Proposals to transform the way the state buys and delivers services could save billions of pounds annually and show other countries the way forward. But the barriers to change remain formidable, writes Nicholas Timmins
Over the past couple of months Sir Peter Gershon, head of the government's efficiency review, has dangled a tantalisingvision in front of Tony Blair and Gordon Brown.
It is a vision of a country of leaner but far more effective government. One in which not just Whitehall departments but the National Health Service, local government, schools and the police would get far better value for money for the Pounds 120bn that they collectively spend annually on purchasing goods and services.
A land where Britain's citizens would find government in all its forms much easier to deal with - with online transactions and one-stop access points. Where dealings with officialdom more closely mirrored the public's experiences of online shopping, banking or booking travel.
A country in which companies found it easier to do business, less loaded down by regulation, bureaucracy and inspection. Where junior and middle-ranking back-room staff could be freed from drudgery and instead become productive health workers, classroom assistants or police case managers. And where doctors, school heads and senior police officers were no longer drowning in a sea of government e-mail or surrounded by armies of inspectors demanding information and reassurance - to the point where caring for patients, teaching children or tackling crime was being impeded.
Such are the dreams prompted by Sir Peter's review - the interim conclusions of which were leaked to the Financial Times this week. But can the dreams become a reality? And how does the UK compare with other countries in how well or badly it already does these things?
For the prime minister and the chancellor, the political need to achieve at least some of Sir Peter's proposals is great. Government revenues are disappointing and spending is rising. Tens of billions of pounds have been injected into public services, but - while improvement is evident - few believe that the returns have yet matched the investment. A general election is expected next year. And the Conservative opposition has "waste and bureaucracy" in its sights - offering the electorate the promise of tax cuts without any reduction in services by cutting billions of pounds of redundant government spending.
The fact that this claim has some credibility is partly thanks to the work that Sir Peter and the Treasury are doing. For the first time, government has abandoned the approach of past efficiency reviews such as Baroness Thatcher's Rayner scrutinies in the 1980s. Whereas these looked at particular issues - staff recruitment in the NHS, for example - Sir Peter's review has looked at the entire public sector.
Sir Peter has established that of the £460bn the government spends, £120bn goes on buying everything from office supplies and schoolbooks to hospitals, battleships, roads and social care.
Setting policy for the public sector, distributing funds, and inspecting and regulating its work costs £8bn - the cost of the whole of the work of the Foreign Office, trade and industry and culture departments combined. It costs the government a further £7bn to do the same task for the private sector - with a compliance cost to business many, many times greater. Some £8bn has been invested, centrally and locally, in e-government but with a limited return so far.
The figures are as yet imprecise: Sir Peter stresses that "the evidence base is still subject to change". But six months ago, neither the UK government - or any other government - could have provided even this precise an answer.
In his review Sir Peter is examining four areas that cover almost £150bn of government business. The first two are procurement and e-government. The third is the potential for shared services: that is, combining functions such as IT and human resources across organisations. And the fourth is policymaking, inspection and regulation.
On procurement, academics and management consultants say there are big savings to be made. But in some sectors - for example in big capital projects to build schools, hospitals, roads and bridges - the UK already performs pretty well.
The private finance initiative - using private capital to build and provide public services - was invented in Britain and Australia. It is controversial in the UK but is slowly being emulated across Europe and elsewhere.
Even here, however, there are problems. Such public/private partnerships involve millions in bid costs. "On some projects they have reached 20 per cent of the contract value," says Michael O'Higgins, a board member of PA Consulting and former public policy analyst with the Organisation for Economic Co-operation and Development.
"The government may be getting a good deal. But if you have five bidders, each with deadweight costs on that scale, you have killed off the value of the contract from the point of view of Great Britain plc. There is a big need to simplify and standardise."
The NHS has set the pace in procurement with its £6bn-worth of contracts awarded in recent months to modernise IT services - although the proof of whether they will deliver the expected benefits is still lacking. The government, by contrast, is struggling to make sense of the mix of contracts spanning the criminal justice system from courts to prisons, the police, probation and prosecution services.
In e-government, huge amounts of government information are available on line. But few services are transactional: that is, allowing taxes to be paid, benefits claimed, or planning applications handled. Canada is just one of the countries that is ahead: it offers sophisticated and customised marine weather forecasting and lets people buy licences and claim pensions online. In Ireland car dealers can pay vehicle registration and manage their accounts. The UK is reckoned to lag behind other countries (see chart).
