Public Audit Committee

Meeting date: Wednesday, March 10, 2010

Official Report 414KB pdf

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Section 23 Report

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“Improving public sector efficiency”

Item 3 is a section 23 report from the Auditor General entitled “Improving public sector efficiency”. I invite Mr Black to introduce the report.

Thank you. One puzzle for committee members is what to do with reports when they show that no action has been taken on previous reports. We might think that there is no point in doing anything. There is a point in producing reports only if they lead to improvement and action. We have a quality report that is based on past experience and applying that experience, but it is profoundly disappointing that, of the 13 recommendations from the 2006 report that are identified in exhibit 2, only two have been implemented and only limited progress has been made on five. Frankly, when Audit Scotland staff are going to the effort of producing reports and we are investing substantial public resources in examining practice and trying to improve it, it beggars belief that only limited progress has been made on five out of 13 key recommendations. Have you had feedback from senior managers in the Scottish Executive as it was, or the Scottish Government as it now is, about what they are doing to implement the recommendations?

I back up what the convener has said. The point that should worry us in Caroline Gardner’s introduction is that we are not clear whether the so-called efficiency savings are efficiency savings at all or disguised cuts in service. If we are to get a grip on this agenda, we need to understand that efficiency savings are what they say on the tin and not disguised cuts in services. How can Audit Scotland delve deeper into all that to find out what efficiency savings mean in practice for the quality of the services that are being offered?

11:30

I will stay on that theme. Paragraph 40 on page 14 of the report tells us again what Caroline Gardner highlighted in her opening remarks:

“The Programme allows nonrecurring efficiency savings to count towards the two per cent target”.

You point out that many public bodies have found one-off savings from the sale of surplus assets. I cannot find in the report how much of the figure is made up of the sale of assets, although you will probably point me to a paragraph that will tell me that in black and white.

The information from health bodies and local authorities is broken down into recurring and non-recurring savings, but such information is not reported by central Government bodies. However, we do not have an analysis of every single pound of the non-recurring savings. Local government’s efficiency statements can provide some of that detail, but it would be a case of going back to all 32 authorities. We have not done that for this report because it is for only one part of the public sector.

Like some of my colleagues on the committee, I have a long experience of local government. The question is whether we can continue to improve services with fewer resources through greater efficiency. If we know the answers, then—bingo—we can do it. That is what we strive towards, anyway.

In my experience, we have moved away from a system that relied totally on targets and target setting but which gave no indication of whether, if those targets were met, anything was actually achieved in terms of outcomes for the public and their expectations of services. I am pleased that there has been a gradual shift from target setting to outcomes for the public.

It is often difficult to define positive outcomes, and it can take a wee bit of time for the outcomes approach to bed in and become clear. It is good to see some examples in your report. You mention some case studies where there has been good practice, with councils looking at service providers and partners in an attempt to make things better and more efficient. That is encouraging—it is not all doom and gloom, despite the tight financial pressures that we all live under. Good things are going on. However, I do not underestimate the challenges that councils face in trying to improve services with diminishing resources.

The grounds on which accounts can be qualified are closely defined, but you are absolutely right that there might be scope for clearer reporting of where people are not meeting the required standards. It is quite possible that the committee could add its own encouragement of public bodies by letting them know about the seriousness with which it treats the matter. It would be useful to continue that discussion.

It could mean that, but that really is a question for Government about the reasons for the decisions that it has taken, rather than being a question for us.

11:45

Rather than go round the room, if you have the information, you can revert to us in writing.

That would be really helpful. Thank you.

I was looking at part 2, on how we are going to deliver a more efficient and productive public sector. I was pleased to see that the key messages mention working with service users and front-line staff. The report states:

“service users and front-line staff have an important role to play in redesigning services to deliver savings and improve quality.”

That involvement is a great idea, but I am interested in what it would look like in practice.

There is a lot of scepticism among the public—and, I suppose, among some front-line staff—about their inclusion. Most members of the public are well aware of the circumstances in which we find ourselves. People oppose disruption to services, but that is often because there has not been proper consultation. As far as I am aware, there is significant opposition only when there is a closure programme. In my local authority area, Glasgow, we had a school closure programme last year. There was a dip in public confidence over that because people felt that the schools were being closed, then they were being consulted, but the schools were still being closed. Following the convener’s lead, I acknowledge that I am talking about Glasgow, but people in other local authority areas have felt the same.

I am interested to know what you think the involvement of service users and staff would look like. Rather than saying, “We are closing this. What do you think?”, how can we include public sector staff and service users before it gets to that stage? How can we include them in a qualitative consultation? Is there an acceptance of the need to do that, and is there a desire to do it? How can it be done effectively?

