Magazine article Public Finance

Waste Not, Want Not

Magazine article Public Finance

Waste Not, Want Not

Article excerpt

They're not quite turning off the heating and telling stall to wear an extra jumper to the office - yet - but Whitehall departments will certainly he stepping up their efforts to make savings and cut budgets in the wake of this week's Pre-Budget Report.

Gordon Brown used it to crow about progress on the government's efficiency drive, publishing a set of figures showing that exactly halfway through the threeyear strategy, drawn up by the chancellor's wastefinder-general Sir Peter Gershon, the public sector is running ahead of target in its battle to cut costs.

But the good news masks an uncomfortable truth for the chancellor. To protect investment in public services - while staying within the tight spending limits he has already pencilled in up to 2011 - will require public bodies to wring ever more savings from budgets that are already feeling the squeeze.

Brown has made it clear that next year's Comprehensive Spending Review will ratchet up the pressure on the public sector to do more for less.

His declaration that all government ministries face 5% real-terms cuts in their administrative budgets, and will have to achieve efficiency savings of 3% per year from 2008 is just a taster of what CSR07 has in store for them. The language emanating from t he Treasury over the past 18 months - talk of a tighter fiscal environment is now commonplace - leaves no doubt that before long everyone will he feeling the pinch.

In an intervievv with Public Finance advance of the PBR, Stephen Timms, chief secretary to the Treasury and the Cabinet minister in charge of public spending, was candid that a big push on efficiency would be the cornerstone of the CSR.

'If you look at the next few years, there will continue to he real-terms increases in public spending, but the rate of increase is going to be much less than it has been. That creates challenges for departments going forward, he said.

'But the great strength of this process is that there will have been time, by next summer, to think through very carefully how we transit to this tighter fiscal environment, while maintaining, and indeed building on, these improvements in public services.'

On current figures, that tighter environment translates into real-terms spending growth averaging 1.9% per year from 2008 to 2011. compared with 1.4% over the current spending period.

Against this background. Timms' comment that 'maximising efficiency is going to be critically important for a successful CSR' comes us no surprise.

So, as Gershon Mark II looms, what exactly has the programme achieved?

It was dreamt up by the chancellor, who commissioned Gershon to carry out a fundamental review of government and the wider public sector. First announced in the 2003 Budget, the results were fed into the 2004 Spending Review.

Gershon found potential for huge savings in public sector operations. He said that by the end of a three-year period, covering the financial years 2005/06, 2006/07 and 2007/08, £21.5bn worth of efficiency gains could be achieved each year. He also called for the number of civil servants to be cut by 84,000. At the same time, a smaller, parallel review by Sir Michael Lyons recommended that 20,000 posts should be moved from the Southeast to other parts of the country.

According to Gershon, cutting civil service numbers will save around £5bn. In addition, the health service is expected to generate £6.5bn of savings and local government £6.45bn. The rest will come from Whitehall departments. These savings are supposed to be achieved through major reform of public sector procurement; joining up back-office functions such as finance and human resources between organisations; and reductions in administration budgets.

The figures reported by Brown in the PBR show the state of play at the end of September 2006 - the programme's halfway mark. And the news is good. Annual efficiency gains now stand at £13.3bn, more than double the £6. …

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