An analysis of government data shows that billions of pounds could be saved if changes were made to financial management, fraud detection and cash flow
As the government looks to the private sector to kick-start economic recovery, things are finely balanced. As Deloitte’s latest survey of chief finance officers shows, FTSE companies are now sitting on a near-record £750bn cash pile but, with uncertainty at home and abroad, they are not inclined to spend it just yet.
To help drive growth, it’s time that the government, which accounts for 25% of the UK’s economic output, looks at how it can make its own significant contribution to economic recovery. The volatile economic conditions mean that managing the business of government more effectively is vitally important.
In our latest report, The State of the State 2012, Deloitte and the Reform think tank have analysed over 500 sets of government data and financial information. Looking at these from a business point of view, there are clearly some significant opportunities to improve the business of government and cut costs.
Improving the state’s financial management, strengthening financial controls, minimising losses attributed to fraud and error and optimising cash management are just some of the ways to repair the balance sheet and contribute to economic recovery.
These aren’t areas you typically hear about in the usual political and policy debates, but they need addressing. Attacking costs in its key business areas is one of the best tools the state has at its disposal for eliminating net borrowing without harming frontline services.
The numbers show huge potential for savings. Fraud and error, for example, costs the public sector over £20bn each year. The financial services industry, by contrast, loses just £3.5bn but there is no national plan in place to bring the level of public sector loss down to a comparable rate. We estimate that this could unlock around £8.5bn.
Every month, £40bn goes in to the public sector and £60bn comes out. How these sums are managed while in the system needs to be addressed. Some £20bn a year in central government, for example, is written off as bad or aged debt. In our report, we estimate that, by looking at how the private sector boosts its cash flows, an extra £10.2bn could be unlocked. However, this needs a hardnosed focus on looking at every area where cash is leaking out of the system.
Looking at the longer term, the state also needs to address the unsustainable level of net liabilities, currently standing at £1.2trn. Sales of assets, such as infrastructure, are a key part of this, but so is addressing the pressure that demographic change will come to exert. For every extra one million people over working age, £10bn will be added to the welfare bill.
In the coming year, we will be watching closely to see how government meets the challenges we set out in our report. They have their own goals, for example, reducing the public sector headcount and driving business investment. While these need to be achieved, hitting the targets we set out around improving how the state does business will bolster the public sector’s performance and help drive down costs.
Mike Turley is the public sector industry leader at Deloitte
