Official Report: Minutes of Evidence

The Deputy Chairperson (Mr D Bradley): We have Brigitte Worth, finance director in DFP, whom we met last week; and Preeta Miller from the finance division in DFP. On page 13 of tabled papers, there are some points there that members might like to consider. There is additional research material at page 16 of tabled papers, and the Department's indicative spending proposals are at page 21 of tabled papers.

You are very welcome, Brigitte and Preeta. Would one or other of you like to make an opening statement?

Ms Brigitte Worth (Department of Finance and Personnel): I am happy to move straight to questions given the time constraints, if you wish.

The Deputy Chairperson (Mr D Bradley): OK, that is fine. We can do that. Do you have even a brief introduction?

Ms Worth: I can certainly give you a brief introduction. You have seen our paper, and I know that the Minister and the permanent secretary have recently given you a bit of context to the challenging nature of what we are facing. We have constituted an internal review group in the Department, which will shortly conclude its work and make some recommendations for areas where we can further explore savings and reductions in spending. However, in the absence of that review group concluding before our appearance here, we have tried to give a high-level overview of what the Department spends its money on and what sorts of things it would need to consider in making those reductions.

The Deputy Chairperson (Mr D Bradley): Brigitte, why does the paper not contain any substantive proposals or detailed information on planned savings and the implications for front-line services, considering that the draft Budget document contained a commitment by all Departments?

Ms Worth: Some guidance for the draft Budget document was subsequently issued by the Department that suggested that we would first publish a high-level overview of what we might do and that detail could follow. As I mentioned, the scale of the challenge here is such that we are simply not in a position to produce detail to the time frame that we are in at the moment. As I mentioned, we have an internal review group that is working at great pace to take the views of a large number of the staff in the Department as to where large savings can come from for next year. That group is already working to a very challenging timetable in aiming to reach some preliminary conclusions next week. It will only be once we have seen those preliminary conclusions and once the Minister has had time to give them consideration that we will be able to bring forward further detail.

The Deputy Chairperson (Mr D Bradley): Last week, Brigitte, we thought that we would get the information this week, and you are now telling me that it will be ready next week.

Ms Worth: To be fair: we have always said that this is a challenging paper to produce. We have flagged up the fact that the detail will not be available until the conclusion of the internal review group. As I said, even then, the Minister will need some time. You will appreciate that he is not able to make decisions of this magnitude overnight. He will need some time to consider the findings of the group and to indicate to us which of those he feels that we should pursue.

The Deputy Chairperson (Mr D Bradley): I appreciate all that, but it is very difficult for there to be meaningful consultation with this Committee on the basis of a holding response.

Ms Worth: I understand that, but I simply do not have the information to give you at this time. I cannot give you what I do not have, with due respect.

The Deputy Chairperson (Mr D Bradley): I got that impression all right last week, Brigitte.

Paragraph 12 of the briefing paper references a long list of savings identified by the departmental board to deliver reductions of 4% as well as contingency plans being put in place for a reduction of 8%. Can you give us any detail of those savings?

Ms Worth: When we were looking at a 4% reduction, we put a plan together that would have reduced expenditure by around £10 million. That would have delivered a 4% reduction, which, I think, is around £6 million and also the £3 million to £4 million that we would have needed to contain pay and price inflation.

The sorts of things that we looked at were around procurement-type savings. We looked at renegotiating some of the contracts that come up for renewal where we expected to get keener prices through things like the use of collaborative procurement to drive greater price savings. We also looked at staff reductions. We identified some posts that were vacant, and we knew that there were some posts where staff were going to depart and we felt that they would not need to be replaced. We also looked at some opportunities for maximising revenue streams. One of the things the Minister mentioned was the opportunity to bring other organisations into our shared services. That generates revenue for us, but it also generates savings for those organisations because they take their services from us rather than from private sector organisations. Those things were in our original plan, but, obviously, what we now need to do goes a long way beyond that.

The Deputy Chairperson (Mr D Bradley): Can you give us any indication of the likely scale and make-up of staff reductions?

Ms Worth: Again, we are awaiting the outcome of the internal review. Obviously, with 45% of our Budget being spent on staff costs, there will inevitably be a significant number of staff reductions. I will not venture to mention a figure today, but we are probably looking at figures in the hundreds.

