The Work of the Cabinet Office - Public Administration Committee Contents

Examination of Witnesses (Question Numbers 1-123)


28 OCTOBER 2010

Q1 Chair: Good morning to our two witnesses. I wonder whether you could identify yourselves for the record please.

Sir Gus O'Donnell: Certainly. I'm Gus O'Donnell, Cabinet Secretary and Head of the Home Civil Service.

Ian Watmore: I'm Ian Watmore; I'm the Government's Chief Operating Officer and Head of the Efficiency and Reform Group.

Q2 Chair: Thank you very much for being with us. Sir Gus, I gather you'd like to say a few words at the outset?

Sir Gus O'Donnell: Only about 30 seconds, just to welcome the new Committee and say I very much look forward to working with you. I'd like to say some thank yous to past and present members of the Committee for their support on the CRAG[1] Bill, which has now gone through for the Civil Service, which means our values are there. You've righted something that Northcote and Trevelyan said should be done 150 years ago, so I would just like to put my thanks on the record. Also, in terms of the work leading up to the election—the preparations and all the rest of it—I'd just like to say that I thought the Institute for Government as a new innovation was a very good thing, and they did some very good work. It was very important for us that that constitutional reform and governance part went through in advance, so that we could push the impartiality. So I thought that was good.

Finally, post the election I think the role of the Cabinet Office has changed quite a lot, and we are now very much working with that logo of "Support the Prime Minister, support the Cabinet, strengthen the Civil Service"—we are now very much "Support the Prime Minister and the Deputy Prime Minister". That's a big change for us, and also the emphasis on value for money and efficiency. So now we're supporting the Coalition but we're also working very hard on value-for-money issues, hence the Efficiency and Reform Group, and that's why I'm glad that Ian's with me today.

  Chair: Thank you for that. Well, we want to talk about the formation of the Coalition at the outset. Nick de Bois.

Q3 Nick de Bois: Thank you Chair and good morning. To kick off with a point about the Coalition's formation, there is a little bit of a lack of clarity about how involved the Civil Service became in the negotiations. What I'd just like to explore very directly is what involvement the Civil Service had in the Coalition negotiations. Could you just sum that up, without being too broad, and then I'll narrow it down with some other questions? If you could summarise the involvement of the Civil Service?

Sir Gus O'Donnell: Certainly. First it's important to say it was up to the Prime Minister as to whether we got involved at all or not, and the Prime Minister gave his explicit support post the result, so that meant that we could get involved. Our role was really facilitation; we were there to provide background support if at all possible. When the negotiations themselves took place, on every occasion there were just politicians in the room so the politicians worked with each other. We were there to provide help, facilitation, a place where they could meet—they could ask us about briefing. We published very detailed guidance on what we were allowed to do: the rules that I specified to civil servants as to what they could do and what they couldn't do, so that is out there on our website.

Q4 Nick de Bois: I appreciate you weren't in the actual meetings when the politicians were there. Would you, for example, have driven into and done a lot of work on the implicit costings on any of the programmes that were shaping up to become the Coalition Agreement?

Sir Gus O'Donnell: Only if we were asked to—

  Nick de Bois: Yes.

Sir Gus O'Donnell: —and only under the conditions specified in the document that I put out.

Q5 Nick de Bois: Were you asked to?

Sir Gus O'Donnell: Occasionally there were one or two policies where we were asked for costings.

Q6 Nick de Bois: Are you allowed to elaborate on that?

Sir Gus O'Donnell: Not really. We said that we would keep these things confidential; part of the guidance was that we would make these things confidential. It was factual material and, like I say, one of the conditions of this was that if we did any of these things we would make them available to all parties.

Q7 Nick de Bois: Okay. Looking at it from another angle then, what would you have considered inappropriate for the Civil Service to get involved in in those negotiations?

Sir Gus O'Donnell: If party A were dealing with party B, and either of them were to ask us to cost something to do with a manifesto commitment from party C, that sort of thing would have been inappropriate.

Q8 Nick de Bois: Did you find that you felt that you were being asked to do anything inappropriate at any point?

Sir Gus O'Donnell: No.

Nick de Bois: Not at all?

Sir Gus O'Donnell: No. At the start of the meetings I would go in there and say just, "Welcome," and specify what the conditions were on which civil service support was provided; what we could do and what we couldn't do. I think that was clear to all parties, therefore I'm very pleased that we weren't faced with difficult decisions.

Q9 Nick de Bois: It has been suggested by one or two people that you may have overstepped the constitutional line, a constitutional role, when you told negotiating teams that—I think it's exactly—"Pace was important but also the more comprehensive the agreement the better," and that the markets would punish a minority government. Did you volunteer that advice without—

Sir Gus O'Donnell: Well, obviously, as people were meeting over that weekend, we had a full blown financial crisis happening in Greece. There were meetings going on where the Chancellor, Alastair Darling, had to be involved. In order for Alastair Darling to be involved appropriately, he had this idea to contact the Shadow Chancellor at the time so that there were all­party negotiations going on during that period, so they all knew what was happening. I merely reinforced the point that there were serious negotiations going on over that weekend that were tricky. I think the Prime Minister actually put out a statement to that effect.

Q10 Nick de Bois: Thank you for that answer. Did you volunteer that advice or were you asked to give that advice? Was it necessary for you to give that advice, given the then Chancellor and the Shadow Chancellor were very heavily involved, given the constitutional implications?

Sir Gus O'Donnell: Yes, I wanted to be sure all parties were in exactly the same situation. So, for example, this meant the Lib Dems were in the same situation as the rest.


  Chair: Robert Halfon.

Q11 Robert Halfon: Thank you. You think it's right that the Civil Service can give an opinion on whether the Coalition is right or wrong? That's in essence what you've said.

Sir Gus O'Donnell: No, I didn't say that. I was merely saying that we were informing them that there were very serious negotiations going on; that if they wanted to learn more about these and their possible implications for the markets they could, if they wanted to, draw on the advice of, say, the Governor of the Bank of England.

Q12 Chair: But Cabinet Secretary, you actually made this advice public, didn't you?

Sir Gus O'Donnell: Yes.

Q13 Chair: Usually we are told, under the Freedom of Information Act, that the last thing that's ever going to be made public is advice to ministers. Yet you gave your advice to ministers and made it public.

Sir Gus O'Donnell: I was very aware that a very large number of people who were involved in those negotiations were writing books about this event, and indeed all that information has now become public as people have given that information to your Committee.

Q14 Robert Halfon: Going back to what my colleague has just said, you said the markets would punish a minority government and that is a pretty positive statement in essence in favour of the Coalition—

Sir Gus O'Donnell: No, no, it was simply stating my view, and it was backed up by what market commentators themselves were saying. I was pointing out the fact, and you could get 101 quotes from that weekend where people were saying precisely that. That was market sentiment.

Q15 Robert Halfon: It's still a political statement.

Q16 Chair: Why did you need to say it too?

Sir Gus O'Donnell: Well, just to be clear that in these circumstances they needed to bear this in mind. It was a relevant fact.

Q17 Robert Halfon: It is a political statement, though.

Sir Gus O'Donnell: It's not a political statement; it's a statement of fact.

Q18 Nick de Bois: Is it necessary, given the opening statement that you were there to facilitate negotiations? Is it necessary, given the political depth and skill that was in that meeting, for you to have actually given that advice? It sounds as if you weren't even asked your opinion on this advice, so why was it volunteered on such a matter that would influence the makeup of the next Government?

Sir Gus O'Donnell: Over that weekend, we were in the middle of a very large financial crisis for the eurozone.

Q19 Chair: But where in your remit—the remit you wrote—does it say that the Cabinet Secretary should make public statements?

Sir Gus O'Donnell: About?

Q20 Chair: Coalition building.

Sir Gus O'Donnell: Well, I think it was one of those events where I think it's really rather important that we learn from what happened during that period. It is somewhat unusual, but I decided that, since this would be a matter of debate—I knew there would be Select Committees asking about this, there were lots of books, people who were in that room were already talking about the negotiations—I thought it was clear that I should make it apparent what actually we said.

Q21 Chair: So what you're saying is that although they are essentially politically impartial, there are moments when senior public servants are required to make public statements that could be interpreted as political?

Sir Gus O'Donnell: There are a large number of moments where senior civil servants are required to make public statements.

Q22 Chair Which might be interpreted as political?

Sir Gus O'Donnell: Well, I am going to appear before three select committees in the next three weeks, so people might interpret my statements as political. The whole point of what we were doing during those talks was to try to provide impartial advice. So the point being not that we provide bland advice but that we provide the same advice to all the parties.

Q23 Chair: I mean it might have proved to be in the public interest to have a short­term minority government and another general election. That might have been in the public interest for the long term.

Sir Gus O'Donnell: Absolutely.

Q24 Chair: And yet, you made a judgment?

Sir Gus O'Donnell: No, I didn't. All I said was I passed on to them what the market's perceptions were and therefore—

Q25 Chair: You put public pressure on political parties to form a long­term coalition.

Sir Gus O'Donnell: No, no.

Q26 Chair: You gave public support for a long­term agreement. That's the implication of what you said.

Sir Gus O'Donnell: No, I didn't make it public during the time they were doing these negotiations. That was much, much later when it was all over; let's be clear about that. What I did at the time and would do again—let me be absolutely clear about that—was to explain the circumstances, because these were detailed negotiations by finance committees and by finance ministers about a really serious problem for the eurozone.

  Chair: Nick de Bois.

Q27 Nick de Bois: Do you regret giving that advice and do you regret making it public that you gave that advice?

