COMMITTEE FOR FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Progress on Implementation of Efficiency and Investment
Delivery Plans
19 November 2008
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Simon Hamilton (Deputy Chairperson)
Dr Stephen Farry
Mr Fra McCann
Ms Jennifer McCann
Mr David McNarry
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Ian Paisley Jnr
Ms Dawn Purvis
Witnesses:
Ms Deborah McNeilly )
Mr David Orr ) Department of Finance and Personnel
Mr Stephen Rusk )
The Chairperson (Mr McLaughlin):
The Committee will now be briefed by Department of Finance and Personnel (DFP) officials on progress on the implementation of DFP efficiency and investment delivery plans. We are joined by David Orr, director of corporate services; Deborah McNeilly, director of finance branch; and Stephen Rusk, finance manager. You are very welcome. I am sorry for the slight delay.
Members will find in their tabled papers a secretariat paper, the Department’s submission for today’s session, and copies of the efficiency delivery plan and the investment delivery plan. I remind witnesses and members that this session is being recorded by Hansard and that the usual health warnings in relation to mobile phones apply.
David, I ask you to initially focus on the efficiency delivery plan. We will open that up for discussion, and we will then move on to the investment delivery session.
Mr David Orr (Department of Finance and Personnel):
Thank you. I will ask Deborah McNeilly, our finance director, to summarise the paper. We will then be happy to answer questions. Members will recall that Deborah and Jim O’Hagan were with the Committee in January 2008 to discuss the formulation of the efficiency delivery plan. This is a mid-year update on progress.
Ms Deborah McNeilly (Department of Finance and Personnel):
The Committee will be aware that the Department is required to make total annual efficiencies of £14·8 million by 2010-11. Several areas have been targeted for realising cash-releasing efficiencies, and those are highlighted on the first page of the paper. They cover the recognition of costs that are recovered in respect of rate collection; maximising receipts and extending charges; realising potential savings from the rationalisation of accommodation; efficiency targets that have been set for Land and Property Services (LPS); and targeted GAE and staffing reviews across the Department.
The table on the second page of the paper provides a summary of the efficiencies for each of those measures and quantifies the amount of the efficiencies. Up until 30 September 2008, the Department made progress in relation to delivering its efficiencies. At that point, it recognised efficiency savings of £2·95 million. The detailed breakdown of how that is constituted is provided in table 3, which Committee members are asked to note.
The Department previously indicated that it would have significant difficulties in delivering the challenging efficiencies that are associated with 2009-10 and 2010-11. The outlook that is provided on page three, and which table 4 provides more detail of, indicates the areas that the Department is reviewing. Table 4 includes the efficiencies that the Department has designated as amber. Those relate to the increase in charging, given the difficult climate across the public sector and the wider economic environment.
The other area that we have identified as a risk that is associated with the delivery of efficiencies is against the accommodation-services efficiencies. Those have been challenging. We are keeping the delivery of efficiencies under close review, and we are exploring options in the event that we need to review our plan. I ask the Committee to note the update that has been provided. We are happy to take questions.
Mr Hamilton:
This is an important matter for all Departments, particularly in light of the current climate and the realisation that the need to make efficiencies has increased. The efficiency delivery plan contains a table which shows that no savings will be made by Land and Property Services in 2008-09. Given all of the reorganisation that took place in late 2007 and early 2008, why were no efficiencies realised in Land and Property Services in this financial year? Part of the rationale for the reorganisation was that efficiencies could be made.
I am aware that fairly significant savings are expected in future; given some of the difficulties that that agency experienced, the plan seems to suggest that green status has been granted. I do not doubt that, and I hope that efficiencies can be delivered, but did the difficulties that were faced by that organisation make it difficult to realise efficiencies?
Mr Orr:
I know that John Wilkinson appears before the Committee frequently. Members know that we are putting extra resources into Land and Property Services in order to deal with some of the issues that have been of concern to this Committee and to the Public Accounts Committee. Those resources are going in this year in order to deal with a number of issues, which means that savings will not be made this year. However, John Wilkinson has predicted that the planned efficiencies for 2009-10 and 2010-11 can be realised.
