Government plans to cut 25-40% from departmental budgets - except for health, education, international development and defence - are prompting scrutiny across all areas of spending , including IT.
The plans are forcing departments to look at alternative ways of delivering services, and new technologies that can provide cost savings. One concept that is attracting interest is "cloud computing" (see panel, below right).
In essence, by running applications on remote servers connected over the internet (the "cloud") - rather than on local machines - organisations can save money and also become more flexible in how they buy and run IT systems.
In response, the government is creating its own cloud computing service, the G Cloud.
In a roundtable organised by Guardian Public, and sponsored by IT services company Fujitsu, senior managers from government and the private sector asked whether cloud technology can deliver some of the efficiencies needed to cut public sector costs.
The event was conducted under the anonymity of reporting allowed under the Chatham House rule to encourage frank debate, so this report picks up themes that were discussed, without attribution.
In the run-up to the election, both opposition parties committed to making cuts in government IT spending.
Since then, the government has confirmed that ID cards will be scrapped, the ContactPoint child protection database is subject to review with a view to termination, and the costs of England's NHS National Programme for IT are also being re-examined.
Public sector IT projects have a poor reputation for value for money and on-time delivery. Whether or not it is fully justified, departments will need to control their spending on technology if they are to meet financial targets.
Among IT professionals, cloud computing is seen as a way of cutting costs, sometimes drastically. Organisations using the cloud reduce their capital investment and the need for software licences, by paying for the IT service as they go. As cloud computing companies can pool expertise and resources across a large number of customers, operating costs should also be lower.
Cloud computing for public sector IT does pose challenges, however, especially in the areas of security and data privacy.
In many instances, it is difficult, or even impossible, for public bodies to use standard, commercial cloud computing offerings. In response to this the government is developing the G Cloud along with the Government Applications Store (GAS), from which civil servants will be able to download software or access services running on the cloud, much in the same way iPhone owners can download applications from Apple.
When G Cloud was launched, under the previous government, its backers claimed the strategy could save £3.2bn of the annual, £16bn public sector IT budget. But to do this, government departments need to increase use of the cloud, and cut back on departments' and local authorities' own IT infrastructure.
The scale of the task is significant. The government has 120 data centres, and there is the potential to reduce this number.
As one attendee pointed out, by no means all, and probably not even the majority, of data centres offer the same standards as the best private sector facilities, either in efficiency, capacity or in security.
The picture is even more mixed in local government. With a new data centre costing around £35m, it is hard for the public sector to justify the investment.
Cloud computing should, attendees agreed, provide a way round this. Private sector firms are willing to build IT infrastructure up front, if they are confident there are enough government users to justify the investment and the pricing allows acceptable profit. Elements of the Aspire IT contract, for HM Revenue and Customs, are already provided this way.
As well as cost savings, supporters of cloud computing say it will give departments better access to standardised applications and common infrastructure. This should drive down the cost of IT and make data exchange easier. Several attendees pointed out that data sharing remains a challenge in the public sector.
The way public sector bodies purchase IT services is also an issue. In local government some 400 authorities currently buy around 100 applications from a dozen vendors.
In most cases each contract is negotiated separately, with "a lot of taxpayers' money wasted in the process".
Providing standardised versions of some key applications - such as enterprise resource planning or customer relationship management - would cut down costs, and allow councils to choose from a menu of pre-customised applications, developed and tested by the vendors.
This would remove the need for each council to buy the software and then install and customise it, a process that can take two to three years.
Supporters of the G Cloud hold it up an as an ideal vehicle for delivering such applications. Software companies, for example, could provide customised versions of their applications for social care or housing administration on shared servers running in the cloud.
Cloud computing was also suggested as a way to provide IT support for departments or councils which want to move to shared services, such as in human resources or finance. It replaces the need to move the physical data centre, and its servers and staff, with a shared service provider.
"We can put up a 'software as a service' application for 20% less than a standard application," said one attendee. "And if you are happy that the application is available only during office hours, for example, you will save money."
