Progress With Vfm Savings And Lessons For Cost Reduction Programmes

This report discusses how much the Treasury's Value for Money savings programme has improved value for money across government. The programme aims to achieve government-wide annual savings of £35 billion from 2008-09 to 2010-11. Today's report concludes that the Treasury's design addressed some weaknesses in earlier savings programmes, and departments have made some progress in their management of their programmes compared with previous spending periods. Nevertheless, departments' planned programmes did not contain sufficient contingency and it is unlikely that departments will achieve the government-wide target of £35 billion of annual savings, which fully meet the Comprehensive Spending Review criteria, in 2010-11. To date the NAO has reviewed reported savings amounting to some £2.8 billion from five major departments which are to deliver around 40 per cent of the government-wide total. The NAO has concluded that 38 per cent fairly represented sustainable savings (green); 44 per cent may represent savings but with some uncertainty (amber); and 18 per cent do not represent, or significantly overstate, savings (red). Common problems include the use of unsuitable baselines for the calculation of savings, a lack of transparency over arms-length bodies' reporting processes, and difficulties in demonstrating links between savings and performance. This report is accompanied by the NAO's reviews of the value for money savings reported by the Ministry of Defence (HC 292, ISBN 9780102965407); HM Revenue Customs (HC 293, ISBN 9780102965414); and the Department for Education (HC 294, ISBN 9780102965421)

The £35 billion value for money target set as part of the 2007 Comprehensive Spending Review required public bodies to make sustainable cash-releasing savings, whilst maintaining the delivery of departmental priorities. The £35 billion target represented savings of 3 per cent a year for each department's expenditure at the start of the period. By March 2010, two years into the three-year programme, departments and local authorities had reported only £15 billion of savings, less than half of the total needed to reach the £35 billion target. Departments could not even measure adequately what savings they had made, and the Treasury failed to create a framework for reliable reporting. The current financial environment is fundamentally different, with substantial cash reductions required over the next four years by most departments. The results from the CSR07 programme raises concerns as to whether departments are ready to implement effectively a programme of value for money savings. There is a serious risk that departments will rely solely on cutting front-line services to reduce costs, without adequately exploring the potential to reduce costs through other value for money improvements. Whilst day to day responsibility for delivering savings will be for individual departments, the Committee expects to see the Treasury provide leadership, taking full responsibility for delivery across government and intervening where performance does not meet expectations.

The reports published as HC 470 (ISBN 9780215555106); HC 440 (9780215555144); HC 471 (9780215555205); HC 439 (9780215555243); HC 538 (9780215555434); HC 424 (9780215555496); HC 553 (9780215555502); HC 503 (9780215555571); HC 573 (9780215555595); HC 610 (9780215555656); HC 594 (9780215555717), session 2010-11

According to the National Audit Office, in 2011-12, government spent an estimated £316 million less on ICT than it would otherwise have done. The main challenge, however, will be to move to the delivery of ICT solutions that reform public services and the way that government works. The government announced in October 2012 that, subject to audit, it had already saved £410 million from its savings initiatives in 2012-13 and expected to save a further £200 million by the end of March 2013. The appointment of commercial experts has helped departments to claw money back, renegotiate contracts before they expire and, overall, spend less on ICT than they otherwise would have done. However, weaknesses in data held by the Cabinet Office have meant that the £348 million of savings reported by the Cabinet Office for 2011-12, resulting from its initiative to manage ICT suppliers as a single customer, could not be validated. To date, moreover, the Cabinet Office has measured only cost savings and has not published measures of the wider impacts of its initiatives. The department is starting to take steps to consider risk and performance on a more holistic basis, which should provide it with more information on wider impact. Views are mixed on the effect of reform on government's relationship with ICT suppliers. Suppliers consulted by the NAO were frustrated at the slow pace of change and the focus on cost-cutting, rather than exploring innovative opportunities to redesign public service and put services online. There have also been comments from government on resistance by suppliers to change

This report by the National Audit Office on progress by central government departments in reducing costs concludes that departments took effective action in 2010-11, cutting spending in real terms by 2.3 per cent or £7.9 billion, compared with 2009-10. The analysis of departments' accounts supports the Efficiency and Reform Group's estimate that Government spending moratoria and efficiency initiatives, including cuts to back-office and avoidable costs, contributed around half of the figure, some £3.75 billion. However, the report warns that departments are less well-placed to make the long-term changes needed to achieve the further 19 per cent over the four years to 2014-15, as required by the spending review. This is partly because of gaps in their understanding of costs and risks, making it more difficult to identify how to deliver activities and services at a permanently lower cost. Fundamental changes will be needed to achieve sustainable reductions on the scale required. It is unclear how far spending reductions represent year-on-year changes in efficiency, or whether front-line services are affected; and the departments' forward plans examined by the NAO are not based on a strategic view. Departments' financial data on basic spending patterns is sufficient to manage budgets in-year, but information about the consequences of changes in spending is less good. Longer term reform is a Cabinet Office priority and departments will need to look beyond short-term cost cutting measures and make major operational change. Cost reduction plans also need to build in contingency measures to cover unexpected risks.

In May 2010, the Government announced the formation of the Efficiency and Reform Group within the Cabinet Office. The Group brings many of the functions of a typical corporate headquarters together in one place in the centre of government. Its priorities are improving efficiency in central government, and wider reform of the way public services are provided, in order to make the spending reductions required by the 2010 Spending Review. The Group is responsible for various new initiatives which are designed to increase efficiency, make savings and improve value for money. These include renegotiating contracts with major suppliers; implementation of a centralised procurement process; a review of major government projects; and a new Property Unit. The NAO's review details various challenges that the Group faces. It is too soon for the NAO to reach a judgment on its success in improving the value for money of government overall. The review is intended to provide an objective baseline against which progress made by the Group can be assessed by the NAO and the Public Accounts Committee.

The first comprehensive 'bird's eye' account of public sector reform supported by references from over 400 official sources, this book is an invaluable guide to all those in the public, private and voluntary sectors grappling with the twin challenges of managing public spending austerity and the pressure in response to transform public services.

The NAO reports that the Department for Work and Pensions will have to make rapid progress in reorganising the way it operates if it is to meet its target of achieving sustainable running cost reductions of £2.7 billion while implementing substantial welfare reforms and a £17 billion reduction in benefits and pensions by 2014-15. Since 2007, the Department has reported reductions of £2 billion in its running costs, and initial out-turn data show that it met its target from the June 2010 Budget to reduce running costs by £535 million in 2010-11. However, the NAO has concluded that the Department must make progress quickly in order to be able to demonstrate that it can secure sustained cost reductions in a structured and strategic way. The report recognises that the DWP is only at the start of its new cost reduction challenge. However, without basing its running cost reduction plans more on robust information on the profile of its business costs and how that relates to the value of the services delivered, the Department is not in the position to make rational choices about what it should stop doing, what it should change and what it should continue. Recent cost reductions have been based largely on budget restrictions rather than on fundamental reform of working practices. Three months into the Spending Review and the Department does not yet have a detailed model of how it wants to run in the future.