Report

by the Comptroller
and Auditor General

Cabinet Office and HM Treasury

The centre of government

HC 171 Session 2014-15 19 June 2014

Our vision is to help the nation spend wisely.

Our public audit perspective helps Parliament hold government to account and improve public services.

The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 820 employees. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.1 billion in 2013.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 19 June 2014

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Amyas Morse
Comptroller and Auditor General
National Audit Office

17 June 2014

This report examines the role of the centre of government, including changes to the centre in recent years.

© National Audit Office 2014

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10403 06/14 NAO

The National Audit Office study team consisted of:
Toby Coaker, Jack Cook, Joe Farnell, Charli Harling, Afnan Khokhar, Leena Mathew, Suhaib Motala, Pauline Ngan, Khadija Qidwai, Peter Rothwell, Anuj Shah and Felicity Woodrow, under the direction of Nick Bateson and Keith Davis.

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Overview

1 The centre of government (‘the centre’) has responsibility for coordinating and overseeing the work of government, enabling it to achieve its strategic aims and ensuring there is a central view of the effective operation of government as a whole. Most of these strategic functions are performed by the Cabinet Office and HM Treasury (the Treasury). This report examines the role of the centre of government, including changes to the centre in recent years. It is not intended to be a comprehensive examination of the roles and functions of the Cabinet Office and the Treasury, and we do not conclude on the value for money of the centre of government. Instead, we draw together insights from our previous reports and those of the Committee of Public Accounts (the Committee) on these issues. We examine in particular:

current responsibilities of the centre, relationships with other departments, and spending and staffing information;

recent changes to the centre, including what these changes were intended to achieve; and

findings on the centre from past NAO and Committee reports.

Government has recognised the need for more integration

2 The traditional operating model of government has been one of departmental autonomy, set within an overall spending framework determined by the Treasury at the centre. Under this model, the centre allocates departmental budgets and it is then up to departments to operate within these. Departmental accounting officers are ultimately responsible for their department’s business decisions:

“Within the standards expected by parliament, and subject to the overall control and direction of their ministers, departments have considerable freedom about how they organise, direct and manage the resources at their disposal. It is for the accounting officer in each department, acting within ministers’ instructions, and supported by their boards, to control and account for the department’s business.” 1

3 The centre has always had a coordinating function in other areas, such as national security or providing support to the Prime Minister. In recent years, the centre has recognised that there are other areas of government activity where introducing central strategic leadership could achieve greater benefits for government as a whole. In the Civil Service Reform Plan, the government acknowledges that:

“The organisational model of the Civil Service will need to adapt if it is to successfully reform. With 17 main departments varying greatly in size, the Civil Service will need a much stronger corporate leadership model, and much more sharing of services and expertise, if it is to deliver the step change in efficiency needed. … The demands of a smaller Civil Service together with relentless pressure to save money require greater clarity in the relationship between the corporate centre and departments.” 2

This move towards greater central coordination in strategic areas has been given impetus by the climate of austerity.

4 The creation of the Efficiency and Reform Group signalled a move towards stronger management of the corporate functions of government. It brought together many of the corporate functions of a typical organisational headquarters, and a Chief Operating Officer for government was subsequently appointed. Similarly, the Treasury has recently appointed a Director General for Public Spending and Finance in a newly-created role akin to a private sector chief financial officer. However, the business of government is complicated by other contextual factors, which means it is not directly comparable to a private sector organisation. One key factor is the relationship between central direction and the established model of departmental autonomy, enshrined in the role of accounting officers.

5 The centre has introduced several cross-cutting initiatives and organisational changes since 2010, alongside the traditional vertical model of departmental accountability. The Cabinet Office has led most of these initiatives, as part of its role in reforming the civil service. The new initiatives have sat alongside the Treasury’s economic and finance functions, which have been the Treasury’s main strategic focus since the election. For example:

Efficiency and Reform Group: The Group was formed within the Cabinet Office in May 2010 to provide structure and coherence across government to the policy aim of reducing spending. Its purpose is to help departments make savings through improving their efficiency combined with stronger central oversight. In particular, the Group oversees spending controls delegated from the Treasury over areas such as procurement, ICT, property and consultancy. These controls have helped departments make large spending reductions. High-profile governmental targets have also helped to focus attention on a shared purpose.

Major Projects Authority: The Authority was launched in March 2011 as a partnership between the Cabinet Office and the Treasury, backed by a prime ministerial mandate. It is designed to strengthen the central project assurance system.

Review of financial management in government: The Treasury-led review sought to introduce greater coherence within government finance. The review recommended improvements to the leadership of government finance, management information, the spending control framework and the provision of internal audit services. Combining the leadership of government finance with the Treasury’s established responsibilities for financial controls will help to improve the coherence of finance functions.

There has been some progress towards implementing greater integration

6 In our reports on centre of government issues, we have been generally positive about the rationale for central initiatives. On the procurement reform strategy, we said that this was the most coherent approach to reform to date.3 We also acknowledged the Cabinet Office’s attempts to take a strategic cross-government approach to departmental debt management, especially in making better use of the private sector.4

7 We have also recognised where these initiatives have had an impact, and can draw out some shared characteristics:

A clearly defined goal: For example, the Efficiency and Reform Group sets and monitors overarching government efficiency targets. In our report on the progress of the Group, we concluded that the scale of the savings that the Group has helped departments achieve, net of its own running costs, demonstrates that it has provided value for money.5

A formal process with approvals and sanctions: For example, mandatory spending controls in areas such as ICT and consultancy have resulted in savings, and the Major Project Authority’s integrated assurance process ensures greater visibility of project risks.

Mobilising a short-term response to a crisis: This is classic centre of government territory. For example, over-billing in the electronic monitoring contracts instigated a cross-government review of contracts, with departments required to produce action plans to respond to the recommendations.

