Interview: Gus O'Donnell

On the mantelpiece in the cabinet secretary’s capacious office is a photograph of William Gladstone. It sits in a small frame alongside a quote in which the Victorian prime minister discusses the desirability of bringing together the Inland Revenue with HM Customs and Excise. The two organisations were finally merged in 2004 – under Sir Gus O’Donnell (pictured above), who was then permanent secretary at the Treasury. The picture and its accompanying text is a reminder that pace (one of Gus’s famous ‘four Ps’, along with pride, passion and professionalism) has not always been among the greatest strengths of the civil service.

In the last year, however, pace has taken centre stage, as departments have responded to the priorities of a new government and a spending review which reduced their administration budgets by a third. These “tough settlements” have forced civil servants to pick up the pace when it comes to reform, O’Donnell suggests – departments “couldn’t carry on doing things in the same way as before” – as well as forcing head count reductions which demanded speedy action.

“All the advice we have from people who’ve been through these sorts of changes is that trying to get the uncertainty out of the way matters a lot for staff, and that’s what I hear when I go around the country talking to people,” says Gus. “They know that we’ve got to live within a new budget; the sooner we do it, the better.”

People and pace
The numbers on departmental head counts certainly show a rapid reduction. In December 2010, according to the Cabinet Office, total civil service employment was 470,000 full-time equivalents: a drop of 1.7 per cent on the previous quarter, and 5.6 per cent over the year. It was the largest annual decrease seen in the civil service in half a century. Numbers rose again in the first quarter of this year, but only because temporary staff were employed to administer the census.

At senior levels, the shrinkage has been even faster. Over the nine months to March 2011, according to analysis carried out by think-tank the Institute for Government, staff numbers in the 16 main departments have fallen by 4.2 per cent, but the number of top posts (permanent secretaries and directors-general) has dropped by 14.5 per cent. Starting the job cuts at the top is “absolutely right – we need to set an example”, says O’Donnell – and he’s also positive about the fact that pay and recruitment freezes have reduced the pay bill overall so “we don’t need to cut by quite so much”.

Having begun these reductions at such a hectic pace, will civil servants soon start to see the end of this uncertain period? “I hope so,” replies O’Donnell. “We’ve made a very good and fast start. It’s not over yet – we’ve got some time to go – but I’m really hopeful that in a year to 18 months we will have got ourselves into a really sustainable position.”

It’s that sustainability that will matter in the long run: the measure of success is not just how quickly departments can reduce their workforces, but the capabilities of departments – and the civil service as a whole – once those cuts have been made. Leaders have been very aware of this, says O’Donnell. “All of us have thought: ‘Okay, we have got to live within a [reduced budget], so let’s take this opportunity to stand back and ask what skills we need’.”

Skills for the future
O’Donnell outlined the skills he believes the civil service will need for the future in a speech given last month to the Canada School of Public Service in Ottawa. The service must, he said, strengthen its leadership capabilities; become more creative; deepen its commercial skills and understanding of “markets and quasi-markets”; and increase productivity by improving staff engagement.

The first and last of these goals will be linked, he said: the annual Civil Service People Survey has shown that good leadership and change-management skills are a key driver in improving staff engagement. So in a period of cuts, the ability of civil service leaders to manage change well is all-important. Unfortunately, “our staff have told us we’re not that great at managing change; we’re not that great at managing poor performance”, O’Donnell tells CSW. “So here’s an opportunity for [leaders] to make this change very sensibly, retain the people and skills we need and, as we’re downsizing, hopefully be left with a more engaged workforce.”

Opportunities for learning and development are another key driver for engagement, and O’Donnell stresses the importance of focusing on this area. Over the last year, he suggests, doubts about the money available for staff development conspired with a lack of clarity over the civil service’s future skills needs to restrict training provision. “People were very nervous about taking up learning and development opportunities because there was quite a lot of uncertainty around,” he comments; over the next year, he hopes that leaders “will be clearer about those sets of skills we need, and encourage people to go off and develop those skills”.

