• Savings only available with committed, long-term, cross-government focus
  • New approach needed to mega projects and maintaining public assets
  • Digital transformation and leadership are key to improving productivity

Significant annual savings worth tens of billions of pounds are available if government implements a committed, well-led approach to improving public sector productivity, Gareth Davies, the head of the National Audit Office (NAO), will say later today (Tuesday 16th).

Delivering his annual flagship speech in Parliament, the Comptroller & Auditor General will say smarter government can provide people with better public services despite the challenging fiscal backdrop.

He will outline five areas of financial opportunity as part of a blueprint for value for money, aimed at getting the most from every public pound, including: major infrastructure projects; asset management; procurement; digital transformation and reducing fraud and error.

The Head of the NAO will also outline three enablers of productivity geared towards helping government realise the savings identified, including better data, innovation and evaluation – building on work already underway in government. All this should be underpinned by a focus on leadership and delivery skills.

He will add ‘it is relatively easy to cut spending, but it requires skilled leaders and managers to deliver genuine efficiencies that release resources for government priorities’.

Outlining the challenging fiscal picture, Gareth is expected to say:

“Government of whatever complexion faces a tough challenge in the years ahead.

“Demographic changes mean demand for many services will continue to rise.

“Parts of our national infrastructure are crumbling. Maintenance backlogs persist across the public estate, impeding service delivery and costing more over time.

“Out-of-date IT slows the modernisation of many public services; interferes with efficient government and increasing the risks of successful cyber-attacks.

“Higher inflation has increased costs, particularly for large infrastructure projects.

“The public sector is finding it harder to retain staff. Turnover in social care roles is running at around one third, and there are thousands of digital vacancies across government.

“These factors and others have combined to leave public services with a productivity problem.

“Added to the sharply increased cost of servicing government debt, this is a challenging fiscal picture.

“There is good evidence from the NAO’s work that government can achieve more with what it already spends. And that this amounts to a material contribution to the fiscal challenge, certainly tens of billions of pounds a year. 

“Now, I am not going to arrive at a specific figure as this will depend on the extent to which government prioritises pursuing the savings I will identify.

Setting out the barriers to improved efficiency and productivity, and what may be done about them, Gareth is expected to say:

“There are five main areas of financial opportunity where despite government’s efforts there remain unrealised savings: major infrastructure projects; asset management; procurement; digital transformation and reducing fraud and error.

“Firstly, major infrastructure projects, where the NAO’s work shows failures in cost estimation and control.

“For the biggest projects, Whitehall has a governance problem.

“HS2 and the New Hospital Programme are examples of mega projects too large for risks to be managed by the relevant departments and arms-length bodies, with overall budgets in the tens of billions and long project lifetimes. Both lacked sufficiently robust and realistic assessments of affordability at the outset.

“A new approach to the governance of genuine mega projects is needed, starting with the involvement of a cross-government oversight board from the outset. This would increase the chance of making better go/no-go decisions and more effectively holding the project to account for cost control and delivery.”

On managing public assets, Gareth is expected to say:

“Efficient maintenance and improvement of existing assets is as important as getting value for money in building new infrastructure. New assets will only deliver promised benefits if they are properly maintained.

“Schools, hospitals, prisons, roads and flood defences must be adequately maintained to meet their purpose. The NAO’s recent work has highlighted the false economy of allowing maintenance backlogs to build up.

“Our report on school buildings found more than a third are beyond their design life, leading to higher running costs and in some cases emergency repairs, which continue to affect pupils, teachers and parents even now.

“The same issues are significantly affecting patient care – and costs – at many NHS hospitals.

“A more disciplined approach to asset management, with maintenance plans for each part of the public estate, is an essential component of the government-wide efficiency drive I am recommending.”

On procurement, Gareth is expected to say there is still considerable value to be achieved in driving better deals for taxpayers:

“Each year government spends around a third of its money buying goods and services. Of £100bn of contracts awarded by major departments during 2021-22, a third were either direct awards or contract extensions.

“Government has moved to professionalise procurement. But performance remains patchy, with an overreliance on expensive temporary contracts and misaligned commercial incentives.

“Spending on IT services is an excellent example of where further efficiencies lie. Maximising buying power in a market dominated by global giants is essential.

“Our report on competition in public procurement highlighted government’s estimate that between £4-8bn of further annual efficiencies could be achieved by better use of competition.

“Embedding best practice across the wider public sector would secure further savings.”

On digital transformation, Gareth is expected to say:

“Replacing antiquated IT systems; improving the quality and shareability of data; and recruiting and retaining scarce, in-demand skills are three urgent tasks facing digital decision-makers.

“The challenge is vast. In 2020 DEFRA estimated that it would need to spend more than three quarters of its digital budget maintaining ageing systems. The MoD in part relies on kit dating back to the Cold War for defence inventory management.

Following our report on the backlog of new passports caused by the lifting of COVID-19 restrictions in 2022, the Passport Office has responded by improving customer contacts, building capacity to better manage demand, and continuing its digital transformation. The customer experience is much improved and the Passport Office is saving money by reducing ‘failure demand’.

“The potential efficiency gains in services dependent on high volumes of data processing are enormous, with fewer, better paid civil servants delivering more modern and responsive public services, which waste less of their customers’ time.”

On reducing fraud, error and tax evasion, Gareth is expected to say:

“Organised and opportunistic fraudsters target public expenditure, while tax evasion deprives government of the resources it is legally due and can ill-afford to lose.

“Well-targeted defences to prevent, detect and recover as much as possible are urgently needed.

“Our work shows more effective defences against fraud and better detection and recovery of losses could realise billions of pounds. Universal Credit fraud and error currently costs taxpayers £5.5 billion a year.

“Progress is being made. The Public Sector Fraud Authority has created a specialist cadre of investigators, and we will continue working with them and others to tackle this scourge.”

Outlining three enablers of productivity needed to achieve these savings, Gareth is expected to say:

“So what are the enablers of better productivity?

“Firstly, better data. Consistent definitions, standards and above all, quality, are essential if citizens are to see service levels rise and costs fall.

“Without it, government ambitions on AI will remain just that, as poor data will mean arriving at wrong answers, only faster.

“Secondly, innovation and evaluation. Creating an environment where this is encouraged, tested, evaluated and scaled up is more challenging.

“The aforementioned New Hospital Programme has established a fresh approach to hospital design and construction by using a standard template, offering potential savings in the cost per hospital.

“Thirdly, the planning and spending framework can better support this drive for efficiency and productivity.

“Government efforts combatting the harm from illegal drugs provides a good, albeit rare example of working across departmental boundaries to get the most from money available.

“The planning and spending process also needs to address personal and organisation incentives for high performance on efficiency. 

“Show staff that delivery skills are a route to career progression and success. For the organisation or department, there’s a strong argument for retaining a share of savings to invest in further improvements.

“Each of these enablers must be underpinned by a stronger focus on leadership skills.

“It is relatively easy to cut spending. It requires skilled leaders and managers to deliver genuine efficiencies that release resources for government priorities.”

Concluding his speech, Gareth is expected to say:

“We will only see these potential savings if government makes improving its own productivity a high priority. “That requires a disciplined, focussed, and cross-government approach over several years to realise the potential, and make the exceptional, the norm.”

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