Official Report: Minutes of Evidence

The Chairperson (Mr McKay): I welcome Dr Malcolm McKibbin, head of the Civil Service; Dr Colin Sullivan, director of strategic policy and reform directorate; and Colin Lewis, director of corporate HR. Do you want to perhaps give us an overview of where things are with this and where they are going? We will then open it up to questions.

Dr Malcolm McKibbin (Office of the First Minister and deputy First Minister): Thank you for the chance to brief members. I think the aim today is for us to provide you with an update on workforce restructuring across the public sector. That includes details of work carried out by the public sector steering group in determining the allocation of funding from the transformation fund designed to enable the arm's-length bodies (ALBs) and Departments to downsize and resource the various staff-reduction schemes. You will have received a paper on the transformation fund and the current state of play. I do not propose to go through that in detail; rather, I will give you a bit of an overview, and then we will obviously be happy to take questions on any issues that you want to raise.

As part of the Stormont House Agreement, the Executive agreed flexibility to borrow up to £700 million of capital funding to enable the voluntary exit scheme (VES) to proceed. That is £700 million over four years, with £200 million this year, £200 million in each of the two following years and then £100 million in the fourth year. That is the upper limit, with no carry-over from year to year. The current uncertainty on the budgetary position itself means that funding for schemes cannot be confirmed; therefore, no firm dates for exit can be guaranteed. We proceeded with the background work to allow people to exit as soon as possible after funding is confirmed.

This year there have been two tranches. The first tranche was launched on 28 March, with applications due in by 31 March, and the second tranche was launched on 1 May, with applications due in by 29 May. Effectively, however, those two tranches have been coalesced, reflecting, as I say, the uncertainty over the funding situation and that we could not go to the Executive earlier in the year. Obtaining clarity on the funding will be key in allowing the scheme to proceed and in allowing us to achieve the in-year savings that we need to.

The NICS scheme itself is part of the overall transformation fund and is based on the guiding principle of least cost. In other words, there will be an upfront compensation payment and maximum payback period, in other words, the annual savings that you would achieve if you let people go. That is really just so that we can optimise value for money from the schemes overall.

You will be aware probably from the media that we had 7,285 applications. We hope that that will allow us to effect a reduction of around 2,700 full-time equivalent posts, or just over 3,000 people exiting the Civil Service. We notified applicants on 2 June. We advised 1,200 that they had been conditionally selected to exit at the end of September, and we advised the rest that they had not yet been selected. We also pointed out in the launch document that allowing people to exit was very much dependent on funding for the compensation costs being made available through the implementation of the Stormont House Agreement. To allow the scheme to proceed, we issued conditional offers to those due to leave on 30 September, and that means that applicants selected may still be able to leave as planned if funding becomes available. However, the NICS has not committed to allowing them to leave, as funding is not available. In other words, it is binding on the employee but not on the employer.

I appreciate that that creates uncertainty for the staff involved. It is not where we would want to be, but it is where we are. It also gives us some fairly significant management challenges that we will have to try to overcome in the months ahead. Really, for the people leaving by the end of September, I do not think we could go past the end of August in confirming whether they are leaving or not, because people clearly have plans made if they are allowed to exit. We also cannot accurately predict the number of staff who would ultimately choose to accept the offer. We will get clarity on that over the next few days, at least for the first tranche.

That is really where we are at the moment. As I say, we await responses to letters we have sent out. I am happy for Colin and me to take questions, if you wish.

The Chairperson (Mr McKay): Thank you, Malcolm. The previous Finance Minister, Simon Hamilton, stated earlier this year that the £700 million in reinvestment and reform initiative (RRI) borrowing will yield an annual pay bill saving of £500 million across the public sector by 2018-19. How was the total for those figures calculated?

Dr McKibbin: I think that that was originally based on median salaries through the pay bill savings. They were working on the basis that in Whitehall the average compensation payment was roughly £35,000. That would allow, in theory, 20,000 people to leave over the four-year period. The calculations were worked out on that basis.

Really, it is premature, because we do not know the Budgets for the next three years, so we do not know how Departments will prepare plans to live within them. We do not know how many people will exit next year, the year after or the year after that. Indeed, that will become clear only when the CSR is published by the Chancellor in the autumn.

The Chairperson (Mr McKay): Do those figures include natural wastage?

Dr McKibbin: I am sorry; the figures that you were quoting were to do with utilising the full sum of £200 million in the VES. That figure would not have accounted for natural wastage. Obviously, there will be natural wastage.