But more emphasis could be given to long-term planning

8 Centrally applied preventive controls are generally effective, but they can also be rather blunt instruments, and cumbersome to operate. Although they may never disappear altogether, they can be substantially replaced by the more positive approach of detailed business planning over more than one accounting period, supported by budgetary control and strong accountability. Progress in this direction would support the more coherent management of longer-term projects and programmes, which form such a large part of the business of government.

9 Where the centre of government builds pools of deep and scarce expertise, however, it is important that these contribute to the decision-making processes of departments at the right time, and preventive controls can assist in ensuring that this happens.

There needs to be a consensus on the role of the centre

10 Our perception is that there remain significant tensions within central government over the appropriate role of the centre, and that of individual departments. We see this as unhelpful to the effective management of government’s projects and programmes.

11 A more coordinated approach to managing the business of government could offer benefits including: better value for money; improved services for the user; enhanced accountability to Parliament and the citizen; and a more coherent organisational view. These benefits will remain relevant as government seeks to implement its policy priorities in an environment of spending restraint for years to come. It is for government to determine how best to organise itself to deliver its priorities, but we think there are some ‘unarguable responsibilities’ which fall to the centre. These are, in many ways, aligned with government thinking and we recognise there is already activity under way in most of the areas set out below. We intend to use these areas as reference points in our ongoing examination of the strategic centre of government. We hope that they might also help government develop its own vision for a unified, coherent strategic centre:

a Articulating a clear operating model for government: For clearer accountability, the Cabinet Office and the Treasury should clarify their respective roles as the corporate centre. They need to jointly present a coherent interface to departments that complements the role of accounting officers. This could be expressed as a contractual arrangement (for example, when the centre is delivering a shared service to departments as a customer); as a formal approvals process; or as a set of shared expectations.

b Providing strategic leadership of cross-government policies or programmes: This involves clear governance and accountability, a central statement of objectives, performance monitoring, and a continued focus on achieving benefits. This is particularly important in areas of high-risk and high-profile reform, and where things need to progress quickly, ensuring an evidence-based measurement of such change.

c Exploiting government’s collective strength: In some areas, the size of government as a customer gives it a competitive advantage or increased influence to achieve change. This can be seen, for example, in negotiations with suppliers on specific contracts, and more generally in managing ongoing relationships with suppliers.

d Identifying and implementing more efficient and effective ways of working: This includes promoting standardisation and consistency across government in areas such as buying common goods and services (for example, stationery and travel). It can include direct delivery of shared services for back-office functions like HR, finance and procurement, and also for other areas of specific expertise such as project management or operational delivery. There are also opportunities to exploit and rationalise government’s assets, such as property, land and IT.

e Incentivising the right behaviour, including promoting collaboration, integration and innovation: Under the operating model of government, the accounting officer is responsible for the proper stewardship of resources and thereby, primarily, making the best decisions for their department. However, the centre can seek to influence and incentivise the right kinds of behaviour so that cross-government benefits are achieved. This may take the form of: funding incentives; additional performance objectives; ensuring long-term costs and benefits are taken into account; clearly demonstrating the value for money of adopting a central approach; or softer influencing strategies such as bringing department experts together to find solutions.

f Understanding the cross-government picture and, where appropriate, making the best decisions for government as a whole: It is valuable for the centre to have a strategic view of activity, performance and risk, with a failure regime in place allowing for risk-based intervention or coordinated action where necessary (see a). To avoid unnecessary data burdens, the centre needs to understand what data are necessary and how to use existing data sources, including benchmarking and sharing of good practice.

g Improving governmental capability: To improve policy implementation across government, the centre needs to understand current levels of capability and any capability gaps, how best to deploy the skills it has, and how to develop capability to run the government of the future. This also involves developing adequate capacity and capability at the centre.

h Presenting a coherent view: Developing a coherent, coordinated message in certain areas of government activity would help the centre maintain focus on these issues as governmental priorities, and support coordinated planning for cross-cutting activities. It would also help project an organisational confidence to Parliament and the public.

1 HM Treasury, Managing public money, July 2013, para 1.5.1.

2 HM Government, Civil Service Reform Plan, June 2012, p 11.

3 Comptroller and Auditor General, Improving government procurement, Session 2012-13, HC 996,
National Audit Office, February 2013.

4 Comptroller and Auditor General, Managing debt owed to central government, Session 2013-14, HC 967,
National Audit Office, February 2014.

5 Comptroller and Auditor General, The Efficiency and Reform Group, Session 2012-13, HC 956,
National Audit Office, April 2013.

Part One

The centre of government

1.1 This part outlines the centre’s current priorities and responsibilities, relationships between the centre and departments, and spending and staffing information.

Central departments: priorities and responsibilities

The Cabinet Office and the Treasury

1.2 The Cabinet Office is responsible for ensuring the effective operation of government and providing support to the Prime Minister, Deputy Prime Minister and the Cabinet. HM Treasury (the Treasury) is responsible for developing and implementing the government’s financial and economic policy and, since 2008, has also led on responding to the financial crisis. The priorities of each are published in departmental business plans (Figure 1). These mainly cover ‘change’ priorities and departments will have separate additional objectives which also guide their activities.

The strategic centre

1.3 As well as their own departmental responsibilities, the Cabinet Office and the Treasury perform a variety of central functions (Figure 2):

Strategic functions. These reflect the position of the Cabinet Office and the Treasury at the centre of government. They include overseeing public spending and how departments implement Cabinet decisions and the Prime Minister’s and Deputy Prime Minister’s priorities. They also include work that is logical for the central departments to do because of the strategic nature of those responsibilities. For example, the Treasury supports the financial sector and the Cabinet Office oversees national security.

Coordinating functions. The central departments coordinate or bring together other government departments’ activities in several areas. Examples include the Cabinet Office’s role in coordinating policy to support collective decision-making, and the Treasury’s responsibility for coordinating departmental spending proposals, budget allocation and preparation. The central departments can also take a coherent view of common issues affecting departments and can help departments work together on cross-cutting policy issues.

