Mr. Robert Watt:

I welcome the opportunity to make a short statement. I am here in my capacity as Secretary General of the Department of Public Expenditure and Reform. As members know, the Department and this committee share the same broad objectives – to manage public expenditure efficiently and to deliver value for money for the taxpayer. I would like to express my appreciation of the staff of the Department. Appended to this statement is a list of some of our achievements since the Department was established. Those have been delivered thanks to the hard work and commitment of those officials. I would also like to thank colleagues in the Department of Finance with whom we work closely across a range of budget and financial issues.

Previously, there were some issues with delays in responding to Committee of Public Accounts recommendations, but these have now been addressed. The Department makes every effort to provide the committee with an early response to its reports and will continue to do so. Currently, I am happy to say there are no minutes of the Minister outstanding, and we have made strides to ensure we are prompt in that regard. I hope the members are happy with the progress we made in that respect.

I will refer briefly to some of the work of the Department. One of our key goals is to reduce spending and continue the progress in reducing the fiscal deficit. In 2011 and 2012, departmental spending has been managed tightly. In 2011, gross departmental spending was €57.4 billion, at variance of 0.3% with profile. In 2012, gross spending was 0.2% at variance.

Gross voted spending, and Mr. McCarthy touched on this, has been reduced from its peak of €63.1 billion in 2009 to €55.8 billion last year. Estimated gross expenditure for this year is €54.6 billion, and as members would have seen from the returns issued yesterday, the two Ministers were below spending profile for 2013. In net terms that is €800 million, €300 million on the capital side and €500 million on the current side. Overall, from 2009 to the most recent year, this represents a reduction of 13.5% in spending, an 8% reduction in current spending and a 50% reduction in capital spending.

Even these headline figures do not show the full extent of the fiscal effort that has been engaged in. The reduction in overall departmental spending comes against a background of increasing expenditure pressures, particularly in the areas of social protection, health and education.

Members will be aware of some of these pressures, which include demographic pressures, higher demand for medical cards, more students in third level education and more people seeking to benefit from the safety net as unemployment increased in 2008, 2009 and 2010. Spending has been reduced and managed in an extremely difficult environment in terms of pressures on demographics and other issues.

In meeting our targets, we have introduced a series of reforms to the way in which we manage public money. Public money is now subject to greater openness within a more coherent and integrated planning and performance management framework. The introduction of a multi-annual expenditure framework allows for transparency about the allocations available to each Department over a three-year period. The legislation to put this framework on a legislative footing has completed Report Stage in the Dáil and I believe it is in the Seanad today. We have greatly enhanced the amount of output-level information we provide in the annual Estimates of public expenditure and the Minister has been working to encourage greater engagement by the Dáil in the Estimates process. Last October, the Minister of State, Deputy Brian Hayes, launched Ireland Stat, which is a new website setting out a whole-of-Government set of performance indicators. We have been trying to move away from the excessive focus in the past on inputs to look at the outputs and outcomes of what we are trying to achieve with public money. The new public spending code aims to ensure that both current and capital expenditure are subject to more rigorous value for money appraisal in advance of the spending of public moneys. We have developed a new code that has been circulated and Departments must now work within its terms. All purchase orders of more than €20,000 are now published on departmental websites, and last year we established the Irish Government Economic and Evaluation Service to support better policy-making across the system through enhanced economic and policy analysis expertise. Over time, this should improve our capacity to evaluate projects, to carry out ex anteevaluation of programmes, as well as ex postreviews of programmes. It is interesting that Mr. McCarthy highlights weaknesses in this area, and the increase in the number of economists and specialists in this field should help Departments to improve their performance.