The Chairperson (Mr McKay): At the bottom of page 2 of your paper you state that:

You also state that:

For clarification, what is the amount of pay bill savings being assumed across all Departments and other public bodies in 2015-16 through the Budget Bill, which is the subject of much debate at the minute?

Dr Colin Sullivan (Department of Finance and Personnel): That is the figure that we are working to. It is £150 million annualised savings and in-year roughly between £60 million and £80 million. However, it depends on when staff are released, so it has to be a projection. It cannot be a firm figure.

The Chairperson (Mr McKay): Is that on the basis of what has been outlined in the Budget Bill?

Dr Sullivan: Departments obviously have targets that they need to work to, and this scheme is helping them to do that. If it is delayed, it will have an impact on their ability to deliver those budgets.

Dr McKibbin: The Budget Bill that Arlene Foster is bringing through at the moment is predicated on the Stormont House Agreement financial sums being available. It is assuming that £200 million is available in-year. The test will come when we have to draw that money down.

The Chairperson (Mr McKay): The Minister announced the financial impact of the Chancellor's statement yesterday, and there will be a statement in early July and more to come in the autumn. How do you plan, given that you do not have even a rough picture of what the Budget for 2015-16 is going to be and that there are all these uncertainties?

Dr McKibbin: The Finance Minister is bringing forward a Budget that is predicated on the Secretary of State's comment that the Stormont House Agreement remains on the table. Therefore, the Budget that the Finance Minister is bringing forward is effectively the one that was agreed in mid-January. It has not yet taken account of the £33 million resource and £5 million capital that were announced as a result of the Chancellor's statement last week. I assume that that would be taken into account in June monitoring if it is going to be dealt with this year. There may well be some flexibility in dealing with that next year and the other pressures that will arise in the June monitoring round, as they do every year. The Budget will be set, and these other issues will be dealt with in the June monitoring round or in a future monitoring round.

The Chairperson (Mr McKay): Given what was agreed in the Stormont House Agreement, with all the financial implications for this financial year, if Westminster withdraws funds, is it in breach of that agreement?

Dr McKibbin: Westminster will not make those funds available only if it believes that we have breached the agreement. Did you mean this Administration? In her St Patrick's Day speech in Washington, the Secretary of State said that:

The Budget is being put forward on the basis that, presumably, we will deliver on the welfare aspects of the Stormont House Agreement.

The Chairperson (Mr McKay): At the same time, they are withdrawing funding for this financial year. That was not in the Stormont House Agreement. They have had this emergency Budget, and there are more cuts to come in the financial year ahead, which obviously hinders the delivery of the Stormont House Agreement.

Dr McKibbin: It puts additional pressure on the in-year budget, but the funding for the voluntary exit scheme is a dedicated funding stream borrowed through the reinvestment and reform initiative from capital money. The main impact of the Chancellor's statement last week was on resource, where there was a £33 million resource reduction and a £5 million capital reduction. I am not expecting the Chancellor to announce any further resource or capital departmental expenditure limit (DEL) reductions. I think that the additional announcement that he will make on 8 July will likely be about welfare reform initiatives, rather than straight block adjustments.

The Chairperson (Mr McKay): Are there any indications of what that might be?

Dr McKibbin: There are none, absolutely none.

Mr McCallister: I want to ask you about some of the figures on the targeted headcount reduction and the applications to date, broken down by grade. Are those also fit to be provided for each Committee to allow better scrutiny?

Mr Colin Lewis (Department of Finance and Personnel): Yes. I would have assumed that each Committee had already considered individual operating plans for 2015-16 and that in that there would have been an indication of the pay bill savings that each Department would have to meet. To calculate that, there obviously has to be the number of people who want to leave per grade and per discipline. I would have thought that Departments have already dealt with that. I have the details as well, because it is part of our business case. Indeed, all the Departments have indicated to me that I can release them to you if you wish.

Mr McCallister: That would be useful.

You are borrowing £700 million with the idea of it being paid back in savings. What safeguards are you putting in place to ensure that the pay bill does not start to creep up again? For example, is there going to be a recruitment freeze in all parts of the public sector after this, or during and after it?

