The following is a transcript of a keynote speech given in Parliament by Gareth Davies, the head of NAO, to MPs and civil servants on 8 December 2022.
Insights from the Auditor General
I have been trying to give a version of this speech for almost three years.
On taking office in 2019, I inherited an organisation that was trusted and respected. For almost 40 years, the NAO’s independent, high-quality audits and objective, evidence-based reporting have been helping Parliament hold government to account for the money it spends, and the public services it delivers. I felt however that there was more we could offer.
The NAO has privileged access to the entirety of government. We audit 400 accounts and publish 60 value-for-money reports every year. We look across the whole of public spending:
- from defence to major infrastructure projects
- from health, welfare and education to tax administration and regulation
We don’t comment on policy. Our focus is on the evidence relating to value for money. Each individual piece of work we produce provides for scrutiny, accountability and learning on an important issue for our society. But what is that body of work telling us in its totality?
So, in early 2020 we decided to take a step back and draw together the learning from all our work, which has resulted in a larger number of thematic reports every year. We would provide Parliament with a unique insight into the overarching issues and challenges we were seeing right across government.
And then, of course, the world changed. The COVID-19 pandemic was a public health emergency like no other, with a tragic death toll, and serious disruption to many lives.
And before I go on to the lessons for doing better next time, it’s important to recognise the outstanding response of many public servants, and those brought in to help, both nationally and locally. They showed personal sacrifice, and resilience and courage. They demonstrated many examples of innovation. And they worked across organisational boundaries in a way that wasn’t seen before, and hasn’t been seen since.
We at the NAO also had to fundamentally change how we carried out our work, and alter our priorities rapidly. I am immensely proud of the way our people responded to that challenge. As public spending exploded in response to the pandemic, we knew that we needed to step up. Transparency and accountability remained essential, even in a crisis.
Nearly three years on, and we have audited more than £300 billion of public expenditure on the COVID-19 response. And we have produced 36 value for money reports on the different elements of that response.
We aimed our recommendations to help government make immediate improvements, as well as help prepare for future crises. The Public Accounts Committee used our reports to take evidence and make its own recommendations. So now, as the pandemic recedes, and other issues begin to dominate the government and the audit agenda, it is crucial that we don’t forget and move on, but instead reflect on what we have learned.
From across all of our work, I want to share three big lessons with you on the importance of:
- basic standards in public accountability
- quality data
- and resilience
And as we now face the pressures of backlogs in front line services, high inflation and soaring energy prices, I want to look at the bigger picture on value for money in public spending. What does our work say about how government can improve results for the public by wisely choosing where it spends its money, and then using resources efficiently in the process?
COVID-19 lessons
With hindsight, it now seems obvious that such a large-scale public health emergency as COVID-19 would require more than just a health service response – but rather a whole-of-government intervention, across the economy and society. Yet this was not something that we as a nation had adequately predicted or planned for. Same as the case for many other countries.
So it was that throughout the height of the pandemic, and afterwards, my colleagues investigated all aspects of government emergency activity across a multitude of departments.
- We looked at the direct health response – vaccines, test & trace, PPE supplies.
- We looked at the wider emergency response including the shielding programme, free school meal vouchers, housing rough sleepers.
- And we looked at the measures to protect businesses and individuals from the economic impact – furlough, bounce back loans and the culture recovery fund, for example.
From this body of work, I draw three big lessons for public spending in large scale emergencies.
Firstly, the importance of maintaining basic standards of public accountability even in a crisis, and restoring normal controls as soon as possible.
Secondly, the central role of good quality data in responding quickly and targeting resources accurately.
And thirdly, the need for a new approach to improving the country’s resilience to large scale emergencies, which minimises the impact on current and future taxpayers.
1. Basic standards
So, taking those three things in turn, on basic standards of public accountability, everyone accepts that at the height of the emergency, some normal processes and checks needed to be adapted, to save lives and protect livelihoods. There simply wasn’t time to use lengthy tender processes to buy PPE, or apply the full panoply of checks on potential borrowers for bounce-back loans. When accepting these necessarily high-risk compromises, government then had a responsibility to apply those safeguards that were available even in that situation.