Sir Gus O'Donnell: No, neither. First, I think it was right and I would do it again, and so I'm very happy that it's public.

Q28 Nick de Bois: You don't think you've raised a constitutional issue here that you as a result, unsolicited, could have changed the direction even of the negotiations at that time?

Sir Gus O'Donnell: No, because—as you say—I would imagine that virtually all of the people in that room were aware of that. I mean, what I wanted to do was to level the playing field. There was one party who were involved in the detailed negotiations. There were two other parties who were observers. This merely said, "Look, the governing party were there; they were involved in the detailed negotiations." All I was saying was, "These are serious negotiations; the eurozone is involved in trying to put together a rescue facility and you should know this is quite serious."

  Chair: Mr Halfon.

Q29 Robert Halfon: In essence, by those remarks you threw the whole of the weight of the Civil Service behind supporting a coalition as opposed to a minority government and surely that is wrong?

Sir Gus O'Donnell: No, no, we would have been and are absolutely ready to support whatever government emerges from the political talks.

Q30 Robert Halfon: Yes, but by your remarks you've clearly showed that the Civil Service was in favour of a coalition as opposed to a minority government.

Sir Gus O'Donnell: No, absolutely not. There are many, many aspects of the difference between a minority and a coalition. In this one respect the perceptions of the markets were that coalition would be better, from a market point of view. There are a thousand and one different reasons why you might come to a view about what's the right form of government. It's our job to work with whatever form it is, but I stress this was one factor and it was an informed factor.

Q31 Robert Halfon: Did you argue for a coalition on any other grounds, apart from this one?

Sir Gus O'Donnell: I didn't argue for coalition on these grounds. I merely said what the markets expected from the different forms of government.

Q32 Robert Halfon: Did you express any benefits that would happen if a coalition was to occur apart from the issue of the markets?

Sir Gus O'Donnell: No, it was the only one that was relevant over that weekend.

Q33 Robert Halfon: In the course of the four to five days of negotiations?

Sir Gus O'Donnell: No.

Q34 Chair: Can I just ask about the negotiations themselves? Did you consider that it might be in the public interest for a civil servant to be present in the negotiations?

Sir Gus O'Donnell: I thought it was right for us to offer to the political parties that we should be there. In other examples, for example in Scotland when they were doing the equivalent, civil servants were in the room, did take detailed notes, presented papers at the end, but it was a matter for the political parties and they chose not to. Fine.

Q35 Chair: Traditionally in this country we are suspicious of coalitions doing deals in smoke­filled rooms, though of course there was no smoke, I hasten to add.

Greg Mulholland: Only because it wasn't allowed?

Chair: Only the Deputy Prime Minister afterwards. However, isn't there something rather unaccountable about an agreement that's cooked up in secret, unlike a manifesto that's put through the fire of an election campaign?

Sir Gus O'Donnell: Well, it's a difficult issue for us because the Civil Service is there to support the government of the day. The Prime Minister asked us to offer our support, but there is no requirement on the political parties, particularly political parties not in government, to get involved with the Civil Service. So it was their decision. Now it's an interesting question as to whether, constitutionally, you'd want to say, "Actually these things should take place with civil servants in the room," but we don't have a precedent for that for UK elections.

Q36 Chair: So we are left asking what the Coalition Agreement really means, because what we see is the public face of the Coalition Agreement in what's published, but we don't really know what's behind it. For example, we didn't know that it was a very important element of the referendum that the polls should be combined with the elections next year, and most particularly we don't really know what was meant by the value for money study on the deterrent, do we?

Sir Gus O'Donnell: Well, remember there was the Coalition Agreement, then there was the Programme for Government, and I would say the Programme for Government is the document we, as the Civil Service, work towards. We shouldn't have any illusions: if there had been a single party and a manifesto, curiously enough in the past it hasn't always been that the manifesto has been a perfect guide to future government policy.

Q37 Chair: Very diplomatically put. However, aren't we entitled to be a little bit suspicious? When did you first hear, for example, that there was serious consideration of delaying the "main gate" for the new submarines until after the next general election? When did that first emerge as an option?

Sir Gus O'Donnell: That was an issue that arose during the National Security Council discussions leading up to—

Q38 Chair: So it wasn't even a gleam in the eye during the Coalition negotiations?

Sir Gus O'Donnell: No, they didn't get into that sort of detail.

Q39 Chair: But you don't know?

Sir Gus O'Donnell: Exactly. I don't know what they did in that room, so quite right. It certainly didn't emerge in the discussions when the Civil Service were involved; when we were turning that Coalition Agreement into the Programme for Government.

  Chair: We shall have to wait for David Laws' book. Nick de Bois.

  Nick de Bois: Fine. I think I'm fine.

  Chair: Okay. Mr Halfon.

Q40 Robert Halfon: The challenges that the Coalition poses for the Civil Service: how different has it been compared with previous administrations as far as the Civil Service is concerned?

Sir Gus O'Donnell: Yes, for us very different, in the sense that, post-Second World War, we don't have a precedent for the UK Government having a coalition. So for me, personally, I'd say one of the big differences in the Cabinet Office is supporting the Prime Minister and the Deputy Prime Minister. The fortune of geography is that if you go from my office to the Prime Minister's office it's 50 paces; if you go to the Deputy Prime Minister's office it's 50 paces. So I'm an equidistant Cabinet Secretary, but I have to work rather more closely with the Prime Minister as the Chair of Cabinet, so we have created processes to make coalition work. For example, the Cabinet Committee structure, where the Chair is from one party, the Deputy Chair from another, and we make sure a lot goes through that. The National Security Council, which has a mix; the Coalition Committee, which is there, whereas for every Cabinet Committee you have this sort of dual entry. Obviously one party vastly outweighs the other in that. In the Coalition Committee it's 50:50 between the two parties.

Q41 Robert Halfon: The reports that the Deputy Prime Minister doesn't have the Civil Service support that he needs and enough backup: what is your view on that?

Sir Gus O'Donnell: Well this is brand new, so we started off with a set of work. It is important to remember—I think people forget—that there are two ministers who don't have a lot of civil service support, and they are the Prime Minister and the Deputy Prime Minister. Every other Secretary of State has a massive department. Prime Ministers don't have massive departments. There are around 200 staff in Number 10. The Home Secretary has rather more, massively more.

Q42 Chair: Not for long.

Sir Gus O'Donnell: Probably she'll have one third less, yes, exactly. It's slightly unusual for the Deputy Prime Minister in that he has taken on a whole area of policy in government directly, namely constitutional reform. We transferred across a number of civil servants who were in the Ministry of Justice doing constitutional reform to the Cabinet Office to work directly to the Deputy Prime Minister. I think when it started we probably somewhat underestimated the amount of support the Deputy Prime Minister would need in his cross­government role. We have now strengthened that, and we put out a statement recently about providing some more resources. What I'm keen to do is to make sure we support the Deputy Prime Minister. What I don't want within the Cabinet Office is, as it were, two alternative sources of power; two whole machines coming up with things that then fight against each other. I think this has been led very much by the way the Prime Minister and the Deputy Prime Minister work very closely together; they both want sources of advice to help them work together more effectively. That, I think, has been working very well.

Q43 Robert Halfon: Are we still sitting on the sofa as far as Cabinet government goes or has it moved back to the Cabinet table?

Sir Gus O'Donnell: Let's put it this way: there have been a lot of Cabinet Committee Meetings taking place, and coalition forces that because it's the way of—this word—coalitionising everything; to make sure it goes through a Cabinet Committee. In a coalition, I would predict we will have a lot more Cabinet Committee meetings and we have already had a lot more National Security Council meetings than we had in the past.

Q44 Robert Halfon: Are the key decisions still taken by the Prime Minister and his close advisers in an informal gathering or does everything go before sub-committee or committee?

Sir Gus O'Donnell: No. You can't really do that because you need to make sure they're coalitionised. Take, for example, really big issues on the Spending Review. There we had a number of Cabinet discussions about the general principles. Then, as usual, there were lots of bilateral discussions. We also had a Public Expenditure Committee set up under the Chancellor with evolving membership; as departments settled they became members. We also had the use of the quad, whereby the Prime Minister, Deputy Prime Minister, Chancellor and Chief Secretary would get together to think about some of the tricky remaining issues. I think this process is evolving, but what I will say is it's very good news for the Civil Service, because it does create greater process. I think it's good for evidence­based policy.

Q45 Robert Halfon: Has the Coalition created more work for ministers? What do you see their role under the Coalition in terms of workload?

Sir Gus O'Donnell: Well I think there's the normal business of sorting out your policies to fit in with the overall government strategy, but there is also the need to make sure everything is coalitionised, so I think that is an added dimension.

Q46 Robert Halfon: So in essence after every decision there's a checks and balance process to make sure it fits into a coalition.

Sir Gus O'Donnell: I think not after; I would hope during the decision­making process there is consultation.

Q47 Robert Halfon: How long extra does that take?

Sir Gus O'Donnell: I think it's impossible to say yet. I think the one thing I would emphasise is that it is wrong to think of a monolithic government where there's a single party and there's a clear uniform position. I think what we've found on a number of these committees—the Home Affairs Committee would be an example—is that there has been as much argument and challenge from members from within the same party as there has between members of the different parties. It's the process of coming to collective decision making, but sometimes the fact that there are party labels adds an element to that.

Q48 Robert Halfon: Is the Coalition Agreement like the Ten Commandments on the wall and on every decision, you look at it in blood to see if it links to those?