We have a couple of examples. Case study 4 is an example from the national health service. It involves NHS Borders and NHS Highland using a user perspective to improve palliative care services so that not only do patients get better quality but better use is made of the health boards’ money. There are a number of examples from around the country of different public services doing that. However, the thrust behind your question was spot on, in that such work cannot be done in isolation. It has to be part of much wider engagement with local people about what matters to them, about the choices that have to be made, and about the ways in which different groups’ needs are taken into account.

Most people now accept that we face some tough choices about public services, and engagement has never been so important with regard to maintaining people’s trust in public services and ensuring better decision making. Engagement enables people to understand what the trade-offs are and to feel that they have been listened to and have had their say, even if the final outcome is not one to which they would have originally signed up.

There is a strong and growing recognition that public services are there to serve the public, and local community engagement is definitely improving. However, it is not yet consistently good enough to do what you are talking about.

The example that you gave is not the only case that we have heard about recently in which a voluntary organisation has been affected in that way by council decision making. We are scoping a piece of work that is aimed at examining that question, because there is a risk that, although certain decisions might save the council money, they might come at a wider cost to the public purse and reduce the quality of services for local people. That cannot be the right trade-off, so we are planning to examine the issue during the next few months.

Thank you very much for that. The committee will need to deliberate on what we will do and where we will go with the report, which we will discuss later on in the meeting. As always, the report was useful.

With your agreement, convener, I invite Caroline Gardner to introduce the report.

There will be a quick change of seats.

Caroline and I work in partnership on all this. It just happens that, because of the way in which the work flow is going, a number of items are coming to the committee in which Caroline has played a significant role. I know that she is up for this and I have every confidence in her, as you know.

Yes. We agree completely about the importance of being able to demonstrate the impact of the work that we do on your behalf. It is worth saying that implementing the recommendations is not simple. Demonstrating real efficiency savings requires enough information and understanding to take account of all the other things that change at the same time. There are often changes in the volume of service that is provided, increases in the quality of service and changes in the requirements that must be met. It is not straightforward to strip those out to give clarity about the relationship between the inputs and outputs.

Putting that to one side, I think that one challenge for the Government has been that a range of public bodies need to play their part and they have different ways of working, accountability structures and performance management arrangements. However, it is absolutely critical that progress is made so that the bodies can manage their efficiencies themselves and retain public confidence that they are doing that as well as possible and making the right decisions.

Yes, but ultimately those public bodies are accountable to ministers and ministers rely on their civil servants, who have a key role in their relationship with public bodies. Where public bodies are failing, ministers need to be given the information to take action. I accept that difficulties exist in getting some things done. However, one recommendation was to

“Ensure that all reported efficiency savings are calculated using suitably robust methodologies”.

Limited progress has been made on that. If we do not know the methodology and there are no suitably robust methodologies, how can we know whether there are efficiency savings? We are just kidding ourselves on.

It must be incredibly frustrating for you when you have done such work and limited progress is made.

I agree completely with what Caroline Gardner has said. We have looked at that question again and it is fair to say that the Government has made some progress in implementing the recommendations that were made in 2006. One of those recommendations was that new guidance should be introduced, but the individual bodies have not necessarily followed that through. For Audit Scotland and the auditors to come back and do more work, we need to see the further recommendations being implemented at local level.

Caroline Gardner mentioned the good practice checklist that we have produced, which is aimed at senior leaders of the public bodies. That checklist sets out a series of challenging questions that they should be asking to assure themselves about what is happening locally in each of the bodies.

We cannot give you that level of detail. The reported efficiencies do not go into that level of detail. There are recurring and non-recurring savings, but we do not necessarily know how the non-recurring savings are made up.

In the report’s “Summary of key messages”, you do not underestimate

“The scale of the financial challenges facing the ... public sector”,

which, the report says,

“means that a new approach is needed that fundamentally reviews priorities and the delivery of services.”

Does that refer to local government reorganisation—perhaps a reduction in the number of councils? Does it mean reviewing the number of health boards or police boards? What is meant by that statement? How should we be delving into the sector and seeking efficiencies?

We do not make those specific recommendations—you would not expect us to. However, the delivery of many important services relies on a lot of working across boundaries. Earlier, we spoke about the challenges of providing services for older people, which almost always require health and social care to work together. The same is true for children’s services, with schools, social work and other services getting together. Taking a step back and considering what public services are trying to achieve and how they can best organise themselves are likely to offer opportunities for making savings as well as for improving quality that go a long way beyond the discussions about shared services that have been taking place so far.

The same thinking could be pushed out to the police, for instance. The Scottish Police Services Authority was set up to do some things across Scotland for the eight police forces. There is a proper policy and political question to be discussed around whether that work has gone as far as it can, whether it should go further and what the right trade-off is between local service provision, the current structures and the ability to work better across Scotland in the future. There is no one answer, and we are not suggesting reorganisation, but it is a timely debate in the current context.

