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- [00:01]
Stephen Kelly
2010, we spent 3.6 billion a year on consultants. You know, people reading our watch telling us the time. Civil Service, Stephen, is like an infinite wall, infinitely high, infinitely wide. Every 10 billion pound we save is half a million junior nursery salaries. For you, it's 3 million primary school places. When you're running a business, and the Civil Service is fundamentally a business needs to have a strategy, a vision, a plan and then you've got to execute the plan. You want to have the best talent in the right swim lanes to deliver that.
- [00:31]
Robert Peston
What percentage of procurement? That's government purchase of goods and services, A went to British companies and B went to smaller companies. And how did that change on your watch?
- [00:42]
Stephen Kelly
That's a great question. So government spends on Public Procurement 430 billion a year. 430 billion.
- [00:50]
Steph McGovern
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- [01:07]
Greg Jackson
First of all, we never know what's going to happen to the future price of energy. It could go up or go down. So I think when people try to do a really detailed payback calculation, the problem is you don't really know what the alternative is. But I don't know many people who've regretted getting these technologies because the one thing whenever you get them is, is it helps insulate the against the volatility of the market prices. And so as far as I can tell, the vast majority of people who've made that decision are happy with it.
- [01:35]
Steph McGovern
Greg, thank you very much. Now, on with today's episode.
- [01:39]
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- [02:09]
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- [02:49]
Steph McGovern
Hello and welcome to the Rest Is Money with me, Steph McGovern.
- [02:52]
Robert Peston
I'm with me, Robert Peston. And what we want to find out is today is, is there a way to make the Civil Service more efficient, cut civil service numbers while simultaneously buying more from British companies, particularly small British companies, that would have this virtuous effect of freeing up a ton of money for investment in public services, but also stimulate growth?
- [03:13]
Steph McGovern
Yes, and we've got the perfect guest for this. We've got Stephen Kelly, who for many years has run several big name tech and software companies. Stepping started his career at Oracle, went on to become the CEO of Sage Group, which is of course one of the largest software companies in the uk. And then he was brought into the public sector by David Cameron to improve efficiency, try and bring down the number of civil servants, cut the spending and essentially improve productivity in the civil service as well, which he managed. So we want to know how he did it. Here is our interview with Stephen Kelly. Stephen, lovely to have you on the show. Now, as we've just mentioned in the introduction, you were brought in by David Cameron to streamline the public sector. What we want to know is we need that now. So how did you do it? What can we learn from you?
- [04:01]
Stephen Kelly
Yeah, and, and obviously very different times. That was back in 2010, so 16 years ago, and it was off the back of the credit crunch, 2008 and then a whole period of what was termed austerity. But with this, effectively, I think fundamentally the Civil service can be massively improved and made a lot more efficient so that we deliver much better services to citizens. And that was the whole mission. So between George Osborne and Francis, more than David Cameron, they determined that they should bring someone in, probably from the private sector who's got a lot of operational experience and create a role called the first chief operating officer for the whole of the UK government, 24 departments, and that encompasses all things like IT, commercial practices, procurement, digital services. So the launch of things like Gov UK as well as major projects. So all the fun probably of connecting for Health and HS2 and Hinkley Point and all these sort of things. So it's a very wide range and anything touching taxpayer money would be effectively the responsibility of this role, working very collaboratively with the departments. And I guess the headline numbers the Civil service started in 2010 with 492,000 civil servants, all, you know, very good people. But then when I left it was 380,000. So over that period we actually Had a smaller civil service by almost 120,000.
- [05:27]
Robert Peston
And when did you leave?
- [05:28]
Stephen Kelly
2050.
- [05:29]
Robert Peston
So that's more than 100, so about 120,000 reduction in just five years. How much of that was essentially when people just left of their own accord, not replacing them? And how much of it was active management essentially saying, you've got too many people here or these people, people aren't up to it and we're going to get rid of them.
- [05:51]
Stephen Kelly
It was probably, probably about more than half were through natural wastage. So that was a terrible phrase. But effectively people retiring, people coming up to the end of their tenure, people going back to the private sector. And that was obviously a program put in place through HR to actually encourage some of that as well. But then also there was some restructuring and some elements around the machinery, government were modified to actually accelerate a more efficient government. With anything, you know, you've got almost 500,000 people and the status quo takes over. And obviously the culture up to that time, particularly through the years of, I guess the Blair years of where the economy was growing fast, typically the civil service was growing in the same sort of trajectory with the economy. So it was a kind of root and branch review, a restructuring, a reform program that was put in place. But. But a lot of the actual personal exits and the human story was done through. Again, another terrible HR phrase of natural attrition.
- [06:53]
Robert Peston
But can I just ask on that. You spent most of your life in the private sector and you know, most private sector employers say to me that there's always a risk if you shrink numbers through natural wastage. That is essentially you keep the underperformers, you keep the poor perform members of staff. Were you able to assess when you left whether the quality of the civil service was what it should be?
