National Audit Office Press Releases
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Reducing costs in the Department for Work and Pensions

The Department for Work and Pensions will have to make rapid progress in reorganising the way it operates if it is to meet its target of achieving sustainable running cost reductions of £2.7 billion while implementing substantial welfare reforms and a £17 billion reduction in benefits and pensions by 2014-15, according to the National Audit Office. The Department has the largest annual expenditure of any central government department and so its cost reductions will be central to the Government’s meeting its priority objective of reducing the budget deficit.

Since 2007, the Department has reported reductions of £2 billion in its running costs, and initial out-turn data show that it met its target from the June 2010 Budget to reduce running costs by £535 million in 2010-11. However, in the first of a series of reports on how government departments are implementing the spending cuts from the 2010 Spending Review, the NAO has concluded that the Department must make progress quickly in order to be able to demonstrate that it can secure sustained cost reductions in a structured and strategic way. Given the challenges posed by major welfare reforms, the Department cannot rely on uncoordinated annual savings plans.

Today’s report recognizes that the DWP is only at the start of its new cost reduction challenge. However, without basing its running cost reduction plans more on robust information on the profile of its business costs and how that relates to the value of the services delivered, the Department is not in the position to make rational choices about what it should stop doing, what it should change and what it should continue. Recent cost reductions have been based largely on budget restrictions rather than on fundamental reform of working practices.

Three months into the Spending Review and the Department does not yet have a detailed model of how it wants to run in the future. Without such a model, senior managers are less likely to be able to prioritise the changes that are needed and to explain to staff what their role might be. The existing plans specify the respective budgets available for 2011-12 but only the Jobcentre Plus plan specifies what structural changes are needed and the steps involved in achieving them up to 2014-15.

Amyas Morse, head of the National Audit Office, said today:

The Department’s big challenge is to cut costs by £20 billion in four years, while achieving substantial reform of the welfare system. It will not succeed without a good understanding of its expenditure, a clear vision, and a coherent, well-informed plan. There are signs of progress, but the Department will have to improve in all three areas if its March 2015 targets are to be realistic.”

 

Notes for Editors

  1. This report is the first of a series on how different departments are implementing their cost reductions in the Spending Review period between 2011 and 2015. Our examination is based on the premise that securing value for money from cost reductions involves more than just implementing planned cuts and that expenditure cuts should generate long term efficiency savings. Uniform top slicing of budgets or indiscriminate cost-cutting can leave an organization unprepared for future challenges and at risk of building up higher costs in future.

  2. The Department for Work and Pensions has the largest annual expenditure of any central government department; its settlement for 2011-12 is £163.4 billion, equivalent to 23 per cent of public spending. This total includes £155.6 billion for payments to pensioners, the unemployed, the disabled and carers, plus £7.8 billion for running costs.

  3. The cost reductions to be delivered by the Department under the 2010 Spending Review:

     

    2011-12
    (£m)

    2012-13
    (£m)

    2013-14
    (£m)

    2014-15
    (£m)

    Total (£m)

    Cost reductions in benefits and pensions

    455

    2,495

    5,860

    8,150

    16,960

    Cost reductions in running costs

    1,451

    442

    403

    373

    2,669

    Total cost reductions

    1,906

    2,937

    6,263

    8,523

    19,629

  4. Press notices and reports are available from the date of publication on the NAO website, which is at http://www.nao.org.uk/. Hard copies can be obtained from The Stationery Office on 0845 702 3474.5.     The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 900 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources

All enquiries to Barry Lester, NAO Press Office: Tel: 020 7798 7937

Mobile: 07748 181 692

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