There are limits to the potential: most departments will need to run some specialist software applications, and it may not make financial or practical sense to run these in a cloud, as the providers would not achieve the economies of scale needed to reduce costs. Organisations that have tried cloud computing so far report that it works best, where the technology is largely standardised.
One attendee pointed out that his employer already runs desktop software applications through a cloud computing service, and several others were using online applications for areas of customer relationship management. Some were also looking at cloud services as an alternative to current desktop office software.
In the private sector, cloud providers can bring new services and applications online quickly. As computing resources are shared between applications and users, the cloud also handles peak demand better than conventional systems.
In government, this could reduce the pressure on any department that has occasional peak workloads. Examples cited included handling tax returns and dealing with a potential pandemic.
The G Cloud has already gone some way down this route, by providing test and development servers that departmental IT teams can bring online remotely. Currently, departments are able to use these servers free of charge.
Over time, it could provide a number of alternative commercial models for public sector bodies' IT purchasing. The flexibility of the cloud allows for arrangements that are much more short-term than the typical five-year contract, and for some services it could do away with fixed-term contracts altogether, moving to a per-transaction or per-click way of paying for IT. This could be attractive for local authority services, such as environmental protection or parking, where calculating a per-transaction cost for IT services is relatively straightforward.
It would be much harder in areas such as social care, which depend far more on direct contact between council employees and their clients, and where an individual receives services from the authority for years, and maybe even a lifetime. For those services, a longer-term contract is likely to remain the best option.
Attendees also pointed out that, under current IT outsourcing programmes, two- or three-year arrangements remain more cost-effective than those lasting a year or less. But cloud computing could cut costs, allowing providers to use a "fixed cost minus" structure, where the contract costs fall each year as the system becomes cheaper to run.
There are significant obstacles to using a cloud system. Information security remains an issue and, according to attendees, it is one that the development of the G Cloud has not yet resolved.
On paper, a cloud only available to the UK government should provide the relevant assurances, but some attendees said that in practice this is not always the case, as there are some types of data that simply cannot be shared: areas such as defence and security, parts of education, health and social care, and some categories of financial information. Even details of some buildings are too sensitive to share.
Providing services through a government cloud does, at least, solve a problem highlighted by one attendee, who wanted to use a commercial cloud service for a back-office system: cloud providers with thousands of customers will not want to customise their applications. Customisation is a service G Cloud could provide.
However, attendees also expressed concerns that a government cloud could become a barrier to innovation. "I'd be very worried if it [applications] had to be accredited by the G Cloud," said one.
Slowing down the delivery of new services, adding to costs and forcing even systems' non-secure data to meet overly stringent security requirements were foremost among the concerns.
The solution, one attendee said, was for departments or local authorities to carry out their own classification of data, and ensure that only those that needed the highest levels of protection were stored in the most secure, and expensive systems. Lower security applications could well be hosted in the cloud.
The IT industry firmly believes that the public sector stands to make significant savings through the cloud, even if only the simplest and least specialised applications are run that way. But the feeling was that, although more could be done to encourage cloud computing, forcing departments or councils to use it is not the way forward. Instead, the G Cloud should provide the right services and organisations can choose to come in.
What is cloud computing?
Cloud computing is a catch-all term for IT services delivered over the web.
Companies or government bodies can use cloud computing for email, to run websites, store data or, increasingly, run complex business applications. But rather than install the software themselves on their own computers, on their own premises, the "cloud" provider does this for a fee.
Google's Gmail and Microsoft's Hotmail are consumer cloud computing services, and there are specialist offerings for government, such as the data storage element of Fujitsu's Flex service for the central government.
At the table
Business unit director for HMRC,
Chief information officer,
Westminster city council
Earl of Erroll
Parliamentary Information Technology Committee, House of Lords
Chief technology officer,
Department for Work and Pensions
IT transformation director UK,
Red Pepper 52
Director of information systems,
City of London
Dr Katy Ring
Head of business transformation,
Peterborough city council
Mark Say (chair)
Digital Knowledge Transfer Network
Deputy IT director,
Department for Culture, Media and Sport