Departments will be required to deliver minimum technical efficiency savings of 1% for each year of the coming three-year Spending Review period, Treasury permanent secretary James Bowler has told MPs.
The baseline figure – which relates to resource spending – is contained in a letter from Bowler to Public Accounts Committee chair Sir Geoffrey Clifton-Brown on the subject of efficiencies in government.
Departments have already been tasked with a 2% “productivity, efficiency and savings target” for the current financial year.
In December, briefings from the Treasury marking the formal launch of the three-year Spending Review 2025 process suggested chancellor Rachel Reeves would seek efficiencies of 5% from departments over the whole period, which begins in April next year.
Last month, Reeves used her Spring Statement to launch a £3.25bn “transformation fund” designed to “make government leaner, more productive and more efficient” over the course of the Spending Review period. Initial allocations include support for artificial intelligence initiatives intended to aid the delivery of frontline services and financial backing for voluntary-redundancy schemes.
Bowler’s letter to PAC is a response to a recommendation in a March 2024 report from the committee calling on the Treasury to set a timetable for departments to include efficiency savings in their annual report and accounts publications. The move followed HMT’s release of its Government Efficiency Framework guidance in July 2023.
The perm sec said work to standardise publication of departments’ efficiency savings is ongoing, and that the Treasury is consulting with key parties on how best to deliver the PAC recommendation.
Bowler added: “HM Treasury will update its approach to efficiency as part of the Spending Review. The Office for Value for Money is working with departments to agree stretching and realistic technical efficiency targets of at least 1% of day-to-day spending each year of the SR, underpinned by robust delivery plans.”
The Government Efficiency Framework defines technical efficiencies as achieving required outputs with fewer resources or carrying out activities to a higher standard without additional resources.
Other forms of efficiency include so-called “allocative” gains, in which resources are reallocated to those activities with the best ratio of costs to benefits – essentially changing the process by which an objective is achieved. The efficiency framework cites a shift from disease treatment to disease prevention as one example.
Bowler’s response to MPs would appear to exclude such allocative efficiency gains from the 1% minimum annual expectation for departmental efficiencies being sought from the 2025 Spending Review.
CSW asked the Treasury whether the “1% minimum” annual technical efficiencies figure mentioned by Bowler was a subset of the 5%-over-three-years efficiencies ask floated in December, or a recognition that some departments would only be able to deliver just over 3% efficiencies during that period.
It confirmed the minimum 1% annual figure is a subset of the overall 5% target for the whole Spending Review period, and that the Treasury expects all departments to achieve the broader 5% “efficiency and savings” target over the three years.
The Treasury added that technical-efficiency targets would be bespoke and OVfM recognised that achieving the minimum 3% by 2028-29 would be a “suitable level of ambition” for some departments.