NAO's staff-churn woes have 'improved', Davies tells MPs

Watchdog says new pay and grading system has seen turnover rates return to "healthy" level
The National Audit Office's Buckingham Palace Road headquarters

By Jim Dunton

21 Feb 2024

National Audit Office head Gareth Davies has told MPs that the public-spending watchdog's recent issues with high staff turnover have stabilised after a pay and grading overhaul.

In late 2022, Davies acknowledged that the organisation was struggling to retain some grades of staff because of an inability to compete with pay offered by the "big four" accountancy firms.

He told members of the Public Accounts Commission – the parliamentary panel tasked with overseeing the NAO's operations – that annual turnover among analysts was 29% at the time, up from 19.6% in 2020-21. Turnover among audit principals – the main auditing grade – was around 22%, up from 11.5% in 2020-21.

The NAO, which is independent of government and not part of the civil service, was forced to introduce an in-year pay increase for staff that was on top of their agreed 2022-23 rise in a bid to stem departures.

At a session of parliament's Public Accounts Committee on Monday, Davies was asked for an update on recruitment and retention issues – particularly in relation to newly-qualified staff.

"The picture of both recruitment and retention has improved since 2022," he said. "We were having particular problems at that point in a very buoyant market for qualified accountants.

"Since then, we have restructured our pay and grading system – a huge amount of work by our HR team, working with the staff side on that – with the purpose of making it easier to retain high-quality staff on qualification.

"That is the key point at which they are very attractive to other employers, so we worked very hard on that. The early signs are that that change has been effective."

Davies said the NAO now had turnover levels of 20% for the newly-qualified grade, which he said was "exactly on target".

"That is still a significant level of turnover, but it is a healthy level for us, because it means we retain 80% of the accountants we train, and then 20% go on to other jobs in the public or private sectors," he said.

"Of course, that level of turnover allows us to recruit the next generation of auditors. So on retention, it is so far, so good."

Davies told MPs that the NAO had a "good indicator" on recruitment because it had already filled 65 of the 100 places set to make up the autumn intake of its graduate and school-leaver programme.
He said the figure was "good progress for February" and suggested it meant the organisation was "broadly on track" to have the resources it needs.

Elsewhere in the session Davies had told MPs that an increased volume of audit work, coupled with a need to reduce the quantity of audits outsourced to the private sector, had contributed to a 17% increase in headcount at the NAO in recent years.

He also insisted that a budgeted-for 2024-25 pay rise of 3% for staff should be adequate, even though inflation as measured by the Consumer Prices Index is currently 4%.

Davies said the NAO's practice was to use the Office for Budget Responsibility's official estimate for inflation, which he said was 3% for the year from April.

"Some forecasters are saying we will get to the [Bank of England] target level of 2% inflation in the middle of the coming financial year, so it does not feel unrealistic as a working assumption," he said. "It is the best one we have at the moment."

Davies said the NAO was in a "stronger position" on pay than it had been in 2022.

"The external benchmark that we have been able to do recently shows that that change we made to our pay and grading has put us in a more competitive position than we were," he said. "There is still no room for complacency, but it feels like we are in a better place."

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