- [07:28]
Stephen Kelly
Yeah, that's a great question, Robert. I think I guess my experience. And why did I take this on? Because that's the genesis. I kind of grew up in the world of US technology and spent 10 years with a startup company at the time called oracle in the 80s and 90s and that was how to build global growth companies. But then I had to do a number of restructures again, probably the US model was pretty focused and very on point in the uk. When I came back to government, my interest was could I actually apply the playbooks of what I learned in the US When I came back to the uk, I did that in a public company called Micro Focus. And then the intellectual challenge, my curiosity was tweaked by thinking could those same sort of business practices, the tone at the top, the strategies be employed in one of the oldest institutions in the world, the British Civil Service. And it was the case. So, coming directly back to your question, it was the case that on the sort of restructuring agenda we called it, the reform agenda, was very focused on making sure the good people stuck around. So a lot of, obviously, the process, you know, inevitably when you're losing colleagues and in the first couple of months, actually, there was a lot of, you know, retirement parties and leaving parties and all those sort of things. It does set the tone within the company and the culture. And very important to me is a vibrant culture within all the sort of responsibilities I've had. So we had to actually personally put our arms around the shoulder of the most talented people. And actually, during a time of major change, major restructuring, it is a great time for opportunity because people are taking on more responsibility. So the best people actually rose to the top.
- [09:09]
Steph McGovern
It's interesting you say that because you're suggesting that people were then happy with the changes, because you would think that them knowing you were coming to essentially get rid of people would create a negative atmosphere amongst people and people would be thinking, oh, he's the, I don't know, the grim reaper coming in to get rid of jobs. So what you're saying is the. It was kind of easy to implement then.
- [09:30]
Stephen Kelly
Like, nothing's easy, you know, nothing, actually. Wow. I've been in business, what, 45 years. Nothing that you build of substantial value is easy to do unless you win the lottery or something. And, you know, I don't do the lottery. It's a lot of hard work. I think the start point, you got to have a vision for what Britain wanted to be. So. And then you got to have a plan. We had a very clear vision and we used to, you know, honestly, with any institution, particularly like people who have been in the civil service 20, 30 years, they become institutionalized. And sometimes, I hate to say this, but in big companies, it's the same. They become saboteurs. They. They forget the enemy is always on the outside and they start picking kind of internal turf fights. It's just crazy. And what we sought to do was say, actually, the reason why you came through the, you know, the turnstiles at Horse Gu, Caxton House, was to improve public service. You've got that mission, that zest for better public services, serving citizens, and we want to reconnect you to that, and we want to actually eliminate all the wastage, all the noise, the bureaucracy and create efficiencies. To allow you to do that. And then what we did, and we measured this and actually had the National Office audit it. And I sat in front of Margaret Hodge of the Public Accounts Committee and Meg Hillier, I don't know, half a dozen times to say we had to measure. So, number one, we had a vision, number two, and that was a vision for Britain, why it's important, why we need to save money. And then we connected it to real life stuff. So we said every 10 billion pound we save is half a million junior nurses salaries for a year. It's 3 million primary school places. Yeah. It's like a massive impact on the far services and it gives the Chancellor, the Exchequer huge latitude, if we're making great savings in the Civil service and public service, number one, to improve the services, but most importantly, to actually give the Chancellor latitude to invest in public services that we're all proud of. And that's the genesis of why we started in the Civil Service in the first place.
- [11:29]
Steph McGovern
But you must have come up against resistance, though, from people, because no matter how much you tell people, if we get rid of your job, that'll be a nurse or whatever, if people care about themselves too.
- [11:37]
Stephen Kelly
So yeah, yeah, definitely, definitely. And there's a. Before I joined, this is back in probably about 2010 ish, just around this sort of election period, I. I worked years back in the 80s for a guy called Peter Gersh and he was chairman of Taylor and all these great things, but he'd done, I think, with Michael Barber in the Blair government, a similar role in about 2000s. And I said, Peter, you know, what's it like? Cause I have witnessed. Cause I've done stuff with the government. Some amazing people from the private sector literally go back into government and sort of become zombies within six months, just lose their spark and energy. And I thought, wow, I don't want to do that. So I sort of went to Peter and a couple of other people who had worked in the civil service and said, what can you tell me? What's the lessons you learned? And he said, interesting. He said, civil service, Stephen, is like an infinite wall, infinitely high, infinitely wide. And someone like you, but just because your energy is going to every day wake up 7 o', clock, you'll go in there and you'll bang, running, sprinting and smash into that wall full crumpled
- [12:48]
Steph McGovern
on a heap of analogy.
- [12:51]
Stephen Kelly
And then you'll dust yourself up and you'll think, no, you never fail. Failure is not an option. Next day you'll do the same thing and you'll keep doing this and then you realize if you keep doing it and you keep talking sense and keep doing the right things, eventually that wall has doors and windows, but they only open from the inside, so you have to be invited in. So I'll tell you one of the sort of guerrilla stories. In the first two weeks I had meetings with treasury colleagues and I was based in both a Whitehall 70 Whitehall and horse gun. And the meeting was at the Scottish office, which is right at the almost Trafalgar end of Trafalgar Square end. And then I got sent up there, went to the meeting, no one there. And then I found that the meeting had been rescheduled down the other end of Whitehall. So I missed it and I went back to my. They. Everybody has private offices, so I'm not sort of used to this because I'm just, I'll get my own coffee and stuff. But I had six people looking after me.
