£710 billion. It’s a lot of money. Where does it come from?
£158 billion of it is our income tax and another £101 billion is the take from national insurance. It’s our money coming out of our pay packets. The government gets its cut when we earn money and when we spend it – they expect to collect £100 billion in VAT this year and a further £46 billion in excise duties on cigarettes, alcohol and road tax. They get another £26 billion out of us from Council Tax, and £73 billion from businesses, in the form of corporation tax and business rates.
When the figures don’t add up, when there’s a budget deficit, the government borrows money to close the gap, leaving us with new debts to pay off. £50 billion of the £710 billion above goes straight out of the door on interest payments. This year they’re planning to borrow another £121 billion.
All this money is public money. It is spent for us, on our behalf, by Whitehall. By civil servants. By officials.
Public money deserves to be spent extra wisely. How good are Whitehall at deciding how to spend it? How much public money is wasted? And how could the waste be reduced?
Examples of waste
Dial 999 and ask for the fire brigade, and you’ll be put through to one of 46 fire control centres around the country. When he was Deputy Prime Minister, John Prescott, now Lord Prescott, decided that instead of having 46 local control centres for fire brigades in England, there should be just nine regional centres.
That was his policy, the project to bring it about was called “FiReControl” and he was told by his officials that it would cost between 100 and 120 million pounds.
In the event, according to the National Audit Office, the “minimum that will be wasted as a result of the failure to deliver the project” is £469 million. The Public Accounts Committee weren’t impressed either:
Public Servant magazine tell us that “not only did nobody tell Prescott what was happening” but, quoting him talking about his officials:
The Department's ambitious vision of abolishing 46 local fire and rescue control rooms around the country and replacing them with nine state of the art regional control centres ended in complete failure. The taxpayer has lost nearly half a billion pounds and eight of the completed regional control centres remain as empty and costly white elephants ...
No one has been held to account for this project failure, one of the worst we have seen for many years, and the careers of most of the senior staff responsible have carried on as if nothing had gone wrong at all and the consultants and contractor continue to work on many other government projects.
By convention, the only person who is to blame for this failure is John Prescott. Not the officials who decided not to tell him about the problems with FiReControl. Not the bankers. Not the consultants and not the contractors. Not the lawyers and not the accountants. Just John Prescott.
"... they actually met, according to the committee, and said 'We don't need to tell the minister because it's going alright, we think we're getting it back on track', that's [the decision] they came to ...”
The Public Accounts Committee report came out in September 2011. It was a bumper month.
£469 million may seem like quite a lot of our money to go up in smoke, but what about £6,000 million? That same September, the Times newspaper carried a leader on NPfIT, the National Programme for IT, an NHS computerisation project which has been running for nearly ten years now. “The history of the NHS computer system is one of criminal incompetence and irresponsibility” say the Times, and:
The Department of Health agree that this is not a healthy situation and that some of what the Cabinet Office say is correct, but as with FiReControl no-one is accountable. And in this case the project hasn’t even been cancelled – there are plans to spend another £5 billion on NPfIT, taking the total to about £11 billion of public money. Our money. With “precious little to show for it”.
The Cabinet Office’s major projects group has reviewed the National Programme for IT and decided, unequivocally, that it is not fit to provide the services that the NHS needs. It has concluded that the programme “cannot deliver to its original intent”: a damning indictment of a decade in which £6 billion of taxpayers’ money was spent with precious little to show for it.
Let’s take a holiday from all these big numbers and consider a smaller one – £53.74.
For the five years between May 1995 and May 2000, a 10-year adult passport in the UK cost £18. By September 2010, the price had gone up to £77.50, more than four times as much.
If the price of a 10-year adult passport had merely kept pace with RPI inflation, in September 2010 it would have been £23.76. It would not have been £77.50. There is a £53.74 difference. There’s our holiday number. £53.74. Every time we buy a passport, we are over-paying by £53.74. Or so it appears.
What used to be known as the Passport Office is now “IPS”, the Identity & Passport Service. You can ask IPS to explain what this extra £53.74 is spent on. They can’t tell you. You can ask the Treasury, the Home Office and the National Audit Office, too. Still no answer.