Boundaries should not prevent any public body from considering the best way of delivering something.

Is there any way to elevate the seriousness and importance of the subject? We know that some public bodies are misrepresenting their declared efficiency savings. At the most basic level, that is cheating. They are doing all that in the name of the public sector. Could there be a line in the audit process commenting on the appropriateness of the approach taken by individual public bodies?



It is pretty fundamental if the organisation is declaring that it is achieving efficiency savings when it is not. Who is the gatekeeper here? Could we do it differently by introducing more rigour to strengthen your recommendations and give you more power to enforce?

One of the real strengths of the Scottish model is the ability of the Public Audit Committee to add weight to the analysis and technical work that Audit Scotland does on behalf of the Auditor General and the Accounts Commission. It would be great if the committee could find a way to add clout to the recommendations.

However, I need to sound a word of caution: if we felt that people were actively misrepresenting their efficiency savings, we would have let you know. Our concern is a more general one that public bodies do not have the baseline to demonstrate properly that efficiency savings are just that, rather than reductions in the level or quality of services.

Perhaps it would be more appropriate for the audit to say that public bodies were unable to substantiate with any rigour the efficiency savings identified, or some other appropriate phrase, rather than saying that they were cheating or misrepresenting. Then we would all know what was involved. If that were part of the audit process, organisations would take it far more seriously. Only one authority in the whole of Scotland had a qualified audit last year—Shetland Islands Council. If authorities knew that their audit would be qualified and the efficiency savings issue would be raised, they would jump.

That would be helpful. Who does the defining?

I feel as though I am being a stereotypical auditor this morning in injecting notes of caution more often than I would like to. You are right about the scale of agency staff use in the Scottish Government. Similar issues will be looked at in some work on the use of locum doctors in the health service that is coming up soon. However, it is not a straightforward question of temporary worker bad, permanent worker good. There are circumstances in which having agency staff or other forms of temporary workers can be absolutely the right thing to do, particularly in a climate in which the overall number of people employed might be declining and it is necessary therefore to keep some flexibility to manage peaks and troughs. However, additional costs can be incurred, and some real risks can arise, if the situation is not managed well.

The committee might want to consider the matter with the Scottish Government in broad terms. As I say, we are looking at it in the context of locum doctors, and we have looked at it in the past in relation to bank and agency nurses. It is another of those trade-offs that public bodies are making, but they ought to be clear about their reasons for the decisions that are made.

But is it not worrying that such recruitment has increased by a quarter in the Scottish Government in the past year? Does that not indicate that it is using temporary staff in an expedient way rather than in the planned way that you described?

Unusually, today I am disagreeing with Caroline Gardner more than I am agreeing with her.

I also want to ask about the cost of consultants. Do you remember that you produced a report on consultants? In the previous financial year, the Scottish Government spent nearly £45 million on consultants. Surely some efficiency savings can be made in that area. The sum that was spent on information technology consultants was £29 million. A lot of money is going out from the Scottish Government to private sector bodies—KPMG and a range of others—that are not necessarily providing things more efficiently than if they were done in-house and if we built up our own capabilities rather than constantly relying on consultants. Is that area being examined in the context of efficiency savings?

You are right—we produced a report a couple of years ago that provided a lot of information about spend on consultants and the various areas where that expertise was being used. It made some recommendations on improving their cost-effectiveness and reducing the overall cost by ensuring that they are used only when essential. Our auditors monitor the extent to which those recommendations are taken up and acted on in practice. I do not have the figures with me today, but one feature of the new efficient Government programme is very much to bear down on the cost of consultants as part of the targets. Angela Cullen might want to add some detail.

I do not have any more detail with me, but Dick Gill can provide some more information.

I will highlight one example. I have recently been in contact with the Castlemilk Stress Centre in south-east Glasgow. It has lost its core funding with two months’ notice, and service users and staff are extremely upset. They are fighting hard to get core funding from somewhere else, but they have very little time in which to do so. The really unfortunate element of that case is that the organisation had applied to be part of the Pilotlight project. Support from that project would have allowed the centre, within a year, to become far more self-sustaining. It applied for that support because it recognised the pressure on public finances, and if prior consultation had been undertaken before the decision was made, the organisation would have been able to say, “This is what we are doing to address the issue”.

The closure of the centre is by no means definite, but that is an example of how local people and local services are aware of the situation that we face. They are looking ahead, but they are sometimes thwarted because their funding is taken away before they can get to the position that they seek to reach. I think that the report contains such an important message in that regard.

Do you believe that people want the public sector to engage with local people or simply to take decisions?

Thank you, Bob.

