111/94 19 October 1994
FUNDAMENTAL EXPENDITURE REVIEW: EXECUTIVE SUMMARY
FUNDAMENTAL EXPENDITURE REVIEW: EXECUTIVE SUMMARY
- A review focused on quality not costs ...
- Given its centrality and importance to government in this
country the Treasury is a remarkably small department. Our
review has therefore not sought to deliver a pre-determined
reduction in staff numbers or costs but to improve the
quality of service the Treasury provides.
- Even in the best organisations there is always room for improvement...
- The Treasury is an extremely effective and impressive
department, full of dedicated, professional and
public-spirited staff. But in any organisation there is
always room for improvement in the way things are done -
particularly if the organisation has not looked at itself
"fundamentally" for many years.
- Our review has benefited substantially from the ideas and proposals of those we have consulted ...
- In the course of our review many excellent and innovative
ideas for improving the Treasury have been offered to us, by
a wide range of different groups, including Treasury staff
themselves, and other government departments.
- And we have been greatly helped by the work of the three
project teams, which have produced clear and comprehensive
reports on three controversial subjects, with
recommendations that we, for our part, can broadly support.
- And it has been shaped by the wider context ...
- An agenda for change ...
- Against this background our review has developed a number of
proposals for improving the performance and flexibility of
the Treasury. We have:
described clearly what we think the Treasury's
suggested how the department might best be organised to
pinpointed activities which do not seem to us to
contribute much to meeting those objectives;
identified other activities which might be done more
efficiently or effectively outside the Treasury;
considered work which might be done better if it is done
highlighted some areas where more resources might
sensibly be invested in future;
established a management structure which pushes more
responsibility down the line, while leaving room for
creative and strategic thinking throughout the
described the improvements we believe are needed in the
department's central support services if the slimmed
down Treasury we propose is to be able to carry out its
essential tasks more effectively in the future.
- What should the Treasury be trying to achieve ...
Table 1 sets out how we think the Government's financial and
economic policies might be translated into concrete
objectives for the Treasury and its staff. It also
demonstrates the link between these objectives and the
Treasury's more timeless mission as a department of state.
Some of these objectives are not entirely within the
department's own control. They can only be achieved in
partnership with others - for example, with the private
sector, with other government departments or the financial
But all of them, one way or the other, make a contribution
to the Treasury's overall aim - to promote rising prosperity
based on sustained economic growth.
- Organising the Treasury to deliver ...
- Table 2 sets out how we believe the Treasury's top
management should be organised to deliver the new
objectives. Our proposals reduce the number of directorates
from the current nine to seven, and:
bring together under the Chief Economic Adviser all the
Treasury's current work on monetary policy and
create a new Public Finances directorate which will look
after both sides of the Budget and oversee the
Treasury's remaining interests in the efficiency and
management of the civil service;
bring together almost all the Treasury's expenditure
divisions in a new Expenditure and Policy Analysis
directorate, which will have the task of ensuring that
the department's fundamental responsibility for the
control of public expenditure does not cut across our
separate objective of improving the performance of the
economy and the outlook for jobs;
bring all the Treasury's central financial reporting,
accountancy and audit work under the Chief Accountancy
Adviser, including responsibility for the Treasury's own
free up the director of Personnel Finance and Support to
spend more time on the key Treasury human resources
issues and on the critical task of putting in place the
support systems we believe are required to improve the
Treasury's performance in future.
- In our view this new structure is both more logical and more
efficient than the current organisation. It will remove
most of the current duplications and potential confusions,
match workloads better to capacities, and make it much
clearer which directorates have the lead responsibility for
delivering which objectives.
- Cutting out or streamlining activities which do not need to be done ...
- Moving work outside the Treasury ...
- We also believe that some work currently done in the
Treasury might be better handled by other government
departments or by the private sector - for example where
this work fits better with these other organisations' core
responsibilities, with the professional skills they value
and encourage, or with the interests and attention of their
given a more strategic - and more delegated - approach
in future to the control of departmental running costs
it is no longer necessary, or in our view sensible, for
the Treasury to control the personnel management or
pension entitlements of civil servants in other
departments. We therefore believe that the Treasury's
current work in this area should be passed to OPSS where
it can be brought together with the responsibility for
other civil service management issues;
we believe that the division of work between the
Treasury and SIB, under the Financial Services Act,
might sensibly be re-examined; at present the Treasury
has a quasi-executive role in some areas which in our
view should be transferred to SIB;
we believe that the quality and cost effectiveness of
some of the Treasury's key support services could
potentially be improved if these were provided instead
by private sector specialists - including the great
majority of the Treasury's training needs, the
management of the main Treasury building, some of the
more routine IT operations and perhaps also the central
- What might be done differently ...
