'Cost shunting' can mean savings in one area drive up costs elsewhere ©  Andrew Holt/Getty Images
'Cost shunting' can mean savings in one area drive up costs elsewhere © Andrew Holt/Getty Images

What six factors are causing government inefficiency?

3 December 2021

Whitehall is shaking up its risk management procedures as a watchdog report warns the government needs to make “robust plans” to tackle inefficiencies. 

The Cabinet Office is looking to take a “long-term view” of efficiency drives through new quarterly reviews, according to the Public Accounts Committee (PAC) report. 

The report follows the huge increase in spending following the Covid-19 pandemic, which saw public spending and borrowing reach its highest levels since the end of the Second World War. 

The report, Efficiency in Government, outlined how the government is strengthening its cross-cutting risk function by implementing quarterly risk assessment reviews.

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The reviews were part of recommendations outlined in the Boardman Review of Government Procurement, which was conducted following allegations former prime minister David Cameron lobbied in favour of finance firm Greensill Capital at the height of the pandemic. 

The PAC report said cross-cutting risks were a “very important issue which has not been given enough attention in the past”.  

These will require departments to identify risks each quarter, plan what steps they will take to mitigate them, and evaluate how likely they are to occur. 

“The Cabinet Office believes that checking this process externally, and holding departments accountable, will ensure they take a risk adjusted approach going forward,” the report said.  

Chair of the PAC Meg Hillier warned the government must not cut capacity in a bid to achieve great efficiency, and warned departments against setting unrealistic efficiency targets. 

She said: “The lesson of the pandemic is that government cannot, and must not, rely on cutting capacity to or below the bare minimum necessary, as a proxy for efficiency. That is not efficiency, it’s just under-resourcing, often with costs not actually saved at all but shunted onto other parts of government or society.

“Too often the PAC has seen efficiency figures which are either pie in the sky or a crude way of balancing the books – but not about more effective ways of spending taxpayers’ money to secure better outcomes for service users. This may sound like dry accounting but every pound spent more efficiently means a better deal for taxpayers.

“This is not rocket science, this is management 101,” she said.

The PAC identified six factors causing inefficiencies: 

1) Reduced capacity 

The report said pre-existing staff shortages in the NHS created additional barriers for the UK’s pandemic response. It said any efforts to improve efficiency in government must not rely on cutting costs by reducing capacity. 

It said the challenges brought on by Covid-19 pandemic and EU exit “have shown the benefits of being able to redeploy resources across government, which helps avoid redundancy across the system whilst retaining some agility".

2) Efficiency drives leading to reduced quality 

“Efficiency plans without a clear idea of the implications for service users have led to problems in the past,” the report said. 

It highlighted when the Ministry of Justice (MoJ) attempted to reduce demand for legal aid, additional costs were created elsewhere in the justice system as the demand for other legal services increased. This resulted in additional costs of £3m per year for HM Courts and Tribunals Services as well as direct costs to the MoJ of £400,000.

The report recommended government considers what “the potential impact might be on service users,” when looking to cut costs, and a greater tracking of user behaviour data is tracked as programs are implemented.

3) Overpromising and under-delivering

Optimism bias – where project targets are impractical and unrealistic – is a “long standing” problem within government, the report said. Consequently such projects “do not always achieve the expected objectives”.

It said projects including the Shared Services Centres and the Defence Equipment Plan 2020-30 had fallen victim to such unrealistic expectations. 

The report said these problems occurred due to poor data on costs and performance, and departments and central government do not “consistently challenge existing plans”. 

Even when departments are gathering data, not enough schemes are being halted after showing early signs of poor progress. The report said the government needs to be more “agile” in responding to these results. 

It said: “Issues could re-emerge if government prematurely over commits to efficiencies based on changes that have occurred during the pandemic which may not endure, such as reducing the government estate as a result of staff working from home”.

4) Skills shortage

The report warned skills shortages within the civil service could compromise efforts to achieve efficient savings. It pointed to projects including the Common Agricultural Policy Delivery Programme which suffered from a high turnover of senior leaders, resulting in inefficiencies across its operations.

The report noted how multiple departments rely on the same pool of specialists within government functions, meaning there are not enough resources to meet demands. 

It said in order to implement successful efficiency plans, government may need to “spend to save” and put in upfront investment in order to increase departmental capability and capacity.

5) Not tracking progress

Costs are monitored more heavily than the benefits such costs can deliver, the report said. Consequently, departments are often better at estimating and tracking costs than they are tracking benefits. 

This leads to a phenomenon the report called “cost shunting” – where cost savings in one area lead to negative consequences elsewhere. 

The quality of data shared between departments continues to be an issue according to the report. “For efficiency programmes to be successful, an effective performance management system needs to be in place,” it said. 

The Cabinet Office expects that use of the new Outcome Delivery Plans, which mandate the publication by departments of what is expected from programmes, will improve transparency and accountability.

6) Efficiency seen as a one-off event

“Government efficiency drives tend to be one-off events rather than being embedded as a continuous priority,” the report said. 

It said the Treasury believed well-defined nudges alone would provide departments with enough of a financial incentive to drive efficiency.

However, the report said: “Driving efficiency from departments primarily in the run-up to Spending Reviews risks departments losing focus in between fiscal events and there is little evidence of a continuous improvement culture in government.”

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