We put forward this report as a good example of how the model of public audit in Scotland lets us look across the central Government and local government boundaries in a joined-up way. The report was published in February as a joint report for the Auditor General and the Accounts Commission, and it does two things. It provides an update on 2008-09, the first year of the efficient government programme that is currently under way, and it examines how the Scottish Government has responded to the recommendations that were made in our 2006 report on the earlier efficient government initiative. It measures progress in relation to those two approaches to the generation of efficiency savings. I will briefly highlight three key messages from the report.

First, Scotland’s public sector continues to deliver efficiency savings. In 2008-09, reported savings were £839 million, which is equivalent to 3 per cent of Government spending, against a target of 2 per cent of Government spending. That is a good outcome, but I sound a note of caution. We found that reported efficiency savings were not generally supported by good enough performance information on activity levels and service quality; therefore, there is a risk that some reported savings could result from cuts in the level of the services that are provided or reductions in the quality of services. That is an important caveat, which means that we cannot provide audit assurance about those savings.

Secondly, as we have discussed in relation to local government, it is increasingly clear that the current savings targets will not be enough to meet the financial challenges that Scotland’s public services will face in the future. The current financial year, 2009-10, is likely to be the peak year for public spending for some time to come, and public bodies are facing the biggest financial pressures since devolution. Continuing to plan for 2 per cent efficiency savings will, therefore, not be enough. The current targets were set at a time when Scotland had been experiencing an average growth in the budget of 5 per cent a year, and that is very different from the world that we are heading into. The Auditor General’s report on Scotland’s public finances, which was published before Christmas, predicted a gap between the current spending level and the funding level in 2013-14 of between £1.2 billion and £2.9 billion. Efficiency savings of 2 per cent will not get close to filling that potential gap. I stress that considerable uncertainty remains in all those figures—the situation could be better or worse than the predictions that were made at that point suggest. Nevertheless, there is no doubt that there are major financial challenges ahead.

The third key point, therefore, is that public bodies must continue to improve their efficiency and productivity as they have been doing. They must also consider fresh approaches to the delivery of services and the improvement of outcomes. They must know what their priorities are and that they are directing money towards them, and they must improve their information about cost, productivity and quality so that they can demonstrate that efficiency savings really are efficiency savings. Perhaps most important, now is the time to extend shared services and engage in much wider collaboration and joint working to find better ways of providing services and improving outcomes for local people. To support that change, we have worked with the Wales Audit Office and the Northern Ireland Audit Office to produce a checklist of good practice, which is published on our website alongside the report. It takes the form of a series of questions about good practice and it is designed to help the leaders of public organisations to promote self-evaluation and planned, focused improvement in efficiency.

We all recognise that it will be difficult to meet the challenges ahead and that tough decisions are likely to be needed, for which strong leadership and commitment will be necessary. We will do our best to answer any questions that the committee may have.

That is the right question, and it is a question for Government. The recommendations were accepted in 2006. A lot of work has been done on the efficient government programme in a range of ways, but when we examined the efficiency statements that bodies provide, we found that they were not consistently well enough supported for us to be able to provide that assurance. That is a key area for further improvement.

We are trying to approach the question from the top down and the bottom up. We have therefore worked closely with the Government on what you see in “Improving public sector efficiency” with regard to the action that it is taking to set targets, agree them with the bodies, and clarify the expectations for reporting. We are also using the annual audit process to look at the progress of each of the 200 bodies. It is clear that there is a lot of local variability, as well as the progress that has been made to different extents at the national level.

Can we be sure that the bodies are making the 2 per cent savings and that the figure is not being skewed by the sale of assets?

Under the terms of the programme, one-off asset sales and other non-recurring savings can properly be counted. There is nothing wrong with doing that. If a council has surplus assets, that is the right thing to do. The concern that we want to register in the report is that that is not enough. By its nature, a non-recurring saving can be made only once, and such savings will not close the gap between the funding and spending levels that we are likely to see in future. As part of a strategy to close that gap, it is perfectly proper to rely on one-off savings from asset sales and other things, but they should be used only as a way of making the larger changes to ways of working that will be required to generate recurring savings for the future.

Absolutely.

Part 2 of the report aims to help the reader to understand what we mean when we say

“a more fundamental approach is needed.”

It is a matter of seeking to improve productivity, efficiency and outcomes, using a priority-based approach to budgeting and spending, with better collaboration and joint working—it is about improving on what is already in place. There are some really difficult decisions to be made, which requires strong leadership. However, such decisions have to be made in the current economic climate.

People way above us, in places far away from Edinburgh.

In the past year, the Scottish Government has spent £9 million on hiring temporary staff from agencies—an increase of a quarter. I understand that the cost of hiring a temporary worker is about £34,000 a year, which is £12,000 more than the average public sector worker earns. That process of casualisation not only provides fewer guarantees for the workers—in relation to pensions, for example—but costs more in real terms. What are you doing to discourage the Scottish Government and other bodies from continuing to increase the number of agency staff they employ?

That is good to know.