Examination of Witnesses (Question Numbers
1-123)
SIR GUS
O'DONNELL KCB, AND
IAN WATMORE.
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 electionthe preparations and all the
rest of itI'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 meetthey 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 thatI 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 remitthe remit you wrotedoes 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 debateI 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 negotiationsI
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
againlet me be absolutely clear about thatwas 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, becauseas you sayI 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 rememberI think people forgetthat
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 ofthis wordcoalitionising 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 committeesthe
Home Affairs Committee would be an exampleis 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 hopethe Civil Serviceoperate with honesty,
objectivity, integrity, impartiality. Then there is the bitand
this is where the fusion comes inabout 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 usand 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 valueskeep 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 followand do you thinkthat
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 choiceI stressis
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 hadand
congratulations on surviving another oneis 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 budgetsabout
a third, as I saidto 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 sectorthere
are cuts going on and this is going to affect public sector and
civil servantsit 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 deathspossibly
three-quarters of a million deathsfrightened 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 scareswith
the millennium bug, with avian flu, with SARSthe 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 registerand
pandemic flu I'm really pleased to say was there on our risk registerbut
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 themthat experiment in transparency by the Chief
Secretary490,000 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 questionsexactly what the private sector are doingabout
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
companiesinnocent, for exampleyou 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
preelectionremember 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 secsit's chaired by Leigh Lewis, the
Permanent Secretary for DWPand 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 wantto
pick up the point made beforeto 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 usefulit'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 Reviewwhich
I agree with, as it happensis 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 wasor the arm's-length
body wasthe 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 sayI can say this now sitting on the Government
benchesif 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 withI'll pick
a company that you'll all knowBT, 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 wellI can't remember
which oneso 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 headstationery 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 therepeople 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 isat 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 timewhen
I joined the Civil Service in 1979when 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 quicklyI 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
informationabout two or threeand 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 standardwhat we would call charted accountsgoing,
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 approvalwhich we obviously do, because there
are lots of valid reasons for doing thatthen 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 backgrounduntil 6 Mayso
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 businesswell, the equivalentso 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 budgetsetting out an overall strategy about public
financesthen 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 strategyto pick up your
pointis 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 collapsethis was way before the financial crisiswas
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 wellyou 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 officialstogether
develop the strategy for that department and they delegate to
an operating committee the daytoday operational type
decisions.
So I think what you will findthis is only
me predictingis 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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