Sir Gus O'Donnell: The Coalition Agreement I would put as the overarching framework. There will be occasions where they want to move beyond it or differ from it. Again, we put our reference on our website some months ago to ways in which that would happen. Notably, if you are moving away from the Coalition Agreement, that would be something that needed to be notified, and in this Oliver Letwin and Danny Alexander have a key role in making sure that these things are sorted out. Obviously, the world will change, so while I think you have an overarching framework in the Coalition Agreement, it will not be a guide to every individual policy.

Q49 Robert Halfon: Can I just move on now to the post­bureaucratic age; I find that to be one of the modern tongue twisters of our time. Can you tell me what it means to start off with?

Sir Gus O'Donnell: Yes, sure. If you look at the phrase that's in the Prime Minister's speech where he talks about the post­bureaucratic age, he's saying civil servants shouldn't think of themselves as being responsible for delivering outcomes. That is one of the key things. So I think this is the idea of localism devolving power and for the civil servants to be helping the Coalition Government to set up structures, and the politicians will be responsible for whether those structures actually deliver the outcomes they want. The Coalition talked about it being a power shift, but also in the Deputy Prime Minister's speech, about a horizon shift. So moving towards longer term issues as well.

Q50 Chair: Do you think you could, or do you think perhaps the Government should, produce a definition of "the post­bureaucratic age", because it's obviously a vogue phrase, isn't it?

Sir Gus O'Donnell: Well, I think the Prime Minister attempted in his speech at Civil Service Live to give a definition of what he meant by a post­bureaucratic age.

Q51 Chair: Could you summarise for us?

Sir Gus O'Donnell: For him, this is moving away from top­down decision making; moving decision making down towards individuals, communities, local authorities; and, as it were, trying to increase personal and local responsibility and move it away from state responsibility.

Q52 Chair: If this is to be a doctrine of administrative reform at the centre of government, does it require more development, more thinking?

Sir Gus O'Donnell: Well, I can certainly pass that on to the Prime Minister and ask if he wants to elaborate on his speech. I think he would refer back to that speech, and I think a number of articles followed where they talked about the power shift and the horizon shift. I think there was a speech from the Deputy Prime Minister and an article from the Prime Minister that elaborated those themes.

Q53 Chair: As Head of the Civil Service, what does it actually mean for you at nine o'clock in the morning when you go into the office. "We're moving into the post­bureaucratic age?" I mean, what are you actually going to do?

Sir Gus O'Donnell: What that means for us is the world where we go in and we look at our PSA targets and say, "How are we doing in achieving an outcome of getting more socially excluded people into homes and jobs?" is not the measure that we are trying to achieve. This Government is very clear: they want us to work on setting out the structures and incentive structures to ensure that other people will deliver those outcomes. We provide greater freedoms; we move more towards personalised budgets, the whole education, free schools; we put hands further down and the responsibility for outcomes does not lie with the Civil Service.

  Chair: Mr Halfon.

Q54 Robert Halfon: Francis Maude has talked about the Civil Service being more flexible; if you like, less IBM/Microsoft, more like Linux and open source. What is your view about that. Is it possible?

Sir Gus O'Donnell: If by that we're talking about the Civil Service being more innovative, I think that's absolutely true. We are faced with the situation you saw in the Spending Review documentation. Most departments are in a situation where they need to reduce their administration costs by about a third. That to me means: "Don't carry on doing things the way you were doing them before, but think quite innovatively." Some of those firms you mentioned are very good at innovation. It means that we will take risks and it means that we will need Parliament to understand that, if we're doing that successfully, we will get it right quite a lot of the time I hope, but we will also make mistakes. There will be failures. It's really important that we get an understanding that failures do not necessarily mean we did things incorrectly; it means we are innovating more and that therefore there will be necessarily some failures.

Q55 Robert Halfon: My final question on this part: should the Civil Service undergo a kind of permanent Maoist continuous revolution or should there just be an ideal of reform, aka Fulton Report 1968, that you should aspire to?

Sir Gus O'Donnell: I've always thought that what we need here is a fusion. I think that there is a part that is always going to be constant. That part is actually specified in our traditional values. We will always, I hope—the Civil Service—operate with honesty, objectivity, integrity, impartiality. Then there is the bit—and this is where the fusion comes in—about what particular challenges the Civil Service faces in the next five years. For this Civil Service it's absolutely clear that two things, I would say, stand out above all others: firstly, make the Coalition Government work effectively, because that's what we have; and secondly, work, as the Government have done, to reduce the deficit. We knew we were going to be in that second mode even before the election. The previous Government were talking about halving the deficit in four years. We've been thinking about this for quite a long time, but for us that second part means, I think, pace, professionalism, making sure we try and keep up the pride and passion in working in the Civil Service at a time when we will be reducing in numbers— that's quite a tricky leadership task for us—and the point I made about innovation. Those are the kind of new, as it were, values that we have needed particularly in the last five years, but we will make a huge mistake if we don't fuse them with our traditional values—keep both.

  Nick de Bois: If we are successful as a coalition government in delivering the post­bureaucratic age and streamlining the reform that we've been talking about, does it not follow—and do you think—that we'll have too many ministers at the end of this?

Sir Gus O'Donnell: I think that is a matter for the Prime Minister—

Q56 Nick de Bois: Of course.

Sir Gus O'Donnell: I'm afraid that's his job to decide how many ministers he has. If there are changes to the size of the House of Commons, for example, that might have some implications I would guess, but in general, if we manage to devolve things down then there is a real choice I think as to how many ministers you need to operate in that new area. However, that choice—I stress—is for the Prime Minister.

Q57 Nick de Bois: If you were asked your advice, would you share it?

Sir Gus O'Donnell: Then I would refer to what the Chairman said, and I'd retreat to wanting to keep my advice to the Prime Minister very confidential.

Q58 Chair: When it suits you. Wouldn't the civil servants' job be easier if there were fewer ministers?

Sir Gus O'Donnell: It would be different; that is certainly true. I stress it's important for us that we have ministers. Going back to that point I made about values, we need to be impartial; we mustn't get involved in party politics. So we desperately need ministers and ministers are there to decide and ultimately to be accountable to you, and to Parliament, for the policy decisions they make, so I'm very glad we have ministers.

Q59   Paul Flynn: When an announcement was made recently of 300 jobs to be lost in the Newport Passport Office, it was made by Miss Sarah Rapson. She then gave interviews to the press and made statements, and when I looked at my list of new Coalition Ministers I couldn't find her name anywhere and apparently she's a civil servant. Has there been a change of policy that civil servants are now responsible for publishing all the bad news?

Sir Gus O'Donnell: No, civil servants quite often are out there and they are explaining government policies. I did it for many years when I was Press Secretary to the Prime Minister and we made announcements on behalf of ministers; it's not new in any way.

Q60 Paul Flynn: The practice among the many reincarnations you've had—and congratulations on surviving another one—is that politicians don't attack civil servants; it's fair game to attack politicians. Do you think it's fair game for me to attack Sarah Rapson for this idea?

Sir Gus O'Donnell: No, I don't. She is simply the vehicle by which we announce a policy decision. That was a decision made by ministers. I think it's absolutely appropriate that when politicians want either to praise or criticise that, they praise or criticise ministers.

Q61 Paul Flynn: Do you feel under any obligation to make sure when these half a million jobs disappear that the cuts are made in a way that's equitable to the British regions, particularly areas of high unemployment, or do you see it reversing the trend of moving jobs from, say, London to areas of high unemployment? Is that an element, would you think, in that?

Sir Gus O'Donnell: If I could just go to the Civil Service for a second, but obviously it's an issue for the wider public sector. It's very important for us in this world where we have reduced administration budgets—about a third, as I said—to be looking at value for money. One of the issues I've always said about value for money is that when you take into account the costs of being in central London particularly, it is much better. That's why I thought moving the ONS out to Wales was very good, efficient, value for money, and I think it's worked extremely well. That's where I start from; this has increased the emphasis on value for money so we should be thinking very carefully. Nevertheless, if we are downsizing the public sector—there are cuts going on and this is going to affect public sector and civil servants—it is inevitably the case that there are more civil servants in some regions than others, so it is going to have a differential impact.

Q62 Paul Flynn: Would you see it as part of your responsibility if it's said there is a 25% surplus of employees in the Identity and Passport Service and it's much simpler to lop off, amputate, a limb rather than do a careful exercise to reduce by 25% throughout the United Kingdom and protect as far as possible areas that are vulnerable? The political decision, one presumes, is the simple one: to chop off a large number in one area. In this case, it means virtually all the jobs would be lost in areas of high unemployment.

Sir Gus O'Donnell: No, I think it is very important for us to think about impact on the UK macro-economy and what makes best value for money, and I think the Deputy Prime Minister has talked a lot about looking at the regional impact of the spending review changes. So I think that is very important, and for us it's to give objective advice about what's the most efficient way of doing these things.

Q63 Paul Flynn: Could I apologise for my late arrival and early departure, because I'm having to be ubiquitous; I am in a conference downstairs. May I ask you another thing as we're talking about the Cabinet Office? The Cabinet Office produced a report on the swine flu pandemic that never was, and it suggested that the response of the British Government was proportionate. What really happened was the British Government spent £1.2 billion on medicines for swine flu, told the country to expect 65,000 deaths—possibly three-quarters of a million deaths—frightened the country and reordered the priorities of the Health Service. The result was that 450 people died with swine flu but only 150 died of swine flu. Does that sound like a proportionate response or were the Government panicked into overreacting?

Sir Gus O'Donnell: Basically, the process was we had the best technical experts there were. The scientists would get together and they would meet under John Beddington, the Chief Scientific Adviser.

