect of £950 million
a year and you can see the effect of triggering improved discounts
on our Microsoft deal for licences, Oracle and so on. You can
measure those gains very precisely; that is real money off the
bottom line on the contract. You can measure the achievement secured
through the use of new techniques, for example electronic auctions.
We recently announced that a consortium for 137 health trusts
had secured 30% discounts on the purchase of desktop IT through
use of the electronic auction. At that end of the spectrum you
can measure with very high confidence the numbers. There is a
harder area, the area that Peter Gershon describes as "productive
time area", where he expected some £6 billion of gains
across the efficiency programmes to be delivered. That is a mixture
of changes in working practices, changes in ways of working. Some
of that is already in place through the re-negotiation of contracts
in the Health Service, and some of it is still to be done. Some
of it will be about the release of time currently devoted to administrative
non-patient, non-pupil facing tasks on the part of public sector
workers through the enablement of IT modernisation programmes
such as Connecting for Health in the NHS.
The Committee suspended from 3.37 pm to
4.00 pm for divisions in the House
Q71 Chairman: Do you have any more to
add?
Mr Oughton: Only one thing, Mr
Fallon. To develop the measurements approach in this very difficult
area of productive time, we have been working first of all with
the Department of Health on a frontline review, talking to clinicians
and administrators in a selection of health trusts, to establish
the current practice, how it can be improved and measured; and
we are about to start a similar review in the Department for Education
and Skills.
Q72 Mr Love: I understand that the
departments no longer have individual targets on efficiency. Does
that mean that the NAO no longer audits those figures, and is
that appropriate?
Mr Oughton: Mr Love, they will
have targets because the Spending Review 04 settlements and the
settlement letters associated with those were very specific about
the efficiency targets that each department had to make, both
in terms of financial targets, headcount targets, and relocation
targets under the Lyons Programme. We are monitoring those. They
remain in place.
Q73 Mr Love: Will they be audited
by the NAO?
Mr Oughton: The NAO is working
with us on the assessment process, and the NAO is currently conducting
a full study of the efficiency programme, which I think it plans
to publish in the New Year.
Q74 Mr Todd: One of the issues that
you have touched on, the Lyons review and the workforce reductions,
is how exactly you measure that output. Have you got an established
methodology for working out how many people are working in a particular
department and reporting on that satisfactorily, because there
are a number of different ways—full-time equivalence, use
of contract staff and all those sorts of things?
Mr Oughton: Every department will
report, as will the Treasury, on their manpower figures, on their
headcounts, and they will be using the same definitions. What
we are concerned about in the measurement under the efficiency
programme are these: one is the reduction in the number of posts.
The commitment was the reduction in the number of posts, not necessarily
the numbers of bodies. How those reductions are made will be a
matter for departments. The same is true of the relocation commitments
under the Lyons programme, where the Government is committed to
relocating 20,000 posts outside London and the South-East by 2010.
Again, we will measure reduction of posts in the centre of London.
The particular individuals who fill those jobs at the moment might
in some cases relocate to other posts as they move to other parts
of the country. They might relocate to other tasks within London
and the South East, and the Department will then recruit locally
when the posts have moved. They may leave the Civil Service as
part of the exit programme, so a number of outcomes—
Q75 Mr Todd: To clarify, if the individuals
change their contractual relationship with the department by ceasing
to be an occupier of an established post, but nevertheless perform
broadly the same duties through an external contract with that
department, how is that counted?
Mr Oughton: If you are talking
about the use of consultancy as a way of substituting—
Q76 Mr Todd: Consultancy or contractors.
Mr Oughton: Or contractors, yes.
I would expect, when we scrutinise the departments' proposals,
to look at how they are continuing to deliver on outputs, even
though they have reduced the number of posts. This is about releasing
resource so that it can be recycled into the front line to improve
public services. We would want to be satisfied, using the same
methodology that the Prime Minister's Delivery Unit uses, that
outputs are being maintained or improved to meet the public sector
agreement targets. We also want to be clear that the costs are
being contained and reduced, in line with the efficiency commitments.
So spending money in different ways, by employing people from
outside government to undertake these tasks could only happen
if those costs were contained within the overall cost ceiling
set in the department. There is no free cheque, if you like, to
go and spend money outside government, because you are constrained
in spending money on your own people inside government.
Q77 Mr Ruffley: Can I ask the Chief
Executive of OGC to remind us—is the 84,000 gross reduction
in Civil Service jobs published in the Gershon review a headcount
figure or a full-time equivalent?
Mr Oughton: It is a reduction
in posts.
Q78 Mr Ruffley: Which of those two
is it?
Mr Oughton: It is a reduction
in posts.
Q79 Mr Ruffley: Does that include
part-time?
Mr Oughton: It would vary from
department to department, yes.
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