Mr Lewis: I can answer for the Civil Service as such, because I have been responsible for that scheme. As you know, we have had a recruitment freeze in place since the end of November, and that has remained intact. There have been one or two small bespoke competitions where a specialism needed to be filled, but, of course, that was expected. Once we exit the number of people whom, we anticipate, we will be able to exit via the scheme, we will then have to look again, when we know the CSR position, to determine the suite of personnel interventions that is necessary. Generally, it is not good for any organisation to maintain a recruitment freeze for a long period, because you begin to have concerns about capabilities and skills etc. We will have to look at that again.

We really do not know the extent of the impact of future public expenditure on the need to reduce operating costs. Assuming that the scheme moves forward and is implemented, I have no doubt that we will have to take stock and look at where we go and find the appropriate mechanisms to operate it. It is important that you maintain the enthusiasm and engagement of your staff and make sure that morale is there. Certainly, it will be uppermost in our mind to ensure that we do the right thing and give people an opportunity to develop. However, it will be a difficult decision to take once we understand what our budgetary constraints are going forward.

Mr McCallister: My concern, and I am sure it is the Committee's concern, is that it is about making sure that, when you borrow £700 million, at the end of four years — in year 5 or year 6 — we do not find that suddenly our headcount and pay bill are back on an upward trajectory.

I accept your comments on specialisms. I have always had the view — indeed, the Minister was not going to be drawn on it yesterday — that, if we had put a recruitment freeze on sooner, we might not have needed to borrow £700 million to do this scheme. For example, four years ago, we would have been at the point we are now.

It is about that central monitoring round, public sector headcounts and the grading of profiles for the life of the scheme. Any information that you can share with the Committee would be useful. However, I am very concerned about us taking on such a level of debt and the count then creeping back up again.

Dr McKibbin: We are acutely aware of that possibility — sorry; I do not regard it as a real possibility, as I do not think that it will be allowed to happen. On the question of whether we should have started the recruitment suspension four years ago, with respect, that is a bit of a red herring. Four years ago, we did not know that we were going to be in this financial situation. It was really only last year that the Office for Budget Responsibility (OBR) gave us an idea of what we might be facing in the next three years, which is what surfaced the idea that we were genuinely going to need a fairly rapid downsizing of the public sector workforce. So, it really is only since last year that we got an idea of what we are facing over the next three years.

Mr McCallister: On that, had Westminster not started a fairly sizeable reduction back when the coalition was elected in 2010?

Dr McKibbin: It had. In fact, between January 2010 and March 2015, it had downsized by about 18%. Some of that was the direct transfer of jobs into the private sector, and other elements were through downsizing. It did reduce, but there was no decision taken within the Northern Ireland Administration to downsize the Civil Service in the same way at that time.

Mr McCallister: Looking at the comparison, I would have thought that we should have maybe been more aware that something would be needed to reform our public sector somewhat more.

Dr McKibbin: As you know, we are going to downsize by about 10%, if we get the money, between September and March this year. That is an unprecedented scale. That is in six months, as opposed to four or five years for the comparable Whitehall reduction. It actually means that we are going to have to do things differently. It does not take a genius to work out that, if you downsize your organisation by 10%, you are also reducing your resource spend. If you want to do a similar quantity of things, you are going to have to do them in a different way. It is not possible to deliver it with 10% less resource. The organisation in the Civil Service will start to modernise at a much faster degree than had perhaps been thought previously. I regard it as quite an opportunity for the Civil Service to start to use more cutting-edge technology to deal with citizens and to make our services interact with them in a different way by obviously using technology to a much greater degree.

Mr McCallister: The difficulty with doing it at 10% in that time is the question of how managed a process it is compared with if you were doing it in Whitehall. I quoted an Audit Office report, I think it was, that talked about looking at having it managed and identifying the posts that you want to take out. At the minute, it looks more as though we are doing it according to who puts their hand up first.

Dr McKibbin: It is a voluntary scheme, and it is a blunter instrument than a managed, phased reduction over a number of years. There is no doubt about that. You are quite right. However, business continuity has been a key factor all the way through this. All Departments, in their business plans for this particular scheme, have had to look at business continuity risks. That is one of the reasons why we are phasing the release, probably over three or four tranches, to ensure that we do not suddenly decimate one particular area of the service or one particular skill grouping, etc. So, we are thinking carefully about how best to manage it. If you are asking me whether we could manage it more smoothly if we had a longer period of time, I think the answer, logically, is yes. However, do I believe that we can manage it over that period of time? I do.

