The government must find an extra £5 billion in savings under the multi-billion pound stimulus package unveiled by Chancellor Alastair Darling.
Darling's comprehensive Pre-Budget Report (PBR) plan has put pressure on government departments to find an extra £5 billion in efficiency savings on top of those already set out by the 2007 Comprehensive Spending Review, running from 2008 to 2011.
In his pre-budget statement, unveiled yesterday, the Chancellor increased the efficiency savings target from £30 billion to £35 billion. Whitehall spending on IT, lawyers and consultants will all be slashed, while changes to back-office and personnel will result in big savings, according to the PBR.
Darling said the extra savings "are achievable because independent reviewers have identified new efficiencies across public-sector operations".
"The efficiencies will come through lowering the cost of back-office operations, better procurement, examining property holdings and asset sales."
The additional savings will come through the Operational Efficiency Programme, which will focus on five areas, each being led by an experienced private sector chief.
The PBR said the government has over-achieved against the targets set by the Gershon Efficiency Programme, including delivering £26.5 billion in savings and removing 86,700 civil service posts between 2004 and 2007.
Peter Clarke, research director at Ovum, said Darling's speech shows that the government is determined to hit tough savings targets while continuing to improve public services.
Despite achieving the numbers set out in the Gershon review, Clarke said the government "has become increasingly impatient that the public sector has not moved fast enough to achieve back-office efficiencies or achieved the efficiencies in more radical ways".
This efficiency drive represents opportunities for IT suppliers, according to Clarke.
"These are tough times which demand a confident, well thought through response from suppliers directly addressing the key concerns of the public sector. Those software and IT services suppliers that seize the opportunity can act as the catalyst in driving out efficiencies and improving the quality of public services," he said.
"Now is the time for suppliers to intensify the conversations about efficiency and improvement in public services, which they have been having with the public sector over the past three or four years."
Individual departments' spending allocations for 2010-11 and savings targets from further operational efficiency reviews will be set out in next spring's full Budget 2009.
The OEP was first launched in the Budget 2008 in March. Martin Read, former CEO at IT services provider Logica who is heading up the strand to identify efficiencies in back office and IT. The government expects to slash £1 billion from back-office and personnel costs.
But Darling said: "There is a point at which front-line public services would be affected – and we will not pass that point."