The new Office for Value for Money should produce guidance on boosting salaries for competitive civil service roles and “managing out” poor performers, a think tank has said.
In a paper setting out recommendations on the OVfM’s remit and priorities today, Reform said OVfM should work with the Government Legal Department and Government People Group to issue new guidance simplifying the process of applying additional allowances to hire exceptional talent “based on best value for money”.
The guidance should also cover the cost-benefit analysis of retaining poor performers versus managing them out of the civil service, “to accurately reflect the costs of retaining them indefinitely”, the think tank said.
The civil service workforce and performance is one of five priority areas Reform says OVfM should focus on, along with cross-cutting policy; automation and AI; procurement; and infrastructure.
The chancellor, Rachel Reeves, launched OVfM in July, and confirmed last month that it will play a key advisory role in the upcoming multi-year Spending Review. Its first steps will include an assessment of “where and how to root out waste and inefficiency”, according to Budget documents.
Today's paper sets out how the office could act as an "additional tool for making policy which improves Treasury and departmental decision-making about value for money" beyond the Spending Review.
With pay “impacting both recruitment and retention”, there are “many opportunities to look at improving VfM in the public workforce”, Reform’s report says, pointing to exceptional talent and repeat poor performance as two key areas.
It notes that base salaries for senior civil service roles in 2022-23 ranged from 32% to 96% of the comparable private sector market median – while permanent secretaries are paid roughly 10% of the median FTSE 250 chief executive. Last month, former cabinet secretary Gus O'Donnell said his former job – which was advertised last month with a pay packet of £200,000 – is "massively underpaid", adding that he had been “paid a lot more since, to do a lot less”.
Under existing guidance, the chief secretary to the Treasury must sign off on any civil service salary worth £150,000 or more. This, according to Reform, is an “arbitrary cap which doesn’t take into account the relative VfM of some roles, particularly compared to the cost of hiring equivalent support in highly skilled roles as an external consultant”.
The paper quotes research carried out by Reform and Civil Service World in which just 29% of respondents agreed with the statement “the civil service takes talent and performance management seriously” – while 57% disagreed.
In the same survey of civil servants, only 6% of line managers agreed with the statement that “the civil service in general manages poor performance well” – compared to 87% who disagreed.
Similarly, a National Audit Office report last year found that “departments are not adequately following up underperformance to support both individuals and the teams they work with” and found poor performers are routinely moved between teams rather than being effectively performance-managed.
Reform says there are "significant" direct and indirect costs of poor performers, including occupying roles that could be done by better-performing staff and low productivity. However, this is often not addressed due to the "personal ‘cost’ to managers and leaders of doing performance management in a very bureaucratic system, as well as the risk of an employment tribunal".
“Needless to say, this is very poor VfM to the taxpayer,” it adds.
The recommendation builds on an earlier suggestion from Reform to embed “performance units” in every department to directly support managers with the bureaucratic elements of performance managing poor performers. A report by the think tank in May said performance management should be included within the responsibilities of accounting officers.
OVfM: A 'critical friend'
The report calls on the Treasury to establish OVfM as a permanent team in government after the Spending Review.
But it says the office must have a very clear remit to prevent it from replicating work amid a “crowded landscape of existing bodies working either in or independent of government” – among them, the Office for Budget Responsibility, the NAO and the Public Accounts Committee.
It should instead act as a “critical friend within the Treasury, with the internal clout to assess the value of policies before they are agreed and announced”, the report says – a role that “fits well with the OVfM’s current plan” to have an independent chair reporting directly to Treasury ministers, but be staffed by multi-disciplinary teams of civil servants.
The report calls on OVfM’s chair and chief secretary to the Treasury, Darren Jones, to appoint an advisory group to support its work in challenging poor value for money and identifying policy improvements.
The group’s membership should reflect both “deep expertise” in key areas it will focus on and “genuine cognitive diversity with a range of backgrounds and experiences to draw on”, it says.
It should include one non-executive director from each central government department, and four independent advisory members “to increase departmental buy-in” and make use of external expertise already in government, the report adds.
“An OVfM constituted in this way could provide significant ongoing value to the government, beyond the Spending Review,” the report says.
It says that while its work will be internal, the office should provide annual written updates on its work to PAC to improve transparency around improvements to value for money and hold departments to account for publishing their outcome delivery plans.
The report also warns against mistakes that were made with the Office for Tax Simplification, which was set up in 2010 but closed in 2023 “with no significant changes to the tax code under its belt”. It notes that the Treasury’s review of the OTS in 2021 “identified a lack of clarity about its objectives (eleven years after it was established)”.
Cross-cutting issues
The paper argues that OVfM should focus on areas of “cross-cutting reform, where the policy levers and or functional responsibilities are not sufficient to drive better VfM on a department-by-department basis”.
It should focus on cross-cutting issues to avoid the risk of its time being “monopolised by the spending issues which preoccupy the rest of the Treasury” – such as the government’s five missions or areas like the asylum system where immediate short-term cost pressures are putting existing government settlements under strain.
The report suggests cross-departmental issues could include the criminal justice system, noting that the Home Office received additional funding to hire 20,000 more police officers in the 2019 Spending Round while the Ministry of Justice received capital investment to begin building an additional 10,000 prison places, along with an expansion of capacity in the Crown Prosecution Service, courts and probation services.
“The link between these outcomes is complicated,” the report says, adding that evidence base for the Police Uplift Programme “would certainly have benefitted from a central estimate of the overall VfM of recruitment, taking into account the impact on the wider justice system”.
Another area where the office could add value is in health and social care, it says, noting that adult social care – “a core part of overall health and care system” – falls under the Ministry for Housing, Communities and Local Government’s remit as it is delivered by local authorities. Meanwhile, the Department of Health and Social Care “continues to prioritise the financial sustainability of the NHS… [taking] a narrow view and continue to expect more of the pressure to be absorbed by councils, at the expense of other policy goals which MHCLG is responsible for”.
“To make sure funding decisions taken by individual accounting officers are based on the best VfM across government, rather than just within their own budgets, OVfM can support cross-cutting policy areas by producing a shared assessment of the VfM implications of prioritising funding for different parts of each system,” the report says.
OVfM should work with government’s Evaluation Task Force to conduct central value-for-money assessments of providing extra funding to public services that have a “downstream impact” on other areas, the report says. The office should produce a shared assessment of the value-for-money implications of prioritising funding for different parts of each system, it adds.