The Deputy Chairperson (Mr D Bradley): Paragraph 9 of the briefing paper states that 22% of departmental expenditure is of a fixed nature in the short term, including such things as accommodation, rent, rates, utilities and so on. What consideration have you given to the potential for office accommodation savings by moving to modern workplace design and having greater flexibility regarding location?

Ms Worth: We certainly have. That has been underpinning our savings delivery plans over the last number of years. In the current year, as you are aware, we have been allocated £23 million of capital, which we hope to use to purchase a number of properties that will enable us to exit accommodation and, hopefully, reduce lease costs. Obviously, we get the opportunity to save on lease costs only when a lease comes to a break point or an end, so, with the best will in the world, the opportunities are staggered over a long time. Built into our initial £10 million of plans was about £1 million worth of lease savings that we anticipated delivering. We also plan to spend a large amount of our capital allocation in 2015-16 on refurbishing some of our owned properties to increase the floor density and to enable us to exit leases in 2016-17 and beyond. That will not help us with our 2015-16 problem, but, as the Minister has said, we need to be looking to the longer term as well. Those plans are in place.

The Deputy Chairperson (Mr D Bradley): Paragraphs 18 and 19 reference equality impacts being considered. Why are the equality considerations not undertaken in parallel to ensure that decisions are informed by them?

Ms Worth: Equality impacts have been considered in tandem with the original long list of savings. The time constraint on the internal review has not lent itself to equality considerations being built into what it has been doing; it has been primarily looking at the viability and feasibility of the ideas for delivering savings in the short term. The nature of DFP's activities tends to be such that most of what we do does not tend to have a large equality impact. That is simply because most of what we do is providing shared services to public servants. A reduction in those does not tend to have any equality impacts for us. If the sorts of things that we were considering were more likely to have a high equality impact, we would absolutely have to look at that at an earlier stage and as a more integral part of what we do in the internal review. That is not to say that we are ignoring those considerations. Once we have our shortlist, we will certainly be making sure that they do not have any equality impacts that we had not anticipated.

The Deputy Chairperson (Mr D Bradley): Will that be before or after the Executive have agreed the final list of savings?

Ms Worth: It will certainly be before my Minister has agreed the savings.

The Deputy Chairperson (Mr D Bradley): So, it will be before then.

Mr Girvan: It is really down to the administration costs within the Department. I appreciate that we are rejecting a cut next year. However, over the last two years, we have seen a 5·6% or almost 6% increase in the administration costs within the Department. Is there any explanation as to why we have incurred an increase? I think that we have had the second largest increase. I think that one other Department had a larger increase in its administration costs.

Ms Worth: It is primarily due to the fact that we are bringing more organisations on board for our shared services. The Department of Justice has recently taken up Account NI and IT Assist services. That has led to a transfer of funding to DFP's admin costs that previously would have been in the Department of Justice's costs.

Mr Girvan: That is very interesting, because it leads me directly to something that we encountered in another Committee that I sit on. Have you identified that there has been a reduction in its administration by a comparable amount? It came through in the PAC report that a lot of them are still doing those functions, even though they had said that they were buying into some of this in relation to procurement, the performance and efficiency delivery unit (PEDU) and all of those issues. They said that they were dealing with it — "Oh yes, we are part of that" — yet they continued to have all those resources within their Departments doing the checks and everything else.

Ms Worth: You will appreciate that I cannot really answer for the Department of Justice, but it would have had a business case that supported its move to those shared services. Experience has shown —

Mr Girvan: I am not picking one Department. It did not reflect on one Department but ran across numerous Departments. I can understand an increase in our budget, but, conversely, I would have liked to have seen the complete removal of a whole tier in others, given that you say that you could make the saving. I am not talking about removing £200,000 from one Department and adding £200,000 to another. If you are going to work with a collaborative approach, instead of a £200,000 reduction, you should be seeing a greater reduction because more people are working more effectively and efficiently. We have not seen that. It has not been demonstrated. I appreciate that it should work in practice, but we are not necessarily seeing it in the figures that are being presented to us right across the board.

Ms Worth: Obviously, I can answer only for my own Department in that respect.

Mr Girvan: We dealt with it in the PAC. We need to pass information through and ask each Department to come back and tell us where the reductions have been made in its budget.

