House of Commons Treasury Committee Evaluating the Efficiency Programme Thirteenth Report of Session 2008–09 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 21 July 2009 HC 520 Published on Tuesday 28 July 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Treasury Committee The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of HM Treasury, HM Revenue & Customs and associated public bodies. Current membership Rt Hon John McFall MP (Labour, West Dunbartonshire) (Chairman) Nick Ainger MP (Labour, Carmarthen West & South Pembrokeshire) Mr Graham Brady MP (Conservative, Altrincham and Sale West) Mr Colin Breed MP (Liberal Democrat, South East Cornwall) Jim Cousins MP (Labour, Newcastle upon Tyne Central) Mr Michael Fallon MP (Conservative, Sevenoaks) (Chairman, Sub-Committee) Ms Sally Keeble MP (Labour, Northampton North) Mr Andrew Love MP (Labour, Edmonton) John Mann MP (Labour, Bassetlaw) Mr James Plaskitt MP (Labour, Warwick and Leamington) John Thurso MP (Liberal Democrat, Caithness, Sutherland and Easter Ross) Mr Mark Todd MP (Labour, South Derbyshire) Mr Andrew Tyrie MP (Conservative, Chichester) Sir Peter Viggers MP (Conservative, Gosport) The following member was also a member of the committee during the inquiry: Mr George Mudie MP (Labour, Leeds East) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No. 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/treascom. A list of Reports of the Committee in the current Parliament is at the back of this volume. Committee staff The current staff of the Committee are Dr John Benger (Clerk), Sîan Woodward (Second Clerk and Clerk of the Sub-Committee), Adam Wales, Jon Young, Jay Sheth and Aliya Saied (Committee Specialists), Phil Jones (Senior Committee Assistant), Caroline McElwee (Committee Assistant), Gabrielle Henderson (Committee Support Assistant) and Laura Humble (Media Officer). Contacts All correspondence should be addressed to the Clerks of the Treasury Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5769; the Committee’s email address is [email protected]. Evaluating the Efficiency Programme 1 Contents Report Page Summary 3 1 Introduction 5 2 Reviewing Gershon and Lyons 7 The Gershon Efficiency Review 7 The Lyons Review of Public Sector Relocation 8 Did the reported savings represent real efficiencies? 9 The 2007 Comprehensive Spending Review and Budget 2007 11 Staff morale in HMRC 12 3 Finding further savings 15 Public Value Programme 15 Operational Efficiency Programme 15 4 Generating efficiency in a recession 18 Finding an additional £5 billion 18 Dealing with Public Sector Net Debt 19 Public sector pay 19 Headcount reductions 19 Spending cuts and tax rises 19 A culture of efficiency 20 5 Measuring and reporting efficiencies 23 Measuring efficiency 23 Efficiency in the future? 23 Can efficiency occur without the quality of service provision deteriorating? 24 Service quality measurement 25 Reporting efficiencies 26 Conclusions and recommendations 27 Formal minutes of the Treasury Sub-Committee 30 Formal minutes of the Treasury Committee 31 Witnesses 32 List of written evidence 32 Reports from the Treasury Committee during the current Parliament 33 Evaluating the Efficiency Programme 3 Summary Greater efficiency within Government departments has long been proffered as a solution to reducing public spending. Efficiency gains can not only reduce costs but also provide more efficient services. As part of the 2004 Spending Review, the Government launched a wide- ranging and ambitious efficiency programme that set demanding targets for Government departments to achieve monetary savings, headcount reductions and relocation of posts from London and the South-East. Our inquiry looked at the effects of that efficiency programme on the Chancellor’s departments, following the final report published in the 2008 Pre-Budget Report. We also examined the more recent programmes including the Operational Efficiency Programme and the Public Value Programme that were published alongside the 2009 Budget. Gershon Efficiency Review We note that the NAO interim report about Gershon efficiency savings highlights serious problems in measuring efficiency. We raise concerns that the NAO did not audit the final Gershon efficiency savings and that this has led to a lack of confidence on the part of some organisations in respect of the reported savings. We believe that, at a time when the public sector will be pressed to make further efficiencies, it is vital that any savings made are properly recognised and quantified. We call on the Government to continue to work with the NAO to ensure that future efficiencies are accurately measured. Staff morale in HMRC In respect of low staff morale in HMRC, we note that it has been caused, in part, by uncertainty about the future, a lack of understanding about the chosen efficiency targets, especially when service quality is perceived to have fallen, and increased pressure—having to do the same job with less resources. We note that HMRC senior management take the issue of morale seriously but we require greater communication between management and staff. We welcome the Government’s reassurance that training will not suffer as a result of the efficiency programmes. Operational Efficiency Programme In reviewing the proposals published in the Operational Efficiency Programme we recognise that they present significant scope for long term savings. Now, more than ever, efficiency savings that can be made in the public sector will be welcomed. However, we are concerned that these efficiencies will require considerable co-operation between departments to yield the full savings identified in the review. We question whether the necessary structures are in place to facilitate such co–operation and require the Government in its response to this Report to outline the practical steps taken to date. 4 Evaluating the Efficiency Programme Increasing the Value for Money targets We are concerned that additional £5 billion added to the Value for Money target in the 2008 Pre-Budget report was the figure chosen by Ministers without prior consultation with the relevant Departments. We note that this lack of consultation does not inspire confidence. We recommend that the Government, in planning to put the public finances back on a sustainable basis in the medium term, considers a more business-led approach to cost cutting in the public sector than setting an arbitrary target and requiring the civil service to meet it. Measuring Efficiency Finally, we consider the evaluation of the costs and savings of major efficiency programmes, noting that it is currently unclear whether such programmes represent real value for money. We recommend the Government establish robust data collection processes at the start of future efficiency programmes. To ensure that only true efficiencies are captured and reported, it is important that they are measured appropriately and accurately. We expect Government departments to have implemented the NAO’s recommendations concerning measurement. We also recommend that the Treasury monitor the progress of departments’ improvement in measuring efficiency. We will return to this issue after we have reviewed the Chancellor’s departments’ annual reports. Evaluating the Efficiency Programme 5 1 Introduction 1. In introducing his 2009 Budget the Chancellor of the Exchequer, the Rt. Hon. Alistair Darling MP, described it as being designed to “take Britain through the most serious global economic turmoil for over 60 years”.1 Projections set out in the Budget suggested that the UK public sector net debt would more than double from 36.5% of GDP in 2007–08 to 76.2% of GDP in 2013–14.2 Inevitably the severe strain placed on the public finances by the effects of the global financial crisis will cause the Government to review the scope for future efficiency savings within the public sector. 2. Greater efficiency within Government departments has long been proffered as a solution to reducing public spending. Efficiency gains can not only reduce costs but also provide more efficient services. In recent times, the Government has commissioned several reports to advance efficiency within its departments, including Sir Peter Gershon’s 2004 Efficiency Review, Sir Michael Lyons’ Public Sector Relocation Review (also in 2004) and, most recently, the Operational Efficiency Programme and the Public Value Programme published alongside the 2009 Budget.3 However, the efficiency programmes of the past have not always achieved their desired results and indeed some have questioned the extent to which these programmes actually achieved savings. It was within this context that we decided to review the recent efficiency programmes of the Chancellor’s departments. 3. The Gershon Efficiency Programme launched at the time of the 2004 Spending Review was wide-ranging and ambitious. It included demanding targets for overall monetary savings and individual targets for headcount reductions in the Civil Service. It also incorporated targets