Plans for government departments to cut costs by sharing systems took a major step forward last week, Computing can reveal.

A top-level civil service management board has confirmed two of the largest Whitehall departments will provide human resources (HR) and finance services to their peers, following a presentation from Ian Watmore, head of the Prime Minister’s Delivery Unit.

Cabinet secretary Gus O’Donnell has written to smaller departments such as Culture, Media and Sport, to encourage adoption of either the Department for Work and Pensions’ (DWP) Oracle system or the SAP offering from HM Revenue & Customs.

Work has already started at the Cabinet Office on a programme to standardise procedures, and by the end of the year, 1,700 staff records are expected to be transferred to the DWP system.

The programme will be a test case for unresolved issues such as how governance and budgeting between two public sector organisations are managed.

Shared services are a key plank of the Transformational Government strategy, and central to wider plans for greater efficiency.

The Prime Minister’s Delivery Unit estimates the value of shared HR and finance systems to be £1.4bn a year. And administration cost reductions are crucial if Whitehall is to meet the Treasury’s target of five per cent efficiency savings year-on-year from 2008 to 2011.

The outcome of last week’s Civil Service Steering Board meeting indicates a huge change of pace, says Eric Woods, government practice director at analyst Ovum.

‘The challenge now will be to balance what the selling departments need with what the buying organisations want,’ he said.

Businesses the size of smaller Whitehall bodies would not run their own HR, says Philip Virgo, strategic adviser to user group the Institute for Management of Information Systems. ‘This strategy is well overdue,’ he said.

The original shared services plan, called Whitehall2, was for a system intended for 10 departments. But larger bodies now plan to share with related agencies.

A spokeswoman for the Cabinet Office said: 'The shared services programme continues to move forward at pace in line with the sector plans we published last December. We already have large shared service operations in HMRC, DWP and the Ministry of Defence, with others such as the Home Office and the Department for the Environment, Food and Rural Affairs continuing to roll their offering out to their agencies.'

The Foreign Office last week tendered for £3m worth of consultancy for its sharing strategy.