The number of staff employed by central government has dropped by 1 per cent over the last decade, payroll costs however have increased by 10 per cent and are now £16.4bn, reports the National Audit Office.

Its seems that Whitehall have failed to grasp a basic understanding of staff costs or skills which would be essential when planning onhow to make savings.

The increase in staff costs has come about because there are more people working at higher grades in central government. Between March 2001 and March 2010, the number of administrative grade staff declined. But all higher grades grew in number, with Civil Service management grades 6 and 7 showing a 67 per cent increase (around 14,000 posts). The NAO reckoned that this change in grade mix accounted directly for approximately 50 per cent of the staffing cost increase.

And 35 per cent of the extra costs were down to increases in salaries and performance-related pay, the latter going from virtually zero in 2000/01 to around £200m in 2009/10, forming around one per cent of the total pay bill.

The NAO also pointed out that the small reduction in staff numbers in Whitehall should be compared with an increase across the whole public sector (including the NHS and education sector) of 13.7 per cent, and an increase in costs of 40 per cent in real terms.

“Work to identify potential savings in central government’s staffing costs has begun, but there are a number of areas of weakness,” said NAO head Amyas Morse. “Increasing numbers of higher grade posts have led to much of the recent cost growth. The centre of government needs to review its ability to understand and challenge these management decisions.”

He added: “There is also a lack of a structured approach to delivering the staff cost reduction required across government in the next spending review period. If these areas of weakness are not dealt with, real risks to value for money remain.”