Examination of Witnesses (Questions 1
- 19)
THURSDAY 14 MAY 1998
MR ROBIN
YOUNG, MR
ANDREW RAMSAYAND
MR MICHAEL
SEENEY
Chairman
1. Gentlemen, welcome. Mr Young, we doubly welcome
you: first, because we are pleased to see you, and, secondly,
because we congratulate you on your appointment. No doubt we will
have a long and extremely happy relationship. Would you like to
make a brief opening statement before we proceed with questions?
(Mr Young) Chairman, thank you very much for your
welcome. I begin by introducing Andrew Ramsay, Head of the Finance,
Lottery and Personnel Group, and Michael Seeney, Head of Strategy
Unit. This is my eighth day in the post, so it is a bit daunting
for me.
2. You have not yet been asked to approve the
new executive of the Royal Opera House?
(Mr Young) That would be a state secret.
It is a little daunting to appreciate that every Member of this
Committee knows more about my new department than I do. I hope
that you will bear with me if I cannot answer your more complicated
questions. Obviously, either I can write to you later or ask one
of my colleagues to give the right answer on my behalf. By way
of introduction, my last two jobs involved the running of a newly-integrated
government office and co-ordinating domestic and economic affairs
in the Cabinet Office. I very much hope that I bring from those
two jobs skills, interests and approaches that will help in my
new job, in particular an ability to work in partnership with
other government departments, government agencies and the voluntary
and business sectors to achieve objectives rather than working
through one department only. In particular, in the Cabinet Office
I was responsible for helping to tackle cross-cutting wicked issues
which I hope will be useful in approaching the tasks of this department.
Finally, in my previous jobs I had quite a lot to do with relationships
with sponsored bodies. It is clear already after only eight days
that that is key to the successful implementation of this job.
I do not know how it will work, but I think that I bring with
me some skills and experience that should help.
Chairman: We have never doubted the supreme
skills of yourself and your colleagues. I am sure that those skills
will be highly relevant to what you are doing now.
Mr Fearn
3. My question is directed to Mr Ramsay. Ninety-five
per cent of the department's expenditure takes the form of grants
to other bodies, which must be rather frustrating. Is it right
to say that you have very little control over what happens to
that expenditure and output?
(Mr Ramsay) There are two aspects to that. One is
policy control and the other is financial control. I think that
you are talking mainly about the policy control. As you rightly
say, we issue most of our money upfront out to the bodies for
which we are responsible. What we have been considering over the
past couple of years in a major way—we will be looking at
it again in our current departmental spending review—is
how to strengthen the links between what we want to achieve as
a department and what our bodies provide for us and do on our
behalf. The key element is the funding agreements which set out
for each of our bodies what we want them to achieve and the targets
that they have to meet for the money that the public through the
department provides. We want to reflect back into our own outputs
and achievement measures what those bodies achieve on our behalf.
Tightening up that relationship is at the centre of making sure
that it is not a frustrating relationship of the kind to which
we have referred.
4. Are there any new bodies or do the same old
ones keep coming up? Does it depend on policy?
(Mr Ramsay) There are new ones coming along. One of
the central matters that we have looked at in our spending review—I
expect that we will refer to it a good deal, although it has not
yet been completed—is whether the array of bodies that we
have is the most effective set to deliver the department's objectives
and whether we could get more money on to the ground with a different
arrangement of bodies from the one we have at the moment. As you
have indicated, sometimes new ones come along. We now have the
New Opportunities Fund—another lottery distributor—set
up by the Lottery Bill that is now before Parliament.
5. There has been an admitted error in the department's
brief for the accounts produced relating to the Arts Council administration
costs. How did that occur?
(Mr Ramsay) It was to do with the running costs of
the Arts Council which are funded from two sources: the lottery
and grant-in-aid. Those two sets of accounts have to be kept clearly
separate. As to the report, two matters should be referred to.
First, there was a mistake, which we certainly acknowledge, in
that some of the lottery-funded running costs were shown in the
line that should have referred only to grant-in-aid, so the figures
were rather higher than they should have been. Secondly, it is
quite difficult to estimate precisely at the start of the year
the split between lottery-funded and grant-in-aid-funded money.
That affects the figures as between plan and outturn. The Arts
Council has a clear formula by which it divides up its various
costs according to whether it is lottery-funded or grant-in-aid-funded.
That is audited and made quite clear, but sometimes it is difficult
to estimate right at the beginning of the year how the figures
should be divided up.
6. Did that come out during the audit, or was
it discovered before the audit?
(Mr Ramsay) First, your Clerk drew our attention to
the fact that the figures in the report were not correct. Then
we looked back and discovered what the right figure should be,
and for that we are grateful to him. Secondly, as to the process
during the year it is a matter of seeing how according to the
formula the costs pan out. In the outturn they are allocated correctly
to the lottery account or grant-in-aid account.
