Select Committee on Culture, Media and Sport Sixth Report



(i) The rationale for quangos

3. According to Mr Smith, the Department for Culture, Media and Sport, "more than any other Whitehall department, meets its objectives through a network of sponsored bodies".[3] About 95 per cent of the Department's programme expenditure is spent by "non-departmental public bodies", Whitehall's preferred nomenclature for quangos.[4] In addition to money voted by Parliament, some such bodies are also responsible for distributing proceeds of the National Lottery.[5]

4. The existence of these quangos and the Department's relationship to them is underpinned by "the arm's length principle" whereby Ministers set the financial, administrative, legal and overall policy framework for the public bodies, but the bodies themselves have a considerable measure of independence in individual decision-making.[6] This principle long predates the Department for Culture, Media and Sport, and indeed its predecessor the Department of National Heritage. The British Museum was established in 1753; the National Gallery in 1824; the Arts Council in 1946.[7]

5. The arm's length principle is not without its critics. Indeed, one of these is Mr Tony Banks MP, a Minister in the Department. Mr Banks has told this Committee of his personal dislike of the arm's length principle on more than one occasion.[8] In April this year he told us that he was

    "not a great supporter of the arm's length principle ... I have never understood why we go through the angst of going out, fighting elections and winning elections only to hand all the fun over to somebody else who is unelected and never had to go out there and who, in the end, is responsible for these things, when we then have to take all the collateral damage here when it goes wrong."[9]

Sound Sense, a national development agency for community music and musicians, also questioned the principle, arguing that distance from Government mattered little if the policies followed were mistaken: "direct patronage from the Government of the day would at least be more honest than the present situation".[10]

6. However, most witnesses, including Mr Smith, expressed strong support for the arm's length principle and indicated that there were several advantages to quangos compared with direct Ministerial control. First, quangos make decisions of a scale, range and complexity which would swamp Ministers were they called upon to make all such decisions themselves. Second, the existence of quangos enables policies to be established and decisions taken by people on the governing bodies of quangos who can be expected to have relevant knowledge and skills. They can also be advised by quango staff with very considerable expertise.[11] Third, quangos can exercise their judgement independently of the political preferences of the Government of the day, a matter of some importance in fields such as arts funding.[12]

7. Another element in the rationale for quangos is that such bodies can be an effective and independent voice for a particular sector. Mr Gerry Robinson, Chairman of the Arts Council of England, said that "we certainly see ourselves as an independent body with the opportunity to make a case to Treasury and to any other Government department where it concerns either the arts directly or the artists and the welfare of artists".[13] The Government's consultation on future tourism structures for England demonstrated that the role of a national tourism quango as an advocate for the sector was much valued.[14] This may help to explain what Mr Smith termed the "overwhelming consensus that simple abolition [of the English Tourist Board] was not a sensible measure".[15] Support for English Heritage's role as a promoter of conservation of the built environment independent from, and sometimes critical of, the Government was also apparent from evidence.[16]

8. There are several reasons why quangos may be a valuable and effective mechanism for undertaking statutory and other duties and for implementing the objectives and policies of the Department for Culture, Media and Sport. But their value should never be taken for granted and their performance should be the subject of continuing scrutiny, by the Department, by Parliament and by others. Quangos have to be assessed and judged by their effectiveness in performing their duties and contributing to the objectives set by the Department for Culture, Media and Sport, by the transparency of their actions and by their capacity to represent not only sectoral interests but also the wider interests of the nation.

(ii) The Comprehensive Spending Review and the "streamlining" of quangos

9. We were told last year that, as part of the Comprehensive Spending Review, the Department would consider the rationale for its various quangos.[17] That Review has led to what the Department has called a "streamlining" of its quangos.[18] We have not examined in detail the changes resulting from this process, but it may be helpful to summarise them.

  • A new Commission for Architecture and the Built Environment is to be created in place of the Royal Fine Art Commission; the new Commission will also assume responsibility for the Arts Council's grants programme for architecture and will be expected to have a wider role in the promotion of good architecture and design.[19]

  • The Arts Council has assumed responsibility for the functions of the former Crafts Council, a measure designed to "go a long way to giving the crafts a greater national profile and more weight alongside the visual arts".[20]

  • A single body—British Film—is to be established to deliver a coherent strategy for the development of film culture and the film industry.[21] Mr Robinson supported this development and the removal of responsibility for the distribution of Lottery funds for film from the Arts Council of England.[22]

  • English Heritage and the Royal Commission on the Historical Monuments of England have merged to form a single national body for the built heritage, a measure which received broad support in evidence.[23]

  • A Museums, Libraries and Archives Council is to be established in place of both the Museums and Galleries Commission and the Library and Information Commission.[24] The Museums and Galleries Commission has raised a number of concerns about the new body, most notably over whether it can combine effectively the role of advocacy for the sectors and responsibility for implementing the Department's policies, but we have not explored these issues in the current inquiry.[25]

  • The English Tourist Board is to be transformed into the English Tourism Council, a decision we examine later in this Report.

