Main savings exercise

1.6  In July 2011, the Treasury asked all Whitehall departments to examine their operational PFI contracts and to encourage the authorities they sponsor to do the same. The Treasury issued detailed guidance to help authorities identify potential savings.

1.7  By June 2013, 13 departments had reported a total of £1.6 billion of signed savings to the Treasury (see Figure 2). This £1.6 billion of savings came from 65 of the 684 operational contracts. Savings are described as 'signed' either when any agreed changes are supported by a signed contract variation, or in the case of savings that do not require contract amendment where there is other good documentary evidence backing up the claimed saving, for example, a contract to sublet surplus building space. All savings are reported in nominal rather than real terms.

1.8  Although the savings are reported by public authorities to the Treasury, authorities have an incentive to identify savings, since they can retain any savings rather than returning them to the Treasury.

1.9  Departments report their progress in identifying and securing savings to the Treasury quarterly.

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Figure 2

Source of signed savings of £1.6 billion, by sponsor department

NOTES

1. 'Other' reported signed savings come from: Department for Work & Pensions, Department of Energy & Climate Change, Department for the Environment, Food & Rural Affairs, Department for Education, and HM Revenue & Customs.

Source: National Audit Office analysis of Treasury data

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1.10  The Treasury told us it does not have the resources to check the accuracy and validity of reported savings. However, it has issued guidance on the criteria and basis for calculating savings, and asks authorities to carry out their own due diligence and exercise appropriate caution when reporting savings. It also told us that it seeks assurance where it has concerns over reported figures, and requires authorities to report to it any changes in the status, basis or value of savings. Following the publication of this report, the Treasury has said it will share good practice with authorities to encourage further cost savings.

1.11  The Treasury's reporting requirements include a mechanism to identify savings already reported elsewhere, and so avoid double counting. For transparency and public confidence in the reported numbers it is important that any savings previously reported elsewhere are explicitly identified.6

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6  For example, rental income from subletting space in the Treasury building has been reported as part of the Efficiency and Reform Group savings and is also included in the £1.6 billion operational PFI savings. This will need to be made clear in any public announcement of signed savings.