Experienced Whitehall officials would have been forgiven for experiencing a sense of deja vu when listening to the chancellor, Rachel Reeves, this month as she laid out her plans to drive efficiencies from the civil service as part of her spending review.
“The previous government allowed millions of pounds of taxpayers’ money to go to waste on poor value for money projects,” she said, as she told departments to draw up plans for 5% efficiency savings across their budgets.
Rishi Sunak had a similar message when he launched his own spending review as chancellor in 2021. “Your returns must … ensure that we can provide a better service for the British public, at lower cost,” he told his cabinet colleagues, as he also demanded efficiency savings of 5%.
Six years earlier George Osborne also demanded that departments “deliver more with less” as he asked them to make annual cuts of between 3% and 6%.
A Treasury requirement for departments to save about 5% of their annual costs by providing public services more efficiently is a feature of almost every spending review, to the extent that some in Whitehall believe the number to be largely fictitious.
“The Treasury always asks for somewhere around 5%,” said one official. “The number seems to be hardwired somewhere deep in the Treasury brain without anyone knowing what it is based on.”
James Nation, a former adviser to Sunak at the Treasury and now managing director at Forefront Advisers, said: “You will definitely have read the 5% number before. In the three spending reviews I worked on, you always ask departments for efficiency savings of between 3% and 6% – but usually 5%.
“That is what the Treasury reasonably says is a deliverable amount of money to be able to save with more efficient use of resources. There is no modelling behind it but it’s the Treasury view of how much departments could reasonably squeeze from reducing consultants, squeezing the number of personnel and greater control over arms’ length bodies.”
Despite some scepticism from experienced Whitehall hands about the credibility of the 5% number, those who have been through spending reviews say the exercise is often useful for focusing minds on where money could be better spent.
Efficiencies can be found in better use of technology, whether through artificial intelligence or the use of more basic software in a more logical way. No 10, for example, uses Microsoft to share documents, while the Cabinet Office uses Google, leading to frequent delays as people pass information from one department to the other.
Next week, the Public Accounts Committee will flag similar problems with the lack of integration between corporate databases used by HMRC, Companies House and the Insolvency Service.
“It stands to reason that there are savings to be made if the Cabinet Office get their teeth stuck into applied AI and better use of consistent software across government,” said Nation.
Other savings are available through policy innovation. A recent review of productivity in the police, for example, included a programme called Project Cara, which promoted behaviour change in first-time domestic violence offenders. Pilot schemes showed the project was remarkably effective at reducing reoffending, leading to public savings of between £2.75 and £11.10 for every pound spent on the policy.
For immediate savings, however, departments are usually forced to reduce either civil service pay or headcounts. The Guardian revealed this week that ministers were planning more than 10,000 job cuts to help deliver the savings Reeves is demanding.
Often, however, Treasury efficiency demands leave ministers with little option but to cut core items of spending.
When George Osborne asked departments to shave between 3% and 6% from their budgets, many reallocated money from their capital budgets to help keep departments running.
“In the short term, that looks like an efficiency saving, because you don’t notice if a new hospital hadn’t been built or routine maintenance hasn’t been carried out,” said Nick Davies, a programme director at the Institute for Government.
“But it means you have a public sector which is literally crumbling, which is a big dampener on productivity.”
In some cases, the Treasury was forced to step in and hand over in-year cash top-ups to protect frontline services. This is a particularly inefficient use of public money, experts say, because it often requires departments to hire expensive contractors at short notice to help manage the extra spending.
Sometimes the savings are not efficiencies at all but instead examples of projects that have fallen out of political favour.
When Reeves launched the spending review earlier in the month, she announced a look at £6.5m being spent sending social workers into schools, declaring that the Boris Johnson-era project was “not considered cost-effective”.
“That’s not an efficiency saving, that’s stopping something that doesn’t work so well,” said Davies. “The government should do that but the evidence is not always that good, and can take years and years for it to appear.”
The chancellor may not achieve her goal of saving 5% from departmental budgets purely through efficiencies. But almost everyone who has experienced a spending review says the target is not the point, rather it is the process that matters.
Cameron Brown, a former Treasury adviser, said: “The government spends around £1tn a year. There are always efficiencies to be made and projects that are not delivering value for money. Spending reviews help departments get into the rhythm of looking for savings.”
“How much an efficiency review really achieves is hard to say,” said Clive Betts, a Labour member of the Public Accounts Committee. “But you have to go through and challenge departments – that’s simply something the chancellor has to do.”
