Central government: the axe man cometh

It may not be clear which party is going to win the general election, but one fact is already certain. Whoever wins, accountants and finance staff in central government are in for a hard time.

Cuts in public expenditure are on the way – the axe man cometh. Just how deep these cuts will be nobody yet knows. But there were some clues hidden away in a document put out by HM Treasury last year. The paper, called “Operational Efficiency Programme: back office operations and IT”, suggested that public sector finance functions could save as much as £700m a year if the performance of the weakest organisations moved to the top of the lowest quartile performance for private sector finance departments. If all public sector finance functions were as good as the best in the private sector, the saving would be £2.3bn annually. Whichever party wins the election, it seems likely they will seek savings of at least the lower figure.

The Treasury report doesn’t reveal how much of that £700m comes from central government departments and their non-departmental public bodies (NDPBs) – as diverse as the National Lottery Commission and the Hearing Aid Council. But central government is certain to bear much of the pain.

Greg Whelan, who was finance director of the Legal Services Commission, another NDPB, until last year, expects the cuts strategy to protect front-line services at the expense of back-office cuts, whoever wins the election. He says: “Each department will be expected to have a reduction and finance departments, being back office, will be expected to contribute as well. After all these years of not being squeezed, this time it’s going to be quite significant.”

But, while some finance professionals could find themselves on the receiving end of the axe, those who remain could discover they have to work harder than ever before. Making cuts across large organisations won’t be easy and accountants will be on the front-line adding up the numbers and churning out the ‘what-if’ projections for the politicians to pour over.

“Finance professionals will be in those parts of organisations that will have to work very hard for the efficiencies to be achieved,” says Una Foy, assistant director of accounting standards and central government in the Policy and Technical Directorate at the Chartered Institute of Public Finance and Accountancy (CIPFA).

“My opinion is that there is going to be a lot more work for everyone out there, and particularly for finance directors and professionals who will be pushed harder because they will have to monitor the cuts and ensure efficiencies are achieved.”

So the relief among those accountants not shown the door could be tempered by the fact that their jobs are more stressful.

“More stress is almost inevitable,” says Simon Watson, a national officer at Unison, which represents some central government finance staff.

“Organisational change is a very stressful experience to go through,” he adds. “In addition to worrying whether you’re still going to have a job or not, there’s just the general disruption change causes.”

The biggest change is likely to be a shift to more shared service centres, a move recommended in the Treasury’s operational efficiency programme. “The target is to deliver upper quartile performance for all those using the shared service and drive out cost savings of at least 25% within three years,” the report argues.

Yet shared service centres for finance have had mixed success in delivering savings. A centre introduced in 2006 for the Department of Work and Pensions and its executive agencies – covering accounting, employee services and purchase-to-pay work – had delivered cumulative savings of £50m and was on track to deliver more, according to the Treasury’s report.
But a centre for similar work at the Department of Transport ended up with a negative net present value (NPV) of £81m when the National Audit office investigated it in 2008. The problems were blamed on an “overly
ambitious timeline”.

Despite the mixed results, Foy believes the move to shared service centres for finance will accelerate as the search for savings intensifies. But Watson thinks the switch to more centres may affect the quality of services received by the public. He says: “Although it looks quite simple to have one centre providing all these services, actually there is a lot of difference in the way organisations work, which makes it complicated bringing them together.”

However finance is organised in central government after the election, it’s likely the civil service will be hunting for accountants with different kinds of skills. A current plan by the Department for Business Innovation and Skills to integrate finance functions is looking for accountants who are capable of managing a wide range of different relationships, are able to integrate and interface across the organisation beyond finance and, significantly, are able to deliver “challenging messages” – Sir Humphrey-speak for telling others their budgets have been slashed.

Recruitment consultants who have tuned into this new mood music from the ministries are advising their clients – accountants seeking jobs in government service – to develop fresh skill profiles.

“I am now gearing up my consultants to be able to identify these and a number of other skills in candidates,” says David Morgan, partner at Morgan Law, a public sector recruitment specialist. “Just sitting there and producing the numbers is not going to be good enough or sufficient for the challenge that lies ahead.”

One problem is that as the axe swings into action, it may fell the very finance professionals that central government can’t afford to lose. “As soon as there is a whiff of redundancies, the best people go first,” notes Morgan. “They think to themselves, ‘I’m not going to hang around here to turn out the lights. I’m going to find myself another job’.”

Yet Morgan is optimistic that other finance professionals will rise to the challenge. “I think there’s a real opportunity for people to make improvements across central government that they could never have made previously. It’s not for the faint-hearted, but very much for the brave accountant to take on the challenge.”

Findings of the Operational Efficiency Programme

“Significant annual savings in the cost of back office operations [including finance] and IT are deliverable. Compared to a 2007/2008 baseline of around £18bn in back office operations and £16bn in IT, in three years time, it is estimated that the annual cost of back office operations could be reduced by around £4bn and the current annual cost of IT could be reduced by around £3.2bn (the latter including savings arising through collaborative procurement). Some of the estimated savings will already be underway or planned as part of the current spending review period, but there is considerable scope to go further.”