- [13:54]
Steph McGovern
Did you not get rid of them in the process?
- [13:58]
Stephen Kelly
I had to.
- [13:58]
Robert Peston
It's a good point.
- [13:59]
Stephen Kelly
But they, they are. Well, actually some of them are the most talented people. And a guy called Simon French at pamu, he, he was, he was the guy running my private office. What a talent. Now chief economist, doing great things for Brent. So these are super smart guys and actually I'd say all the civil servants, I was very privileged. I worked with some amazing people like Jeremy Hayward. Mark said, well, they're just brilliant people. But he said, oh, well, I've heard that has been one of the tricks to play, send you off to a different meeting, different location.
- [14:29]
Steph McGovern
Oh, they did it on purpose.
- [14:31]
Stephen Kelly
Well, who knows, who knows? I've never like to speculate, but here
- [14:34]
Robert Peston
we are, I'm telling you the story, it's real life. Yes, Minister.
- [14:38]
Stephen Kelly
Yeah, it is, it is, it is some. And some of it was. But fortunately a few things. What did we learn from that time? The alignment between the ministers. We treated them as the board and we were the executive. I think the efficiency during that period, it's never been. And actually Cameron deserves a lot of credit for this. Osborne, that team of consistent ministers doing their job for five years, they all stayed in place. Theresa May at the Home Office, great stability because again, what the Civil Service could do, if you believe the sort of yes Minister and thick of it stories which can be the case is if you rotate indoor on the ministers, literally you never get anything done because new Minister brief them six months, they come up with their own ideas, 18 months later they're gone. Yeah, the five year consistency was very powerful. Also, you couldn't put a sheet of paper between the Lib Dem ministers and the Conservatives. I worked very closely with Nick Clegg and Danny Alexander. Fantastic people. And the Conservatives, you know, really good, like people like Philip Hammond. All these sort of folks.
- [15:41]
Steph McGovern
Getting all the names in in this episode, aren't you?
- [15:44]
Stephen Kelly
Yeah, well, they were good people. And David Gore, really, really high.
- [15:49]
Robert Peston
And before we move on to what might be the potential lessons for the current government, you know, if we're going to make the state more efficient, we've got to get the private sector in. We've got to get more private sector people in. And I have to say, in the many years I've been an observer of these things, quite often it just doesn't work. You get some guy. I'm not going to name names, but I can think of quite a few private sector people who've been absolutely useless. What role, in general do you think the private sector can usefully? And why do you think? Because it sounds to me as though you did relatively succeed compared to many other people from the private sector. And why do you think that is that some people are just so useless when they. When they transfer across.
- [16:36]
Stephen Kelly
So I think, Robert I. And it sort of cuts across and there obviously, privatization, all these things. I think it's. The sad thing about Britain is, in terms of politics, very ideologically driven.
- [16:48]
Robert Peston
Right.
- [16:48]
Stephen Kelly
But when you're running a business and the Civil service is fundamentally a business, it's a business, it needs to have a strategy, a vision, a plan, and then you've got to execute the plan. You want to have the best talent in the right swim lanes to deliver that. And the policies any government come in with. And I'm sort of nonpartisan, I'd work for Labor, Conservatives. You do what? The government day. And we see ourselves as the executive. Some of the best private sector people have been very successful. But you're right, I think if you, if you don't adapt to the environment you find yourself in, is it like
- [17:24]
Robert Peston
a respect problem sometimes. I mean, because you obviously do respect the people you work with.
- [17:29]
Stephen Kelly
Yeah, and I. And I. I was very privileged. I did have, you know, I'll be honest, imposter syndrome. I'm a state school kid, working class, and I'm sitting in these rooms in, in 70 Whitehall with all these dames and lords and sirs and, you know, just amazing people like Jeremy Heywood, what a. One of the. And he very kindly asked him in the first two weeks, would you mentor me, just go for a coffee.
- [17:50]
Robert Peston
And he was already cabinet secretary at that point.
- [17:53]
Stephen Kelly
He was just taken over. Gus o' Donnell was there and so
- [17:55]
Robert Peston
when you arrived it was gas and then he handed over to Jeremy.
- [17:58]
Stephen Kelly
Yeah, Gus again, wonderful guy. From clapping down the road actually. Yeah, but, but these people, you know, they've got a public perception very different than the reality and they were very helpful in getting me acclimatized and supporting me and also just saying. Actually Stephen, you could probably do this differently because invariably as a leader, I think the crux of it come to the right point. I think with great leadership they can inspire any organization, whether it's public or private sector. And I think honestly, in the last 40 years, since all that privatisation of water industry itself, we've lost sight of actually what matters.
- [18:36]
Steph McGovern
Stephen, lots more to ask you, but we're going to go to a quick break.
