Simply cutting front line services will put services at risk and reduce long term value for money. Departments must look to deliver services in radically more efficient ways to deliver the cuts planned. There must be changes in the way departments operate. This warning comes from Margaret Hodge, Chair of the Committee of Public Accounts.

The warning was prompted by a report from the NAO on progress in cutting costs in central government. Margaret Hodge highlighted the weaknesses in the way departments are managed, including lack of vision of how they will work with less money and poor understanding of the relationship between spending and outcomes. There is also no consistent way to measure progress in seeking efficiency across government.

The NAO report reveals that departments cut spending by 2.3 per cent in 2010/11, but they need to cut a further 19 per cent over the four years to 2014-15. To achieve this saving fundamental changes will be needed to secure sustainable reductions on the scale required. A major difficulty in achieving this target is that there are gaps in departments’ understanding of costs and risks, making it more difficult to identify how to deliver activities and services at a permanently lower cost.

Looking behind the mandarin speak this means that gathering the low hanging fruits is relatively easy and quick and does not need much imagination. But once this harvest is over, cost cutting becomes a completely different ballgame.

The NAO was unable to find out how far spending reductions represented year-on-year changes in efficiency and whether front-line services were affected. It concluded that forward plans are not based on a strategic view.

Departments’ financial data on basic spending patterns is sufficient to manage budgets in-year, but information about the consequences of changes in spending is less good. Longer term reform is a Cabinet Office priority and departments will need to look beyond short-term cost cutting measures and make major operational change.

Amyas Morse, head of the National Audit Office, said today: “Government departments have been successful in cutting costs and managing within their reduced spending allocations for 2010-11. However, most departments will need to cut their spending by much more over the next four years. This will not be possible without their recognizing that short-term measures are not enough and that fundamental changes are needed.”

The findings of the NAO are in line with the Audit Commission’s findings relating to local goverment.