Mr Ó Muilleoir: Go raibh maith agat. Ms Worth, thank you for coming with the paper. I appreciate that you cannot give us information that the Minister has not yet decided on and when you are still going through the process of considering where cuts will come. However, I wonder whether I could tap into your expertise for you to give me some information on a broader matter that will apply not only to this Department. The Minister mentioned this morning that every Minister he had met — and he presumes it to be the case across all Departments — would be willing to have a voluntary redundancy scheme and reduced headcount. I presume that we are going to hear more of that in the weeks ahead. Tell me how that works, perhaps within DFP and then within other Departments. The Minister has to save, or make cuts of, £15 million this year. I presume from his comments this morning that he will also come forward with a scheme for voluntary exit. He will not incur the cost of redundancies; is that right? That will go to this central pool. When will he get the benefits? My understanding is that there is £100 million set aside for redundancy payments. Let us say, for example, that he let 10, 100 or whatever number of people go, when does the Department get the benefit of that?

Ms Worth: I do not know all the detail of what is going on in the other parts of my Department that are dealing with the planning scheme, but my understanding is that the plan is for the first tranche of people to exit in early September, so we would not start to see cost reductions in the Department until midway through the year. We will have to make plans on that basis that will recognise that there may be other short-term measures that we need to take for just next year because we will not see a full year's worth of reduction in those staff costs until the 2016-17 financial year.

Mr Ó Muilleoir: If there is a scheme within DFP and other Departments, part of saving the money could be through a redundancy scheme. Some of the benefits would be felt this year but not them all.

Ms Worth: That is my understanding.

The Deputy Chairperson (Mr D Bradley): The internal project team is tasked with making savings. What progress has it made and what opportunities has it identified for savings and raising revenue?

Ms Worth: They have had a large number of workshops, up to 30-odd, with staff. I think those covered hundreds of staff across the Department. Those workshops generated hundreds and hundreds of ideas. The ideas have been sifted, and we now have a long list of ideas that we think have some viability but they are now being subjected to a round of senior management meetings, where the ideas relevant to each business area are being scrutinised for viability in those areas.

Preeta have I had quite a hectic schedule over the last couple of weeks attending a lot of those meetings to make sure that senior management are not simply dismissing some of those ideas out of hand and that we are bearing down on costs and sharing the pain across all our business areas where there are opportunities.

As I said, we are not yet in a position of having have a final list of things that we might do, but the sorts of things coming out of that are, as you mentioned, maximisation of revenue, where people are identifying areas where we could maybe market our services more strongly, particularly those that are more discretionary, so that we are increasing our revenue generation.

There has been a strong theme around where people perceive there to be duplication of processes across the Department and people feel that they are having to go through an interim step before they get an outcome. That is mainly in some of our corporate service areas, like finance, IT and HR, and we are looking at whether they can be streamlined further.

As the Minister mentioned, we are looking at greater use of our shared services and what opportunities might be there. That probably gives you a flavour of the sorts of things that are coming out of that.

The Deputy Chairperson (Mr D Bradley): Is there a similar process ongoing in other Departments?

Ms Worth: Again, I cannot really speak for what other finance directors and permanent secretaries are doing.

The Deputy Chairperson (Mr D Bradley): OK.

Ms Worth: I found it a useful process not just in generating ideas that maybe I and finance colleagues would not have thought of but in terms of staff engagement. We are going through a rough time. It is going to be hard for staff. I feel it is good for them to have the opportunity to come up with some solutions to that problem rather than feeling like they are sitting waiting for things to be done to them.

The Deputy Chairperson (Mr D Bradley): Thank you for that.

What use will the Department make of the financial transactions capital (FTC) scheme?

Ms Worth: To be honest with you, we are finding it quite difficult to identify opportunities for DFP to make use of that within the Department. Most of our capital spend goes on maintaining our properties and, secondary to that, on our IT systems. We are open to opportunities. We are working with the Strategic Investment Board, particularly on the asset management strategy, and it is looking for opportunities there might be for the use of financial transactions capital, but we have not identified any opportunities as yet.

The Deputy Chairperson (Mr D Bradley): Is it likely that you will?

Ms Worth: To be honest, conceptually, I am having trouble figuring out what we would do in terms of a capital purchase on the accommodation front that would alleviate the situation and not lead to some sort of rent that would potentially give us a resource pressure. I will just be honest with you: I am struggling to see how we can make good use of it, but I am not going to cease trying.