Mr Lewis: The point that you make about the Audit Office report in GB is a good one. However, its concerns about the maintenance of key skills and capabilities kicked in after the Civil Service had already reduced by about 10% or 15%. It is very worried about it now. Indeed, I actually picked up an article a few days ago that indicated that now it is concerned about the impact that it has had. As Malcolm said, we have come from a position where we have remained static for the last five years, whereas the Civil Service in GB has reduced by 18%. I think we are resilient enough to be able to deal with a 10% reduction. This is the point you made at the outset. We have to make sure that, going forward, we protect key job skills and capabilities.

We are where we are. The Budget position that has arisen, particularly with the protection of Health and Education, means that Departments have to downsize. We will just manage that in the best way that we can. We have put in place various safeguards on selecting our departmental bases and movements over tranches to mitigate the impact of it, but it will be challenging; there is absolutely no doubt of that.

Dr Sullivan: The steering group has been alive to that through the criteria for eligible bids that would be supported under the transformation fund. As Malcolm said, business continuity plans had to be in place. Training plans for the changes in the redeployments that are necessary had to be in place before you could actually get to the point of having a successful bid met.

Dr McKibbin: Some of the councils in England have downsized, and some did that over quite a quick period. Funnily enough, the biggest problem that they had was that they released too many of their back-office staff and were no longer able to support the front line. They protected the front line so much that they actually stuck too much resource in the corporate side and are having to recruit again now.

Mr McCallister: It has been a constant worry that you would do that. It happened in one of the last big exit schemes, which was probably in the police, and they then had to bring back a certain number of people who had gone out in that. One thing that I would not want to see in the voluntary exit scheme is releasing people by borrowing £700 million only to find out that you had a skills shortage and were coming back here in two years' time or whatever saying, "Actually, we've a set of skills that we let go, and we need those people back".

Ms Boyle: What scope exists for Departments such as Health and Education, across health trusts and education bodies, to use the scheme strategically for workforce planning purposes, for example to reduce posts at a particular grade?

Dr Sullivan: Departments have the ability to design the voluntary exit schemes in the fashion that they require for the needs of their business. The steering group has not dictated the terms of those voluntary exit schemes, and they are different for the needs of each business. What is essential is that they take account of business continuity. If they are trying to restructure, this is an opportunity for them to do that by specifying specific posts as eligible.

Ms Boyle: This follows on in a way from John's question about skills loss. Under business continuity, the paper that you provided refers to a range of measures being put in place, including redeployment of staff into posts left vacant. As you know, though, there is already a rumour mill and scaremongering around that. It has been conveyed to me by staff and people I know who work in the Civil Service that people who did not put their name in the pot for the voluntary exit scheme need reassurance that there will not be a skills gap. There is concern within the workforce that there could be people who already have those skills but others could be brought in from somewhere else in a revolving door scenario. That concern is out there, but I see in your business continuity section that you have put measures in place. What are those measures?

Mr Lewis: It was very clear at the outset that there was considerable concern about the maintenance of business continuity. The Executive, when agreeing the preferred option to move forward as far as the Civil Service scheme was concerned, made it absolutely clear that proper account needed to be taken of that aspect, so we have worked hard to minimise that.

If you are seeking to downsize in such a large fashion in a short time, there will obviously be some disruption. That is inevitable. Our task has been to minimise that, and we have done that in a couple of ways. We looked at selecting people on a Northern Ireland Civil Service-wide basis or on a departmental basis. Having done the maths and given that so many people applied, we concluded that there is little difference between pay bill savings and compensation costs. However, there is a significant difference in the number of redeployments that would arise. The number via the departmental basis is probably no more than 190 — that is people moving from one Department to the next. That is a maximum, whereas Civil Service-wide, the figure could be nearly 500. Clearly, there is a simple decision to be taken, namely that we will select on a departmental basis.

Most Departments now tell us that they feel they can manage their own pressures without a great deal of interdepartmental movement. That does not indicate that there is not going to be quite a lot of movement within Departments — there is — but I think you will agree that it is better if Departments do it themselves without people being told, "You will move to another Department on a certain date". That has been the first step. We also gave Departments the ability to move people between tranches. As far as the Civil Service scheme is concerned, we are intending to release people in four tranches, so we gave some opportunity to allow Departments to say, "Well, I can't afford a person to leave in the first tranche but I would like that person to leave in tranche 3". We have allowed that type of short-term flexibility as well.

Taking those two things into account and, I would have thought, quite helpful redeployment principles that give Departments various ways to fill posts, we have gone a considerable distance to minimise the impact of this. To be frank, while there will be individuals who will be told, "I'm afraid you will be moving to a certain post at a certain date", as you would expect with the thousands we are talking about, it is a relatively small number of people. I think that we have done everything we can, in terms of a systematic approach, to minimise this.

