‘We are into unchartered territory’

Performance management, not financial management: Andrew Davies says he encountered “huge” resistance to efficiency savings from the Welsh public sector

IT ISN’T only anoraks that are waking up this morning with knots in the stomach. The whole country, it seems, is nerving itself for an emergency budget that has been tagged and flagged as the toughest in many a generation.

The Conservatives have, together with their Liberal Democrat partners, (allegedly) put this Budget together in record time, stressing that the urgent position of the country’s economy demanded it. Leaving aside the speed, how might the coalition gone about drawing up this Budget? Where was the starting point, and how was it worked up into a series of spending priorities that became policy and, eventually will be delivered to the country?

“You begin with a programme for government. It is planned quite early. You have made commitments and you then have to cost the delivery,” says Andrew Davies. As an Assembly Member, Davies was in the Welsh Government since the start, and when he stepped out of the administration prior to new First Minister Carwyn Jones’ reshuffle at the end of last year, the Swansea West representative had spent three years in one of its toughest jobs, as Minister for Finance and Public Service Delivery, responsible for equipping fellow ministers with the means to do their jobs.

“Of course, it’s been knocked off course. It was easier through 07-08, when I was finance minister, but even then, the trajectory was falling away. It was a 7% increase (in the Welsh settlement year-on-year) in the first four years of the Assembly’s existence, then it was a 4%increase in the next four years, then 1.8% in the current Spending Review period. The growth was tailing off, but I was in a more comfortable financial position than the Welsh Assembly Government is now. But I could see what was coming. We are into unchartered territory.”

He argues that the cabinet had to stick to its promises. “Journalists kept asking me: ‘What are you going to drop from the One Wales Agreement?’ I would say to them: ‘No, you don’t understand. This is the programme for government.’”

Davies credits Gordon Brown for introducing the Comprehensive Spending Review when he became Chancellor of the Exchequer. “Until then, there was a mad rush in government to spend what was left. it was a case of use it or lose it. It didn’t make for good financial management.”

Nevertheless, the beginning of the budget process for the Welsh Government was frequently marked with Treasury fun and games. “Because of the way the Barnett Formula works, there were uplifts in certain areas as a result of consequentials. But if you began with £100 million and there was a £20m uplift, the baseline would be £80m, and that’s where the Treasury would talk of starting from,” Davies smiles. “We were supposed to get consequentials through changes in government spending. One year, we suspected the Treasury of bailing out the Department of Health, but we never saw any benefits.”

There were other dangers from this difference in approach. “If the baseline was adjusted this way, the Government would want to quote a 2.4% increase when we wanted to say it was 1.8%. We would say to them: ‘For God’s sake, don’t spin this.’”

Davies dealt with three Treasury Secretaries in his time as Minister for Finance – Andy Burnham, Yvette Cooper, and Liam Byrne. “Relations were pretty cordial,” he believes. Davies would visit the Treasury in London to hear what the settlement was, meeting with ministers and their special advisers, before returning to present a paper to cabinet that would apply the block grant to One Wales priorities.

“I was given greater assurance over three years (than the current minister Jane Hutt). You knew the broad outline. It allowed us to plan. Obviously, the recession changed all that. If there were to be any consequentials, we had a principle as a cabinet that we agreed collectively how the extra money was to be allocated. If it was health, for example, the money wasn’t automatically ringfenced, even if it was only £7-8m. If, for example, it was environment, Jane Davidson would say that the money had to come to her, and I would say: ‘Now hang on a minute…’”

The annual budget round would come next, involving the financial officials from all Welsh Government departments. At present, those civil servants will be planning for 2011-12. This is the time when each department makes its case. “They can be fraught, like any negotiations,” said Davies, who then harks back to his time at Ford (he is one of only two or three Welsh ministers that have worked in the private sector) for an example. “It’s like when the unions would come to management with a pay position, and they would tell them to ‘go away’ and come back with a realistic offer.”

Davies had to make judgement calls throughout this period, and this sometimes involved firefighting. “The health service, for instance, might have had unforeseen spending, due to winter pressures.” Then there was the Foundation Phase, then-First Minister Rhodri Morgan’s flagship programme and proudest achievement. “When Jane Hutt came to me and said she’d identified some budgetary issues, I realised this was a major commitment of the One Wales Agreement and it needed to be sorted.”

The First minister formed a special ad-hoc committee while Hutt drafted in an official “with a very good record in this kind of thing” to sort it out. Davies blames the problem it on a combination of uncertain statistics and less-than-rigorous due diligence on the part of local education authorities. Whatever, “I decided it needed fixing and Jane Hutt and I and our officials worked together on sorting it out.”

But, he adds: “By next year, we will have delivered virtually all of the One Wales Agreement.”

Those negotiations would ultimately involve ministers in bilateral talks and move on into their departments, where forecasts and spending modelling would go ahead. “Some forecasts were not so accurate,” says Davies. “So it was my job to challenge assumptions, and one of the ways I did that was believing we could do things more efficiently, particularly in public service delivery.”

How big was the resistance to efficiency savings? “Huge. I had a good relationship with local authorities, but there is an obsession in the public sector with how much money you spend, not what you get for that expenditure. The effort is aimed at financial management, not performance management. My big criticism of government and the public sector here is that there is no correlation between the two things.”

He is particularly disparaging about what he sees as the public sector’s weakness in managing capital investment projects. He cites the Rhondda Relief Road, which saw costs rise from a projected £30m at the outset to £90m upon delivery, as a case in point. Davies blames such threefold increases on “more effort put into working to get into the (capital spend) programme than there is to deliver it. Once it’s in, there’s a tendency to gold plate it. Civil servants are frequently not good at project management.”

Davies called in outsiders, people with experience in schemes such as the Channel Tunnel, to form an Advisory Panel for the Strategic Capital Investment Framework, which he credits with righting the big projects ship, although he thinks there is a case for the Welsh Government going further and put it at arm’s length, as it is in Northern Ireland.

The internal government process for the budget finishes up with the identification of departmental budgets, called MEGs (major expenditure groups), whose allocation is then decided by ministers. Then the whole thing goes external, to the Assembly’s finance committee (Davies says recently-appointed chair, the Conservative AM Angela Burns, brings a “new perspective” because of her private sector background) and, ultimately, on to the full Assembly to vote upon.

Since he finished as a minister, the Welsh Government has created the Efficiency and Innovation Board, tasked with finding efficiency savings rather than taking an axe to public spending. It faces a tough task, particularly as the Welsh Government needs to trim millions of pounds of expenditure. But Davies is a firm believer in front line first, pointing to schemes such as a health scheme for older people in Torfaen’s that aims to keep patients out of hospitals by treating them in a more familiar home environment, saving the local NHS some £5m in the process. He cites initiatives in Blaenau Gwent and Neath Port Talbot that aim to achieve 20% spending reductions while improving service deliveries.

“Many local authorities just aim for 3-4% savings. But in Neath Port Talbot, they didn’t follow a targets approach, because you can bend efforts to achieve them. For example, in their Planning department, hey based it all on three words: Approved Quality Development. They have a leadership open to change and willing to engage with the front line. There is not enough talking to the front line staff.”

But Davies doesn’t believe that all claimed savings are achievable. There was considerable debate at the end of the last year when it was alleged by a financial director in the NHS that one fifth of the Welsh NHS budget, amounting to £1 billion, was going to waste. Davies laughs. “I don’t think the NHS official who said that made himself popular.” He pauses. “But I thought to myself: ‘Great. If 20% of the entire NHS budget can be spent better, I look forward to hearing how they are going to achieve that’.”