As the UK Government seeks efficiencies, Australia’s experience offers lessons

Recently we hosted UK civil servants for a webinar on the topic “Prioritisation of organisational activities”. The webinar sought to support government agencies grappling with budget cuts by drawing on Nous’ experience, where we previously undertook significant reviews of Australian Government agencies. The webinar was led by Tanya Smith, a Nous Principal in Melbourne who conducted many of these reviews, and Peter Horne, the UK Nous Government practice lead. We are pleased to share key themes from the webinar.

By Peter Horne and Tanya Smith

UK Government departments and agencies facing budget cuts can look to their Australian counterparts for guidance on how to navigate their way through uncertain waters.

In the recent Autumn Statement, Chancellor Jeremy Hunt said: “We have to take difficult decisions on the public finances. … Departments will have to make efficiencies to deal with inflationary pressures in the next two years.” The Chancellor's message echoed a similar sentiment in Australia last decade.

A previous government in Australia committed to reduce the national public sector. To do this, it initiated Functional and Efficiency Reviews (FERs) of all departments and large agencies to assess their activities and performance against outcomes, and to align resources around priorities. This meant looking at ways to improve efficiency and deliver savings while improving effectiveness.

The FERs, commissioned by Australia’s Finance Minister as well as by the relevant portfolio minister, were conducted by independent reviewers.

Nous was engaged to undertake six FERs, each of which was overseen by an independent lead reviewer. With most of our recommendations implemented, the reviews identified £2.7 billion of savings in the four years following the programme, with an additional £8 billion projected across 10 years.

Nous used a first-principles approach and focused on both programme and operational expenditure, avoiding salami slicing or the risk of cuts in programmes that are re-instated a couple of years later.

While each review was tailored, they all centred on three key questions:

1. Functional alignment: Is the entity performing functions aligned to the role of government and to strategic priorities?
2. Programme effectiveness: Is the entity using the ideal range of levers to achieve its goal?
3. Operational efficiency: Are there ways to improve costs or increase productivity to deliver best value?

To assess the operations of agencies under review, we deployed four analytical frameworks:

1. Best placed entity analysis: This determines if the current place a service is delivered is the best place for it, using the criteria of efficiency, effectiveness and appropriateness.
2. Levers of government analysis: This assesses four levers government can pull to achieve its objectives: policy, regulatory, fundraising and delivery. Each can be further divided for a full analysis of their potential to deliver aims.
3. Effectiveness and efficiency analysis: Considering effectiveness and efficiency together ensures functions are performed in the best way and that alternative approaches have been fully considered.
4. Contestability analysis: This highlights the options government organisations can choose when determining how to realise strategic priorities. It can also flush out situations where the private sector has been under or overused by assessing benefits and risks of nine levels of contestability.

While each FER was unique, some common themes emerged:

• the need for clearer governance over cross-government priorities
• challenges in building capability to match skills required to fulfil strategic objectives
• limited cost-effective opportunities to put services onto a more contestable footing
• unbalanced approaches to oversight of functions, with overly narrow spans of control in policy areas
• the value in adopting a system stewardship mindset in defining government’s role and creating the conditions for successful achievement of outcomes
• greater potential to use the full range of levers available to government, rather than defaulting to programmatic responses that have marginal impact

For these Australian agencies, working with an external partner made a huge difference in pushing the thinking, challenging assumptions, injecting new ideas and building capability. Our approach was to form a joint team with the department involved and work in partnership so we could play to each other's strengths and ensure the advice was sound, well-contextualised and practical.

We believe there are important lessons for the UK civil service about how to design, conduct and support these types of reviews. This includes the need to clarify and confirm scope early, to maintain a strategic focus with a conceptual frame, to use data to achieve high intensity, and to gain strong engagement from the centre of government.

With budget pressures likely to persist in the UK, finding ways to achieve optimal performance in government agencies will be more important than ever before. FERs offer a valuable example of how it can be done.

Get in touch to discuss how we can work with you to conduct functional and efficiency reviews.

Connect with Peter Horne and Tanya Smith on LinkedIn.

Prepared with support from Ben Milner.

Published on 24 November 2022.