Q64 Paul Flynn: Well, I will give you another example of this from another angle: Britain spent £1.2 billion. The Polish Health Minister, Ewa Kopacz, who is a medical person, decided to spend about seven zlotys on it, refused to buy the vaccine, didn't trust it, and refused to frighten the population. The result was half the number of deaths from swine flu in Poland that we experienced here. Was it still a proportionate response?

Sir Gus O'Donnell: Imagine if it had been a slightly different variant. Imagine if the worst case had come out and imagine if I were the Cabinet Secretary for the Polish Government. What kind of questions would you be asking me now?

Q65 Paul Flynn: Indeed. Well, if you were speaking on behalf of the Egyptian Government, or any government in the world, you would say we did the right thing. The Egyptian Government said, "Of course it was right for us to slaughter all the pigs in the country to protect us from swine flu." Every government will be defensive, but what I'm putting to you is that report by the Cabinet Office was defensive of government policy and could leave us in a position where, having cried wolf on many occasions for various scares—with the millennium bug, with avian flu, with SARS—the danger is that in future if there is a real mass killer epidemic, other people won't take any notice; they won't react.

Sir Gus O'Donnell: Well, I think you raise a really important point about how we manage these things where you're dealing with a risk assessment, and it's partly risk but there is also an element of what Frank Knight would have called uncertainty. Some things we just don't know and you have to operate under the best possible advice that gives you a probabilistic outcome. There will be occasions when it will turn out that we spent too much, and there will be other occasions where we spent too little. It comes back to this point: what I would ask of you is to assess us on the process but not the final outcome, because if we're working on a probabilistic statement there will be times when it turns out not to be the way we expected.

Q66 Paul Flynn: The charge I'm making is the Cabinet Office did a report that was allegedly independent, and took it out of the Health Department so they did not have a vested interest. I gave evidence to that Committee. They didn't take any account of the fact that in the World Health Organisation, who put out the scare, a third of the members of the relevant Committee had vested interests, which did not come out until a year later, in the pharmaceutical industry. The pharmaceutical industry had a turnover of about £5 billion as a result of that. This is not the first time. There will be an investigation that the World Health Organisation is running, but haven't the Cabinet Office failed us by not taking a critical look at what was a very foolish decision? There might have been good reasons and the main blame should rest with the World Health Organisation, but we fell for it and the reason that it was defined as a Phase 6 pandemic was because they changed the definition of a pandemic that took out the severity of the flu. I believe that the Cabinet Office has that role to act at one stage removed from other government departments; didn't it fail as far as swine flu was concerned?

Sir Gus O'Donnell: Well, I would say the Cabinet Office does have an important role in all crisis management, first in setting up on our risk register—and pandemic flu I'm really pleased to say was there on our risk register—but secondly in the way we managed the crisis. Like I say, we got together all the top scientists and they provided input to what was eventually a ministerial decision. In fact, I remember it went to Cabinet as to how to respond to this situation. They did their cost-benefit calculations and, yes, there were worst­case scenarios, but there were also best­case scenarios and the question was a probabilistic one as to where to draw the line. They chose to draw the line in their job as ministers, which, they believed, was to safeguard the country from the worst­case outcome.

Q67 Paul Flynn: Final question. We had a swine flu epidemic in 1918 that killed an estimated 20 million to 40 million people. We had one in 1957, one in 1968, one in 1977. Well, those last three have been very mild. Seasonal flu kills 2,000 to 12,000 at year. Yet the national strategy that we have names a flu epidemic as a great threat. Doesn't this show that the Government have given in to the pressure from the pharmaceutical companies to scaremonger?

Sir Gus O'Donnell: I think we had in our risk register, long before swine flu appeared on the scene, the possibility of pandemic flu. As you rightly say, this had killed very, very large numbers of people at a number of times and the question was, "When will it come back?" It wasn't "if"; all of our scientific advice was "when". The question was: was this the one that was going to be as prevalent, but also, as you rightly point out, how severe was it going to be? This turned out not to be as severe as it could have been. If it had turned out to be highly lethal, then we would be having a very different conversation.

  Paul Flynn: I'm very grateful to you.

  Chair: We will return to strategic thinking later on. Mr Mulholland.

Q68 Greg Mulholland: Thank you Chair. Morning Sir Gus. If I could just take you back to the comments you made a little earlier; I think the phrase you used was "pride and passion" in terms of the Civil Service. Unfortunately, if you look at the findings of the most recent quarterly survey by the Chartered Institute of Personnel and Development, there doesn't seem to be an awful lot of pride and passion in the Civil Service at the moment. Some of the figures from that survey: job satisfaction has fallen 3% over the second quarter down to 31% but, particularly worryingly, only 16% of public sector workers say they trust their senior leaders. Now, to be fair to you, 48% apparently have confidence in the senior civil service in the Cabinet Office, so that obviously is a very favourable figure. Nevertheless, in your role as the Head of the Home Civil Service, are you very concerned about this trend and what do you put it down to?

Sir Gus O'Donnell: I know it would be a very cheap shot for me to quote you the trust figures for civil servants versus politicians, so I won't.

Chair: Oh, go on, do.

Sir Gus O'Donnell: There's an annual survey; you don't come out of it too well. You're absolutely right; we are in a period where all the talk is about cuts and all the talk is about there being reductions in job numbers, so that is why I've defined it and have been defining it for the last year as a real leadership challenge for us to keep up morale during this uncertain period. Do I think the fact that we know there will be a large number of job cuts in the public service and therefore that those sorts of numbers go down is surprising? No. We are doing a people survey across the whole of the Civil Service at the moment. I expect those results to come out with reductions in their job satisfaction. When we asked them things about certainty about the future, of course they are more uncertain. We told them—that experiment in transparency by the Chief Secretary—490,000 public sector workers in the previous OBR estimate.

So these are difficult times, but for us, as managers and leaders, it's important that we try and work on establishing a vision for the future where we will be a smaller and stronger Civil Service and public sector, and we will be working in a more sustainable environment because public finances will be in a more sustainable position. Within that, let's be clear: the Civil Service hasn't diminished as the place where people want to come and work. When you look at The Times Top 100, they ask graduates, "Where would you most want to go?" Of the top 100 are we in the 90s? No. We are number three and we are certainly not the third best payer, I can tell you that. People more than ever want to join the fast stream of the Civil Service. Our turnover rates are low; it is one of the issues for us. So I think people really enjoy what they do as civil servants, and across the public sector you'll see a real strong feeling picked up by various surveys of belief in what they're trying to do. They are there to make a difference. I think public sector ethos is very strongly there and that's picked up by some of our engagement scores. If you take the Cabinet Office, our latest survey: 89% feel valued for the work they do and respected by the people they work for. 89%—there are private sector companies that would give their eye teeth for that.

Q69 Greg Mulholland: It's encouraging to hear people do still want to join the Civil Service. I think one other interesting finding from the survey is that, not surprisingly perhaps, terms and conditions of employment are one of the main reasons that people do want to, and considering that those terms and conditions are changing, do you think that Francis Maude is right? In his speech in July to the Civil Service, he talked about moving towards more challenging jobs and a better career structure, but at the same time accepting that there are changes in those terms and conditions. So why do you think graduates will still want to join the Civil Service?

Sir Gus O'Donnell: Well, like I say, they are; I'd be very surprised if we don't get lots and lots of graduates applying this year for our fast stream. One of our rivals was the financial sector. Surprise, surprise: they are not as keen on becoming bankers as they were.

Q70 Greg Mulholland: And trusted even less than politicians, I think is fair to say.

Sir Gus O'Donnell: They're pretty well down there. They see the challenges, and now is a particularly challenging time for the public sector, but I think we see people who are really interested in the challenges of what the department's doing: how can we manage energy security and climate change in the future world? How do we try and deliver very good public services with a lot less money? So I'm not finding that there's less interest in people becoming civil servants. When I go around and talk at universities, or indeed when I go round and talk to departments to people at all grades, one of the problems I have is that they really want to carry on working in the Civil Service and are worried about losing their jobs.

Q71 Greg Mulholland: Looking specifically at the Cabinet Office and again, accepting that it is politicians who make the decisions to make changes to the Civil Service, and of course as a civil servant you can have no opinion on those changes, not publicly anyway, but of course it's your job, whatever those decisions are, to implement those changes. It's a matter of concern that your own Cabinet Office pilot survey last year showed that only 27% of respondents believe that change in the Cabinet Office is well managed. Putting that next to the concern over trust in senior management, how can you ensure that people have confidence that the Civil Service, that you, are making this change in the right way? Because the change is inevitable.

Sir Gus O'Donnell: Absolutely. Just to say first of all, I'm really pleased that you're quoting the numbers, because in the past we didn't have those numbers. I've moved towards having a cross­Civil Service comparable annual survey, which will allow us to have proper evidence­based discussions like this. You're absolutely right, and it's not true just of the Cabinet Office. If you look at the numbers across departments, there is a real issue about civil servants' trust in their senior managers over their ability to manage change. That's one of the reasons why I've worked really hard with setting up things where I can talk to the top 200 senior leaders, where I talk to everyone and we set up programmes for everyone as they enter, become senior civil servants, about how to manage change. In the past I think it's fair to say our traditions have been quite strongly to think about traditions and the change element hasn't been as powerful. What I'm trying to do is to get the Civil Service to be better at managing change.

Now, your figures are absolutely right in that there is some way to go. I think we're making progress on this. We are about to manage a very, very large change so it's really important that we get this right and one of the lessons I've learnt from those figures, and from talking to staff, is that one of the key things for us as leaders of the Civil Service is to get out there and be honest and open and explain to them what's happening on this change.

