Special report: The hard road ahead

Over recent years, civil servants have got used to working within a perpetual efficiency drive. The Efficiency Unit gave way to Peter Gershon’s review; Gershon to the Operational Efficiency Programme; the OEP to retailer Philip Green’s efficiency presentation. But the scale and pace of the cuts unveiled by the chancellor last month dwarf every previous effort. The civil service has never seen anything like it.

So the starting gun has been fired, and that’s always a shock; but civil servants, thinking along the lines set out both by Gershon and the OEP, have spent the last couple of years preparing for this moment. So has the new government: while in opposition the Cabinet Office minister Francis Maude, unusually among politicians, spent as much time thinking about practical, intelligent policies as about how to make the government look bad. His new Efficiency & Reform Group (ERG) has been custom-built to drive through the reforms long pondered by both the previous government and progressive senior civil servants. Many of its work strands are at an early stage – but they have huge potential to help officials to save money, while retaining or even improving public services.

And that’s the key to success: ensuring that the budget reductions don’t simply hollow-out already-overloaded, outdated working structures and processes, but instead catalyse reforms that will improve both the civil service’s efficiency and its effectiveness. Over the next five pages, we examine all the main programmes of reform currently under way within the civil service; we have broken the topic down according to the work strands within the OEP, adding HR and quangos to cover more recent talking points.

Alongside this article, you’ll find three columns by departmental finance directors: we invited a selection to answer four questions about what happens next. And we’ve also asked four people who watch government closely to write for us, answering the question: ‘Given the framework set out in the spending review, how can civil servants work to ensure that citizens’ experience of public services in the future is as good as possible?’

Put together, these elements provide a comprehensive portrait of the organisational and operational challenges facing the civil service at this crucial moment. The picture is not a universal one. On procurement, property, IT and quangos, there is clarity over the direction and the next steps. On back office and local incentives, there is lots of potential – but progress will be slower. The fields of asset management and HR, buffeted by our ailing economy and redundancy programmes, are living a more hand-to-mouth existence. But the efforts of senior civil servants in all these fields will be essential in ensuring that the public sector reacts to this punishing settlement in a way that protects the population, businesses and public servants from the fallout of the global financial whirlwind still whipping through our economy.

Back office and IT
The issues around efficiency in back office operations and in information technology were lumped together in the Operational Efficiency Programme in an effort to recognise and address the overlap between the two topics, but they nonetheless have very different dynamics and pressure points. For while finding back office efficiencies demands organisational reform and collaboration across the civil service, progress can be made quickly on IT by building more advantageous relationships with private sector suppliers.

For years, parts of government have been developing shared service centres to pool back office functions: Whitehall now runs various systems using a range of models – the DWP’s in-house operation, for example, sells its services to the DfE and Cabinet Office, while the NHS has gone for a joint-venture model. Progress has been slow, however, hampered by organisations’ and spending line managers’ reluctance to accept less bespoke systems and give up complete autonomy for inevitably messy compromises.

“People have talked about shared services for many years, but progress has been very limited,” comments Dr Martin Read, the IT businessman who led the back office and IT strand of the OEP and, having moved across to advise the Conservatives before the election, now sits on the ERG board. “It’s about changing businesses processes and you can’t achieve progress overnight, but we are looking at structures, ways of approaching this, that will give some genuine progress.”

The ERG doesn’t want to push a single approach as the best answer, says Read (above), but he does suggest a few ways into the problem: establishing a joint venture with a private sector partner; drawing in technical and management experts from business; perhaps ultimately floating it as a contractor to government. “We’re also talking about mutualisation, where the people working in those shared service centres get part of the ownership and part of the reward,” he adds. “I don’t think there’s any one perfect answer – we need a mixture – but above all we need to make some of this happen. And that means being a bit directive about saying: ‘That, that and that department; if you put them together they’re of a size where you could have one shared service centre and get economies of scale’.”

