NAO sounds alarm as funding shortfalls threaten departmental shared-services drive

Cabinet Office “doesn’t know how much has been spent or what benefits to expect”, watchdog warns
Cabinet Office

By Jim Dunton

30 Nov 2022

The latest shared-services drive for government departments faces a host of barriers including inadequate funding and soon-to-expire systems, but the Cabinet Office is unclear about the programme’s costs to date and its potential benefits, the National Audit Office has warned.

According to the public-spending watchdog, the Cabinet Office’s five-cluster model for moving departments’ back-office services to cloud-based technology by 2028 has buy-in from most parts of government, but governance arrangements are “fragmented and disjointed”.

The NAO said that while some departmental clusters have already begun implementing new systems for back-office services such as HR, payroll and procurement, others had yet to go to market to start the procurement process.

It also expressed concerns that departmental back-office systems due to expire in the coming months pose an increased risk of system failure and additional maintenance costs from unsupported infrastructure.

After failing to deliver on successive shared-services strategies for more than a decade, in 2018 the government launched a drive to move departments’ back-office functions to cloud-based technology by 2025. The move was to improve value and efficiency by standardising processes and data across government.

However, the Cabinet Office came to the view that allowing departments to work independently would not deliver on the programme’s objectives and last year introduced the new model, which groups departments into five delivery “clusters”. At the same time, the deadline for moving to cloud-based technology was pushed back by a further three years.

NAO head Gareth Davies said the watchdog’s latest work on the shared-services drive had revealed that several barriers to the successful delivery of the programme remained to be addressed. One such barrier is a Treasury funding shortfall of between £83m and £103m to pay for clusters’ preferred options.

Davies added that although the programme aimed to deliver operating-cost savings of 10% to 15% by 2028, the Cabinet Office did not know how much implementation had cost to date or what the rewards would be.

“Efficient back-office functions are key to delivering front-line services and reducing costs but, at present, the strategy is not on track to deliver value for money, and it remains unclear what level of financial benefits it will bring,” he said.

“Several fundamental elements of the government’s latest shared-services strategy need to be put in place to ensure its successful delivery.” 

Dame Meg Hillier, chair of parliament’s Public Accounts Committee, said the government appeared to be failing to learn from its own previous bids to cut the cost of back-office functions.

“Government’s latest attempt at a shared services strategy is at serious risk of repeating past mistakes. It is like Groundhog Day,” she said.

“Its strategy is missing fundamental elements that it will need to succeed, including a comprehensive assessment of costs and expected benefits. The Cabinet Office, working with other departments, must get its house in order before it presses on with another half-baked strategy.”

The NAO report said the latest available figures for costs incurred by departments on providing back-office functions showed “considerable variation”. It said that in 2020-21, the approximate cost of providing back-office functions across government – with the exception of the Foreign, Commonwealth and Development Office – was £525m.

However, the report said that the average cost of providing these functions per full-time equivalent staff member ranged from £451 to £1,288, depending on the department.

Among its recommendations, the NAO said the Cabinet Office should put in place performance metrics that allow it to understand and measure how the implementation of the strategy is progressing.

It added that procurement processes for clusters should be staggered so they don’t all begin at the same time, helping to ensure capacity and capability across the programme – but also taking into account contract end dates for ageing systems.

The NAO also suggested that a pool of expert staff should be created to provide additional capability for clusters to draw on.

A government spokesperson said the current shared-services strategy would reduce overall cost, eliminate duplication and bureaucracy, and free up civil servants to focus on delivery of services to the public.

“Ministers have made finding efficiencies a priority so we will be going further to modernise and share back-office services in government to deliver better services at the lowest possible cost to the taxpayer,” they said. “The NAO have recognised the progress made in our shared-services plan.”

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