This includes increasing transparency to Parliament and the public. It was therefore a concern to see significant delays to government publishing the details for some (often very large) contracts that had been awarded without competition. It is not an onerous task to publish this information promptly, and it is a vital one. In the words of Louis Brandeis, the legendary American supreme court justice, “Sunlight is the best of disinfectants.”
Another essential basic control in maintaining public confidence when risk is heightened is the rigorous management of conflicts of interest, whether actual or potential. We did not find enough evidence that this was being done adequately. I was pleased when government accepted the recommendations from our work, that of the Public Accounts Committee and Nigel Boardman in this area.
Fraud was another area of heightened risk. Government correctly identified that the speed at which it rolled out schemes such as furlough and bounce back loans would lead to a high risk of fraud. And they were right. But, we found that government should have addressed some of those vulnerabilities to fraud more quickly. Billions were stolen from taxpayers, and recovering as much as possible remains an essential task.
I am encouraged that the Business Department is applying these lessons to the design of the new energy support schemes, by engaging specialists from the Public Sector Fraud Authority recently established in the wake of the pandemic.
Finally on this theme of basic standards, timely accounting is key. The pandemic meant that those departments most affected needed to account for some extraordinary expenditure and financial guarantees, and this caused delays.
Our audits of those accounts required substantial additional effort too, given the risks involved. Working with departmental finance teams, we restored the pre-pandemic timetable for most government accounts by this summer. And we are aiming for further improvement next year.
At this point, though, I do need to mention the worrying situation in local government accounting and audit. At the end of September this year, around a third of councils had not published audited accounts for the financial year ended March 2021, more than a year after the deadline.
The NAO is not responsible for auditing local authorities, and the reasons behind these unacceptable delays are complex. But restoring robust and timely local government accounting and auditing must be a priority for the government and the sector and the audit industry. This is a point starkly illustrated by the unfolding scandal at Thurrock Council. The commissioners sent in by Government have identified losses of £275m on risky investments, made using borrowed money.
Maintaining these basic standards on transparency, managing conflicts of interest, anti-fraud controls, and timely accounting is critical to protecting taxpayers and maintaining trust in public spending.
2. Good quality data
My second theme is the importance of good quality data. From our work, it’s clear this was a leading factor in determining the value for money of the different government interventions.
The Universal Credit system, with its access to real-time income data, proved highly responsive to the surge in demand, in the first months of the pandemic. Because HMRC had more up-to-date pay data for people who worked for organisations than those who worked for themselves, the furlough scheme was better targeted than the self-employed income scheme. That last scheme initially missed many people who needed the money, with others receiving a net increase in their income.
Having the data is one thing, but public services also need to be able to share, and collate it, to make it usable. The need to identify people who were clinically extremely vulnerable required a major exercise – government had to pull together different data sets which had not previously been used for that purpose. And this took time when the clinical risks to those people were high.
Later in the pandemic, the system for calling and booking people for their COVID-19 vaccinations was built rapidly. It made good use of the available patient data, and proved reliable and effective.
It is interesting to note that widespread use of the NHS app for recording vaccination status has now translated into patients being more willing to engage digitally with the NHS.
We’ve all benefited from improved use of data in the commercial world, but government’s progress over the last 25 years in this area has been too slow. Government needs to prioritise this work and stay the course. We expect to see it building on the good work being done by the Central Digital and Data Office in the Cabinet Office, and the ONS.
Our work in this area shows that the three key issues to address are:
- Data standards: essential for efficient use of data, held in a consistent way
- Data quality: for accurate and reliable results and maintaining public confidence
- Data sharing: so that citizens don’t have to repeat themselves
Getting this right offers the opportunity for government to unlock huge efficiency gains – a well understood concept.
3. Resilience
My third reflection on the pandemic is resilience: how is government ensuring that our country is resilient enough to withstand costly crises, without placing an unaffordable burden on taxpayers? And what will good value for money look like in future pandemic planning?
