Press Release - Progress with VFM savings and
lessons for cost reduction programmes
20 July 2010
The National Audit Office has today reported on how much the
Treasury’s Value for Money savings programme has improved value for
money across government. The programme aims to achieve
government-wide annual savings of £35 billion from 2008-09 to
2010-11.
Today’s report concludes that the Treasury’s design addressed
some weaknesses in earlier savings programmes, and departments have
made some progress in their management of their programmes compared
with previous spending periods. Nevertheless, departments’ planned
programmes did not contain sufficient contingency and it is
unlikely that departments will achieve the government-wide target
of £35 billion of annual savings, which fully meet the
Comprehensive Spending Review criteria, in 2010-11.
To date the NAO has reviewed reported savings amounting to some
£2.8 billion from five major departments which are to deliver
around 40 per cent of the government-wide total. The NAO has
concluded that 38 per cent fairly represented sustainable savings
(green); 44 per cent may represent savings but with some
uncertainty (amber); and 18 per cent do not represent, or
significantly overstate, savings (red). Common problems include the
use of unsuitable baselines for the calculation of savings, a lack
of transparency over arms-length bodies’ reporting processes, and
difficulties in demonstrating links between savings and
performance.
Amyas Morse, head of the National Audit Office, said
today:
"Public confidence in reported savings is undermined
where they do not stand up to external scrutiny. The proportion
which do not fully meet the Comprehensive Spending Review criteria
is evidence both that the programme was not well enough understood
across government and that quality control within departments was
not good enough.
"Few of the savings made under the programme represent
major departures from previous practice. The scale of savings
needed in the current financial situation means that departments
will have to think more radically about how to reduce costs and how
to sustain them in the longer term."
Today’s report was accompanied by the NAO’s reviews of the value
for money savings reported by three individual departments, as
follows:
HM Revenue and Customs
In Autumn 2009, HMRC reported it had achieved savings of some
£300 million. The NAO examined reported savings in staffing,
estates, IT and procurement which totalled £288 million a year,
some 90 per cent of the reported total savings. The NAO rated 42
per cent (£121 million) as green, 45 per cent (£129 million) as
amber and 13 per cent (£38 million) as red.
Department for Education
In Autumn 2009, the Department for Education (formerly the
Department for Children, Schools and Families) reported it had
achieved savings of some £1.017 billion between 2007 and 2009. The
NAO examined reported savings, mainly in the schools sector, which
totalled £591 million, some 58 per cent of the reported total
savings. The NAO rated 9 per cent (£55 million) as green, 89 per
cent (£523 million) as amber and 2 per cent (£13 million) as
red.
Ministry of Defence
By October 2009, the Ministry of Defence had reported new
savings of £944 million. The NAO examined £712 million, some 75 per
cent of the savings reported. It rated 42 per cent (£298 million)
as green, 45 per cent (£318 million) as amber and 14 per cent (£96
million) as red.
Notes for Editors
- At the halfway stage of the Value for Money savings programme,
government departments and local authorities have reported annual
savings totalling £10.8 billion, 31 per cent of the target of £35
billion of annual savings by 2010-11.
- The Treasury’s definition of CSR07 savings:
Sustainable. Savings must exist at least for the
current year and continue at the same or a higher level for two
subsequent financial years. One-off savings, or savings which delay
expenditure, do not help departments live within spending
allocations in future years.
Neutral to service quality. Departments need to demonstrate that
reforms have not reduced the overall quality of public services at
the level of their strategic objectives and public service
agreements. This is to ensure that the savings do not simply
represent cuts in services.
Cashable. Cashable gains involve reducing inputs
without affecting service quality. Non-cashable gains, in which
outputs are increased for a given level of input, cannot be
reported. Departments may reinvest cash savings in higher priority
services, so in most cases savings cannot be observed directly in
reduced budgets.
Realised. Savings must have materialised in the
year in which they are reported in order to have impacted on
overall spending. Future savings cannot be anticipated.
Net of costs. The upfront and investment costs and
additional ongoing or running costs associated with the generation
of savings must be subtracted from the value of the benefit to show
the overall improvement to the taxpayer.
Compared to robust cost baseline. Savings must be
calculated in reference to projected spend if value for money
initiatives had not been introduced. This is known as a
counterfactual.
- The NAO reviews of the value for money savings reported by
three individual departments are as follows: Ministry of Defence:
independent review of reported Comprehensive Spending Review 2007
Value for Money savings (HC 292, 2010-11), HM Revenue and Customs:
independent review of reported Comprehensive Spending Review 2007
Value for Money savings (HC 293, 2010-11) and Department for
Education: independent review of reported Comprehensive Spending
Review 2007 Value for Money savings (HC 294, 2010-11).
- Press notices and reports are available from the date of
publication on the NAO website, which is at www.nao.org.uk. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.
- The Comptroller and Auditor General, Amyas Morse, is the head
of the National Audit Office which employs some 900 staff. He and
the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 44/10
All enquiries to Phil Groves, NAO Press
Office:
Tel: 020 7798 5339
Mobile: 07770 678477