Value for money and budget cuts: What are “efficiency savings”?

Ahead of this year’s Autumn Statement, the Chancellor has told Government departments they will have to “find efficiencies within their budgets”.

Governments often talk about “efficiencies” or “efficiency savings”, but it’s not always clear what they mean. This Insight looks at how the term has been used in the past, and what this might mean for the Autumn Statement on 17 November.

What does “efficiency” mean?

In its 2021 report Efficiency in Government, the National Audit Office (NAO) defined efficiency as “government being able to spend less to achieve the same or greater outputs” (or spend the same but achieve more). In other words, it involves cutting spending without cutting services.

However, there is evidence that the term is used and understood in different ways. In a debate in the House of Lords on 3 November, Baroness Kramer (former Treasury spokesperson for the Liberal Democrats) said “the word efficiency is used extremely casually”.

The Treasury has said the Government is currently trying to fill a “hole” in the public finances, estimated by some experts at £40 billion or more. In this context, “efficiency” may mean spending cuts.

What efficiency savings have been found before?

In 2014, the Government announced it was on track to make £20 billion of savings between 2009/10 and 2014/15. Changes it had made included shutting down departmental websites to create a single GOV.UK service, centralising procurement (so suppliers were not charging different rates to different parts of Government) and selling Governmental buildings where the space was not being fully used.

However, in the same report, the Government said that making any further savings would be “more difficult to achieve”, and that some of the changes it had already made would not produce savings for some time. More recent reports have continued to announce savings; in March 2022 the Government announced that it had saved £3.4 billion in various ways during 2020/21.

The NAO’s 2021 efficiency report also said a long-term focus is needed when looking for efficiencies. It gives examples of when a short-term focus on savings can be harmful. For example, although the Government saved money on the prison service by reducing staff numbers and closing prisons, it then had to start hiring more people when safety in prisons began to decline.

In March 2022, the Government responded to the Public Accounts Committee’s inquiry based on the NAO’s report. It agreed with the Committee’s recommendations that government departments should consider the possible impacts on service users in their efficiency plans, and that a “culture of continuous improvement” should be implemented instead of relying on one-off efficiency drives.

What might this mean for the Autumn Statement?

Over the years, different governments have introduced various ways of monitoring spending to check they are achieving results. The current Government uses the Public Value Framework (discussed in the Library’s briefing Assessing value for money in central government) to create plans and assess the results, and this is likely to continue.

Beyond the general approach of trying to deliver services efficiently, it now seems that the Treasury expects Government departments to reduce their spending plans.

In October 2022, the Institute for Government and the Chartered Institute of Public Finance and Accounting (CIPFA) produced a report on what spending reductions could look like. This report examined reductions made in the 2010s to assess whether similar things could be done again.

The report concluded that most of the easier genuine efficiencies have already been made. Making services even more efficient is now likely to have short-term costs. The report also says that cuts to some services can result in higher costs elsewhere (for example, in the 2010s spending on youth services went down but spending on children’s social care ended up rising).

It is also possible that capital (long-term investment) spending could be reduced. This may be more attractive because the immediate impact on public services is not as serious.

However, cutting investment could also make it harder for services to be delivered efficiently, and maintaining existing assets also counts as capital spending. The Chancellor has talked about the “vital importance” of capital investment, but also signalled “we are not taking anything off the table”.

Further reading

• House of Commons Library, Background to Autumn Statement 2022

About the author: Philip Brien is a researcher at the House of Commons Library, specialising in spending

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