“The Efficient Government Initiative: a progress report”
Item 4 is a briefing from the Auditor General on "The Efficient Government Initiative: a progress report".
I am publishing today a report on the efficient government initiative. I have called it a progress report because the initiative is a part of a continuing five-year programme, which was launched in 2004, to modernise and improve public services.
It is important to be clear about the role that Audit Scotland has played to date. It is not possible for us at this stage to give a general assurance about the accuracy and reliability of the efficiency gains that are being reported because there are still some significant weaknesses in the information, so, in our report, we have commented on the extent to which the efficiency gains that have been reported so far are based on robust processes and information. Further work will be necessary to demonstrate the achievements of the initiative and its impact on the quality and level of service delivery. I emphasise that we are not seeking to provide an independent assessment of the accuracy of the level of efficiency gains that have been reported to date.
The efficient government plan was published in November 2004. The Executive indicated that it could achieve efficiency gains amounting to £1.5 billion in the three-year period to March 2008. Some £900 million of those gains were expected to be cash releasing: the same level of service being delivered with less money. The other £600 million were time-releasing gains: more or better services being delivered with the same money.
The Executive has since identified projects that are expected to deliver nearly £1.3 billion of efficiency gains. It is working to identify projects that will deliver the rest of the gains and it expects to announce them shortly.
The Executive has set targets to quantify the gains that each project is expected to deliver in each of the three years of the initiative. In September 2006, the Executive reported efficiency gains that amounted to £442 million, against its target of £405 million in the year to March 2006.
Audit Scotland reviewed in some detail progress on 12 of the major projects that the Executive identified. Between them, those 12 projects cover £380 million of the £442 million of efficiency gains that were reported for 2005-06. Our review concentrated on progress in comparison with the expectations that were set out in the efficient government plan and considered the scope for improvement in the systems and processes that were in place to record and report efficiency gains. We found clear evidence of a commitment to improve efficiency throughout the public sector. However, further action is needed to provide assurance on the level of efficiency gains that is reported and their impact on service delivery.
I draw members' attention to five matters on which improvement is necessary. First, setting a robust baseline is essential. If the Executive is to measure robustly the progress that is being made against efficiency targets, it must have a good baseline of information on costs and service outputs and outcomes. Most of the projects that Audit Scotland reviewed appeared to have established robust baselines, but some needed to be improved. For example, the information that was used to establish the baseline for the initiative to reduce sickness absence in the NHS was poor, because some health boards could not provide accurate data on the level of sickness absence at the start. If no robust baseline exists, the risk is that the reported progress in reducing sickness absence could be unreliable.
Secondly, more needs to be done on quality measures. Efficiency gains will result from the initiative only if the level and quality of services are at least maintained. The report shows that it is possible to track the level and quality of a service. We give the example of the monitoring arrangements that relate to the quality of legal services that are supported by payments from the legal aid fund.
However, in other areas, more needs to be done to track the impact of efficiency initiatives on the level and quality of the service that is provided. For example, the employment of classroom assistants in schools was expected to release teachers' time. The idea behind that project is to increase staff productivity by releasing teachers from administrative tasks to allow them to spend more time with individual pupils. However, no measures identify the extent to which teachers are managing to work more productively through that release of time.
Thirdly, methods for calculating efficiency gains are not always robust. The report highlights several cases in which the calculation of efficiency gains was based on extrapolation. For example, NHS boards reported savings of £21.6 million as a result of better drug prescribing, but reliance was placed on the extrapolation of information by the chief pharmacist in each board area.
Another example is the £122 million of efficiency gains that the 32 Scottish local authorities reported in 2005-06. The value of the gains was based on research that the Improvement Service commissioned. That research produced the estimate of efficiency gains of £83 million in 21 councils that took part in the research work. Of that total of £83 million, £37 million was based on case studies at six councils and £46 million was based on a survey questionnaire that 15 councils returned. The six case studies were the subject of scrutiny and challenge to validate the savings that the researchers claimed, but the researchers did not do the same with the self-reported survey data from the other 15 councils. The Improvement Service advised us that it considers that the detailed case studies show that councils underestimated rather than overestimated the efficiencies that were made. However, in my view, the overall approach is insufficient to validate the accuracy of the reported savings.