(iii) The role of Funding Agreements

10. Perhaps more importantly than structural changes, the Comprehensive Spending Review was also intended to usher in new, more strategic relationships between the Department and its quangos. The Department has sought to achieve greater alignment between its objectives and those of its quangos, sending clearer signals about overall direction, while at the same time seeking to disengage from day to day interventions.[26] The Funding Agreements between the quangos and the Department are described by the Department as being "at the heart of the developing new relationship".[27]

11. Funding Agreements are intended to embody the "shared strategic objectives" of the Department and its quangos.[28] Although Funding Agreements have existed since 1996, the Department has sought to strengthen them, a development supported in principle by this Committee last year.[29] The Agreements set out the overall aims and objectives of the Department, any particular aims for the sector in question and the aims and objectives of the quango. They then set out what are viewed by the Department as "explicit and challenging statements of the outputs and levels of performance expected of sponsored bodies over the funding period".[30]

12. Funding Agreements are signed both by a Minister in the Department and by the Chairman of the quango concerned.[31] Mr Smith told us that there had been "some robust discussions" with some quangos about the targets set out in the Agreements. He said that one or two quangos had "grumbled" about targets. However, overall, he thought that quangos recognised that "demanding" targets were being set.[32] In some cases, the Agreements show welcome signs of the reciprocal obligations which should be inherent in such a process. For example, the Funding Agreement for the Arts Council states that the Department "will respect and abide by Arts Council decisions within its area of responsibility, including the funding of individual organisations".[33]

13. The Arts Council welcomed the Funding Agreement, believing that "it provides much greater clarity than in the past about what is expected" of the Arts Council by the Department.[34] The Arts Council argued that the Agreement "should be the central—and possibly sole—document governing the relationship between the Department" and the Arts Council.[35] English Heritage also saw its Funding Agreement as providing it with the necessary operational freedom.[36]

14. The most widely welcomed aspect of the Funding Agreements was the inclusion of funding commitments and accompanying targets for a three-year period, reflecting the switch from annual Public Expenditure Surveys to fixed three-year spending plans under the Comprehensive Spending Review.[37] The Local Government Association thought that this should give quangos "the time and space to determine their own route" to meeting objectives.[38] This stability might bring benefits to organisations in receipt of funds, which might in turn have greater assurance of funding levels for three years.[39]

15. Notwithstanding the forward commitment on expenditure levels, the Department does not view Funding Agreements as "static documents": further targets will be included as better performance indicators are developed.[40] Mr Smith said that "as targets are achieved we will discuss and agree new ones".[41] While pressure for continuous improvement is admirable, there is a danger that frequent change may make monitoring of performance against targets more difficult. Last year, we suggested that the Department's Annual Report should include key performance targets for its quangos for the coming years.[42] By and large this is reflected in the content of the 1999 Annual Report, but the Funding Agreement for the Arts Council was not finalised in time to allow for inclusion of performance indicators for that body.[43] The Funding Agreement finalised subsequently is undated.[44] To facilitate effective scrutiny, we recommend that all Funding Agreements should be dated. We further recommend that, where Funding Agreements are revised, this be announced by way of Parliamentary Answers which explain precisely the changes made to Agreements and the reasons for those changes.

16. The Department considers that Funding Agreements will assist it in its aim of becoming a more "informed customer" of its quangos. According to Mr Young, the Funding Agreements will be used by civil servants as "the texts" for a "more strategic and more questioning" relationship, acting as the starting point for monthly, quarterly and half-yearly discussions with quangos.[45] Mr Smith also indicated that he viewed the Agreements as "living documents" and said that he was "taking a close personal interest in monitoring progress through the year".[46] We welcome the Department's commitment to monitor performance by quangos against targets set in Funding Agreements on a regular basis. The establishment of clear targets for quangos is not only an essential tool in the management of the relationship with the Department, but is also essential in making it possible to judge whether a quango is falling short of the standards required of it.