  Chair: Okay. Thanks very much. Mr de Bois?

Q72 Nick de Bois: Could I just do a follow up on that, because I think there are two issues and I'm not quite sure we've addressed them both properly. If I were an undergraduate about to graduate, I wouldn't have a problem applying for the Civil Service because you're not likely to take me on if you were threatening to make me redundant in a short period of time. You probably haven't got a recruitment problem for the future, but your massive problem is with the vast majority of people now who by definition are demotivated. Is that going to affect productivity? You have two issues really; I think it's glossing over to say recruitment isn't an issue.

Sir Gus O'Donnell: Sure. Recruitment could be an issue if we had a real problem of reputation, or whatever, then I think you'd notice it in recruitment, people not wanting it.

Nick de Bois: Fair enough.

Sir Gus O'Donnell: So I'm really pleased recruitment is going very well, and, in fact, seems to have got better. So that's a real plus, and we're getting to more diverse groups, so that's great. On the existing stock, as it were, how are we managing there? It is going to be challenging for us to keep morale up at a time when there are big changes and people are facing job reductions, but I think that is our job and that's what we have to do. I think we are trying to create more responsible jobs, to get rid of the bureaucracy, to ensure that people have more of a say. All of this thing about innovating is about trying to get staff at the frontline to tell us about how to change things so that we can do things better.

Q73 Nick de Bois: Are you worried or do you think you'll crack it, you'll solve that problem, because it's potentially a real problem for you, isn't it?

Sir Gus O'Donnell: It is, and, again, one of the answers to this was to start the work that I was mentioning to your colleague about what we know about the Civil Service, and we did this engagement. We got a set of questions—exactly what the private sector are doing—about how engaged our workforce is. It turns out in the private sector that the level of engagement is highly related to successful companies: you have a very engaged workforce. I guess some of the more successful companies—innocent, for example—you can imagine have very motivated staff.

We should be really engaged, but we know from the evidence from these surveys that we do have a number of disengaged individuals across departments. We are working on targeting how we can improve engagement, but also, if we come through this change in the right way, we should end up with a much more engaged workforce because we have those people who are disengaged, not interested in what they're doing, and we should allow them to exit, gracefully.

Q74 Chair: Can I just clarify: there is a recruitment freeze, but that doesn't apply to the graduate intake for the fast stream.

Sir Gus O'Donnell: That's right. I think it's really important for the long-term future of the Civil Service that we didn't miss out on one cohort, one year. So we recruit roughly between 400 and 500 fast streamers a year. Again, when you talk to the private sector they will say one of the great mistakes was that they put a recruitment freeze on and missed out on all of the talent of one particular year. That would be a huge mistake, I think, for the Civil Service.

Q75 Chair: In terms of engagement and disengagement, moving on to the impact of the CSR, admin budgets across Whitehall and the arms­length bodies have been cut by 34% to create a £6 billion saving by 2014-15. How do you plan to manage those reductions?

Sir Gus O'Donnell: I think it's very important that we go out and talk to our staff. I'm planning to go round the country. I've been up to Scotland; I've talked to my own staff; I'm going to be travelling round all sorts of places to go and talk to civil servants of all grades to explain the situation. How we're going to do it in practical terms is every department will now be working out, within that budget number, what that means for staff reductions, then going out and honestly talking to their staff about how they're going to do this. A number of departments have already started voluntary redundancy schemes. That will be important; that will be one way of doing it. Recruitment freeze has been another way and I'm afraid I can't rule out that there may well be compulsory redundancies as well.

Q76 Chair: But you're Head of the Civil Service. What does that actually mean? What is your responsibility in respect of how this is done?

Sir Gus O'Donnell: My responsibility, I think, is that it's done in a way that leaves the Civil Service stronger at the end of it, so we do this in a way that is perceived to have been fair, and we end up with keeping the skills that we need for the challenges of the future, and we do it in a value­for­money way for the taxpayer.

Q77 Chair: So are you issuing some kind of paper or direction to government departments on how they're going to do this?

Sir Gus O'Donnell: I think we've been at this game, like I say, for over a year. I started this process talking to the top 200 civil servants pre­election—remember we were talking about a deficit reduction of a half in four years, so this wasn't new; we knew big staff reductions would be needed. We didn't know precisely how many. We talked then about the ways in which we would need to do it. I've asked key members of the private sector who have done this successfully to come and talk to the set of permanent secretaries to give them advice.

So we have been generating advice. The HR groups have got together and have worked on precisely how they would do this across departments, and the nature of voluntary redundancy schemes, and indeed compulsory redundancy schemes, in terms of the actual amounts will be affected very much by legislation currently in the House of Lords, which has gone through the House, where we have an agreement with a number of unions to put forward the new scheme. We're very hopeful that that will come through Parliament as a whole and then we can work out the precise details of our redundancy schemes.

Q78 Chair: I'm a little confused. I keep using this term 'Head of the Civil Service', but the more you talk the less clear I am as to what that really means, because it seems that you are a sort of Non­Executive Chairman of the Civil Service—

Sir Gus O'Donnell: Yes.

Q79 Chair:—Rather than being the Managing Director of the Civil Service.

Sir Gus O'Donnell: Yes. Being Head of the Civil Service is not the same as being head of a big Plc. For a start there are half a million civil servants; I'm not sure you have any companies anywhere close to that. What we are doing and the way Civil Service terms and conditions apply is that they are specified by department. So the Civil Service is not one employer; we are a number of employers. So in that sense I think Non­Exec Chair is a very good analogy. There are different terms and conditions in the Department for Work and Pensions from the Ministry of Justice. So what I need to do as a Non­Exec Chair is bring together the heads of all those departments, which I do very regularly, and work on how we are going to apply this across those individual employers. Of course, as the Senior Civil Service we try to act very much as a united group.

Q80 Chair: Aren't you anxious to ensure there is a degree of consistency in what government departments do?

Sir Gus O'Donnell: Yes.

Q81 Chair: How is that laid down?

Sir Gus O'Donnell: That is laid down by the set of HR Directors. We have a group called PSER, Public Sector Employment Relations, which consists of a number of perm secs—it's chaired by Leigh Lewis, the Permanent Secretary for DWP—and they look at these cross­cutting issues and then they can task the group of HR directors, which consists of all the HR directors of the departments, to come up with a common approach. That has to be within the condition that each individual department has its own terms and conditions. So they're not the same across the whole of the Civil Service.

Q82 Chair: Taking a particular department, for example, the Ministry of Defence. They are going to get rid of 25,000.

Sir Gus O'Donnell: Correct.

Chair: What would you expect the permanent secretary in that department to do in terms of producing a plan and will you audit that plan? Will you vet that plan?

Sir Gus O'Donnell: I would expect responsibility to lie with the permanent secretary, Ursula Brennan, to do that, and they will draw on the work that all the HR directors have done so it's consistent with that; it will be unique to the Ministry of Defence, because they have their unique terms and conditions, but it will be consistent with what the rest of us are doing. Each department will vary because, for example, natural turnover rates will vary between departments. The impact that the recruitment freeze has already had is different in different departments depending upon their turnover rates. Their voluntary redundancy scheme will need to be consistent with the rest of us, but different departments need to move at a different pace on this, depending on things like their natural turnover rate. If they have a very high natural turnover rate, they'll probably have less need for redundancies.

Q83 Chair: How do you make sure, through the process of natural wastage, that you don't lose the wrong people?

Sir Gus O'Donnell: Absolutely, which is why we won't do this just through natural wastage. We will proactively manage this process so that we use our redundancy schemes, and it may be at times that we are using redundancy schemes to take out rather more, and then come in with people who have the skills that we need for the future.

Q84 Chair: So compulsory redundancy is a very important element of quality control of personnel in the Civil Service at this particular, very ugly moment?

Sir Gus O'Donnell: What I'm saying at the moment is we certainly can't rule out the fact that we may well have to have compulsory redundancies. That will be, I think, a part of the answer in some departments, but if you take a small department with a very high turnover rate, then it may well be that there are no compulsory redundancies there.

Q85 Chair: What measures are you taking to ensure a maximum duty of care to those who are forcibly made redundant?

Sir Gus O'Donnell: Well, that's where we have some, obviously, HR guidelines; we are making sure that everyone adopts those. That's the job of the HR director in every department, to make sure, and we have systems set up to monitor across departments because we want to look at the rate of progress in different departments. We want—to pick up the point made before—to look at the geographic distribution of these, because that will have some implications. We certainly want to try and get into a situation where, if it happens that a department in one area is going to be hiring some new people, and if at the same time a department in the same area has to go towards redundancies, that first of all, we exploit as far as possible the possibility of transferring people across between those departments.

Q86 Chair: Just harking back to a previous question: you do expect to see a concrete plan from each department on how they are going to do this? There is going to be accountability?

Sir Gus O'Donnell: Sure. Absolutely. Ian might want to add to that.

Ian Watmore: Can I come in here, just to amplify if I may?

Chair: Yes.

Ian Watmore: Thank you. I have two roles in this: one is to coordinate across government and the other is to do precisely what you're asking within the Cabinet Office. The approach I'm taking within the Cabinet Office might be illustrative of the general guidance. The first thing we're saying to people is, "What sort of a department do we want when we've finished?" I've laid out yesterday in a notice to all staff a kind of blueprint for the department as it is now and needs to be for the future. The second thing I'm now doing is consulting with staff on that to get their ideas for where that works, where that isn't quite right, and changing it. What we will then be doing is then looking at where people's skills fit that future. We will be running a voluntary redundancy programme in parallel. We would expect people to volunteer for that programme when they have more information about what the future of the department looks like. At the end of all of this, we hope that we will get down to the size and skills we need by having communicated to staff, laid out the vision for the future and then planned it through. If we don't, then, and only then, will we turn to compulsory redundancy and then that will be a last resort.