Fourthly, better supporting information is needed. Audit trails are important, because they show how a project's efficiency gains are calculated all the way from the data collection process through to the processing, analysing and reporting phases. Most of the projects that Audit Scotland reviewed had a clear audit trail, but in a few cases the Executive could not check reported gains because insufficient information was provided to it. The drug prescribing project that I mentioned is an example of that. NHS boards reported savings of £21.6 million, but apart from a reasonableness check that NHS National Services Scotland undertook, no other work was done to verify those significant reported savings.
A final matter on which tightening up is needed relates to development costs. Some savings are claimed gross of development costs, while others are netted off. The Executive's guidance says that, when possible, development costs that relate directly to efficiency gains should be deducted from the efficiencies that are being claimed. In most of the cases that Audit Scotland reviewed, developments were expected to meet several business objectives and not just to deliver efficiency savings. For example, the NHS developed the new Scottish workforce information standard system to provide better management information to NHS managers and not just to deliver efficiency savings. In such cases, it is appropriate not to deduct development costs from the reported efficiency gain.
However, Audit Scotland has identified instances when development costs should have been deducted from the reported efficiency savings but were not. For example, the Association of Chief Police Officers in Scotland reported efficiency gains of £3.7 million from reducing sickness absence in 2005-06. It is unclear whether the development costs that were associated with enhancing the occupational health service to improve attendance rates were deducted from the £3.7 million of efficiency gains.
In conclusion, a wide body of evidence suggests that the efficient government initiative is delivering savings that would not otherwise have been achieved. In general, people who are responsible for delivering efficiencies throughout the public sector are responding well and the initiative is being embedded in the day-to-day business of managing and running public services. However, significant improvements in the information systems that underpin the work are still needed. Without better information, there is the prospect that uncertainty will continue about some of the efficiency gains that are reported.
With Audit Scotland's support, I will continue to monitor the implementation of the efficient government programme and, through the audit process, I will keep under review when it might be appropriate to issue a further report.
Thank you, Auditor General. The report is interesting.
From my experience on the Finance Committee, I recall a letter from Caroline Gardner to that committee in about August 2005, in which concerns were expressed about the need to develop robust baselines, the identification of output and quality measures and the fact that the calculation of efficiency gains must be after the deduction of development costs and so on. I paraphrase the letter, because it is not in front of me, but it said that without such progress it is difficult to validate the savings that are reported.
In the report that the Auditor General has published today—more than 12 months after that letter was issued—I see the same criticisms and concerns. Has any material improvement taken place in the information-gathering process in the intervening 14 months or so since Caroline Gardner made those remarks to the Finance Committee?
The contribution that Caroline Gardner offered to the Finance Committee was based on Audit Scotland's assessment of the efficiency technical notes, as I am sure Mr Swinney recalls.
That is correct.
We commented in some detail on three matters: measurement, methodology and eligibility. At exhibit 3 in the report, we summarised what we said at that time. The world has moved on, but we acknowledge that some issues remain to be fully addressed. The Executive acknowledges that further work is necessary to develop the efficiency technical notes so that reported efficiency gains can be validated. Our responses and comments last year helped to inform the revised efficiency technical notes, which were published in March 2006, so the Executive is making progress, but there is still some significant way to go.
From the dialogue between the Auditor General and the Executive, can he say what proportion of material improvement has been made since the correspondence was exchanged with the Finance Committee in August 2005? Has the Executive made 5 or 10 per cent of the 100 per cent of progress that is required?
I am not sure whether we can give you such assurance, but I ask Audit Scotland colleagues, who are closer to the detail than I am, to help with a general idea of how things are going.
Bill Convery (Audit Scotland):
It is difficult to put a number on it. Progress has been made in a variety of ways; some baselines have improved, as has some record keeping. We now try to capture how much more time a teacher provides for individual pupils or, if a policeman is replaced by a civilian, how much more time he spends on the beat. Processes have been established throughout the past year and will continue to be established. We do not have a figure that shows a 5 or 20 per cent improvement. A range of measures is being implemented in all the projects.
If no number exists, is it fair to say that there is still a way to go?
Trying to measure such matters is very complex and a good piece of work has to be done yet.
The report's clear conclusion is that unless that work is done, it is difficult to validate the information that the Executive has provided.
Yes. It will be very difficult to validate accurately the savings figures that have been claimed. It may seem implicit that savings will be made by replacing experienced policemen with civilians, replacing teachers with classroom assistants and reducing lecturers' time on administrative work. They may seem eminently good cases of efficiencies, but saying accurately how much they have saved is complex.
