Treasury Committee: Press Notice

28 July 2009

Public sector efficiency savings even more vital in recession, MPs say

The Treasury Sub-Committee today releases its Thirteenth Report of Session 2008-09, Evaluating the Efficiency Programme (HC 520).

In a recession, it is vital that all opportunities to deliver greater value for money within the public sector are explored, the Report emphasises.  While the Report welcomes Government efforts to improve efficiency, it also stresses the importance of accurately evaluating the costs and savings of major efficiency programmes, and of maintaining staff morale. 

Sub-Committee Chairman, Michael Fallon MP, said:

“Now that the level public debt has reached such gargantuan proportions, it is important that the Government takes steps, not only to improve efficiency in the public sector, but also to account more clearly and accurately for the savings it is making. In the face of ever more job losses in the private sector, the public sector must consider more radical solutions to reducing its burden on the taxpayer.

Our Report also emphasises the importance of maintaining morale. Staff should be encouraged to feel proud at increasing the efficiency of their department, rather than living in a climate of fear and uncertainty.”

As part of the 2004 Spending Review, the Government launched an ambitious efficiency programme that set demanding targets for Government departments to achieve monetary savings, headcount reductions and relocation of posts from London and the South-East. The Committee’s inquiry looked at the effects of that efficiency programme, known as the Gershon Review, on the Chancellor’s departments, following the final report published in the 2008 Pre-Budget Report. It also examined the more recent programmes announced in budgets.

The Report notes that additional £5 billion added to the Value for Money target in the 2008 Pre-Budget report was a figure chosen by Ministers without prior consultation with the relevant Departments. As such, it does not inspire confidence, it says. The Report recommends that the Government, in planning to put the public finances back on a sustainable basis in the medium term, considers a more business-led approach to cost cutting in the public sector than setting an arbitrary target and requiring the civil service to meet it.

The Report that the NAO did not audit the final Gershon efficiency savings and is concerned that this may have led to a lack of confidence in the Government’s reported savings. At a time when the public sector will be pressed to make further efficiencies, it is vital that any savings made are properly recognised and quantified, the Report says. It calls on the Government to continue to work with the NAO to ensure that future efficiencies are accurately measured.

It also appears to the Committee that, time and time again, the establishment of data collection systems needed to validate savings is being initiated only after efficiency programmes are launched. This order is illogical. If Government does not evaluate the costs and savings of major efficiency programmes, then it is unclear whether such programmes represent real value for money. The Report therefore calls on the Government to establish robust data collection processes at the start of future efficiency programmes.

The Report highlights the importance of maintaining staff morale. Low staff morale at HMRC has been caused, in part, by uncertainty about the future, a lack of understanding about the chosen efficiency targets, especially when service quality is perceived to have fallen, and increased pressure-having to do the same job with less resources. The Committee would like to see more evidence of action that HMRC senior management take the issue of morale seriously.