- [18:43]
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- [19:41]
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- [20:09]
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- [20:35]
Steph McGovern
Often the argument from those people who've done that have gone private sector into public sector for whatever reason, for whatever type of job, they talk about it being like this dinosaur system. It's really impossible to change. You know, when we talk about the NHS and things, it's this huge tanker that's impossible to, to change direction of or whatever. Do you. Do you think that that's not the case then?
- [20:57]
Stephen Kelly
That I think, you know, maybe I'm oversimplifying it, but actually business is simple. It's about, you know, delighting citizens. In this case, treating the taxpayers money as if it's your own, spending money wisely on behalf of the taxpayer and, and for, for the government to make sure you align and drive the policy initiatives. So with these things, honestly, and the Civil Service is no difference. You know, people run a mile if you're not successful. But success has many followers. So what I sought to do in the first three, six months, and I took this through the ministers, I said, right, here's the plan. This is what we're going to do, this is what we're going to deliver. And it was like, this is a. So we went actually start back, we went to Francis Maud, who was the minister in the Cabinet Office, and said by the end of 2015, the next election, fixed term, parliament coming in, what do you want to stand up and say you delivered either at the cabinet or to the people? And he said three things. I said, right, we'll make those three things happen. That was the genesis of the plan. And if you look at the most successful companies in the world, people like Mark Benioff at Salesforce, he uses exactly the same methodology, end result planning. He has a methodology called V2 mum vision values. But essentially it's having a plan for what you want to achieve and then everybody aligned with that plan and then executing to be successful and breaking it down. We had it on a quarterly basis and that derived at the end of the 2017, 52 billion pounds of savings that were delivered during that period.
- [22:24]
Robert Peston
And could I just ask, therefore, if we just bring it up to date, I mean, 52 billion is a big and useful number, as you say, and that was for £52 billion per annum on what the salaries that you were no longer paying. Was that the whole of it?
- [22:45]
Stephen Kelly
So there was again, when we turned up Robert in 2010, there was no data on it, anything. We didn't even have data on what supplies we spent money with. So we had to. We didn't have anything, Steph, nothing. So we had to write to the suppliers, we wrote to the departments, and. And we started building a very basic sort of management information system. It was this. It was basic, it was rudimentary, but we use that as the baseline. And then that 52 billion, let's not misrepresent it. It was cumulative savings.
- [23:15]
Robert Peston
Oh, sorry, that's. So that. So that's everything. So by 20, it's adding up all the savings over the five years.
- [23:20]
Stephen Kelly
Over the five years, this. So by the baseline was 2010, but in 2015, we actually generated that year, against the baseline, 20 billion pounds of savings.
- [23:31]
Microsoft Advertiser
So that's.
- [23:31]
Robert Peston
That's an annual saving 20 billion.
- [23:33]
Stephen Kelly
Yeah, correct. Right, correct.
- [23:35]
Robert Peston
Well, that's a very substantial, you know, that's a, you know, a couple of pennies on.
- [23:40]
Stephen Kelly
Yes. Billions income tax, isn't it? So it's 3.3pennies off income tax.
- [23:46]
Robert Peston
Exactly. But, but therefore, if we now apply it to where we are today, I mean, there may be, for all I know, somebody in Whitehall with your breadth of responsibilities from the private sector, but I'm quite close to 100% certain there is nobody in your kind of job doing that today. You look at the size of the Civil Service before COVID Right. The size of the Civil Service has exploded since the COVID crisis. I mean, I think it's up more than 100,000 now.
- [24:14]
Steph McGovern
And Brexit is now.
- [24:16]
Stephen Kelly
And Brexit 530,000.
- [24:19]
Steph McGovern
Yeah.
- [24:19]
Stephen Kelly
So it's gone up 150,000 since I left.
- [24:21]
Robert Peston
Since you left, 150,000. You've got reform talking about slashing numbers. You've got the Tories talking about slashing numbers. You don't. You know, we've even had the government talking about reducing numbers, but without very clear specific targets. If you look at the more than 500,000, what would it be reasonable as a target to reduce Whitehorse, you know, the size of white. Size of silver serpents, without damaging the quality of public services? What would be a sensible target at this moment?
- [24:56]
Stephen Kelly
Everybody wants that headline number, and I remember Steve Hilton, given those headline numbers, and it was 250,000 or whatever it was. I'm going to answer your question. But we lost sight of it. It wasn't just about savings.
- [25:08]
Robert Peston
Is it possible to massively improve the productivity of government, the efficiency of government, by doing two things? One, improvement, you know, the way they work and to reduce the numbers.
- [25:20]
Stephen Kelly
Yeah. So I think there's sort of three elements of the strategy we put in place, one is massively reform the Civil Service to have rigid reductions and create huge savings. And that was the 52 billion cumulatively, 20 billion run rate. Secondly, innovation. So. And innovation on our watch. When I turned up, you used to get McKinsey's and Baines doing studies. Project was a disaster. Connecting for Health. So good example. 14 billion wasted and there wasn't a GP in the road. What was that one one Connecting for Health.
