289. Why we need fewer civil servants

0:00In 2010 we spent 3.6 billion a year on consultants. You know, people reading our watch, telling us the time. Civil service, Stephen, is like an infinite wall. Infinitely high, infinitely wide. Every 10 billion pound we save is half a million junior nurses salaries for a year. It's 3 million primary school places. When you run in a business and the civil service is fundamentally a business, it needs to have a strategy, a vision, a plan. and then you've got to execute the plan. You want to have the best talent in the right swim lanes to deliver that.

0:31Robert Peston:What percentage of procurement, that's government purchase of goods and services, A, went to British companies and B, went to smaller companies and how did that change on your watch? That's a great question. So government spends on public procurement 430 billion a year. 430 billion. We're delighted to say that this year the rest is money is powered by Octopus Energy. So we're joined by its founder and CEO, Greg Jackson. So Greg, I heard that the prices of solar and home battery storage are falling. So is it worth waiting before you invest in them? First of all, we never know what's going to happen to the future price of energy.

1:10Robert Peston:It could go up or go down. So I think when people try to do a really detailed payback calculation, the problem is you don't really know what the alternative is. But I don't know many people who've regretted getting these technologies because the one thing, whenever you get them, is it helps insulate against the volatility of the market prices. And so, as far as I can tell, the vast majority of people who've made that decision are happy with it. Greg, thank you very much. Now on with today's episode.

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2:49Hello and welcome to The Rest is Money with me, Steph McGovern.

2:52Robert Peston:I'm with me, Robert Paxton. And what we want to find out today is, is there a way to make the civil service more efficient, cut civil service numbers while simultaneously buying more from British companies, particularly small British companies, that would have this virtuous effect of freeing up a tonne of money for investment in public services, but also stimulate growth. Yes. And we've got the perfect guest for this. We've got Stephen Kelly, who for many years has run several big name tech and software companies, started his career at Oracle, went on to become the CEO of Sage Group, which is, of course, one of the largest software companies in the UK.

3:28and then he was brought in to the public sector by David Cameron to improve efficiency, try and bring down the number of civil servants, cut the spending and essentially improve productivity in the civil service as well, which he managed. So we want to know how he did it. Here is our interview with Stephen Kelly. Stephen, lovely to have you on the show. Now, as we've just mentioned in the introduction, you were brought in by David Cameron to streamline the public sector. What we want to know is we need that now. So how did you do it? What can we learn from you? Yeah. And obviously very different times.

4:03That was back in 2010, so 16 years ago. And it was off the back of the credit crunch 2008. And then a whole period of what was termed austerity. But with this, effectively, I think fundamentally, the civil service can be massively improved and made a lot more efficient so that we deliver much better services to citizens. and that was the whole mission. So between George Osborne and Francis Moore and David Cameron, they determined that they should bring someone in probably from the private sector who's got a lot of operational experience and create a role called the first chief operating officer for the whole of the UK government, 24 departments.

4:42And that encompasses all things like IT, commercial practices, procurement, digital services, so the launch of things like GovUK, as well as major projects. So all the fun probably of Connecting for Health and HS2 and Hinkley Point and all these sort of things. So it's a very wide range. And anything touching taxpayer money would be effectively the responsibility of this role, working very collaboratively with the departments. And I guess the headline numbers, the civil service started in 2010 with 492 ,000 civil servants, all, you know, very good people. But then when I left, it was 380 ,000.

5:20So over that period, we actually had a smaller civil service by almost 120 ,000 people. And when did you leave? 2050.

5:29Robert Peston:So that's more than 100 ,000, so about 120 ,000 reduction in just five years. How much of that was essentially when people just left of their own accord, not replacing them? And how much of it was active management, essentially saying you've got too many people here or these people aren't up to it and we're going to get rid of them? It was probably about more than half were through natural wastage. So that was a terrible phrase, but effectively people retiring, people coming up to the end of their tenure, people going back to the private sector. And that was obviously a program put in place through HR to actually encourage some of that as well.

6:10But then also there was some restructuring. and some elements around the machinery of government were modified to actually accelerate a more efficient government with anything. You know, you've got almost 500 ,000 people and the status quo takes over and obviously the culture up to that time, particularly through the years of, I guess, the Blair years of where the economy was growing fast, typically the civil service was growing in the same sort of trajectory with the economy. So it was a kind of root and branch review, a restructure and a reform program that was put in place. But a lot of the actual personal exits in the human story was done through, again, another terrible HR phrase of natural attrition.

