Month: July 2009

The surveys so far of departmental budgets all reveal the same characeteristics. Far too much is spent on overhead. The error rates are too high, quality is too low. Too much time is spent on spin, PR, advertising, recruiting people to do non jobs, needless regulation, and endless bogus consultation.

Given the imperative to curb spending to cure the deficit, any incoming government should take the following actions in its first week to start to get on top of the problem.

1. Impose a freeze on all external recruitment, excluding front line posts in teaching, medical, and security forces.
2. Set out slimmed down senior management structures which departments should work towards as people leave.
3. Halve the advertising budget.
4. Ban all new consultancy contracts, unless a Minister agrees to one based on a good case which shows how the work canot be done in house, and why it offers value for money.
5. Make a substantial reduction in the numbers of Special Advisers.
6. Abolish unelected regional government, including the Regional Assemblies, Development Agencies, housing and planning quangos.
7. Abolish the superstructure of targets, advice and guidance and cross cutting programmes that Whitehall visits on Councils, allowing them to cut their overhead of box tickers and form fillers at the same time as cutting the departmental costs.
8. End expensive centralised computer programmes. Cancel the ID computer.
9. Start renegotiating the pension plans, and close them to new members.
10. Publish a bill abolishing and amalgamating quangos.
11. Publish the first deregulatory bill.

In 2009-10 the education budget runs to £66,700,000,000. £10,000,000,000 of that goes on teachers pensions. £6,500,000,000 is spending on new and improved buildings.

The Education department itself spends £182,000,000 on administration, with 2,842 staff. All this in what is meant to be a decentralised service, run by Local Education Authorities, Boards of Governors and Headteachers. 20 staff members are paid more than £95,000 a year.

As if the central team were not enough, there are numerous national quangos. There is the British Educational Communications and Technology Agency, the National College for School leadership, the Qualifications and Curriculum Authority, the Training and Development Agency for Schools, Ofsted and the Sector Skills Development Agency amongst others.

There is substantial overlap between central staff, regional staff in Offices of the regions, and the LEAS. There is also scope for amalgamation and reduction of the national quangos. We should move to a more decentralised service, where the demand for central highly paid staff is much reduced.

The government has managed to combine large increases in centralised bureaucracy, circulars, regulations and requirements with overlapping layers of government and intrusive national quangos. The aim should be to free state schools of much of this burden, leaving them freer to make their own decisions,and to attract pupils by their excellence. Healthy competition between schools, giving parents and pupils more choice, is the best way to drive standards up. We could then save much of the money spent on Labour’s top heavy top down bureaucracy. I have always favoured ending the apartheid in English education. All schools should be independent, with free places for all in independent schools that offer a good standard and good value for money. There should be more effective choice for parents. The rich could still choose to spend more of their own money on schools of their choice.

As we will see as we go through the accounts fo the main departments, certain themes are common to all. They have too many quangos, they have too many expensive top staff, they bloat their advertising and spin budgets, and too much is done in the centre. A purge at the top would be a good start for any cost cutting exercise.

The government we hear thinks it wrong that elite universities should discriminate in favour of students who achieve the best results. They point out there are others who might be able to achieve whose backgrounds have prevented them. Some of us think it would be a better idea to sort out the worst performing state schools to deal with this problem.

I inivite the government to consider another bad example of discrimination of a similar kind. All my life people like me who love cricket but who cannot play to a high enough standard have been ignored by the England Test Selectors, on the very reasonable grounds that we would not be competitive. I wouldn’t pay good money to see people like me play cricket. Yet isn’t this a bad case of discrimination?

There is age discrimination, as I note they always pick people in their 20s or low 30s, never anyone older. Isn ‘t this discriminating in favour of people who have had privileged sporting backgrounds, as they have been to elite academies which clearly helps them play better than the rest of us? And isn’t it financial discrimination, as most selected have been paid to play cricket, so they get in much more practise than the rest of us who have to earn a living doing something else? Who knows how good the rest of us might be if we practised much of the time and had good coaches.

Isn’t the truth of life this? If you want your country to be good at something you need to discriminate in favour of those who are best trained , most suited and most committed to doing well at their chosen area? Doesn’t that apply to academic as well as sporting life? Isn’t the issue the results of some state schools, not the insistence by top universities on taking the best and the most highly motivated people?

The Cabinet office weighs in as one of the cheapest departments. Its total spend for 2009-10 is an apparently modest £7,500,000,000. £360,000,000 of this is the administrative cost of the place, whilst the bulk, £7,140,000,000, is the civil service pensions bill.