- Alongside the more strategic approach to the control of
running costs articulated in the Civil Service White Paper,
we have looked at the scope for strengthening the Treasury's
approach to the control of departmental spending more
- clearly the Treasury must continue to exercise the
firmest possible control over public expenditure. But
we doubt whether to do this it is either necessary or
efficient for the Treasury to retain its current panoply
of detailed controls over individual departments' gifts,
ex gratia payments, projects and so on. We therefore
welcome the steps that a number of divisions have
already taken to withdraw from much of this work, and
hope that the remaining controls can be subjected to a
- we believe that a more systematic attempt should be made
to identify the skills, abilities and experience that
staff in the Treasury's expenditure divisions need to
analyse and control effectively the spending and
policies of other departments;
- we would like to see the Treasury's valued specialist
advisers integrated much more fully into the
department's core expenditure and policy analysis teams,
and managed and tasked in future not by more senior
specialists, but by their customers within the Treasury;
- and we believe that, without losing sight of their
crucial public expenditure control responsibilities, the
Treasury's expenditure divisions should be more prepared
to think pro-actively about how their departments'
spending or policies might be adapted or developed to
strengthen the economy, the efficiency of markets, the
competitiveness of industry and the outlook for jobs.
- To help bring these improvements about we have proposed
that nearly all of the Treasury's expenditure divisions
should be brought together under one director, who will be
charged explicitly with developing the culture of this key
part of the organisation.
- And we have suggested two procedural devices to help
institutionalise the changes we would like to see:
- the regular submission of papers to Treasury Ministers,
seeking clear and early guidance on what the Treasury's
key policy objectives should be in relation to other
departments' policies and spending - a process designed
to allow the potential trade-offs and conflicts between
the Treasury's different public expenditure, supply side
and other objectives to be resolved explicitly by
Ministers within a clear medium-term framework; and
- the agreement of explicit "contracts" between each
department and its controlling expenditure and policy
analysis team on the respective roles, rights and
responsibilities of both parties to the agreement.
- What we should be doing more of ...
- There are also a number of activities which in our view the
Treasury and its staff should spend more time and money on.
- we have proposed the establishment of a central
strategic analysis team, whose main task will be to
produce an explicit analysis each year of how the
Treasury's management and policy advice has been
influenced by likely medium and long-term developments
in the department's external environment; and
- we have argued that much more emphasis and resources
need to be given to improved training for Treasury
staff, and particularly to the "immersion training"
received by staff before they take up new posts.
- We have also suggested that the Treasury's legal advisers,
currently located in the Treasury Solicitor's Department,
should be brought in-house and eventually integrated fully
into the rest of the department.
- An efficient and effective senior management structure ...
- In conducting our review of the Treasury's senior management
structure - down to the current Grade 5 level - we have been
helped considerably by the work of the Management Levels
- Table 3 summarises our proposals (NOT ATTACHED ON E-MAIL
VERSION). We believe that:
- the responsibility for taking forward the Treasury's
activities should be pinned clearly on a set of team
leaders, most of whom, in today's language, will be
Treasury Grade 5s;
- these team leaders will report to a directorate
management team, which will be responsible for ensuring
that the directorate is resourced, organised and staffed
to deliver its objectives;
- but the team leaders will not do all the work. We
believe that as much responsibility as possible should
be delegated down the line.
- The structure we have proposed assumes that Treasury
directors and their directorate management teams will in
future play a more managerial and strategic role.
- They will not be duplicating, second-guessing or, in
general, supervising the work of the teams set up to carry
forward the directorate's business.
- Rather they will be setting clear objectives, providing
advice and encouragement, monitoring performance,
maintaining quality and managing priorities.
- Implications of the proposals for staff numbers...
- Taken together our proposals imply an eventual reduction in
the number of senior management posts in the Treasury of
around 30%, although the number of senior staff the
department will need on its books actually to fill these
posts will fall by rather less, by around 25%, if staff in
future are given up to three months between jobs to prepare
for their next posting.
