Conclusions and recommendations
1. Some £13.3 billion efficiency gains
have been claimed, but while £3.5 billion represent efficiencies
there are some doubts, and measurement weaknesses, around the
reliability of the remainder.
The programme has brought a greater focus on efficiency in departments,
but the lack of sufficiently reliable data, reliance on estimates
and inconsistency in the way costs are treated mean that some
74% of efficiencies remain uncertain. Departments need to improve
their measurement of efficiency by establishing reliable baselines,
taking account of all additional costs involved in achieving efficiencies
and having supporting evidence which is subject to independent
challenge by, for example, internal audit.
2. There is evidence that some efficiency
projects may be having an adverse impact on service quality.
The Department of Health, for example, claims efficiencies through
patients spending less time in hospital despite the rate of readmissions
rising. The relationship between efficiency and quality of service
is complex and not always susceptible to precise measurement,
so departments need a portfolio of indicators to identify more
accurately factors contributing to changes in quality. These should
include baselines against which to assess changes in quality,
cover the critical elements of service quality such as timeliness,
accessibility and customer satisfaction, and demonstrate the impact
on achieving key outcomes such as improved healthcare or standards
of education.
3. Improvements in efficiency may not be sustainable.
Some projects, such as the Ministry of Defence's early decommissioning
of some of its fast jets have achieved one-off financial savings
rather than improving efficiency for the long term. If lasting
change is to be demonstrated departments need to develop measures
which reflect the unit cost of delivering key services and outputs
over time. In this way departments would be better equipped to
focus on underperformance where it occurs.
4. By not including on-going costs six of
the ten largest departments may be over-stating their efficiency
gains. Despite a recommendation by this
Committee[2] departments
still report efficiencies without netting off the expenditure
incurred to achieve them. The Department for Work and Pensions,
for example, did not subtract the £164 million cost of the
Post Office Card Account, which it incurred in 2005-06 as part
of its efficiency initiative to move customers to cheaper methods
of payment. The Treasury has announced that for the next spending
period such costs should be taken into account, but this requirement
should also apply to the remainder of the current period to 31
March 2008.
5. Headcount reductions are being secured,
but the use of different starting points partly diminishes confidence
in what has been achieved. Five departments
secured the Treasury's agreement to use staffing baselines prior
to 1 April 2004 which was the starting point for the programme.
The Department of Health for example, used a baseline of March
2003 enabling it to claim an additional 450 headcount reductions.
Adopting a similar approach the Department for Work and Pensions
reported an additional 2,060 reductions. Across the programme
3,205 headcount reductions were delivered prior to 1 April 2004,
representing 7% of reported progress. A single starting point
would improve the clarity of what has been achieved, though previous
performance in reducing headcounts should be reflected in setting
departmental targets.
6. Reported reallocations of staff to the
front line are less reliable. Inconsistencies
in the definition of the front line (the definition used by HM
Revenue and Customs includes some managers, administrative support
and IT staff), and reliance on projected rather than actual numbers
(the Department of Work and Pensions relies on projected numbers
of personal advisers who have moved to the front line) throws
doubt on reported reallocations to the front line. The Treasury
should set a clear and consistent definition of what constitutes
a 'front line' role, and departments should only report reallocation
when they have actually been achieved.
7. There remains evidence that the basis for
some claimed efficiencies has been insufficiently challenged.
The Department of Health with OGC's agreement, for example, made
a statistically unsound adjustment to a baseline which added £300
million to reported efficiencies. Over the past year the challenge
provided by the OGC has, in many respects, become more targeted
and informed. In assuming overall responsibility for efficiency
from OGC the Treasury should adopt a still more rigorous process
for reviewing the supporting evidence for department's claims,
using qualified analysts and statisticians when required.
8. The full potential to achieve efficiencies
is not being realised. Almost every week
the Committee is confronted with the problems departments have
in delivering public services efficiently and effectively. Efficiency
improvements in the current spending period are, however, being
sought from the narrow basis of a small collection of projects
in each department, which does not encourage departments to look
at efficiency in the round. While the basis for seeking efficiency
improvements in the next spending period may be wider, the Treasury
should work with departments to put in place a more coherent performance
framework including targets and benchmarking to reduce corporate
overheads and administrative functions, with unit cost and productivity
measures for all key outputs. There should also be regular opportunities
for front line staff to have a say in how service quality and
efficiency can be improved.
2 Committee of Public Accounts, Fifty-fifth Report
of Session 2005-06, Progress in improving government efficiency,
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