Examination of Witnesses (Questions 60-79)
MR LEIGH
LEWIS, MR
ADAM SHARPLES
AND MR
PHIL WYNN
OWEN
28 MARCH 2007
Q60 Justine Greening: Do you know
how much you have spent on voluntary redundancy payments at this
stage?
Mr Lewis: Yes, I do. Since March
2005 we have spent around £270 million up to date on voluntary
and early severances. It is quite a good example because that
has been through the same process and we estimate that the savings
will be about £775 million on an NPV (Net Present Value)
basis.
Q61 Justine Greening: That is over
the 4,000 so that probably works out at about, what, £60,000
a package?
Mr Lewis: The NAO produced figures
in the efficiency programme report. In one sense they were rather
comforting to me because they estimated that we had spent an average
of £57,000 in each individual case. They looked at HMRC,
which is the other very big employing department in Government
going through a similar efficiency programme, and their figure
had come out at £58,000. It is not that I take great pleasure
in that we are £1,000 cheaper. It seems to me that we are
in very much the same ballpark.
Q62 Justine Greening: Do you not
think that is a big pay-off for people compared to what you would
get in the private sector? Maybe you can virtually be sure that
there will be no compulsory redundancies as long as people can
walk out with £60,000 in the bank.
Mr Lewis: First of all, of course,
we are talking here about a department which has reduced its overall
headcount by approaching 22,000 and has used this for 3,800 people.
It is by no means the case that every reduction is effected through
an early severance or retirement package in any shape or form.
I do not think I want to be drawn into comparisons with the private
sector. One reads lots of figures in newspapers; they may or may
not be true. This is a reality if we are having, in certain circumstances,
to believe that we need to ask someone to consider leaving us
because we have no continuing need for their services, who may
have worked for us for a very long period of time. Many of our
staff are long serving. Against that background, I think it may
seem not such a high figure.
Q63 Justine Greening: You talked
about reducing the headcount. What was the comparable headcount
in around 1999-2000 for your department?
Mr Lewis: The Department did not
exist then. The Department came into existence in 2001. We started
the overall efficiency programme with staffing of around 131,000-132,000
at the beginning of that process and we will by the end of the
SR04 period be down to a little over 100,000. That is our 30,000
reduction. Those are full time equivalents.
Q64 Justine Greening: I understand
that. What I am trying to find out is what the headcount was earlier
on in the process, around about 1998, 1999 to 2000. What was the
equivalent staff for this organisation at that point?
Mr Lewis: That would be quite
a hard calculation to do. I do not say it would be impossible
to do but in a sense you would be going back in and having to
separate out different parts of different predecessor organisations
because there was the DSS, with the Benefits Agency within it;
there was the DfEE, which had the Employment Service but had parts
which then went into the DWP, parts which became the DfES at that
point. It might be quite a hard calculation to look at. I will
see if I can help in any way.
Q65 Justine Greening: That would
be helpful. My sense is it would be hard but it is easily possible
to do. It is just a question of somebody sitting down and working
back through team structures several years ago. What I am trying
to get towards is the productivity debate. If we look at the ONS
forecast for productivity, the latest figures they gave were that
we are still significantly lower in productivity than we were
in 1998. My concern is that we will have spent probably quite
a lot of money to become broadly slightly less productive in the
DWP than we were in 1998. Is that going to happen?
Mr Lewis: Let me see if I can
help you in that sense. What did our own research report find,
the one we have been talking about? It found that from 2002-03,
which was the first complete year of DWP in its current form,
until the latest available data point in 2005-06 that total factor
productivity had increased by between 2 and 2.3% per year on average.
It is a provisional figure and we have not yet finally validated
it. We believe that DWP productivity in 2005-06 will have risen
by some 3%. Our productivity, as far as that research report measured
it, has been increasing since the Department's creation.
Q66 Justine Greening: If you look
at the ONS statistics, it seems to be from a very low base. Yes,
the low point was 2003. At that stage it was probably, looking
at this graph we have here, around 76 base points of a starting
point that was 100. In other words, my concern is that we will
have spent a lot of taxpayers' money, voluntary redundancy, some
quite significant other costs including a written off £60
million on the BPRP to all become slightly less efficient than
we were 10 years ago. This is all about efficiency savings. It
seems to me that the only good outcome of this is that it is going
to at least have got us back to the point that we were at a decade
ago.
Mr Lewis: I will try and see if
we can help you. I do not recognise that analysis but then I have
not gone into it in every detail. In one sense, you can only be
where you can be. What the analysis seems to show is that, since
the DWP came into existence, its productivity has grown year-by-year.