O’Donnell emphasises the importance of using the opportunities created by recruitment freezes and restrictions on consultancy spend to develop civil servants’ skills, particularly around commissioning and procurement. “We’ve created a lot of space,” he says, “so all of those skills we used to buy in, we can now take this opportunity to create them in-house.” He adds that this “does mean we need to be even better at developing and leading our own staff”.

Civil servants should also do more to learn from each other, he suggests. “The business we do covers everything, and it covers the world,” he says – so there are plenty of opportunities to learn from experiences across the service. With this in mind, he points to next week’s Civil Service Live event in London. “I’d urge civil servants to go,” he says. “It’s a unique occasion where we have all different grades from different departments across the country. We can all mix and we can learn from each other and from the sessions that have been put on.” The mix of sessions covers the entire wide-ranging business of the civil service, he says, from the Arab spring to the Olympics, which are “creating all sorts of new challenges – and not just how to get any tickets”, quips Sir Gus.

Pace and policy
The last year has also seen plenty of pace in producing new policies for a cadre of new ministers keen to find new ways of tackling new objectives. As well as presenting a novel challenge for civil servants in terms of “managing a situation where you always have to think to yourself: ‘coalitionise’,” says O’Donnell, the period since May 2010 has offered “a lot of scope for us as civil servants to do the thing that, I think, we like doing best.” That means “coming up with new ideas which are very much evidence-based and making, on the basis of what we know, [policy] suggestions that will produce a better outcome than any of the others which have been put to us beforehand”.

So the civil service has been very creative over the last year; but in his Ottawa speech, Sir Gus said civil servants will need to keep developing this creativity, to think laterally about policy problems, and to stop “needlessly reaching for the ‘usual suspects’” of spending, regulation and legislation.

He reiterates this point to CSW: instead of offering a knee-jerk reaction, he says, “I want people to think: ‘What’s the outcome we’re trying to achieve, and what are the best ways of achieving that outcome?’” O’Donnell is a champion of behavioural economics (or ‘nudge’ techniques) as an alternative to regulation. He chairs the steering board for the Cabinet Office Behavioural Insight Team, which is starting to share some results from the use of nudge techniques with objectives such as encouraging people to submit tax returns on time, and attempting to boost growth by helping consumers to make savvier spending decisions.

So the traditional recourse to regulation is now highly unfashionable; indeed, the coalition government is determined to cut back on existing regulation. O’Donnell highlights the importance of the ‘Red Tape Challenge’, through which government is planning to entirely reconsider the legislation and regulations surrounding a number of key sectors.

Pace and accountability
Thinking of alternatives to regulation also fits with “the basic ideology which is in the coalition programme” of “not always thinking that there is a state solution; actually, there might be something which involves the state delegating power down to individuals, communities, local authorities”, says O’Donnell.

That drive to devolve power, of course, raises its own challenges. “With real power must come accountability,” Gus continues, so “we need to devise ways of getting that accountability”. Earlier in the year he asked communities department permanent secretary Sir Bob Kerslake to look into this issue; the resulting report is expected in the summer, but O’Donnell suggests there will be “quite a lot of accountability regimes” to suit the variety of ways in which power may be devolved.

He touches also on the need to ensure services are designed to be transparent, and to make data available which will enable service users to hold providers to account. But council officials have complained that the Single Data List – which is compiled by the communities department, and sets out all the data streams that local authorities must provide to central departments – is just as onerous as the system it replaces; have civil servants really taken on board the messages of localism? O’Donnell suggests the issue is not councils’ requirements to pass data to the centre, but their role in keeping service users informed at the frontline. “Getting lots and lots of data out there” isn’t about “doing it for some particular organisation; it’s about doing it for the public”, he says.

“We can put out data to the public and they can therefore hold us to account in various ways,” he continues, adding that the data can also help people to build their own services and products. He gives the example of cyclists in London using information on cycling accidents and fatalities to develop maps which help fellow cyclists to avoid accident black spots. It’s an interesting question to ask where the accountability regime is in that example, he says, but the underlying point is that the user, the cyclist, is better off because “this has happened really quickly and effectively”.