6:53Robert Peston:But can I just ask on that, you've spent most of your life in the private sector. And, you know, most private sector employers say to me that there's always a risk if you shrink numbers through natural wastage that essentially you keep the underperformers. You keep the poor performing members of staff. Were you able to assess, you know, when you left, whether the quality of the civil service was what it should be? Yeah, that's a great question, Robert. I think my, I guess my experience and why did I take this on? Because that's the genesis. I kind of grew up in the world of US technology and spent 10 years with a startup company at the time called Oracle in the 80s and 90s.

7:41And that was how to build global growth companies. But then I had to do a number of restructures. And again, probably the US model was pretty focused and very on point. in the UK when I came back to government. My interest was, could I actually apply the playbooks of what I learned in the US when I came back to the UK? I did that in a public company called Micro Focus. And then the intellectual challenge, my curiosity, was tweaked by thinking, could those same sort of business practices, the tone at the top, the strategies, be employed in one of the oldest institutions in the world, the British Civil Service?

8:18And it was the case. So coming directly back to your question, it was the case that on the sort of restructuring agenda we called it the reform agenda was very focused on making sure the good people stuck around so a lot of obviously the process inevitably when you're losing colleagues and in the first couple of months actually there was a lot of retirement parties and leaving parties and all those sort of things it does set the tone within the company and the culture and very important to me is a vibrant culture within all the sort of responsibilities I've had. So we had to actually personally put our arms around the shoulder of the most talented people.

8:57And actually during a time of major change, major restructuring, it is a great time for opportunity because people want to take on more responsibility. So the best people actually rose to the top. It's interesting you say that because you're suggesting that people were then happy with the changes because you would think that them knowing you were coming to essentially get rid of people would create a negative atmosphere amongst people and people would be thinking, oh, he's the, I don't know, the grim reaper coming in to get rid of jobs. So what you're saying is it was kind of easy to implement then?

9:30No, nothing's easy, Steph. You know, nothing actually, wow, I've been in business for 45 years. Nothing that you build of substantial value is easy to do unless you win the lottery or something. And, you know, I don't do the lottery. It's a lot of hard work. I think the start point, you've got to have a vision for what Britain wanted to be. And then you've got to have a plan. We had a very clear vision. And we used to, you know, honestly, with any institution, particularly like people who have been in the civil service 20, 30 years, they become institutionalised. And sometimes, I hate to say this, but in big companies it's the same.

10:04They become saboteurs. They forget the enemy's always on the outside and they start picking kind of internal turf fights. It's just crazy. And what we sought to do was say, actually the reason why you came through the you know the turnstiles at horse guards or caxton house was to improve public service you've got that mission that zest for better public services serving citizens and we want to reconnect you to that and we want to actually eliminate all the wastage all the noise the bureaucracy uh and create efficiencies to allow you to do that and and then what we did and we measured this and actually had the national world office audite and I sat in front of Margaret Hodge of the Public Accounts Committee and Meg Hillier, I don't know, half a dozen times, to say we had to measure.

10:50So, number one, we had a vision. Number two, and that was a vision for Britain, why it's important, why we need to save money. And then we connected it to real-life stuff. So we said every£10 billion we save is half a million junior nurses salaries for you. It's three million primary school places. Yeah, it's like a massive impact on the fire services. And it gives the Chancellor of the Exchequer huge latitude if we're making great savings in the civil service and public service. Number one, to improve the services, but most importantly, to actually give the Chancellor latitude to invest in public services that we're all proud of.

11:25And that's the genesis of why we started in the civil service in the first place. But you must have come up against resistance, though, from people, because no matter how much you tell people, if we get rid of your job, that'll be a nurse or whatever. People care about themselves, too. Yeah, yeah, definitely. Definitely. And before I joined, this is back in probably about 2010-ish, just around this sort of election period. I worked years back in the 80s for a guy called Peter Gershon. And he was chairman of Taylor Lyle and all these great things. But he'd done, I think with Michael Barber in the Blair government, a similar role in about 2000.

12:02And I said, Peter, you know, what's it like? because I have witnessed, because I've done stuff with the government, some amazing people from the private sector literally go back into government and sort of become zombies within six months, just lose their spark and energy. And I thought, well, I don't want to do that. So I sort of went to Peter and a couple of other people who had worked in the civil service and said, what can you tell me? What's the lessons you learned? And he said, interesting, he said, civil service, Stephen, is like an infinite war. infinitely high, infinitely wide. And someone like you, but just because your energy is going to every day wake up, seven o 'clock, you'll go in there and you'll bang, running, sprinting and smash into that wall.