Figures released by IPS show the cost of passports broken down into several categories. According to Alastair Bridges, the Executive Director of Finance at IPS, the combined cost of running the passport application system and of producing passports doubled between May 2000 and June 2010 from about £21 per passport to £42. Why? No explanation. And during the same period, IPS’s overhead/administration cost more than doubled from just under £7 per passport to just over £16. How? No explanation.
Sarah Rapson, Chief Executive of IPS, confirms that IPS produce about five-and-a-half million passports per annum. If they were all 10-year adult passports and if the public is being over-charged by £53.74 per passport, then that would be £296 million a year going on holiday and never coming back. Money for which the public gets no value. Waste.
When you get prices increasing out of control, the natural reaction is to call for open markets and competition. What Whitehall needs, people say, is private sector methods of procurement and competition among suppliers. That will stop the public’s hard-earned money being wasted.
True. But not exactly news. Whitehall already uses private sector methods and has done for at least 30 years. Senior positions in Whitehall are occupied by personnel recruited from the private sector. And public contracts are put out to competitive tender.
For example, between 1999 and 2009 the private sector company Siemens were paid by IPS to develop and maintain the UK passport application system. Their 10-year contract was originally estimated to be worth between 80 and 100 million pounds. In the end, IPS paid Siemens £365 million, three or four times the original estimate. That’s obviously a terrible over-run. So when the Siemens contract ended, did IPS negotiate a new price something more like the original 80 to 100 million pounds? No. After a competition, they let the contract to another private sector company, Computer Sciences Corporation (CSC), for £385 million. The price is relentlessly ratcheting up. With nothing to show for the increase.
So something is missing in the way market disciplines have been introduced to Whitehall. They aren’t working. Some ingredients must have been omitted from the recipe. Whitehall has been reformed to some extent, and yet the wastage persists. Costs have gone up and at the same time the promised efficiency benefits have not materialised.
How else can we explain FiReControl and NPfIT, for example? Not to mention the £292 million of public money wasted on IPS’s ID cards scheme. Or the escalating costs of the passport application system.
Where does the money go?
Follow the money. Where’s it all going?
PA Consulting, the management consultants, were paid £42 million to advise on FiReControl. This very expensive advice doesn’t seem to have helped very much, with £469 million reduced to ashes.
PA also advised the Identity & Passport Service on ID cards. And on the procurement of passports. We don’t know how much PA Consulting were paid for their work on ID cards and passports. But one way and another, ID cards cost us £292 million and there’s nothing to show for it. And arguably we’re wasting something like £296 million a year on passports.
PA’s involvement in these three projects has not been obviously beneficial.
On the other hand, they did win a gold award from the Management Consultancies Association for their work on passports:
If, as PA say, they “managed the £400m procurement process from start to finish”, what were IPS doing?
The winning project involved working with the IPS to procure a new passport provider. This complex and high-profile project required a redesigned passport which met the new international regulations for travel documentation, with enhanced security features to keep ahead of the threat of counterfeiting and the capability to store additional biometric information.
The team supported IPS and managed the £400m procurement process from start to finish. The process was completed four months earlier than scheduled and below budget. The quality and security of the passport exceeded expectations and the new passport service will generate savings in excess of £160 million (30% savings against the anticipated contract value) over the term of the contract.
Kevin Sheehan, Director of Integrity and Security at the IPS, said of the project: "This procurement has delivered a fantastic outcome for IPS by delivering a superior passport at exceptional value for money. This project exemplifies the benefit of co-operative working through bringing together IPS's world-class passport knowledge with PA's procurement expertise."
Should PA have revealed that they made “30% savings against the anticipated contract value”? That’s valuable commercial information that would normally be kept confidential. Isn’t it utterly irresponsible to blow their own trumpet like this? It’s an invitation to suppliers to bid high next time.
And if, as Kevin Sheehan says, IPS have “world-class passport knowledge”, why did they need PA? We've been issuing passports since the Safe Conducts Act of 1414 – what do PA know about passports that the Crown doesn't?
The British public may be over-paying for passports by something like £296 million a year. Every year. Is that what Mr Sheehan means by “exceptional value for money”?
Computer Sciences Corporation is another destination for our income tax pounds and our national insurance pounds.