I have no doubt that its productivity is going to go on growing
and probably is going to have to go on growing faster than it
is now. That is the challenge I face. I do not want to appear
in any sense to be doing less than absolutely full justice to
your question. In a sense, I suppose I want to use most of my
time driving this process forward rather than looking back. I
think the DWP has a good record for this and many other things
since its creation and much to be proud of. Our challenge is to
take this Department forward.
Q67 Justine Greening: I guess the
policy outcome is that you change the Department when you have
reached rock bottom so that your base line staff point is as good
as it can be. I appreciate that that is obviously way outside
of your remit. The last question is around the comprehensive spending
review. Obviously that will have an impact on your future targets.
At what stage will you be able to share with the Committee what
those targets are going to be? Can you give us an assurance that
we will have chance to input into them before they are fixed in
stone so that we can give our Committee perspective on what we
feel would be appropriate?
Mr Lewis: Yes, I can give the
Committee that assurance. I cannot at the moment do absolute justice
to your first question which was to say when we think that it
would be most sensible to do it, because we are still in the quite
early stages of discussion within Government on this. We want
to come to the Committee at a point where this is not so cooked
that the Committee has no chance to have a serious discussion
on it but is at least cooked enough that we can have a serious
discussion on it. We are not there yet. Perhaps we could discuss
with the Committee informally, outside of the formal structure
today, when might be a sensible time to try and bring some draft
proposals before the Committee.
Chairman: We now need to move into private
session.
Q68 Chairman: Anybody who experienced
the old DSS and Benefit Agency would argue that things are massively
better now. That is not least because of some of the processes
and ways of working that the Benefit Agency. On that there has
been progress. There has been a bit of history around these OGC
things and whether we can see them or not, as you know. We now
have progress. What you have sent us is helpful but you said that
formal quarterly report was only put in for the last quarter of
2005-06. Would we be able to see that quarter's report, because
what we have is a snapshot up to December 2006 and it is not clear
how you got to where you are.
Mr Lewis: The difficulty I am
in is that this was the first occasion on which we reported to
OGC in as structured a way as the charts that we have provided
in confidence to the Committee. Before that, there just was not
that level of detail. The view that is taken at the moment across
Government is that it would not be appropriate for departments
to go into great detail about what may have been a myriad of different
reporting arrangements before that. That is why, however, we thought
it would be useful on a confidential basis to let the Committee
see the way we are now reporting to OGC. Of course, we will be
happy for that to continue into the future.
Q69 Chairman: We will get copies
of future reports as they happen?
Mr Lewis: Yes. I would like—and
I think our ministers would probably wish to ask the Committee—for
it to be on the same in confidence basis.
Q70 Chairman: Absolutely. We understand
that. What particular elements of information in the tables do
you think are not suitable for wider publication? I find it difficult
to find anything but over to you.
Mr Lewis: There is some theology
in this. It is like so much else. If you pick one number here
out of all the numbers we have in front of us, it takes us to
the heart. Government probably needs some space in which to do
its business out of the glare of immediate and ceaseless publicity.
It is important that the OGC process we go through is a rigorous
one. OGC apply a really quite high degree of rigour to looking
at and challenging departments on a whole range of issues, including
their efficiency programme. It is important that that is able
to take place within what you might call a reasonably safe space.
The difficulty, if that was not there, is that there might be
over time a tendency to transmit less information, to be less
candid, to pull punches et cetera. I need to know as the Permanent
Secretary. I think our ministers need to know whether the OGC
believes the forecasts, the figures that we are providing and
their view of our success in delivering the efficiency challenge.
We need to know what that is en clair, if you see what
I mean. That is why, without getting into too much of the theology,
the view across the Government is that it would not be helpful
for this process to carry on within the full view of public debate.
I feel slightly constrained in being able to go further than that.
Chairman: I do not. I understand what
you say but when announcements are made that are intended to convey
to the public that X% level of efficiency is the order of the
day but the public never, ever sees any evidence of whether that
has been achieved, I think it is a problem. I understand what
you say about the level of detail that is available but a year
ago we were told absolutely categorically that nobody outside
OGC could see these documents at all. No way. When the Leader
of the House found out about it, he was appalled and suddenly
they are available. I do not think you are doing yourself as a
Department—or across Government—any good by what I
think is an over amount of secrecy on these documents. When you
have done well I do not see why you should not be sharing it.
There may be some things in there and I can see some myself, but
I think the blanket ban is not helpful to your cause. I realise
you can only speak for your department so I will stop there.
Q71 Jenny Willott: We asked whether
it would be possible to have a copy of the overall risk assessment
produced by OGC. You said that they said they were subjective
and we could not have them. If that had been disclosed, what difference
would that have made to the relationship between you and OGC?