Corporate improvement functions. The centre can provide strong direction to departments to improve how they operate. Examples are the civil service and commercial reform programmes, oversight of major project delivery, and setting standards for financial reporting, management and accountability.

1.4 Some of the central responsibilities set out in Figure 2 are established functions of the centre, such as the Cabinet Office’s policy coordination role or the Treasury’s responsibility for overseeing public expenditure. There are other policy areas at the centre that could sit elsewhere in government, such as responsibility for constitutional reform, civil society or social mobility. Change in the centre’s role over the last four years has brought in or emphasised newer central functions. These show how the centre has become more strategic and active in certain areas, such as overseeing implementation, civil service reform, leading individual functions (such as finance and HR), and efficiency and reform. We examine these changes in Part Two.

The Prime Minister’s Office

1.5 The Prime Minister’s Office (Number 10) is formally part of the Cabinet Office, with its staffing and funding included in the Cabinet Office’s overall budget. However, it has a distinct function as the political centre of government, and oversees the government’s entire programme. It supports the Prime Minister to set and implement the government’s strategy and policy priorities. The Cabinet Secretary performs a key role in signalling Number 10’s priorities to the rest of government, and holding permanent secretaries to account for delivery.

1.6 Number 10’s structure includes a private office, press office, and policy unit. In 2012-13, net costs for Number 10 were £17.8 million. This largely comprised staff costs of £9.9 million, and programme and administrative costs of £7.9 million. There were 160 permanent staff and 16 special advisers employed at Number 10 in 2012-13.

1.7 The Cabinet Office has some direct reporting arrangements to Number 10, particularly through the Implementation Unit. The Implementation Unit’s role is to monitor and improve policy implementation across government, support departmental capability and give advice to Number 10 on specific implementation risks. The Minister for the Cabinet Office highlights significant issues for the Prime Minister’s attention, such as those concerning civil service reform and Efficiency and Reform Group initiatives. Other parts of the Cabinet Office and the Treasury work closely with Number 10 on an ongoing basis, responding to the immediate priorities as necessary.

The centre’s relationships with departments

1.8 The Cabinet Office and the Treasury interact with other government departments in many ways in their capacity as the centre of government. Key central activities include coordinating or overseeing policies and spending proposals, providing guidance to all departments, and collating departmental data to monitor cross-government issues. Figure 3 describes some of the key relationships and information and data flows between the centre and departments.

1.9 The Treasury is responsible for the overall budgetary and spending framework within which departments receive, and account for, the funds needed for their operations. It gives guidance on financial management issues, such as preparing budgets and financial reporting, so departments work to consistent and common standards. Guidance on the responsibilities of departmental accounting officers is contained in Managing public money, which was updated in July 2013 and now includes reference to accounting officer responsibility for the affordability and sustainability of their budgets.6 The Treasury has spending teams for each department which scrutinise budget and spending proposals, including ensuring departmental business cases represent good value for money and are affordable as part of the approval process. Departments provide spending forecast and outturn data to the Treasury through the OSCAR system (online system for central accounting and reporting), and must seek Treasury approval for spending above departmental delegated limits, as well as novel and contentious spending.7

1.10 The Cabinet Office engages with departments on policy coordination and Efficiency and Reform Group initiatives. Its support role to the Prime Minister, Deputy Prime Minister and Cabinet means it is the focus for coordinating policies across departments, to ensure the coherence of the government’s overall programme. It does this through the Economic and Domestic Affairs Secretariat, which provides support for Cabinet meetings and works across government to secure collective agreement to domestic policies. In addition, the European and Global Issues Secretariat coordinates collective agreement on international economic and European policy, and the National Security Secretariat coordinates departmental work on national security issues. The Efficiency and Reform Group works with departments to improve efficiency and make savings. It applies spending controls on departments in areas such as ICT, consultancy and marketing; requests regular spending data from departments through the quarterly data summaries; and combines departmental buying power for commonly-procured goods and services through the Crown Commercial Service. The Efficiency and Reform Group describes its way of working with departments as one of ‘coordinated cooperation’.

Central departments: spending

1.11 Total Treasury Group expenditure was £929 million for 2012-13 (Figure 4). Treasury spending has fundamentally changed because of the financial crisis. We have shown total Treasury Group expenditure to highlight how the costs of the Treasury’s economics and finance ministry role are surpassed by the resources it has invested in financial interventions. Treasury costs for the core department, excluding any costs relating to financial interventions and agency costs, were only £315 million for 2012-13.8

1.12 The Cabinet Office spent £510.5 million in 2012-13, making it one of the smallest spending departments (Figure 5). Three significant areas of expenditure (at that time all within the Efficiency and Reform Group, but now in separate organisational units) were Efficiency and Reform Group spending of £114.1 million, Government Innovation Group spending of £183.6 million, and civil service reform spending of £38.3 million.9

Central departments: staffing

1.13 In 2012-13, core Cabinet Office staff costs amounted to £138 million and core Treasury staff costs totalled £66 million (Figure 6).