The Cabinet Office employs 205 higher paid employees, and a total staff of 1279 (full time equivalents). It also accounts for the Intelligence Agencies, whose staff have shot up from 8,984 in 2003-4 to 12,633 for 2009-10. Their budget had doubled over the same time period. Let’s leave this on one side, and turn to the really big spending that goes on under the eyes of this department.

If the government had a proper balance sheet, it would show like the company sector the accumulated pension deficit as a liability. The civil service scheme is totally unfunded – there is no money saved to pay future pensions. Along with the other unfunded schemes (e.g. teachers), and the deficits in the funded public sector schemes(e.g. Councils), the total liability is now around £1,000,000,000,000 – yes, that’s right folks, £1 trillion, or more than the £800,000,000,000 of debt the state has acknowledged in the recent borrowing figures. That’s another £1 trillion on top of all that borrowing.

The private sector has long since decided it has no option but to cancel, limit or otherwise modify defined benefit (final salary based) pension schemes. We live in a world where for many access is denied to good final salary schemes these days. Even members of some final salary private sector schemes are finding they are blocked from saving more under them, and may have to agree to a reduction in benefits.The public sector has made far fewer moves to limit the costs. It is true the MPs funded and contributory scheme is now consulting members on how to worsen its terms to cut its future deficit, and there have been some modest moves to reduce costs on the unfunded civil service scheme.

The country cannot afford to go on making these generous promises to new comers. These schemes, like their private sector counterparts, have to be closed to new members. New employees need to be helped to save for a defined contribution scheme, where they will get a pension based on what they and their employer has saved and the investment returns made on the money.

We need to ask if we should go further. One option is to stop existing members accruing extra pension from future service on these terms, and whether they too need to go over to defined contribution saving for the remaining years. As the MP consultation shows, there are numerous ways in which the cost of such a scheme can be lowered. It would be right to consult members of these schemes and seek agreement to changes, based on more affordable levels of employer contribution.

One way to cut future costs would be to agree a higher retirement age. Another help would be to be more careful about granting early retirement, which has become common in parts of the public sector.

The total spending of this department is in the budget at £3,157,000,000 for 2009-10.

The department for the Environment, food and rural affairs, is a dab hand at spending on consultants. Last year its spending on professional services and consultancy reached the height of £573,000,000. This does include Warm Front spending which can do some good insulating people’s homes and cutting fuel bills.. The core department spent £37,000,000 on consultancy and professional services.

Its quangos include Animal health, Centre for Environment, Central Science Laboratory, Government decontamination service,Marine and Fisheries Agency,Regulatory Science Agency, Rural Payments Agency, Veterinary Laboratories Agency, Veterinary medicines Directorate,Commission for Rural Communities, Consumer Council for Water,Environment Agency,Food from Britain, Gangmasters Licensing Authority,Joint Nature Conservation Committee, Natural England, and the Sustainable Development Commission.

It has been criticised for its financial management generally, and especially for its poor management of the single payments scheme for farmers. Over one third of all the claims cost more to process than they were worth. The scheme was much delayed and the error level was high.

The Environment Agency is one of the largest government quangos. It has plenty of senior staff to argue how little resource they have, and to ration the real work it needs to do to reduce flood risk. There appear to be more men and women with pens hiring consultants than there are men in diggers clearing and improving drainage channels.Like many quangos it is good at writing memos, drawing up plans, increasing licence fees at faster rates than general inflation, cluttering the riverside with signs and instructions, and issuing warnings based on risk assessments. This is the body that thinks the way to tackle flood risk is to draw maps showing who is at risk, to put up their insurance premia, and then issue regular warnings when it rains that they might be flooded.

What the public want them to do is to get on with putting in the schemes that would remove the flood risk. Many of thse are small and cheap, entailing some dredging or clearing of existing water channels, or adding a few more land drains . Many would like to see less spent on management and lawyers, less spent on stating the obvious and making up endless risk assessments, and more on practical work to keep people’s living rooms dry. It would also help if they more robust in opposing over development in areas prone to flooding. Many of the flood problems have been brought on or made worse by permitting building on flood plain and water meadow.

The other mixed bag of quangos should be subject to review. We do not need so many of them . Their useful work could be given to a few amalgamated bodies or to elected local government. Which ones would you like abolished?

The Department for Communities (and local government) has an apparent annual total budget of £39,686,000,000 including capital. This, however, leaves out the main financing of schools through the new centralised schools grant, another £23,000,000,000. There are other discontinuities and recharges in the figures which mean the budget does not capture the full picture of local government spending.

