Well, good afternoon everyone. It’s great to be back at the Institute for government. And as has been alluded to, I was here not very long ago. But I’m delighted to be back because I’ve been working on a project with colleagues in the Treasury that I’m told is not particularly newsy, but for me and a select group is very, very exciting. And so we wanted to talk about it and this was a perfect venue to do so. So thank you once again for hosting us.
When I became Chief Secretary to the Treasury and therefore responsible for public spending, I didn’t quite envisage that I would be giving a speech like this, starting with a story about the sinking of the General Belgrano during the Falklands War. Nor to be making the connection between that event and my plans to modernize how we use finance and performance management data in Whitehall. But following a conversation with Lord Sainsbury, it turns out I am. And so I’m now going to tell you the story, if you don’t mind me pinching it.
So some of you might remember that Clive Ponting was a senior civil servant who leaked government information about the sinking of the General Belgrano, and in 1985, after a court case that resulted in the then cabinet secretary Robert Armstrong, drafting something that’s now called the Armstrong Memorandum, which, based on some earlier constitutional principles, set out essentially how ministers and civil servants are accountable for their actions.
The memorandum, in a classically British way, has become entwined in the Constitution and become an important part of our While constitutional principles, it’s now become a doctrine. The Armstrong doctrine, I’m told by the House of Commons library. And essentially what it means is that government departments are autonomous, independent organizations that report directly to Parliament. Now, that doctrine is important and obviously will continue. But in this modern world where we are trying to use data and technology to better deliver public services, we need to move on a little. And let me explain why.
So when I arrived at the Treasury last year, I had assumed that the Treasury acted a bit like a finance department in a kind of multinational organization or a group, organizations with different lines of business or parts of the business that reported up to the Treasury.
But what I’ve realised over the last few months is that actually the way our finance systems are designed means the relationship is a little bit more like a bank and its customer. So the Treasury, as the bank has a load of customers, the departments in government, and it’s our job to anticipate their financing needs, to think about how we’re going to raise the money, to be able to give them the money, to request information from them about what they want to do, which we do via letterhead and Excel spreadsheets. and then use word based document advice notes to talk about what they’d like to do and how much it might cost. And in that process, we then attach conditions to the spending. So we say, fine, you can have X million billion pounds. And in return we think these things should happen. We apply ring fences to different pots of money. You can only use this bit for this particular outcome. And we put loads of compliance reporting over it, a kind of grander scale of getting a loan from a bank where it might just be for your home development or debt consolidation or a car or whatever.
And then we check in and we see how the departments are getting on, how they’re spending that money, whether they’re spending it broadly in line with what we agreed. And we do that on the basis of a monthly submission from the departments to an IT system called Oscar, which essentially is an Excel spreadsheet that the departments fill out and then upload. And that tells us at a very high level, how much they’re spending against what we thought they were going to spend. It’s essentially cash flow. And it doesn’t really tell us a huge amount more.
And so what that means is that the information that we get is not only high level and a bit disaggregated, but it’s also retrospective. It’s looking backwards, not looking at current performance and not really able to predict future performance.
And so in practice, because of this Armstrong doctrine, all of the finance, accounting and performance data sits within the departments on their own IT systems, often structured in different ways. Or they. Whitehall has been doing some good work in trying to get them to report their data in a unified way, and then turned into PDF management board packs that go to the departmental boards each month, which they send us as a courtesy, and we kind of have a look at them. But it’s all essentially not very ideal.
And the problem with that is that not only does the Treasury then, in exercising its responsibility to manage public money, attach loads of conditions and ring fences and compliance reporting and kind of meddling essentially a lot in the departments, but then the departments in turn end up applying an enormous number of performance metrics and KPIs to all of the different services that they provide.
We then in the Treasury layer some of our own on the top, the Cabinet Office layer, some of theirs on the top, and if it’s a Prime Minister or Prime Minister or priority number ten, layer some more on the top. And essentially you’ve then got this enormous list of KPIs that people are constantly manually reporting against the long side of the ring fences and the conditions and the compliance requirements. And quite frankly, it’s a wonder that anything gets done.
And so that has to change. And it needs to change because it’s frustrating to all of our brilliant officials, our spending teams in the Treasury, but also all of our officials in Whitehall departments who want to get on and deliver the public’s priorities. It wouldn’t be acceptable to behave in this way in a modern company, and it is not acceptable to act in this way in the modern British state.
