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Waiting in the wings, by Mark Conrad

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05 August 2005

Sir Gus O'Donnell is soon to take over the Whitehall hot seat newly vacated by Sir Andrew Turnbull. Will he follow in his reforming steps or take a different path? Mark Conrad finds out

When departing Cabinet secretary Sir Andrew Turnbull delivered his passionate valedictory lecture to Whitehall's establishment last week, he lamented the fact that he had bequeathed several 'unresolved issues' to his successor, Sir Gus O'Donnell.

Former Treasury permanent secretary O'Donnell, who sat attentively in the audience on July 26, could be forgiven for thinking that regret was a two-way sentiment. When the popular mandarin returns from a family holiday and enters the Cabinet Office in September, he will discover an in-tray sagging under the weight of incomplete work and political and public expectations.

'O'Donnell is walking into a job bedevilled by the need to make some very tough decisions about the civil service quickly,' says George Jones, emeritus professor of government at the London School of Economics. 'My feeling was that Turnbull used his valedictory speech to steer O'Donnell in the direction he would like him to take.'

So 'whither Whitehall'? It faces a huge, politically fuelled, job cuts programme that demands a reduction of 84,000 posts by 2008 while, in the eyes of many, its traditional values, such as political impartiality, have been eroded.

Problems with morale have been exacerbated by arguments over pay and pensions. Mandarins have been told they must swiftly improve the professional skills base and diversity of future recruits to improve performance (particularly 'service delivery' – the mantra permeating Prime Minister Tony Blair's third term).

Politicians, academics and private sector partners have called for a break-up of the machinery of government, variously demanding less bureaucracy, more quangos or agencies to assume departmental responsibilities, and new and potentially risky partnerships to deliver services. For example, Colin Talbot, the influential professor of public policy at Nottingham University, has called for a smaller core civil service with a larger number of 'delivery agencies'.

Turnbull identified all these issues in his speech when he warned that a civil service still heavily influenced by the traditions of the Northcote-Trevelyan report of 1854 (self-sufficiency, a highly federalist bureaucracy and impartiality) 'comes with a price'.

O'Donnell's hefty 'to do' list has left some observers wondering what Turnbull achieved during his three years. Yet he strengthened Whitehall's policy development and implementation structures (introducing five-year plans), opened up civil service appointments so that one in five senior staff is now recruited externally, and improved departmental risk management.

More importantly, Jones says, he 'laid the groundwork for Whitehall to become more outward facing' and 'to realise that it must be more responsive to the needs of service users'.

Arguments rage over the methods used to achieve this – performance targets, Public Service Agreements, the break-up of traditional lines of policy advice to ministers. But there can be few doubts that Whitehall, in principle at least, is an institution concerned with results.

But in achieving that change, Jones believes, Turnbull made the civil service an increasingly 'top down' bureaucracy. Comprehensive Performance Assessments for local authorities, introduced in 2002, are one example of this.  They promised 'freedoms and flexibilities' for councils, but only when they met strict targets prescribed by Turnbull's staff at the Office of the Deputy Prime Minister and the Treasury.

'In holding such influence at both national and local level, some civil servants believe Turnbull saw himself no longer as the head of the civil service, but also as the head of Britain's public services,' Jones claims. 'Turnbull would say he was just carrying out the wishes of the prime minister's government, but it remains to be seen whether O'Donnell assumes that his remit extends as far.'

O'Donnell has so far remained silent on his new role. Last week, he told Public Finance that he was 'champing at the bit to get on to the front line and to assess what exactly we need to do and how'. An October appearance before the discerning public administration select committee should help to clarify matters.

Jones, however, speculates that O'Donnell's long career at Chancellor Gordon Brown's powerful and centralised Treasury could prevent a loosening of Whitehall's reins over the public services. 'Particularly following a period in which Number 10 – the likely destination of the current chancellor – and the Cabinet Office have also strengthened their grip over Whitehall with what Lord Butler's 2004 report [into decision-making prior to the Iraq war] identified as a shift away from the traditions of Cabinet government,' Jones argues.

Butler famously criticised Number 10's informal 'sofa government' style, which allowed a small team around Blair to make crucial decisions traditionally made by full Cabinet meetings (and therefore informed by the civil servants working across departments).

Turnbull rejected Butler's criticisms, but last week warned that now would be a good time to 'reverse polarity' in decision-making. 'Accountability has hitherto been largely upwards. Even concepts such as new localism, earned autonomy [and] freedoms and flexibilities are still only variants of the upward accountability model, where the organisation at the top decides what the tier below needs to do to earn what privileges,' he said. 'Going forward, users need to have a greater say in setting standards and enforcing them, either by using the power of voice or the power to move their custom elsewhere.'

Encouraging signs for localists, but there is the political imperative to consider. If the government talks about localism but really wants to retain ultimate control of service delivery, then O'Donnell will have little choice but to  'play ball', even if he agrees with Turnbull.

Permanent secretaries, however, might have good reason to support reverse polarity.

Sir Richard Mottram, permanent secretary at the Department for Work and Pensions, told Public Finance that the pressures involved in maintaining quality public services, reducing staff and creating new forms of delivery will 'intensify' under O'Donnell 'because the public expenditure to support existing policies and reforms will grow more slowly than it has in recent years'.

