Whitehall: not the final cut

27 Mar 14
Whitehall has already undergone wholesale cutbacks and radical change. But to survive the 2015 Spending Review civil service leaders will have to step out of departmental silos and take transformation a whole lot further

By Peter Thomas and Jonathan Pearson | 27 March 2014

Whitehall has already undergone wholesale cutbacks and radical change. But to survive the 2015 Spending Review civil service leaders will have to step out of departmental silos and take transformation a whole lot further

Treasury building

The unprecedented cuts to public spending and the civil service made by the coalition government in 2010 came as no surprise to Whitehall. No-one doubted that tough measures would be required to meet the economic challenges facing the UK. It seemed the only real questions were whether these measures would be sufficient and how well the civil service would handle them. Few were asking whether the civil service would be facing the prospect of doing it all over again five years later. 

Of that, there is no longer any doubt. In 2015, a new government will again be faced with an austerity spending review demanding further large cuts in public expenditure. But will the civil service have the capacity and energy to go through it all again? The findings of the Institute for Government’s new report Leading change in the civil service suggest that if pressing concerns about collective leadership at the centre are not addressed, the outlook is bleak. 

A perfect storm hit the civil service in 2010. The fiscal challenge facing the UK is hard to overstate and it translated into budget cuts across Whitehall. Simultaneously, the coalition pushed a policy and delivery agenda rivalled in scale and radicalism only by Clement Attlee and Margaret Thatcher. 

In tackling both the radical spending reductions and ambitious policy reforms since 2010, the civil service has much to be proud of. Spending cuts have proceeded at speed. About 55% of the cuts planned for this parliament were implemented by December 2013. Departments have been cutting ahead of the required pace and are on track to meet reductions in running costs amounting to between 33% and 50%. 

The Cabinet Office body charged with monitoring progress, the Efficiency and Reform Group, points to savings against its 2009/10 baseline of more than £10bn across central government by the end of the last financial year. Over 66,000 full-time staff have left the civil service since the 2010 review, a headcount reduction of nearly 14%. A further 32,000 posts must go to reach the goal in the civil service reform plan of about 380,000 staff. 

In the midst of this upheaval, the civil service has willingly taken on high levels of risk in support of ministerial agendas, driving projects, programmes and reforms as diverse as the Olympic and Paralympic Games, NHS restructuring, and ramping up public service markets in areas such as probation and employment. In many cases it is too early to gauge the success of these undertakings. There have been failures – the West Coast Mainline franchise renewal and rural broadband to name two – while others, such as Universal Credit, remain precariously balanced. However, the overall record on driving ministerial priorities is one of moving at pace despite the scale and risk involved. 

Nevertheless, the wrong message to take from our assessment of the record since 2010 is that Whitehall is well placed ahead of the 2015 Spending Review. The civil service found a way through in 2010 by relying on familiar, if flawed, processes. Without improved collective leadership, the risk is that 2015 will be a repeat of 2010 with far worse consequences. 

The cuts in 2010 represented an historic shock to the system, yet the traditional methods of running a spending review – characterised by bilateral negotiations between the Treasury and the rest of Whitehall over the size of cuts – were adhered to, despite obvious weaknesses: 

With no measures of value for money and poor management information, it is impossible to be clear what impact the cuts have had on productivity and quality of service delivery. Focusing on cost-cutting via headcount reductions risks shrinking the civil service without sufficient regard to its capability to deliver the government’s agenda. 

Cross-government savings were largely ruled out, so cuts have been driven down through departmental silos. This leaves potentially large savings untouched, further increasing pressures inside silos. 

Many departments failed to plan for cuts on the scale announced and had little time for analysis before reaching settlements. As a result, several had little idea how they would meet agreed budget reductions. 

There are compelling reasons to think it will be even harder next time round:

Savings in this parliament have taken out most of the ‘low-hanging fruit’, with further cuts likely to be more difficult to find within departmental silos. 

The risks taken on by the civil service since 2010 will not be discharged by 2015, as delivery of several large reforms is carried over into the next parliament.

The direction of reform has added far greater urgency to the capability challenges facing civil servants – especially in areas such as commercial skills and managing public service markets. 

Keeping critical stakeholders – such as the judiciary, police, teachers and nurses – on board will be increasingly difficult, particularly when rethinking fragile policy and funding settlements.

Despite staff engagement remaining stable at 58% in 2012 and 2013, morale is likely to be sorely tested by further downsizing, restructuring and continuing pressure on pay.

Maintaining productive relationships between ministers and civil servants will get even tougher as the squeeze on public finances necessitates increasingly difficult decisions about priorities. 

To meet the challenge of the 2015 Spending Review the civil service will need to find a way to more effectively work across government, planning ahead to offer up the best options for further savings.

So far there is little evidence that departments are working more closely across boundaries. With the pressure firmly on delivery ahead of the general election, there is little sign that the civil service is planning ahead for the next government. 

Choices made by the coalition – often a reasoned reaction against the style of the previous government – have played up federal habits in the civil service. There is limited political pressure for co-ordination across government from the Treasury or No 10. The prime minister plays a chairman role, with secretaries of state given substantial autonomy. 

The trajectory of civil service reform is insufficient to support a new government through a second austerity spending review and beyond. This will require the reinvention of collective leadership between leaders of the civil service and politicians. 

Though many senior leaders in the civil service believe the reform agenda deals with the issues that matter, progress is too slow or non-existent in critical areas such as improving the capability of the civil service, working across government more effectively, and planning ahead to offer up the best spending options to the next government.

Making progress in these critical areas requires a very different style of leadership to that now on offer. The most senior leaders (the cabinet secretary, Sir Jeremy Heywood; the head of the civil service, Sir Bob Kerslake; and the permanent secretary to the Treasury, Sir Nicholas Macpherson) need together to provide clear and active support for the reforms. Some of the most successful past reforms have emerged from a united centre with active Treasury support. At the moment, many view the Treasury as a ‘missing leader of reform’, conspicuously reluctant to throw its weight behind initiatives that are failing to make progress. 

Politics is a critical ingredient in the mix. More visible backing from the prime minister is a strong catalyst for change. Departmental officials take their lead from their secretary of state, who in turn responds to active prime ministerial interest. 

The strongly federal nature of the civil service is an undiminished barrier to collective leadership. Most secretaries of state and senior civil service leaders see wider reforms as secondary to the day-to-day running of their departments. Consciously or otherwise, delivering change within departments has consistently trumped the corporate agenda. 

If the civil service is to get back on track for 2015, the critical issues we have set out need to take centre stage in civil service-wide reform. This will require ministers and officials to act together. 

The historic weakness of corporate leadership in the civil service, and the fragmented nature of the centre across the Treasury and the Cabinet Office, may make this the toughest reform of all. Our report makes several recommendations to civil service leaders and politicians on the pressing issue of reforming corporate leadership. Most urgently, the cabinet secretary, head of the civil service and Treasury permanent secretary should establish themselves as a visible triumvirate providing the leadership to deliver a renewed core agenda that they are strongly and personally committed to. Without this, reform will continue to be squeezed in at the margins and the challenge presented by the next spending review will be grave indeed. 

Peter Thomas is a senior fellow and Jonathan Pearson a researcher at the Institute for Government. The report, Leading change in the civil service, was published on March 26

This feature was first published in the April edition of Public Finance magazine


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