On 2010-11
3 Despite the short timescale, departments successfully managed within their reduced spending allocations for 2010-11. This meant they reduced the spending within their direct control (Departmental Expenditure Limits) by 2.3 per cent in real terms compared with 2009‑10. The main reductions were as follows:
● Administrative (back-office) spending fell by £1.5 billion.
● Capital spending in departments fell by £1.6 billion, which is partly the result of spending being brought forward to 2009-10.
● There was a further net fall of some £4.8 billion in Departmental Expenditure Limits. Policy decisions to protect spending in some areas meant that 11 departments needed to cut programme spend. The largest fall was in grants paid by the Department for Communities and Local Government to local authorities.
4 Government spending moratoria and efficiency and reform initiatives have contributed more than half of the overall cost reductions achieved in 2010-11. These aimed to help departments meet as much as possible of the 2010‑11 reductions by cutting back‑office and avoidable costs. In July 2011, the Cabinet Office's Efficiency and Reform Group reported to the Public Accounts Committee that it had helped save some £3.75 billion through these initiatives. Our analysis of the audited accounts of the 17 main departments confirms that spending in the areas targeted was reduced on this scale. In particular, large reductions have been made in spending on consultants, temporary staff, property and information technology. Departments reduced their staff by the equivalent of 21,200 full‑time posts in 2010‑11, including permanent and temporary posts in departments and their agencies. However, the reduction in spending in the year is partly offset by in‑year cash costs of early departures included in departments' accounts which we estimate at £406 million for early departures from the civil service in 2010‑11. Larger savings in staff costs are likely in future as the impact of the pay freeze and further staffing reductions take effect.
5 Around £1.6 billion of the spending reduction we have identified is in capital spending. While some of these reductions are likely to reduce the cost base in the long term, for instance by reducing the size of the government estate, other reductions may not be fully sustainable. The fall of 35 per cent in IT capital spend is partly the result of decisions to permanently halt or reduce spending on specific projects, and partly the result of action to reduce the costs of IT products and services including through contract renegotiation. However, it is unlikely that IT capital spending will remain at this lower level in total, given the key role of IT and online services in increasing productivity.
6 We cannot say how these changes affected value for money in 2010-11. Some departments and arm's‑length bodies have systems that relate costs to activity levels and outcomes, but there is no consistent way of identifying whether specific savings measures have improved efficiency or affected services. The system of Public Service Agreements used by the previous administration to measure overall departmental performance has been replaced. From 2011‑12, departments are publicly reporting their performance quarterly using a new system of input and impact indicators. This will allow more consistent performance tracking in due course. In most departments, some of the new impact and input indicators are linked but not all of them, or similar areas are covered but there is no real link between inputs and impacts. It is, therefore, too early to draw conclusions as to whether performance has been adversely affected.
7 Departments will need to change business practices to prevent spending patterns reverting to their previous form. The 2010 Spending Review assumed that the reductions required in 2010‑11 would continue, and requires most departments to reduce spending by an average of 19 per cent over four years to 2014‑15. Cost reductions made to date need to be sustained or replaced with further savings if departments are to meet their Spending Review allocations.