The Department’s annual report does not make good reading. Between the department and local government they are making heavy weather of the very centralised target system this government has put in. DSO 3 “to build prosperous communities” has not yet been assessed, which is perhaps just as well in the middle of a recession which is doing lots of damage to prosperity. We are told there is “no progress” with DSO 5 to provide “a more efficient, effective and transparent planning system” . The PSA target to improve the “effectiveness and efficiency of local government” is “not met”. PSA target 21 to “build more cohesive, empowered, active communities” has not been assessed.

Doesn’t it just go to show how absurd all this top down effort to control and direct local government has become? If they want to run everything, why do we pay for Councillors and Chief Officers in Councils to do it as well? Wouldn’t it be better to sweep away the panoply of central targets and controls, and let Councils get on with it? We can always kick out Councillors when Councils don’t perform or waste too much money. When we costed this for the 2005 Conservative manifesto it would have saved £1,000,000,000 of central overhead. It will be much more four years on.

The department has 123 staff earning more than £100,000. It has 75 staff in communications. It spent £54,000,000 on consultancies and interims last year. Councils spend £1,589,000,000 on economic development, on top of the regional and national budgets.

There is considerable scope here for savings at the national level. Individual Councils also need to decide how many corporate strategists, networkers, strategic partnerships and all the rest they really need, as they now have a small army each to talk the talk with the crazy language of Whitehall bossiness, interference ,advice and targets. There are too many box tickers on both sides, so let’s have fewer boxes to tick. We need fewer strategic partnerships and more concentration on each Council’s core functions.

Looking at many a Council’s management structure the viewer is mesmerised both by the very large numbers of well paid senior officers, and by the array of job titles which tell you nothing about what if anything they really do. They need these people to conform to the government’s wasteful and jargon filled view of how Councils should work. If they don’t do it this way they get black marks and lose their stars. Whitehall treats Councils like primary school pupils. Gone are the days when there was a Head of Education, a Head of Social Services, a Finance Head, and a few other sensible titles and roles. Now there are Heads of Strategic Partnerships, Heads of corporate strategy, all sorts of roles for networkers and “business services”. It would be good to hear from you about some of the silly job titles and overlaps in your local Council.

The health department spends £116,900,000,000. £5,500,000,000 of that is on new buildings and equipment, and £12,500,000,000 is on pensions. The new GMS contract has cost an extra £8,000,000,000.

The Health department has an administrative budget for itself and its helpers of £218,000,000. This buys us 2245 staff, including 17 staff paid more than £150,000 a year and 54 staff paid between £100,000 and £150,000. There are a further 3536 staff in agencies.

Beneath the Department are the Strategic Health Authorities. Their budgets run to £6,000,000,000. The national quangos include the Office for Strategic Co-ordination of Health Research, the National Institute for Health Research, the National Institutue for Health and Clinical Excellence, the Care Quality Commission., the NHS Litigation Authority, the Medicines and Healthcare products Regulatory Agency, the NHS Purchasing and Supply agency, the Council for Healthcare Regulatory Excellence, the Health Protection Agency, the National Patient Safety Agency. the NHS business services Authority and the NHS Institutute for Innovation and Improvement!

There should be plenty of scope to amalgamate, streamline and remove bits of all those. The Litigation Authority now has a budget of £1.1 billion. Raising quality would cut the costs of this very large complaints department. Maybe we should ask whether it is wise to have so much litigation against ourselves, as it is our NHS. Wouldn’t it be possible to have a cheaper and simpler Independent Adjudicator who made quicker and cheaper settlement of grievances against the NHS?

When I ran the Welsh Health Service I streamlined the top of the system and saved substantial sums by doing so. For example, I removed the pay twice approach I inherited of having both a Permanent Secretary to the Health department and a CEO of the NHS, by amalgamating the posts and getting rid of one of the offices. I asked the pharmaceutical companies to deliver the drugs directly to the hospitals, to remove the need for an expensive purchasing and warehousing business within the NHS itself. Cutting out central warehousing and a supplies department saved money, cut stocks, and meant the hospitals were using more recent pharmaceuticals. We still got the drugs at the same prices.

The drugs bill is large, amounting to £8,000,000,000 for GP prescribed drugs and £3,500,000,000 for drugs in hospitals. We do not want to deny people drugs they need, and may need to add a few more to the list. What we also need to do is to cut down the waste which comes from overpresribing or prescribing to people who do not want to take them all. We need infection control systems which rely more on thorough cleaning and less on drug taking in hospitals. We need to use good generics where possible. We need to remove waste that comes from having to throw away out of date medicines from stock.