- [25:48]
Robert Peston
Right.
- [25:49]
Stephen Kelly
You know, there was horror shows where these massive gargantuan projects never delivered. When I turned up, 2010, we spent 3.6 billion a year on consultants. You know, people reading our watch telling us the time and then the. The assurance you have, you go to the Public Accounts Committee. Well, we got McKinsey in. Well, we got the best people in the industry and I know it's a disaster, but. Well, we did all the right things. No. So we said, no, we're going to insource it this. We're going to hold civil servants accountable and responsible. So we actually cut the consulting spend from 3.6 billion. 2011-12. It was 800 million.
- [26:26]
Robert Peston
Wow.
- [26:26]
Stephen Kelly
Now I was the most unpopular person with McKinsey, Bain. Yeah, but it's not.
- [26:31]
Robert Peston
And you've never had a highly paid advisory position when you kids.
- [26:36]
Stephen Kelly
Robert as well. Day one, I found out that companies were spending a million on hospitality at Wimbledon and the FA cup final and civil servants who are involved in procurements were attended.
- [26:49]
Steph McGovern
Yeah.
- [26:50]
Stephen Kelly
So I banned hospitality all over Private Eye for a couple of editions.
- [26:53]
Steph McGovern
Yeah.
- [26:54]
Stephen Kelly
And then obviously, you know, they find some senior civil servant actually attended, you know, a ballet with McKinsey. So that's the story. But so come back to this. So massive savings. Secondly, innovation and growth. So great Gov uk. The people I work with were brilliant. They all delivered in House gov UK in 18 months and it won United nations most digital government in the world in 2015. 16. And the final thing is growth, growth, growth. What we need in this country is sustainable growth. So what we worked on with these SME strategies and procurement strategies to really pump prime and use government procurement to really fuel regional growth.
- [27:34]
Robert Peston
What percentage of procurement? That's government purchase of goods and services A went through to British companies and B went to smaller companies. And how did that change on your watch?
- [27:47]
Stephen Kelly
That's a great question. So the small. The SME was effectively 95% UK companies. And we found that out because we didn't have the data at the start.
- [27:56]
Robert Peston
So I say that again, but we
- [27:57]
Stephen Kelly
95% of the SMEs were UK companies, UK taxpayer and UK domicile. UK employed.
- [28:02]
Robert Peston
The ones that the government were using when you came in.
- [28:04]
Stephen Kelly
Yeah, but that was 2.6 billion of spend. So government at that time was spending about 43 billion a year on. It's obviously expanded now. The government spends on public procurement, 430 billion a year. So actually, in context, it's probably worth knowing that sort of. I guess my direct responsibility was central government, which is these 24 departments like DWP and HMRC and the Foreign Office. But beyond that, there's much greater spend happening across the health service, education and local government. And this was again, part of the strategy. We had a plan and it involved change of the procurement policy, training the procurement folks, engagement comms going around the country. People like Liam Maxwell, the cio, went round to Newcastle, went around to Edinburgh, Cardiff and went and said, with people like British Chamber of Commerce, we're government's open. The message was government's open.
- [28:55]
Steph McGovern
And is it British SMEs you're talking about here? That 6% was British SMEs. Okay.
- [29:01]
Stephen Kelly
And that went up at the end. And the credit, actually, Cameron set a target and he bought into it. He said, it's got to be 25. In 2015, we hit 25, so that's 11 billion. So. So the difference, all these interventions we made were shifting the dial to, actually. So again, I remember sitting in front of Margaret Hodge and talking about public procurement. I think in the early days, 2010, the average procurement was like 337 days. So if you're a small business in Macclesfield.
- [29:31]
Steph McGovern
Yes.
- [29:31]
Stephen Kelly
You're going to lose the will to live. We got it down to like 30 days.
- [29:35]
Robert Peston
These are payment. These are the payment terms, is it?
- [29:37]
Stephen Kelly
No, no, no.
- [29:38]
Robert Peston
What do you mean?
- [29:39]
Stephen Kelly
The contract from start to getting the contract.
- [29:42]
Robert Peston
Okay.
- [29:43]
Stephen Kelly
It could have been over a year.
- [29:44]
Steph McGovern
Yes. Which business?
- [29:45]
Stephen Kelly
Multi years. They can't survive. So they're bid in. In the procurement. They have to go through all these stage. So we introduce all these things, like G Cloud. Right. Government cloud. Like Gammazon.
- [29:54]
Microsoft Advertiser
Yeah.
- [29:55]
Stephen Kelly
For. For small business, you know, whatever it was called, you know, but it was G Cloud. Yeah, but essentially it was in those early days, like just making government open for business and having the system and the marketplaces to allow small businesses to bid for government services.
- [30:10]
Steph McGovern
So when we talk to small businesses who want to get contracts with the government, one of the arguments that's put to them is that they're more expensive. Did you see in that increase of percentage of small Businesses you were dealing with an increase in costs as well.