A problem with pace?
The last few months have seen a number of policies being reconsidered or entirely redrawn. Political considerations have played a major part in these row-backs, but should the civil service perhaps have argued for less pace, and advised caution with some of these massive reforms? O’Donnell doesn’t think so.

“The prime minister will be the first to say that he came in with the view that in a Parliament it pays to do the really tough stuff early,” he says, mentioning Tony Blair’s oft-quoted lament that “he wished he’d done more in his first two years”.

So ministers wanted to move quickly, says O’Donnell; but they also recognised that they had to act fast, thanks to those tough spending review settlements: “You couldn’t just have deficit reduction and do nothing; I think that would have been a recipe for disaster, so reform was essential.”

“Did the government get every particular detail to those reforms right?” he asks. “No, [but] that’s what the process of going through Parliament is about, [and] the consultation exercises.” These processes of amendment and consultation won’t dampen the reforming spirit or halt progress, he says: “Actually, I still think that when people look back on it they will say that this government has been incredibly radical.”

I suggest that these processes of “amendment” could simply be seen as evidence of greater innovation: experts hold that innovators need to be prepared to ‘fail early’ and learn from that failure. O’Donnell, of course, avoids commenting n the government’s U-turns – but he does agree that failure will play an important role in improvement, mentioning Financial Times journalist Tim Harford’s recent book arguing that failing well is a crucial part of success. “If we’re innovative and we’re doing it right, we will have more failures,” he says. “We’ve got to learn from those failures and accept them, and support the people associated with them.”

“Part of innovation is that there will be failures,” he repeats. “I really want to get that message across to all of those people to whom we are accountable.”

The first steps
Outside O’Donnell’s spacious office is an even more spacious waiting area. Amid photographs celebrating previous winners of the annual Civil Service Awards – examples of O’Donnell’s own passion for and pride in the service – is a framed print by the artist Mark Titchner that reads: ‘Only the first step is difficult’. The full quote is attributed to 18th century author Marie de Vichy-Chamrond who, while discussing the legend of St Denis – said to have walked two miles after his decapitation, holding his severed head and preaching along the way – commented: “The distance doesn’t matter; it is only the first step that is difficult.”

The civil service has taken its first, difficult step towards a leaner, more creative future – and that start has been positive, O’Donnell believes. To keep the pace up, reformers need a clear goal, or they run the risk of behaving more like headless chickens than the decapitated but purposeful St Denis. There’s time for one last question; but the head of the home civil service – still very firmly in place – is reluctant to discuss the timing of his eventual retirement. Okay, so how should civil servants pursue reforms when the public services white paper – intended to provide a clear framework for much public sector change – has been so delayed by internal wrangles over its contents?

This is one that O’Donnell is happy to answer. He points to four core principles already set out by the coalition, which he summarised in his Ottawa speech: increasing choice; devolving power to the lowest possible level; increasing diversity of provision; and ensuring fair access to, funding for and competition within services. Within that framework, he says, civil servants should “keep their focus on doing better for the two groups that matter: the people delivering the service, and the taxpayer. As long as you’ve got those principles, that will guide you through.”

Sir Gus on…
The fast stream: “Keeping the fast stream was really, really important” in ensuring the civil service remains fit for purpose in the future, says O’Donnell, and the scheme is still popular with graduates. Last year 22,000 registered an interest in 600 fast stream jobs – though “partly, of course, that’s a consequence of what’s going on in the overall economy.”

Defending the civil service: “There is a job for us as leaders of the civil service to keep getting across the point about how modest the average [civil service] pension is, the average pay is, and how we’ve got people – particularly in marketable areas – who could get a lot more outside and are working in the service because they know they can make a real difference. That public sector ethos is still very much there, and I’m really glad we’ve got it. I’d urge civil servants to be persuaders: to get across to their neighbours, their friends, their relatives the really good job everybody does.”