The public sector has a lot to learn

Getting the hell on with it.

Last week the chancellor, George Osborne, trumpeted agreements with seven government departments on their budgets for the next comprehensive spending review (CSR), which is due to be announced next month.

The CSR will lay out spending for the five years after 2015. In keeping with his commitment to “Plan A”, Osborne is looking for a further £11bn of cuts in government budgets. With health, education and overseas development protected, there will be tough decisions to be made elsewhere. Reaching an agreement with seven departments is a promising start, but these were all relatively low-spending departments with smaller budgets. The agreed savings were reported at £2.5bn. So the really tough decisions still lie ahead.

How these discussion are progressing was signalled by an interview given by defence secretary Philip Hammond on the Today programme. He explained that frank discussions (which can be read to mean arguments) between the Treasury and the MoD have had to be mediated by the Cabinet Office, which has launched an independent review of the department’s spending plans.

The MoD is an interesting case in point. It was severely affected by the last round of cuts with all three armed forces still reeling from the strategic defence review that was as much about cutting costs as it was about better military decision-making. What makes the MoD especially interesting is that it is one of the better organised ministries. Hammond has deployed former experience in business to set the department up in a businesslike fashion.

It is one of the few departments with a board that functions in the way a FTSE 100 board might. Indeed, a scan of the departmental pages of the gov.uk website reveals that of the 24 cabinet departments, only a handful have this kind of properly functioning board. Perhaps strangely, the department for Business Innovation and Skills isn’t one.

A good look at the structure of government in this country, especially compared to other countries, suggests we have too many departments and way too many ministers. The 24 ministries compares to an international average of 15 or 16. The UK’s 120 ministers compares very badly with 78 in India, 66 in Canada and 68 in South Africa.

Even more unusual is the fact that devolution of power to Scotland, Wales and Northern Ireland hasn’t seen a decrease in UK ministers, but rather an increase, so that the actual UK total (including ministers in the devolved regions is closer to 200).

With all these jobs to protect, it’s no surprise that getting all these departments to agree they can afford substantial cuts is a tough job for the Treasury.

One way to bring all this under control and make the process much simpler is highlighted in a new report published this week by ICAEW. In A CFO at the Cabinet Table? Strengthening UK government finances for the future, Sumita Shah highlights the potential advantages of having someone in the position to take on a “group finance” role across government. While each individual financial team is making a case for their department, the political tug of war between the Treasury and all the other members of cabinet will continue.

As to the tougher question of what long-term impact the focus on public sector cuts is having on the private, new research (also produced by ICAEW) found that 31 per cent of businesses reported their turnover has been negatively affected by UK public sector cuts, this is up from 21 per cent two years ago when the same question was last asked.

Not surprisingly the vast majority of those affected by these cuts have looked elsewhere for business, with 72 per cent of those negatively affected by the public sector cuts looking for new customers outside the public sector. However almost half (49 per cent) have had to cut permanent staff and 41 per cent have reduced their contract or temporary staff.

So the message seems to be clear. The private sector, while fearing the worst, is doing its best to get on with life in the age of austerity. It would help enormously if it was obvious that the public sector (and in particular central government) was doing the same thing by simplifying and rationalising government systems and structures.

Some of the money freed up might be wisely invested by putting in place a strong central government finance function, starting with the appointment of a cabinet CFO.