- [30:25]
Stephen Kelly
No, clearly not because we made the massive savings. So the savings were derived and probably the biggest kind of element of the savings was around procurement and commercial practices. Obviously headcount was a factor. It was a factor all these things, major projects, property, all those sort of factors but the biggest one was really around the reforms on procurement and commercial practices and we therefore increased from 6% to 25% of spending.
- [30:50]
Robert Peston
And you saved money but even while buying bridges, you save money while buying
- [30:54]
Stephen Kelly
bridges save money but drove loads more innovation. So people on the Gov UK project were civil servants and some of these small medium businesses the best IT shops in you know we put GDS government digital services up in Hobon they work with an number of SMEs IT agencies that had the skills to actually deliver gov UK you know a world winning award, United nations, all that stuff but it's changed the way we deal with as a citizen DVLA passport applications that was the platform. It was light years ahead of anything else and we you know just simple stuff started with the user need. What does the citizen want? How do they want to interact with government. And obviously you have to be sensitive to elderly people and people are, who aren't with laptops and mobile phones. The numbers so it started at 6 in 2010 we got it to 25% we agreed that for the next government effectively obviously this has got cross party support so everybody bought into this. It's common sense it was going to be 33% over the next five years. Honestly the last 10 years it's been chaotic. Pretty much all the things we put in place controls procurement policy, commercial reforms, the, the literally the, the. The tide has washed over the sand. The footprints are gone. So now civil service numbers 530000 gone from 380000 on procurement we've gone backwards. It was 25% in 2015 it's now 20% and actually credit and a shout out for British Chamber of Commerce. They're really holding the torch on this. They work with these guys Trussell to provide all the data but it's gone back backwards and, and here I'm.
- [32:32]
Robert Peston
What do you think that is? It was. Is it. Is it the shock of COVID or what?
- [32:36]
Stephen Kelly
No, I think you know there is something one, one is Kobe probably didn't help in terms of procurement then the civil service reacts or, or any organization reacts very negatively. They're constantly criticized and the obviously the PPE and all these sort of things what they did in that period was a shambles.
- [32:54]
Steph McGovern
And Brexit, the bureaucracy around Brexit.
- [32:56]
Stephen Kelly
Yeah, yeah. But effectively we've lost. We've lost the genesis of really the growth gene SMEs British business. And I just.
- [33:07]
Robert Peston
Is it a lack of leadership at the top of Whitehall? Is it a lack of leadership at the top of government? I mean, you talked about how destabilizing it is to have constant churn of chancellors and, you know, ministers in general, which we did see up until the, the last general election. I am struck that there is nobody apparently in the government with your authority focusing on these twin aims of improving procurement, purchases of goods and services and, you know, making sure we got the best civil servants of the right number of civil servants.
- [33:48]
Stephen Kelly
Correct, Robert. So all these things are simple, they are common sense. But when you dive into the detail of dealing with the civil service and reforms, it becomes massively complex. But you have to have a vision, you have to have a plan and then you have to have strategies or policies or whatever you call them, and then you've got to have awesome execution. Executions driven by high, highly competent, capable people. So if those are missing now, I left and I'm not sort of doing the spill milk kind of routine. It's been pretty chaotic since about 2017 politically and up to the election. And obviously I think people in this country voted for stability. But you've still got to have a plan and you've got to have a vision. And you know, people, this, this phrase sort of, you know, this non political phrase, vote for change. Well, what change? I want to know the specificity of actually. What are you going to do for health service? What are you going to do for infrastructure in this country? Country. What are you going to do for growth? What are the strategies for growth? What are the strategies for small businesses? And on your last question, Robert, I'm now running a small business UK listed company. So we want more of those on the London Stock Exchange. Fantastic. Development centers in the north of England and Belfast pay UK taxes, employ UK people. No offshore in everything's here in the UK and growing 180% last year and, and yet we struggle to get into government. And why in 2023 they changed the rules. When I was there with Francis Moore, we obliterated. Well, there was a crazy thing in 2010, you had to be something like profitable for five years and all these quick asset tests and all these sort of things to become a supporter.
- [35:29]
Steph McGovern
Which rules so many people out.
- [35:30]
Stephen Kelly
Yeah, exactly. So that rules probably 90% of SMEs out. So we actually looked sensibly about how do we protect the government, but actually take a lot more risk in terms of supporting the private sector SMEs. You have to do that. In 2023, they reintroduced Dun and Bradstreet score and all this sort of stuff. So they've got. Now.
- [35:48]
Steph McGovern
What's that?
- [35:50]
Stephen Kelly
Credit rating.
- [35:51]
Steph McGovern
Oh, yeah, yeah.
- [35:52]
Stephen Kelly
So. So a lot of SMEs now will be ruled out just because they're financially. You know, you look at an SME when you start off, you might make a loss for the first year. That's the reality. You probably have to invest in the business. If you're a technology company, you have to invest in a product and then you get sales and you get momentum and there's a sort of crossover point where you start generating cash and profitability. But what we need is.
