28 July 2015

In an article published today, Isabel Hardman reveals “there is considerable sympathy at Cabinet level for scrapping/merging departments in the spending review”.
Mergers could improve government’s efficiency and effectiveness - but Tom Gash argues that if we assume they will, they probably won’t.

The news that government is considering restructuring as one solution to the current spending squeeze is not surprising. Mergers are often sought as a solution to crises in both the public and private sector, and secretaries of state will have to consider all options if they are to respond to George Osborne’s recent request to show how their department will make savings of 25 or 40 percent.

Many argue that such changes are a no-brainer. Departmental abolitions and mergers have been advocated by the IEA, commentators of all political stripes, and earlier this week by a report from the Westminster Policy Institute, which proposed that four departments (BIS, DEFRA, DECC and the Department for Transport) “should be merged into a single new department to create a streamlined national infrastructure function”.

Mergers and restructuring can work, of course. Our recent research on restructuring Whitehall found several examples of changes that lasted and are seen by most involved in the process to have had significant benefits. Relative success include the creation of the Department of Work and Pensions, which helped join up services to the unemployed through job centres, and the creation of the Department for International Development, which brought focus to issues of international development that were previously swamped by concerns around diplomacy and security that the Foreign Office often judged to be more pressing.

But it’s important not to forget the litany of restructurings that sounded initially sensible but proved costly or unworkable in practice. When Defra was created through a merger of the Ministry of Food and Farming (MAFF) and parts of the Department of Environment, Transport and the Regions (DETR), it cost government a fortune due to the need to ‘level-up’ salaries in the worse-paid MAFF staff or face strike action. The creation of DIUS lasted just two years before it was scrapped, leading then DIUS permanent secretary, Ian Watmore, to warn of embarking on restructuring without sufficient attention to detail. These two changes cost over £30 million in direct costs, on top of considerable organisational disruption which distracted attention from reform priorities for at least 18 months. These are not isolated cases. The majority of reorganisations end in failure – including Edward Heath’s attempts to create new ‘super-ministries’ to enable a new, more streamlined approach to government in the 1970s.

With the Spending Review now pencilled in for late November, there is time to ensure upcoming restructurings become successes rather than failure. But to achieve success, history shows that there are four things that the Government must pay attention to.

First, proper planning. The creation of DWP followed an intensive debate within the department and trials of new frontline operating models across the country. Reforms will only save serious cash if they change frontline operating models, as this is where government spends most of its money. So it makes sense to work bottom-up to work out what departments should be, rather than (as we tend to do) top-down.

Second, there needs to be a careful assessment of the trade-offs that are always involved in such reforms. Most commentary has a rather frustrating habit of forgetting large chunks of what departments do. Thus, the proposal to merge BIS, DEFRA, DECC and DfT to form a national infrastructure department rather conveniently forgets that most of what BIS, DEFRA and DECC do day-to-day has little to do with infrastructure policy and delivery. For this proposal to be plausible, you have to decide what will happen to functions dealing with issues as diverse as food safety, small business regulation, and vocational education. And if you want to save serious money you have to cut programmes of government work – not just reduce administrative costs.

Third, don’t forget implementation. It is frankly not good enough that most major restructurings in Whitehall are led by people who don’t have prior experience of leading such changes. Those with experience must at least be consulted early on, and should – not that they will thank me for this – probably be asked to lead the implementation of changes.

Fourth – and linked to all of the above points – there is a need for openness. The Government must be bold enough to expose its initial ideas to scrutiny and test them thoroughly with those working in and with departments, and those delivering and using services at the frontline, in order to find the best routes to savings and frontline improvements. Ministers’ jobs are on the line when departments merge but secrecy is simply not an option if changes are to deliver results.

Parliamentarians must step up if it looks like changes are being rushed through in a way that risks taxpayers’ money. They must demand that a proper business case is developed and that it is scrutinised by the appropriate select committees and, if necessary, they should ensure that major changes are debated in parliament. When we know that four in five private sector mergers fail, we cannot argue that it is ‘common-sense’ that mergers will save money and improve performance. So if the government wants to avoid awkward organisational mating like this and ensure changes leave a lasting legacy, the planning must start now…

Read more in our Reshaping Whitehall report.

Comments

Agree that we need to work out 'what departments should be' and that we should learn from history. This might suggest that the departments need a coherence and comprehensive coverage of all the policy levers.

If viewed from a market perspective this might suggest departments for business; labour market; education & lifelong learning; & environment & climate change. And possibly a separate department for large infrastructure projects (or attached to the business department).

The Business department would incorporate the single industry departments - agriculture, DCMS, transport and the industry bit of BIS. Key elements of this department would include regulation, competition and any active intervention in industry.

DWP covers most of the labour market but the labour market has suffered because of the rather odd decision when Dfee was set up to split off the price and regulation of labour (Pay & Industrial Relations) into DTI. Reversing that move and including all labour market regulation including HSE & bringing back work permits from the Home Office might be one way to go.

Education & Learning is a bit of a mess - particularly if viewed by an individual trying to make the transition from education to work. DfEE was set up to combine training & FE (particularly for young people) and stop squabbling by DE and DES. But that sensible decision has been completely undone by whizzing the post compulsory education around Whitehall - DIUS & now BIS - has led to a completely fragmented system with different cultures in different departments.

And environment & climate change are in separate departments! Why?