Evaluation, managing demand and investing in digital the path to saving public money, watchdog says

NAO head Gareth Davies suggests how departments can get more out of their budgets amid mounting pressures
Gareth Davies

By Tevye Markson

12 Dec 2022

The government needs to “choose well and deliver well” if it wants to make efficiency savings, the National Audit Office chief has said.

Prime minister Rishi Sunak has asked every department to "look for the most effective ways to secure value and maximise efficiency within budgets” as the country recovers from the Covid pandemic and deals with soaring inflation, which has reduced departments’ spending power.

In a keynote speech last week, NAO head Gareth Davies said the government can save money by improving its evaluation processes, how it manages demand for public services, and by investing in digital.

The speech, delivered to civil servants and MPs in parliament, set out how the pandemic has left the country with a long list of pressing issues to deal with – risky government-backed loans, backlogs, and over-stretched local services – plus other challenges such as the invasion of Ukraine, the cost-of-living crisis, the energy crisis, post-Brexit trade arrangements and climate change.

“With public finances constrained as they are, the government has to extract as much value from every public pound as possible,” Davies said. 

“That requires choosing well and delivering well. Those two simple concepts are at the heart of efficiency, something governments of all persuasions have tried to master for decades.”

Choosing well: evaluation

The NAO assesses the value for- oney of public spending and does not have a view on which policies are right or wrong but Davies said the watchdog can offer advice on how government can “do the right things”, which he also calls “allocative efficiency”.

Evaluating more rigorously is the key to helping policymakers to make the right decisions, Davies says.

“Despite government’s commitment to evidence-based decision-making, much of what it does is either not robustly evaluated or not evaluated at all. This is a serious problem,” he said.

He pointed out that, in December 2019, the prime minister’s implementation unit concluded that in most policy areas government has little information about the difference made by major spending programmes, with only nine of the government’s 108 most complex and strategically significant projects evaluated robustly. Seventy-seven of them had no evaluation arrangements at all.

By not evaluating robustly, Davies said the government is “not taking the opportunities to pursue more of what works, nor to stop what doesn’t work”.

Davies said it is “easy to see” why evaluation is often not prioritised.

“The results can take a long time to come through, and nobody relishes being associated with a programme that is shown to be ineffective,” he said. 

“But we won’t embed better value for taxpayers if we don’t pay attention to what government spending is achieving.”

The NAO chief said there are some positive examples of good policy evaluation in government, however, picking out the Department for Education for the highest praise.

“In what I think is the best example we’ve seen, the Department for Education properly embedded evaluation into the children’s services projects it funded from an early stage,” Davies said. “The evaluation assessments were published, and they usefully identified both unsuccessful initiatives, allowing them to be stopped, and promising ones, which could then be expanded.”

He said the Department for Business’s creation of a central analysis and evaluation database in 2018, which civil servants can refer to when setting up new schemes and use to share learning across policy areas, was another example of good policy evaluation.

Davies also praised the government for committing to improve its use of evaluations in spending decisions and strengthening its capacity to do so through the creation of the Analysis Function and a central Evaluation Task Force.

He said these interventions are “important” but warned they “will take time to mature” and “without a fundamental change in behaviour and mindset there is a risk they will make little difference”.

‘Worrying picture emerging’: managing demand

When good decisions are made, Davies said the government then needs to put itself in the best position to deliver on those decisions efficiently, which he describes as “technical efficiency” or “doing things right”.

Understanding and managing demand is one of the keys to implementing policy better, Davies said.

The government plans to spend around £1.2bn over the next three years on providing services, grants and administration, according to the NAO.  

“If [the government] can improve how it provides these, there is significant potential for both financial savings and better services,” Davies said.

The government has struggled to overcome backlogs in the health service, courts systems, Driver and Vehicle Licensing Agency and Passport Office, "all of which either stemmed from, or were exacerbated by, the pandemic", according to Davies.

But the NAO head warned there is “a worrying picture emerging of a deterioration in productivity for some public services” which goes beyond Covid, pointing to NHS England’s estimate that there has been a 16% reduction in hospital productivity from 2019 to 2021.