Q87 Robert Halfon: As far as redundancies go, how many of those do you expect to come from the bonfire of the quangos?

Sir Gus O'Donnell: We do not have an estimate for that yet. I stress that's really about changing accountabilities. So a number of those functions currently in those bodies may transfer into the Civil Service. Then of course they would come within our overall ambit of needing to cut our budgets by a third. So we will be driven by money not by some numbers about staff. The key for us is getting our budgets down by around a third.

Q88 Robert Halfon: But if you're getting rid of these many quangos, there must be some kind of guesstimate that you have of how many people will be—

Sir Gus O'Donnell: No, because—

Robert Halfon:—need to be made redundant from those quangos themselves?

Sir Gus O'Donnell: When you say "getting rid of", in many cases we are transferring their functions. If it's felt that the quango is operating in areas where this is actually policy and should be under direct control of ministers, then we're just transferring it in. That's not the end of it, because obviously we will then scrutinise very carefully, because overall we need to cut a third. So we will be looking to increase the efficiency and reduce the headcount there as well.

Robert Halfon: So for example—

Q89 Chair: Can I just interrupt, because I think we need to press on. But I think it would be useful—it's a good question. Could you do us a note on this?

Sir Gus O'Donnell: Sure. Very happy.

Q90 Chair: We are doing an inquiry into quangos, on what financial savings are going to be made by this and what headcount savings are going to be made by this. They're obviously different things if different quangos are stopping doing certain activities or handing out certain—

Sir Gus O'Donnell: Indeed. I stress that what this was driven by was an approach towards those accountabilities; to get those right. Yes, we hope to increase efficiency and save money as well, but it's driven by getting the accountabilities right.

  Chair: A note would be very useful. Thank you. Mr Mulholland.

Q91 Greg Mulholland: The other side of the coin obviously from the CSR and the potential redundancies and cutbacks is the Efficiency Review. Sir Philip Green was asked to do that and has reported. While the Review doesn't place a figure on the amount of money that it believes to have been wasted, nevertheless it does contain a number of quite shocking examples. For example, the price paid for a box of paper varied between £73 and £8; the cost of printer cartridges ranged from £398 and £86; the difference between the highest and lowest laptop was £1,647, with 68 different contracts between the Government and arms­length organisations with the same company for the provision of mobile phones. Expenditure on procurement cards not monitored or approved as long as it's under £1,000 a month. One particularly shocking example: a government agency signed a 15­year lease on a building, paying £1.2 million in rent. The building was too large for the organisation anyway and then it was abolished nine months later, with a waste of a rental commitment of £18 million. This is like the MPs expenses scandal without the duck house. How on earth has this incredible inefficiency been allowed to happen?

Sir Gus O'Donnell: I'll let Ian speak.

Ian Watmore: The Philip Green Review was done for my group, so I spent the most time with him on it and the plain facts of the matter is that the sort of examples that you're talking about have all been left for individual bits of government to do for themselves in the past. The central thrust of Philip Green's Review—which I agree with, as it happens—is that if you want to get maximum bang for the buck, as the Americans would say, from this, you have to take certain categories of purchasing and do them once on behalf of government. You do that for two reasons. One is because you have the bulk purchasing power to get better deals, and the second reason is because you get a level of consistency out of the system. So the good example that Philip quotes in his report is about energy procurement, which used to be done by individual departments and quangos and all the rest. We have over the last few years been centralising that and we've now got 75% of all purchasing being done through one way and it has saved £500 million.

So what Philip was pointing out was that by leaving it to individual departments, when you're in the world of a department may look good, but when you go across departments you get these extraordinary inconsistencies, and overall you get a lowering of your purchasing power. His recommendation is to bring these things to a greater central procurement and that's what we're now setting out to implement.

Q92 Greg Mulholland: Do you feel a little embarrassed about that level of inefficiencies and some appalling decisions?

Ian Watmore: I'm not embarrassed in the sense that you possibly mean by the question, but I do think it is unfortunate that we end up in the situation where it looks as though public money is being spent variably in quite different ways. The reason I think you have to go back is that in previous regimes the department was—or the arm's-length body was—the entity that had the responsibility for doing that. If you look across the private sector you will get variations between companies on these things as well. What we're trying to do is to say, "Although we are series of department and arm's-length bodies and several hundred in total, we have the ability as the Crown to operate as a single entity." In the last four or five years, the capacity for these departments has been strengthened massively. We have commercial directors in each of the big departments now who are really top-class people, as good as anywhere you'll get in the industry, and many of them have come from industry. So we're now in a position to work with them, and so we can go the next step and do it at a cross-government level like we have with energy, and that's the plan for the next few years.

Q93 Greg Mulholland: What I'd just say—I can say this now sitting on the Government benches—if those things carried on over the next few years, I would be embarrassed. I think, frankly, people should be embarrassed that these things have taken place. You mention having commercial directors.

Ian Watmore: Yes.

Greg Mulholland: That was the particular title you used. Do you accept that certainly the Civil Service hasn't had the corporate skills that it has needed to manage procurement? I think that seems to be a fairly obvious conclusion from those things. Are you confident that that is changing and that we will see that sort of corporate skills base now across government?

Ian Watmore: Yes, I am confident that it is changing. I do believe that five or six years ago the position was very poor indeed on this area: procurement and commercial skills in government were very weak at that time. The Office of Government Commerce was created; Peter Gershon launched it, etc. Over that period there has been a strengthening of the skills so that today when I come in I have a very good base of people out there in the departments on which to build. What has been really gratifying, I think, in the exercise we've run for the last few weeks, is how good those people are and how willing they have been to step outside of their immediate departmental responsibilities and help us on the whole of government. So when we've been renegotiating a contract with—I'll pick a company that you'll all know—BT, which pretty much services every government department, we have taken one of the commercial directors from one of those departments and said, "Now, for this purpose, you are government. You are empowered by us all to renegotiate the deal with BT using the whole power that the Government has to bring." They've really stepped up to the mark, and I think it's not only been a good sign that we have credible people there now, we have people who are prepared to work together as opposed to in silos and I think that's encouraging for the future.

Q94 Greg Mulholland: That does sound encouraging and obviously the leadership is crucial, but it isn't the only thing, is it? Clearly, culturally there's not been, frankly, a respect that this is taxpayers' money, and therefore I'm sure you'd agree that there needs to be a culture change. The phrase that's used in Sir Philip Green's report is that "the Civil Service should move to a mindset where they apply the same principles spending government money as they would their own."

Ian Watmore: As if it was their own money, yes.

Q95 Greg Mulholland: Personally, imagining how Sir Philip Green might spend his money, I find it a rather odd turn of phrase, shall we say. I also think it's extremely glib and of course there are some people who spend their money in a rather rash way, and that's entirely up to them what they want to do with their own money, and other people will probably not change carpets until they're virtually threadbare, and that's reasonable. So I think the phrase should have said simply that they should spend money properly, responsibly, appropriately and accountably. I think that would be a far better phrase than this glib phrase in the report. So how do you get to that culture change?

Ian Watmore: I would agree with you that that's the right way to phrase it.

Greg Mulholland: Perhaps we can write to Sir Philip Green.

  Ian Watmore: That's fine. He would argue that that's his shorthand way of saying the same thing, but I don't want to go there. The key—

Chair: Briefly, if you don't mind.

Ian Watmore: The key thing for me is that we get big purchasing and small purchasing altogether. What we have, I think, is greater focus on the big purchasing now in the examples I've talked about. We've taken the top 20 suppliers to government, who account for £10 billion of public expenditure in total, and we're renegotiating deals with those to get several hundred million pounds of improvement.

The real thing is to get people buying every day the things that they need under the right approach. So little things like train travel: no more first class travel, and when you book a train you get an advance fare. Massively cheaper than getting open ticket. Those things add up if you get the whole system operating in that way. It's a culture change in terms of the big deals; it's a culture change in terms of every employee of the public sector focusing on how the money that they're responsible for is spent.

Q96 Chair: Thank you Mr Watmore. Can I just press you on how we're dealing with these top 20 suppliers?

Ian Watmore: Yes, of course.

Chair: There is a very widespread perception that they're getting their best margins from the public sector. Do you share that view?

Ian Watmore: I think when I used to be a supplier to government and compared and contrasted it across, it was usually in the middle range. The financial sector was always the highest margin in business, because it tended to come and go more quickly. What I think has happened in the recessionary past for the suppliers is there have not been many markets other than the public sector, so they've tended to flock to the public sector. What we are now in a position to do with them is, having called them in and looked at all of their contracts with government, we've been able to point out the discrepancies. So, for example company A might do a deal with one part of government and put a rate card in place and then do something with another department.

Q97 Chair: So is this about renegotiating existing contracts?

Ian Watmore: Absolutely.

Q98 Chair: How do you put pressure on companies to do that?

Ian Watmore: Well, there are limits to what we can do legally, because usually we have contracts that are multi­year and binding, but what we've said to them is two or three things. The first thing is, "We can now see the discrepancies in the way you're doing business with government. We've joined ourselves up; we can now see these. Put it right." The implication is that if they don't we will take a dimmer view of them in the future. They might be able to hide legally behind the contract, but they will have pressure on them in the future.

