Bettering productiveness might launch tens of billions for presidency priorities

The next is a transcript of a keynote speech given in Parliament by Gareth Davies, the pinnacle of NAO, to MPs and civil servants on 16 January 2024. You can too watch a recording of the speech.

Getting essentially the most from each public pound – a blueprint for worth for cash

Good afternoon everybody. As an Officer of the Home of Commons it’s a pleasure to be chatting with you in Parliament this afternoon.

Our two principal duties on the NAO are to present Parliament and taxpayers assurance that public cash is correctly accounted for and spent properly. This afternoon I’m specializing in the second of these, our assessments of worth for cash. I stay in hope that at some point you may be equally eager to attend a speech on accounting and auditing requirements.

Certainly, the significance of well timed and efficient public audit is presently being highlighted by critical delays within the audited accounts in England’s native authorities. Whereas the place on well timed accounts is significantly better for central authorities, the necessity for a stronger give attention to worth for cash and making certain folks obtain prime quality public providers is simply as urgent on the nationwide degree too. That’s the place the impartial NAO operates: we assist Parliament scrutinise how authorities spends public cash.

Immediately I’d like give attention to what the NAO’s work tells us about getting essentially the most out of each pound that authorities spends. I’ll use the shorthand of effectivity and productiveness to cowl a variety of alternatives for delivering more practical providers at a decrease value.

The tax, spending and borrowing forecasts supporting November’s Autumn Assertion present that authorities of no matter complexion faces a troublesome problem within the years forward. The explanations for this are well-known to you on this room, so I’ll solely summarise them briefly.

  • Demand for a lot of providers will proceed to rise because the variety of older folks will increase.
  • Components of our nationwide infrastructure are crumbling. Upkeep backlogs persist in giant elements of the general public property, impeding service supply and costing extra to place proper in the long term.
  • On the digital entrance, out-of-date IT techniques sluggish the modernisation of many public providers they usually intervene with the environment friendly working of presidency, in addition to rising the dangers of profitable cyber-attacks – which we’ve got seen not too long ago – and maladministration.
  • Greater inflation has elevated prices, notably for big infrastructure tasks.
  • The general public sector is discovering it tougher to retain employees. Turnover in social care roles reached 37% in some areas in 2022. Neither is that this drawback confined to ‘frontline’ roles as evidenced by the hundreds of digital vacancies throughout authorities.

These elements and others have mixed to depart public providers with a productiveness drawback. If you add to this the sharply elevated value of servicing authorities debt, it is a difficult fiscal image.

On this speech I take that fiscal problem as my start line. Potential coverage measures on tax and spending to deal with the problem are outdoors my remit. Fairly rightly, the NAO doesn’t opine on coverage priorities.

However I do wish to make the case that there’s good proof from the NAO’s work to consider that authorities can obtain extra with what it already spends. And that this quantities to a cloth contribution to the fiscal problem, actually tens of billions of kilos a yr. 

Now, I’m not going to reach at a particular determine as it will rely upon the extent to which authorities prioritises pursuing the financial savings I’ll determine.

In fact, if higher effectivity on this scale was simple, we’d be doing it already. So, I additionally wish to set out what the obstacles to improved effectivity and productiveness are, and what could also be achieved about them.

How can we make public cash work tougher?

There are in my opinion 5 principal areas of monetary alternative: main infrastructure tasks; asset administration; procurement; digital transformation and decreasing fraud and error. This isn’t an exhaustive checklist and I make no declare for the novelty of any of those themes – authorities is already engaged on all of them. My level is that the potential monetary profit is way from being absolutely realised. To take these in flip…

Firstly, main infrastructure tasks

Work by the NAO and the federal government’s personal Infrastructure and Initiatives Authority has constructed a robust physique of proof on good apply in delivering main tasks.

This has helped to drive higher efficiency on some tasks, but we nonetheless see failures of worth for cash and supply in others, at huge value to the taxpayer.

Why is that? Our work on HS2 and the New Hospital Programme means that for the most important tasks, Whitehall has a governance drawback. These two programmes are examples of what I name mega tasks that are arguably too giant for the dangers to be manageable by the related departments and their arms-length our bodies. They’ve total budgets of many tens of billions and mission lifetimes spanning many years, not to mention Parliaments.  

In each circumstances, selections to proceed weren’t accompanied by sufficiently strong and reasonable assessments of affordability. If overspends emerge, it’s possible that they are going to be too giant for the host division to handle, and the query turns into one among authorities’s total priorities.

So I believe a brand new strategy to the governance of the small variety of real mega tasks is required, reflecting the dimensions and nature of the dangers concerned. That is more likely to require governance experience from outdoors the related division. This may enhance the prospect of constructing higher go/no-go selections and successfully holding the mission to account for value management and supply.

Higher governance of our largest tasks provides important monetary advantages.

The subsequent of my 5 areas is asset administration

The environment friendly upkeep and enchancment of current belongings is as vital as getting worth for cash in constructing new infrastructure. In any case, new belongings will solely ship promised advantages if they’re correctly maintained.