CSC won the contract for IPS’s new passport application system. They also have a contract with the UK Border Agency to conduct security checks on applicants for UK visas in India and Pakistan. And they are one of the two prime contractors on the NHS’s £11 billion National Programme for IT, the other being BT. NPfIT, remember, is the health system in which the Times detects “criminal incompetence and irresponsibility”.
CSC are trying to computerise health trusts in England using a software package called “Lorenzo”. They're having some trouble.
Lorenzo doesn’t work. We know that because that is the verdict of CSC’s own in-house delivery assurance review team, who said as early as 2008:
Now that these internal reports have come to light, CSC’s shareholders feel deceived about the company’s prospects. CSC currently face a class action, brought by some of their major investors, headed by the Ontario Teachers’ Pension Plan.
We could not deliver the solution set that we had contracted with the NHS ... the contract was a loser and CSC should have recognised a loss in 2008 ... The project is on a death march ...
Things aren’t going well for CSC. They’ve just had a run-in with the US Armed Services Board who have docked them $250 million. The SEC are investigating their accounting practices. And here in the UK, Pennine Care NHS Health Trust have refused to accept Lorenzo. A successful installation of Lorenzo at Pennine was a milestone on CSC’s deployment plan. Failure leaves CSC technically in breach of their NPfIT contract.
And what is the response from the custodians of our money? Thanks to the Guardian, we know the answer:
Who makes these decisions?
Ministers are considering offering one of the NHS's worst-performing IT contractors financial help to keep the company from ditching a troublesome software package which is "not fit for purpose", according to Cabinet Office documents.
The plan to offer the US group Computer Sciences Corporation (CSC) one last chance to fix the software risks a furious backlash over "payments for failure", in the latest twist to a fiasco that has generated years of delays at considerable cost to the health service.
The move comes despite the Department of Health last week declaring that the £11.4bn National Programme for IT, started in 2002 under Labour, was to be scrapped because it was "not fit to provide the modern IT services that the NHS needs".
Who decided that PA Consulting should be paid £42 million to advise on FiReControl? How much were PA Consulting paid to advise the Home Office on ID cards? What passport procurement skills do PA Consulting possess that the Home Office don’t? How do Computer Sciences Corporation keep their contract with the NHS? How much are they paid to collect Indian and Pakistani fingerprints for the UK Border Agency? How can it cost £385 million for CSC to maintain a passport application system that we the public had just spent £365 million on and which seemed to be working?
Some quite extraordinary decisions are being taken. Who by?
The strange thing is that often, we don’t know.
The permanent secretary at the Office of the Deputy Prime Minister when the FiReControl project started life was Dame Mavis McDonald DCB. She was succeeded by Sir Peter Housden KCB. The prime contractor on FiReControl was Cassidian, a subsidiary of EADS, the aircraft company. Consultancy advice was provided by PA Consulting. None of these names appears in the Public Accounts Committee report. Not one.
No-one imagines that it was John Prescott’s job to negotiate the contracts with Cassidian and PA Consulting or to attend the progress meetings or to sign the cheques. That was the job of his officials. Dame Mavis and Sir Peter wasted £469 million of our money. Two people most readers will never have heard of.
We will spend £126 billion on healthcare in England this year. The man in charge of that budget must be one of the most powerful people in the world. Most readers will never have heard of Sir David Nicholson KCB CBE but he is the chief executive of the National Health Service and he is the man who wants to continue to pay Computer Sciences Corporation for Lorenzo, the software package they can't give away for free to the health trusts.
Sir David has seen off the criticisms of the Public Administration Select Committee, the Public Accounts Committee and the National Audit Office and he has emasculated the Cabinet Office, whose always limited authority must now be diluted to near-homeopathic concentrations. He has effectively been accused by the Times of “criminal incompetence and irresponsibility”. He still has his job.
The man in charge at the Identity & Passport Service while hundreds of millions of our pounds were wasted on ID cards was James Hall. He is also the man who signed the £385 million contract with Computer Sciences Corporation to re-write a passport application system that already worked. IPS is an executive agency of the Home Office. The permanent secretary at the Home Office throughout James Hall’s tenure at IPS was Sir David Normington GCB. Now you know. But you didn’t know before, did you.
