The Bank of England has committed publicly to contain costs and improve the effectiveness of the way it works and how it communicates. If it is to achieve this aim, the Bank will need to reduce the cost of its Central Services division and transform the way it operates, according to today’s report by the National Audit Office (NAO).
In 2017-18 the Bank capped its staff numbers at 4,281 and in 2018-19 committed to limiting controllable costs to £476 million a year. The Bank’s Central Services division – which is responsible for Human Resources (HR), technology, property, procurement, security, and financial management – has an important role in facilitating delivery of more flexible ways of working within the Bank and management of costs.
The Bank has recognised that it needs to transform its Central Services and has five initiatives underway, including cyber, data migration and security enhancement programmes1. The Bank is developing a new operating model to guide the development of its Central Services and the performance they should aim for. It has identified a range of issues, including manual processes, ageing systems and inflexible reporting, which have contributed to cost pressures. Some 44% of staff were frustrated by processes and procedures across the Bank, compared to 30% who regarded them positively.
The cost of Central Services increased in real terms from £174 million in 2014-15 to £188 million in 2017-18, but fell relative to total Bank spending which increased from £535 million to £647 million over the same period, as the responsibilities of the Bank expanded.
The proportion of Bank staff working in Central Services compares favourably with other central banks. However, the NAO has found that in some areas the Bank’s Central Services are relatively expensive compared to other bodies operating in central government. For example, its human resource services cost around 15% more; building operation costs are around 35% higher; and providing technology support to staff, excluding expenditure on supporting the national banking system, costs 34% more2. The Bank has 800 allocated but unoccupied desks a day at its Threadneedle Street offices.
Complex processes and traditional working practices may reduce the Bank’s effectiveness, and contribute to costs. For example, the Bank has over 700 job titles and processes have evolved to support that complexity, with associated costs. The Bank is seeking to re-design its processes around a smaller number of roles.
Improved compliance with procedures could also secure better value. The Bank recently identified 200 purchases above £25,000 made without Bank staff consulting the central procurement team, contrary to staff policy3. Prompted by the NAO’s study, the Bank identified that better value might have been achieved on purchases worth a total of £2 million and that this could have saved up to £200,000.
The Bank’s systems for managing costs are improving. The Bank had become used to its budget increasing each year as its responsibilities expanded. In 2017-18, the new finance director introduced more challenge around budgets and each business area needed to identify cost savings. However, the Bank needs to further strengthen its ability to monitor and manage performance and costs.
The Bank’s budget cap will quickly put pressure on it to make sustainable savings. The Bank expects to manage cost pressures of £11.5 million within Central Services in 2018-19. In the longer term, the Bank estimates that its five Central Service projects could achieve a sustainable reduction in its operating costs of £9 million a year in 2020-21 and £15 million a year from 2021-22. Further work is needed to estimate savings for all the Bank’s initiatives and to make adequate allowances for risks to the cost and speed of delivery.
The Bank is moving in the right direction to deliver value for money from its Central Services. Change will require investment, time, sustained leadership and support from across the Bank. The Bank will need to reduce existing costs as much as possible if it is to find the resources needed for investment and to live within the Bank’s self-imposed spending cap.