Mr Cree: I was interested in Dr McKibbin's talk about how bad the figures would be becoming known only last year. In fact, we know that it was in June 2013 that the figures were initially released by the Treasury, but, unfortunately, not much happened for a year.

Dr McKibbin: We still have not had the CSR, so we still do not know what the next three years hold.

Mr Cree: I am talking about last —

Dr McKibbin: For 2015-16?

Mr Cree: You referred to the figures being known from last year. There is selective amnesia in that matter, but I will move on.

In the business cases that have been assessed to date, assuming that the Budget and welfare reform are agreed, how much of the £200 million in the current year could be allocated and to which schemes?

Dr McKibbin: How much will be allocated to each of the —

Mr Cree: How much of the £200 million borrowing in the current year will actually be allocated?

Dr McKibbin: We hope to allocate all of the £200 million, because we are oversubscribed. We will not be able to afford to release all the posts that Departments have identified that they would wish to release in 2015-16 because we are maxed out at £200 million. The amount of bids we received was £254 million.

Mr Cree: How would that be allocated?

Dr McKibbin: It is allocated on value for money weighting criteria.

Mr Cree: I am thinking of Departments. Is the intention to have it across all Departments?

Dr McKibbin: Yes. There are 24 different schemes, all of which have the potential to be funded to one level or another.

Dr Sullivan: It comes down to the crux of the methodology that the steering group agreed. The Executive agreed that Malcolm's group would oversee and develop that. There were various options that could have been looked at. One was to reward the schemes that were most cost-effective at the expense of those that were more expensive. Another was to proportionately reduce, if you are oversubscribed, for everybody. The steering group agreed — it is outlined in annex 1A in a series of tables and templates — an approach where we applied a benefit:cost ratio to all the bids, which meant that every bid got something, but those that were more cost-effective were rewarded. As Malcolm indicated, we are oversubscribed. Therefore, there has to be a cutting back, so not everybody is getting what they asked for. The benefit:cost ratio is the annual pay bill saving, divided by the compensation cost, ie the amount of money required from the transformation fund.

Mr Cree: In the absence of political agreement on welfare reform, what scope do you think exists for the June monitoring round allocations to the scheme to proceed?

Dr McKibbin: That is a matter for the Executive. They are going to be faced with a range of pressures identified by each Department. They have the Chancellor's announcement last week to consider as well. If welfare reform is not agreed, there will also be what have been called ongoing welfare reform fines; that is the recouping of money that Northern Ireland has spent, over and above that which is spent pro rata elsewhere in the United Kingdom on welfare. It will be up to the Executive to look at that range of pressures and decide whether they can fund a scheme. The difficulty is that it will be funded out of resource. The Stormont House Agreement allows it to be taken out of capital, but the real pressure for this Administration is on resource. It would make it a very hard call. The impact of that would be that you would not get the in-year savings by releasing people this year, and you would not get the recurrent savings that would have occurred in future years.

Mr Cree: I know that it does not look like an easy fit, but is there any way in which financial transactions capital (FTC) could take the place of RRI borrowing?

Dr McKibbin: No because, again, it is primarily capital. It is only the Stormont House Agreement that allows us to use the flexibility of the RRI. That is part of the freedoms and flexibilities that Treasury gave us. If that is removed — if the Stormont House Agreement is no longer available to us — I cannot see FTC being a way to fund it.

Mr Cree: You cannot see that capital being used.

Dr McKibbin: No. Treasury would have to allow us to use it in that way.

Mr Cree: It is basically a loan anyway. On the interest costs associated with the £700 million of the RRI borrowing, what period is that likely to be over and what interest rates can we expect from that?

Dr McKibbin: The interest rate on the RRI from the national loans fund is currently about 1·5%. That is on a 10-year loan.

Mr Cree: OK, so it is quite attractive.

Dr McKibbin: Yes. The payback period for the NICS scheme is likely to be 13 to 14 months. That is a very quick payback period, considering the money we are saving.

Mr Cree: That is good. Thanks.

Mr I McCrea: Are there any risks with the underspend at the year end?

Dr McKibbin: Not for this year, because, obviously, the last tranche will try to pick up the attrition rate. In other words, if we put out 1,200 letters, as we did on 2 June, 1,000 people might accept. The extra 200 can be factored into future tranches. There could be some risk in the last tranche, if people turn it down, but, by that stage, the numbers should be lower.

