Civil service pays price for efficiency savings

15 Jul 04
After weeks of departmental horse-trading and fevered speculation, Gordon Brown has unveiled his Spending Review and it contained plenty of eye-catching, some would say eye-watering, announcements.

16 July 2004

After weeks of departmental horse-trading and fevered speculation, Gordon Brown has unveiled his Spending Review and it contained plenty of eye-catching, some would say eye-watering, announcements.

The chancellor's big idea, to cull 104,000 civil servants and move a further 20,000 out of London, was greeted as unprecedented. Supporters of the slash-and-burn approach bayed for blood, while victims howled for mercy.

Brown's gifts to Whitehall ministries, meanwhile, were somewhat less bounteous than in previous spending rounds. Overall government spending will rise by an average of 2.8% per year in real terms, to reach £579bn for 2007/08. Departmental expenditure, however, will climb from £279.3bn in 2004/05 to £340.5bn in 2007/08, an average rise of 4.2%.

As announced in March's Budget, much of this money will shore up the twin pillars on which the government's reputation rests – health and education. The health budget will rise by 7.1% each year, while education will go up from £59bn in 2004/05 to £77bn by 2007/08.

Other winners included transport, which will see an average 4.5% rise each year, and international development, whose budget goes up by 9.2% annually. Spending on homeland security will also be beefed up, from £1.5bn in 2004/05 to £2.1bn in 2007/08.

But other departments will have to make do with leaner pickings: local government gets a 2.6% annual increase from £43.7bn to £51bn. Defence, although faring better than expected, still gets only just 1.4% a year. The Cabinet Office comes off even worse, with just 1.2% extra a year, taking it to £2.1bn by 2007/08.

But it is the efficiency drive, being forced through by Brown and former Treasury mandarin Sir Peter Gershon, that has captured the attention of Whitehall watchers. The big question, of course, is: can it be done?

Brown's old friends, the analysts at the Institute for Fiscal Studies, lost no time in reminding us that hacking at the civil service is not a new idea; and that, historically, it is not a terribly successful one. 'If the plans published by the Treasury in May 2002 had actually been achieved, there would already be about 45,000 fewer civil servants than there are now.'

And the job cuts are supposed to be the easy part. Brown said the Gershon review would yield £21.5bn efficiency savings annually by 2008.

Slashing the civil service corps by around 20% will net roughly £5bn. In addition, the health service is expected to find £6bn and local government £6.45bn. The rest will come from Whitehall departments.

These savings will be generated by root-and-branch reform of public sector procurement; joining up back-office functions between organisations; and cuts in administration budgets.

But efficiency drives are not without precedent: market testing, and the introduction of executive agencies, had similar aims. They promised savings of £0.5bn but research suggests they achieved around 50% of that.

Brown, ever prudent, seems to recognise this and has constructed a safety net for himself. He pledged a £30bn asset sale by Whitehall ministries until 2010. That should be more than enough to plug the spending gap if the Gershon agenda fails.

However, the successful implementation of the plans rely on the co-operation of those who will lose their jobs. But Mike Kerr, head of public sector at Deloitte, which acts as consultant to the government, says it is not the permanent secretaries Brown needs to worry about.

'The outcome will hang on whether middle-ranking civil servants are prepared to act like turkeys voting for Christmas.'

Colin Talbot, professor of public policy at Nottingham University, argues that if the government is serious about achieving its waste-busting ambitions, ministers must be far more radical.

'Spending Review plans and their accompanying public service agreements should be published as green papers, which are then scrutinised by MPs and consulted upon within the sector. The revised versions should then be approved by Parliament,' Talbot says.

In the history of Whitehall, reforms such as these really would be unprecedented.


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