The previous two sections set out how Putting the frontline first will streamline central government bodies. Another important way to unlock value is to improve the processes of central government - in particular, back office support and procurement decisions. As the Operational Efficiency Programme17 identified in Budget 2009, greater value for money can be achieved by fuller collaboration across the public sector to share back office operations and negotiate better procurement deals.
Led by five external advisers, the Operational Efficiency Programme identified scope to save an additional £9 billion on top of current value for money targets. These savings will be achieved in five cross-cutting areas, each led by an external adviser:
The public sector spends about £18 billion a year on back office operations - including HR, finance and estates management - all of which are important enablers of high-quality frontline services. There are, however, significant variations in the amount of money that different organisations spend on similar tasks, and considerable savings could be achieved simply by moving everyone up to the standard of the best.
The private sector has often been ahead of the public sector on driving down back office costs. Shared service centres, now the norm in the private sector, are one example of how higher-quality support can often be provided at lower cost. The current public sector structure, with most departments, agencies and non-departmental public bodies running their own back office functions, inflates costs unnecessarily. For back office support to be provided at the lowest possible cost, collaboration should be the norm, either between public sector bodies or with the private sector. As a result, actions to achieve the back office savings identified by the OEP include:
We are publishing back office cost benchmarking data for all central government departments and most agencies and non-departmental public bodies with more than 250 staff. These data clearly set out departments' performance on a range of back office benchmarks. All departments have set out plans to improve which are published alongside this document.
We will publish wider public sector benchmarking data from Budget 2010 showing the cost of HR, finance and other back office functions. Also by Budget 2010 we will require back office consolidation plans from all ALBs to set out plans to reduce back office costs and strengthen the drive towards shared services.
We have agreed stretching new comparators informed by private sector median performance to support improvement in public sector back offices. These include improving the ratio of HR staff to non-HR staff to 1:77, reducing the cost of finance functions to 1% of organisational spend and reducing occupancy to 10 square metres per full-time member of staff.
We will release further resources for frontline services, by reducing spend on consultancy by 50% and spend on marketing and communications by 25% saving £650 million. We will also reduce spend on IT projects by making greater use of existing systems rather than creating new ones.
We will look to expand the most successful shared services centres with a view to potentially creating the first public-sector shared-service company. A specialist company of this kind could then offer services across the public sector, providing a platform for public organisations to transform their back offices more easily to reach private-sector benchmarking levels.
We will also merge international back office operations to ensure that all overseas staff are supported by a single shared platform that delivers value for money to all departments overseas.
The public sector spends £220 billion a year on goods and services. The best-performing organisations already secure substantial savings by collaborating in managing suppliers, pooling their buying power and developing a more strategic approach to the market to get a better deal. However, such practice is not yet universal across the public sector and more can be done to facilitate increased collaboration.
Efficiency savings of £139 million were achieved in 2008/09 through a cross-government programme of best practice on energy procurement led by the Ministry of Defence. This included combining volumes to reduce supplier costs and implementing best practice risk management strategies for the purchase of energy to reduce the wholesale cost. Over 90% of central government energy is now being bought through contracts that represent best practice.
There were good reasons for decentralising procurement from the unwieldy purchasing bodies of the 1970s and 80s, and if a local body can get a better deal for very specific needs they should do so. But no public sector body should pay more than it needs to for water, energy, travel or any other standard commodity. There is room to improve in this regard.
In Budget 2009, the OEP identified scope for central government and the wider public sector to deliver £3.7 billion of savings by ensuring that 80% and 50% respectively of available procurement spend is channelled through collaborative strategies. In addition to delivering savings, smarter procurement can also support broader objectives such as the Government's growth agenda, environmental targets,20 and its goal to increase energy efficiency across the public sector. The actions needed to achieve these goals include:
We are publishing procurement data for the biggest spending departments, showing the level of compliance with approved collaborative deals. By Budget 2010, we will publish data showing the uptake of approved collaborative deals in the wider public sector, and we will publish updated data for the use of approved collaborative deals in central government.
We will use technology to improve procurement and lower costs by:
We will strengthen procurement capability, by building on the OGC's work and publishing a second wave of procurement Capability Reviews.
We will also ensure that each department has a Director responsible for service delivery, accountable for making the improvements in contract development and management outlined in the Julius Report.23
Notes