So the reforms that I’m going to be taking forward will help deal with this problem and as a consequence, improve productivity and performance across Whitehall. It’s in line with what you’ve heard from the Prime Minister in terms of our ambitions to rewire the state, to modernize the state and public services, to deliver better outcomes for the public in return for greater transparency between the departments and the centre of government.
We then, in the centre of government, have to offer greater autonomy and delegation to the departments. The transparency that we want will make it easier for the Treasury to continue to manage public money robustly, but in return they will have to be fewer conditions, better levels of delegation and a reduction in the amount of reporting and compliance against too many KPIs.
Only yesterday I met with some CEOs and chief technology officers from leading businesses who are harnessing data through their complex multinational operations to help deliver better decision making.
There was a private equity firm with over 60 portfolio companies, for example, and despite the huge number of individual operating entities and jurisdictions around the world in which they operate, they use some what seem to be pretty normal tools that the private sector now uses to pull that data through. They have some AI that read these PDF board packs and automatically put it into their IT systems, and they focus crucially on the data that matters most. That is most important to them, and which in turn gives them the best shot of being able to predict future performance as well as track current performance. It means that they’re able to see how individual business units and their sales are performing, where costs are mounting up, where revenue is falling, where problems are so that they can grab them and deal with them, but also to be able to allocate capital more efficiently and deliver better outcomes.
As I say, these software products are available today. They’re not complicated, but we do need to bring them into the public sector at last, because a smarter, data driven approach to understanding, tracking and evaluating spending, performance and delivery is the right ambition for any government, and it’s definitely an ambition of ours.
We’ve made some strides already. We’ve already, as I’ve talked about when I was here last time, updated the Spending Review. We’re using technology, dashboards, AI. We’re talking about things across departments with the cabinet. This is very different to the way it used to happen with the Treasury bilaterally via Excel spreadsheets, with not everyone knowing what was happening. You get one department in, you get them out, you get another department in, you get them out. We’ve transformed that already as best we can. But this type of approach will make it much easier and allow ministers to make much more informed decisions to deliver better outcomes for the public.
So these reforms will update our operating model, and they will transform the digital and data architecture of public spending across government. We’re building on existing work that’s taking place, which is implementing shared enterprise resource planning software, ERP software, back office functions, basically where the departments are already integrating some of those functions in the cloud through various groupings of departments. And we will develop a single digital interface that sits over the top of these IT solutions and will bring the data up into the centre of government to allow us to look at financial and performance management.
We’ll then be able to use data analytics and AI to track trends, spot emerging challenges, and to be able to share best practice in real time. It will also allow us to spot earlier where there are points of failure that lead to excessive spending. Too often there are lots of examples. We only realise that something is going wrong and costing a lot when it’s a very large number. We need to be able to spot those and deal with it much sooner in that process, for the benefit of people who are relying on those public services, but also for the benefit of taxpayers.
The good news is that our officials, our finance professionals, the departments, they will all welcome this. They’ve been looking for. I think politicians to prioritise this niche but exciting opportunity for quite some time. And here we are at last, with ministers who are excited by the potential of data.
We won’t be changing the constitutional basics. Of course, departments will still be accountable to Parliament through their ministers and accounting offices, but we will be taking this new approach to a shared, transparent evidence base where data flows in the way that it should, whether the centre of government has sites where departments can collaborate when they’re part of a system together, to have a more informed view about how their decisions affect each other and how ultimately that’s affecting people across the country.
We start from a decade where the performance of public services went backwards. The Whitehall Monitor is a great evidence base for showing that productivity is nosedived, and as a consequence, public spending had spiralled out of control. We’ve already taken steps, as you all know, to get a grip of public spending, to embed our fiscal rules, to strengthen independent oversight from the office for Budget Responsibility, and to take the tough and sometimes unpopular decisions we’ve had to take in order to make sure that we’re spending in line with our means as a country.
But after 14 years of behaving in that way, the public rightly look at government irrespective of party and ask, why am I paying all of this tax and not seeing basic public services work? This is an important part of the answer to that challenge, and it will give us the tools, the data and the insight to really be able to drive modernisation and productivity across the public sector so that we’re operating as a modern government fit for the 21st century.
And as part of wider sets of reforms that you’ve heard Pat McFadden and others talk about ultimately delivering a more productive and lean state that can deliver better outcomes for people at lower cost thanks to our investment and modernisation of the state and public services. Thanks very much.
