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Introduction
The Government’s goal is to deliver world class public services
through sustained investment and reforms which achieve the standards
of services that the public expect and ensure that taxpayers receive
value for money. World class public services are key to building
a stronger, more flexible economy and a fairer society. A healthy
and educated workforce, modern and reliable transport network, and
adequate supply of housing promote productivity and flexibility
and help to ensure opportunity and security for all.
Achieving this goal requires sustained investment in public services,
used in the most efficient way to deliver the levels of services
the public expects. The Government’s fiscal framework and
prudent management of the economy and the public finances have enabled
it to deliver a step change in investment in key public service
priorities in the three Spending Reviews since 1998. The 2004 Spending
Review, which will conclude this summer, will lock in the step change
in funding for key public services delivered in previous Spending
Reviews while continuing the drive to increase the efficiency of
public services and release resources for front line, non-administration
services. Resources will be targeted on the front line, where they
best deliver added value and better standards for the users of public
services.
Delivering better and more efficient public services
The Government has made increasing investment in public services
and improving delivery a top priority. There has been a significant
increase in resources made available for public services in successive
Spending Reviews, helping to address the underinvestment of previous
decades. Alongside this additional investment, the Government has
embarked on an ambitious reform agenda to deliver efficient, responsive
public services with high standards achieved across the country.
The key principles that have driven the reform agenda so far, as
set out in Budget 2003, are:
• clear long-term outcome-focused goals set by the Government;
• devolution of responsibility to public service providers
themselves, with maximum local flexibility and discretion to innovate
and incentives to ensure that the needs of local communities are
met;
• independent and effective arrangements for audit and inspection
to improve accountability; and
• transparency about what is being achieved, with better
information about performance both locally and nationally.
This agenda has been put into practice across the public services,
and alongside increased investment, is continuing to deliver real
progress in standards and outcomes. Public Service Agreements (PSAs)
have been a key mechanism for driving improvement in the public
services through providing focus and ambition. Since 1998, the PSA
framework has been progressively improved, with the number of targets
halved as they have been achieved, and refined with a stronger focus
on the outcomes that matter most to the public. They are also providing
a framework of long-term goals, within which departments and delivery
agents are free to determine how best to deliver, and have been
instrumental in the drive for better performance information, with
regular web-based reporting of progress providing unprecedented
transparency about the results that investment in public services
is delivering.
Transparent and measurable national targets for delivery, which
continue to be an essential framework for reforms, have resulted
in measurable improvements in key priority areas, for example:
• there are 187,000 fewer patients waiting for treatment
now than in 1997-98;
• almost 53 per cent of 16 year olds achieved five or more
A* to C grade GCSEs in 2003 compared to 45 per cent in 1997; and
• overall crime fell by 28 per cent between 1997 and 2002.
Despite the successes of the reform programme so far, a lot remains
to be done. Raising the productivity of the public sector is a key
part of the Government’s objective to ensure that resources
and capacity are utilised with maximum effectiveness to deliver
public services that are responsive and personalised to local and
individual needs.
As set out in the HM Treasury paper Public Services: meeting the
productivity challenge, published alongside Budget 2003, productivity
of the public sector raises productivity of the economy as a whole.
It also helps ensure that the public receives the highest possible
standards from the additional resources the Government has made
available for public services. Reliable measures of public sector
output are crucial in gaining an accurate sense of how productivity
is changing and in informing policy decisions. The National Statistician
has therefore asked Sir Tony Atkinson to undertake a review of the
future development of measures of government output, productivity
and associated price indices so as to advance methodologies.
Achieving greater efficiency
The 2004 Spending Review will consolidate and build on progress
so far, by setting out the priorities and next steps in the Government’s
continuous drive for improvement. Achieving greater efficiency in
the public sector will enable the Government to deliver high and
continuously improving standards within the public services by releasing
extra resources for front line services.
This means moving resources, as a result of more efficient procurement
and streamlined back office functions, away from administration
and closer to public service customers. The greater the scale of
efficiencies that can be achieved within the public sector, the
lower the increase in total expenditure that is required to achieve
further improvements in the performance of key public services.
Efficiency gains therefore also enable the
Government to fulfil its responsibility to deliver value for money
to taxpayers.
Efficiency in the public sector involves making best use of the
significant investment in information and communications technology
(ICT), workforce reform and the sharing of best practice agreed
for the 2002 Spending Review period. Other investments and reforms
designed to modernise and enhance the delivery of public services
will build on this. The pursuit of efficiency also includes reducing
bureaucracy, which both cuts headquarters’ administration
costs and frees up the time of front line professionals to respond
better to the needs of their customers.
The public spending framework
Since 1997, the Government’s commitment to improving standards
in the public services has been matched by a focus on the efficiency
of spending. Underpinned by the new fiscal framework and prudent
management of the economy and the public finances, the Government
has undertaken extensive reforms of the system for managing public
expenditure.