On IT, meanwhile, the savings are already coming in: having led ERG negotiations with – so far – 19 of the government’s biggest suppliers, Maude has, according to the Cabinet Office, already produced some £800m of savings. The requirement that any IT project worth more than £1m receive Maude’s sign-off has also yielded big returns – but such shock tactics are just the start of the work on IT, says Read: “The savings are real and worthwhile, but the point is that you’re setting up a momentum for the next phase: that’s the bigger prize, and that’s about doing things and buying things in a much more clever way.” In IT, as in procurement, this means “simplification and standardisation”; it means government acting as a single buyer, establishing central frameworks for purchases and compatability, and limiting civil service buyers’ ability to order bespoke, tailored kit.

We have also, Read believes, seen the end of “big bang” IT projects for the foreseeable future. “What you should have is an overall plan of what you want to achieve, and an architecture for achieving it, then implement it in bite-sized chunks that you can properly test and manage,” he says. IT development will continue, though – not least to meet the government’s ambitions on ‘channel shift’: the replacement of traditional service access points with cheaper, web-based alternatives. Asked how project managers can persuade the Cabinet Office and Treasury to back channel shift-oriented IT investments at a time of such budgetary pressures, Read replies that it all rests on “the quality of the business case – including risk management. Projects which are going to give reasonably quick payback for a not disproportionate outlay, and where the risks of failure can be mitigated, I think people will be interested.”

One of those risks is that people fail to switch to online access, leaving civil servants holding an under-used new website while maintaining expensive traditional channels. But Read believes that, these days, there is the political appetite to shut down “or at least minimise” the existing channels, forcing people to make the switch. “Times are tough,” he comments. “When you have to save money, it’s amazing how things that you’d have been very wary over, you can now be more forthright with. And that’s the ground we’re on today.”

Procurement
The topic of public sector procurement reform has been bubbling away in Whitehall for years, regularly stirred by reviews calling for greater centralisation of the buying of common goods and services. And while both professional skill levels and departmental buying structures have certainly improved during that time, no ministers or officials have ever had enough personal commitment or political capital to force departments to buy goods and services as a single purchaser. So it’s a little ironic that it has taken an avowedly ‘localist’ government to take that centralising leap.

Long before May’s election, Francis Maude had already made clear his determination to reform procurement if the Tories won. The general thrust of the necessary changes was pretty clear, mapped out in the OEP and reports by the National Audit Office and the Chartered Institute of Purchasing and Supply; during the summer, Maude softened up public opinion by bringing in Philip Green to produce an attention-grabbing, anecdote-stuffed report on government inefficiency. Meanwhile, Maude and ERG head Ian Watmore recruited a head of procurement: John Collington, a shrewd Scotsman with a private sector background who learnt the civil service ropes as Home Office commercial director.

Now, things are moving fast, says Collington(above): his team aims to “demonstrate that we can significantly reduce costs by applying the best practice principles of procurement – standardising specifications and aggregating expenditure. The challenge is that government is such an enormous environment; where do you start? And our starting point is central government and those goods and services that can be best bought through aggregation. So we’ve identified nine categories of spend, and we intend that they’ll be centralised by the start of the financial year.”

Those nine categories, Collington explains, are: energy; telecommunications; IT commodities; professional services, including consultancy and contractors; advertising, media and communications; office supplies and solutions; print services; travel, including accommodation, fares and travel services; and fleet management.

In centralising procurement, the policy is to use existing capability wherever possible. “We’re not proposing setting up new agencies,” explains Collington. “Let’s leverage the best of what is currently in place in government and make it better, as opposed to starting from scratch.” He namechecks the HMRC and Home Office procurement centres, plus the Office of Government Commerce and its purchasing agency Buying Solutions (the latter two now sit in the ERG).

So there will be few further changes to the architecture of government; the processes and approaches, however, are likely to change quite dramatically. “The model we’re putting in place is based on improved governance and accountability; better sourcing and category management; more efficient purchasing; more effective payment; and if you get them right, better data, which feeds back in,” says Collington. The ERG will appoint directors for each of these nine categories, and they in turn will develop supply strategies, negotiate contracts, produce catalogues, and develop “enabling technology, controlled by the ERG” to handle orders. Crucially, departmental spend in these nine fields will be forced through the ERG’s contracts. “Let’s not have 16 departments buying laptops, but have government use its massive purchasing power to extract demand for laptops and strike a deal direct with the manufacturers,” says Collington.