1.14 In line with the 2010 Spending Review, the Treasury has been seeking to reduce its headcount and staff costs. It aims to reduce its budget by 33 per cent and headcount by 25 per cent over the four years to 2014-15.10 By 31 March 2013, the core Treasury had reduced its headcount to 1,084.11

1.15 Similarly, the 2010 Spending Review required the Cabinet Office to reduce its non-ring-fenced resource budget of 35 per cent, after excluding all changes in its departmental responsibilities. This included a reduction of 25 per cent in the cost of supporting the Prime Minister.12 The increase in staff numbers from 2008-09 to 2011-12 reflects machinery of government changes which affected the Cabinet Office’s responsibilities. These included new responsibilities for the National School of Government, DirectGov, political and constitutional reform, and efficiency and reform. Overall staffing numbers fell 20 per cent from 2011-12 to 2012-13, primarily through exit packages agreed in 2011-12.13

1.16 In our reports we have noted the high staff turnover rates in the Treasury and the Cabinet Office, compared with the civil service average.14 In 2010-11 and 2011-12, the turnover rate for the Cabinet Office and its agencies was 30.7 per cent.15 In the Treasury group, turnover was 25.2 per cent and 22 per cent in 2011-12 and 2012-13 respectively.16 Both departments believe that turnover contributes to maintaining a variety of skills and expertise as needed. However, we have reported our concerns about the risk of losing expertise and experience, which may adversely affect service quality and efficiency.17

1.17 Staff costs alone do not represent all Treasury and Cabinet Office resources used. Their operating models are designed to supplement lower numbers of permanent employees with expertise in particular areas by employing consultants. The Treasury employed a number of consultants to support its response to the financial crisis and ongoing financial interventions. The Cabinet Office employed consultants to help implement the Public Service Network programme and the Government Digital Strategy. In 2012-13, consultancy costs for the Cabinet Office were £6 million and for the Treasury were £12 million. Some of the Treasury’s consultancy costs on financial interventions were recovered from financial institutions.18

1.18 Other government departments also employ staff who perform central roles on a cross-government basis. These include, for example, Home Office, Department for Work & Pensions and HM Revenue & Customs employees who provide human resources expert services as part of the government-wide civil service HR function.

6 HM Treasury, Managing public money, July 2013, para 3.3.3.

7 HM Treasury, Managing public money, July 2013, para 2.3.4. Managing public money states that explicit Treasury consent is required for spending commitments which involve: “transactions which set precedents, are novel, contentious or could cause repercussions elsewhere in the public sector”. Examples given include ex gratia payments to compensate for official errors, special severance payments to terminate contractual commitments, and unusual schemes or policies using novel techniques.

8 Core Treasury costs comprise net staff costs of £66 million, other administration costs of £82.4 million and other programme costs of £311.9 million, less costs of impairment of assets of £36.8 million and net expense on National Loan Guarantee Scheme of £108.9 million.

9 The Government Innovation Group comprises the Cabinet Office teams which develop new approaches to tackling social problems and public service delivery. It includes the civil society, transparency, behavioural insights, analysis and insight, and open policymaking teams.

10 HM Treasury, Spending Review 2010, Cm 7942, October 2010, para 2.139; HM Treasury, Capability Action Plan, April 2012, page 5. The targets do not include the Treasury’s agencies such as the Debt Management Office.

11 HM Treasury, Annual Report and Accounts 2012-13, Session 2013-14, HC 34, July 2013, Table 3.A.

12 HM Treasury, Spending Review 2010, Cm 7942, October 2010, para 2.144.

13 National Audit Office, Departmental Overview: The performance of the Cabinet Office 2012-13, December 2013, para 1.8.

14 Comptroller and Auditor General reports: Managing budgeting in government, Session 2012-13, HC 597,
National Audit Office, October 2012, para 2.29; Certificate and Report of the Comptroller and Auditor General on HM Treasury’s Annual Report and Accounts 2012-13, Session 2013-14, HC 34, National Audit Office, July 2013, paras 7.78–7.81; A summary of the NAO’s work on the Cabinet Office 2011-12, National Audit Office, November 2012, paras 15, 57; The Efficiency and Reform Group, Session 2012-13, HC 956, April 2013, National Audit Office, paras 1.7–1.8.

15 Cabinet Office, Annual Report and Accounts 2011-12, HC 56, July 2012, Table 4.9. Turnover data are not reported
for the core department only.

16 HM Treasury, Annual Report and Accounts 2012-13, HC 34, July 2013, Table 3.D. Turnover data are not reported
for the core department only.

17 Comptroller and Auditor General reports: Certificate and Report of the Comptroller and Auditor General on HM Treasury’s Annual Report and Accounts 2012-13, Session 2013-14, HC 34, July 2013, paras 7.11–7.13;
A summary of the NAO’s work on the Cabinet Office 2011-12, National Audit Office, November 2012, para 18;
Building capability in the Senior Civil Service to meet today’s challenges, Session 2013-14, HC 129, National Audit Office, June 2013, paras 1.14-1.15.

18 HM Treasury, Annual Report and Accounts 2012-13, HC 34, July 2013, Notes 7–8; Cabinet Office, Annual Report and Accounts 2012-13, HC 15, July 2013, Notes 7-8. Consultancy costs are for the core department only for both the Cabinet Office and the Treasury. Agency and temporary staff costs are included among overall staff costs.

Part Two

Recent changes to the centre of government

2.1 This part outlines the main changes to the centre of government since 2010 to structures, roles and responsibilities. We include case studies of some major central initiatives.

Changes to the centre since 2010

2.2 Since 2010, government policy has been to introduce central controls or reform programmes around strategic areas of activity (Figure 7). These include civil service reform, major project assurance, centralised financial controls over certain areas of spend, consistent data collection, shared services and a revised approach to government financial management. These centralised activities have been introduced alongside the existing system of departmental accountability.

2.3 The aim of introducing many of these central controls and reform programmes is to enable a coordinated government approach in certain areas. Benefits of doing so include improved efficiency from economies of scale, using collective buying power, avoiding duplication, and concentrating expertise to make it available across government. The centre can address any lack of consistency in managing strategic issues, and can help to share expertise and lessons learned across government.

2.4 Many of the changes to the centre of government in recent years have been designed to strengthen the corporate centre. This reflects the desire for the centre to have tighter control over certain activities and areas of spending. The Cabinet Office calls this ‘tight-loose’ (Figure 8), where it exercises ‘tight’ control in specific areas while recognising the autonomy of departments over other areas of operation (the ‘loose’ aspect).