We need to ask whether we require such top heavy administrative systems as we currently have with Strategic Authorities as well as PCTs.

The Department for Work and Pensions presides over the biggest budget by far, and unfortunately the fastest growing one, owing to rising unemployment. It is a huge clerical factory, employing 100,380 staff to give out a wide range of different benefits to a large number of people. There are another 12,000 staff identified as helping with these tasks but now accounted for elsewhere in the public sector.

My experience of managing industrial plants tells me two things. You need to manage quality well, and to keep morale of staff high. If you see the error rate rising too far you have problems. You need to improve your systems, upgrade your equipment, and idiot proof your processes. You need to involve and motivate your staff, and get them to buy into doing things right first time, taking a pride in a job well done. It needs to be worth their while. To be world class these days you aim for an error rate of 100 parts per million. I would be seriously worried about anything above 500 parts per million. If sickness and absence rises above 3 days per staff year in the offices you have a morale problem.

At DWP the apparent error rate has come down a lot, but is still a massive 6000 per million transactions. The absence rate is 9 days per staff year. In other words, the taxpayer pays for almost a million staff days when employees do not turn up. Some are genuinely sick and deserve their break. It is unlikely, however, that sickness rates across such a large workforce can be so high compared to private sector organisations without there being something wrong with the culture and incentives.

In 2008-9 the department spent around £100,000,000 on external consultances, and a total of £174,000,000 on external consultancies, temps and interims. This is far too high for comfort. The existing staff should know how to run the place better. The senior management and Ministers should try asking them and engaging with them, rather than calling in so many outsiders to reorganise. They might also get a bonus with more of the staff coming in for more of the working days, reducing costs further. If absence fell from 9 days to 4 days, that gives the taxpayer an additional 500,000 days of work each year, or a saving of around 2000 staff.

The department does not fail to spend on IT. That budget should be better used to idiot proof, streamline and improve systems. The current budget runs to £873,000,000. You could probably do it for less in this climate and get more out of the enhancements.

The best cut of all will be in getting out of work benefits down by getting more people back to work. Welfare reform is an urgent priority. We need to tackle this before it overwhelms us and the public accounts. The total budget of £156,648,000,000 includes £50,000,000,000 in benefits for people who are out of work. This is rising alarmingly. Clinton style reforms worked well in the States. What has been stopping reform here?

In 2010-11 the government is planning £35 billion of cuts as part of a value for money programme. After years of telling us all public spending was sacrosanct and there is no waste, in more recent years the government has come round to the view that there is considerable scope for reductions in spending to improve efficiency. These Labour cuts have not received enough attention.

The Health department is to find £10.5 billion of them. Ideas include shorter stays in hospitals for patients, lower prices for pharmaceuticals, more efficient back offices and sharper buying of other supplies.

At Education there will be £5.14 billion of cuts. Each school is to find a 1% efficiency cut, whilst the quangos have to find 3%.

Local government has to find £5.5 billion.

The MOD has a disproportionate requirement to cut £3.15 billion, a far higher percentage of its spending. The government proposes a mixture of manpower and purchasing savings.

Transport is to cut £1.96 billion. Ideas include less grant for Network Rail and more efficient procurement.

A hefty £1.94 billion is to be saved by FE and HE, through a mixture of less administrative cost, better buying and delay in offering grants. The FE capital programme is an early casualty and presages general cuts in capital spending elsewhere.

The Home Office has to find £1.69 billion. The police are to use more technology to save police time, whilst the Borders Agency is to use iris and facial recognition to cut costs.

The Ministry of Justice weighs in at £1.08 billion, and the Revenue departments at £788 million through general efficiencies.

Work and Pensions can only manage £1.4 billion despite being the big spender. This is to be delivered through better staff efficiency.

I welcome the government’s conversion to the view that efficiency, quality and productivity can and should be raised throughout government. The dangers are twofold. One, the government will not deliver as promised. Two, the base figures for spending are so inflated that the targets are in some cases too low.

The gap between the best of the private sector and the worst of the public sector is collossal. The gap between the private and public sectors’ average performance is big. We need more demanding targets for improvement, and more Ministerial involvement in delivery.

Over the next few days I will be looking at the main departmental budgets. There needs to be a proper review of all departmental spending, to find more economies more quickly, before the debt mountain crushes us.