In 1980 I joined the Cabinet Office in 1980 as part of a team set up to support the efficiency and reform agenda of Margaret Thatcher’s newly elected government and to supplement the work of the then Sir Derek Rayner, the Prime Minister’s efficiency adviser. Continuing in that role within the Cabinet Office and then HM Treasury for 8 years has provided an ideal position to reflect on that aspect of her legacy.
Some of the reforms had the opposite effect to that intended and successive governments, none more so than the present one, have been trying to reverse them against an entrenched bureaucracy. Others had an impact way beyond anything that was envisaged and changed the UK and international public sector landscapes. Some were implemented badly and were damaging. Others were started in Thatcher’s time, but it took her underrated successor, John Major, to give them impetus.
My task in 1980 and 1981 was to review government stores and stockholdings. This took me into all main government departments and many smaller ones. There had been huge over-purchasing of hundreds of £m in central civil government and several thousand £m in the Ministry of Defence. The annual cost of owning this was around 20%, representing a huge amount of waste. I quickly concluded that a combination of poor procurement, poor stock management and poor policy were the culprits and, according to one of my annual appraisals, had my recommendations been implemented, stock reductions of some £2bn would have been achieved. They were, at least, implemented in part.
As part of this work, I spent time in private sector organisations including IBM, Sainsbury, British Aerospace, British Airways, Ford and ICI. Thus was born the first report on government procurement, co-authored by my team leader, Stephen Penfold and myself. The report addressed topics familiar today such as ‘lean procurement’ through improving the performance of suppliers and supply chains and removing all the factors in public sector organisations that added cost both directly for that organisation and for suppliers. It advocated outsourcing functions – thus eliminating government stockholdings and ad-hoc procurements. It addressed how best to organise procurement and the key success factors and it also advocated clear performance measurement and target setting. It is a measure of the limited progress that governments have made in addressing procurement that I was able to lift chunks of the 1984 report and insert them into the paper on government procurement that the Institute of Directors Commissioned me to write in 2010. https://www.iod.com/MainWebSite/Resources/Document/policy_article_towards_tesco.pdf They remained equally valid.
As a result of this work, the Prime Minister commissioned a report on government procurement, which recognised that urgent action needed to be taken and led to the creation of the Central Unit on Purchasing, in HM Treasury, whose role was to reform government procurement and was the forerunner of the Office of Government Commerce, the functions of which are now part of the Efficiency and Reform group in the Cabinet Office.
At the same time, the government was taking the decision to break up the centralised procurement organisations that served central government, the use of which was mandatory. They were inefficient, badly managed, complacent and, in one of them, the Property Services Agency, which owned the central government estate and was responsible for all construction activity, significant corruption was found and several people went to prison.
However, these agencies were better than what followed. The decision was made to devolve procurement, ICT and estates functions to individual departments on the assumption that departments would have the incentive to run these functions efficiently. A combination of disaggregation, incapability and poor finance systems resulted in huge amounts of money moving from front line to back office activities and schools and hospitals were no longer supported in their procurement, with unquantifiable additional procurement and construction costs (and failures).
It is worth noting that the total number of people employed in procurement by these agencies was probably no more than 200. Apart from the Ministry of Defence, departments had only small procurement teams. In today’s money, procurement spend was broadly comparable with now. So the Government Chief Procurement Officer’s response to the Public Administration Select Committee that he believed that there were around 3500 procurement personnel in central government starts to illustrate the scale of the problem with which the present government has to grapple. It also illustrates how exaggerated are the claims by opponents of re-centralisation of procurement of the number of people such an organisation would need to employ.
The response of the Central Unit on Purchasing to this devolution of procurement responsibilities was to support departments in setting up their own procurement organisations, provide expertise either from its own resources or through parachuting in consultants, and encouraging collaboration. I had responsibility for 8 departments and made some useful progress. The biggest success was with the Intervention Board for Agricultural Produce, which spent £100m a year storing agricultural produce in grain and cold stores. My research showed that it was paying over 30% too much, so I set up a project that delivered annual savings of £35m.
However, the true picture in departments was brought home to me when I moved to the Department of Health and Social Security in 1988 to improve its procurement and found a truly horrendous situation. Sorting that out is a story in itself.
It is ironic that had, arguably the most successful reforms by the Thatcher government been in place for longer, disbandment of the central buying agencies would probably not have happened. These reforms were the creation of the National Audit Office in 1983, with a brief to move from the tick and turn approach of its predecessor, to one of reviewing their efficiency, as well as certifying their accounts. This, together with the creation of the Parliamentary Select Committees has become the driving force behind improving the quality and efficiency of public services to an extent that I am certain is well beyond anything ever envisaged. Chairs of these committees, such as Patricia Hodge, Keith Vaz and Bernard Jenkin, have become almost household names and can hold officials and government ministers to account, as well as other individuals such as bankers and press barons such as Rupert Murdoch. They are a powerful reassertion of Parliament (Commons and Lords) over the Executive. The National Audit Office, operating on behalf of the Public Accounts Select Committee, is justifiably increasingly powerful. The former procurement agencies were effectively accountable to no-one. Today, as the Government Procurement Service is finding, they would be heavily and expertly scrutinised by the National Audit Office.