Mr Lewis: Again, I come here bearing
a cross Government policy, as you will understand. This is not
just a DWP issue. The view is that OGC does reach a judgment on
its assessment of each department's programmes and that there
might be a risk that such judgments would have less candour and
honesty if they were going to be immediately subjected to the
public gaze. I do not think I can easily go hugely further than
that.
Q72 Jenny Willott: I was not asking
about whether they should be made public. I was talking about
being made available to us on the same confidential basis as the
figures.
Mr Lewis: At the moment, the OGC's
view is that that is not something that they are willing to do.
No doubt this Committee is entitled to make its view known clearly,
if that is something which the Committee feels is not an acceptable
position.
Q73 Jenny Willott: If OGC had not
blocked that, would you have been willing to share it with us?
Mr Lewis: That is a question I
am going to slightly duck. I have a set of collective responsibilities
to Government as a whole. You just wear those when you are a Permanent
Secretary. I do not think I am in a position to give you a personal
view on this today.
Q74 Jenny Willott: In table one it
shows from quarter four of 2005-06 to quarter one of 2006-07 a
drop in the reported savings from 860 million to 719, a drop of
just under 150. Can you tell us what the reason was for that in
the actuals?
Mr Lewis: I am not sure that instantly
I can, looking at those. What may have been going on here is that,
as part of an ongoing process, we go through a continual validation.
It may be that in that quarter we concluded that some figures
that had previously been reported were not as safe as we had decided
previously. You will see that quarter four was much higher in
that respect than quarter three before it. I am going to take
some notice and write to you on that because I am not sure I can
give you a perfect answer.
Jenny Willott: This might be me being
a bit daft but it looked to me as if the actual figures are identical
to the forecast figures, except a quarter ahead, which would suggest
that I have never seen any accounting figures where the actuals
were exactly the same as the forecast figures. That shows the
most incredible amount of planning and foresight.
Q75 Justine Greening: If the Olympic
people had had that sort of input, it would have been brilliant.
Mr Lewis: I am not going to pretend
to the Committee that I count myself as the absolute accounting
expert. These figures have been gone over in great detail, not
just by us but also by the NAO in their efficiency programme.
They go through a very rigorous internal process of control as
well. I am as satisfied as I can be, as the accounting officer
of the Department, that these figures are as true and fair a representation
of the efficiencies that we are genuinely making.
Q76 Jenny Willott: Given that there
was a drop between quarter four and quarter one, how confident
are you that from quarter three, December 2006, to March 2007
there is not going to be a similar drop? Are you confident that
it is likely to remain the same?
Mr Lewis: You can see from the
last of the data classification tables that we do attempt to assess
whether we think that the data classification is preliminary,
which suggests that we only have a relatively low degree of confidence
in it at that point; interim, where our confidence is higher,
or final, where we believe that there is irrefutable evidence
that that saving has been made. You will see from the final column
that at the moment we have awarded ourselves, for the totality
of the savings, substantial assurance. That is because we have
taken a prudent view that, until we can demonstrate full and complete
audit trails for every single element—this is our own judgment
of them—these figures merit substantial assurance but not
absolute and complete assurance.
Q77 Jenny Willott: About half of
it at the moment is—?
Mr Lewis: Yes. For the half that
is in the column which is interim, that certainly does not mean—I
would not want the Committee to have this impression for one second—that
this is a wing and a prayer, a finger in the air. It is much,
much more than that. We do not have full and complete audit trails.
I have some people who display a degree of zealousness about these
processes which occasionally startles me but I think I would prefer
it to err on that side rather than it being too easy a process.
We really do have a strong internal challenge function.
Q78 Jenny Willott: You said these
are your internal checkings. When and by whom do they get externally
audited, as it were?
Mr Lewis: They are externally
audited in a number of ways, by our external auditors who are
the National Audit Office of course. They are subject to review
by our own internal audit committee. It is worth saying we have
a very strong internal audit committee. It is chaired by one of
our non-executives. We have a rigorous corporate governance process
inside. We have a process of our own finance directorate applying
a very strong set of controls. We have our own corporate governance
processes with our own independent audit committee. Then we have
the National Audit Office as our external auditors.
Q79 Jenny Willott: When will it go
to the audit committee? Is that done each quarter?
Mr Lewis: The audit committee
decides its own workload. Almost by the nature of having an independent
chair, the audit committee decides which elements of the Department
it wishes to look at. It receives an annual assurance statement
from the head of internal audit which covers the entire waterfront
of the Department and then it chooses on the basis of that and,
of course, on the basis of a programme of ongoing, individual
audits of different aspects of the Department's business where
it focuses attention.
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