Secondly, we've asked them to come back to us with suggestions where they can just reduce their bill, either by not doing something because they think it's unnecessary or, as I put it to them privately, "You've spent the summer telling me that something must be done about government finances. Well, now we are asking you to do something about government finances and contribute yourselves," which they are doing. The final thing that we're asking is for their ideas for where we can do things better in the future. Now, if I was putting my former supplier hat on, I'd be relatively embarrassed by the first situation: that they'd spotted I had differences across the system and I'd probably correct them for that reason. The second I would be reluctant to do, but I would do on the basis that in the future we will be able to get a better way of operating. I think that's been what each of the companies has taken. We've signed something like two thirds of the MoUs with these companies, and we've already saved several hundred million pound this year, before the spending review starts.

Q99 Chair: So there is a process. You've set up a procedure for doing this?

Ian Watmore: Absolutely.

Q100 Chair: I understand that the Minister, my right hon. Friend, Francis Maude, is also taking a personal interest in some of these contracts. Can you describe what his role is?

Ian Watmore: Yes, he brought the team together that I'm now heading, so he got the focus right. We then called the 20 suppliers in, with my commercial team and him. He laid out his perspective. I think the Chief Secretary came to one of the meetings as well—I can't remember which one—so there was a joined­up Cabinet Office-Treasury directive coming to the suppliers. Then he left us to organise what we call the deal renegotiations with the suppliers, and if we were getting to a point where we thought there was something worth agreeing we'd take it back to him; he would bring the supplier back in and nail the agreement and then we go off and sign the legals. If, however, on the one or two occasions it seems to have been slow with the company; they haven't quite "got it", to use the phrase, then we've brought them in and he's put more pressure on them to go back and think again. So it's been a political leadership exercise, with us in the commercial team handling the negotiations.

Q101 Chair: How do you reconcile the fact that the Minister has meetings with individual suppliers? How is that made so there isn't a conflict between what he's doing and with the process you've established?

Ian Watmore: It is his process and he's part of it in the way I've said. In any commercial process of that type, you would always set up a principal figure who comes into the process at key points, either to cement the deal or to be there as the chaser of bad progress. In between we have the commercial teams negotiating on behalf of the Crown right across the company. So it's very clear.

Q102 Chair: So can you give an assurance there has been no case where the Minister has negotiated, or thought he was negotiating, something with a particular supplier and that has resulted in, perhaps, a lesser saving than might have been attained had the process been allowed to continue uninterrupted?

Ian Watmore: I can absolutely give that assurance.

Q103 Chair: Right. Thank you for that. I understand there's also a system of e­auctions, of online Dutch auctions for suppliers bidding for new contracts.

Ian Watmore: Yes.

Q104 Chair: Can you describe how that's been done?

Ian Watmore: Yes, they already exist and have been used for some time, actually, so it's not a particularly new phenomenon. What quite often happens in government is you negotiate what's called a framework contract for a sector. I can't think of a good example off the top of my head—stationery or office supplies or something. You negotiate a framework contract over several years, and a number of companies are then the preferred suppliers of that sort of commodity. When an individual department wants to buy that commodity you run a mini-competition among those suppliers. You used to be able to do it with sealed bids. You'd ask them all to put their best bid in. What you can do with the web these days is kind of like a reverse eBay, where the price starts high and drops until the point at which no more bidders come in underneath that price. The ceiling price is kind of negotiated in the framework, but then you're driving the price even lower on a given case-by-case basis, so you take advantage of short-term surpluses.

Q105 Chair: This is being run by a consultancy, I understand?

Ian Watmore: We have a system; I forget its programme name now, but it's a government­owned capability that many government departments use or they ask OGC to do it on their behalf.

Q106 Chair: Ask who?

Ian Watmore: The Office of Government Commerce, which is part of my area now, to do it on their behalf.

Sir Gus O'Donnell: Buying Solutions.

Ian Watmore: So there's the Buying Solutions team, which is in Liverpool and predominantly in Norwich as well, and they will do a lot of those auctions.

Q107 Chair: So this has all been invented in-house, has it?

Ian Watmore: It's usually been done in conjunction with procurement specialist companies out there—people who actually provide procurement.

Q108 Chair: So they're supervising this process?

Ian Watmore: Yes. Oh, yes. It's always owned by a public agency. It's either done on behalf of government by the Buying Solutions or it's done by the department of x, y or z, using those contracts.

Q109 Robert Halfon: Can you just tell me what you're doing as far as cutting the cost of Civil Service meetings and conferences is concerned? I tabled questions to every government department about the cost of conferences over the past 10 years. Most government departments replied that it was too expensive to provide the information, bar a couple. One example that I can remember off the top of my head was the Department for Work and Pensions, which said they had spent £150 million over 10 years just on management conferences. I find that an extraordinary amount of money to spend on conferences. What are you doing to stop that sort of use of taxpayers' money occurring again?

Ian Watmore: Two thoughts on that. One is when you have a workforce like the Department for Work and Pensions, who have 130,000 people at peak, covering the whole of the United Kingdom, it's really important periodically to get the leadership together so that there's consistency around the regions. They have an administrative budget of £8 billion or £9 billion a year, so over that same period they've spent £90 billion on administration costs, so it's a very small fraction of that cost. I wouldn't necessarily agree that it was an abuse. However, in the current straitened times what we are saying to people is—at various levels of expenditure, this is just one example—"Think three times before you actually commit to the expenditure." The first is: "Does the meeting really need to happen?" Is there a really solid business purpose behind it, as opposed to "it's just always happened". Secondly, "Is there another way we could do the meeting?" For example, using video conferencing technology, which is particularly good these days in a way it wasn't a few years ago, so now we have that. Thirdly, "If we're going to have such a meeting can we do it in a way that minimises the cost by not, for example, having overnight stays?" So try to just do the meeting in a day, rather than having people arriving the night before. So these are all examples of what I was trying to get at earlier: each one of those purchases is relatively small, but keep spending them carefully and it adds up over a long period of time.

  Sir Gus O'Donnell: Could I just add, I am very worried about the implication of your question in the sense that you can imagine a Civil Service that gets completely inward; that doesn't talk to anybody outside; that isn't open to new ideas. I would say there was a time—when I joined the Civil Service in 1979—when basically the idea of talking to anybody outside was slightly heresy. I really strongly believe that it's important for us to engage with think-tanks, to engage with other governments around the world, to learn from best practice outside and the private sector, and these things tend to happen in a number of ways but one of them is conferences. So I would just be very cautious about a world that says, "Whatever you do, just hunker down and don't get external input."


Q110 Robert Halfon: Just very quickly—I hear what you say, but I still think £150 million is a huge amount of money. What I don't understand is why some departments were willing to give me the information—about two or three—and the others said it was too expensive to provide me with the information about how many conferences they went to. I thought that was unacceptable.

Ian Watmore: One of the other findings of Sir Philip Green's Review is that the data that we have in government for these sorts of things is pretty poor. One of the reasons for that is over a long period of time we haven't invested in the financial systems underneath to provide that. When we have, they record the information in one way and then people continue to ask for it in lots of other ways and it becomes administratively burdensome to do that. One of the things we are trying to do going forward to improve efficiency is to get a standard—what we would call charted accounts—going, so that people record information in the same way, in the same department, and then it rolls up and then it becomes much easier to get that aggregation of spend. It is very hard to do in the short term.

Sir Gus O'Donnell: It would be really interesting to know what Microsoft spend on conferences.

Robert Halfon: But they're a private company. They're not using taxpayer's money; that's the big difference.

Q111 Chair: Can I just ask two very brief supplementary questions? First, "commercial in confidence" seems to be a very ubiquitous phrase for any scrutiny of public contracting, yet it doesn't seem to afflict public contracting in other countries like the United States of America. Isn't it time, in this age of openness and transparency, that we did away with that and told suppliers, "Every price you give us will be publicly available"?

Ian Watmore: I think going forward that will be the mantra. We are looking to make sure that we are very open and transparent about the deals that are done. For example, currently every government department has to come to Francis Maude and my team to get approval to spend more than a million pounds on a particular type of project. When we give that approval—which we obviously do, because there are lots of valid reasons for doing that—then those exceptions, as we call them, will be published under the transparency agenda. So it is definitely a direction of travel for this Government. There may be certain aspects that somewhere along the line we have to be cautious about.

Q112 Chair: Secondly, can I invite you to look at how government departments purchase press cuttings? There is a programme called Factiva that allows people to access press cuttings online, maybe with a few subscriptions, and I guess the Government must have a few public subscriptions to various publications and newspapers. Isn't the amount that Whitehall spends on press cuttings rather wasteful and couldn't that be done more cheaply, and isn't that something that the Cabinet Office should supervise?

Sir Gus O'Donnell: Well, it's an interesting question and it goes back to this whole point about how much do you centralise versus localise. We have a coalition government agreement to try and localise. It's this whole tight/loose debate: what we determine from the centre versus what we allow departments to have freedom on. I think when it comes to press cuttings I'm personally strongly with you that I can't see a reason why you couldn't use the electronic methods of doing this, but there are a number of ministers who are quite keen to have physically a copy of press cuttings. That's the way they wish to spend their money. Now, they have a third less to spend and I hope we will be encouraging them to take up Factiva, there's Google Alerts, there's 101 ways—

Q113 Chair: Are civil servants trained to use Factiva?

Ian Watmore: Absolutely. I always have Google Alerts come through on things I'm interested in. Personally I try not to read newspapers and just get the online version of the stories, because I think what you get then is the real essence of the story and I think it's much more efficient so to do.