The Chairperson:
Watch this space.
Dr Farry:
I declare an interest as a member of North Down Borough Council. According to last year’s finalisation figures, LPS imposed a 15% increase in collection charges on councils. Is there a sense in LPS that you are pushing for efficiencies from the top? Do the top-line figures that are presented to the Assembly deliver only a superficial picture of efficiencies? Are inefficiencies merely being passed through the system and back to customers — in this case, the district councils? What protection do the councils have against that? Many people in local government believe that the impact on councils of the 15% increase in collection charges, along with other problems that Land and Property Services has had, is a joke.
Ms McNeilly:
The ongoing rating reform has meant that Land and Property Services has incurred significant additional costs in relation to the administration of rate relief. The increases that have been passed on to district councils represent a proportionate share of those administrative costs. I believe that the Committee has asked John Wilkinson for updates on his business action plan, and is monitoring that plan.
Dr Farry:
What proportion of Land and Property Service’s overall budget is billed out to district councils?
Ms McNeilly:
The share of the costs recovered from district councils is proportionate to the level of district council income — the district rate.
Dr Farry:
That, potentially, could be approximately 40%. Therefore, the overall cost of collection across the system would not be 15%; it would be something less than that, but it is still in high single figures.
Ms McNeilly:
In relation to the increase for the previous year, the Committee will be aware of the additional resources that Land and Property Services had to deploy in order to enhance its capability to deal with the reform of rate relief. The need for those additional resources contributed to the increase in collection charges.
Mr O’Loan:
You said that some of your efficiency gains will come from increased charging. That measure has amber status, which means that it is on track but also has associated risks. In what areas do you have the scope to increase charging? Where will increased charges apply? How realistic and justifiable is it to add extra charges in the current economic climate?
Mr Orr:
An example of an area where there is scope for increased charging is the Central Procurement Directorate (CPD), which provides — and charges for — procurement services across the public sector, to the Northern Ireland Civil Service and beyond. CPD has undertaken a review of its charges to ensure that they properly reflect the cost of the service that it supplies. Another example is the Departmental Solicitor’s Office (DSO).
Ms McNeilly:
At a previous engagement, Committee members asked about charging for shared services. We are reviewing the proposals submitted by the shared-services centres on their hard-charging arrangements for their services. We are also conducting a review of overheads to ensure that they are properly reflected in the charges that are being implemented across the Department.
David Orr mentioned the actions taken by the CPD. CPD has improved efficiency by recouping income through an increase in the number of chargeable hours that its staff work. It has examined the services that it delivers, and it is reviewing activities for which it can introduce a charge. It is also conducting a review of its overheads to establish whether the efficiencies can be realised and how its costs are reflected in the charges. That is being fed through at a departmental level to contribute to the overall target.
Mr O’Loan:
The increased charges from CPD, shared services and, possibly, some DSO work affect only other Government Departments. Therefore, although you are making gains, other Departments that are looking for efficiency savings are subject to extra charging, which means that there will be extra pain for them in proportion to the gain for the Department.
Mr Orr:
That extra pain is balanced by the benefit that those Departments receive from the services that are provided. However, it is not only central Government that uses those services — for example, CPD does work for agencies outside the Northern Ireland Civil Service (NICS) and has, for instance, just procured the new headquarters for Waterways Ireland. However, I accept that most of the services are used by Government Departments.
Mr O’Loan:
The Department has been fortunate in the recognition of costs recovered in respect of rate collection, which was explained to the Committee. That means that over one third of the Department’s efficiency savings come from a book exercise. How easy was it to achieve your overall required efficiencies? What scope is there for further efficiencies in the longer term?
