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Public Accounts Committee publishes report on cost reduction in central government

27 April 2012

Public Accounts Committee publishes its 80th Report of this Session which, on the basis of evidence from the Cabinet Office and the Treasury, examines recent progress made with cost reduction by central government departments and planning for the current spending review period from 2010 to 2015

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"Government departments face a major challenge in making the spending cuts required under the Government’s austerity programme.

The departments have started well. They have lived within the reduced budgets set for them for the first year of the cost reduction programme, 2010-11.  A fall of 2.3 per cent in spending in real terms over the previous year was a good start to making the cost reductions needed.

However, this is only a first step. They now have to make far bigger savings: a further 19 per cent over the years 2011-12 to 2014-15.  Indeed, the challenge is even greater than that, as the Treasury now expects the austerity programme to last for at least eight years, requiring major savings under the next Parliament.

Departments need to do better at planning their finances logically, understanding the relationship between costs and outcomes better and not going for the easy option which could most damage frontline services.

What is needed is an overarching strategic framework which, among other things, identifies in particular: the impact of a cut in one department on expenditure in another, and the long-term impact on value for money and expenditure of short term decisions to live within budgets.

We expect Accounting Officers to be held accountable for delivering more with less. Treasury need to get a grip at the centre on the approach taken by departments otherwise Government will impose arbitrary cuts and fail to secure value for money."

Margaret Hodge was speaking as the Committee published its 80th Report of this Session which, on the basis of evidence from the Cabinet Office and the Treasury, examined recent progress made with cost reduction by central government departments and planning for the current spending review period from 2010 to 2015.

After the 2010 election, the incoming government reduced departments’ budgets for the 2010-11 financial year by a total of £6 billion. Departments successfully lived within these reduced budgets in 2010-11 and reduced spending within their control by 2.3% in real terms compared to 2009-10. The Committee welcomes this successful implementation of policy. Most departments now face a more significant challenge: to reduce spending by a further 19% over the next four years with the prospect of further savings being required thereafter.

The bulk of the spending reductions must be delivered by individual spending departments and their arm’s length bodies. Departmental financial planning has not yet made it clear how these cost reductions will be achieved. Departments lack clear information on costs which, when coupled with the difficulty of linking inputs with outputs, raises the risk that future spending cuts may not maximise efficiency in delivery and may have a greater than intended impact on frontline services.

There is an essential role for the central departments to lead a more structured cost reduction programme across government so that spending is reduced, as far as possible, by improving value for money, not cutting services. The Treasury and Cabinet Office do not yet have a firm enough grip on the cost reduction programme as a whole and need to set out exactly what they expect of departments in planning for, and reporting on, cost reductions.

Accounting officers are responsible for achieving cost reductions while securing value for money. In the past, the failure to achieve value for money has had no apparent consequences for senior civil servants. Accounting officers must be held accountable for the successes and failures of their departments not just to reduce spending in absolute terms, but to deliver more with less.

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