George Osborne’s November Spending Review was hailed as “the end of austerity” by at least one national newspaper. But for the many government departments facing another four years of pressure on their resource budgets, the chancellor’s announcement was unlikely to have felt like much of a finale.
As the independent Institute for Fiscal Studies (IfS) think tank pointed out in the wake of the SR, lower-than-expected debt interest payments and higher tax revenues meant the “lucky” chancellor was able to ease some of the squeeze, extending protection to the Foreign Office and shielding police spending. Some departments, notably Business, Innovation & Skills – which takes a 17% hit to its resource budget – fared better than had been expected.
But there are still major spending reductions being imposed across government, even if Osborne has smoothed the path to his planned surplus. The IfS anticipates, for example, that the Department for Transport – now in line for a 37% cut to its resource budget – will have seen a 70% fall in its day-to-day spending between 2010 and 2020.
Prior to the Spending Review, the IfS predicted that unprotected departments faced average cuts of 27% to their resource spending. In the event, said the think tank’s director Paul Johnson, the reductions in day-to-day spending in non-ringfenced departments will be closer to 18% over the period.
But he added: “The Spending Review is still one of the tightest in post-war history. Total managed expenditure is due to fall from 40.9% of national income in 2014-15 to 36.5% in 2019-20. A swathe of departments will see real-terms cuts. The 3% cumulative increase in health spending over the next five years is not far off the average annual increase in spending in the last 50 years.”
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Estate of play
Against this tough fiscal backdrop, both civil service chief executive John Manzoni and minister for the Cabinet Office Matt Hancock (pictured below) have already emphasised the need for a wholesale “transformation” of the way government is run – and the Spending Review itself sketched out a number of estate, workforce and financial management reforms to try and bring that about over the next four years.
The Department for Work and Pensions’ (DWP) estate is, for instance, set to shrink by 20% over the period, as part of a wider push to sell off £4.5bn of government land and property by the end of the decade. The DWP – which plans to meet the target by seeking “greater co-operation with local authorities” and merging Jobcentres – currently accounts for around 15% of the entire government estate, the largest footprint of any single department.
The move follows the announcement of a major programme of office closures at HM Revenue and Customs (HMRC), with the tax authority planning to cut its network of 170 offices down to just 13 regional centres. As well as the contributions from DWP and HMRC, the Spending Review says the Department of Health will sell off some £1.95bn in land and property assets, with the Ministry of Defence (MoD) contributing £1bn-worth and £640m coming from the Ministry of Justice, which aims to sell off “ageing, inefficient prisons on prime real estate”.
The Treasury has meanwhile fleshed out its plan for a further overhaul of the way the government manages its property. The Spending Review confirmed that ownership of the government estate will be centralised by March 2017, with departments charged market-level rents to try and incentivise them to make better use of land and buildings. The Treasury said a dedicated estate management body overseeing the new regime would be led by former British Property Federation chief Liz Peace.
More detail on the government’s estate reduction plan could come through the new Single Departmental Plans (SDPs), which are expected to be made public in January. The plans, which have been drawn up alongside the Spending Review process, will attempt to tie departments’ priorities to the actual resources now available, and publication looks set to come in two waves.
Speaking to MPs after the Spending Review, Manzoni said there were “two parts” to the SDPs. “The first are the manifesto commitments and milestones on the way to the delivery of the manifesto commitments. That’s a relatively familiar part of the planning process inside departments,” the civil service chief said.
The second part of the SDPs, he said, was “about how the departments will run themselves within the fiscal envelope which they have been set, and how they will do the business-as-usual”.
“The transformations that have to happen over the course of the next four years need to be embodied in the plans. That process is going to continue from now until the beginning of the fiscal year in March when we will be launching the new phase. There will be a publication in January of those plans at a high level and then there will be continued working of the implementation plans.”
Manzoni said the SDPs meant there was now “the emergence of a coherent property plan” across government, and he told the committee that HMRC’s own office closure programme was “compatible with other departments’ plans across government” – so fewer, bigger regional centres of expertise could well become the new normal for government departments from now on.
The civil service is also set to keep shrinking under Osborne’s spending plans. Whitehall’s leaders have repeatedly stressed that there is “no planned target” for job cuts, with cabinet secretary Sir Jeremy Heywood writing in December: “If headcount reductions are necessary, they will be fairly and sensitively managed, and achieved, as far as possible, on a voluntary basis and through natural wastage.”
Details on dedicated workforce plans will have to wait until the SDPs, although the MoD has already said it is looking to make a 30% cut to its civilian workforce by the end of the decade, a move that defence think tank RUSI has warned could have an effect on the ability of the department to deliver some of the big schemes announced at the Strategic Defence and Security Review.
“It’s going to shed its valuable and most costly people, and it is going to do so a time when it is increasingly saying that it is going to be pulling back in a lot of its corporate knowledge that it was previously giving out to other experts,” Peter Roberts, a senior research fellow, told the Defence Select Committee. “So at the same time as you’re bringing in these responsibilities, you’re going to shed – and not just hollow out, but cut – entire levels of corporate knowledge and expertise who are going to be responsible for delivering these major programmes over 10 years.”
The Office for Budget Responsibility meanwhile estimates that 100,000 public sector jobs are likely to go by 2020. The OBR said that figure was 300,000 fewer than had been projected in the wake of the July Budget, following the adjustment of departmental limits at the Spending Review and the government’s decision to cap public sector pay rises to 1% over the period.
The fiscal watchdog added: “We expect the fall to be more than offset by a rise in market sector employment, with general government employment broadly flat in the final year of the forecast period and market sector employment continuing to rise.”
Paying the price?
