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


1  Progress on the value for money programme

1.  Since the 2004 report by Sir Peter Gershon,[2] there have been a number of centrally managed programmes intended to promote efficiency and value for money across the public sector. This is the third report by this Committee on this important subject.[3] In the current financial climate, with the 2010 Comprehensive Spending Review is setting out the largest reduction in spending for decades, it is more important than ever that departments meet savings targets set by Ministers. Departments need to ensure that the impact of spending reductions on key services is minimised by making as much use as possible of improved efficiency and value for money.[4]

2.  The current three year value for money programme tasked departments and local authorities with finding cash-releasing savings of £35 billion a year by 2010-11. The headline target was based on the assumption that all public bodies could deliver savings of three per cent per annum,[5] and more on their administrative budgets, with an additional £5 billion added to reflect the contribution from other efficiency reviews.[6] Departmental targets did not take into account individual departments' previous performance, their cost structure, or the unreliability of the efficiencies reported during the previous Spending Review period up to 2007-08. The overall target assumed that the previous programme had delivered £26 billion of savings to 2007-08, although the Treasury recognises that many of the reported savings were implausible.[7] Partly as a result of these blanket assumptions, there are wide variations in reported performance between individual departments (Figure 1). Some major spending departments are lagging behind, particularly the Departments of Education, Health and Communities and Local Government where most spending is by local delivery bodies.[8]


Figure 1: Progress reported by departments against 2010-11 savings targets as at 30 September 2009

C&AG's Report Figure 6, page 17

3.  At September 2009, the halfway point in the current three year programme, departments had reported savings totalling £10.8 billion - less than a third of the overall target. A further £4 billion has been added in the second half of 2009-10.[9] The Treasury attributed the slower than expected progress mainly to lags in departments finalising the data used to calculate savings, but it lacked detailed information on progress against plans by individual departments.[10] From publicly available information it is clear that some large savings are unlikely ever to be delivered. For example, the Department for Communities and Local Government plans included £734 million of savings on affordable housing by 2010-11, yet no savings have been achieved to date due to the downturn in the housing market.[11]

4.  In addition, more than half of the reported savings independently scrutinised by the National Audit Office do not fully meet the tougher criteria established by the Treasury to address weaknesses in the previous efficiency programme. Despite previous recommendations by this Committee and by the Treasury Select Committee[12], savings claims have still not been sufficiently challenged prior to publication. The Treasury accepted that there was still room for improvement as 18 per cent of the reported savings were not real savings and a further 44 per cent were uncertain when measured against the tougher criteria. The remaining 38 per cent fairly represented savings—a higher proportion than in the previous programme.[13]

5.  The Treasury told us that financial management within the public service has improved in recent years but there is still some way to go to reach standards common in the private sector. All savings reported against the target of £35 billion should release cash: either reducing a department's overall spending whilst maintaining or increasing public services, or redeploying resources to expand key frontline services which would otherwise have required additional funding from taxpayers. Departments were generally unable to reconcile their reported savings to either their financial accounts or to their spending agreements with the Treasury. The Treasury maintained that given that most departments were enjoying real terms increases in resources during the previous spending review period, any comparisons between savings claimed and spending were meaningless. This suggests that neither departments nor the Treasury understand the impact of savings on their bottom line or on the additional services being delivered in the period.[14]



2   Sir Peter Gershon, Releasing resources to the front line: Independent Review of Public Sector Efficiency, July 2004 Back

3   Committee of Public Accounts, Progress in improving government efficiency, 55th Report of Session 2005-06, June 2006: The Efficiency Programme: A second review of progress, 48th Report of Session 2006-07, July 2007 Back

4   Qq 1, 46 Back

5   Excluding annually managed expenditure such as benefits and tax credits Back

6   Qq 5-8, 22; C&AG's report, para 1.8 Back

7   Qq 3, 6 and 7 Back

8   Qq 9, 14; C&AG's report, paras 2.2-2.3 Back

9   National Audit Office analysis of departmental Resource Accounts 2009-10  Back

10   Q 19; C&AG's Report, paragraph 2.2 Back

11   Qq 27-30; Department for Communities and Local Government Core Financial and Performance Tables Report, July 2010 Back

12   Treasury Select Committee, Thirteenth report of Session 2008-09, Evaluating the Efficiency Programme, HC 520 Back

13   Qq 2, 15, 26  Back

14   Qq 4, 12-13, 16 Back


 
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Prepared 4 November 2010