The elements of this new public spending framework that are already
delivering greater efficiency are:
• firm three year plans for public spending, reviewed every
two years, and full end-year flexibility (EYF), allowing departments
to carry over unspent resources into future years and reducing wasteful
end of year spending over time;
• PSAs, which provide an outcome focused contract for delivery
and put the spotlight on efficiency and effectiveness in departmental
programmes;
• the introduction of resource budgeting in line with best
commercial practice and Departmental Investment Strategies, which
have put a new emphasis on asset management and estate rationalisation
in departments; and
• the introduction of administration cost limits for government
departments, which translate the previous running cost controls
to a resource budgeting basis and to better promote economical and
efficient administration within central government.
Efficiency in the 2002 Spending Review
Specific measures have also been introduced over past Spending
Reviews to increase the efficiency and effectiveness of particular
aspects of public spending. The establishment of the Office of Government
Commerce (OGC) in 2000, for example, has helped departments improve
the efficiency of their procurement activities – saving over
£1.6 billion in its first three years. In addition, significant
investment in ICT by both central and local government in the 2002
Spending Review is streamlining the delivery of services to the
public, cutting transaction costs and reducing paperwork. The Department
for Work and Pensions (DWP), for example, now pays over 60 per cent
of benefits directly into its customers’ bank accounts, and
is on track to deliver savings of £400 million a year by 2006.
The Efficiency Review
Building on these achievements, Budget 2003 announced a cross-cutting
review of efficiency in the public sector to identify the scope
for further efficiencies in public spending that would release resources
for frontline priorities. As the head of this review, Sir Peter
Gershon has drawn on his own extensive experience and consulted
widely to identify opportunities for sustainable efficiencies in
the use of resources within both central government and the wider
public sector.
Drawing on the evidence gathered by this review, the Government
believes that there is scope for real efficiency gains in a number
of areas:
• procurement savings can be achieved by greater use of shared
purchasing strategies, use of electronic purchasing and improved
supplier management. As indicated in the 2003
Pre-Budget Report, the Efficiency Review and the OGC are exploring
options for radically reforming the approach to public sector procurement;
• the corporate back office, including IT, finance and human
resource management services, can be streamlined by adopting existing
best practice, for example by simplifying back office processes
and procedures, plus standardising and sharing support functions;
and
• transactional services, such as the payment of benefits
and tax, can be made more cost-effective through maximising the
benefits of investment in more efficient communication channels
such as web interfaces and call centres.
There are also potential benefits from more long term reforms to
the way government works and public money is spent, for example
how policy is set, funding provided and quality regulated for front
line public service delivery organisations. Further efficiencies
can also be achieved that will enable front line professionals to
spend more time delivering services to the public.
The Government’s forward efficiency programme
Recognising the varied cost and complexity of different efficiency
measures, the Government envisages a comprehensive, continuous programme
of efficiency improvements that will release resources for the front
line from administration, and also enable the front line to make
better use of the resources it has. These efficiencies will be delivered
during the course of the 2004 Spending Review period and beyond.
Ambitious efficiency proposals have already been brought forward
by a number of departments, particularly in relation to headquarters
costs and back office rationalisation.
Building on these initial proposals in relation to central government
administration costs, Budget 2004 announces:
• the administration costs of all departments will be capped
at or below the 2005-06 nominal level for the remainder of the 2004
Spending Review period;
• in particular, core Departmental Expenditure Limits (DEL)
for 2006-07 and 2007-08 for DWP, Inland Revenue, HM Customs and
Excise and HM Treasury, almost entirely comprised of administration
costs, will be held constant in nominal terms at 2005-06 levels,
representing a real terms cut;
• within the overall DEL settlement for education announced
in this Budget, the administration costs of the DfES will fall in
nominal terms over the next Spending Review; and
• the devolved administrations will also set tough administration
cost limits for the 2004 Spending Review period.
As a consequence of these measures, total central government administration
costs will be capped at 2005-06 nominal levels in 2006-07 and 2007-08
– a real terms reduction – with the expectation that
further savings should enable a cut in the nominal level. This will
reduce administration costs to a planned 3.7 per cent of total spending,
the lowest level since the running costs regime (the predecessor
of the current administration costs regime) was introduced in 1986-87.
These cash savings will be available for redistribution to priority
public services in the 2004 Spending Review.
In addition to administration cost savings, the Government believes
there is also scope for further efficiencies in the way the wider
public sector uses the resources it has available. This could be,
for example, through back office rationalisation, improvements in
procurement processes and streamlining of transaction services,
as well as through freeing up more time for front line professionals
to deliver services direct to the public. Sir Peter Gershon has
identified the risk that an excessive target for efficiencies could
affect delivery of the Government’s objectives for the public
services, as set out in PSA targets. The Government is determined
to deliver the maximum level of efficiencies that are compatible
with continuing its ambitious programme of improvements in public
service outcomes. On this basis, the Government is setting a stretching
but realistic target for the whole public sector to deliver efficiencies
of 2.5 per cent a year over the three years of the 2004 Spending
Review period, which would deliver gains equivalent to £20
billion a year by 2007-08.
