Speaking on the publication of the report, the Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, said:
"The DWP has to cut its running costs by £2.7 billion by 2015, at the same time as implementing fundamental reform of the welfare system. That will be a considerable challenge.
The Department does not yet have a clear plan for delivering these savings and we are concerned about its ability to do so effectively.
The transition to Universal Credit, for example, will depend heavily on the development of a new IT system with HMRC to a very tight timetable. This committee's experience is that such projects are rarely delivered to time, budget and specification, and any delays could put the Department’s ability to deliver savings at risk.
We are also concerned by the extent to which running cost reductions depend on the Department's optimistic assumption that, in future, 80% of Jobcentre Plus customers will deal with their claims online, even though at the moment only 17% do so.
The Department needs to assess the main risks to achieving its planned efficiency savings and develop sufficient contingencies.
It is vital that cuts in running costs do not lead to an increase in expenditure on benefits and pensions. For example, the Department closed the Future Jobs Fund because of its high unit cost, but did not assess to what extent the closure might increase expenditure on Jobseekers' Allowance for young people. An evaluation of the programme will not be completed until 2012, two years after the Department closed it.
In future, the Department must measure the impact of running cost reductions on benefits and pensions expenditure.
“The Department must also ensure its plans for spending and cost reductions are transparent. At the moment, it is unable to reconcile its proposals for reducing costs with the savings required in the Spending Review."
Margaret Hodge was speaking as the committee published its 47th Report of this Session which, on the basis of evidence from the Department for Work and Pensions (the Department), examined its plans for reducing costs and reforming its services.
As part of the Government's target to reduce the budget deficit, the Department for Work and Pensions (the Department) has to reduce its running costs by £2.7 billion by March 2015. The Department intends to achieve over half of this reduction in 2011-12. It is important that the reductions in the £7.8 billion running costs do not lead to an increase in expenditure on benefits and pensions (currently estimated at £156 billion). The committee is concerned that the Department lacks a clear plan to deliver these savings.
While the Department aims to improve value for money through fundamental reform, it faces a considerable challenge in doing so at the same time as implementing savings. The Department told the committee that it was confident it could deliver all these changes effectively, but the committee has real concerns about its ability to do so. For example, the introduction of Universal Credit is dependent upon the successful implementation of new IT, and this requires effective resourcing of the IT back office support services in DWP.
Furthermore, the Department is assuming running costs reductions from an optimistic expectation that most customers will communicate online with the Department. Both of these areas are high risk, and any delays are likely to impact on planned cost reductions. There are insufficient contingencies in place and services could be adversely affected if things do not go to plan. Too often this committee has highlighted examples in other government departments where IT systems or projects have gone off track and emerging problems have gone unchallenged by staff.
The committee's findings
Spending cuts of this magnitude necessitate fundamental reform to generate sustained efficiency savings – as plans are developed, more focus needs to be on the cost and value of activities so that short term benefits are not prioritised above long term efficiency savings. On the one hand, the Department closed the Future Jobs Fund, based on early analysis of its value for money, but on the other hand it will not have a full evaluation until 2012. Work is underway to streamline the corporate functions in the Department and to reduce staff numbers in Jobcentre Plus, but it is not clear how the Department will operate as a result.
The Department is currently unable to reconcile its proposals for reducing costs, for example by improvements in administrative efficiency, with the spending cuts required for the Spending Review (£1.45 billion in 2011-12). The absence of a clear model of how the Department will operate in future creates uncertainty and risks unsettling staff whose morale is already low, and we expect the Department to provide us with detailed plans as soon as possible.