“There’s no demand…” – audit report on UK Government efficiency savings published

Following the Public Accounts Committee report earlier this week, the UK's Cabinet Office has published the internal audit report into the £3.75 billion savings claimed through greater efficiency. It was carried out by auditors from two other Government Departments, as we reported here.

The report is an interesting read, not least because it is the most credible savings document I’ve seen from Government since – well, probably forever. It is an order of magnitude better certainly than anything published in terms of previous “Gershon” Savings, for instance.

There are still questions – the process for determining the “commercial portfolio” savings of £800 million (negotiations with top suppliers) sounds credible, but we still don’t get to see exactly what Serco, IBM, Balfour Beatty et al actually coughed up. And there’s still this slight puzzle around why we didn’t see any profit warnings from the firms involved? But the savings methodologies used here and throughout the report seem to be robust in general.

What is most striking though is just how much of the £3.75 Billion comes from what we might call “demand management” actions – basically, stopping doing things. Even when you dig down into savings that are categorised as “centralised procurement”, you find that they include items such as reduction in temporary staff use and not buying Microsoft licences for the ill-fated NHS IT programme.  And demand reduction may be the driver in some cases like Travel where the savings are not well described: are the savings down to lower prices or less travel? The latter I suspect. The other savings under “centralised procurement” are I assume ‘legacy’ benefits from existing collaborative contracts, as the new wave of centralised deals are still in their early days.

Here are all those essentially demand-driven savings listed:

  • Reduced consulting                    £869M
  • Reduced interim labour                £492M
  • Reduced marketing                     £397M
  • Stopping major projects               £147M
  • Stopping IT spend                      £296M
  • Stopped MSoft NHS licence -      £85M
  • Travel reduction                        £48M  (my assumption is it’s demand rather than price)
  • Staff reductions (17,000)             £295M
  • Stopping lease renewals               £ 91M

Adding all this up, I make it that around £2.7 billion out of the £3.75 billion is down to doing less / stopping spend.

Now, this is not a criticism. The Government has done what any smart private sector firm would do in a business emergency situation – they’ve put the brakes on discretionary spend, hard, emergency stop-style, and started cutting heads. And implementing this has required good management discipline, so all credit to Cabinet Office for that.

Have these cuts had an effect on services? Well, you might assume that if an extra billion HAD been spent on consultants and interims, there would have been some benefit ... wouldn’t there? But the world hasn’t come to an end without them, that’s for sure! Similarly, it is impossible to know whether the staff reductions have had an effect on delivery and service.

The more fundamental question perhaps for the future, which the Public Accounts Committee also raises, is how this initial success is going to translate into £40 billion of “efficiency savings” over the next few years?  There are two issues here for me. You could argue that demand management, while not easy, is low hanging fruit compared to real re-engineering, commercial creativity, or radical change in strategy, process or approaches. Apart from the top supplier programme, there isn’t much here to date that falls into those categories. So there will be a need – in the centralised procurement area and elsewhere – for savings that go well beyond buying less, important though that is.

Secondly, the wider public sector provides a huge challenge, as Cabinet Office doesn’t have the levers of power that they do in Whitehall. That was also where Gershon measurement got really flaky– I believe that Cabinet Office wants to keep up a high standard of measurement credibility going forward, but doing so across local authorities, the NHS and so on will be a challenge. And of course making real efficiencies rather than just cuts in services will be a delivery challenge and goal for all those organisations.

Voices (2)

  1. Final Furlong:

    Looks very promising Peter. However, please help me (and others) resolve one particular area. On the surface, it’s quite puzzling.

    Not long after the Tories came into power, they cancelled the Microsoft EA agreement in Connecting for Health. (Saved somewhere between £85m and £500m depending which newspaper to read at the time.) Notably, it was July 2010. You’ll note, from a number of the links below, a range of strange announcements to this effect, including, notably, that a £50m payment which was made to Microsoft but accounted for in the “budget of the previous administration”. (Interesting comment from an ‘insider’.). There are numerous references across the internet in relation to the NHS having to pay much more since the deal was cancelled, and Microsoft having to undertake mass compliance checks within Trusts.

    The final link relates to an announcement from the Cabinet Office (Stephen Kelly, Crown Representative, that they’re negotiating a new pan-Government contract with Microsoft – another EA deal, no doubt?

    How do all of these things link up? And, the £85.2m savings – are these genuine, given that Trusts have had to purchase their own licences and a ‘new deal’ will soon be on the table (which will have to come a budget somewhere…).

    Please help!

    http://www.computerweekly.com/Articles/2010/07/14/241977/Government-scraps-16380m-Microsoft-licensing-deal-with.htm

    The Cabinet Office did agree to pay Microsoft about £50m to cover software used in the previous agreement that was not licensed, but attributed the spend to the last administration’s budget.

    “The money is coming out of the same pot but, politically and on paper, it looks like the new government is saying it has not spent any money as the last lot used it all,” said another insider.”

    “There are around 400 NHS trusts in the UK and although they are licensed for some elements, there is a big hole out there that could be as large as £100m,” added the source

    http://www.telegraph.co.uk/technology/microsoft/7898033/Microsoft-loses-NHS-contract.html

    A Microsoft spokesman told The Register that “the NHS uses £270m of Microsoft software and pays less than £65m per year for it. For the next three years the cost would have risen to £85m as the NHS deploys more and more technology”.

    http://www.theregister.co.uk/2010/07/16/office_delete/

    Outlines the issue of cancelling the deal and the effect on NHS staff (ie: they will have to pay £109 instead of £9.

    http://www.guardian.co.uk/government-computing-network/2011/jul/12/cabinet-office-blocks-nhs-micrsoft-spend

    “It is my intention to develop a commercial arrangement with Microsoft which will provide better commercial terms; reduced cost and add greater flexibility,” said Kelly. [this would be Stephen Kelly, Crown Representative responsible for supporting mutualisation of public services]

    “The focus of the government in its engagement with strategic suppliers is to act with one voice to secure the most favourable terms, therefore I ask for your continued support during this process and that you refrain from non-business critical spend with Microsoft until a new commercial arrangement is secured.”

    The government dropped an enterprise wide agreement with Microsoft covering the NHS, worth £80m over three years, after the election last summer, citing a lack of business case or budget to justify the renewal.

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