Chairman
7. To follow up Mr Fearn's line of questioning,
without in any way tempting you to enter areas of policy which
are more appropriate for ministerial decision, how is it possible
to protect the principle of additionality in relation to, say,
grants to the Arts Council? Ministers have come before us in a
steady stream in both the previous Parliament and this and assured
us, I am sure honourably, that it is their determination to protect
additionality, but Arts Council funding has gone down in both
cash and real terms. How do we know that that would have been
the position even if there had not been very substantial lottery
funding? Is there any way in which you can make the additionality
principle more transparent?
(Mr Young) We have looked at lots of ways of trying
to show that that principle is alive and well. It is central to
the discussions in the spending review that is now going on. It
is no great secret that there are those who suggest that we could
do with lower public spending figures because of the existence
of the lottery. Needless to say, we stick firmly to the importance
of the additionality principle. I hope that we shall be able to
show that to you in the results of the spending review. In this
sense we are on the side of those who must preserve that principle
for very obvious departmental reasons. But the implication behind
your question is quite right. It is almost impossible to prove
what would have been in the spending programme line had the lottery
not been there.
8. Obviously, when the spending round is being
decided long before it gets to Ministers you are involved in conversations
with the Treasury. Is there any inclination on the part of Treasury
officials at the point when it is all being negotiated at official
level either explicitly or implicitly to indicate, "Well,
there is an enormous sum of money from the lottery, so you will
not need quite so much, will you?"
(Mr Young) Obviously, we work very closely with our
Treasury friends. We would hate to accuse them of any such thing.
However, it is true that they use all manner of arguments in examining
the adequacy of our spending line. It would be amazing if someone
at the Treasury had not thought of that line of argument. But
they also use lots of other lines of arguments which would challenge
our spending plans. The comprehensive spending review process
has aired all the arguments rather more fully in both principle
and practice than in the past. I assure you that that is not the
only line of attack against our spending line. That is the one
that we find more easy to resist on principle with the help of
the argument in favour of additionality which you mentioned right
at the start.
Mr Fabricant
9. Sticking to the line of the Treasury, the
department appears to be introducing, sensibly, across all government
departments the concept of resource accounting which takes into
accounts the assets that are owned by government departments.
To make for more efficient use of those assets, a notional charge
of 6 per cent is to be applied as if it were a loan from the Government.
I understand that the Department for Culture, Media and Sport
owns assets like Trafalgar Square, which does not generate much
money, although it generates a lot of pigeons and tourists. How
do you begin to value Trafalgar Square? Is the 6 per cent to be
applied to Trafalgar Square plus all the other assets owned by
your department?
(Mr Young) That question opens up another area of
potential dispute between the department and the Treasury. We
have not yet reached agreement on whether our so-called heritage
assets should be valued for the purposes of resource accounting.
Of course, the purists would say that all assets of the Government
should be valued for the purposes of resource accounting so as
to apply the percentage approach that you have described. Heritage
departments and others have said that there is really not much
point in valuing, say, Trafalgar Square or Stonehenge or many
other assets because decisions on what to spend on repairing paving
stones in Trafalgar Square are unlikely to be affected by the
notional value of that heritage site. We have been putting forward
what we think is a respectable argument that it is a waste of
money to value heritage sites. The decision on whether or not
to spend money on them will not be affected by that valuation
but by other considerations, not least the value to the nation
of keeping its heritage in good condition and to sustain it. That
is now being looked at by the Treasury and the NAO. The Financial
Reporting Advisory Board (FRAB), with which I am sure the Committee
is familiar, is looking at valuation issues like this. I am sure
that there will be other cases in government across the board
where departments like ours put forward special cases. But we
think that the decision on maintaining our heritage will not be
helped at all by a valuation in terms of resource accounting.
10. But if the decision goes against you does
it mean that your expenditure plans will be affected because the
6 per cent of the asset value will be deducted in effect from
the total grant given to you by the Treasury?
(Mr Young) I think the truth is that we will fight
that one when we come to it. At the moment we say that the excellent
resource accounting principle should not apply to heritage assets
for the sort of respectable reasons that I have outlined. If those
arguments do not prevail then we will have to argue for exceptional
treatment once valuation has taken place, and for the general
rule not to be applied.
11. I know that it is difficult for you to make
an assessment, but you must have some timescale in mind. When
do you think that FRAB, the NAO and the Treasury will make up
their minds one way or another and let you know how they will
treat this matter?
(Mr Young) The note that I have been passed says "this
year".
Chairman
12. You are not the only department that owns
part of the government estate. Do I take it that there are rules
which apply across the departments rather than that each department
is involved in a separate transaction with the Treasury?
