8. In the years 2005-06 and 2006-07, the cost of the Cabinet Office's Shared Services Team was £3.0 million.[16] The Cabinet Office was unable, at the time of our hearing, to explain how this money was spent.[17] At the Committee's request, the National Audit Office has since reviewed the spending (Figure 1).[18] The review showed that the Cabinet Office had incorrectly included £1.0 million in its previous estimate reported to the Committee, mostly on contracts not attributable to the Shared Services Team. While this error will not have affected the Cabinet Office's financial accounts for the two years, it further demonstrates poor cost control.

Figure 1: The costs of the Cabinet Office Shared Services Team

Costs over two years: 2005-06 and 2006-07	£000
Programme management	404
Work with government users, including sector plans and identifying the total cost of HR and finance services	1,010
Market development, including analysing market dynamics and identifying practical barriers to shared services	580
Business engagement, including events to bring suppliers and potential purchasers together	195
Solution design, creating a manual for shared services	311
Support, including seminars and special interest groups	541
Total	3,040

Note: the table does not sum exactly because each individual figure is rounded to the nearest £000.

Source: National Audit Office analysis of Cabinet Office data

9. The Cabinet Office's Shared Services Team has not done any systematic analysis of the risks in adopting shared services or provided any advice on how to manage them.[19] These risks include not gaining customer acceptance if shared services are seen to lead to deterioration in standards, declining staff morale if face-to-face customer contact is reduced, for example, through the use of call centres, and the need to handle large amounts of sensitive data concentrated in fewer centres.[20] Without changes in the culture of many public bodies and very different approaches such as streamlined processes for low value invoices, the savings to be gained will not be secured.[21]

10. The Cabinet Office's Shared Services Team has tried to assist the development of shared services across government by creating a web-based repository of information and tools for departments to use.[22] The website gives advice on the stages involved in developing shared services from the original vision through to their operation, and provides pointers to other sources of advice on matters like project management.[23] It attracts around 4,000 to 5,000 visits each month, with 1,700 downloads a month on average. However, the Cabinet Office is unable to say how useful departments have found the material.[24]

11. Some publicly funded bodies are unable to recover Value Added Tax (VAT) when they buy shared services from external providers.[25] The Cabinet Office considers this a barrier to the wider adoption of shared services which may be inhibiting £70 million in annual savings in non-departmental public bodies and tens of millions of pounds in higher and further education institutions.[26] At the request of the Cabinet Office, HM Treasury has been examining the scope for a solution since May 2006, but it does not know when it might find one.[27] The Treasury has provided only broad assurance that evidence on the scale of the VAT problem will be factored into the Chancellor's decisions on tax.[28] The problem repeats previous examples of VAT-related difficulties dragging on without resolution, for example, in hindering academies from opening their school buildings to other users[29] (on which the Treasury has now taken action), and in affecting decisions about demolition or refurbishment in housing market renewal.[30]

12. The Cabinet Office is encouraging smaller departments to buy corporate services from larger departments but this strategy is hampered by the speed at which two of the largest—the Department for Work and Pensions and HM Revenue and Customs—are able to develop their services to meet the requirements of other organisations.[31] So far, only two public sector organisations have committed to buying their corporate services in this way: the Cabinet Office and the Department for Children, Schools and Families.

17   Qq 86-92 Back

18   Q 96 Back

19   C&AG's Report, para 4.3 Back

20   Qq 5-9, 17-18, 66-68 Back

21   Qq 56-57, 64, 110-111 Back

22   Q 94 Back

23   www.cio.gov.uk/shared_services  Back

24   Qq 93, 95 Back

25   Qq 107, 117-119; C&AG's Report, para 4.6  Back

26   Qq 108-109; C&AG's Report, para 4.6 Back

27   Q 115 Back

28   Ev 20 Back

29   C&AG's Report, The Academies Programme, HC (Session 2006-07) 254 Back

30   C&AG's Report, Housing Market Renewal, HC (Session 2007-08) 20 Back

31   Q 106 Back