House of Commons - Public Accounts

Select Committee on Public Accounts Forty-Ninth Report

THE ROLE OF THE OFFICE OF PUBLIC SERVICE

The Office of Public Service's relationship with HMSO

6. HMSO became an Executive Agency in 1988 and relations between Ministers, the Office of Public Service and HMSO were guided by a policy and financial framework agreement. This document made clear that the Office of Public Service were responsible for helping Ministers discharge their responsibilities for the management and finances of HMSO, including providing independent advice to Ministers on HMSO's five year corporate plan and annual business plan.[3]

7. We asked the Office of Public Service how they had interpreted their relationship with HMSO under the terms of the framework agreement. They said that, before the process of selling HMSO began in late summer 1995, they saw their responsibility as being limited to providing advice to Ministers, when requested, on certain strategic matters including the business's corporate and annual business plans, its Trading Fund accounts and its achievements against financial and performance targets. This was because HMSO was a Department in its own right with a separate Accounting Officer. They left the management of HMSO free to conduct their own affairs within the approved corporate and business plans.[4]

8. We further asked whether the Office of Public Service could have taken a much greater role in HMSO. They told us that they took the view that they were not particularly better qualified to run the business than the professional managers who were there already but accepted that they could have advised Ministers to intervene more decisively in the management of the business.[5]

9. We also asked the Office of Public Service, in the light of the limited role they saw for themselves, whether they had sufficient knowledge of the business to advise Ministers on the sale and if it was credible that they would leave their Ministers to make decisions about the sale without their advice. The Office of Public Service said that it had been the clearly established policy of Ministers for some time that activities such as HMSO should be privatised wherever possible. They said that they had drawn a distinction between providing advice to Ministers when requested and actively advising on whether to sell the business, which they viewed as the responsibility of the Chief Executive of HMSO as the Accounting Officer.[6]

10. The decision to sell HMSO was announced in September 1995.[7] We asked the Office of Public Service when they had first become aware that the business was going to be privatised. They told us that this was in January 1995 when a decision was taken by Ministers. No timescale was set at that point but it was intended that the business should be moved towards a flotation, possibly in 1997 or beyond.[8]

11. In July 1995 Ministers decided to accelerate the timetable for the sale and to opt for a trade sale. We asked the Office of Public Service why an acceleration was required. The Office of Public Service told us that the decision had involved a judgement by Ministers on the value of selling the business earlier for lower proceeds with reduced risk, or retaining it in the public sector in the hope of higher proceeds after heavy investment. Had Ministers wished to sell the business at a price which the Office of Public Service believed was less than its net present value, they would have asked for a direction from the Minister to allow the sale to proceed.[9]

12. We asked whether there was a management vacuum from the start of the sale process in September 1995, as the Office of Public Service were responsible for the sale but management continued to run the business and there was a separation between the two parties.[10] The Office of Public Service told us that constitutionally they were not formally responsible for the management of HMSO but they had recognised the need to know as best they could what was going on in the business and to take appropriate steps to tailor the sale process to that situation. In pursuit of this the Office of Public Service had asked HMSO's management to inform them about any investments in excess of £50,000, including potential redundancies, to make sure that these costs could be fully recovered in the sale process.[11] Nevertheless the Office of Public Service had had to deal with the emerging problems of the business at one stage removed from the management, which they had not found to be as satisfactory as it should have been.[12]

13. HMSO went into the sale process with only an acting Chief Executive promoted from within the existing staff of HMSO. We asked the Office of Public Service why they had not planned to recruit a company doctor or trouble-shooter when the previous Chief Executive retired in July 1995 (and they had known since January 1995 that HMSO was to be privatised). The Office of Public Service told us that there had been uncertainty about the likely timing of the privatisation and that when it became clear in July 1995 that Ministers wished to privatise the business in 1996 they had decided that it was best to leave HMSO in the hands of the existing management.[13]

14. HMSO had provision for up to three non-executive directors but only two posts were ever filled and there were none in post after July 1995.[14] An Adviser on Agencies, with business expertise, was appointed by the Chancellor of the Duchy of Lancaster in July 1993 and was available to give occasional advice to the Board of HMSO. We asked whether the Office of Public Service could have appointed new managers to give a fresh external outlook on the business or to have appointed company doctors to strengthen the management process. The Office of Public Service told us that it would have been for Ministers to do this but they recognised in retrospect that non-executive directors would have been desirable, and had they tried a little harder to secure such appointments, these would have been of assistance to HMSO's management.[15]

Understanding the business

15. As a Trading Fund, HMSO was required to break even taking one year with another and to make a specified return on capital. During the 1990s it faced increasing competition leading to a greater use of other suppliers for work which it had traditionally performed, and by 1995 HMSO was sustaining losses (Figure 1).[16] At the same time there began a progressive loss of management and financial control, arising out of the implementation of a three-year restructuring programme.[17]

