Progress with VFM savings and lessons for cost reduction programmes - Public Accounts Committee Contents

Conclusions and recommendations

1.  The Committee expects efficiency improvements to make a major contribution to the cost reductions now required across government. If departments had been successful in making real savings of 3% a year, less painful cuts would be necessary now. Services will suffer because the Treasury did not get the framework right for the CSR07 savings programme. Accounting Officers should be, as the title indicates, personally accountable for delivering the full amount of savings committed to, and the Treasury should create a framework where that accountability is clear and unequivocal. The following recommendations reflect how we expect the Treasury and departments to respond to the lessons from the CSR07 Programme.

2.  The value for money savings target for CSR07 was not based on robust evidence about what departments could realistically achieve, and it is not surprising therefore that performance has fallen well short of ambitions. Regardless of whether the government adopts a headline efficiency target for the next Spending Review period, future value for money initiatives need to take a more sophisticated approach. The Treasury should set and agree expectations for each department based on individual assessments of their circumstances, the improvements they have achieved to date, and their ability to deliver improved value for money.

3.  Two years into a three year programme, departments have reported only £15 billion of savings towards the £35 billion target set by Ministers. Departments should include contingencies sufficient to allow for the risk that, inevitably, some individual efficiency projects will be delayed or will fail to produce the intended benefits.

4.  Further, of the reported savings reviewed by the National Audit Office, just 38 per cent fairly represented sustainable savings. Departments should only report savings which have been subject to robust quality assurance.

5.  Many of the savings reported by departments were unconvincing because departments did not have financial and performance data to back up their claims, and savings could not be reconciled to their financial outturn or their original spending settlement. The low quality of savings claims suggests that there is still some way to go in improving the quality of financial information and management in the civil service. In order to live within lower budgets, departments need to be able to predict better the impact of their actions on their bottom line and to demonstrate any impacts on performance. They need a clear understanding of factors affecting costs and the net financial effect of savings measures on the public purse.

6.  The Treasury's top-down design of the Programme, and limiting the timeframe to three years, did not create the right incentives for departments to improve value for money in the round. There were few suggestions for improvements from front-line civil servants. Departments should create opportunities for staff to have a say in how service delivery can be made more efficient and to improve value for money. The Treasury should expect departments to prepare a long term plan to reduce their costs, with realistic timetables. The Treasury should regularly monitor progress against milestones.

7.  The Treasury chose not to monitor departments' progress in delivering savings in any detail, and demonstrated only a limited understanding of reasons for lack of progress in individual departments. For example, the Treasury could not explain the key reasons for the Department for Communities and Local Government's poor performance. This is at odds with the established principle of collective responsibility across government, whilst the individual department's reporting that it would not make its target, without identifying mitigating action, demonstrates a lack of ownership of its own target. When delegating responsibility to departments, the Treasury should establish information requirements with clear parameters of success, tailored to individual departments, to enable it to monitor progress and intervene where performance fails to meet expectations.

8.  The Treasury acknowledges that it alone does not have the internal capability or resources to direct value for money programmes across government. The Treasury will need to work in partnership with the new Efficiency and Reform Group to support and challenge departments to seek value for money improvements, provide appropriate expertise, disseminate best practice and establish a centralised approach in areas where it is most efficient to do so.

9.  Departments reported savings which did not stand up to external scrutiny, and there were no consequences for senior officials in those departments that failed to deliver savings. There should be clear consequences for senior civil servants who fail to deliver planned improvements in value for money for taxpayers.

10.  The inability of departments to improve value for money in a time of increasing budgets casts doubts on government's ability to reduce costs now while minimising the impact on front-line services. Departments reported few examples of savings from major changes to their business in CSR07. In reducing costs in the next period, departments need to fully exploit opportunities to improve value for money by delivering existing services in radically more efficient ways. They should not simply look to cut expenditure by cutting front-line services. Our parallel report on Achieving Sustainable Cost Reductions sets out what we expect to see departments doing to make the required reductions. There should be full and transparent reporting of the impact of cost reduction on services, and where departments do cut service lines altogether, this should be based on a full understanding of the value that is no longer produced, in particular so that a cut in one area does not lead to additional expenditure elsewhere.

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Prepared 4 November 2010