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Government savings

The figures behind the headlines.

Last week, the Chancellor and the Minister for Cabinet Office announced that the Government had saved £14.3bn compared to spending levels in 2009/10. Given the wealth of information that the Efficiency and Reform Group (ERG) have put into the public domain, we can take a detailed look at the numbers.

ERG report their savings results in four broad clusters:

  • procurement
  • major projects
  • workforce
  • transformation.

Each of these clusters is further broken down into the sub-categories shown in the table below.

The figures combine savings that are “one-off” – saving government money only in that particular year – with savings that are “recurring” which permanently alter the cost base of government. The latter count in the year when they are first made, but also continue to be included in subsequent years’ savings figures. Given this, it takes a little while to get your head around what the year-to-year movements in these figures actually mean. Ideally these two kinds of savings would be split out in the top-line figures, but with a bit more work ERG’s detailed documentation makes it possible to get a sense of the trends in each of the areas. There are a number of areas where the 2013/14 savings figures have increased substantially from 2012/13. The centralisation of procurement for common goods and services, along with the central renegotiation of large contracts, together increased by £1.5bn from last year and account for more than £3bn of the 2013/14 total. Overall, the continued rise in these savings is impressive, given that the more easily achievable savings in these areas have already been made. Some of this growth is likely to be one-off savings that do not permanently lower the cost base of government, such as the £200m recovered from suppliers last year. But it looks like the majority of these new savings are recurring. Savings in the major projects cluster increased by more than £1.6bn from last year’s figure. In previous years, this category consisted mostly of savings from rescoping or cancelling projects. Naturally this can only save you the project costs. This year, the more detailed information suggests that a large proportion of the increased savings was down to benefits achieved through completed projects. So for example, the Department of Health reported over £1bn in savings resulting from its modernisation programme. It’s not immediately clear from the documentation, but we’d expect these “realised benefits” to recur in future.
The other area which saw large increases in savings was in public sector pensions. The £2.3bn figure for 2013-14 represents an £1.2bn increase on the 2012-13 saving, coming mostly from increased employee contributions. Here, the ERG relies directly on figures reported by the OBR. This year’s large increase probably reflects the ongoing roll-out of the changes to different public sector pension schemes. In contrast to these big movements, there was relatively little change in the top line savings in the government’s property portfolio. However, the detailed figures show that “property exits” – essentially recurring savings from stopping leasing a property – have grown from last year and are now a significantly larger proportion of savings than the one-off gains from property sales (ERG’s methodology counts the whole of the disposal proceeds in a single year’s figures). This shift means that even though the reported savings are roughly the same, the recurring reduction in long-term running costs is greater this year. Another area where there has been hardly any change since last year is spending on marketing, consultant and temporary agency staff. This is unsurprising, as these savings are largely recurring following large cuts in these budgets in the first year of the Government. Going forward, you’d expect small year-on-year efficiencies in this category – as the more easily achievable savings have already been made. Finally there are some areas where the changes in reported savings are actually lower than we might have expected. In the twelve months to March 2014, ERG recorded an additional reduction of about 6,000 full-time equivalent staff (FTE), resulting in a pay bill reduction of £172m – whereas our Whitehall Monitor numbers show a reduction of around 8,800 FTE based on ONS figures and around 15,000 when government reorganisations are netted off. It seems ERG is quite conservative when it comes to counting pay bill savings. Getting to 2015 Overall, it is clear that since 2010 there has been a concerted, and largely successful, effort to reduce the costs to government across these areas. The level of transparency around these figures is strikingly better than governments have produced in the past. Savings in themselves are not guaranteed to improve value for money, but Francis Maude is undoubtedly correct that rigorous measurement is one of the keys to creating real incentives for efficiency.

Publisher
Institute for Government

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