Meanwhile, he adds, the ERG is working on reforming civil service procurement processes: the process will be “simplified and standardised” to make it more straightforward and faster, he says. And, while these changes to government procurement are bound to cost some civil servants their jobs and some directors a portion of their power and autonomy, Collington is convinced that this is a great time for the profession: procurement reform has finally come to the boil.

“Francis Maude has done more to raise the profile of procurement in five or six months than all of his predecessors put together,” Collington concludes. “The challenge of saving money has never been more clear or profound. This is the opportunity for professionals to step up and demonstrate to their colleagues – in departments and in the centre – that we have the capability to support departments in taking significant costs out. Now, more than ever before, good procurement professionals can really shine.”

Property
Government is fast tightening up its use of property, first by imposing a set of ‘national property controls’ across the central civil and operational estate. A requirement that Francis Maude approve the signing of all new leases – or renewals at contractual ‘lease breaks’ – has already saved £24m, says the Cabinet Office.

This work is being spearheaded by the Government Property Unit, an arm of the business department’s Shareholder Executive – but one which reports to Maude in the Cabinet Office. The GPU’s deputy director, Stuart Ladds, recently told CSW (see 21 October, p17) that the spending review and the reassessment of quangos will “bring about a seismic shift in the number of properties that aren’t required”.At this time of flux, Ladds said, departments will have the opportunity to co-locate in order to save costs.

However, speaking on Monday at the Public Property Summit, the GPU’s managing director John McCready explained that the government would not embark on a large-scale sell-off of property. “Where possible, I believe, the public sector should try to own its core estate,” he said. “This is because government will be around for many years to come. It offers the greatest flexibility and disposes of any likelihood of ransom. And it is arguably the cheapest way, provided the properties are properly maintained.” What’s more, he noted, “The market with the exception of London is weak at the moment, and we would risk not getting satisfactory prices. So, for the time being, our focus will be on reducing the operating costs.”

The spending review sets out the government’s intention of creating “property vehicles”, overseen by the GPU, which will adopt a more “coordinated approach” to property management, making “substantial gains”. McCready said on Monday that these vehicles would draw in the private sector to help fill unoccupied space in public buildings. “We need to work with our private sector colleagues to achieve what the coalition expects of us,” he said. “In particular, we need the private sector to help create new occupancy demand.” The first two pilot vehicles will be established next year, in Bristol and central London.

Some public property is set to be sold, however. The Ministry Of Defence (MoD) has announced a review and sale of surplus land, expected to yield savings of £350m by 2014-15 (the overall value of its estate is £15bn). In July, the National Audit Office said that 12 per cent of MoD land is surplus and owned by the department due to “historical circumstances.”
A spokesman for the MoD told CSW that the department is running two efficiency programmes. These have identified surplus land, but it hasn’t been disposed of because the “slowdown in the commercial property market” means that it’s a poor time to sell. One hard fact on MoD property did emerge from the spending review: the Marchwood Sea Mounting Centre is to be sold. However, a spokesman told CSW that no details have yet been decided.

Asset management
For years, the government has been investigating the possibility of selling some of its business assets – particularly bookmaker the Tote and the student loan book – held by its Shareholder Executive. However, the OEP suggested that this is a poor time to sell businesses, and there has been little buyer interest. Indeed, the Executive has ended up instead acquiring assets, including failed bank Bradford & Bingley. The spending review further postpones a decision on these long-standing plans, deferring it until the 2011 Budget.

However, the government has meanwhile embarked on a huge asset sale: the privatisation of the Royal Mail. The Postal Services Bill, currently in the Commons, will allow private owners to buy up to 90 per cent of the shares, while 10 per cent are offered to employees.

The government will take on the bulk of the company’s pension fund – which now has a deficit of £8.4bn – in order to make the purchase a more attractive prospect. The Post Office will not be sold, and the government is looking to turn it into a mutual organisation. Nonetheless, the union representing postal workers, the CWU, has attacked the bill. General secretary Billy Hayes said: “There are more cost-effective options to improve Britain’s postal industry but this government is ideologically blinkered.”