Mr I McCrea: Do you have a process for managing it if that happens?

Dr McKibbin: If we underspend, it is not carried over; you have just borrowed less. You have drawn down less than you would otherwise have done.

Mr McQuillan: What is the risk of the revolving door situation and of people taking their payout, going, and turning up at some other public body a couple of weeks or a month later?

Mr Lewis: That question has been asked before about the compensation. If a person leaves and rejoins the Civil Service within a period after receiving their compensation, they would have to repay the compensation amount. However, people can move to another public body outside the scope of the current Northern Ireland pension fund and seek employment without having to repay.

Dr McKibbin: Somebody can move from the Civil Service into local government, for instance, and they would not have to repay.

Mr McQuillan: That seems a wee bit strange, when you think back to local government and the councillors who were taking their package a few years ago. They will never be fit to stand again for local government.

Mr Lewis: Our controls apply only to those organisations that are part of the Northern Ireland pension scheme.

Mr McQuillan: I understand that.

Mr Lewis: Anybody beyond that would not be obliged to —

Mr McQuillan: But there is no way they can go back into the Northern Ireland Civil Service —

Mr Lewis: They can, but they would have to repay it over a period.

Mr McQuillan: Are there any other risks associated with the whole thing that you have thought of?

Mr Lewis: The degree of preparedness for the NICS scheme is at a high level and, to be frank, given the number of people who have applied, we would be disappointed if we did not get our pay bill savings at a lesser compensation cost than originally indicated. The benefits are huge. The risk here is whether we are going to be funded to be able to do it.

Dr McKibbin: I suppose the other risk relates to the fact that it is all about business continuity. Some 7,285 people showed an interest, and we hope to exit around 2,700. The people who are leaving will be very happy, because they want to leave and they will be leaving with some financial compensation. There will be two issues for us. There will be the people who did not go but wanted to go; there will be a morale issue there.

Mr McQuillan: That was going to be my next question: how do you deal with those people?

Dr McKibbin: That is a morale and motivation issue that we are just going to have to deal with as managers. There are also the people who are going to be moved as a result of a hole being in the wrong place, so to speak. Sometimes, that is good for people, but others will not be content because it may make their domestic circumstances more difficult etc. That is just something that we will have to deal with as managers.

Mr McQuillan: Will you secure the staff who maybe will have to move to fill that hole? If they are moving from one building to another, there might be travel issues, for instance. How do you convince them to make that move if they do not want to do it?

Mr Lewis: Every person will have a profile, so we will know what their working pattern is and we will know where they live geographically etc. If we are trying to move people, we will try to provide as a best match as possible to minimise that disruption. There will always be people who are content at the desk where they work and in the building where they work, and they do not want to move anywhere else. We will try our very best to ensure that there is minimum disruption but, unfortunately, further to the point that was made earlier, the scale of this means that it is inevitable that there will be cases where we will simply not be able to accommodate that. Under terms and conditions, we have the right to say to someone that they will be moving to a particular post at a certain time. We hope to minimise that — I think I gave an indication that we have done that — but it is inevitably going to happen.

Mr D Bradley: Good morning. Has there been any engagement with the trade unions on the voluntary exit scheme and, if so, what was nature of that?

Mr Lewis: There has been extensive engagement with the trade unions in consulting them from start to finish — indeed, that continues — on the process of identifying the numbers to leave, the nature of the scheme, its terms and conditions, the redeployment principles that we have developed and how we handle all those things. NIPSA in particular and the industrial unions have made their point very clear: they are opposed to job losses in the public sector. They have a particular approach to all of this; they are not happy about any of it. However, I have to give the unions great credit. We have worked proactively in engaging all the way through this process to minimise the impact that it would have on their members. There has been extensive consultation. They are clearly taking a particular position on it, but the engagement has not been unhelpful.

Mr D Bradley: So, even though they have stated their position on it, they are still engaging on the nuts and bolts of the schemes as they affect their members.

Mr Lewis: Down to the nth degree, yes.

Mr D Bradley: Adrian mentioned the process of redeployment, and you said that you have engaged with the trade unions on that. You mentioned the principles. What are the basic principles of redeployment?