My question is about the standardisation of reporting systems. They need to dovetail centrally and locally, yet we find in the report that some efficiencies—particularly those that ACPOS identified—cannot be drilled down into. That is a concern. Under the justice portfolio, savings in prison escorting and court custody services are indicated to be £10 million, £35 million and £50 million, yet when the contract was awarded to Reliance, nobody could tell us how many hours police forces spent on those activities, never mind how much money they spent. How much can we rely on the figures that are being reported to us?
I am not sure whether we can give you a kitemark on the degree of reliance that can be placed on the numbers. The underlying point of the report is that the direction of travel is significant and positive, but that quite a lot of work needs to be done on large areas to capture information that will allow us to give members any assurance about the precise savings that are being delivered.
The prime responsibility in such matters lies with accountable officers, who are expected to sign off reported savings on the basis of assurance statements that project managers provide. Project managers often believe that efficiencies are being achieved and, of course, they are close to the scene of the action, but that is not the same as having robust information that allows us to validate that that is happening.
I will ask about two or three matters rolled into one. The general perception, which I think the figures back, seems to be that the people who are taking the biggest hit are in local government and the health service. The perception, at least, is that the Executive's departments are not pursuing efficiency savings internally as robustly as they expect others to. Do you feel that there has been any improvement in that respect?
Can you also comment on the fact that, after certain statements on education funding, efficiency savings in education seem almost to have been ring-fenced, but without any clarity as to how savings made from what most people believe are front-line services will be reallocated?
It is true that the health service and local government contribute the biggest absolute amounts to efficient government initiative targets. As we show in exhibit 6, in which we rank the projects that are expected to deliver the most efficiency gains, NHS savings come at the top of the list, followed by local government, non-NHS procurement and so on. Exhibit 7, on page 15 of the report, sets out that information in the form of a pie chart. I could have included in the report another pie chart showing who spends the money. Roughly a third is spent by the NHS, another third by local government, and the final third by all the other agencies in Scotland and central Government. As a result, the indicative savings targets are not generally out of alignment with the volume of devolved spending under the control of the different agencies.
However, it is also true that, within the broad totals for savings, significant savings are expected to be made through general efficiency savings delivered by the top-slicing of the resource allocation to NHS bodies and local government. It is for individual bodies to manage and achieve those savings within their budgets, and that work has been supported by quite a number of initiatives from the centre, including e-procurement and other procurement initiatives.
How clear are we about what happens to the savings that are made? For example, will the savings made in the NHS be kept within the health service?
As I said earlier, the principle behind the efficient government initiative is that all savings are reinvested in the service. However, I do not think that we have any information on how that will happen.
In our discussion of the report "Overview of the financial performance of the NHS in Scotland 2005/06", we touched on the fact that, as far as efficiency in the NHS is concerned, savings are not necessarily reinvested to reduce public spending. Is there a different discipline at work in the efficient government initiative? Surely the fact that savings are not reinvested to reduce expenditure influences how soft or hard any information might be.
I am not sure that I would draw that distinction. We are all aware of the general pressure on resources. The NHS financial overview report, which the committee considered only this morning, very clearly indicates that, although the system is coming in in balance at the end of the financial year, some very significant financial pressures underlie the presented figures. Indeed, those pressures provide an enormous incentive to those who run and deliver NHS services to achieve efficiency gains.
One of the very positive aspects of the efficient government programme is the range of support initiatives that the Executive has introduced to assist in driving efficiency improvements that will help with the overall picture. I do not think that, in the overall system, there is any lack of incentive to improve efficiency.
I have three questions. First, I wonder whether the Auditor General will draw on his own experience and insights and provide some broad, overarching comments on the approach taken by the efficient government initiative to drive public sector efficiency. This is neither the first nor, I imagine, the last drive by central Government to deliver improved efficiency in the public sector. You have made it clear that, according to the evidence, the initiative is delivering savings, but how effective has the approach been in delivering improvements in public services? Moreover, in light of the work that you have carried out on this initiative and on the other approaches that I am sure you have seen in your many years and decades in public sector management, how do you think the overall approach to delivering efficiency in the public sector might be improved?
I am not sure that I have time to give a comprehensive answer to Susan Deacon's challenging and extremely important question, but I will offer one or two brief comments that might be helpful.