Capital belongings, comparable to faculties, hospitals, prisons, roads and flood defences should be adequately maintained to satisfy their function.

All too typically the NAO’s current work has highlighted the false economic system of permitting upkeep backlogs to construct up. Our current report on the situation of college buildings confirmed that greater than a 3rd are past their design life, resulting in larger operating prices and in some circumstances, to emergency repairs which proceed to have an effect on pupils, lecturers and fogeys even now.

The identical points are considerably impacting on affected person care and prices at many NHS hospitals. So a disciplined strategy to asset administration, with optimised upkeep plans for every a part of the general public property, is a vital part of the government-wide effectivity drive that I’m recommending.  

Thirdly, procurement

Every year authorities spends round a 3rd of its cash shopping for items and providers. In a current report we discovered that of £100bn value of contracts awarded by main departments throughout 2021-22. Of these, round a 3rd have been both direct awards or contract extensions.

Authorities has taken vital steps to professionalise procurement by creating the Authorities Business Operate. Doing so has already created a major monetary profit.

Regardless of this, efficiency stays patchy in locations. Authorities nonetheless spends greater than it ought to in some areas as a result of it depends an excessive amount of on costly short-term contracts, and too typically we see misaligned industrial incentives.

Our report on competitors in public procurement recognized methods of securing additional important financial savings by bettering knowledge, market engagement, and lively contract administration. Authorities’s spend on IT providers is a wonderful instance of the place additional efficiencies lie. Maximising authorities’s shopping for energy in that market dominated by international giants is crucial.

The brand new Procurement Act is an effective alternative to redouble efforts in all these areas. Getting this proper is worth it as authorities’s personal estimate is that higher use of competitors can ship between £4bn and £8bn of additional annual efficiencies. And that’s simply in central authorities – embedding greatest apply throughout the broader public sector would safe additional financial savings.

Certainly, our report final Friday confirmed that the NHS spent some £3bn outdoors its devoted procurement service. Which means that 43% by worth of NHS consumables are purchased outdoors the system designed to ship worth for cash.

There may be nonetheless appreciable worth to be achieved in driving higher offers for taxpayers and providers.

Fourthly, digital transformation

The know-how already exists to rework service supply, scale back prices and enhance the person expertise. Authorities is working to enhance its strategy to realising advantages and figuring out providers requiring transformation, led by the Central Knowledge & Digital Workplace.

This work should exchange antiquated IT techniques, enhance the standard and shareability of information, and recruit and retain scarce abilities in excessive demand throughout the economic system. The problem is huge. In 2020 Defra estimated that it could have to spend greater than three quarters of its digital funds on addressing legacy system points.

The MoD is partially reliant on package courting again to the Chilly Warfare for its defence stock administration.

However there’s excellent news. Components of presidency are displaying that it may be achieved.

Following our report on the backlog of latest passports attributable to the lifting of COVID-19 restrictions in 2022, the Passport Workplace has  responded by bettering its buyer contacts, constructing capability to raised handle demand, and persevering with its digital transformation. The client expertise is far improved and the Passport Workplace is saving cash by decreasing ‘failure demand’.

The potential effectivity beneficial properties in these providers depending on excessive volumes of information processing are huge, with fewer, higher paid civil servants delivering extra fashionable and responsive public providers, and losing much less of their clients’ time.

Within the final of my 5 alternative areas, decreasing fraud, error and tax evasion

Fraudsters, each organised and opportunistic, goal public expenditure, typically utilizing new know-how to take action. Tax evasion deprives authorities of the assets it’s legally due and may ill-afford to lose.

Authorities wants updated intelligence on what’s taking place in these areas and well-targeted defences and interventions to stop, detect and get well as a lot as attainable.

The losses to the general public funds from fraud, error and tax evasion run to billions of kilos a yr. Our work supplies a lot proof of the place more practical defences towards fraud and higher detection and restoration of losses might realise giant sums. I’d level to Common Credit score, the place fraud and error presently prices taxpayers £5.5 billion a yr; and tax fraud, the place the compliance yield achieved by HMRC has lowered because the pandemic and isn’t but again to its pre-Covid degree as a proportion of the tax take.

Progress is being made. DWP and HMRC proceed to discover how new know-how can forestall and detect fraud. The brand new Public Sector Fraud Authority has created a specialist cadre of fraud investigators. We’ll proceed working with them and others throughout authorities to determine and sort out this scourge.

In order that’s 5 areas with important financial savings every at stake. So why is progress on them not sooner?  How can we get higher at turning these alternatives into actual assets?

A big a part of the reply lies in bettering productiveness.

What wants to alter to grasp these financial savings?

Earlier than turning to what I believe are crucial enablers for higher productiveness, Iet me acknowledge the context of the previous few years. Civil service leaders have been responding to a succession of extraordinary challenges, from EU Exit to Covid-19 to battle in Ukraine and an vitality and price of residing disaster. These occasions have consumed the capability of those that might in any other case have been driving among the strategic adjustments I’m outlining.