Mr Lewis: When a Department identifies that it has vacant posts, it notifies a central body — my division — and identifies that posts are surplus. We then get into a process of how to allocate those surpluses. We have developed a suite of quite generous measures to allow Departments to deploy a variety of methods. There is a pool of people who need to move into other Departments, and they can do that in a number of ways. They can either think about an elective transfer, run a little competition or offer them the nuclear situation of a random selection where they simply come to us and say, "We want you to select a person". That will be done against certain criteria such as location, skills and work patterns, and it will come up with an individual who will suit that post. We are leaving that to Departments. They are trying to manage this without having to revert to a surplus pool. We are giving them quite a generous suite of methods to do it and, hopefully, we can deal with it with minimum disruption.

Dr McKibbin: Senior managers will have to act very corporately in this. They will have to look at the NICS as a whole once we get to a surplus pool situation. It will not be about trying to retain staff or not release staff etc. We fully expect them to cooperate fully.

Mr D Bradley: You described the process, and there are people in the Civil Service who have to travel considerable distances to their office. Will this be an opportunity to help to ensure that people have the opportunity to work closer to home?

Mr Lewis: That is a question that I cannot really answer in generalities. It boils down to individual Departments to manage each individual case.

Mr D Bradley: So that is not part of your principles of redeployment.

Mr Lewis: No, although we are bound in our policies to ensure that people work within a reasonable travel-to-work distance. We are trying to minimise that disruption.

Dr McKibbin: Setting aside the VES scheme, people who wish to transfer will often have a transfer request in, and it will be considered in priority terms as part of normal business in any event.

Mr D Bradley: I understand that you are trying to minimise disruption, but might it not also be a good thing to try to accommodate as many people as possible who want to reduce their travel distance?

Mr Lewis: In principle, yes, but that is a matter for how individual Departments manage their business. The redeployment principles that we have devised essentially give a suite of measures to allow Departments to do that, but they have to make that determination. But I do not disagree with you.

Mr D Bradley: You mentioned the suite of measures that each Department might have to manage their personnel. Have you issued Departments with any guiding criteria around the scheme? If so, can you tell us what they are?

Mr Lewis: We have devised redeployment principles that are specific to this scheme. Departments have agreed them; permanent secretaries have agreed them; and they are with the Departments.

Mr D Bradley: Do your guiding principles not go further than that, for example in ensuring the retention of required skills in Departments?

Mr Lewis: That is a matter for Departments to manage. As I said earlier, we simply could not identify specifically the numbers of people we need to retain individually. This a major exercise. To constrain the process by building in quotas or exceptions for each individual skill would have been incredibly difficult to manage. We simply would not have been able to meet our objective.

Dr McKibbin: It has been done at certain levels. In other words, each Department has identified by grade and discipline the number of people who wish to exit. For instance, no one was allowed to leave the Office of the Legislative Counsel (OLC), which serves the Assembly from time to time, because of the skills imperative of holding it together. There are some areas where, we believe, it is absolutely key to retain people. We could not afford to have quotas right across the piece, so to speak.

Mr D Bradley: I understand that. You mentioned the guiding principles of redeployment. Are you saying that the general guiding principles that you have issued do not go beyond the principles of redeployment?

Mr Lewis: These are specific for redeployment only. How the Departments handle redeployment between Departments and how we select people to move from one Department to the next goes beyond our normal vacancy management policy. We have had to devise new principles to manage the scheme simply because of the number of people who may have to move.

Mr D Bradley: That is grand. Thank you.

The Chairperson (Mr McKay): The Deputy Chair made a few good points. Malcolm, you mentioned earlier the fact that every cloud has a silver lining and that there are opportunities here as well. Can you perhaps elaborate on what you see those opportunities being with regard to technology etc? Dominic made an important point: we published a report on flexible working, and this is a big opportunity to accommodate people who travel for three or four hours a day on the roads and are less productive in their work in the public sector as a result of that added pressure.

Dr McKibbin: I suppose that the obvious one is that the situation that we face allows us to be slightly more radical than we would otherwise have been able to be in more benign circumstances. With regard to technology, we have the 16-by-16 initiative in which we are looking at our 16 highest-volume transaction services and trying to put them into electronic communication with citizens etc. Because people realise that they will have to do things differently, there are probably now between 25 and 30 of those projects going forward. We are already seeing a drive towards less people-intensive ways of delivering the same services. If you do it by using digital technology, it can often provide a better service at a lower cost. There is, in that case, for instance, a major drive forward to increase digital transactions.

The Chairperson (Mr McKay): Is that the only opportunity that you see?

