10 July 2013

The Chancellor announced £5 billion in further ‘efficiency savings’ in the Spending Round. Some departments were hit harder than others – not least the Cabinet Office, which includes the Efficiency and Reform Group. However, inconsistencies make it hard to measure what cuts have already taken place and there is no way to gauge what impact this has had on efficiency.

Underneath the headline numbers announced in the Spending Round on 26 June, ‘efficiency savings’ accounted for a whopping £5 billion - or 43% - of the total £11.5 billion of cuts. What is far from clear is where those “efficiencies” will come from.

The closest we can get is looking at the changes to departmental administrative budgets (effectively central government operating costs). They are squirreled away on page 61 in Table A.3.

As the graph below shows, unlike the blanket cuts of at least 33% to administration budgets in the 2010 Spending Review, reductions this time were not doled out evenly.

Intriguingly, the Cabinet Office will take the biggest hit of all at 29%. This will no doubt include major cuts to the Efficiency and Reform Group itself – an interesting move since it claims to have generated major savings to date. Other big reductions are in the NHS, Department for Work and Pensions and Home Office who are also slated to take large cuts of around a fifth to a quarter – in a single financial year.

Meanwhile, at the other end of the spectrum, three departments (Energy and Climate Change, International Development and HM Revenue and Customs) will get small increases in their administrative budgets while Transport’s is left unchanged.

However, what is likely to be much harder to work out is whether those plans are delivered. Baselines and administration budgets are recalculated so frequently that it is impossible to measure the actual outturns against plans. For example, comparing the projected figures for 2014/15 that were set in the 2010 Spending Review and the equivalent numbers in this Spending Round show significant variation. The Cabinet Office, in particular, has a baseline for 2014/15 which is 24.6% above that planned back in 2010. Culture, Media and Sport, Defence and Transport all have substantially higher baselines too, while Home Office and Education have notably lower ones. Some of these changes are a result of the Clear Line of Sight project which has changed what counts in a departmental baseline.

But even where movements in the figures are unambiguous there is a problem with the language. Less does not necessarily mean more efficient. As others have consistently pointed out, there is a difference between cutting and making true efficiencies (i.e. increasing the ratio between outputs and inputs). The overall numbers simply state how much inputs are being reduced. The real problem, in the vast majority of departments, is lacking the ability to measure efficiency because there is no meaningful way of getting a grip on what is happening to the quality and quantity of outputs.

From our work on leading change in Whitehall we can see that departments are attempting to make savings through a mixture of simply stopping some activities, doing similar work in similar ways but with fewer people, and fundamentally changing how they operate to reduce the cost base. If departments are going to make savings of up to 29% in a single year, they need to really focus on the latter.


Excellent analysis James, and thanks of the plug for Whitehall The Impact of the Social Sciences
How Academics and their Research Make a Difference

They provide volumes of statistics and reports to the centre of government (Cabinet Office and Treasury) – as far as their limited management information systems will let them – and senior officers will sometimes answer questions from MPs on Parliamentary committees. Their permanent secretaries will meet colleagues in other departments every week.

An initial report by the National Audit Office on progress by central government departments in reducing costs has concluded that departments took effective action in 2010-11, cutting spending in real terms by 2.3 per cent or £7.9 billion, compared with 2009-10. Our analysis of departments’ accounts supports the Efficiency and Reform Group’s estimate that Government spending moratoria and efficiency initiatives, including cuts to back-office and avoidable costs, contributed around half of the figure, some £3.75 billion.

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