The government is also disposing of British Waterways: the organisation responsible for 2,200 miles of Britain’s waterways and canals. The quango is to be turned into an independent charity, modelling itself on the National Trust. This move has been supported by the body, which has lobbied for the change for two years; the chair Tony Hales called it “excellent news”.

Local incentives
From the prime minister down, the coalition has made clear its commitment to giving local councils and service providers more autonomy – and the spending review saw the communities department (CLG) put its money where the government’s mouth is, with confirmation that ring-fencing of council budgets will be scrapped and grants streamlined.

While this announcement received plenty of publicity, however, the document also contained a linked policy that may, in the long term, have a still greater impact on the shape of public services.

The idea of pooling departmental budgets to better align services and encourage inter-departmental collaboration has some high-profile backers – Sir Gus O’Donnell has often talked about the approach’s potential. But to date it has only had one substantial trial: the Ministry of Defence, Foreign Office and Department for International Development have for some time run a pooled budget for conflict-resolution work. So the Treasury’s decision to run 16 ‘community budget’ pilots, pooling the various budgets used to support vulnerable families, is a significant one.

The pilot schemes, which cover 28 councils, will take control of these budgets from April 2011, and the government intends to roll community budgets out nationally by 2013-14. Funding will be handed to pilot partners through a ‘local bank account’ system.

Around £8bn a year is spent on working with around 120,000 families that have multiple problems – though it’s not yet been confirmed how much of this money will be pooled through community budgets, nor which departments will take part in the pooling. It will be these details that determine whether the pilots make a meaningful difference to services, says Alex Thomson, chief executive of the think-tank Localis. Two factors will decide their effectiveness, he says: whether the government puts enough political capital into overcoming resistance from departments reluctant to give up absolute control over their funds; and whether “the money involved really reflects how much is spent by those departments on those people”.

Many of the areas involved in the pilots were also part of the Total Place project – which tried to identify all the public funds spent in local areas – and all have demonstrated, according to the communities department’s announcement, “strong local relationships involving communities, voluntary sector and public sector players”. In Lewisham, for example, work that began under Total Place on offender management, worklessness, health and energy efficiency has developed into mature partnerships being developed by the Ministry of Justice, Home Office and Met Police.

Kevin Sheehan, head of strategy at the London Borough of Lewisham, said the council doesn’t expect a “huge chunk of money” for the project. “Part of it will be about us aligning our resources,” he comments. “It’s about how we work together, and about redesigning services around families to achieve a better outcome.”

While it’s too soon to set out exactly how Lewisham’s programme will operate, says Sheehan, the council is not waiting for further details from CLG: “In Lewisham we don’t really wait for the government to tell us what to do; we’re already thinking about how to apply this”.

Community budgets will not be the only way in which central departments will be encouraging more local control over services. At the same time, CLG and the Cabinet Office will be working together to support budgets focused at the very local level in 13 areas, and the Cabinet Office will be working with nine areas to involve communities in designing and commissioning services that better meet local needs.

Quango reforms
Of 901 quangos identified by the new government’s Cabinet Office-led review of non-departmental public bodies, 192 will be abolished; 118 will be merged down to 57; 171 will be substantially reformed; 40 are still under review; and 380 will remain untouched.
Well, not quite untouched. For those that remain, there will be three-yearly reviews to decide whether they are still needed, and in the meantime their admin spending will be controlled much more tightly. To date quangos’ funds have come from departments’ programme budgets, denying the Treasury visibility or control over their admin costs – unlike those of departments, which the Treasury controls by separating the admin and programme parts of resource budgets.

To control these costs in future, the spending review set out details of how from next April quango admin funding will be taken from departmental admin budgets, allowing the Treasury and departments greater control over quango running costs. “What we’ve done is to say we’re going to classify arm’s-length bodies’ (ALBs’) administration budgets in the administration side [of departments’ budgets],” says a Treasury spokeswoman. “That way we can more carefully control ALBs’ administration budgets; previously there was no incentive for them to control their running costs.”

