(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".
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".
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".
At the same time, it seeks to provide reassurance that "indicators
are not a crude on/off switch for" funding of the Arts Council.
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
He later clarified that, in the first instance, remedial
action would involve discussion of "what they propose to
do to rectify it".
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".
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".
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".
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.