For example, what’s the best way to avoid having to buy enormous quantities of PPE in an overheated global market? Is it bigger stockpiles? Possibly. But what if we’ve opted for the wrong type of PPE for the next disaster?
That suggests we also need the ability to switch domestic production quickly, to produce what’s needed. How much will such arrangements cost each year? And when considering the answer to that, remember that we spent £13 billion on PPE just in 2020.
The pandemic exposed the UK’s vulnerability to emergencies that affect every sector and every part of our society. As we see from the current energy price crisis, resilience to systemic risks goes well beyond pandemics. And perhaps the ultimate challenge to our resilience is posed by climate change.
The changes in rainfall we can expect in the coming decades will severely stress our water resources. When the NAO looked at what the water regulator and the industry was doing about it, we found a failure by the industry to reduce pipe leakage. We also found no convincing plans to stop the south and east of England running out of water by 2040.
The experience of the last few years should be enough to demonstrate that we need more realistic assessment of risk – assessment of both the likelihood and the impact of adverse events. And I’d observe that everyone involved, and I’d include the NAO in that, has underestimated both likelihood and impact in a series of major crises, COVID-19 being the most major example.
For our part, we at the NAO are now developing a more systematic approach to auditing resilience. We’ll be examining how effectively the country is being protected from catastrophic events, and taxpayers from unaffordable bills. We will publish the first in this new series of audits next year.
To be truly resilient, government must plan for scenarios that it previously dismissed as extreme, and revisit its assessments of how likely they are to happen. This is crucial if we are to achieve value for money, not just in the short term, but for future generations.
Efficiency in public spending
So having considered lessons from the pandemic, I’d like to turn to the here and now, the pandemic has left us with a long list of pressing issues to deal with – risky government-backed loans, backlogs, over-stretched local services. Combine this with the myriad ongoing challenges such as the invasion of Ukraine, the cost of living, post-Brexit trade arrangements, the energy crisis and climate change, and the situation facing government is incredibly difficult.
And with public finances constrained as they are, the government has to extract as much value from every public pound as possible. That requires choosing well and delivering well. Those two simple concepts are at the heart of efficiency. Something governments of all persuasions have tried to master for decades. I would like to explore both of them further with you.
In the summer of 2021 we published a report on ‘efficiency in government’. It distilled our learning on the subject from many reviews of approaches to improving value for money over decades. In that report we distinguish between allocative and technical efficiency. The off-putting jargon disguises two very simple concepts.
Allocative efficiency is choosing which activities to spend on for maximum results (or ‘doing the right things’). Technical efficiency is about achieving good value for money from the chosen activities (or ‘doing things right’).
I and the NAO have no view on the right policy choices – these are a matter for the government. So, what does our work offer to those who have to make those allocative choices? In short, evaluation.
Despite government’s commitment to evidence-based decision-making, much of what it does is either not robustly evaluated or not evaluated at all. This is a serious problem.
In December 2019, the Prime Minister’s Implementation Unit concluded that in most policy areas government has little information about the difference made by major spending programmes. It found that out of the government’s 108 most complex and strategically significant projects, only nine were evaluated robustly. Seventy-seven of them had no evaluation arrangements at all.
Government commonly sets up innovation funds – and these are explicitly set up to establish evidence. But the analysis showed that only around a fifth had robust evaluation of the impact. That means government is not taking the opportunities to pursue more of what works, nor to stop what doesn’t work.
There are some more positive examples – in 2018 the Business Department introduced a central analysis and evaluation database. Civil servants can refer to it when setting up new schemes and share learning across policy areas.
And in what I think is the best example we’ve seen, the Department for Education properly embedded evaluation into the children’s services projects it funded from an early stage. The evaluation assessments were published, and they usefully identified both unsuccessful initiatives, allowing them to be stopped, and promising ones, which could then be expanded.