The bonfire of quangos will not be an easy process, nor a cheap one: transferring staff and functions, merging organisations and taking on new responsibilities within existing organisations will all require strong management. Sandra Verkuyten, the last chief executive of the recently abolished Hearing Aid Council (HAC), has written a report on how to successfully close a quango. Her advice to chief executives is to communicate early with all stakeholders; question the government’s plans in order to ensure that your organisation is closed in the most appropriate way, and take legal advice on the statutory process for closure as soon as possible. In the HAC’s case, the advice given to the business department – that the council could be closed by a legislative order rather than primary legislation – proved to be wrong, adding a year to the process of closing the council.

Quango heads may not face this complication in the current round of reforms, however, as the government has just published the Public Bodies Bill which will create the powers needed to close or reform bodies set up by previous legislation.

Michael Guthrie, head of policy and strategy at the Health Professions Council – which took on most of the HAC’s functions – recommends early communication at all levels of the organisations merging or transferring functions, and suggests departments could help facilitate this communication.

Verkuyten’s final advice to chief executives – which she also shared at a Cabinet Office meeting with quango leaders this month – is to “have fun”. A closure or merger can be an opportunity to make real improvements to services, she says, if you continue to think strategically and engage positively with the process of closure.

HR
In the field of HR, shared services operations, reforms to training systems and a streamlined HR management structure are likely to cut overheads.

Francis Maude has repeatedly complained that the civil service employs twice as many HR staff as the private sector, and training is set for a dramatic reform. Since the election, a work strand named the Civil Service Learning Implementation Programme (CSLIP) has been under way to examine the options for the outsourcing of more civil service training, with the National School of Government retained as a smaller commissioning and quality-assurance body. The CSLIP envisages dividing learning into a core curriculum, plus policy and specialist training – but as yet the work is at an early stage, and no firm decisions have been made. (Civil Service World will declare an interest here: our publisher, Dods, owns civil service training provider Westminster Explained.)

Asked for a comment, the Cabinet Office said that the current review is intended to “reduce duplication of learning and development functions among departments” and lead to “streamlining, rationalisation and standardisation of training”. CSLIP is “working through ways to make that happen by 1 April” 2011.

However, HR departments’ biggest contribution to reducing civil service costs will be through managing the process of reducing head counts. Some departments are already announcing expected reductions in staff numbers: the Department for Communities and Local Government, for example, has said it will cut its director-general posts from six to three, with the number of jobs at the next rank falling from 21 to 15.

Overall, the department expects to lose up to 40 per cent of its staff. Not replacing staff who leave will start to reduce the department’s head count, but new permanent secretary Sir Bob Kerslake has told staff there will also be both voluntary and compulsory redundancies.
Before redundancy programmes get into full swing, one major piece must be placed in the jigsaw: a compensation scheme. Redundancy settlements made now must be calculated using the old, generous scheme, whose replacement was ruled unlawful following a successful judicial review by the PCS union. A new level of redundancy pay is being set by the Superannuation Bill, currently passing through Parliament. Cabinet Office minister Francis Maude told CSW that he expects it to be law by 23 December.

Speaking before the public administration select committee last week, Sir Gus O’Donnell also confirmed that there will need to be compulsory redundancies across the civil service. Asked how managers will ensure that they retain the best people, he replied that the government “will proactively manage this process. There may be times when we’re using our redundancy scheme to take out rather more [employees than necessary], and then [employ] people who have the skills we need for the future.”

Sir Gus also accepted that there is clear evidence that staff across departments are demoralised and “disengaged” – although he hopes that the current reforms will address this by creating “more responsible jobs and getting rid of bureaucracy, to ensure that people have more of a say”. Where staff remain disengaged, he added, “we should allow them to exit gracefully”.

George Osborne’s spending review signalled the start of a frenzy of reform across Whitehall, as managers move to act on plans that have long awaited clarity over future budgets. However, until the government has managed to establish a new redundancy compensation scheme, the cost of the redundancies associated with reforms will not be clear. Departmental leaders now know how much money they will have to spend in future; when they know how much reforms will cost, they’ll be free to move on towards the promised new world of a streamlined, efficient civil service.

 

Written by Matt Ross, Joshua Chambers, Suzannah Brecknell, CSW