The UK has some shining examples. Seventy-five per cent of congestion charges are paid online or by text message in London. An interactive digital health television service is about to be launched for patients to use from home. But use of the Inland Revenue's online tax self-assessment, one of the relatively few transactional services available, remains depressingly low, with the National Audit Office suggesting that people do not get enough benefit from the way it works to use it. Critics say the Pounds 8bn invested in e-government has not changed the way the service works.
That is reflected in what has happened to shared services - which cut across both procurement and e-government. Here the UK is clearly not in the vanguard. Gary Pusey, Accenture's head of outsourcing for Europe, says: "Most governments are struggling with how to deliver services horizontally across the public sector, rather than vertically through departments and individual organisations."
But he says the Dutch government has just decided that all personnel work will be done by one organisation across 12 different ministries. In France, a similar reform of government accounting systems has been implemented. Copenhagen's city government has outsourced its human resources and payroll for 55,000 staff in a model that may be extended nationally.
An Accenture study last year put the UK at the top of the league table in terms of thinking about transforming government. In terms of outsourcing - having the private sector deliver services for which government remains accountable - some UK practice was found to be at the cutting edge.
But Craig Baker, head of global government practice at A.T. Kearney, says: "In terms of service transformation, use of shared services and e-government the UK is clearly behind Singapore, Scandinavia, Australia, New Zealand and Canada. And a recent European Central Bank report on public sector efficiency in 23 industrialised countries shows not only that the UK is mid-table but that its position has declined since 1999-2000."
The other area under Sir Peter's consideration is the field of policymaking, inspection and regulation. In the public sector this has become a multi-billion-pound industry: in Britain more people are employed in inspection, audit and regulation than are licensed to drive taxis. When the Better Regulation Task Force tried to produce a list of all regulators it struggled to do so, with NHS Trusts alone being subject to 40 bodies.
Ian Byatt, former head of Ofwat, the water regulator, says both ministers and officials are endlessly tempted to intervene in ever greater detail in the forlorn hope of better results rather than setting clear but broad goals for the outcome of regulation. "One big way to reduce the burden, " he says, "would be to require health, safety and environmental regulators to spell out the costs of regulation as well as its benefits. This sort of regulatory impact assessment has been started by the Environment Agency, but it needs to spread much further."
Can the changes that Sir Peter wants be made? The good news is that, while the scale of his recommendations amounts to a revolution, some of it is already happening. In the NHS there are several examples of aggregated procurement, including this week's deal with BT Group to supply the broadband links to modernise the service's IT. Local authorities in Kent, Essex and London have voluntarily banded together to buy some office supplies and energy, producing big savings. The Commission for Healthcare Audit and Inspection is trying to develop a process where one data warehouse would provide information for all health regulators.
But the barriers remain huge and Sir Peter's interim report identifies many of them. First he questions whether there is the political will to drive through unpopular changes. It will not be easy to persuade up to 80,000 back office civil servants that their future lies in other roles - potentially in a different part of the country, given the government's desire to shift staff out of London and the south-east. The civil service, used to working in departments, will have radically to change its ways.
Even if politicians do have the will, Accenture's Mr Pusey and A.T.Kearney's Mr Baker both argue that there is as yet no one in the civil service with the status and authority - or quite possibly the skills - to implement the proposals. The strengthened Office of Government Commerce that Sir Peter suggests alone will not be enough, they say. And the difficulties of sorting out central government pale into insignificance compared with persuading 400 sets of local politicians that their future lies in joint services and purchasing, not separate ones.
Aggregating purchasing may be good news for big companies that sell to the public sector. But it raises worries about whether small and medium-sized enterprises will have a role, when many already struggle to win government business. Achieving big efficiency gains will also require IT and other investment - perhaps investment of £3bn in order to save £10bn, according to A.T. Kearney's submission to Sir Peter's review.
Some of Sir Peter's proposals look unachievable. A single means test for all taxes and benefits would need a tranche of primary legislation and create hundreds of thousands of losers as well, doubtless, as some gainers.
"If Tony Blair thought he had scars on his back from trying to reform the public services two or three years ago," PA Consulting's Michael O'Higgins says, "they will look very minor things compared with what he will have after dealing with the many different interests throughout government that will need to change. It is going to require immense pressure from the centre."
The same challenges, of course, are being faced by governments the world over. If Mr Blair and Mr Brown succeed, Mr O'Higgins says, "the UK will have jumped right to the top of the premiership - and everyone else will want to know just how it was done."