Implementation and monitoring
Delivering this ambitious efficiency programme will require departments
and other public sector bodies to re-examine their existing spending
programmes closely and prepare detailed efficiency proposals for
consideration in the 2004 Spending Review. In order to drive through
the Government’s overall efficiency programme, Budget 2004
announces that John Oughton will become the new Chief Executive
of the OGC and take on wider responsibility for the implementation
of the Government’s efficiency programme.
He will:
• work closely with HM Treasury to monitor the progress of
departments against their agreed efficiency programme, and identify
further improvements in public sector efficiency that can be achieved
through more radical reforms and process
re-engineering within government; and
• build on the OGC’s previous successes to deliver
a further £3 billion of saving in central government civil
procurement spend over the 2004 Spending Review period.
In securing these efficiency gains, there will be a strong emphasis
on using normal staff turnover, and, for example, making the most
of the opportunity for staff to be redeployed to posts out of London
and the South East in the wake of the Lyons Review. As part of this,
the Government is examining options for strengthening the current
arrangements for civil service staff to be redeployed across administrative
boundaries.
As a result, the Government believes that in most cases the initial
costs of departments’ efficiency proposals will be met from
within departments’ existing expenditure limits.
However, in some cases additional flexibilities may be required.
Where departments can present a strong business case, HM Treasury
will consider excluding some element of transitional costs from
the departmental administration cost limits. Departments will also
be able to bid in 2004-05 and 2005-06 for an element of match funding
towards restructuring costs from a £300 million Efficiency
Challenge Fund. Bids will be reviewed and then assessed against
strict criteria.
Overall, the Government’s ambitious efficiency programme
will ensure that the 2004 Spending Review sustains continued improvements
in front line public services, and delivers greater value for money
for taxpayers, by releasing additional resources for investment
in front line priorities and making better use of those already
available.
Preparing for the 2004 Spending Review
In the 2004 Spending Review additional funds allocated above existing
baselines will be targeted at front line public service priorities
based on a rigorous assessment of where new resources will have
the greatest impact on outcomes at the front line.
In particular, this year’s Spending Review will take further
steps to:
• strengthen the economy;
• build a fair society, with opportunity and security for
all; and
• deliver better and more efficient public services.
Strengthening the economy
Budget 2004 announces early decisions on key economic areas that
will be central to the 2004 Spending Review – science, skills,
employment and education. The Spending Review will take further
steps to tackle the historical barriers to stronger economic performance
and higher productivity in the UK by investing in the science base,
taking forward the Government’s agenda to boost adult skills,
reviewing financial support for 16 to 19 year olds continuing in
education or vocational training, and investing further in the nation’s
infrastructure, as set out in earlier chapters of this Budget. The
Spending Review will also help achieve more balanced growth across
UK regions through these measures and also through support for urban
renewal and regeneration, the rural economy, sustainable development
and by developing further the framework to ensure that regional
and local institutions have the flexibilities they need to achieve
their ambitions.
Building a fair society.
The Government is committed to tackling social exclusion and deprivation
and promoting opportunity and security for all.
The 2004 Spending Review will build on previous reviews with proposals
to:
• increase the contribution of public services towards improving
the life chances of children in low-income households and to improve
services for children and their families living in deprived areas.
The Child Poverty Review in particular will include recommendations
to improve both the immediate material circumstances of children
in low-income households and their long term life chances;
• improve performance of public services accessed by those
living in deprived areas and by disadvantaged population groups;
• respond to the recommendations of the Wanless Review to
secure good health for the whole population, and tackle in particular
the occurrence of avoidable ill health related to
socio-economic deprivation;
• increase the supply of affordable housing, reduce homelessness
and regenerate deprived city centres; and
• develop floor targets as part of PSAs to ensure standards
of public services are raised across the board, especially in the
most deprived areas, to meet minimum national standards.
The Review will also consider the resources available to reduce
crime, strengthen the UK’s defences and meet the UK’s
responsibilities in international development.
The Spending Review will also drive forward the next phase of the
Government’s reform agenda for the public sector. Key elements
of this next stage of reform are contained in the reviews announced
in Budget 2003, which aim to ensure that best use is made of the
additional funding allocated in the 2002 Spending Review and to
prepare the ground for the 2004 Spending Review.
Central to the aim of this next stage of public service reform
is the Government’s intention to deliver public services that
are more responsive to local and personal needs. More efficient
use of resources will help ensure public spending can be better
targeted on regional and local priorities, and more personalised
to the requirements of individual users.
In addition to the action being taken to enhance efficiency:
• the Lyons Review of public sector relocation identified
20,000 posts for relocation from London and the South East;
• the Devolving Decision-Making Review is establishing a
clear rationale for a more devolved approach to decision-making,
alongside a framework of national targets, as the means of delivering
more responsive regional and local public services;
• the review of the voluntary and community sector is exploring
how best the Government can engage this sector to improve the responsiveness
of public services to local and personal needs; and
• the Spending Review, in addition to the outcome of these
reviews, will also set out further steps that will be taken to make
the delivery of public services more personalised to individual
needs.
Extract from Budget Report 2004BiP Solutions Ltd, Park House, 300
Glasgow Road, Shawfield, Glasgow G73 1SQ
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