12:47Full crumpled on a heap. And then you'll dust yourself up and you'll think, no, you never fail. Failure is not an option. Next day, you'll do exactly the same thing. And you'll keep doing this. And then you realise, if you keep doing it and you keep talking sense and keep doing the right things, eventually that wall has doors and windows, but they only open from the inside. So you have to be invited in. So I'll tell you one of the sort of guerrilla stories. In the first two weeks, I had meetings with Treasury colleagues and I was based in both a Whitehall, 70 Whitehall and Horse Guards. And the meeting was at the Scottish office, which is right at the almost Trafalgar end of Trafalgar Square end.

13:35And then I got sent up there, went to the meeting, no one there. And then I found that the meeting had been rescheduled down the other end of Whitehall, so I missed it. And I went back to my... Everybody has private offices, so I'm not sort of used to this because I'm just... I'll get my own coffee and stuff. But I had six people looking after me. Did you not get rid of them in the process? I had to. It's a good point. But they are, well, actually some of them are the most talented people. And a guy called Simon French at Pam Yeur. He was the guy running my private office. What a talent, now chief economist, doing great things for Britain.

14:11So these are super smart guys. And actually I'd say all the civil servants, I was very privileged. I worked with some amazing people like Jeremy Hayward. Mark said, well, they're just brilliant people. But he said, oh, wow, I've heard that. It's been one of the tricks to play. send you off to a different meeting, different location. Oh, they did it on purpose. Well, who knows? Who knows? I never like to speculate. Here we are. I'm telling you the story. It's real life. Yes, Minister. It is. It is. And some of it was. But fortunately, a few things. What did we learn from that time? The alignment between the ministers.

14:46We treated them as the board and we were the executive. I think the efficiency during that period has never been... And actually, Cameron deserves a lot of credit for this. Osborne, that team of consistent ministers doing their job for five years. It all stayed in place, Theresa May at the Home Office. Great stability, because again, what the civil service could do, if you believe the sort of yes minister and thick of it stories, which can be the case, is if you rotate indoor on the ministers, literally you never get anything done. Because a new minister briefed them, six months, they come up with their own ideas, 18 months later they're gone.

15:22The five-year consistency was very powerful. Also, you couldn't put a sheet of paper between the Lib Dem ministers and the Conservatives. I work very closely with Nick Clegg and Danny Alexander. Fantastic people. And the Conservatives, you know, really good. Like people like Philip Hammond, all these sort of folks. You're getting all the names in in this episode, aren't you? Theresa Maygood. Yeah. Well, they were good people. And David Gore, really, really high quality people.

15:48Robert Peston:And before we move on to what might be the potential lessons for the current government, if we're going to make the state more efficient, we've got to get the private sector in. We've got to get more private sector people in. And I have to say, in the many years I've been an observer of these things, quite often it just doesn't work. You get some guy, I'm not going to name names, but I can think of quite a few private sector people who've been absolutely useless. useless. What role in general do you think the private sector can play usefully? And why do you think, because it sounds to me as though you did relatively succeed compared to many other people from the private sector.

16:27Robert Peston:And why do you think that is, that some people are just so useless when they transfer across? So I think, Robert, and it sort of cuts across and there was privatisation, all these things. I think it's the sad thing about Britain is it's in terms of politics very ideologically driven. Right. But when you run in a business and the civil service is fundamentally a business it's a business. It needs to have a strategy a vision a plan and then you've got to execute the plan. You want to have the best talent in the right swim lanes to deliver that and the policies any government come in with and I'm sort of non-partisan I'd work for Labour, Lib Dems, conservatives you do what the government today and we see ourselves as the executive some of the best private sector people have been very successful but you're right i think um if you if you don't adapt to the environment you find yourself in is it like a respect problem sometimes i mean because you obviously do respect the people you work with yeah and i and i was very privileged i did have you know i'll be honest imposter syndrome i'm a state school kid working class and I'm sitting in these rooms in 70 Whitehall with all these dames and lords and sirs and you know just amazing people like Jeremy Hayward what one of the and he very kindly I asked him in the first two weeks would you mentor me just go for a coffee and he was already cabinet secretary at that point um he was just taking over Gus O'Donnell was there so when he arrived it was Gus and then he handed over to Jeremy yeah but um Gus again wonderful guy from um clapping down the road actually.

