The spending review for 2015-16 is now complete, with the Treasury having successfully agreed over £11bn savings on already squeezed budgets. Much has been staked on achieving efficiency savings, and the chief secretary to the Treasury, Danny Alexander, believes that as much as £2bn can be saved by redesigning services to be "digital by default".
The approach adopted so far to delivering digital services marks a refreshing change from the way government has traditionally managed large IT projects and has won plaudits for its emphasis on usability and agile delivery. And a big prize is there for the taking – based on its own figures for transaction costs, central government spends around £5bn a year servicing the highest volume transactions with the public.
So will the work done to date on a better online presence lead to the savings as planned? Good technology is only part of the answer and, unless the government is prepared to tackle the complexities of the underlying policies, the savings in key areas could be slow to emerge.
Having an accessible and easy-to-use channel is not enough to cut the cost of delivering a service. The underlying service must also be easy to understand so that customers can gain all the information they need online without resorting to a human advisor. The processing of the transaction must then be as automated as possible, with limited or no scope for exceptions that prompt manual intervention. Little is saved in carrying out a transaction digitally if the customer previously had to spend 30 minutes on the phone, or it generated hours of casework behind the scenes. In effect the service must be designed from the ground up for digital delivery, and the key to that is simplicity.
Vehicle excise duty provides a good example of a simple service. Determining whether duty is payable is straightforward, and the charge relates simply to the make and model of vehicle; the cost per transaction (currently £1.28) is consequently low.
This is in sharp contrast to other areas of government where targeted schemes, transitional reliefs and verification requirements – often aimed at achieving fairness, integrity and incentives for specific behaviour – have resulted in whole areas of public policy that are complex to understand and costly to deliver.
An infamous example is the implementation of the single farm payment scheme. Of the three options for implementing the scheme permitted by the EU, England adopted the most complex. The intention was good – to ensure a close reflection of land conditions and productive capacity – but the result was late delivery, a huge amount of manual case-work and high processing costs. This transaction is already going digital – online take-up is around 40% – but the underlying complexity of the scheme means the cost still tops the government's league table, at a massive £727 per transaction.
Even where the cost of processing is low, complexity may still drive up costs by leading to a high volume of customer enquiries. HMRC has been relatively successful at moving transactions online and processing them efficiently. Online take-up for self-assessment currently stands at 64% with processing costs at £3.36 per transaction. But HMRC still receives around 80m phone calls and spends in the region of £900m each year on customer service (and struggles to answer calls at periods of high demand). Becoming truly "digital by default" could cut this cost and improve the level of customer service.
Reducing the complexity of the underlying services and policies is therefore the central challenge in delivering the full potential of digital by default. Sweeping simplification cannot be achieved overnight (or indeed over the life of a single parliament) and can involve politically painful choices, as we are already seeing with universal credit. Making changes to simplify the system while remaining cost-neutral creates winners and losers among the public. Moving the complexity into the supporting IT systems creates delivery risk. Progress must therefore be cautious, balancing the political and technical risks at each step.
Digital by default is a good idea and deserves to succeed; but moving those 80m phone calls to digital channels and achieving the full potential for savings is likely to prove a slow process.
Jeremy Kemp is a public sector advisor at PA Consulting Group
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