- [36:15]
Robert Peston
I mean, the hilarious thing from what you've just said is the government is currently putting really quite a lot of money through its sovereign AI Fund and the British Business bank into these tech startups whose credit ratings will be. Well, they won't have them because they're new and it brought broadly putting money into businesses they won't be able to purchase from.
- [36:34]
Stephen Kelly
Exactly. But the perverse thing about that is the quantum as well. So that sovereign AI fund, big fanfare, lots of ministerial speeches, which obviously, obviously they love. 500 million.
- [36:44]
Robert Peston
Yeah, sure.
- [36:45]
Stephen Kelly
Right. The US this year spent 600 billion just between five companies.
- [36:50]
Robert Peston
Your 400 billion is procurement, not just central, but we're including schools, we're including the health service, we're including welfare. This is a massive amount of money that, if deployed effectively by the government, could really help the economy to get out of the doldrums, isn't it?
- [37:11]
Stephen Kelly
Absolutely. So it would be be number one in front of Rachel Reeves when she comes out, 11 in plain sight right in front of her. How she could just literally adjust and provide some levers in public procurement to pump prime growth in the economy is sitting there and, and the evidence. So just, just give you a couple of examples. Kainos, great company out in Belfast, started, I think in 2010 with about seven consultants into government, a small and medium business. They ended up with hundreds. They did an IPO on the London Exchange, one of the most successful tech companies over the last 15 years. They hired, just before the IPO, 400 jobs in Belfast and Derry. You know, this is, and they are not announced yesterday, 20 million investment again in Belfast and Derry, another 300 jobs and apprentices and AI jobs and all These sort of things. But that was spawned off the government procurement reforms to actually invite them into government, which then initially they'd never consider because it's too high, hard, takes too long and they would lose money on it. So we had to change that completely. But there's so many cameos and actually just stepping back because in the wider public sector there were 600,000 job losses during that 2010-15. One things we were agonizing about is can we pump prime the growth in the economy through some of the reform side and supply side to actually get the growth moving. And so you look at the growth in that period, I think 2012-15, 2 to 3% economic growth, GDP growth in the UK after the credit crunch. So you could argue the comparables a bit underweight. But there was strong growth in the economy and the private sector job growth was really fueled a lot by government being on the pitch with its procurement, helping small and medium businesses across the uk.
- [39:00]
Steph McGovern
There's a lot of small businesses we talk to who are saying they're getting the kind of verbal enthusiasm from government. So for example, I've been talking a lot about the work that Rich Reeves has been doing in the north with the, the mayor there, Kim McInnes. There's been lots of events at number 11, getting business owners in female founded businesses. There was a big event like that. There's lots of, you know, we've talked to manufacturers in the north who have said that they've had ministers around, like the Defense Minister visiting this company in Sheffield that makes clothing for the military, but nothing is going any further than that. So it's like they're getting the lip service but then it's not following through and into. Into contracts for people into actual investment and money.
- [39:43]
Stephen Kelly
Yeah. So, Steph, I think that's very fair and I think the data says we're going backwards here. And I'll come back because you asked a question about what's the price? The price is probably £100 billion. If we did 50 billion in that 10 to 15, with the waste and expansion that's happened since and the opportunity for things like artificial intelligence within government, we're probably looking at a prize of 100 billion.
- [40:05]
Robert Peston
And what, a 30 billion run rate?
- [40:07]
Stephen Kelly
Oh, at least. Least genuinely, at least off the baseline of today. At least 30 billion. I'll come back and I did actually make some suggestions to the current government around how they might achieve this dusting off. It's not just us having done this. You know, we looked at Singapore, Estonia, some of These really innovative governments and credit to Francis Moore for doing that. And we bought the best in and then got the best people to actually drive us. The opportunity is even greater now. And as a company, it's not just us saying this, there's lots of companies and I know you talked to Beam. Alex, Stefan, Stephanie, what's happening is governments seem to be addicted to non UK technology in our space, particularly obviously from the US. I think 90 of the cloud services provided to the government are provided outside non UK suppliers. So basically we're just shipping taxpayers money off to the west coast. And you know what happens is so the US with DARPA really in terms of robotics, a AI, SpaceX, $2 trillion IPO last week, but that was all backed by contracts in the early days from DOD and NASA. And you know, that was public money in the US that actually fuels these
- [41:17]
Robert Peston
companies, these billionaires and a new trillionaire, they've all been effectively subsidized by the American government.
- [41:24]
Stephen Kelly
Absolutely, the American taxpayer through DOD and all the programs they put together like DARPA to do that. And, and so to your point, the rhetoric obviously, when I worked in government, ministers love a headline, they'd love doing the morning rounds with good news, everybody loves good news, but you gotta follow it through with a plan and execute it honestly. In government you talk about policies and delivery, but it's the same in the privacy.
- [41:48]
Steph McGovern
But as your point you made earlier, both made, it's that short termism as well, isn't it? So the ministers are looking for instant results from things because they're worried about whether they're gonna survive the next day selection in some cases they're worried they're even going to survive the next few weeks. So that has a real impact. And you know, you talk about the days of Cameron and Osborne, that that was a stable time, wasn't it? Like you said. So now it feels like everyone is just running around trying to make quick, quick decisions and that's a big problem for the economy.