2.5 The Treasury’s 2013 financial management review similarly emphasised the nature of the relationship between the centre and departments. It drew an analogy with private sector companies:

“Government can learn from the multi-divisional private sector companies, particularly the premium that is placed on building the right culture within senior management teams, strong financial leadership with clear objectives, as well as the balance of delegation and transparency between the centre and individual divisions”.19

2.6 The Treasury considers its role as a central department is strengthened by a focus on its core responsibilities as the UK’s economics and finance ministry. It conducted a strategic review in 2010 which set out a blueprint for “a smaller Treasury that is focused on its core purpose, with a clearly defined work programme and effective relationships with its key partners”.20 This emphasis on the Treasury’s ‘core’ can be seen in its deliberate move away from activities such as running specific policy areas or monitoring policy implementation, which it had done in the past through mechanisms like public service agreements. The Treasury has, however, also taken on new or enhanced roles since 2010 consistent with its core responsibilities. These include the role set out in its financial management review to provide stronger leadership of the finance function in government.21

Implementing central initiatives

2.7 Many of the changes to the centre set out in Figure 7 are still at an early stage. We cannot yet judge their success, particularly in achieving sustainable long-term change in how government operates. However, we can draw some initial conclusions about the specific central initiatives set out in Figures 9 to 12:

the review of financial management in government;

civil service reform;

Efficiency and Reform Group initiatives; and

the Whole of Government Accounts.

2.8 The centre’s recognition of the need for reform in each of these areas is a significant achievement in itself. It suggests the centre has identified and acted upon key strategic risks to government operations. Some of these reforms, including those to government financial management and the civil service, are designed to address long-standing issues. It will be several years before their impact can be clearly discerned. Other reform areas have seen some notable successes already, albeit with room for improvement. Examples include publishing consolidated financial accounts through the Whole of Government Accounts, and efficiency improvements and savings from greater central procurement and property management.

2.9 However, implementation of some initiatives has been more difficult than expected. Some have not yet resulted in the desired outcomes. In some cases, this has been because of a lack of resources, relevant expertise or experience; for example, the staff shortages and the lack of key commercial, corporate finance and systems skills we noted in our 2013 report on the Efficiency and Reform Group.22 In other cases, there have been tensions between the centre and departments about the centre’s ability to direct or manage issues, given the authority and responsibilities granted to accounting officers. Examples include the unclear responsibilities for procurement and management of government suppliers, now that the centre exercises a high degree of oversight and control in these areas.23 Some central reforms have been hindered by a lack of buy-in from departments, such as initial implementation of shared service centres and strategic management of debt owed to government.24

Sustainability of changes to the centre

2.10 In its 2014 departmental improvement plan, the Cabinet Office states it has been through – and continues to go through – substantial organisational change. This includes creating the Efficiency and Reform Group and the Crown Commercial Service. It considers it has performed well across its wide range of responsibilities, and highlights areas where it needs to improve, including:

consistency of organisational performance across all of its functions;

clarity of purpose and leadership; and

planning and implementing change, particularly in improving the range and quality of evidence for measuring progress.25

2.11 The Treasury has not yet published its departmental improvement plan. Its 2012 capability action plan and 2012-13 annual report and accounts are its most recent assessment of how it has coped with recent changes. The Treasury considers it has shown strong leadership and flexibility in responding to the significant economic challenges of recent years, particularly the financial crisis and the continuing need to reduce the deficit. The Treasury’s capability action plan identified several priority areas for improvement:

communicating its approach more effectively;

increasing board visibility and a sense of collective ownership;

developing and retaining staff;

embedding effective business planning and delivery; and

ensuring that insights from delivery are used to inform policymaking.26

2.12 The Cabinet Office acknowledges that while achievements have been made in, for example, improving commercial capability and management of major projects, it still needs to make progress. It also believes there are several years of work ahead for efficiency and reform initiatives to reshape government. The Cabinet Office also stresses the need for cultural change in the civil service. This will embed reforms and train the next generation, so the newer functions and ways of working embodied in recent changes become an established or ‘baked-in’ part of the centre’s role.

2.13 The Treasury and the Cabinet Office both consider the centre has a clear mandate for action where there is alignment of purpose between them, including among ministers. This is particularly evident for the newer roles adopted since 2010, as changes to the centre will be less effective or more difficult to embed if the Cabinet Office and the Treasury have different agendas. Alignment requires the centre to work together and draw in different skills. Examples where the central departments believe this has happened in recent years include property, ICT, leadership of corporate functions and management of strategic suppliers. As responsibilities at the centre evolve, the Treasury and the Cabinet Office need to continue aligning their approaches and activities. For example, for the spending controls currently delegated to the Cabinet Office, the long-term objective is to consolidate controls and central government oversight within the Treasury. When this occurs, the Treasury will have to ensure it understands and applies the Efficiency and Reform Group’s learning over the past four years in operating the controls.

19 HM Treasury, Review of financial management in government, December 2013, p 5.

20 HM Treasury, Capability Action Plan, April 2012, p 2.

21 HM Treasury, Review of financial management in government, pp 8–9.

22 Comptroller and Auditor General, The Efficiency and Reform Group, Session 2012-13, HC 956, National Audit Office,
April 2013, para 18.

23 Comptroller and Auditor General reports: Improving government procurement, Session 2012-13, HC 996,
National Audit Office, February 2013, paras 12–15; Managing government suppliers, Session 2013-14,
HC 811, National Audit Office, November 2013, paras 2.23–2.24.

24 Comptroller and Auditor General reports: Efficiency and reform in government corporate functions through shared service centres, Session 2010–2012, HC 1790, National Audit Office, March 2012, paras 10–11; Managing debt owed to central government, Session 2013-14, HC 967, National Audit Office, February 2014, paras 3.10–3.11.