“This problem is more than just the legacy of Covid. It is rooted also in a failure to keep pace with the changing demands the public are placing on these services, and not enough investment in improving their operational efficiency,” Davies said.

“Knowing when peaks and troughs will hit enables you to plan, so that resources can be allocated efficiently though the year. And proactively managing demand, from a public who rightly expect their time and information to be respected, can prevent wasted time dealing with complaints and queries.”

The NAO made a similar point in its new report on the Passport Office, which struggled to keep up with a surge in passport applications after Covid travel restrictions were removed.

The watchdog predicted demand for passports will continue to be less predictable both next year and beyond, due to shifting behaviour and the fact the high numbers of passports issued in 2022 will expire at the same time, and therefore "harder to manage in an economic and efficient way".

The watchdog said HMPO will therefore need to develop a resourcing model – within the wider Home Office – which allows flexibility during quieter or busier periods.

Davies also said using data better can "unlock huge efficiency gains". Davies said, during the pandemic, the furlough scheme was better targeteted than the self-employed income scheme because HMRC had more up-to-date data for it. And he said widespread use of the NHS app during the pandemic has now translated into patients being more willing to engage digitally with the NHS.

The ‘repeated cycles of digital change’

Investment in digital services is the other major key to unlocking operational efficiency, Davies said.

But he warned that decades of digital transformation have been sullied by over-optimism.

“We have seen repeated cycles of digital change in government since the 90s, accompanied by an over-optimistic view of how easy this kind of change is to implement,” he said.

“Government is not a greenfield site where brand new systems can be created at will. New ways of doing business and services need to fit into a government landscape still dominated by legacy systems and legacy data.”

Davies said the pensions scandal, where tens of thousands of people – mostly women – were systematically paid too little state pension, is an example of the impact this can have on citizens.

Errors by civil servants caused the Department for Work and Pensions to underpay 134,000 people more than £1bn in state pension entitlement.

“One of the causes of this was a reliance on old systems that could not easily be updated,” Davies said.

Davies said digital leaders in government have experience and understanding of the challenges government needs to overcome, but “have often struggled to get the attention, understanding and support they need from other senior decision-makers”.

The Central Digital and Data Office commited in its Transforming for a Digital Future Strategy, published in June, to work across government to mitigate legacy IT risk and to reduce overall government exposure to legacy systems.

'More focus on delivery skills needed'

Davies said goverments have also repeatedly failed to prioritise “the nuts and bolts of efficient and effective delivery”.

“We have seen too many high-level ambitions fail to be translated into concrete plans, adequately resourced and tightly-managed,” he said.

“The skills and organisational discipline required for this are well understood, but they are not always valued and prioritised in government.”

He also highlighted the importance of cross-departmental working in getting things done.

“Crucially, these skills include working across departmental and sector boundaries,” he added.

“From affordable housing, to safe air quality, we’re struck by how many of today’s challenges require a whole system approach.”

In the speech, Davies also criticised the government for failures during the Covid pandemic, including failing to maintain basic standards of public accountability. He said this included failing to: publish details of large public contracts that had been awarded without competition in a timely manner, not "rigorously" managing conflicts of interest, failing to address fraud vulnerabilities and not geting annual accounts published on time. 

He also said the pandemic can be a wake-up call for the government on how to be "truly resilient",calling for the govenrment to plan for scenarios that it previously dismissed as extreme, and revisi its assessments of how likely they are to happen.

"This is crucial if we are to achieve value for money, not just in the short term, but for future generations," Davies said. 

A government spokesperson said: “Driving efficiency and value for money is a key priority for this government.

"The Evaluation Task Force has advised on £82bn of government spend in its first year to ensure better value, and the government has committed to investing £2.6bn to address legacy IT and cyber security risks in the last Spending Review.

"The chief secretary to the Treasury and the minister for the Cabinet Office will work across government to further reduce waste. We will report on progress in the spring."

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