While the scale of staff reductions is lower than that implied by earlier forecasts, then, the Treasury has signalled its intention to revisit key elements of civil service compensation – which could have major implications for public leaders looking to manage exits.
The Spending Review pledges to consult on “further cross-public sector action on exit payment terms”, promising “targeted reforms in areas where the public sector still has far more generous rights than the private sector”. There will also be a fresh look at sickness absence in the government workforce. The Treasury says it will consult on how to reduce the impact of sickness absence “on public service delivery” and makes it clear that it will consider legislation “where necessary”.
It was subsequently reported that Osborne is considering reducing the maximum payment for voluntary redundancy across the public sector workforce to the equivalent of 15 months’ salary, down from the current pay-out of 21 months’. No consultation has yet been published by the Treasury, but unions have already reacted with anger to what they view as an attempt to reopen a deal agreed with the Cabinet Office in 2010, where ministers backed down from a plan to impose a 15-month cap.
“At some point, the government will discover that you can’t simply continue to attack the pay and conditions of civil servants without consequences,” FDA general secretary Dave Penman told CSW.
He added: “The FDA negotiated and agreed these terms with the government and Conservative minister Francis Maude as recently as 2010, who at the time described them as sustainable ‘in the longer term’ – the government’s definitions are clearly different to ours.”
That view was echoed by Garry Graham, deputy general secretary of the Prospect union for specialists, who said many officials would view any change to redundancy terms as “a declaration of war by the government against its own staff”.
The government has also pledged to take “further steps to reduce agency and contractor expenditure by at least 20% by 2019-20”, and says it will bring in measures to cut official travel costs by £50m by the end of the decade. One part of the drive to tackle agency spending will, according to Hancock and Manzoni, involve the introduction of new “specialist” pay-bands aimed particularly at digital and commercial staff.
A recent survey of Whitehall’s digital leaders by the National Audit Office highlighted the scale of the challenge for the civil service in both luring and keeping hold of the kind of tech specialists needed for “transformation”. More than 80% of the chief digital officers, chief information officers and chief technology officers interviewed by the spending watchdog said that the amount they were able to pay staff had had a negative impact on their organisation’s ability “to recruit and retain the right people from elsewhere”.
Acknowledging the civil service’s problem with specialists, Hancock told MPs that he believed the civil service had been too willing in the past to either “get outsiders in or contract things out”.
He added: “I want permanent civil servants with those skills within the civil service, and that’s why we’re bringing in new pay bands for those with specialist skills in order to ensure that these skills are deeply embedded in the civil service.”
Manzoni said the measures would be part of a much broader HR strategy for the civil service that’s set to be unveiled in early 2016 following the appointment of new chief people officer Rupert McNeil. And he said government was now “on the verge of appointing world-class delivery partners” for a new civil service leadership academy, which will occupy its own dedicated site.
Ministers are clearly setting a lot of store by the impact of digital on streamlining departmental processes – and the Spending Review contained something of a surprise boost to the budget for the central Government Digital Service (GDS) team.
The departure of a number of senior staff had led to speculation that GDS had lost support within government and was set to be scaled down. But, in the event, Osborne announced that GDS would receive £450m over the period of the review, equating to an average of £126m a year – well up from this year’s budget of £58m – and a strong show of support for its work.
GDS would, the chancellor said, “continue to act as the digital, data and technology centre for government, supporting departments as they transform their business operations, setting best practice and ensuring quality of service”. Overall, the Spending Review document mentioned the world “digital” 57 times, compared to just four mentions in its 2010 equivalent.
Some of the tensions apparent in the GDS model – with tech experts often brought in from the centre to intervene in departments – were laid bare as the public spending watchdog looked into Defra's delayed Rural Payments scheme.
The National Audit Office found that a clash of cultures between the two teams, including "personal rifts" between leaders, had contributed to problems with the system for paying farmers EU subsidies. Perhaps with that lingering scepticism of the GDS agenda in mind, the unit's new executive director has already stressed the need for a collaborative approach with departments. Stephen Foreshew-Cain told CSW in his review of 2015 that any move to make government "more efficient, more digitally capable and more focused on user needs can’t be done without the talented people we have across the civil service".
It is not yet clear what the new cash offered up by the chancellor will mean for the size of the unit, which currently has 425 full-time staff and 210 contractors. But GDS appears to have won support for a number of business cases it prepared in advance of the general election for a range of new platforms and processes. Chief among these is the ambitious Government as a Platform (GaaP) project to create a common digital infrastructure for departments and avoid duplication.
The government has also confirmed that GDS will continue to work on a Common Technology Services programme, with former Driver and Vehicle Licensing Agency tech chief Iain Patterson coming back to the centre of government to take on a newly-created role ensuring “consistent, high quality workplace IT for civil servants”. And there’ll be more work to get the common user identification service Verify rolled out across government.
Reform gets a makeover
One thing we’re unlikely to get following the Spending Review, however, is a brand new version of the Civil Service Reform Plan. That plan, launched by Francis Maude in 2012 with a promise to tackle “long-standing weaknesses” and “build on existing strengths” in the civil service, was a cross-government programme very much led by the centre.
Manzoni, however, has already said that he believes that “the good stuff happens when you put great people out in the departments” – and that thinking seems to have carried over into the SDPs. The civil service chief told MPs the next batch of reforms would be done on a department-by-department basis rather than through a big-bang, Cabinet Office-led initiative.
“The difference this time is that reform itself will be delivered through the departmental plans for the next parliament,” he said. “It’s not something on the outside going in. It is the core, and at the heart of, the sort of transformations that we’ve described […] The departments will not meet their spending settlements without the sorts of reforms and transformations that have to be effected.”