'So at the time of the next Spending Review, we will have to ask ourselves “can we deliver cost effectiveness?” and think hard about ensuring that we have the capacity to do so,' he explains.

Mottram is sanguine about the DWP's ability to cope with O'Donnell's adopted reform agenda, but politicised Whitehall staff believe that loosening central government's grip over local services could be the answer to Brown's tightening purse strings.

'At the very least, reverse polarity could create flexibility and further choice in service delivery, and allow departments to hive off areas of reform that are risky amid tight funding constraints,' one special adviser told PF.

Labour's reduced parliamentary majority could also prevent any further strengthening of the Number 10/Cabinet Office/Treasury power base because vital decisions might need Cabinet support.

On that level, O'Donnell is the perfect man to introduce change. He is persona grata across departments, an inclusive leader who generates fierce loyalty among his colleagues but provides a fair degree of decision-making autonomy. Keeping Whitehall's senior staff happy is unlikely to be achieved through improved autonomy alone, however.

As Turnbull turned his attention to delivery between 2002 and 2005, he came under fire for a perceived failure to address threats to civil service values. He acknowledged this recently (although denied it was true) when he said: 'I have been accused by some of not taking values seriously enough, as evidenced by the fact that I have not seen a Civil Service Act as a priority.'

Whitehall staff have long demanded legislation enshrining the traditional rights and responsibilities of civil servants, such as impartiality and integrity, amid accusations that successive governments have 'politicised' departments through, to use the most famous example, the extensive use of ministerial special advisers.

The government and the PASC have produced draft Bills but little progress has been made. Turnbull warns that the Act's proponents have 'completely unrealistic expectations of what it would achieve'. He dismisses Parliament's potential role under the government's proposed Bill, which would give MPs input into pay and grading mechanisms for civil servants.

Yet O'Donnell will come under immense pressure from his peers to make good Blair's initial pledge. Jonathan Baume, general secretary of the FDA senior civil servants union, says: 'My understanding is that O'Donnell supports the idea of an Act. I think Turnbull has been unfair in picking on one or two areas of consensus – such as keeping Parliament out of pay and grading issues – to dismiss the entire concept.

'In the wake of the politically motivated job cuts programme and pay and pensions problems, there is a problem with morale… and clarifying civil service roles and values would help to restore that.'

Turnbull's exit speech also identified lingering pay problems as one of the 'unresolved issues'. He aimed to achieve pay rates for senior civil service grades at 80% of the private sector median, but says he fell 'significantly below' that (only 20% of senior staff are paid target rates). A two-tier pay structure has developed, which could mean that 'the civil service cannot recruit the talent it needs', he warns.

Baume says: 'Senior civil service pay is increasingly falling behind that of the wider public sector, whether you're looking at the NHS, local government or further education. We've got a bizarre situation now where heads of further education colleges earn £150,000 per year – more than the average permanent secretary. Other professional staff, such as finance directors, have been recruited from outside the civil service, so permanent secretaries are also being paid less than members of their departmental boards.

'Individuals with specific and scarce skills should be paid well, but they are not the exception any more. The bulk of the people coming in from outside are being paid more and there is a consensus that this is no longer tenable. If it isn't addressed soon, there will be a lot of anger.'

Earlier this year, the FDA voted to take strike action over another remuneration factor that also made Turnbull's 'unresolved issues' list – pensions. Proposed changes to civil service pensions mimic those facing wider society – they are fuelled by the need to reduce costs and to ensure that people work longer in line with rising life expectancy. Currently, civil servants can retire at 60, but the government wants all public sector staff to retire at 65.

There seems to be a growing consensus that new entrants to civil service schemes should have a pension age of 65, but the FDA has argued strongly that the retirement age for existing staff should remain at 60.

Plans are also afoot to switch staff from pensions based on their final salary to payments linked to average earnings over their career. Turnbull's argument is that this would redistribute cash from senior personnel to lower earners, but Baume warns there is a 'credibility gap', because the motivation for similar private sector switches has been cost, not ethics.

A senior Home Office employee told PF this 'could act as a disincentive to potential [senior] recruits'.

Which brings us to Whitehall's skills agenda. Turnbull cites the Professional Skills for Government programme as crucial to the future performance of the civil service bequeathed to O'Donnell.

The PSG is a five to ten-year plan to upgrade Whitehall's skills base by raising the number of professionally trained senior staff, such as accountants, human resources directors and policy wonks. The aim is to eradicate the old distinction between 'specialists' and 'generalists' and to give parity of esteem to three career groupings: policy delivery, corporate services and operational delivery.

Mottram, who leads the Cabinet Office's PSG task force, says: 'It's important that we move quickly to the implementation phase and… that the PSG doesn't become “yesterday's initiative” two years down the line. O'Donnell was part of the team that put it together, he's very committed to it, so I'm confident he'll take it forward. But thus far, the PSG has been managed principally for senior civil servants. We also need to broaden that out and establish a central government sector skills council – that's a big challenge.'

So O'Donnell inherits a civil service wrestling with its identity and facing a multitude of immediate problems and potential solutions. He is currently holidaying in the Kruger National Park in South Africa. When he returns, he will experience just what a jungle his day job has become.

PFaug2005

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