18:04But these people, they've got a public perception very different than the reality. And they were very helpful in getting me acclimatized and supporting me. And also just saying, actually, Stephen, you could probably do this differently. Because invariably as a leader, I think the crux of it come to the right point. I think with great leadership, they can inspire any organization, whether it's public or private sector. And I think, honestly, in the last 40 years, since all that privatisation of water industry and stuff, we've lost sight of actually what matters. Stephen, lots more to ask you, but we're going to go to a quick break.

18:42Robert Peston:Hi, this is Gary Lineker from Goalhangers. The rest is football. This episode is brought to you by Wise. It's only when you start moving money between currencies that you really think about the exchange rate, the fee, and what might be hidden away in the small print. Whether you're living abroad, paying someone overseas, or just trying to manage your money across borders, you want a fair exchange rate, an easy transfer, and no surprises along the way. Wise keeps things simple. Wise is a smart way to move the currencies you need around the globe. It works in more than 160 countries and with over 40 currencies, most transfers arrive instantly.

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20:04Robert Peston:That's why you rack. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Often the argument from those people who've done that have gone private sector into public sector for whatever reason, for whatever type of job, they talk about it being like this dinosaur system.

20:44It's really impossible to change. You know, when we talk about the NHS and things, it's this huge tanker that's impossible to change direction of or whatever. Do Do you think that that's not the case then? I think, you know, maybe I'm oversimplifying it, but actually business is simple. It's about, you know, delighting citizens in this case, treating the taxpayer's money as if it's your own, spending money wisely on behalf of the taxpayer, and for the government to make sure you align and drive the policy initiatives. So with these things, honestly, and the civil service is no difference, you know, people run a mile if you're not successful.

21:23but success has many followers. So what I sought to do in the first three, six months and I took this through the ministers, I said, right, here's the plan. This is what we're going to do. This is what we're going to deliver. And it was like, this is a... So we went to actually start back. We went to Francis Moore, who was the minister in the cabinet office and said, by the end of 2015, the next election, fixed term parliament coming in, what do you want to stand up and say you delivered either at the cabinet or to the people? And he said, three things. I said, right, we'll make those three things happen.

21:52That was the genesis of the plan. And if you look at the most successful companies in the world, people like Mark Benioff at Salesforce, he uses exactly the same methodology, end result planning. He has a methodology called V2, MUM Vision Values. But essentially, it's having a plan for what you want to achieve and then everybody aligned with that plan and then executing to be successful and breaking it down. We had it on a quarterly basis. And that derived, at the end of 2015, 15, 52 billion pounds of savings that were delivered during that period. And can I just ask, therefore, if we just bring it up to date, I mean, 52 billion is

22:31Robert Peston:a big and useful number, as you say. And that was for 52 billion pounds per annum on the salaries that you were no longer paying. Was that the whole of it? So there was, again, when we turned up, Robert, in 2010, there was no data on anything. We didn't even have data on what suppliers we spent money with. So we didn't have anything, Steph, nothing. So we had to write to the suppliers, we wrote to the departments, and we started building a very basic sort of management information system. It was basic, it was rudimentary. But we used that as the baseline, and then that 52 billion, let's not misrepresent it, it was cumulative savings.

23:14Robert Peston:Oh, sorry. So that's everything. It's adding up all the savings over the five years. Over the five years. So the baseline was 2010. But in 2015, we actually generated that year against the baseline,£20 billion of savings. So that's an annual saving,£20 billion. Yeah, correct. Well, that's a very substantial, you know, that's a couple of pennies on Yeah, it's what, 7 billion? Well, 7 billion's income tax, isn't it? So it's just three pennies off income tax for everybody. But therefore, if we now apply it to where we are today, I mean, there may be, for all I know, somebody in Whitehall with your breadth of responsibilities from the private sector, but I'm quite close to 100 % certain there is nobody in your kind of job doing that today.

24:04Robert Peston:You look at the size of the civil service before COVID, right? the size of the service has exploded since the COVID crisis. I mean, I think it's up more than 100 ,000. And Brexit as well. And Brexit as well. 530 ,000. Yes. So it's gone up 150 ,000 since I left. Since you left, 150 ,000. You've got reform talking about slashing numbers. You've got the Tories talking about slashing numbers. You don't, you know, we've even had the government talking about reducing numbers, but without very clear, specific targets. If you look at the more than 500 ,000, what would it be reasonable as a target to reduce the size of civil servants without damaging the quality of public services?