First, I should point out that, as the efficient government programme sits not in isolation but within a framework that is designed to modernise, improve and ensure investment in public services, any response to your question must consider the wider picture. For example, alongside the application of the efficient government initiative in local government, best value reviews that are being carried out on all councils place their performance at the centre of their agenda and require them to report in public on service delivery and performance. Moreover, in parallel with that, we are working with the Executive to develop better performance indicators that will challenge councils on how each of their services is being delivered. The efficient government initiative is part of a much wider approach towards driving modernisation and improved efficiency.
One sweeping generalisation that I will make—and here I step outside the area of hard audit evidence—is that the efficient government initiative strikes me as the most sustained and purposeful commitment to improving the efficiency of government in Scotland that has been made for quite a considerable time. As I hope my report demonstrates, although real and significant doubts remain about the absolute numbers that we have set out, we have been struck by the fact that the commitment to efficiency is becoming embedded in the public sector and feel that some significant initiatives that have been introduced in areas such as procurement will endure.
I am very grateful to the Auditor General for rising to the challenge presented by that broad question. Convener, you will be pleased to learn that, in my other two questions, I will focus on particular issues.
The report says that there must be an improvement in how the impact of efficiency savings on quality is measured, and recommends:
"More needs to be done to develop measures of output quality to ensure that service quality is maintained".
Is there a danger of putting too much emphasis on what is measurable and not enough on what is important? Indeed, is it not the case that the impact of some aspects of service quality on individuals, communities or the country is difficult, if not impossible, to measure? I wonder whether you will elaborate on that hugely important issue and assure us that, in future, there will be a focus not only on the aspects of public service quality that can be measured but on the aspects that people recognise as important.
Susan Deacon has identified a significant risk. Indeed, because of that very risk, our report emphasises the importance of doing more to develop good measures not only of the quality but of the quantity of services. Without such a move, efficiency gains might be claimed that have an adverse effect on the quality of service that is delivered. We cannot analyse that because the information is not available, but it represents one of the big risks that the efficient government initiative must address.
My final—and much more specific—question relates to the efficient government delivery division, which your report recommends be retained and, I believe, developed. Indeed, you say that the division should have
"an appropriate level of resources and skills to drive forward the initiative and to monitor its progress".
Will you tell us a bit more about the EGDD's size and composition—by which I mean the professional background, skills mix and so on of the people who work in it? What should its size and composition be in future?
This is one of the more detailed areas of the report. The efficient government delivery group has evolved into the efficient government delivery division. It is embedded in the part of the Executive that drives its modernisation agenda. The new profile and status that the division has attained over the past year will probably enhance its effectiveness.
The division is not large; it contains four portfolio managers, each of whom is responsible for working with particular departments and related bodies by monitoring projects, offering constructive challenges to what is happening, helping to develop best practice and calculating the reported efficiency savings. They are also responsible for taking forward initiatives under the five work streams identified in the efficient government plan. As a result, they are central to the advice and support that the Executive provides to government in general on driving forward the efficient government initiative.
One detailed but significant point that has emerged is that, since its inception, the division has experienced quite a high turnover of staff. Its remit has been expanded to include development of the e-government initiative and the promotion of initiatives that are designed to enhance the public's awareness of information technology and access to the internet. However, as its remit expands, there must be a risk that its focus on efficient government might be lost. We are not saying for a moment that that is happening, but we thought that it would be helpful for the report to highlight the risk.
My Audit Scotland colleagues might be able to provide further information with the group's size.
The division comprises a very small team of six people: the four portfolio managers who have already been mentioned and two senior managers. We are concerned that, with only four portfolio managers, the team's capacity to validate the returns and savings arising from the processes that are being developed and are coming on stream in the various projects will be tightly challenged.
We believe that the team has sufficient expertise. It is made up of senior people. One has an audit background and one or two others have been in the Executive and certainly have expertise in the areas for which they are responsible. The problem is more to do with numbers than with the officers' abilities.
Does anyone in the team have a human resources or training background?
I am not aware of that.
I think that we have exhausted our questions for now, but we will be able to ask some more when we return to the issue later in the agenda. I thank the Auditor General and his team for their briefing.
Before we move on to item 5, I will suspend the meeting for a couple of minutes to allow witnesses to take their seats and members to have a comfort break.
Meeting suspended.
On resuming—