Public sector IT hit by budget cuts

News Analysis

Public sector IT hit by budget cuts

Rebecca Thomson

The public sector IT industry has a tough few years ahead of it, as the government plans to rehaul some of its biggest, most inefficient IT programmes to make savings of £7.2bn.

The plans were detailed in the Operational Efficiency Programme (OEP), published the day before the budget. It was written by five independent advisors and recommends £15bn of efficiency savings, half of which are to come from IT.

Martin Read, a former Logica chief executive, was in charge of reviewing government IT costs. He identified £4bn of potential savings in back office processes by April 2012. A further £3.2bn in savings could be gained by cutting annual government spending on IT projects from the current £16bn.

IT staff in the public sector will have to watch their spending. The government will take these estimated achievable savings into account when deciding on budgets. Suppliers can expect scrutiny too - all existing contracts will be poured over for potential savings, and renegotiations will be tough.

Bigger savings required

But some say the OEP does not go far enough. Mike Zealley, associate partner at Atos Consulting, says, "Given the current economic climate, and the associated increase in demand for and expectation of government services, we believe that the OEP may not fully meet the challenge."

Procurement, including IT procurement, will be analysed too, as the government seeks to make a further £6bn savings. Suppliers will need to ready themselves for the public sector to flex its muscle in an attempt to drive prices down.

But analyst firm Ovum says it will take some time for the changes to trickle through. Tomorrow's budgets will pay for today's recession, with supplier revenues expected to feel the effects in 2011 or 2012.

Much of the savings will need to come from local government, with some central government departments being slightly ahead in outsourcing IT and taking into account Transformational Government policies. Transformational Government aims to improve public services by encouraging public bodies to share IT services, merge disparate government websites into one, and measure customer satisfaction.

The Gershon example

This is not the first time the government has attempted to improve financial efficiency in the public sector. The Gershon Review generated £26.5m of savings between 2004/5 and 2006/7 - 20% above the £21.5bn target.

But Ovum analyst Georgina O'Toole is sceptical. She views the Gershon initiative as "largely a numbers exercise".

The OEP goes over familiar ground, she says. The main differences are the economic and political contexts, which add a sense of urgency. But unless the government convinces the whole public sector of its arguments, the savings could simply remain a goal.

"Authorities in local government take a pragmatic view. They do not need to be told that their financial situation is dire. They are already adept at maintaining front-line services, despite the pressure on resources, without seeking radical expedients. What must happen now is for the treasury to convincingly win the argument for shared services and IT-driven transformation," O'Toole says.


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