Q114 Nick de Bois: Non­executive directors: we're running out of time so I'm going to try to focus this into two questions, if I can. I come totally from a private sector background—until 6 May—so I've seen it work in business. I'm unconvinced that bringing in non-executive directors all from the commercial sector is a panacea to so many of these problems. What are they doing that's going to be different from similar roles in the past?

Sir Gus O'Donnell: Well, can I say we've had non-executive directors on boards for a long time; we've had commercial people on boards. It's very clear: I think when Francis Maude was in front of you, he made it clear that it won't be totally commercially private sector. I think we'll get a mix of people, so it won't just be people with private sector backgrounds. I think though that for non­execs, we are always looking for people who can add an external dimension. It goes back to my point; I think the last thing we want to do is become very internally focused, so good people, I think, have proved very, very useful as non­execs on boards.

Q115 Nick de Bois: There is a change though. They are going to have the power effectively to suggest the removal of a permanent secretary and it is not unreasonable to assume that there could be an element of politicisation of these roles. Will we see any of the 35 people who wrote to the press on the CSR turning up as non-executive directors? They may be good people, they may not, but potentially how are those going to conflict? How are those two roles going to potentially conflict with working closely with the permanent secretary?

Sir Gus O'Donnell: We would expect the non-execs to be appointed on merit. These should be people who have real commercial experience. They may or may not have been involved with political parties one way or another. They may have supported certain things or supported letters sent under the previous Administration. To me what's important is not that; it's whether they are really weighty figures who will really help departments achieve their objectives, particularly ones who can help us in this period where the big challenge is producing better outcomes with less money.

Q116 Nick de Bois: If a non­exec can recommend the removal of a permanent secretary, that's quite an interesting conflict. I haven't seen that happen in my private business—well, the equivalent—so how's that going to work?

Sir Gus O'Donnell: If you think about when non­execs get together and the lead non­executive then goes to the Chairman and says, "We think the Chief Exec needs to go," that's the analogy I would use. It's a recommendation, that's all. For many years, I've been using non­execs on boards to give feedback to me about their perm secs as part of the evaluation of their performance. So I think it's evolving through that.

  Nick de Bois: Okay.

Q117 Chair: Lastly, we have last week produced a report on National Strategy, which I think we're very pleased with, though its conclusions we found to be somewhat alarming. I wonder if you've studied the report and if you feel able to give us any initial reactions of your own, though we appreciate what you tell use now will not be the official Government response.

Sir Gus O'Donnell: Obviously it's a very serious and weighty report, and we will give a Government response to that report. If you want my personal reflections, I'm really pleased you're looking at the issue of strategy, because I think it gets under investigated, if you like. For us, particularly with coalition, it's a really interesting question about what the strategy of the Government is, and I think, unusually, we have a Programme for Government. If you go back in the past you have governments who come in and there's a manifesto, but they haven't laid out a detailed Programme for Government in the way this Coalition Government has.

Now, I admit in terms of "is it a strategy?" I'd say it's a framework within which they operate. It then needed a number of important factors, not least time plus resources. Look at what they've done with the Programme for Government, then the budget—setting out an overall strategy about public finances—then the Spending Review, actually going into more detail about how you would achieve the split between tax increases, welfare change, departmental reductions. Alongside that are some of the key strategic documents like the National Security Strategy and hence the defence White Paper. In other departments, Secretaries of State, whom the Prime Minister wants very much to be in charge of their own strategies, are implementing that consistent with the overall framework in the Coalition document. So you'll get for example in health, a White Paper laying out a strategy for health. So I think there are lots of building blocks there. Your point was about whether there is one strategy and who is responsible for it; I think the Prime Minister's answer to that would be their strategy is incorporated within the Coalition Programme for Government and that that's the Government's strategy.

Q118 Chair: I think we would submit that it's one of the main points of our report that what you refer to as a strategy is in fact a plan or a business plan for government, and there are a variety of business plans for different parts of the Government. Strategy has become rather a misused term; strategy is a way of thinking, an idiom of thinking, that requires constant revision, constant adaptation and constant analysis, assessment and judgment. The main conclusion of our report is that the capacity for doing that analysis and assessment so ministers can make constantly informed judgments is really lacking. I appreciate you have a Strategy Unit in the Cabinet Office, but it does seem to be rather underpowered for the huge challenges that face any modern government.

Sir Gus O'Donnell: Your report is very interesting about the definition of strategy, and I think you say it has evolved through time and it is very difficult to pin down. Various people mean different things by the term "strategy". I see the strategy as being an overall framework and I regard the Coalition document as being the nearest we have to this Government's strategy, and within that Secretaries of State are working out their policies. This isn't comprehensive by any means because events will change and the Spending Review has already created new sets of challenges for departments, so I think it will be evolving.

There was a time when we put strategy units in a lot of departments, and the question then was the strategy units became somewhat divorced from the individual policy people. They were people thinking great thoughts and they didn't have much influence. It's a bit like when I first joined the Government the way our economists were. We were sitting in a little ivory tower; we wrote nice learned papers; but nobody paid any attention. I think it's important that the strategy—to pick up your point—is an iterative process and it evolves through time. On the other hand, there has to be something that is quite long term about strategies, otherwise you're forever digging up everything to check how it's doing.

Q119 Chair: Aren't you rather wistful about, for example, what the Central Policy Review staff used to do for the Government in the early seventies or what the Advanced Research and Assessment Group used to do down at Shrivenham? There is an example of where they offered to the National Security Strategy the thesis that in fact global banking collapse—this was way before the financial crisis—was the top threat that should go into the National Security Strategy. Because this was such an off­the­wall thought it was thrown out. Shouldn't you have more of that off­the­wall thinking capacity available to ministers in government?

Sir Gus O'Donnell: I think if you look back at people that have tried to have the off-the-wall kinds of thoughts—"blue skies thinking" I think it's quite often called as well—you have real problems. It's very hard to keep these things confidential in a world with freedom of information. As soon as you start saying, "Well, we thought about these radical ideas," then suddenly they become, "Oh, the Government think this is going to happen." It is a difficult world.

Q120 Chair: So is that an excuse for not having those thoughts?

Sir Gus O'Donnell: No, it's not an excuse for not having those thoughts. I think it's important for us to think more widely, and I think you're right about the banking crisis; I think it was a failure of ours that we didn't have within our risk register thinking about the consequences of a big financial crisis. I think that's one of the areas where we didn't have enough of the economic side within our national security.

Q121 Chair: But don't you think Whitehall, from the evidence we took, tends to work within closed systems of thinking where predictable problems are anticipated, but the unpredictable, the less predictable, is dismissed?

Sir Gus O'Donnell: Let me put it one way: if we went down the route of never meeting anyone from outside and we closed ourselves in and never had a single strategic conference, that might be a problem. I do think we need to get better at this. In general I think you're right that it would be good if one had more free spaces in which to think the unthinkable.

Q122 Chair: You said yourself that different departments' strategy units started going off in different directions and having different ideas of what their role was. Isn't there a case for the Cabinet Office to coordinate strategic thinking across government in the way that we recommend?

Sir Gus O'Donnell: Well, I think—

Chair: For there to be more training of strategic thinkers across Whitehall?

Sir Gus O'Donnell: In the Strategy Unit, they've created strategy documents in the past, and we've got that, I think. It's one of these tight/loose things; how far do you want to tie this down from the centre when the risk as you do that is that you end up narrowing down, so that you start saying, "No, no; don't think that, because that's unthinkable." I think you might find you end up with a narrower set of outcomes being considered. I think, to be honest, one of the things when I look back on the national strategic work that we did, because it was in the Cabinet Office, it tended to have a bias towards things that the Cabinet Office did a lot of in those days, and the one thing it didn't do a lot of was economic and financial. So it didn't pick up on that.

Ian Watmore: I have only just skimmed the recommendations; I'll read it very carefully because it's a subject I'm personally interested in. I think one of the problems of departmental boards in the past is that they've not been the place where strategy's been brought together. In a normal Plc type of company, which I've come from, you would have operating committees that made all the operating decisions. The board would be the place in which the true strategy was thought through, brainstormed, developed, etc. Too many of the departmental boards have been like the operating committees of the past, and one of the things that Lord Browne is very keen on is that these new boards that he's establishing— ministers, non­execs, so challengers, and key officials—together develop the strategy for that department and they delegate to an operating committee the day­to­day operational type decisions.

So I think what you will find—this is only me predicting—is that those boards will support very strongly the report that you've put, which is to have real strategic thinking reporting into them and then joining up underneath the Cabinet Office board and the Treasury board, which then cast their view across the whole terrain. So I think the direction of travel is very much in line with where your report is going.

Q123 Chair: Finally, we were very much prompted by the National Security Strategy, the Strategic Defence and Security review, and in particular the Chief of Defence Staff's comment that we seem to be losing the art of national strategy. In exasperation, he set up his own forum for strategic thinking. Do you think his initiative has got application across Whitehall?

Sir Gus O'Donnell: I think there is absolutely a role for strategic thinking across all departments. Now we have a real challenge in that it's the end of the beginning, if you like. Every department now has its spending review settlements, so they know how much money there is. All those resources that were going into preparing their bids and all the rest of it are done. Now there is the big strategic issue of, "We know what the resources are; we know the kinds of things that we are trying to achieve. What is our strategy for using those resources to best effect to achieve the things that we want to deliver?" I think that's where the resources will go. Now, whether you put them within a formal strategy unit or whatever, that's the requirement on every department now.

Chair: Cabinet Secretary, Ian Watmore, thank you very much indeed for your evidence today; it has been most helpful.

Sir Gus O'Donnell: Thank you very much.

Ian Watmore: Thank you.

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