Salami cuts won’t save enough. Only a total rethink will

No one wants to cut services – everyone wants to cut red tape

Even by the standards of government, £13bn is a lot of money. And like all things to do with money, it is a lot easier to spend £13bn than it is finding ways to save it.

But as George Osborne made clear earlier this week, that is what the civil service is going to have to do after the next election. It is going to be enormously painful.

To put it into context: in the years since austerity began the budgets of the Ministry of Defence, the Foreign Office, and the departments of transport and business have all been cut by as much as 50 per cent in real terms. In 2010, the MoD had a budget of £39bn which is now £24bn. The Foreign Office spent £2.2bn – this year it will spend £1.2bn. The same is true for local councils and for all public sector departments other than health, schools, and international development which were protected from the first round of cuts.

Further cuts of up to 10 per cent more in some departments have already been announced. The so-called low hanging fruit has already been picked – and under George Osborne’s plan, Whitehall is really going to have to strip the tree. Unless it is done thoughtfully, imaginatively and by rethinking how the state works, it could be tremendously damaging to the services provided by these departments.

The problem is that no work has been done at an official level to work out what fresh options for cuts the incoming government should consider.

A senior official told me recently that this isn’t possible ahead of an election because the civil service does not know the priorities of an incoming administration. The official added that as spending decisions had already been agreed for the year 2015/16, this gave them ample time to plan after next May.

But this is dangerously complacent and a missed opportunity because any kind of structural change in Whitehall – rather than salami-slice cuts – needs to be carefully thought through.

Ministers (of whatever hue) should be able to walk into their new departments in May and be presented with a fully worked through list of options for savings and new ways of doing things rather than starting with nothing. And with very little legislation going on before next May, there is strategic capacity within Whitehall to do this. But it is not happening.

There is however some interesting thinking going on elsewhere about how to meet the challenge.

It is an extension of work done by the Cabinet Office minister Francis Maude who has made significant progress beefing up some of the core – if unglamorous – functions of government.

He has been forcing departments to procure more goods and services centrally, get smarter at contract management, and create IT capabilities within Whitehall that mean the civil service has the expertise to do things without paying private contractors. So far he has found recurring savings of £14.3bn.

What some people in Tory circles are now suggesting is an extension of this policy: that at the next spending review the government announces that it will make savings not just department by department – but function by function as well. Thus the government would announce that it would save say £5bn on staffing, £1bn on IT, £5bn on procurement and so on.

The task of delivering these savings would rest with the new civil service chief executive reporting on the political side to the Chief Secretary to the Treasury and on the official side to the Cabinet Secretary.

Such a move would have the advantage of effectively removing some of the ring-fence and incentivising efficiencies across the board. No one wants to cut public services – but everyone wants to cut “bureaucracy”.

It would also encourage Whitehall and the wider public sector to merge and share services and remove fiefdoms with tough enforcement from the centre.

Of course any such move will meet fierce resistance from those fiefdoms and will not find all the savings needed. But it would be an important lever for change – and help the government do more with less.