The problem now could be to focus the vitality of civil service leaders, managers and groups on making the adjustments essential to drive higher productiveness and launch assets, regardless of the inevitability of latest emergencies.

So what’s going to allow these adjustments?

Firstly, higher knowledge. Constant requirements and definitions, together with a higher a give attention to high quality, are important if residents are to see service ranges rise and prices fall. With out it, authorities ambitions on synthetic intelligence is not going to be realised, as poor knowledge means arriving at mistaken solutions, solely sooner.

Secondly, innovation and analysis – which itself depends on good high quality knowledge. In our work we see loads of modern pondering from groups throughout authorities who spot the necessity for operational enhancements. Creating an setting the place that is inspired, examined, evaluated and scaled up is proving more difficult.

The most effective examples we’ve discovered of this strategy in authorities is the Division for Training’s programme for funding and evaluating promising improvements in kids’s social providers. That is serving to the Division determine and promote the tasks which have the best potential to make a distinction for youngsters and their households, and saving cash for the taxpayer down the road. The aforementioned New Hospital Programme is establishing a brand new strategy to hospital design and building by utilizing a normal template, providing the prospect of financial savings in the associated fee per hospital, offered after all that the template relies on reasonable assumptions.

Thirdly, the planning and spending framework can higher assist this drive for effectivity and productiveness. Our current report on combatting the hurt from unlawful medication supplies a very good instance of how authorities must work throughout current departmental boundaries to get essentially the most from the out there assets. The Shared Outcomes Fund is aimed toward encouraging this strategy. But examples like this are nonetheless the uncommon exception and plenty of different alternatives for higher allocative effectivity stay to be exploited.

The planning and spending course of additionally wants to deal with the private and organisational incentives for prime efficiency on effectivity. By private incentives, I imply demonstrating to proficient employees that growing supply abilities is a path to profession development and success. For the organisation or division, there’s a robust argument for retaining a share of the monetary return to put money into additional enchancment.

Every of those enablers should be underpinned by a stronger give attention to management and supply abilities. Each time we have a look at a mission or service, one of the best predictor of success is the standard of management and administration. Crucially, the fitting abilities for the job.

It’s comparatively simple to chop spending. It requires expert leaders and managers to ship real efficiencies that launch assets for presidency priorities. We’d like leaders which have the potential to ship what’s required, attaining the fitting mix of homegrown expertise and experience from outdoors. We’ll quickly be reporting on the civil service’s strategy to getting essentially the most from its leaders and managers, with suggestions aimed toward persistently higher ends in environment friendly service supply.

As talked about earlier; bringing these enablers of higher productiveness collectively and making them work at scale is an enormous process. I welcome the launch final yr of the federal government’s new effectivity framework which units out a extra rigorous strategy to figuring out and measuring effectivity beneficial properties throughout departments.

We’ll solely realise the complete potential if authorities makes bettering its personal productiveness a excessive precedence, with critical cross-government weight behind it. A few of the financial savings might be realised shortly, others require up-front funding and can develop over time.

So in conclusion, Paul Krugman’s well-known line that productiveness isn’t every part, however it’s ‘virtually every part’ appears notably related to the fiscal problem dealing with the UK in the intervening time.

I do know that authorities shares this ambition to make a step change in productiveness. There’s sufficient proof from the optimistic examples we’ve got present in our work to be assured that important quantities of public cash might be freed up for presidency’s priorities. However it is going to take a disciplined, targeted, cross-government strategy over a number of years to totally realise the potential, and make the distinctive the norm.

For our half, the NAO’s programme of worth for cash work will proceed to determine alternatives for higher outcomes and higher resilience. We’ll additionally proceed to supply our classes discovered stories, the place we synthesise the training from a number of stories on the identical theme. And our good apply guides, providing sensible recommendation to these operating providers and tasked with delivering extra effectively.

I look ahead to difficult and supporting these of you in authorities to ship for taxpayers within the coming yr.

There’s quite a bit to do. However for now, thanks very a lot for listening.

Watch the speech

Gareth Davies, head of the NAO, delivers his annual speech in Parliament.

Gareth Davies

Gareth Davies

Gareth Davies was appointed C&AG in June 2019. Earlier than his appointment as C&AG, he was Head of Public Providers at Mazars, a world accountancy agency specialising in audit, tax and advisory providers. Previous to this, he was Managing Director of the Audit Fee’s Audit Apply. His expertise spans monetary and worth for cash audit, organisational management and Board governance. Gareth is a Fellow of the Chartered Institute of Public Finance and Accountancy and a Fellow of the Institute of Chartered Accountants in England and Wales. He’s a non-executive Board member of the INTOSAI Growth Initiative (IDI), which helps Supreme Audit Establishments (SAIs) in growing international locations to sustainably improve their efficiency and capability.

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