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“Smarter government” could secure billions in savings

Author: ICAEW Insights

Published: 22 Jan 2024

The National Audit Office chief highlights areas of opportunity for government, but warns savings could only come from more innovation, better data and tighter governance.
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The government could save tens of billions of pounds to improve public services and boost productivity if it applied greater innovation and better management to public assets, according to the National Audit Office (NAO). 

Despite tighter public funds, a “smarter government” can deliver more with the money already available, Comptroller and Auditor General Gareth Davies told ministers while delivering his annual flagship speech in Parliament last week.

The head of the public spending watchdog said: “Parts of our national infrastructure are crumbling. Maintenance backlogs persist across the public estate, impeding service delivery and costing more over time. Out-of-date IT slows the modernisation of many public services, interferes with efficient government and increases the risks of successful cyber-attacks.”

Davies said that despite the tough challenges ahead as higher inflation combines with demographic changes, leading to increased demand for many services, they should not deter any “government of whatever complexion” from achieving “more with what it already spends”.

Financial opportunity

Davies highlighted five areas of “financial opportunity as part of a blueprint for value for money” aimed at getting the most from every public pound: major infrastructure projects; asset management; procurement; digital transformation; and reducing fraud and error.

He identified three “enablers of productivity” to realise the savings – better data, innovation and evaluation “underpinned by a focus on leadership and delivery skills”.

Better oversight

Pointing to recent infrastructure failures, Davies said there was a “governance problem” at the heart of government. The NAO’s research found failures in cost estimation and control over major infrastructure projects. He pinpointed HS2 and the New Hospital Programme as “examples of mega projects too large for risks to be managed by the relevant departments and arms-length bodies. Both lacked sufficiently robust and realistic assessments of affordability at the outset,” he said. 

The NAO chief said a cross-government oversight board was needed from the outset to oversee the governance of genuine mega projects. “This would increase the chance of making better go/no-go decisions and more effectively holding the project to account for cost control and delivery,” Davies added.

Alison Ring, OBE FCA, ICAEW Director for Public Sector and Taxation, commented: “The common thread running through the National Audit Office’s recommendations is the need for better governance and stronger financial management right across government. 

“Many of the failures identified are the result of ineffective stewardship of major projects, poor asset management that has prioritised short-term maintenance cost savings that end up costing more in the long-run, weaknesses in procurement that have seen billions of pounds wasted, antiquated systems and processes that are plainly inadequate, and huge sums lost by not investing enough to prevent, detect and recover huge sums lost to fraud and error.”

On maintenance of existing public assets, Davies said this was just as vital as building new infrastructure. “The NAO’s recent work has highlighted the false economy of allowing maintenance backlogs to build up,” he said. “Our report on school buildings found more than a third are beyond their design life, leading to higher running costs and in some cases emergency repairs, which continue to affect pupils, teachers and parents even now.” 

Buying power

The government could also save billions on improved procurement processes, which Davies said were “patchy, with an overreliance on expensive temporary contracts and misaligned commercial incentives”.

The government spends around a third of its money buying goods and services each year. Of £100bn of contracts awarded by major departments during 2021-22, a third were either direct awards or contract extensions, according to the NAO.

“Spending on IT services is an excellent example of where further efficiencies lie. Maximising buying power in a market dominated by global giants is essential,” Davies said.

This will resonate with taxpayers who are shocked at the treatment of postmasters in the Post Office/Fujitsu scandal, where the expensive but unreliable Horizon IT system is in focus.

An NAO report on competition in public procurement estimated the government could save between £4-8bn of “further annual efficiencies through increased competition”.

More digital transformation

The NAO’s report card for government wasn’t all bad news, though; it highlighted the success of digital transformation at the Passport Office, which has saved money and improved customer experience following a huge backlog after COVID-19 travel restrictions were lifted.

However, Davies warned that the challenge facing government is vast. “In 2020, the Department for Environment, Food and Rural Affairs estimated that it would need to spend more than three quarters of its digital budget maintaining ageing systems. The Ministry of Defence in part relies on kit dating back to the Cold War for defence inventory management.”

Better fraud prevention, detection and recovery are also required. “Our work shows more effective defences against fraud and better detection and recovery of losses could realise billions of pounds. Universal Credit fraud and error currently costs taxpayers £5.5bn a year,” he said.

Ring says: “While there are some notable success stories, government must realise that productivity improvements do not happen by magic. Significant upfront investment in both technology and people is required, as is dedicated effort by both ministers and civil servants and high-quality governance processes that ensure strategic objectives are met and risks are managed in practice and not just in theory.”

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