A scheme to reduce government expenditure by outsourcing back-office functions has cost taxpayers more money than it has saved, MPs have said. Officials had hoped the programme could save up to £400m a year, but after two-and-a-half years of operation the scheme has saved £90m while costing £94m.Criticising what it described as “ineffectual” management of the scheme, the public accounts committee warned ministers they must act to improve leadership and governance to prevent more money being wasted.
The two shared service centres are run by Arvato UK and Shared Services Connected and it had been planned that 26 different organisations would use them to provide back-office functions to cut costs.
Officials had hoped the centres and the introduction of a single operating platform they claimed would save £128m a year, with further efficiencies allowing that figure to increase to between £300m and £400m.
But just two of the 26 organisations had signed up and officials now estimate the centres will deliver total savings of £484m by 2023-24.
Among the issues identified in the public accounts committee report was a “failure of governance and leadership by the Cabinet Office” and “the lack of a realistic business case”.
It said: “The result is that the two shared service centres considered as part of this inquiry have only delivered £90m of ‘savings’ in the first two-and-a-half years of operation but at a cost of £94m and, therefore, a net cost to the taxpayer of £4m.
“The Cabinet Office now estimates that the centres will deliver savings of around £484m in total by 2023-24, which compares unfavourably with the anticipated £300m to £400m a year savings set out in the next generation shared services strategy in 2012.”
The report said the Cabinet Office had failed to have effective governance in place at the start of the project and had not managed to persuade Whitehall departments to “buy in” to the scheme.
It had been too easy for ministries and agencies to back out, which meant the potential benefits of sharing services were jeopardised.
Some departments pulled out of the programme and sought other arrangements to protect their own interests, or because the benefits would be marginal, the report said.
“They had not been persuaded by the argument that remaining in the programme would generate benefits for the whole of government.”
The government was also criticised for its relationship with the two private providers and over the failure to move organisations on to the new systems.
“The Cabinet Office was ineffectual in managing this risk because of its inability to force departments to take crucial decisions and an unwillingness to hold the suppliers to account as delays arose,” the MPs said.
The committee recommended the government should produce a “realistic and complete” business case for the centres by the end of the year.
The Labour MP Meg Hillier, who chairs the committee, said: “The government set out to save money with this programme but it launched with critical flaws [that] Whitehall then failed to address.
“Each department was able to request multiple changes, which led to big cost increases. The result has been a net cost to taxpayers and a significant scaling back of ambition for the savings likely to be achieved in the years ahead.
“If government is serious about making a success of shared services, and indeed future projects running across departments, it must act on the serious concerns set out in our report before any more public money is wasted.”