NAO: Government’s £20bn efficiency and reform savings target is ‘ambitious’

The National Audit Office (NAO) has said that the Efficiency and Reform Group’s (ERG) target to cut costs by £20 billion between 2014-2015 is ‘ambitious’, and that it needs to work with government departments to assess whether risks to services are ‘crystallising’ because of the efficiency drive.

In May 2010 the government announced the formation of ERG within the Cabinet Office to help departments achieve significant savings. ERG plays a crucial role in the reduction of ICT spend in central government, where it aims to help departments use new digital technologies to lower costs, and to also create savings through the renegotiation of major IT contracts.

The NAO recently released a report on ERG’s ICT initiatives, which found that 89 per cent (£316 million) of the £354 million of ERG’s reported savings met its criteria. However, it also found that insufficient information was available centrally to validate a further £348 million of claimed savings from commercial negotiations with major cross government ICT suppliers.

It said that since the release of the report, the Cabinet Office has since taken steps to improve the accuracy of these savings from 2012-13 onwards.

From the 2011-12 ICT savings, the NAO also found that only 46 per cent were recurrent in the long term. A further 33 per cent were likely to occur for more than one year and the final 21 per cent were savings from spending stopped only in the current year.

According to the NAO report, ERG is yet to clarify how it will achieve sustainable savings going forward. The NAO has said that it is confident that ERG has achieved its reported overall £5.5 billion savings so far, but believes some of these, as it found with ICT, are not sustainable will be a challenge for the organisation to increase these by more than £14 billion in less than three years.

It also said that “from the information available ERG cannot always distinguish between savings which have arisen solely because of its actions and those where has had less direct effect”.

The NAO is concerned that the ERG is yet to articulate how it plans to deliver savings in years to come.

“ERG has yet to translate its ambition for saving £20 billion by 2014-15 into more detailed plans. ERG has made progress in developing strategies across its wide range of responsibilities, and is focusing on core activities likely to produce savings,” reads the NAO report.

“However, until recently ERG’s focus has mainly been on the savings themselves, with less emphasis on delivery of the longer-term changes and improvement in efficiency necessary to make them sustainable.”

The report also states that the degree of change that is being sought by ERG within government departments, of which ICT has been impacted greatly, ‘inevitably’ brings risks to services. Although ERG has a role in assessing the impact of major projects, it considers that it is primarily for departments to assess and manage any impact of its other activities on service delivery.

However, the NAO believes a “central understanding of the risks to services is vital in a time of major restructuring, with systems to identify when the potential risks materialise and the ability to respond rapidly”.

Amyas Morse, head of the NAO, said that the £5.5 billion savings, achieved at a running cost of £72 million, highlight value for taxpayer’s money – but the organisation needs to address how it will continue its success in the future.

“Nearly three years on from its birth, the Efficiency and Reform Group is clearly helping departments achieve substantial reductions in annual spending. This demonstrates that the ERG is providing value for money,” said Morse.

“As a relatively new organization, ERG has assessed the obstacles it faces and has begun to tackle them energetically. However, it needs to get going on moving beyond the role of imposing central spending controls to placing more emphasis on changes aimed at promoting sustainable savings.”

The report, interestingly, also highlighted that ERG faces staff shortages and a lack of key skills in some areas – particularly in commercial experience at a senior level, and staff with systems experience.

“Some parts of ERG, for example, ICT and commercial models, have reported difficulties in recruiting staff with the right experience,” reads the report.

The NAO recommends that going forward ERG should develop and publish a clear vision for how it will help departments make longer-term savings, report publicly on the likelihood of meeting its savings forecasts in each area of its activity and work with departments to undertake an assessment of the risks they face in delivery the efficiency and reform programmes.

Copyright © 2013 IDG Communications, Inc.

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