A key part of the fiscal consolidation involves reducing the public sector pay bill and managing the service delivery and industrial relations consequences of this. From its peak of €17.5 billion in 2009, the public service pay bill was reduced to €14.4 billion last year, net of the pension-related deduction. This is a reduction of almost 17.7%, which is a highly significant fall over the period. The numbers employed in the public service have fallen by almost 10% and public servants already have had two pay reductions, totalling an average of 14%. As members are aware, those earning more than €65,000 have had a further cut from July 2013. Public service pensions have been reduced. We have introduced the new single public service pension scheme, which will reduce future pension costs. We very much welcome the Comptroller and Auditor General's recommendation regarding the actuarial review of pensions. It will be interesting to see what impact the single scheme will have on those previous actuarial estimates with which we came up. The Croke Park agreement facilitated significant cost savings while also enabling reform across the public service.

Sustainable change to the public service is being implemented, based on the Government's public service reform plan, which was published by the Minister, Deputy Howlin, in November 2011. As members will recall, the Minister appeared before the committee to give a presentation and have a debate about the reform plan's contents. In an environment of significantly reduced budgets and staff numbers, as well as increased demands, we are continuing to deliver more services thanks to a number of measures including more effective redeployment and changes to rosters and work practices. Over the past three years, more than 10,000 public servants have been redeployed within different parts of the system and across different sectors. This differs significantly from the position that obtained in the past, when redeployment was very difficult. This has enabled us to manage this downsizing in a way that sustains the volume of services. In addition to the obvious cost benefits, the recently agreed and concluded Haddington Road agreement is providing us with the scope to deliver further increases in productivity across the public service. The agreement has provided for almost 15 million additional working hours, which will deliver significant efficiency savings while contributing to the maintenance of necessary social services. These additional hours will reduce the requirement for paid overtime and agency costs. They also will facilitate reductions in staff numbers and the associated annual pay bill over the course of the agreement.

As part of the reform plan, we are changing the way Departments are organised. The Civil Service human resources and pensions shared services centre was launched by the Minister, Deputy Howlin, and the Minister of State, Deputy Brian Hayes, earlier this year. Once fully operational, the savings will be substantial and have been estimated at €12.5 million annually, with a reduction of 17% in staff numbers. We are establishing a single Civil Service payroll shared service centre, and other shared services projects also are being delivered within the Civil Service. As part of the reform, we are bringing a more structured and efficient approach to public procurement. A chief procurement officer, Mr. Paul Quinn, was appointed earlier this year to lead the new Office of Government Procurement and to deliver the changes identified in the external review undertaken last year. The target is to achieve €500 million in savings over the next three years from identified addressable expenditure of €7 billion. I am happy to discuss in detail with the committee how we propose to get there. While it is a challenging target, it is achievable. As part of the reform, we must introduce more contestability and competition in the delivery of services, and to this end, all new services must now first be tested for external delivery suitability before any approval to deliver the service internally will be granted. We also are examining other functions and services to establish whether they can be delivered in a more efficient and effective manner. A chief information officer was appointed in May to lead implementation of the e-government strategy and to deliver greater use of online services and data consolidation. We must take full advantage of the potential of information and communications technology, ICT, to make services more accessible, customer-driven and efficient. This is an area in which we must do much better as a system. We are highly conscious that as a service we must exploit this technology fully, and there is much more potential for us to so do.

We have made progress in improving how the Civil Service is led and managed. We now have a more strategic approach to human resources, which is being driven by the Civil Service directorate in my Department. Workforce planning is now being co-ordinated to ensure that staff are positioned and equipped to meet business and service requirements. We are enhancing leadership capacity through the establishment of the Senior Public Service and are bringing in expertise from outside the public service where required. Over the past two years, we have recruited more external people into senior positions in the Civil Service than was ever done previously to address gaps and efficiencies in our skill set. We are working to strengthen our management and delivery skills and, as I mentioned, are bringing in skills from outside the public service. Last year, we also agreed new sick leave arrangements, which have been implemented from 1 January 2013.

