It seems that salami slicing will not be enough to make the level of spending cuts that ministers need. Every service and every government body will have to justify its existence.
For the Audit Commission, regional development agencies and the UK Film Council the outcome has not been a happy one. The axe has fallen and they will soon cease to be. But are these the right decisions based on the right information?
Although perhaps better known in the private sector, value-based management is a good way to judge the importance and success of a government body. This approach releases the potential of organisations to strive continuously for value in a way that compliance-based management - the traditional approach in public services - almost never achieves.
In an era of intense pressure on public service budgets, value-based management is more relevant than ever. The Comprehensive Spending Review will not achieve its intended results unless the people who work in and partner public service organisations continuously promote value.
I know this from personal experience. I was recruited in 1996 as chief executive of the Department for National Savings (DNS), an organisation with an illustrious past and a committed staff, but which had lost its way, with multiple objectives and no clear sense of direction.
If the DNS had not existed, the Treasury would have been happy to do without National Savings’ 20% share of the national debt and satisfy all its funding requirement through the issue of gilt edged securities and treasury bills. Our annual costs of well over £100m were covered by a budget voted by Parliament, but the largest part of the cost of retail funding – debt interest and the tax privilege on some products – was not included in the budget.
DNS mainly saw itself as an administrative operation focused on three large operational sites in Glasgow, Durham and Blackpool, where the overwhelming proportion of its staff were employed.
I agreed with the Treasury - which was pressing for further reductions in administrative costs - that we should undertake a fundamental strategic review of the business to discover what its value to government was. A decision could then be taken whether it should be wound down or reformed.
The review caused us to radically change our view of the purpose of DNS, the objectives it should pursue, how they should be measured and how the National Savings business should be managed.
We focused on one overriding objective: taxpayer value over time, measured by the true cost of retail funding for the national debt against equivalent funding through gilts or treasury bills. If DNS’s costs were below the wholesale comparator, it would be adding value and saving the taxpayer money; if not, it would be destroying value and needlessly costing the taxpayer money.
The new objective had a galvanising effect. We saw that some products were destroying value, administrative costs were far too high, service levels were poor, channels to market out of date, operational and accounting systems complex and error prone, and that we were exposed to significant operational and image risks.
If DNS was to provide value to taxpayers it needed to transform both its approach to the market (customers, products and services, channels, pricing) and its operations. What it did not need to do was provide all its services itself, but rather whoever could do so most competitively in terms of quality and cost and invest to transform the operational sites.
In 1999 DNS entered a 15-year operations partnership with a private sector provider, Siemens, transferring to them 4,200 members of staff (over 95%) in one of the largest Tupe transfers of civil servants ever undertaken.
The 125 staff left in DNS focused on designing new and improved products and channels to market, promoting a new brand (NS&I), and becoming effective partners to the Treasury in the provision of retail funding and to their major suppliers of operational services, principally Siemens and the Post Office.
The result of the focus on value has been over £2bn of net savings to the taxpayer through the use of retail rather than wholesale funding, a halving of operational costs, and significant increases in customer service and satisfaction levels. National Savings has become once again a valuable public asset.
The transformation of NS&I would not have happened had its business model not been realigned to focus on optimising value. It is an example of value-based management in public services, which has wide relevance at a time when no government body is safe from the spending axe.
Peter Bareau CBE, formerly a general manager of Lloyds Bank, was chief executive of NS&I from 1996 to 2002. He has since held a number of non-executive and advisory roles