(Mr Young) I think that on such matters one would
need to ask the Treasury about this. But, broadly, the heritage
departments do not include just our department but other interests
like the Scottish, Welsh, Northern Irish, MoD, Inland Revenue
and House of Commons departments. We are all a band of brothers
for the purpose of discussing with the Treasury the application
of heritage issues to resource accounting. But there are lots
of other issues about resource accounting that are being pursued
by FRAB with which I am not so familiar.
13. Although this may not be fair to you, you
may be able to solve a problem that I have been thinking about
for nearly a quarter of a century. When I was a very junior Minister
at the Department of the Environment I was in charge of the Palace
of Westminster and deciding how much needed to be spent on it,
and yet it did not belong to the Government. This is a royal palace
and as such it is highly relevant to your activities. How is the
barrier made clear between what is a royal palace and the property
of the two Houses of Parliament and what is the function of a
government department? If you are not able to answer that question
I shall not criticise you, but I wonder whether you can solve
a long-standing problem?
(Mr Young) I was working for you in the Department
of the Environment on the 1974 Rent Act. I could not answer that
question then; nor can I answer it now. If either of my colleagues
can assist they are welcome to intervene. I am afraid that it
is a "pass" from us.
Mr Fabricant
14. Your annual report is excellently produced
but, given that we live in an environment where both the arts
and heritage say that their grants are being cut, can you tell
me how much it costs to produce a report like this? The annual
report of a company must be glossy because you need to "hype"
up the company to achieve a good price/earnings ratio, but who
reads this apart from rather sad people like us on the Select
Committee? Apart from the accounts on the first few pages, the
rest of the information can be extracted in other ways. Is it
worth the amounts that you will now tell me it cost to produce?
(Mr Young) All departments are obliged to produce
annual reports. This one cost £42,000. That includes the
cost of putting it onto our website. I am told that that is more
or less the same cost as last year, but the cover price this year
is lower. Therefore, you get better value for money this year
than last. I think that your question can be put to all government
departments who are obliged to produce annual reports. But we
think that we are in line with the practice of other departments,
except we believe that ours is better produced.
15. It is certainly creative, and it should
be given that you are a creative department.
(Mr Young) Thank you for that.
Ms Ward
16. You explained earlier that you had found
difficulties and problems in the Arts Council accounts. Are you
satisfied that the over-expenditure on administration by the Arts
Council can be justified and that you know the reason for it?
(Mr Young) To go back to Andrew's response to an earlier
question, it was not so much an overspending as a redefinition
of what was spending by the Arts Council on its normal revenue
costs and what was spending by the Arts Council as a lottery distributor.
What we saw there was not an overspending or underspend but a
different definition of spending as between spending on lottery
distribution functions and spending on Arts Council support. I
think that that was the substance of Andrew's earlier reply.
17. You are saying that there has been no overspending
according to the Arts Council accounts?
(Mr Young) I think that is right.
(Mr Ramsay) Not significantly. To move on to the more
general issue as to whether we are satisfied with the amount that
our bodies spend on administration, and the Arts Council in particular,
the DCMS has looked very hard at what is spent on delivering things
and whether that expenditure can be reduced. In particular, it
is worth mentioning that the new chairman of the Arts Council
has made it his particular objective to ensure that the Arts Council
itself works in the most effective way. He will be looking very
hard at the administration costs on both the lottery side and
the grant-in-aid side.
18. The report talks about establishing meaningful
performance measures. How do you plan to do that when most of
your department is concerned with passing money on to other distributing
bodies?
(Mr Young) I think that that will be key to the successful
implementation of the results of our spending review. The key
is to achieve the right relationship with our sponsored bodies.
After all, we have powers of appointment and grant-in-aid over
these bodies. It seems to me that the key is to reach funding
arrangements which ensure that they deliver the Government's objectives.
We will give them a clear statement of the strategy, objectives
and monitoring arrangements. Under our funding agreements with
them they will be obliged to report back to us on how they are
delivering on the objectives that they have been set. This already
happens but we will develop it further to tighten it up or make
it more open. Our funding agreements will say that as a condition
of the grant-in-aid that we give them they must aim to achieve
a number of outputs and report back to us annually on how they
have achieved them. Once the spending review is over and the department's
overall objectives have been established—we have sent you
a draft which is the final page of the memorandum—we will
then work out fresh monitoring arrangements which we believe will
show whether they are achieving their objectives under our new
overriding departmental objectives. Therefore, the overriding
departmental objectives can be traced through into new objectives
and monitoring arrangements for our sponsored bodies. That is
how we see it operating. I hasten to add that it is easier said
than done. Just as we have new objectives for the department as
a whole, we will be trying to follow those through with each of
our sponsored bodies and monitor them. If they fail to meet them
we will then discuss frankly and firmly with them how to improve
them.
19. Can constituents be assured that there will
be some accountability emerging from those performance measures?
(Mr Young) Yes.
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