25 Cabinet Office, Departmental Improvement Plan, March 2014.

26 HM Treasury, Capability Action Plan, April 2012; HM Treasury, Annual Report and Accounts 2012-13, HC 34, July 2013.

Part Three

Report findings on the centre of government

3.1 This part sets out findings on the centre of government from our reports and those of the Committee of Public Accounts (the Committee).

3.2 This summary of the reports’ findings includes only those areas examined by past reports. As such, it is not intended to be a comprehensive evaluation of every aspect of the centre of government. All of the reports to which we refer date from 2011 onwards, with most published in 2013 and 2014. We have used the assessments made by the reports at the time of publication. Across this recent body of work, we can see some common themes emerging regarding how the centre operates (Figure 13).

Structures

Roles and responsibilities

3.3 The Cabinet Office and the Treasury form the corporate centre of government, given the Cabinet Office’s role as the strategy department of government and the Treasury’s finance department role.27 In recent years, government has tried to strengthen the role of the centre in key areas. Our reports and those of the Committee have generally been positive about these initiatives. The Committee welcomed the creation of the Efficiency and Reform Group, seeing the Group’s core objectives as closely aligned with the Committee’s role in seeking to improve value for money. It noted the Group had made a good start in ensuring better coordination across government.28

3.4 However, the Committee’s examination of civil service reform concluded that, in general, the Cabinet Office and the Treasury are failing to act together as an effective corporate centre. It found the centre does not provide the strong strategic leadership government needs. It recommended defining a new operating model for the centre of government. This would include the centre taking more control of key corporate functions such as finance, HR and ICT, and the centre using its strategic position more effectively to ensure government joins up its thinking and learns lessons from past mistakes.29 As noted in Figures 9 and 10, there is already work under way in these areas. The Treasury signalled in the financial management review that it will more strongly lead the government finance function, and implementation of civil service reform is seeing improved leadership of other corporate functions such as HR and legal services.

3.5 Our reports have highlighted how the Cabinet Office and the Treasury need to join up their approach, to avoid duplicating effort and send out consistent messages to departments. Our report on government cost reduction recommended that the Treasury and the Efficiency and Reform Group work together to oversee departments’ progress in reducing costs, and jointly develop ways of challenging, intervening in or supporting weaker departments.30 On debt owed to government, we found that while the Cabinet Office and the Treasury are forging stronger central roles in debt management, they need to establish how they work together coherently as a strategic centre.31

3.6 There are also risks to value for money from missed opportunities for the Cabinet Office and the Treasury to perform their central coordination role more effectively. This might involve identifying opportunities for more coordinated working across government, providing clear guidance and direction to departments or sharing knowledge and good practice. Figure 14 sets out some examples from our reports where we concluded that the Cabinet Office and/or the Treasury could fulfil this role more effectively.

Accountability

3.7 Ensuring effective accountability for the use of public funds has been an important concern of the Committee, especially for devolved public services. Where public services are delivered by autonomous providers, such as foundation hospitals or academy schools, the Committee has stressed the importance of clarifying who is accountable for ensuring value for money – particularly across the whole sector.32 The Committee’s report on integration across government also said that where several organisations combine resources to deliver an integrated service, it is important to make clear who is accountable for what.33 In its first report on accountability for public money, the Committee established several ‘fundamentals of accountability’ to help determine effective accountability arrangements (Figure 15).

3.8 The centre of government has a role to monitor and provide guidance on the accountability arrangements for devolved services. The Committee’s progress report on accountability for public money considered the government’s accountability system statements. These are designed to explain how government gains assurance about the probity and value for money of the way devolved services use their funds. The Committee recommended that the Treasury take the lead for providing guidance for the accountability system statements and monitoring how they work in practice.34 The Committee welcomed the greater transparency brought about by the system statements. However, its various reports on devolved delivery in education and children’s services, local transport and health showed that many aspects of accountability remained unclear. To provide the assurance needed, government must explain its accountability arrangements in more detail, including clarifying the responsibilities of the bodies involved, failure regimes, and reporting and information flows.35

3.9 The Committee’s fundamentals of accountability apply more widely to the centre of government’s relationship with departments. The Committee has raised concerns about the centre’s ability to ensure accountability to Parliament for cross-cutting issues affecting a number of departments. Accountability for securing value for money can also be unclear where the centre takes responsibility for some functions that departments would otherwise carry out. Figure 16 outlines some of our and the Committee’s report findings that illustrate these concerns.

Strategic leadership

Leadership

3.10 The centre of government has recognised the need for strong central direction in some areas, and has taken more visible leadership of some cross-government programmes. The Efficiency and Reform Group (ERG) is a significant example of where leadership from the centre has made a clear difference. The Minister for the Cabinet Office has provided strong support to ERG’s activities, and the requirement for departments to cut costs continues to supply a distinct logic for its activities.36 Also, the centre has created posts to provide cross-government leadership of some corporate functions and professions. Examples include the Chief Operating Officer for government, the Chief Procurement Officer in ERG, and the newly-created Director General for Public Spending and Finance post in the Treasury to support better financial management across government.

3.11 However, we and the Committee have highlighted that government needs stronger central leadership in some areas to bring about the sustained change to government operations called for in the Committee’s 2011 report on ERG.37 Our civil service reform report also stressed the need for more strategic leadership and coordination from the centre where a corporate approach would help provide value for money. It noted a tendency for the Cabinet Office and the Treasury to work separately, which undermined their ability to act as a strong corporate centre for the rest of government.38 Figure 17 contains examples of our and the Committee’s findings on central leadership, which illustrate how the centre has successfully led some initiatives and areas where it could improve leadership of others.