(iv) The Quality, Efficiency and Standards Team (Quest)

17. In future, monitoring by civil servants and Ministers is intended to be reinforced by the work of a new body shortly to be established by the Department—the Quality, Efficiency and Standards Team (Quest). It is intended that Quest will "provide independent advice to the Secretary of State on the performance of sponsored bodies" in meeting the Department's objectives.[47] It is envisaged that Quest's initial work programme will include a review of targets and indicators used within Funding Agreements, including, from its second year of operation, a validation of the reported outputs of selected organisations.[48] Mr Smith saw this oversight of Funding Agreements as "an important and continuing role for Quest to perform".[49]

18. The decision to establish Quest has not met with universal acclaim. The Arts Council views the new body as "an additional layer of regulatory bureaucracy".[50] Mr Robinson told us candidly that he viewed Quest as "a complete waste of time".[51] This scepticism was shared by others.[52] Some were concerned that Quest's functions might overlap unnecessarily with the work of other bodies—with the supervision of quangos by the Department itself, with the audit functions of the National Audit Office and the Audit Commission or with the direct relationships between private bodies in receipt of funding and the quangos themselves.[53] The Museums and Galleries Commission questioned whether the small team envisaged for Quest would have sufficient understanding of the different sectors for which the Department was responsible.[54]

19. Mr Smith was confident that Quest would play a distinct and valuable role. First, it would look across "divisional boundaries", "taking lessons from the arts and applying them to sport or tourism, for example, which individual bodies in each individual sector simply cannot do". It would develop models of good practice and provide an overview across different sectors.[55] He expected it to be "a reasonably light-footed and fast-moving team which will be able to look at a variety of different questions and issues and organisations during the course of a year".[56] It will have audit skills at its disposal, but it is not intended to be another audit body.[57]

20. Quest is intended to be an "independent watchdog".[58] It will provide "independent advice" to the Secretary of State.[59] The Funding Agreement with the Arts Council states that Quest will "undertake a programme of comparative investigation and evaluation, independently of the Department for Culture, Media and Sport".[60] It is intended that Quest will have its own Chairman and Advisory Board.[61] However, the Department itself has produced an initial work programme for Quest.[62] Quest has the potential to improve oversight of the work of quangos and to make an original contribution to development of sectors which the Department sponsors. However, the nature of Quest's "independence" remains a source of some uncertainty. Genuine independence is likely to be crucial to its success. For this reason, we recommend that all Ministerial or Departmental instructions to Quest be placed in the public domain and that all reports by Quest be published without amendment by Ministers or officials of the Department.

(v) The outcome of supervision

21. Funding Agreements have the potential to provide a yardstick against which to measure the success or failure of quangos or of expenditure devoted to a particular sector, assuming that targets are reasonably set and that monitoring by the Department correctly analyses the causes of variations in performance. However, in official documents, there is a studied ambiguity about the results of failure to meet the standards set down in Funding Agreements. The Public Service Agreement for the Department, which is in effect the Department's contract with the Treasury, states that "funding of non-departmental public bodies will be conditional on quantified improvements in outputs".[63] The Department's Funding Agreements use somewhat different language: "Success in meeting the targets in ... this agreement will inform the way in which the Secretary of State will approach future funding discussions with the Treasury and future provision for sponsored bodies".[64] The Funding Agreement with the Arts Council states that the Department "has the right to reallocate the 'investment for reform' if the Secretary of State is not satisfied with the progress achieved by the Arts Council of England".[65] At the same time, it seeks to provide reassurance that "indicators are not a crude on/off switch for" funding of the Arts Council.[66]

22. Mr Smith outlined the processes which would follow if a body fails to meet a target:

    "We will consider with that body the reasons for that failure and amend the [Funding] Agreement if necessary. If the failure is outside the body's control, this is a matter of looking at the circumstances and adjusting targets accordingly. If, on the other hand, failure is seen to be the result of action or inaction by the body concerned, then we shall need to look very closely at what remedial action can be taken".[67]

He later clarified that, in the first instance, remedial action would involve discussion of "what they propose to do to rectify it".[68] Thereafter, he did not rule out the possibility of changing "the personnel at the top in the leadership of the organisation to make sure that it began to perform better".[69] He had no doubt that "it would be possible to remove the chairman of an organisation if it were completely failing to deliver what is expected of it".[70]

23. It is right in principle for the Secretary of State to bear in mind all the options if a quango is failing to deliver on its objectives. It is more likely, however, that the Department will be facing dilemmas arising from targets not met either for reasons outside a quango's direct control or because of the incomplete or inadequate nature of the targets. In advance of the next Comprehensive Spending Review, the Department will also need to tackle more fundamental questions relating to priority between sectors and the balance between enhanced targets and the reallocation of resources. For example, if a quango meets all its targets, this may mean there is a case for re-allocating resources to other areas where targets have not been met. The Treasury Committee has recently noted that "the Government must be able to justify devoting resources to collecting the information on achievements against [Public Service Agreement] targets by demonstrating, at the time of the next [Comprehensive Spending Review], how they have used the information".[71] The same applies to the Department for Culture, Media and Sport in relation to its Funding Agreements. The Department should be able to demonstrate to Parliament and the public in advance of the next Comprehensive Spending Review the impact which its monitoring of targets in Funding Agreements has had on its approach (i) to proposals for the future funding levels of particular quangos and (ii) to its proposed spending priorities between sectors.

