Smooth operators

George Osborne’s cuts give the public sector the opportunity to transform itself. It’s a chance not to be wasted

By Ian Ellis

Waste is the word. We’ve had an election built around it and now a Budget built around it.

Of course, the need to eliminate waste in the public sector is nothing new. It’s an objective that has long been central to the Government’s plans, and the past few years have seen countless recommendations and initiatives intended to tackle the issue without affecting jobs or service delivery. However, it’s fair to say that the stakes have changed with George Osborne’s revelation that the budgets in all non-protected government departments will fall 25 per cent over the next four years – a massive cutback that will literally force many departments to radically overhaul current practices.

Further, there’s a sense that this is only the beginning. The coalition appears intent on scaling back the role of the state, something given extra impetus by Britain’s current budget deficit. Many public sector workers will have their pay frozen for two years while a review of public sector pensions is now underway. In contrast, the private sector will be given a series of tax breaks and national insurance incentives to encourage more growth.

Osborne has set out the coalition’s course, and the onus is now on the public sector to respond – to show that it can deliver more with less, so that the government can assuage fears that wide-ranging cuts mean lower quality services, redundancies and possibly a double-dip recession

The level of concern within the public sector is understandable. However, the truth is that there’s now a real opportunity for departments to be proactive and look at proven tactics to improve efficiency. One such area is government property and the cost of running the 7.7 million square metres of offices that accommodate the UK’s civil service. This isn’t about aimlessly taking the axe to existing properties and trying to cram thousands more workers into those that remain; it’s about recognising that the civil estate needs transforming to become more efficient, to improve the quality of the service that public sector employees are able to deliver, and to make a meaningful contribution to Government’s sustainability targets.

New research conducted by specialist economic consultancy SQW suggests that deeper and accelerated implementation of best practice approaches to civil estate management could quickly and easily bring about some of the significant cuts required. In particular, costs could be reduced by £1.4 billion per year within five years if the central government office estate was utilised more efficiently. Allowing for time to implement the necessary changes, this would amount to more than £4.3 billion in savings over the first five years alone. What’s more, these savings relate only to the central government office estate – just 10 per cent of the overall £25 billion annual running cost of the entire public sector property portfolio.

Equally, transforming drab and uninspiring premises into modern, efficient and dynamic offices can achieve higher levels of productivity, flexibility and customer satisfaction. This is not conjecture; the DWP and DVLA have already taken these steps and are now realising the rewards.

Property efficiency delivers an effective transfer of risk from the public to the private sector (where it can best be managed), and can offer savings through contractual guarantees. For example, the DWP estate – managed by Telereal Trillium since 1998 – has now been reduced to 1.8 million square metres, a cut of about 30 per cent. Even more impressive is that this reduction has been achieved despite a 2003 departmental merger with the Employment Service. The National Audit Office estimates that the DWP’s partnership with Telereal Trillium will eventually save about £780 million.

Not only can public sector organisations cut costs through property management strategies, but they can also achieve substantial environmental and sustainability benefits – for example, through reduced utilities consumption – allowing them to meet both existing and future green requirements as and when they’re introduced.

It’s fair to say that few within the public sector were looking forward to Mr Osborne’s emergency Budget, but now the focus really has to shift on to how his cuts are going to be achieved. There’s pressure on everyone to protect frontline services, but the SQW property research suggests that, contrary to the current mood, the next few months can represent a genuine opportunity for individual departments and the public sector as a whole to transform itself into a slicker and smoother operator.

28 June 2010

Ian Ellis. Executive Chairman, Telereal Trillium