The complete failure of the ID cards scheme and the spectacular inflation of passport costs did nothing to dent Sir David’s career prospects when he retired from the Home Office. His KCB was uprated to a GCB and he is now our First Civil Service Commissioner.
Which means that, among other things, he will help to choose the successor to Sir Gus O’Donnell GCB, who has been the £710 billion man, the head of the Home Civil Service, since 2005.
Lord Adonis is Director of the Institute for Government. politics.co.uk interviewed him in September 2011 and said:
The home civil service was in need of reform when Sir Gus took over six-and-a-half years ago. It still is now. He will retire at the end of the year. The Prime Minister has promised him a life peerage. And he will go out to a fanfare of plaudits, many of them no doubt deserved. But he leaves behind a home civil service which can still incinerate billions of pounds of our money with impunity.
The IfG's work extends beyond being a school for ministers. Adonis is very animated when he starts talking about the institutional weaknesses of the civil service. Not that there's anything wrong with individuals, he emphasises. "My criticisms are about the machine," he insists. "My own view is that the civil service is full of brilliant people who are terribly managed."
One of the biggest problems the IfG isn't keeping quiet about is the "laughably" named 'permanent civil service'. People change jobs because of a merry-go-round culture which makes no sense, Adonis argues. He says he had six directors of the academies programme in the eight years he was engaged with it. It's not a problem that's going away, either: since the general election ten of the 16 departments of state have had changes in their permanent secretary. "The machine really is very badly run."
Openness and accountability
You know all about Sir Stelios Haji-Ioannou and his successful airline, EasyJet. And Michael O'Leary, the Ryanair man. And Sir Richard Branson. These people run big companies. But nothing like as big as the UK public sector’s annual turnover of £710 billion.
Perhaps if Whitehall officials were as much in the news as, say, airline operators, we wouldn’t have so much of our money wasted. Is that one of the missing ingredients? Would competition start to work properly if there was more openness?
Rupert Murdoch has to take his medicine in public. He is hugely criticised in all the newspapers, on radio and on TV. He faces select committees. And he faces angry shareholders. He is accountable and he is being held to account.
Far from taking any medicine, far from being accountable for his failings, Sir Peter Housden KCB has gone on smoothly from the debacle of FiReControl to become permanent secretary to the Scottish government. (A rather clumsy permanent secretary, as it happens, but that's by the by. Good luck Scotland.)
Sir Peter, incidentally, was one of Sir Gus O'Donnell's first appointments after he became head of the home civil service. Sir David Nicholson was another.
Whitehall argue that they couldn’t do their job properly if they had to operate in the glare of publicity all the time. Sir Stelios seems to manage. So do Mr O’Leary and Sir Richard.
Our officials enjoy almost complete secrecy at the moment but that doesn’t stop a lot of our money being wasted. Secrecy doesn’t help them to do their job properly, as they pretend. Perhaps openness would.
The UK Border Agency operate their eBorders initiative without much interference from the media. eBorders is one of UKBA’s strategies to protect the UK’s borders.
In November 2007, Raytheon Systems Ltd, whose US parent company is the manufacturer of the Cruise missile, were appointed as prime contractors on eBorders.
In July 2010 the FT informed us:
And then in August 2011, Raytheon sued the British government for over £500 million. Guess who’ll pay the bill if Raytheon win. Again, it’s hardly a testament to the efficacy of secrecy.
May sacks Raytheon from e-borders contract
Raytheon has been removed from its lead role overseeing a £750m project to provide a secure border control system for the UK after the British government said it had “no confidence” in the US defence and security company.
The decision by Theresa May, home secretary, to end Raytheon’s involvement will cause delays in the e-borders project, part of government attempts to control immigration and improve security against terrorists.
However, officials said the tough approach taken by ministers showed that the coalition government was far less willing than its Labour predecessor to put up with poor performance or delays on big contracts.
When the House of Commons Science and Technology Committee reviewed the Identity & Passport Service's plans for ID cards they declared themselves to be "concerned", "surprised", "regretful", "sceptical" and "incredulous" at their "confusion", "inconsistency" and "lack of clarity". Water off a duck's back, IPS carried on regardless. No mere politicians were going to stand in their way.
Ten times in their report, the Committee recommend that IPS should undertake "horizon scanning" activities. Good advice.