- A slimming down on this scale at the top of the Treasury is
bound to have "knock on" effects through the rest of the
organisation - but while we would not expect to see the same
impact on staffing numbers at all levels in the
organisation, the full effects of the senior management
review on the rest of the department will only become clear
once all our proposals and those of the project teams have
been worked through in detail.
- Some will be concerned of course to see a reduction in
promotion prospects within the current grading structure.
But the introduction of new pay and grading arrangements
within the Treasury from 1996 should provide greater
flexibility, and more scope, for ensuring that staff who
perform well can be fully rewarded through the pay system.
- In the meantime we hope that many staff lower down the
organisation and in middle management positions will seize
and relish the new opportunities and responsibilities which
our proposed management restructuring is intended to give
- And overall we believe that our proposed new structure will
strike a much more satisfactory balance than now between:
- the need to resource the Treasury with enough senior
managers to ensure that quality is not compromised and
that each directorate's work is fully informed by a
wider, more strategic and more experienced view; and
- the desirability of delegating responsibility as far as
possible down the line.
- Improved central support services
- But we also believe that the re-organised and delayered
Treasury of the future will need to be a much better
- In concrete terms we believe our proposals for streamlining
the Treasury's senior management structure should be
- the rapid modernisation of the Treasury's IT and filing
systems, as proposed by the Efficient Office Project
- better training for all staff, based on a clear audit of
the department's skills needs;
- better management training for all managers and a clear
recognition that poor managers, however clever, will not
in future be promoted into management positions;
- more structured, more transparent and more responsive
personnel systems, as recommended by the PFS Project
- high quality, properly resourced and flexibly managed
secretarial, clerical and messenger services which are
integrated as far as possible into the teams and
directorates for which they work;
- a more rational and convenient organisation of the
office, with those working closely together being
located near to each other;
- and accommodation plans which bring Treasury staff
together in one central London location, in a building
that has all the facilities one would expect for the
- For too long, in our view, the Treasury has neglected the
basic support infrastructure which is largely taken for
granted in other organisations and which should be designed
to help rather than hinder the daily lives of a dedicated
and hard-working staff.
- In the end the Treasury's only valuable asset is its people,
and the professional reputation of the department which they
create and sustain. We believe that throughout the Treasury
managers must behave in future in ways that demonstrate
that this reality has been clearly understood.
Table 1: The Treasury's proposed new aim, objectives, and
The Treasury's overall aim is to promote rising prosperity based
on sustained economic growth.
In seeking to meet this aim we will:
* maintain a stable macroeconomic environment;
* improve the long-term performance of the economy and the
outlook for jobs, in strategic partnership with others;
* maintain a professional, well motivated and outward-looking
organisation, committed to continuous improvement.
In seeking to meet this aim we will:
maintain a stable macroeconomic environment, by
1. delivering permanently low inflation.
2. maintaining sound public finances.
3. keeping public expenditure to a level that is affordable.
4. pursuing tax policies which generate sufficient revenue,
while doing the least damage to the economy and encouraging
strengthen the long-term performance of the economy and the
outlook for jobs, in strategic partnership with others, by
5. promoting policies and public expenditure priorities which
improve the use of resources and the efficiency of markets
throughout the economy, within an affordable level of total
6. maintaining a financial control system which delivers
continuing improvements in the efficiency of government
7. maintaining a framework for government accounting which
makes clear how public sector resources are used.
8. promoting greater use of private finance in support of
services currently provided by the public sector and
privatising those parts of the public sector which do not
need to remain in public ownership.
9. maintaining a regime for the regulation of financial
services that protects depositors and investors while
preserving the competitiveness of UK firms.
In carrying out all these responsibilities we will:
10. keep abreast of developments in other countries and promote
UK economic interests and ideas abroad.
11. ensure that Parliament and the public are well informed
about the objectives and effects of the Government's
economic and financial policies.
and maintain a professional, well motivated and outward-looking
organisation, committed to continuous improvement, by
12. ensuring that the Treasury is resourced, staffed and managed
to deliver its objectives as effectively and efficiently as
Table 2: The proposed new directorate structure
Directorates Lead Responsibility
Macroeconomic Policy 1,2
International Finance 10
Public Finances 2,3,4,6
Expenditure and Policy 3,5
Financial Reporting 7,12
Finance Regulation 8,9
Human Resources 12