The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“Departments were in general unable to make real value for money savings of 3 per cent a year following the 2007 Comprehensive Spending Review – and that was at a time of increasing budgets.
Now that much more radical cost-cutting measures are required across government, my committee is gravely concerned about the ability of government to make efficiency improvements on the scale needed.
There is a serious risk that, to reduce costs, departments will rely solely on cutting front-line services.
Two years into the three-year programme to make £35 billion of cash-releasing savings by 2010-11, savings of only £15 billion were reported. And, of those reported savings, just 38 per cent were definitely legitimate value for money savings.
This Committee expects efficiency improvements to make a major contribution to the cost reductions now required across government.
We also expect the Treasury and departments to learn the lessons from the 2007 value for money programme.”
Margaret Hodge was speaking as the Committee published its 4th Report of this Session which examined the CSR07 Value for Money Programme.
The Committee's findings
The £35 billion value for money target set as part of the 2007 Comprehensive Spending Review required public bodies to make sustainable cash-releasing savings, whilst maintaining the delivery of departmental priorities.
The CSR07 Value for Money Programme (the Programme) set demanding criteria for what could be classed as a saving – for example, one-off savings were ruled out as they would not constitute sustainable cost reductions.
The £35 billion target represented savings of 3 per cent a year for each department’s expenditure at the start of the period.
By March 2010, two years into the three-year programme, departments and local authorities had reported only £15 billion of savings, less than half of the total needed to reach the £35 billion target.
Furthermore, the National Audit Office found that only 38 per cent of savings they reviewed represented realised value for money savings. Despite the importance placed on the Programme at the top of government, departments could not even measure adequately what savings they had made, and the Treasury failed to create a framework for reliable reporting.
Neither the Treasury nor departments had an incentive to report only soundly-based savings. The programme did not enable departments to find cost reductions by rethinking the way services are delivered.
The current financial environment is fundamentally different from the position when the Programme was launched in 2007, with substantial cash reductions required over the next four years by most departments.
The scale of savings needed will require much more radical action, but the results from this programme left us with grave concerns as to whether departments are ready to implement effectively a programme of value for money savings.
There is a serious risk that departments will rely solely on cutting front-line services to reduce costs, without adequately exploring the potential to reduce costs through other value for money improvements.
Treasury may choose to continue to delegate day to day responsibility for delivering savings to individual departments, but in future appearances before the Committee we will expect to see evidence of the Treasury’ leadership: taking full responsibility for the delivery of efficiency savings across government as a whole; demonstrating a full grasp of the causes of under performance in any department; and intervening where performance does not meet expectations.
The committee are concerned at the implication from Treasury that it will simply reduce departments’ budgets and then walk away from responsibility for the delivery of the level of savings required across government.
Bearing in mind the disappointing performance of this Programme, the committee believe the Treasury will need to take a very different approach to value for money improvement in the next spending period.