Dr McKibbin: Every business area will look at how it can reduce its reliance on people, in particular, and reduce costs. The pressure on budgets is being dealt with through a number of mechanisms. One is the pay bill saving; the other is looking at the way in which we carry out our existing services or work. We have to become more streamlined, slicker and quicker about how we do those. Task-and-finish groups will be set up to look at work activities and outputs to try to improve how we deliver those. Each Department will carry out a series of its own initiatives.

Mr McCallister: This is a wee bit more crystal ball stuff. On the possible options, would it ease the financial burden quite dramatically, even if all of the Stormont House Agreement were not implemented, if you got access to the £700 million of borrowing so that you could, at least, go ahead with the voluntary exit scheme? Would that make a significant difference to our financial problems?

Dr McKibbin: In-year, we are talking about a £25 million or £26 million saving, if we release the staff whom we expect to release. Next year, as a result of letting this first £200 million worth of staff go, we expect accrued savings of £95 million to £100 million in the Civil Service.

Mr Lewis: Recurring per annum.

Dr McKibbin: These are big savings, John.

Mr McCallister: I do not think that the Minister was terribly keen on the phrase "fantasy Budget" for next week, but we are hurtling towards that. I know what the Secretary of State has said, and you quoted her earlier. However, if there is some flexibility and we are allowed to borrow the money to go ahead with this scheme, even though welfare is tied up, it could ease the financial pressures quite significantly.

Dr McKibbin: I have to say that I do not like the term "fantasy Budget" either; I regard it as a provisional Budget, which is a much more accurate description.

Mr McCallister: I am not sure that Arlene — [Laughter.]

Dr McKibbin: I am not sure that the media would find that quite as sexy, but nevertheless. [Laughter.]

There is logic in saying that the scheme should go ahead anyway and it is just a question of how we fund it. However, there is huge pressure on resource. I do not doubt that, if the welfare reform issue is not sorted out in the pretty near future, we will have to engage with the Treasury to see whether access to the money can be maintained. Whether the Treasury will allow that to be pulled out of the Stormont House Agreement, I do not know, but I accept what you say: there is logic in that.

Mr Lewis: This will be difficult for Departments to move forward, given the public expenditure environment going forward. We made this point earlier. Malcolm outlined the actual recurring savings: they are huge — £100 million in the Civil Service alone. That is broadly equivalent to 10% or 11% of our pay bill, so the saving over a five-year period is substantial. However, this is a scenario in which the budgets of bigger Departments such as the Health Department, which accounts for nearly 46% of the block, are protected. If you continue to do that, there are bound to be pressures on the other Departments, and that is where most civil servants are based. There are only about 600 civil servants in the Health Department; most of the people are public servants. If you maintain that position, you will have a lot of pay bill going out to keep people employed with not a lot of work going forward. That is the obvious consequence. There has to be some reconfiguration and reallocation that we can consider. The prize of £100 million a year in the Civil Service is huge. Just think what could be done if that money were available to the Executive.

Mr McCallister: I was just thinking of options that might ease our situation, rather than falling off a cliff in a few weeks or, technically, going bankrupt.

Dr McKibbin: We will see what happens with the Budget Bill next week.

Mr McCallister: Yes — call it what you like.

Mr Cree: Does the figure of 7,285 apply to firm applications to exit or simply enquiries?

Mr Lewis: They are applications.

Mr Cree: Are they definite applications?

Mr Lewis: Yes, but they are not binding on an individual, because, in fact —

Mr Cree: No, but people were not just finding out the details.

Mr Lewis: They are applications. You could maybe use the words "expressions of interest", but we devised a calculator so that people knew precisely what they would get before they applied. Of course, once they get the written quote into their hands, they have 10 working days to decide whether they want to go. The first 1,200 will get written quotes on Monday coming.

Mr Cree: Our current reinvestment and reform initiative borrowing is £1·7 billion. This extra borrowing would take us over the £2 billion mark, which was a red line at one time. We borrow about twice as much per head of population as Scotland. Following on from John's point, I was thinking that, if we do not have welfare reform, there will be a lot of pressure simply to say: "I am sorry. You are at your maximum borrowing limit and are not entitled to any more — too bad".

Dr McKibbin: We do not know. There will be a negotiation between Executive Ministers and the Treasury, no doubt. I keep coming back to the point that, although we are borrowing, Leslie, there is a very short payback period —13 to 14 months. I would opt to have an investment like that.

Mr Cree: With the benefit of hindsight, you could have done it years ago.

The Chairperson (Mr McKay): Thank you very much, gentlemen.