Strategy and objectives

3.12 Several of our and the Committee’s reports have commented on the clarity of the centre’s priorities, strategies and objectives. We set out some examples in Figure 18. For the Cabinet Office, ERG savings have been a priority and the focus on achieving ambitious efficiency savings has been unambiguous. In many individual areas within ERG’s remit, priorities and objectives have been well-defined; examples include the procurement and shared services strategies. However, some areas of its work have less definite plans for achieving government’s savings ambitions, including debt owed to government. Our reports have also noted the need for clearer success measures for central initiatives.

Identifying strategic risks

3.13 One benefit of having an effective centre is being able to look across government and identify key risks to government achieving its priorities. The Treasury, for instance, needs to be aware of strategic risks that affect the government’s finances. The Treasury has made some financial management processes more coherent, such as combining government’s financial reporting into the Whole of Government Accounts. This offers the opportunity to look across all of government activity and identify trends and risks that could have significant impacts on public spending.39 As well as risks to value for money, the centre has a role in identifying other strategic risks such as reputational risk and risks to delivery, including those affecting service users. For example, our report on major contractors noted that one area to be explored further is whether the rapid growth of large contractors poses risks to public services.40

3.14 Our reports have noted how some parts of the centre are doing a good job in monitoring and understanding risks within departments, such as on major projects assurance. Other reports have highlighted where there are gaps (Figure 19 outlines some examples).

Implementation

Departmental engagement

3.15 The Cabinet Office’s and the Treasury’s relationships with departments are crucial to their effective functioning as the strategic centre of government. Good relations help the centre to ensure departments implement key central programmes to achieve expected benefits. The centre also monitors how departments contribute to overall government goals and priorities, and encourages them to follow consistent approaches where appropriate.

3.16 The centre has accordingly put significant effort into developing and maintaining good departmental relations. The Treasury has improved at clarifying departments’ roles and responsibilities when delivering major events such as spending reviews and budgets. The Efficiency and Reform Group has tried to improve how it engages with departments, for example through issuing clearer guidance to departments and appointing a senior departmental liaison staff member.41 Nevertheless, we have seen common issues in relationships between the centre and departments (Figure 20), including:

Poor or inconsistent central engagement with departments, which has hindered effective government working and efforts to achieve greater efficiency.

Lack of clarity in the roles of the centre and departments, which can hinder effective working relations. This is partly because the ‘tight-loose’ framework for centre-department relations does not specify how the centre should engage with departments in different areas.

Overlapping functions of central departments, which can lead to confusing or inconsistent central requirements to line departments. For example, both the Treasury and the Cabinet Office ask departments to provide spending data, but their separate data systems are not coordinated or consistent (see ‘Information’ section at paragraphs 3.18-3.19).42

Difficulties getting departmental buy-in for some central initiatives. This can arise if the centre is unable to persuade departments of the benefits to them of central initiatives.

Incentives

3.17 Given its strategic position, the centre of government has a role in providing incentives for departments to act in ways that promote value for money and overall governmental effectiveness. One important means through which the centre can influence departmental behaviour is through financial incentives provided by funding and spending mechanisms. While there are some examples of these being used effectively, our reports have also found missed opportunities to encourage departments to work more collaboratively or take a long-term perspective (Figure 21).

Resources

Information

3.18 The centre needs good information from departments to monitor implementation of the government’s priorities and programmes, understand how well departments are performing, and identify strategic risks to value for money. Good information enables the centre to get a view of the cross-government picture, allowing it to spot opportunities for innovation and more integrated working. In many areas, efforts by the centre of government and departments have improved the management information available, such as on major projects, ICT spending and the performance of major suppliers.

3.19 However, our reports have highlighted the difficulties the Cabinet Office and the Treasury have had in collating good-quality information from departments (some examples are in Figure 22). We have also reported on issues with:

Lack of coordination between the Cabinet Office’s and the Treasury’s separate management information systems and data requests to departments. Our government financial management report found that the Cabinet Office’s processes for producing spending data through its quarterly data summaries are not linked directly to the Treasury’s reporting requirements under OSCAR (online system for central accounting and reporting).43 Our cost reduction report called for greater consistency in the information central departments require.44

The use of cross-government data to inform priorities and decision-making. Our government budgeting report found that data needed to inform decision-makers on optimal resource allocation was not readily available, and in some cases did not exist.45 Similarly, our government financial management report concluded that government is still a long way from ensuring decision-making is routinely based on appropriate and robust management information. Unit cost data, for example, were not systematically collected across government. Where efforts had been made to gather such data (such as the 2010 Spending Review), data were limited and inconsistent.46

Capability and skills

The centre’s capability

3.20 Some of our reports have expressed concern about the centre’s ability to resource its activities with appropriately skilled people, particularly in a sustainable manner (Figure 23). The Cabinet Office’s capability issues largely relate to the efficiency and reform activities it now performs. The Treasury has faced capability issues as it has taken on additional financial sector support functions in recent years. In response to a request from the Committee to conduct a ‘lessons learned’ exercise, the Treasury carried out a Financial Crisis Management Review and has taken action to address financial services capability issues.47

Wider civil service capability

3.21 The centre of government has a broader responsibility to oversee the development of capability and skills across the whole of government. The Cabinet Office has lead responsibility for increasing civil service capability, although departments are responsible for identifying and meeting the skills needs of individual staff. The Civil Service Reform Plan set out the government’s vision for improving civil service skills, so civil servants can adapt to the changing demands of government (see the civil service reform case study in Figure 10).48 The government also published a five-year capabilities plan and new civil service competency framework to support civil service reform implementation. Our report on civil service reform acknowledged that government has recognised its capability gaps in commercial skills, project management, digital delivery and change leadership. It also noted government’s efforts to tackle these – for example through the Major Project Authority’s leadership academy to help build skills of senior project leaders.49

3.22 The Treasury is responsible for increasing financial skills and capability across government. It set out various measures in its December 2013 financial management review (see the financial management case study in Figure 9). The review’s proposals address some of the issues we have found in our government financial management reports. These concluded that government lacks skills associated with effective financial management. However, our financial management reports also recognised the Treasury has driven increased finance professionalism, with all government finance teams now led by qualified finance professionals.50

3.23 Other civil service capability issues have yet to be addressed. Our government skills requirements report noted the Cabinet Office needs to ensure skilled staff are deployed where needed across departmental boundaries.51 Our senior civil service report concluded that while government accepts there are significant skills gaps (particularly in commercial, project management, digital and change leadership skills), there are still no reliable data on the skills, professional qualifications and experience of the senior civil service as a whole.52

27 Comptroller and Auditor General, Memorandum on the 2012 Civil Service Reform Plan, Session 2012-13, HC 915, National Audit Office, January 2013.

