111/94                                            19 October 1994

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 ...

  • We have also taken fully into account the wider policy context in which the Treasury, as a department of state, has to operate - for example, the changed role for the central departments set out in the Civil Service White Paper, which has clear implications for the way the Treasury and OPSS seek to control other departments' running costs.

  • And we have tried to build on the "picture of the future Treasury" which the department's most senior managers were beginning to develop before our review got underway.

• 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 objectives are;

    • suggested how the department might best be organised to deliver them;

    • 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 differently;

    • 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 department; and

    • 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 regulators.

  • 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 inflation;

    • 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 budget;

    • 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 ...

  • A number of the Treasury's current activities seem to us to contribute little to meeting the department's objectives, and our review has also identified a few other areas where some streamlining of effort may be possible. For example:

    • we believe that the quality of the Treasury's macroeconomic policy advice would decline if the Treasury pulled out of economic forecasting. But we doubt whether it is sensible to devote quite as much high quality resource to forecasting as we do now;

    • we fully support the more strategic approach now being developed to the control of departments' running costs. We believe this should allow a further major streamlining of the resources the Treasury devotes to overseeing the management of other departments;

    • we see no need for the Treasury to approve the "pay and rations" of individual civil servants or of those serving on the boards of nationalised industries or non- departmental public bodies. Any financial or political control that is thought to be required over the pay or pensions of individual public sector employees is best exercised in our view by the relevant "sponsoring" department, not by the Treasury;

    • we hope it may be possible to find ways of increasing the efficiency with which routine ministerial correspondence is handled, so that resources can be saved in this area without any deterioration in the quality of service provided to those who write in.

• 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 senior management:

    • 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 messenger service.

• 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 generally:

    • 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 rigorous review;

    • 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. For example:

    • 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 Project Team.

  • 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 them.

  • 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 supported Treasury.

  • In concrete terms we believe our proposals for streamlining the Treasury's senior management structure should be accompanied by:

  • the rapid modernisation of the Treasury's IT and filing systems, as proposed by the Efficient Office Project Team;

    • 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 Team;

    • 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 21st century.

  • 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.

       *   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.

                          Directorates              Lead Responsibility
                                                    for Objectives:


                          Macroeconomic Policy            1,2
                          and Prospects


                          International Finance           10


                          Public Finances                 2,3,4,6



                          Expenditure and Policy          3,5
                          Analysis

       Permanent Secretary                          

                          Financial Reporting             7,12
                          and Audit


                          Finance Regulation              8,9
                          and Industry


                          Human Resources                 12
                          and Support