The Cabinet Office has been accused of "a failure of governance and leadership" after the public spending watchdog found that a much-heralded plan to cut back office spending across Whitehall had fallen far short of its savings targets.
The Next Generation Shared Services Strategy was launched in 2012 by then-Cabinet Office minister Francis Maude, in a bid to cut costs by outsourcing back office functions to two independent shared services centres, run by arvato UK and Shared Services Connected.
The two centres were intended to serve up to 14 departments and their agencies, with the Cabinet Office saying at the time that it expected the programme to deliver £128m in savings a year, rising to between £300m and £400m a year across government.
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NAO: Shared services plans failed
Launching the strategy, Maude said: "There is absolutely no need for departments and arms-length bodies to have their own back-office functions, and duplicate efforts, when they can be delivered more efficiently by sharing services and expertise. Plus it will save the taxpayer half a billion pounds a year."
However, the latest report from MPs on the Public Accounts Committee points out that the actual savings delivered from the strategy are just £90m, with investment costs so far running at £94m – meaning taxpayers have paid a net cost of £4m.
PAC's report is scathing in its assessment of the way the scheme was handled, saying the strategy was plagued at the outset by ineffective governance, as well as claiming that the Cabinet Office did not secure sufficient buy-in from departments because it could not convince them of the benefits of taking part in the programme.
The committee says the Cabinet Office – which managed the framework agreements between government and suppliers but allowed departments to have individual call-off contracts with suppliers – "did not always have clear authority as to when and how it could step in to resolve problems when they arose".
"There were various partial business cases for each of the shared service centres but they were either incomplete, out of date, or both" – Public Accounts Committee
It says the Cabinet Office failed to provide a "realistic" business case for the two centres, and flags high levels of leadership churn in the programme, pointing out that shared services strategy has been overseen by five different senior responsible officers since it was set up.
"There were various partial business cases for each of the shared service centres but they were either incomplete, out of date, or both," the report says.
"As a result, some important aspects of the programme, such as governance and how funding would be shared and benefits monitored, were not properly set out," PAC says.
It adds: "The costs borne by some individual departments ended up being out of proportion to the benefits they received. Without a strong, clear, compelling business case it became difficult to incorporate all of the different business objectives of the departments."
The committee says that while those departments that have received services from the two centres have saved "between 20% and 25%" on the cost of back office functions, some departments have chosen to pull out of the programme, undermining the possibility of wider savings across government through economies of scale.
"The lack of commitment to the overall programme by some departments is, in part, because they had assessed that any benefits from participating in the programme would only be marginal," PAC says.
"They had not been persuaded by the argument that remaining in the programme would generate benefits for the whole of government. Without the appropriate leadership and governance structures in place, there was nothing preventing them from leaving the programme."
“We warned at the outset that predicating shared services on making huge savings and privatisation was wrong and misguided" – PCS union general secretary Mark Serwotka
"Cumbersome and slow"
The MPs' report also hits out at a failure to develop a clear design for the single operating platforms for the shared service centres, saying that a lack of clarity "led to delays to the programme and increased costs", with departments submitting "excessive numbers of change requests both to tailor processes and to maintain existing systems".
It adds: "The process to manage these change requests has been cumbersome and slow, further contributing to delays in the programme and increasing the costs to both government and suppliers."
The report has already been seized on by the Public and Commercial Services (PCS) union, which said it had long opposed the strategy.
“We warned at the outset that predicating shared services on making huge savings and privatisation was wrong and misguided," said general secretary Mark Serwotka.
“Instead of ploughing ahead with more arbitrary cuts to civil service budgets, the government needs to work with staff and the unions to ensure departments have the resources they need to provide the full range of services to the public and across government.”
PAC has given the Cabinet Office until March next year to draw up a "realistic and complete business case for the centres", and said departments "should explicitly sign up" to that revised case and verify "that they are fully committed to delivering shared services" if the programme is to fulfil its aims.
Launching the report, committee chair Meg Hillier (pictured) said: "If government is serious about making a success of shared services, and indeed future projects running across departments, it must act on the serious concerns set out in our Report before any more public money is wasted."
"In recent weeks we have established a cross-government delivery group and reset the business case to realise over £500 million of savings for the taxpayer" – Cabinet Office
The latest report from the PAC comes almost five years after the National Audit Office spending watchdog found that five previous shared service centres had suffered from similarly over-optimistic savings projections, with the Cabinet Office having failed to challenge the performance of the centres or set reliable benchmarks. PAC said the government’s latest strategy appeared to be "failing for much the same reasons".
A spokesperson for the Cabinet Office said a series of changes had been made to the programme to address some of the issues raised.
"In recent weeks we have established a cross-government delivery group and reset the business case to realise over £500 million of savings for the taxpayer," the spokesperson said.
They added: "Throughout 2016 we have driven improved performance by embedding new governance, expertise, and leadership to deliver cost-effective services and standardised processes for government, and to realise the reassessed benefits.
"We are addressing the challenges involved in cross-government business transformation and the programme has successfully delivered one of the biggest IT platforms for government in Europe with over 300,000 users.
"Shared service centres deliver business services at a significantly lower cost to the taxpayer and is forecast to make a further £504m in savings for the government and police by 2023/24."
Speaking during PAC's inquiry, Cabinet Office permanent secretary and civil service chief executive John Manzoni admitted that the centre of government had not been "sufficiently front-footed" in getting departments to sign up to the programme, meaning it became "less and less valuable to the individual departments" as time went on.
He said: "The balance and the judgments about when to come in more strongly, when to create an environment where collaboration is clear, that is the job of the centre.
"I don’t think we did it well enough, frankly, but I am confident as we go forward, where we are today, that we can do it. In fact, that is what I do, right?"