3  Q 319. Back

4  Evidence, p 91. Back

5  Q 319. Back

6  Third Report from the National Heritage Committee, The Structure and Remit of the Department of National Heritage, HC (1995-96) 399, p 3. Back

7  IbidBack

8  HC (1997-98) 742, QQ 40, 54-55, 57, 63. Back

9  Fourth Report from the Culture, Media and Sport Committee, Staging International Sporting Events, HC (1998-99) 124-II, Q 574. Back

10  Evidence, p 133. Back

11  QQ 320, 329; Evidence, pp 91, 38, 140. Back

12  QQ 320, 329; Evidence p 152. Back

13  Q 214. Back

14  Evidence, p 24. Back

15  Q 327. Back

16  Evidence, pp 51, 38, 119. Back

17  HC (1997-98) 742, para 20. Back

18  A New Cultural Framework, Department for Culture, Media and Sport, December 1998, unpaginated. Back

19  Department for Culture, Media and Sport Annual Report 1999, March 1999, Cm 4213, pp 18-19; Evidence, p 51. Back

20  Cm 4213, p 18; Funding Agreement between the Department for Culture, Media and Sport and the Arts Council of England 1999, para 9.  Back

21  Cm 4213, p 19. Back

22  Q 218. Back

23  Cm 4213, p 18; Evidence, pp 30, 50, 150. Back

24  Cm 4213, p 19. Back

25  Evidence, pp 140, 141. Back

26  Evidence, p 91. Back

27  Evidence, p 92. Back

28  Cm 4213, p 9. Back

29  Evidence, p 92; HC (1997-98) 742, para 29. Back

30  Evidence, p 92. Back

31  Q 344. Back

32  Q 343. Back

33  Funding Agreement between the Department for Culture, Media and Sport and the Arts Council of England 1999, para 11. Back

34  Evidence, p 67. Back

35  Ibid. Back

36  Evidence, p 50. Back

37  Evidence, pp 40, 52; Cm 4213, p 94. Back

38  Evidence, p 10. Back

39  Q 191; Evidence, p 150. Back

40  Evidence, p 92. Back

41  Q 319. Back

42  HC (1997-98) 742, para 31. Back

43  Cm 4213, p 144. Back

44  The Funding Agreements for 1999 for the following bodies also appear to be undated: the British Library; the Churches Conservation Trust; the Library and Information Commission; National Museums and Galleries on Merseyside; the Registrar of the Public Lending Right; the Royal Commission on Historical Manuscripts; and the Royal Parks Agency. Back

45  Evidence, p 91; Q 359. Back

46  Q 319. Back

47  Cm 4213, p 18. Back

48  Evidence, p 93. Back

49  Q 319. Back

50  Evidence, p 68. Back

51  Q 206. Back

52  Evidence, p 153. Back

53  Evidence, pp 115, 132, 138. Back

54  Evidence, p 142. Back

55  Q 342. Back

56  Q 350. Back

57  Evidence, p 93. Back

58  Cm 4213, p 96. Back

59  Ibid, p 18. Back

60  Funding Agreement between the Department for Culture, Media and Sport and the Arts Council of England 1999, para 42. Back

61  Evidence, p 93. Back

62  IbidBack

63  Public Services For the Future: Modernisation, Reform, Accountability-Comprehensive Spending Review: Public Service Agreements 1999-2000, December 1998, Cm 4181, p 109 (emphasis added). On Public Service Agreements, see Seventh Report from the Treasury Committee, Public Service Agreements, HC (1998-99) 378. Back

64  Funding Agreement between the Department for Culture, Media and Sport and English Heritage 1999, para 5.3 (emphasis added). Back

65  Funding Agreement between the Department for Culture, Media and Sport and the Arts Council of England 1999, para 16. Back

66  Ibid, para 21. Back

67  Q 319. Back

68  Q 345. Back

69  Q 358. Back

70  Q 346. Back

71  HC (1998-99) 378, para 61. Back

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