Mr Orr:
I would not use the word “easy”. The Department is on track to achieve its required efficiency savings in 2008-09, but that has required a lot of work and reviews of the constituent parts of the Department. The problems will come in 2009-10 and 2010-11, when the plan is to produce significant, additional savings; those will be very challenging. That is why on the last page of the mid-year progress report, the Department states that it must constantly review and monitor so as to realise new avenues of affecting efficiencies and to try to mitigate the risk. However, it is not easy.
Mr O’Loan:
Following on from that, there is unhappiness regarding the whole public discussion of the issue. It is such an important issue that it is important that the public discourse be right. To what extent is the Department getting to the heart of efficiencies? Is the low-hanging fruit being got at, so to speak? Is the Department, in any meaningful way, altering radically the way that things are done in the public system?
Mr Orr:
In the Department we are taking every opportunity to rationalise and streamline services. For example, in delivery and innovation division (DID) there has been a rationalisation.
In relation to staffing, the Department constantly examines headcounts, and while I want to make it clear that there are no plans to make staff redundant, when a post becomes vacant we question whether it is necessary to fill that post again. In that way we are reducing staff and keeping staffing levels to a minimum. There is a focus on that in the Department and at the departmental board.
Mr F McCann:
Amber status has also been afforded to the planned savings for accommodation. Are those accommodation efficiencies reliant on the progress of Workplace 2010?
Mr Orr:
They are in their totality. However, the Department has always planned to make rationalisations and efficiency savings in relation to accommodation before Workplace 2010 was planned. For example, there is currently a proposal to move staff from one building in Belfast and accommodate those staff members more efficiently in another building in Belfast. That move was planned outside the scope of Workplace 2010.
Mr F McCann:
Will the review of public administration (RPA) Bain proposals for job relocation have any implications for the planned accommodation efficiencies?
Mr Orr:
Those proposals have not yet been factored into these predictions as the Minister has indicated that he wishes to discuss them with his Executive colleagues, and we must examine how the Executive wish to proceed. However, it is more to do with the number of civil servants, across the NICS, who need to be accommodated, rather than exactly where they are accommodated. It is the number of and the space those civil servants occupy that are the determining factors.
Mr F McCann:
There was a debate in the Assembly recently about the delivery of Supporting People, something that is essential to the services that the Assembly and organisations deliver. However, it was possible to make a forecast, even with an inflationary freeze, and, I think, to exclude efficiency savings. Through a process of monitoring, is it possible for the Department to get to the stage where it can tell that efficiency savings are starting to affect the services that it delivers?
Mr Orr:
The Department is monitoring that area through things such as our customer service survey, which is ongoing at the moment, and through staff attitude surveys. In the individual programmes carried out by the Department, there are other service level agreement ( SLA) targets to be monitored. However, the customer service survey is probably one of the primary means in which the Department monitors how the services that we are delivering are viewed by those who are receiving them.
Mr F McCann:
Do you forecast that any particular services will be hit by efficiency savings?
Mr Orr:
We aim to maintain services at the level that is required by the Programme for Government and public service agreements (PSAs). The focus is on making efficiencies, rather than on cutting services.
Mr McQuillan:
What overall impact will suspension of Workplace 2010 have on the programme? Will that impact depend on how long it is suspended?
Mr Orr:
When I came to the Committee in May 2008 to discuss Workplace 2010, I said that the possibility of the two best-and-final-offer (BAFO) bidders merging or coming under common ownership would be a significant problem. As you know, procurement was suspended at the end of October 2008. The initial impact of that suspension has been the inability to realise the £175 million receipt during the current financial year. Needless to say, we discussed that carefully with our colleagues in Supply who are able to manage that in the normal Budget process. Therefore, although there will be an impact in 2008, it will be manageable.
The ongoing impact depends on what happens in January 2009 when we review the situation. It is, perhaps, too early for me to predict what that impact will be. Suffice it to say that we are taking the matter extremely seriously. We are concerned that we must ensure value for money.
Mr McQuillan:
Do you have a plan B?
Mr Orr:
We have a plan B. However, it is not fully developed. We are currently developing it while the main procurement is suspended.