As to where we go from here in respect of reform, my Department is now developing a renewed wave of reforms, building on the progress made to date but also setting the framework and vision for a very different public service. This will have a particular emphasis on improving the service offered to the citizen and business customer. We need to embrace more efficient and effective models of service delivery, including through digitisation and using new technologies, and to deliver this change, we must strengthen leadership and delivery capacity across the public service. We welcome the Comptroller and Auditor General's comments and recommendations in these areas. We probably can accept the majority of them and will work on implementation.

Another key objective of the Minister, Deputy Howlin, has been to rebuild public trust in the State through a programme of political and legislative reforms. Decision making must be more open and transparent. Decision makers must be more accountable. Progress in this area commenced with the Ombudsman Act 2012, which came into effect in October last year. This resulted in the most significant expansion in the jurisdiction of the Ombudsman in the 30 years since the original legislation was enacted. The Houses of the Oireachtas (Inquiries, Privileges and Procedures) Act 2013 was enacted in July and established a comprehensive statutory framework for the Oireachtas to conduct inquiries within the current constitutional framework. We are introducing protected disclosure legislation to deal with whistleblowing for all sectors of the economy. The Freedom of Information Bill 2013 will ensure that Ireland's freedom of information regime is restored to the top tier of legal frameworks internationally for facilitating access to official information. The Bill was published in July and enactment is expected by the end of the year. We are making provision and progress with regard to the statutory regulation of lobbying. The development of draft heads for an integrated ethics Bill is well advanced. This will be a key part of a much improved anti-corruption system, which will both control and regulate conflicts of interest in Irish life. The programme for Government recommends significant changes to the current legislative framework governing ministerial responsibility and the accountability of civil servants. Measures to address the current restrictions on evidence of civil servants to Oireachtas committees have been included in the Houses of the Oireachtas (Inquiries, Privileges and Procedures) Act. While there are other areas of reform, in the interests of time I will not go through them all. They include agency rationalisation and the disposal of State assets. We also are heavily engaged with issues concerning Bord Gáis Éireann, the ESB and the national lottery licence.

As for legislation, the Department has prepared and published seven legislative items in the last 12 months. In addition to the political reform measures I already have mentioned, legislation has been brought forward on a Public Service Management (Recruitment and Appointments) (Amendment) Bill to enable redeployment and mobility within the public service. In addition, there has been legislation for voted expenditure, to amend the Oireachtas Commission Act 2003 that agrees expenditure limits and related matters, on the revision of public service pay and conditions and to provide a legislative framework for the operation of the national lottery. As a Department, we have produced a significant amount of legislation over the past 18 months. A considerable amount of the time of officials is occupied in the drafting of legislation, working with the Minister and bringing legislation to the Houses.

In respect of the Department's administrative duties, it is worth noting that in 2012 we answered 1,980 parliamentary questions and 1,932 representations.

So far this year, we have responded to almost 1,500 parliamentary questions - we might get to 2,000 this year - and dealt with more than 1,000 representations from members of the public and their representatives. I submitted further details of our work programme with this statement.

I would like to turn to some of the items on the agenda today. As Mr. Seamus McCarthy mentioned, Vote 7 provides primarily for pension benefits for civil servants and pension payments to their dependants. The outturn under Vote 7 for 2011 was €432.5 million gross, or €345.2 million net when account is taken of receipts and appropriations-in-aid. Members will note that net expenditure was some €22.5 million below estimate, due primarily to expenditure on retirement lump sums being under estimate. This arose due to the extension of the grace period to end-February 2012, which facilitated staff in delaying their early retirement until early 2012. If the members can remember that far back, that was the reason for the underestimate in 2011.

At the end of 2011, there were some 18,600 persons, including spouses, in receipt of pensions from Vote 7. This had increased to almost 20,000 at end December 2012 owing to a combination of high retirement levels and persons generally living longer.

The regular preparation and publication of actuarial assessments of public service pensions is an important part of policy formation. Following discussions with the Comptroller and Auditor General, the Department has now commenced a major exercise with the intention of updating the accrued liability figure. This will take into account the relevant changes in public service pay and pensions in recent years.

