Inside Whitehall: We have to start the cuts now for next period of austerity

Some departments have been better than others at restructuring and reducing costs

Budget cuts so far have mainly consisted of “salami slicing”, says the Institute for Government think tank (Getty Images)

This is a bit simplistic – but it makes a simple point. If you knew that over the next five years you had to cut your spending by a quarter you would probably start worrying now about where to find the savings.

Equally if you ran a business whose revenues were falling by 5 per cent a year you would be negligent in your corporate responsibilities if you were not actively developing a restructuring plan.

That, in essence, is the prospect facing large swathes of Whitehall after the next election regardless of who wins power.

But worryingly – and extraordinarily – no one in the civil service seems to thinking about what to do or is planning how to cope.

The figures are stark. Departmental budgets have been cut by only 8.9 per cent on average in this parliament and by 17 per cent when you take out protected areas of spending such as health, aid and schools.

By contrast, independent estimates by the Institute for Fiscal Studies suggest that unless the next Government significantly put up taxes or cut benefits in the next four years there will need to be further cuts of 11.9 per cent or 22 per cent if you again protect the same areas of spending.

A report today by the Institute for Government (IFG) think tank makes depressing reading. It points out that budget cuts so far have mainly consisted of “salami slicing” done on a department-by-department basis.

Some have been better than others at restructuring and reducing costs without cutting into their core capabilities. But others – as the West Coast mainline debacle and the problems at the Department of Work and Pensions have shown – have not.

And the IFG argues that, in the next round of cuts, unless there is fundamental reform of the way in which Whitehall allocates resources there is a real danger that the civil service across the board will no longer be able deliver competent and effective public services.

Given we are a year out from an election, senior officials should be drawing up options now.

This should concentrate on two areas. The first ought to be a radical examination of the federal structure of Whitehall because policy and public services today don’t neatly fit within departmental boundaries.

For example the departments of Health, Education and Local Government all have some responsibility for public health. Equally the Business and Work and Pensions departments both have a role to play getting people into work. But at the moment civil servants in individual departments do not have an incentive to co-operate with one another.

Government should look at reducing the number of departments and allocating money on the basis of projects rather than departments. Apart from the politics of it, why do we need a Department for International Development, Culture, Communities or frankly Scotland, Wales and Northern Ireland?

Secondly, as the IFG recommend, leadership at the top must be strengthened. The Treasury should take on an enhanced role – not just forcing departments to reduce their budgets – but making them work together to get money in the first place. Permanent Secretaries need to know that their obligation is to the Government as a whole, not their individual ministers.

The Cabinet Secretary, Jeremy Heywood, is fond of talking about the civil service doing “more with less”. He should really add “and differently”.