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Deloitte comments on the challenge for Government to reduce administration costs by one third or more

20 October 2010

Commenting on the plans spelt out in the Spending Review to reduce administration costs across Government by one third or more in every department, John Fotheringham, a public sector partner at Deloitte, said:

“Whilst there is undoubtedly scope to improve the efficiency of public sector administration, protecting front line services from even deeper cuts, this is an extremely challenging target.

“Our experience of helping both public and private sector businesses reduce administration costs suggests that cutting by 10% is painful but achievable, cutting by 20% is extremely hard, and cutting by over 25% is exceedingly difficult.

“The key challenge for the Government is to drive its people to adopt new ways of working. Without care, cost savings might simply not happen. Or, costs might come down only to rise again in future years if the savings made are knee jerk measures, rather than sustainable investments such as digital working, eliminating wasteful activity and changing behaviours.

“It is often necessary to invest in order to achieve sustainable savings. Typical investments might include changing IT systems, ending leases, renegotiating supplier contracts and paying for redundancies. If the Government tries to cut costs by one third without investing in new ways of working, the savings will not be achieved and those savings which are made will be not be sustainable.

“We have seen private sector clients achieve and sustain savings of 30% in costs, but only with strong governance, clear reporting and accountability, and investments to build genuinely low cost ways of working.

Government departments must learn lessons from private sector
John Fotheringham, a public sector partner at Deloitte, continues: “The administration budgets for each department include back office functions such as finance, HR and procurement, which are duplicated across most departments, despite providing broadly similar services in each. For the Government to achieve its planned reduction in administration spend, there must be a sea change in the attitude to sharing back office services.

“While a number of departments have started to share some services, the drive has been simply to share, rather than to gain significant economies of scale and drive down costs. Departments have driven their own agendas over recent years, yet this has not delivered speed and scale of change. Today’s Spending Review signals the need for a stronger, more aggressive approach.

“The Government now needs to rapidly complete a sector-wide shared services plan and to mandate departments and arms length bodies (ALBs) to adopt it.

“There is a wealth of experience and capability in the private sector, which the Government must now utilise. While approaches such as joint ventures and ‘insourcing’ have been mooted, the Government must also embrace more radical changes such as complete outsourcing to the private sector in order to achieve such significant savings so quickly.

“The Cabinet Office must take a strong lead in this to eliminate the excuses departments have used, to date, not to collaborate. Smaller departments and ALBs may have specific needs, but can no longer have an ‘opt out’. Care must be taken before allowing the inefficient structures of some large department to be shared across Government without driving down costs for all participants.

“The private sector has demonstrated that there can be very significant, sustainable benefits from high quality shared services in administration functions. Government must learn the lessons from the private sector in order to achieve the challenging targets for cost reduction described today.”

-ends-

Notes to editors:

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited

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