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The Commons Public Accounts Committee has published its 8th Report of Session 2012-13, 'Managing early departures in central government,' as HC 503.

Richard Bacon MP, Member of the Committee of Public Accounts, today said:

"Although departments have moved quickly to reduce staff numbers, few appear to be giving thought to how they are going to operate permanently with a lower number of staff. It is imperative that they do so.

Without a fundamental redesign in departments' working practices, staff numbers will probably rise as soon as restrictions on recruitment and spending have been lifted. The savings that have been achieved in staff costs will not be sustainable unless departments now complete long-term operating models for their businesses.

What is not known is whether the reductions in staff are having an effect on departmental performance and service standards. Given the speed with which staff cuts were carried out and the scale of the cuts, there are significant risks to service delivery.

Even greater challenges are ahead. Departments have achieved around half of the expected staff headcount reductions. The second phase will be more difficult, as the 'easier' savings will have already been made. Compulsory redundancies will have to be used more, bringing considerable risks of damage to morale. Strong and transparent leadership and good communication with staff will be essential."

Richard Bacon was speaking as the Committee published its 8th Report of this Session which, on the basis of evidence from the Cabinet Office, the Department for Work and Pensions and the Head of the Home Civil Service, examined the management of early departures in central government.

The 2010 Spending Review required most departments to make cost savings, which would necessitate significant staff reductions. Departments have acted quickly to reduce their number of employees, delivering a total reduction in headcount of around 35,000 in 2011, nearly 18,000 of which have been achieved through early departures.

The initial cost to departments of these departures, which should be around £600 million, will take between 11 and 15 months to recoup, after which departments will save around £400 million per year. However, if the staff reductions achieved so far, and planned, are to be sustainable then they will need to be supported by a redesign of the way business is carried out. We remain to be persuaded that all departments are putting in place the fundamental redesign in working practices that is needed to operate permanently with a lower number of staff. It is imperative that they do so.

The widespread absence of new operating models, coupled with the pace and scale of the reductions, means that there is a real risk to departments' ability to deliver services. Furthermore, we are worried about the lack of clear information to track the extent to which this risk is materialising.

Without clear information on performance, we cannot know to what extent services are being adversely affected by staff departures. The latest round of Capability Reviews is nearly complete, but these Reviews do not link capability and actual performance.

Departments have been hampered in delivering early departures efficiently by poor management information. Departments are rightly considering individuals’ performance when making decisions on whether to offer to pay staff to leave. However, the quality of data captured in performance appraisals has not been detailed enough to support this decision-making. It is clear to us that improving the quality and consistency of performance appraisal arrangements across the civil service would bring both efficiency savings and better decision-making about the management of the workforce.

At the centre, the Treasury is responsible for signing off any individual exit payments that exceed the terms of the compensation scheme. We were surprised to find that the Treasury does not keep proper records of such requests, and was not even confident that it had sight of all unusual payments. We expect to see this rectified.

There are even greater challenges ahead. The Cabinet Office estimates that around half of the required headcount reduction is yet to come. That second half is likely to be more challenging than the first, as the more readily achievable cuts have already been made. Future rounds of staff reductions are also likely to involve more compulsory redundancies, and excellent leadership will be required to manage this while also strengthening morale across the civil service.

• Report: Managing early departures in central government
• Public Accounts Committee