28 HC Committee of Public Accounts, The Efficiency and Reform Group’s role in improving public sector value for money, Forty-ninth Report of Session 2010–2012, HC 1352, October 2011.

29 HC Committee of Public Accounts, Civil Service Reform, Thirteenth Report of Session 2013-14, HC 473, September 2013.

30 Comptroller and Auditor General, Cost reduction in central government: summary of progress, Session 2010–2012, HC 1788, National Audit Office, February 2012.

31 Comptroller and Auditor General, Managing debt owed to central government, Session 2013-14, HC 967,
National Audit Office, February 2014.

32 HC Committee of Public Accounts, Accountability for public money, Twenty-eighth Report of Session 2010-11, HC 740, April 2011.

33 HC Committee of Public Accounts, Integration across government and Whole-Place Community Budgets, Fourteenth Report of Session 2013-14, HC 472, September 2013.

34 HC Committee of Public Accounts, Accountability for public money – progress report, Seventy-ninth Report of Session 2010–2012, HC 1503, April 2012.

35 See, for example, HC Committee of Public Accounts reports on: Funding for local transport: an overview, Twenty-fifth Report of Session 2012-13, HC 747, February 2013; Managing the expansion of the Academies Programme, Forty-first Report of Session 2012-13, HC 787, April 2013; The Franchising of Hinchingbrooke Health Care NHS Trust and Peterborough and Stamford Hospitals NHS Foundation Trust, Twenty-eighth Report of Session 2012-13, HC 789, February 2013; Securing the future financial stability of the NHS, Sixteenth Report of Session 2012-13, HC 389, October 2012; Accountability and oversight of education and children’s services, Eighty-second Report of Session 2010–2012, HC 1957, May 2012; The free entitlement to education for three and four year olds, Eighty-sixth Report of Session 2010–2012, HC 1893, May 2012; Oversight of special education for young people aged 16–25, Seventieth Report of Session 2010–2012, HC 1636, February 2012; Transforming NHS ambulance services, Forty-sixth Report of Session 2010–2012, HC 1353, September 2011; National Health Service Landscape Review, Thirty-third Report of Session 2010–2012, HC 764, April 2011.

36 Comptroller and Auditor General, The Efficiency and Reform Group, Session 2012-13, HC 956, National Audit Office, April 2013.

37 HC Committee of Public Accounts, The Efficiency and Reform Group’s role in improving public sector value for money, Forty-ninth Report of Session 2010–2012, HC 1352, October 2011.

38 Comptroller and Auditor General, Memorandum on the 2012 Civil Service Reform Plan, Session 2012-13, HC 915, National Audit Office, January 2013.

39 HC Committee of Public Accounts, Whole of Government Accounts 2011-12, Thirty-second Report of Session 2013-14, HC 667, December 2013; Whole of Government Accounts 2010-11, Thirty-seventh Report of Session 2012-13, HC 867, April 2013; Whole of Government Accounts 2009-10, Sixty-seventh Report of Session 2010–2012, HC 1696, February 2012.

40 Comptroller and Auditor General, The role of major contractors in the delivery of public services, Session 2013-14, HC 810, National Audit Office, November 2013.

41 Comptroller and Auditor General, The Efficiency and Reform Group, Session 2012-13, HC 956, National Audit Office, April 2013.

42 Comptroller and Auditor General reports: Financial management in government, Session 2013-14, HC 131,
National Audit Office, June 2013; Cost reduction in central government: summary of progress, Session 2010–2012,
HC 1788, National Audit Office, February 2012.

43 Comptroller and Auditor General, Financial management in government, Session 2013-14, HC 131,
National Audit Office, June 2013.

44 Comptroller and Auditor General, Cost reduction in central government: summary of progress, Session 2010–2012, HC 1788, National Audit Office, February 2012.

45 Comptroller and Auditor General, Managing budgeting in government, Session 2012-13, HC 597, National Audit Office, October 2012.

46 Comptroller and Auditor General, Financial management in government, Session 2013-14, HC 131,
National Audit Office, June 2013.

47 HM Treasury, Review of HM Treasury’s management response to the financial crisis, March 2012.

48 HM Government, The Civil Service Reform Plan, June 2012.

49 Comptroller and Auditor General, Memorandum on the 2012 Civil Service Reform Plan, Session 2012-13, HC 915, National Audit Office, January 2013.

50 Comptroller and Auditor General reports: Financial management in government, Session 2013-14, HC 131,
National Audit Office, June 2013; Progress in improving financial management in government,
Session 2010-11, HC 487, National Audit Office, March 2011.

51 Comptroller and Auditor General, Identifying and meeting central government’s skills requirements,
Session 2010–2012, HC 1276, National Audit Office, July 2011.

52 Comptroller and Auditor General, Building capability in the Senior Civil Service to meet today’s challenges, Session 2013-14, HC 129, National Audit Office, June 2013.

Appendix One

Reports on the centre of government

1 This Appendix lists our reports and those of the Committee of Public Accounts that contain findings on the centre of government. It is organised according to the themes set out in Part Three (see Figure 13), and includes reports mentioned in Part Three as well as other reports with findings relevant to each theme.

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