Mr McQuillan:
When will the Committee hear about plan B?
Mr Orr:
We are happy to discuss plan B with the Committee at any time. I can outline it now if you wish.
Mr McQuillan:
I am not sure whether we have time.
The Chairperson:
We are jumping ahead of ourselves. Do you mind if we just deal with this section? I want to invite David to outline the investment plans. I know that you are a very progressive and forward-thinking person. I want to be satisfied that people’s concerns about the efficiency-savings section have been covered. If there are no other comments, we shall move on.
David, you indicated in your briefing document that some of the projections may not stand up. Can you explain how that will be dealt with, particularly as the efficiency savings were taken out at the baseline? What will be the impact on service delivery and so on, of missing efficiency-savings targets?
Mr Orr:
I think that you have answered the question. In order to be able to live within our budget, we must make efficiency savings. That is why there is so much focus on meeting efficiency savings. Our aim is not to cut services, but to make efficiency savings. That is the thrust of our work.
The Chairperson:
You have reassured us that your focus is to deliver the target savings. I am interested in the composition of those savings. Without following Adrian’s line on investment, presumably you have fallback or a plan B in case initial projections do not stand up?
Ms McNeilly:
One difficulty with the challenges in 2009-10 and 2010-11, apart from the fact that money has been lost from the baseline, is that the Department must try to contain inflation. Therefore, the £14·8 million in 2010-11 is almost a headline figure, if you like, as regards what has gone out of our baseline.
Although the Department is focused to take that forward, the composition of efficiency savings can change. We are engaging with business areas in order to develop options on an ongoing basis. As regards the amber status and in light of Workplace 2010, we must revisit the matter with business areas in order to determine whether they can put additional options on the table for delivery of efficiency savings. That is how we propose to deal with the situation. Some review work has been carried out by business areas and adds up to levels of numbers for delivery in certain areas. However, those were generated to contain inflation. The key issue would be to review it again with business areas, particularly in light of Workplace 2010.
The Chairperson:
I assume that the Minister will make his usual arrangements for reporting back to the Assembly. Will the Committee be briefed if there is any change in the profile of the efficiency savings?
Mr Orr.
Absolutely. As I understand it, the Department comes on a routine basis to report to the Committee. We are happy to do that and to give any interim briefings that members may require.
The Chairperson:
The report appears to take account of changes in circumstances already.
We will move on to the second part of your presentation. You have a heads-up on Adrian’s question. I will come to him first to see if he is satisfied that you have addressed the matter.
Mr Orr:
Deborah will take the Committee through the paper.
Ms McNeilly:
The paper provides a summary of the Department’s position as regards the investment strategy, where the Department has a significant role in the public-sector-reform pillar. It also has a role in sustainability, where its funding comes from the central energy efficiency fund and is passed out to a range of projects across other Departments.
The overall position that we are focused on is set out in table 1 and reflects the Department’s capital budget going forward over the comprehensive spending review (CSR) period. During that period, the Department has a capital budget of £72·7 million. That is a change to the figures that the Committee has already seen. As part of the monitoring round in 2008-09, the Department secured additional allocations of £1·2 million for HR Connect. A small reduced requirement was passed back in respect of Account NI and, equally, some transfers came across to properties division to take forward welfare reform and employment tribunal accommodation projects.
Those adjustments to the 2008-09 period, which the Department is focusing on at the minute, are highlighted in the report, and we are happy to discuss them. The most significant issue that the Committee has discussed is the £175 million receipt from Workplace 2010, which was profiled into the current year. That was as a result of the ongoing suspension of the procurement, and that will not be delivered in the current year.
We are working with colleagues in central finance group on the monitoring round process to re-profile budgets and our input to the review of the investment strategy.
Mr McQuillan:
Will that have an effect on efficiencies? It must have.