A new single public service pension scheme for new entrants has been introduced. This sees pension benefits based on career-average earnings, rather than final salary, for all new entrants since January of this year. For these new joiners, there is a new minimum public service pension age of 66, which will rise in step with changes in the State pension age to 67 in 2021 and 68 in 2028. With effect from 1 July this year, there has been a further reduction in the rates of public service pensions, of between 2% and 5%, for those in receipt of pensions of more than €32,500. As I mentioned, there is a significant job of work for us to now look and reassess the future cost of pensions based on the significant changes that have come about over the past number of years.

The second item on the agenda today is the 2011 Appropriation Accounts for the Department. As the committee will be aware, the Department was newly formed in July 2011 and the Estimate for that year represented an allocation from the Department of Finance to reflect the functions transferring to the new Department.

The Department had an outturn of €30 million, compared to an estimate of almost €35 million. There were two key variances: a saving on administrative budget pay and a €1 million saving on the allocation for the Referendum Commission. Savings on pay were driven by the decision to defer both recruitment and project investment. On the second main area of variance, communications costs for the Referendum Commission were lower than had been anticipated in its original submission.

Although not specifically under review today, I would also say that the allocation for the Department in 2012, the Department’s first full year of operation, was just over €41.7 million, of which some €37.1 million was expended leaving an amount to be surrendered to the Exchequer of €4.6 million. The Vote allocation for the Department in the 2013 Estimates amounts to €36.4 million and, once again, we will be under our estimate for this year.

Regarding Chapter 6, financial commitments under public-private partnerships, Ireland has 17 operational public-private partnerships. Expenditure prior to 2011 was almost €1.4 billion. In July last year, the Minister, Deputy Howlin, announced plans for additional investment in public infrastructure projects in Ireland, which included a new PPP programme. This investment is additional to the Exchequer public capital programme, as it is primarily funded by the private sector. I am happy to answer any questions on the details set out in Chapter 6.

The Comptroller and Auditor General's annual report shows that net departmental expenditure for the State as a whole fell from a high of €49.3 billion in 2008 to €45.6 billion in 2011, a reduction of €3.7 billion. Each Vote stayed within the allocation appropriated by Dáil Éireann for 2011, with Departments returning over €700 million to the Exchequer at the end of the year.

Also of note in relation to the 2011 Estimates was the introduction of performance budgeting, as mentioned, on a pilot basis, and this has been introduced to every Department. With regard to government accounting policy, my Department is currently examining the steps involved in the transition to accrual accounting for the appropriation accounts.

With effect from the 2011 Appropriation Accounts, all Departments are producing balance sheets. The transition to accrual based accounting involves a wide range of issues, including legislative change, accounting standards, training and development, and resources and systems issues, and will involve investment in the current financial management systems. My Department will be in consultation with stakeholders, including this committee, as we develop this issue.

My Department has also established a working group with the Comptroller and Auditor General to review the control and accountability framework for the administration of grant funding by public bodies and progress is under way on that.

I welcome the analysis carried out of the Circular 40/02 public procurement returns for 2011. Last year's review of central procurement identified the need for further work on procurement data in order to more accurately categorise all State procurement spend by type, location and vendor. The recently established Office of Government Procurement has prioritised this analysis and its completion will allow the circular returns to be placed in context. For example, non-competitive procurement as a percentage of total procurement will be used as a metric to identify if there are areas where particular attention may be required, and that dovetails very much with what the report is saying to us. In the ten years since Circular 40/02 has been in place, public procurement has been the subject of a number of important national and EU reforms. It would seem appropriate, therefore, to review the operation of the circular to ensure it continues to provide useful and relevant information.

In conclusion, the Department has achieved an enormous amount over a very short period of time and that is thanks to the hard work and commitment of officials in it. We look forward to working with the committee as we continue our work.