Mr Cree: I have been concerned for a long time that this important asset is going to be wasted. Part of the reason why it has not happened — we are going to be sending back maybe £30 million-plus this year — is because very few Departments have really got a hold of this. You have got to do it with the private sector. There is no format, there is no body set in place to negotiate that. Sitting back and scratching your head, thinking "What can we do?" is not how you tackle the problem.

Ms Worth: As I said, we are working with the Strategic Investment Board, and it is engaging with the private sector. However, I am struggling to understand why a private sector organisation would take on board Civil Service office accommodation without wanting to charge us for its use.

Mr Cree: Well, as you know, that was the policy until quite recently. We were going to sell off the estate as far as possible, get the improvements carried out and then lease back.

Ms Worth: Yes, and I think that, when we were in a time of scarcity of capital, that was the only way we could see to make improvements to the properties that we needed. I think that the Budget situation has perhaps flipped slightly now and it is the resource that we are short of, so we are trying to use that capital to leverage some of the resource savings that we are seeing —

Mr Cree: As you know, next year, approximately 12% of the capital budget is going to be FTC. We have got to get organised. We have got to do it, otherwise the whole thing is a waste of space. If it had not been for the college moving in, we really would have been in difficulties in the current year.

I will add another wee point that has arisen and which is connected with that. It is interesting to see that the Department revalues its property every year.

Ms Worth: Yes.

Mr Cree: And then it takes a hit on the notional depreciation. It then has property maintenance at 4% of the budget. Is this some sort of flagellation, or what is the logic in this? It seems to me that somebody sought out a bit of the question but not all of it. For example, why can property maintenance not be capitalised and taken back, and we will save 4% straightaway?

Ms Worth: OK. I will try to address those points. Government accounting rules require us to revalue our property annually, and that is why we undertake that exercise. I understand that it is largely because national accounts, and the way that Government measures how they are doing, require us to carry our assets at current cost. Again, the Treasury's budgeting guidance causes us to need to record the accounting depreciation of those assets over their useful life. That is the depreciation element of it.

You had a second part to your question.

Mr Cree: I do not necessarily agree with that rule, but if you want to follow it, I can understand it. The other side of the coin is that you are taking the full hit on maintenance. Why not capitalise that?

Ms Worth: We can capitalise an element of our maintenance, and you will see in our capital expenditure plan that something like £2·9 million will be capital maintenance. We are only allowed to capitalise maintenance when it is a major maintenance activity. So, a lot of our budget will go on routine statutory-type maintenance: things like lift checks. I do not know. I always use the example of replacement light bulbs and door handles —

Mr Cree: That is OK. I understand that, but is that 4% the net figure?

Ms Worth: That 4% is the figure that comes from resources, post-capital, yes.

Mr Cree: So, all your capital bits have been taken out.

Ms Worth: Yes. Believe me, we looked long and hard at this, and we are capitalising —

Mr Cree: Would it be possible for us to have some sort of information on how you appreciate and write-back the capital element from what you would, generally speaking, call "maintenance"?

Ms Worth: We can certainly give you our definition of what we can classify as capital maintenance.

Mr Cree: I am thinking of the figures; I would like to see clarity in the figures.

Ms Worth: Yes, we can do that as well.

Mr Cree: I want to see how much you have appreciated and how much depreciation has therefore increased, which you touch on, and how much is secretly offset by capitalising maintenance that you would have been paying out of resource DEL.

Ms Worth: Yes, that should be possible. I stress that it is not done secretly; it is done transparently and in line with accounting standards.

Mr Cree: I am sure we all appreciate that. Thank you.

The Deputy Chairperson (Mr D Bradley): Can we get a copy of the final paper when it is signed off by the Minister?

Ms Worth: Yes.

The Deputy Chairperson (Mr D Bradley): I know you probably cannot give me a date for that.

There were two research papers that we sent to you. Can we have the responses to the issues raised in those?

Ms Worth: Yes. Sorry, I thought that we would touch on those today in oral questioning, but I can provide a written briefing.

The Deputy Chairperson (Mr D Bradley): Do members agree to that?

The Deputy Chairperson (Mr D Bradley): OK. Brigitte and Preeta, thank you very much for your information today.