Mr Orr:
I would like to draw a distinction between the principles of Workplace 2010 and the delivery mechanisms. The principles of Workplace 2010 — working in open-plan offices, shared printers rather than individual printers, and more efficient facilities-management services — will deliver efficiencies. Getting the Government estate away from individual single offices into open-plan working would reduce the space required by almost 30%, which is a significant amount. The question is how that can be delivered. As the Committee is aware, the procurement path that we have been following for that has been suspended. The prize is the principles, and that is what we want to achieve; the procurement is how we get there. The suspension has been a setback for those plans.
Mr McQuillan:
What is plan B?
Mr Orr:
We have suspended procurement until early in the new year, in the light of the continuing reports that the two bidders seek to come under common ownership. That suspension will allow us to consider the impact of the recent financial turmoil on project finance and property values. We must review the procurement options. That was done when the outline business case was produced, but the options must be brought up to date.
You are asking me what a plan B would look like. It would examine how we might deliver the Workplace 2010 principles, perhaps by using a package of conventionally funded procurements. Rather than selling the Government office estate to the private sector and renting it back, we might consider whether we could afford to carry out the improvements to that estate using conventional funding methods.
That is a plan B; it is an option that we must look at. I am not saying that we have abandoned the other procurement method. However, it is wise to have that option, against which we can consider the way forward.
The Chairperson:
Has there been any suggestion of an options paper being developed? How soon will we see either the conclusion of the review of Workplace 2010, or a decision to move in another direction being made?
Mr Orr:
I would be happy to brief the Committee when that decision is made or in January or February 2009, before that decision is made.
Mr O’Loan:
Will you clarify some of the figures, Mr Orr, because I cannot make them add up? In the Department’s investment delivery mid-year progress report, where it outlines the overall position, you say that the Department’s capital investment quantum is £59·9 million. However, the three figures at the bottom of table 1 add up to approximately £72·7 million. Will you explain the gap?
Ms McNeilly:
I apologise. The £59·9 million is the total investment that the Department has under the public-sector-reform sub-pillar of the investment strategy for Northern Ireland (ISNI). Additionally, the Department has £6 million, to which we have not referred in the first paragraph of the paper, and I apologise for that.
The Department’s budget comprises the £59·9 million that is in our investment delivery plan, which was set out because of the public-sector reform. We have a further £6 million in another sub-pillar, which concerns sustainability. That brings our total to £65·9 million. The £72·7 million to which Mr O’Loan referred reflects the adjustments that have gone through during the year —listed in the bullet points on the following page — whereby we received additional funding of £1·2 million for HR Connect, £0·3 million for IT Assist and £0·5 million for NI Direct. In addition, £2·8 million was transferred from other Departments. Taken together, those amounts account for the largest proportion of the gap between the two figures and reflect in-year movement. I hope that that clarifies the matter.
Mr O’Loan:
Yes it does.
You have explained plan B for Workplace 2010 and the efficiency issues around it. Just to be clear, can I assume that the lack of £175 million was going to be made up from Executive funds? Everything enters DFP, but it is not solely for the use of DFP, by any means. Was that funding pre-allocated?
Mr Orr:
I do not think that it was earmarked that if were to get £175 million from Workplace 2010 that that money would go to such-and-such a project. That was certainly not the case; it was for the Executive to use. We have been keeping in close contact with our colleagues in central finance group. They have been looking right across the NICS at the demand for capital funding this year, and at how best to manage the £175 million receipt, or lack of it, in the overall financial-planning exercise.
Mr McNarry:
A £175 million loss to the Executive is anticipated, to the extent that the Department has drawn up a plan B. In the outlook for 2009-10 and 2010-11, in that particular paragraph, the Department states that it is largely content; aside from capital pressures that arise from rates reform, NI Direct and the re-profiling — great choice of words — caused by the suspension of Workplace 2010. Will you explain why the Department is “largely content” with that; bearing in mind that no adjustments are being made across those two years? The Department must have access to a crystal ball to which I do not. That is probably because the Department has more information than I have. How will the Department fill the gaps that it has identified? How much are we actually talking about?
