By Ben Willis

03 Nov 2010

Ben Willis examines how the administration budget cuts build on previous efficiency drives – and names the departments forging ahead with savings.

While the debate over the winners and losers from last month’s spending review is sure to rumble on for some time, one thing is already clear: the next five years are going to be very tough for departments as they look for ways to cut billions of pounds from their running costs.

In a few brief words, chancellor George Osborne’s statement to Parliament redoubled the pressure the Conservatives had earlier promised to bring to bear on the government machine. Armed with retailer Philip Green’s report highlighting areas of waste, and referring to the party’s election manifesto pledge to slash £3bn from Whitehall budgets, Osborne said the spending review would go further. “We promised £3bn of Whitehall savings, we will deliver £6bn,” he told the gathered House of Commons.At first glance, this pledge seemed to reheat earlier moves by the coalition to slash departmental spending. Shortly after taking power in May, Osborne set out £6.2bn of in-year cuts across government departments. Labour had promised £11bn of efficiency savings in its final budget, but the new £6bn Whitehall savings supercede them and – with the in-year cuts and the spending review’s programme cuts – represent a dramatic acceleration in belt-tightening. The £6bn announced last month will hit Whitehall’s administration budgets: the pots that, along with programme funding, make up departments’ resource budgets.

Between now and 2014-2015, departmental administration budgets will fall incrementally from £15.76bn to £11.42bn, a drop of about £4.35bn. Once inflation is taken into account, the Treasury says, the cuts equate to £5.9bn, a decrease of 34 per cent.

By and large, departments will take an equal share of the pain, with the majority facing a one-third real-terms decrease in their administration budgets over the next four years. However, a number – notably Communities & Local Government; Business, Innovation & Skills (BIS); and Culture Media & Sport – are taking a bigger hit, facing cuts of 42, 41 and 40 per cent respectively.

This is partly down to the fact that the government is changing the way in which the administration costs of arms-length and non-departmental bodies – quangos – are funded. To date, quango spend has come entirely out of departments’ programme budgets – masking their operational costs, and denying the Treasury the ability to cap their running costs – but in future, quangos’ admin costs will fall within their parent departments’ administration budgets (click here for more details).

Put alongside the 34 per cent fall in administration budgets, the change gives departments an incentive to abolish quangos altogether in order to maximise efficiency in running costs; and when quangos are abolished, departments’ admin costs can fall dramatically. BIS, for example, has been able to shave £228m off its admin budget by scrapping the regional development agencies. Similarly, CLG’s abolition of the government offices for the regions (GOs) partly explains that department’s larger than average admin cuts. “Obviously [the GOs’] administration costs have gone into that line, which makes [the cut] look bigger,” says the Treasury.

Abolishing quangos can make a big dent in admin budgets, but to realise Osborne’s plans departments will have to dramatically reduce head-counts. Plans are already well advanced to implement programmes of voluntary and compulsory redundancy: CSW contacted all government departments and, while none have yet fully worked out how they will reduce their admin budgets, the early signs are that staff restructuring will play a big part.

Indeed, the first signs of what is to come emerged from CLG shortly after the spending review, when its new permanent secretary Sir Bob Kerslake announced that up to 40 per cent of his department’s staff may have to go, making compulsory redundancies unavoidable.

Firing the starting gun on this process, Kerslake revealed that in tandem with a restructuring of the department, the number of civil servants in the CLG occupying the top two most senior echelons below permanent secretary level – director-general and director – would be slimmed down respectively from six to three and 21 to 15. The Department for Transport has announced similar changes that will result in its director-general posts being reduced from five to four, while reports indicate that the DCMS is likely to lose the majority of its top posts.

Beyond the quango reforms and reducing headcounts, departments will drive down costs through operational efficiency savings. The policies and ambitions behind these programmes are examined on a cross-departmental basis in our main article – but some detail is already emerging as to how individual departments hope to save cash.

The Ministry of Justice, for example, has said it will reduce its central London estate from 18 buildings to four, saving £40m in running costs. The Home Office is planning to save some £160m over the spending review period by cutting back on its consultancy costs. And the international development department has already planned £16m of cuts by reducing back office costs, leasing out part of its London HQ and reducing travel costs.

If the cuts pledged by Osborne are fully seen through, the civil service is undoubtedly going to be a leaner outfit come 2015. But the extent to which it retains and improves its capabilities as it loses staff, money and quangos will depend on ministers’ and senior civil servants’ ability to drive through the reforms examined above.

“One way that you can drive efficiency is by turning off the money supply,” says Lucy Parsons, research director at the think-tank Reform. “But we don’t think that’s where you can get the really longer-term improvements to the civil service, which are about performance management and accountability. Cutting the admin budgets is not going to do anything about that.”


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