The Chief Secretary to the Treasury spoke to government non-executive directors about the importance of continued savings in public spending.
Good morning – it’s very good to be here today.
For those of you who don’t know me, I’m Greg Hands, Chief Secretary to the Treasury – you may know me as the minister who gives your departments a hard time during the spending process!
That is of course in the best traditions of the Treasury. And it’s particularly vital to meeting this government’s commitment to fixing the public finances.
A responsible government should only spend what it can afford. And it is the job of the Chief Secretary to make sure that happens.
As you will all be aware, the job has got a little harder recently. We have experienced a downturn in the economic forecast, largely due to factors outside of our control. That increases the need for government to keep the pressure up on public spending.
So what I will be doing is searching for £3.5 billion of savings from public spending in 2019-20, on top of the existing savings plans set out at Spending Review 2015, in line with continuing action to ensure maximum efficiency from every pound of public spending.
This is very much doable: the extra sum represents less than 0.5% of total government spending, or around 1% of departmental resource spending.
These savings are smaller than those we have delivered before. Over the last five years government expenditure was reduced to 40%, from the unsustainable level of 45% of GDP (Gross Domestic Product), in 2010. That involved a fall in departmental spending of 1.7% in real terms per annum, from 2010-11 to 2015-16. Looking towards 2019-20, the projected savings are only 0.9% per annum in real terms.
Perhaps even more importantly, at the same time as cutting the cost of government, we protected, and in many cases, improved core services:
Crime has fallen by more than a quarter since 2010; there are more young people going to study full time at university than ever before; and record numbers of children are now taught in schools that are “good” or “outstanding”.
So we have proven that we can do more with less.
The challenge is that the electorate likes to say “more please”. The demand is always there for government to do more. That is invariably going to be an ongoing pressure.
The situation is, therefore, that money remains tight, while expectations continue to increase. What this means for departments is that we all need to be even more alive to opportunities to become more efficient in everything we do.
This is where the efficiency work initiated by the Cabinet Office creates real value.
And there are some smart ways in which they have helped departments achieve further efficiencies:
Whether that’s developing and using common platforms and services, to drive economies of scale…
Rationalising our estates footprints, through property hubs, whereby departments share a smaller number of buildings in key locations…
Or increasing the skills of the civil service, both generally, and among specific professions and functions, such as digital, commercial and change management.
In addition, we are also merging the Major Projects Authority with Infrastructure UK, to strengthen the assurance and support afforded to departments and project teams, and you heard from Tony Meggs earlier.
We’re introducing single departmental plans, to ensure that departments have the right resources and can deploy them where they are most needed, and you will shortly hear from John Manzoni more on that.
We’re improving both our recruitment and training, to ensure that we have the right commercial and leadership skills in-house.
And we’re undertaking a review of the government’s strategy for IT contracts, an area where I still think significant savings could be realised.
So what can you, as non-executive directors, do to help drive efficiency forward?
I would recommend five things:
First, maintaining focus, within your departments, on the five cross-cutting priorities Sir Ian [Cheshire] has drawn up: talent, single departmental plans, arms’ length bodies, major projects and risk management.
Second, making sure that your boards have sight of data on efficiency measures in the department, and scrutinise departmental programmes through the lens of efficiency.
Third, ensuring that your departments have programmes that are in line with the work of the Cabinet Office’s efficiency unit: programmes to develop common platforms and services (where relevant); the rationalisation of estates,; and the upskilling of the workforce, particularly in relation to digital, commercial and leading and managing change.
Fourth, ensuring robust engagement with the delivery of your Single Departmental Plan, particularly the commitments to drive efficiency.
Fifth, making the most of your expertise, and getting involved in projects outside of your board – for example, taking a leadership role in departmental reviews on issues such as procurement, or advising specific programmes.
I think what underpins all five actions is the need, across the Civil Service, to get a better understanding of costs and outputs.
A lot of you will know about the transformation which took place in the prison service. They used their detailed understanding of the costs of running a prison, from meals, to staff, to building maintenance, to really drive down costs by holding service providers to account.
But there is a lot of other good work going on in the public sector, looking at costs and productivity.
In the Spending Review last year, we said we would establish a new Costing Unit to build a more forensic understanding of the cost of public services and drive productivity across the public sector’.
This is now up and running, and using cost data to improve efficiency across government.
The Costing Unit has done 11 projects so far, on a wide variety of topics such as the border, further education, criminal justice and mental health.
To give you an example of the sort of savings which are up for grabs, the Border Force looked at their costs and outputs to think about their productivity and how they could achieve the same service for less. By looking at costs, they identified £200 million of potential savings out of £900 million, for instance by increasing the number of passengers using e-gates.
That is the sort of saving which should be exciting all of us.
And, to conclude, that is where your role, as non-executive directors, can really add value: by asking the tricky questions, suggesting solutions which you’ve seen work well elsewhere, and – to borrow a phrase from the founder of FedEx, Fred W Smith – making sure that your departments are “keeping the main thing the main thing”.
Thank you for your work so far – and let’s keep up the pressure.