Ms McNeilly:
Clearly, the £175 million that relates to Workplace 2010 is the most significant issue in the Department’s capital position. With regard to the future capital expenditure of the Department, we have engaged with all of the business areas. They have been asked to indicate their position in respect of re-profiling the ISNI across the years. They have said that they are largely content with their budgets, as set. There are some small amounts of £100,000 or £200,000 that they want e-profiled from one year to another.
Mr McNarry:
May I stop you? Are you saying that information that you have received from every Department —
Ms McNeilly:
No, just from DFP business areas; we act only on behalf of our Department.
Mr McNarry:
I see. Does that mean that your Department is content with its information?
Ms McNeilly:
In respect of our business areas, that is correct; the analysis is that they are content.
In my summary, earlier, I jumped straight to Workplace 2010. Most business areas at 30 September 2008 were content with their capital profile until the end of the year. Within that, there are some significant milestones for HR Connect. A meeting will be held tomorrow about the timetable and roll-out of that. The Committee will be aware of that programme. Depending on the outworkings of that, we will have to review the position with regard to HR Connect until the end of the year. Any changes to the timetable could have the consequence of putting expenditure into next year.
Mr McNarry:
Are you saying that no adjustments are being made to those profiles over the next two years?
Ms McNeilly:
Yes, in 2009-10 and 2010-11. The HR Connect issue relates to year 2008-09, and depends on the outcome of critical decision points in relation to the next relief of HR Connect.
Mr McNarry:
Are you confirming that the Department is not under pressure?
Ms McNeilly:
At present, the business areas have indicated that they are content.
Mr McNarry:
That is great and really good to hear. Thank you.
Mr F McCann:
Has any equality proofing taken place in respect of the proposed restructuring and reduction of staff?
Ms McNeilly:
With regard to staffing, the business areas manage that by looking at each vacancy as it arises. The Department has provided updates to the trade union side on those issues. The local trade unions have been engaging with the business areas on any proposals that they have.
Mr Orr:
As I said at the outset, and I did not want to raise any concerns needlessly, we are not talking about staff cuts; rather we are talking about reviewing posts when they become vacant to ensure that they are needed. In that context, we have not done an equality-proofing exercise on posts. Individual posts will be reviewed, rather than making grand proposals to make sweeping staff reductions.
Mr McNarry:
I am very grateful for the frank answers. In the light of what you have just said, am I correct in assuming that the delivery plan in the Department of Finance and Personnel’s investment strategy for 2008-2018 is out of date?
Ms McNeilly:
Yes, elements of it are out of date, including the Workplace 2010 change. The investment delivery plan was based on work done in January and February 2008 on planned actions at that time. However, it will have to be amended in the light of the ongoing review of investment.
Mr McNarry:
When will it be amended? When will there be a rewrite on Workplace 2010 and any other issues that might arise?
Mr Orr:
The outcome of the Workplace 2010 decision will be early in the new year, so the delivery plan will not be amended before spring 2009. Deborah, was this a central exercise running across all Departments? Is there a proposal to refresh that at various points?
Ms McNeilly:
Yes, there are meetings scheduled across all Departments to discuss the investment delivery plan with the Strategic Investment Board and Office of the First Minister and deputy First Minister (OFMDFM) colleagues regarding the response to the wider review.
Mr McNarry:
I am inquisitive by nature, so this is just on a need-to-know basis. Some people may have reached certain conclusions about the viability of the three-year budget. If the investment delivery plan needs to be rewritten, it might have a bearing on my thoughts about where we go with the budget and about discussions that we may have. My conclusion is that it is unravelling. You may have no comment to make on that.
The Chairperson:
That is what I was about to say. The question of how the Minister, in the first instance, and the Executive respond to that is a question of what efficiency resources they can apply to the emerging holes.
Mr McNarry:
It is unravelling bit by bit, and do not try to get away from it.
The Chairperson:
We will see. Do you have any further comments?
Mr McNarry:
No, but I am grateful for what I have heard.