- [42:16]
Stephen Kelly
Yeah, you guys obviously are much more connected in terms of the political establishment, but I would say every one of these ministers are, I met, they want to do the right thing. They're passionate about Britain, but sometimes, and they'll obviously love making great speeches, but they need to understand you've got to have a plan and you've got to have be surrounded by really competent, capable people who can execute these plans. And, and if I look at, but who would want to be motivated to go into politics today?
- [42:44]
Steph McGovern
It's one of the problems when you are Trying to bring in efficiency gains, when you're trying to cut budgets, when you're trying to cut staff, that it becomes a bit of a land grab between ministers though, who don' want to lose anything from their department because then, you know, there's a lot of egos at play here. And if your budget's cut and your number of your head counts cut, it looks like you're losing power. And you see that in business as well. Do you think that's an issue in government?
- [43:10]
Stephen Kelly
It could be, but again, I think you need to reframe it. And it's all about. It sounds so simple, but it is all about leadership and the narrative and the vision and then aligning everybody in the organization with that vision, with a same values. Simple as that. And if we had people competing on the gov UK candidate applications to be the first. And obviously the implication of digitizing your services, whether it's rural payments agency, is it will evolve to technology rather than people manually doing these things. So there will be savings and the implication is you'll have a smaller department. But actually if you're providing excellent service to agriculture and the farm farmers, then when you go out to the farming communities, you're going to get rave reviews. You know, now if you go down to this is just a funny story, you used to have what, 12 articulated trucks driving down the M4 every day, taking paper driving licenses every day. Why are you doing that when you can? Now we all sit here and we think that must have been out there with steam engines and it's just crazy. So now the world is digital, the opportunity. And you asked me a question. I did. So I think the prize for this government could be 100 billion of savings, probably on an annual basis about 30 billion. Because we've really gone backwards on this.
- [44:23]
Robert Peston
You're a great optimist and you plainly, you know, it's tangible. You have an enormous respect for the public service. The problem we've got at the moment is we have got expenses that have gone through the roof and a lot of concern about civil service inefficiency. But it's also combined with a sort of relentless negativism, actually not just of perhaps some on the right who you would expect that of, whether they're Tories or reform, but actually ministers in the current government, relentlessly negative about their own officials, saying they get in the way or they're no good. And somehow, I mean, I think this is a. On the basis that Andy Burnham is taking over. I hope he's listening to this podcast because If I were him, I'd be listening to you and I would be thinking, there are two things I could do here. I could really get the morale of the public sector up, but I could also make it way more efficient. Because if you can somehow make a partnership with Whitehall that you got to get the numbers done, you got it down, you got to get the efficiency up, but you're on a mission to make the whole of the UK more productive and perhaps save 30 billion a year that you can then put into hospitals and schools, if those are your priorities. There's a massive opportunity here. But it comes back to that thing you've said so many times, which is quality of leadership. And in the end, that seems to be something that we've just lost in recent years.
- [46:01]
Stephen Kelly
No, it's leadership and culture. And again, I know. Know, obviously, particularly in this current environment, everybody's presented it as a binary choice. Do you want to spend more on defense? Oh, will you have to spend less on health? It's much more nuanced than that. It's much more complex the way government works than that. But you could definitely say probably 30 billion on a run rate per annum out of the public sector, that you wouldn't have had to have the battles on winter fuel payments or, well, you know, winter fuel payments payments was 400 million in the year. A drop in the ocean. There's a prize of probably in this parliament still 100 billion cumulatively, 30 billion a year. Welfare. What were they after? 3 or 4 billion? Look at the big picture where the savings is literally in the front door of number 11. Just look around Whitehall and how do they reform that? With great leadership, innovation. And the thing that's missing, Robert, and the brakes might. My heart. Everybody in the government started talking about, we're going to be focused. Number one priority. Number one priority. Number one Priority. Growth. Growth, sustainable growth. Get back to that. Two to three. We have to be growing at 2 to 3%, because otherwise we're falling behind. We're falling behind in terms of productivity. You know, we're way off the benchmark now.
- [47:14]
Steph McGovern
Yeah.
- [47:15]
Stephen Kelly
And. And it's not really good to compare yourself to France and Germany. Why don't you say we're going to be growing at 3%? How do we do that?
- [47:21]
Robert Peston
Yeah, totally.
- [47:23]
Stephen Kelly
We can use that pool of government procurement to be on the pitch, but also much more collaboratively working with industry. And I think that that's the prize that's missing.
- [47:32]
Robert Peston
Stephen, that was such a fascinating conversation. Thanks so much. And yeah, I mean, you know, Andy, Burnham, if you are listening, it's quite a few, quite a few useful ideas for you here. I think he might be a bit
- [47:45]
Steph McGovern
busy today I think but when he listens to it later on after today we'll find out. But thank you very much Stephen. Lovely to have you here. That's it from us and the rest is money. Bye bye.
- [47:53]
Robert Peston
Goodbye.
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