Which we should take. What is coming up on the horizon?
We need to keep an eye on NPfIT, the zombie project that just won't die until Sir David Nicholson has spent all the £11 billion he feels that he is entitled to.
We need to keep an eye on IPS's passport application system. James Hall has been replaced by Sarah Rapson. Will she be any better?
And there are three new projects which threaten to go the way of FiReControl and the ID cards scheme:
1. HMRC's RTI – Her Majesty's Revenue & Customs want Real-Time Information (RTI) on all wages and salaries.
2. DWP's UC – the Department of Work and Pensions want to introduce Universal Credit (UC), a simplification of the current labyrinthine benefits systems. UC depends on RTI. The success of RTI is not guaranteed.
3. The Cabinet Office's G-Cloud – the Cabinet Office want to centralise and standardise and consolidate all departmental computing into just a dozen or so gigantic data centres in which all our data will be shared between departments. At the same time they want all interaction with the public sector to be "digital by default", to take place in a government cloud, a G-Cloud, meaning that all public services will be applied for over the web.
Each of these projects will cost billions. Each of these projects could go wrong and the money be wasted.
Who are the Whitehall personnel involved? Who are the consultants? Who are the contractors? What is the budget? What are the consequences of failure for the Whitehall personnel, the consultants and the contractors?
In the main, we can't answer a single one of these questions. Sir Gus O'Donnell's ancien régime persists and will continue to do so as long as we remain uninterested in how Whitehall spends our money.
• We’re entrusting £710 billion to Whitehall this year alone. We want, need, deserve and pay for competent public administration.
• Whitehall officials need to operate more openly and more accountably.
• The spirit of public service would suggest that Whitehall should stoutly defend the public interest, but too often officials behave cravenly, as if they are beholden to their consultants and contractors.
• The doctrine of ministerial responsibility needs to be changed, the power of politicians is clearly very limited – we can’t afford to carry on this charade in which we pretend that everything is John Prescott’s fault.
More material for the next edition of Messrs Bacon and Hope's book, Conundrum: Why every government gets things wrong and what we can do about it. And for the next edition of Messrs King and Crewe's The Blunders of Our Governments.
'Poison pill' privatisation contracts could cost £300m-£400m to cancel
'Unprecedented' clauses guarantee firms 10 years of profits even if new government scraps controversial probation contracts
Taxpayers will face a £300m-£400m penalty if controversial probation privatisation contracts are cancelled after next May's general election under an "unprecedented" clause that guarantees bidders their expected profits over the 10-year life of the contract ...
How do markets work? Whitehall are still having trouble with that question. They're still on probation. Meanwhile, we pay.
Sir Peter Housden appears twice in the post above. First for his FiReControl achievements which cost us all £469 million. And then for his curious take on the independence of the civil service – he was accused of "a clear breach of civil service impartiality" by favouring the Scottish National Party.
That was back in 2011. The case was examined by Sir-Gus-now-Lord O'Donnell, Cabinet Secretary at the time and the man who appointed Sir Peter in the first place. Case dismissed.
Three years later, what do we read? Scotland's most senior civil servant 'intimidated bosses’ over referendum.
It's a bit late but perhaps Sir Gus would care to review the case?
Has Whitehall's record of waste improved in the three-and-a-bit years since the post above was written?
The Taxpayers' Alliance identify £5.1 billion of waste in 2013-14, £3 billion of it in the Ministry of Defence.
Whitehall's response to the demands for better value for taxpayers' money, more accountability and greater openness is to try to have the Public Accounts Committee closed down.
A magisterial summary. Undoubtedly, there's a need for consulants in government - they often have sepcialist knowledge and experience that civil servants couldn't be expected to have. But they often do nothing more than act as grotesquely overpaid project managers. The civil service should have its own in-house pool of PMs to call on for any sort of project. The other three problems I noticed (as both a client and, latterly, as a consultant) is that consultancy firms are adept at embedding themselves so firmly in departments that getting rid of them becomes pretty much impossible. And when you do manage to turf the buggers out, they tend to disappear without leaving any knowledge behind - too valuable, see? They end up doing the work the civil servants should be doing. As you say, it is a criminally wasteful system which effectively makes us all poor - and no one ever gets called to account!
Keep up the good work!
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