16. We asked the Office of Public Service whether they saw anything of concern which they felt it necessary to warn Ministers about from the start of the restructuring to September 1995 - a period in which they said they only gave Ministers advice when they asked for it. The Office of Public Service said there was not.[18]

17. After September 1995 when the Office of Public Service assumed responsibility for the sale, they became more closely involved with the business.[19] We asked why, this being so, it had taken them at least three months from September 1995 to January or February 1996 to become seriously concerned about the information coming out of the business. They told us that until early 1996 there was no clear evidence that things were going seriously wrong, but thereafter the evidence that came to them was of three kinds. There were a number of exceptional and supposedly non-recurring items in the 1995 accounts; there was a contract with Uzbekistan which led to losses and demonstrated a lack of central control;[20] and thirdly, the preparation of the Long Form Report, which was started in January 1996, began to reveal serious concerns in February.[21]

18. We therefore asked whether the losses made by HMSO in 1995 were foreshadowed in the quarterly business reports in 1995, which would have been available to the Office of Public Service, or whether these quarterly reports were misleading and inaccurate. The Office of Public Service could not recall what the periodic reports were showing in 1995 but said that any adjustments made in the latter part of 1995 were all negative and downwards. Accurate and comprehensive information emerged only in early 1996 when it became clear that 1995 had been a bad year. The Office of Public Service recognised in retrospect that management had been optimistic in attributing the reasons for the poor performance to one-off events which would not occur again.[22]

19. The Stationery Office's interim results for the first six months of 1997 showed a pre-tax profit of £8.1 million after interest charges, compared to a loss in 1995 and a peak of just under £14 million profit for the whole of 1993. We asked the Office of Public Service whether this suggested that if they had ensured that the business was managed properly, better value for money could have been achieved from the sale. The Office of Public Service responded that they could not answer comprehensively for the management of the business in the period up to the start of the sale process in September 1995. They suggested that an investment programme, costing £65 million undertaken by the new purchasers was a factor in the return to profitability.[23]

Conclusions

20. Although HMSO had a separate Accounting Officer, the Office of Public Service received, under a framework agreement, HMSO's corporate and business plans, its targets, annual accounts and periodic business reports, and were responsible for advising Ministers on the business. The Office of Public Service took a hands-off approach to the business, however, and chose to limit their role to providing advice to Ministers only if requested. In the light of HMSO's increasing commercial problems, we consider that the Office of Public Service should have taken an active interest in the business and should have taken the initiative, in defence of the taxpayer's interest, to advise Ministers about the need for action to help performance. Not doing so contributed to a loss of value in the sale.

21. We do not accept the Office of Public Service's view that the provision of advice to Ministers about the decision to sell was the responsibility of the Chief Executive of HMSO because he was the Accounting Officer. It is contrary to good practice to leave it to the management of a business which is to be sold to take the lead in advising on a decision to sell. We view the distinction drawn by the Office of Public Service between their Accounting Officer responsibilities and those of the Chief Executive of HMSO as unconvincing, obscuring their responsibility as vendor.

22. The Office of Public Service had a key role to play in safeguarding HMSO after January 1995 when Ministers decided that the business should be sold. They abdicated this responsibility by continuing to take a hands-off approach to HMSO even though they knew that they would become the vendors of the business when the sale was announced.

23. This failure to take a close interest in HMSO was exacerbated after September 1995 when Ministers announced their decision to sell the business because the Office of Public Service took some time to start to get to grips with their vendor responsibilities. As a result it was not until early 1996 that they realised that HMSO was in serious difficulties.

24. Although the Office of Public Service knew that the Chief Executive of HMSO was due to retire in July 1995 they took no action to plan for the effective future management of the business. Instead, just before the Chief Executive retired, they advised Ministers to appoint a successor from within HMSO, in an acting capacity. This was because they believed that uncertainty about how the business would be sold meant that they would not be able to attract a high calibre replacement. It is good commercial practice, however, to secure a high calibre manager on suitable terms to see the sale process through. We find it inexplicable that the Office of Public Service did not explore the possibility of attracting a new Chief Executive to HMSO on that basis.

25. HMSO had provision for up to three non-executive directors, but positions were allowed to remain vacant after July 1995. Individuals with commercial experience to draw upon could have seen how badly HMSO was being run and could have alerted the management and the Office of Public Service to the risks. We note the Office of Public Service's admission that with hindsight they should have tried harder to secure such appointments.

3 C&AG's Report paragraphs 9, 1.3 and 1.9 Back

4 Qs 3-4,12, 205 Back

5 Q 75 Back

6 Qs 15-16, 109 Back

7 C&AG's Report paragraph 2.2 Back

8 Qs 7, 202-203 Back

9 Qs 9, 16, 110-112, 128-135, 157-159, 213 Back

10 Q 136 Back

11 Qs 12, 39, 69, 72-77 Back

12 Q 137 Back

13 Q 10 Back

14 C&AG's Report paragraph 10 Back