Reward scheme requires Treasury rethink

3 Feb 00
The government's attempts to modernise Whitehall were stepped up this week with the publication of the second report of the Public Services Productivity Panel.

04 February 2000

This crack team of business troubleshooters has been combing through the public sector, seeking out waste and inefficiency to find £8bn of savings by 2001.

Panel member John Makinson, group finance director at Pearson plc, this week set out his vision of how to motivate and reward front-line staff in his report, Incentives for Change. He makes some radical recommendations for the introduction of performance incentives at the Inland Revenue, Customs & Excise, the Benefits Agency and the Employment Service.

With piloting set to begin this year, the scheme, if successful, could be rolled out across Whitehall over the next five years. It would be linked to the existing Public Service Agreements (PSAs) and would have particular implications for the Treasury and the way it operates.

Speaking at the launch of the report, Chief Secretary to the Treasury Andrew Smith took pains to point out that introducing the recommendations would be a win-win situation. He said: 'The efficiency of staff is crucial to the success of the services. This report points the way for radical reform and is a key part of the performance agenda.'

Four senior directors from each of the government agencies also attended the press briefing at the Treasury on January 31, keen to add their comments to those of Smith and Makinson and emphasise their modernising credentials.
Behind the scenes there are great concerns about the scheme and serious reservations about how it will work in practice. But in these days of modernising government, agencies are under the most pressure to reform and change, and have long seen the need to pay their own way.
The government has kept a beady eye on standards in executive agencies, since they provide direct services to the public. Makinson stressed that his recommendations are not just about financial productivity, but about delivering better services to customers and at a lower cost to the taxpayer.

He said that advocating team-based appraisal recognised the fact that many staff believed in the idea of a public sector ethos and many departments demonstrated a sense of collective pride: 'One advantage of piloting the new scheme is to see what works and doesn't work so we can get a common set of principles.'

Smith emphasised that the bonus would have to be worth having: 'We want any bonus element to be related clearly to performance. But we want it to be simple, fair, efficient and welcomed by staff.'

Makinson would like to see a bonus of not less than 5% of base salary.
Performance incentives are an even trickier subject for the unions. The Public and Commercial Services union has been kept well informed of the plans but is concerned about the implementation of the scheme. Its deputy general secretary, Alan Churchard, believes the current system must be scrapped if the scheme is to have any chance of success: 'We need to get the basics right and sort out the issue of pay progression, which has really suffered in recent years,' he said.

The most sensitive point is the thorny issue of funding. Makinson has not shied away from it and has called for a radical change of tack from the Treasury if the incentive scheme is to succeed.
Unsurprisingly, no extra cash will be forthcoming and Makinson does not want the incentives to be consolidated into salaries but instead to go towards one-off payments which will build up a pot of funds for bonuses.

As well as allowing agencies to retain efficiency savings, Makinson wants the Treasury to allow the non-consolidation funds to be recycled by agencies. It is a moot point whether the Treasury is prepared to allow these freedoms.

Churchard is adamant that the scheme will not work without extra funding. 'Repackaging will not go down well and the whole thing will flop. Makinson has made some suggestions as to how the Treasury might move to a more flexible regime and we consider this essential.'

If the government is determined to push ahead with reform and modernisation of Whitehall, it will have to relax its grip on public finances. For the Treasury, this kind of behaviour does not come naturally. If the chancellor wants the PSAs to succeed, he must loosen his grip on the purse strings.


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