£14.3bn of efficiency savings

Many of us have witnessed very large numbers being claimed for efficiency savings, but always had an uneasy feeling that they might be, shall we say, illusional. The classic example is around Gershon’s efficiency savings, where the NAO could only substantiate around a quarter of the savings. Over the past few years, Francis Maude and the Cabinet Office have gone to great lengths to assure us that their efficiency savings numbers reflect reality. They’ve developed clear methodologies about what counts, they’ve used the National Audit Office to assure these are being consistently applied, and they are being very open with external commentators like the Institute for Government, who take an interest in what they are doing. This should be applauded. So sitting at the event this morning, I was fairly certain that the numbers being presented were not illusional. Which naturally leads us to the next question – how could we tell whether £14.3bn of savings was a good or a bad result? The first thing would be to ignore the commentary in most of today’s papers. The BBC, for example, said that this year’s number ‘exceeded the amount achieved last year’, in terms that suggested this was a great result for the Government. But both numbers are measured against a 2009/10 baseline, as the Cabinet Office made clear at this morning’s launch. So many savings that were achieved in 2010/11, 2011/12 or 2012/13 – through civil service redundancies, property leases terminated, cuts to consultancy budgets – are counted in this year’s figures as well as last year's. Given this, simply getting a higher number this year is hardly the basis for celebration. A more informative way to look at it may be to see how the Government is doing against the targets it has set itself. Previously it has talked about a £15bn target, which might make £14.3bn seem disappointing. And interestingly, the £15bn target was not mentioned this morning, despite having featured in previous presentations. On the bright side, the fact that the numbers came in below £15bn adds weight to the view that these figures are not illusional – there is no problem hitting a target if you can just make things up! And £15bn was always a stretching objective – getting close to it was probably a good achievement in itself, which is something the Government could have been more open about. Digging into the numbers provides another, more nuanced, way of seeing whether they are good or bad. In some categories, such as “discretionary expenditure” (this is marketing, consultant and temporary agency staff), the savings have hardly changed since last year’s figures. This is unsurprising, as these budgets were cut a lot in the first year of the Government. Going forward, you’d expect small year-on-year efficiencies in this category – the low hanging fruit was picked a long time ago. So these results could be quite good, but placing the figures within a big, aggregate efficiency target makes it hard to tell whether these smaller year-on-year efficiencies are actually being achieved. They are swamped by the bigger numbers. We’ll do a more detailed analysis covering all the categories in the next few days. We know that all organisations – public, private and voluntary – tend to inefficiency unless there are incentives to really focus on doing things better. The Government has gone a long way to dispelling the illusional nature of efficiency figures, which should be starting to create real incentives within the system. But there is probably more that can be done to provide similar transparency about whether any results represent a good or a bad performance. As a start, this could involve thinking again about how the headline numbers are reported, pulling apart recurring savings and what’s ‘new’ in each year, and providing more detail about what government expects to happen within its individual categories. After all, it is in the nature of efficiency reform that there are ways of continually improving things.