Government has recently committed to improve its use of evaluations in spending decisions. And it strengthened its capacity to do this by creating the Analysis Function and a central Evaluation Task Force. These interventions are important and they will take time to mature. But without a fundamental change in behaviour and mindset there is a risk they will make little difference.
It’s easy to see why it’s difficult to prioritise evaluation. The results can take a long time to come through, and nobody relishes being associated with a programme that is shown to be ineffective. But we won’t embed better value for taxpayers if we don’t pay attention to what government spending is achieving.
So if more rigorous evaluation can help policymakers make the right decisions, how can government put itself in the best position to deliver on those decisions efficiently?
The backlogs in the health service, courts systems, DVLA and passport office all either stemmed from, or were exacerbated by, the pandemic. But there is a worrying picture emerging of a deterioration in productivity for some public services. For example, the NHS estimates a 16% reduction in hospital productivity since 2019.
This problem is more than just the legacy of COVID. It is rooted also in a failure to keep pace with the changing demands the public are placing on these services, and not enough investment in improving their operational efficiency.
Government expects to spend around £400 billion in each of the next three years on providing services, grants and administration. If it can improve how it provides these, there is significant potential for both financial savings and better services.
Understanding and managing demand is key. Knowing when peaks and troughs will hit enables you to plan, so that resources can be allocated efficiently though the year. And proactively managing demand, from a public who rightly expect their time and information to be respected, can prevent wasted time dealing with complaints and queries.
Investment in digital services is another key to unlocking operational efficiency. But we have seen repeated cycles of digital change in government since the 90s, accompanied by an over-optimistic view of how easy this kind of change is to implement. Government is not a greenfield site where brand new systems can be created at will. New ways of doing business and services need to fit into a government landscape still dominated by legacy systems and legacy data.
We have seen the impact this can have on citizens. A significant number of people, mainly women, were systematically paid too little state pension. One of the causes of this was a reliance on old systems that could not easily be updated.
Digital leaders in government bring experience and understand the challenges well. But they have often struggled to get the attention, understanding and support they need from other senior decision-makers.
Our work demonstrates the need for a renewed focus on the nuts and bolts of efficient and effective delivery. We have seen too many high-level ambitions fail to be translated into concrete plans, adequately resourced and tightly-managed. The skills and organisational discipline required for this are well understood, but they are not always valued and prioritised in government.
Crucially, these skills include working across departmental and sector boundaries. From affordable housing, to safe air quality, we’re struck by how many of today’s challenges require a whole system approach.
Conclusion
The NAO’s work over the last three years provides a rich source of learning, as government confronts the challenge of meeting public expectations for service delivery, in an environment of tight resources and increasing risk. Government will need to ensure it has the tools it needs to choose well, and deliver well.
We will continue to help Parliament scrutinise major programmes, and better understand what is happening to public sector productivity, and how inflation is being addressed. We will help government learn the lessons of its previous efficiency drives. And we will focus our value for money programme on identifying further efficiency improvements.
Fundamentally, the pandemic exacerbated some known weaknesses and revealed the need for a more robust approach to resilience against whole-system risks, including the ultimate systemic risk of climate change. We will follow up all the recommendations from our COVID-19 audits to ensure the outstanding issues with these schemes are resolved. And we will use our cross-government view to test the effectiveness of government’s preparations for future emergencies.
I look forward to updating you next year on our findings. Thank you very much.
Author
Gareth Davies
Gareth Davies was appointed C&AG in June 2019. Before his appointment as C&AG, he was Head of Public Services at Mazars, a global accountancy firm specialising in audit, tax and advisory services. Prior to this, he was Managing Director of the Audit Commission’s Audit Practice. His experience spans financial and value for money audit, organisational leadership and board governance.
Gareth is a Fellow of the Chartered Institute of Public Finance and Accountancy and a Fellow of the Institute of Chartered Accountants in England and Wales. He is a non-executive Board member of the INTOSAI Development Initiative (IDI) which supports Supreme Audit Institutions in developing countries to sustainably enhance their performance and capacity.
