A friend of mine was demoted in his/her job in a government agency. There seems to be no wiggle room to discuss this decision, as it was driven by political rather than performance reasons -- they did away with the whole department he/she was heading. So instead of the "Department Head" title, my friend was thrown back to the "Lead Scientist" title from about three years ago in their career. Does anybody have an advice as to how this situation should be described in that person's CV? Being demotivated in the current job is a huge reason for anybody to think about a new job... which starts with updating the resume.
I would suggest your friend start by reframing what happened. Your friend was not demoted, and even more so your friend was not demoted for a political reason.
Your friend's department was eliminated. This is a thing that happens in both public and private sectors. Sometimes (rarely) it's because the people in the department aren't doing their jobs well. More often, in both public and private sectors, it's because somebody decides that whatever it is they do no longer needs to be done internally. While this is painful for everyone concerned, it is a thing that happens and we all have to deal with it. A car company decides they'll buy fully assembled versions of something you used to assemble from parts. A software company decides they won't offer sysadmin or hosting services any more. A book publisher decides to get another company to do the cover designs and marketing instead of doing them in house. A government agency decides to stop having a certain department at all.
Then, on the heels of that blow, something actually pretty good happened to your friend. Even though the entire department was eliminated, your friend still works there. Is a Lead Scientist and perhaps has a chance to get back to Department Head since that is something your friend has demonstrated some ability at.
If the resume is going out today, your friend should list Department Head as a current title, and explain in the cover letter that the department is folding, hence the job search. If the search drags on and your friend is working as Lead Scientist while still looking, then the resume should say Department Head as a position up till the end date, then another position after that as Lead Scientist, and the description for that position should start "after the agency eliminated the ABC department, I moved to the DEF department as Lead Scientist" and then go on to list whatever the duties and accomplishments are in that department.
The resume and cover letter can focus on the twin points that "I was so good that they kept me even though they no longer needed my department" and "I can and have run a department and I'm only looking for a job now because the agency decided to eliminate the department I was running." If your friend is concerned that an employer will think the department was eliminated for not being good, a single sentence that just states it was good is probably all you need. Everyone in business knows that when entire departments go, it's really not about the skill level of the people in them. It's about an overall business or political picture.
A resume/CV should be focused on responsibilities and accomplishments more than any particular title. What your friend did during this time will be more telling than any title ever could be. I would recommend simply leaving off the "Department Head" title entirely, and simply refer to the entire stint as "Lead Scientist".
The demotion appears to be a paperwork demotion anyway. To avoid losing the "prestige" of the "Department Head" title, it would still be a good idea to have a bullet (near the top) that identifies the period during which the title applied. Append on to it the reason for the reduction in title. Something like.
Appointed Department Head 2011-2014. Title position dissolved Nov 2014, all duties and responsibilities retained.
This allows for the experience to remain relevant, doesn't appear as a "grandstanding" move by listing a title that no longer applies or can be verified (and Department Head is definitely one a prospective employer will want to verify), and also casually identifies that the title no longer applies due to an administrative change rather than a performance-related demotion.