Select Committee on Public Administration Minutes of Evidence

Examination of witnesses (Questions 808-819)




  808. Thank you very much, Professor Hood, for coming along and giving evidence to us. I am sorry you have had to wait while we had the previous session. Thank you, too, for sending us papers on Risk Management, and then your memorandum on Risk and Regulation. Would you like to say anything, by way of introduction?

  (Professor Hood) Only to say that my memorandum reflects what I have worked on over the last few years, I have mainly worked on regulatory issues; obviously, your remit as a Committee goes much wider than that, but that is the area in which I have mostly worked. I could tell you something about what I have observed about regulation of the public sector, I have done some research work on that, and I also included in my memorandum some remarks about risk management.

  809. Let us take the two issues, if we may. Perhaps you would say something about what you think about the developing regulatory system within Government and where you think some system and order needs to be put into it; what are your main findings here?
  (Professor Hood) I have found substantial growth in oversight of the public sector, under both the last Conservative Government and the current Labour Government. This has been a substantial growth point in public administration. I looked at a 20-year period, up to the late 1990s, and over that time I found that the population of the Civil Service generally had gone down by about 30 per cent, local government service by about 20 per cent, a bit more, but the population of overseers had risen by 90 per cent, in staff terms, so there seemed to be a kind of opposite process going on. No doubt, it is important for public services to be properly inspected, evaluated, overseen, etc., but it did seem to me that there has been a substantial growth. There does not seem to have been any general investigation of what principles should inform this kind of activity, and of what, indeed, accounts for the different approaches that different overseers and regulators take. If I could just give an example, if I may, to take three overseers of the public sector: the emerging Commission for Health Improvement, OFSTED and the Prisons Inspectorate. There, you see three overseers, inspecting and overseeing very important public services, but they work in very different ways. The Commission for Health Improvement is planning to base its inspections on a predictable cycle, and it will work, I think, largely on the basis of current Trust chief executives inspecting other current Trust chief executives. If you take the OFSTED system, you see a completely different principle for oversight, you also see regular, announced inspections, but in that case you do not see current school principals or headteachers inspecting other school headteachers, you see people who are not currently heads doing that. Now, why should we operate differently for health from education? If we look at prisons, we see a different kind of principle again; there, we see a mixture of insiders and outsiders doing the inspection, you have an ex-military person as the Chief Inspector, but below him you have people who are prison governors, and they operate not only by predictable inspections but also by a substantial basis of random inspection, they just turn up, without announcement. And when I talked to them they said that this was the only way that they could really get good information about their charges. Well, what I am saying is, if there is such a variety of practice, what accounts for it, can we identify principles that would apply throughout, or can we explain these variations by differences and the technical nature of what is being inspected?

  810. Is your conclusion, therefore, that we need a new regulatory body to oversee the regulatory bodies?
  (Professor Hood) In part, I think that was one of my conclusions. I argued that there were four kinds of deficits that could be observed in this field. One I thought was a mutuality deficit, if I can call it that; what I mean is that many of these regulators operated independently and they did not have much understanding of what was done in other areas. Well, that is very understandable, people are busy, they focus on their own field of interest and expertise, but it struck me that there was not very much in the way of learning across from other overseers. In fact, I did assemble some of them together, in a room at the top of the LSE, some years ago, and it was the first time that most of them had met one another, which partly makes my point. I thought that there was a deficit in that area; but I also thought that there was a deficit in terms of oversight of the regulators themselves. As I said, I observed substantial growth and diversity of practice but there did not seem to be a point in Government which had responsibility for thinking about this process and developing ideas about it. I think that is now starting to happen, with the Regulatory Impact Unit, which now has got a public sector component in it, but it is at a very early stage of its work, I think it is fair to say, but I believe that that work is important and I think it should go much further. I thought, as well, that, in some areas of this regulation, there was what you could call a randomness deficit, in the sense that I did not think that there were enough, as it were, surprise inspections going on. It seems to me that, with inspection and evaluation, there are two ways in which that process can work. One is by, shall we say, the terror effect of an announced inspection that is going to occur at some time in the future, and then even if, when the day comes, you cancel the inspection, a lot has happened between the time that the inspection is announced and the day; you know, the place gets painted up and the organisation looks at itself. And that is one thing that inspections do, they cause organisations to look at themselves and evaluate their own activity. But the other approach is, as I say, the random inspection, as with the prison case, where what you are trying to do is get information about how the organisation operates in normal mode, as it were, not when it is in inspection mode, and it seemed to me that that mode of inspection was remarkably little used across the public sector.

  811. So, just so that we are clear, you are not one of these people who are saying the public sector is groaning under the weight of audit and inspection, you are saying the way in which it works is a mess, across the public sector, and needs sorting out?
  (Professor Hood) Yes. I think that some people are certainly groaning about the weight of audit and inspection, some of the people I spoke to certainly said that they were; but I think some of the people who said that were people with private sector backgrounds who did not have experience of the kind of inspection and evaluation methods that apply in the public sector. I did not get anything that I could call good evidence that there was too much audit or too little audit, I would not find it easy to make a statement about that, but what I can say is that there is remarkably little evaluation of the effects of audit and remarkably little, at the time when I looked at the audit and evaluation and regulation oversight agencies, even of indicators of effectiveness, or otherwise, and such as there were were often very limitedly developed.

  812. Have you looked, at all, at all the performance measures and targets that are part of the Modernising Government programme, and the extent to which they are being applied consistently and the extent to which they are being systematically monitored as well?
  (Professor Hood) No, I cannot say that I have good information about that.

  813. But they would come under your general argument?
  (Professor Hood) Yes, they would. And I would say that the Modernising Government initiative has moved in some way towards developing some coherent ideas about public sector evaluation and oversight. There were at least some attempts to develop mutual exchanges across different kinds of public sector regulators and overseers, and there was some recognition, in the Modernising Government White paper, of the compliance costs of public sector audit—the first time, I think, that that issue had ever been recognised, but it was a very vague statement—since then, the Regulatory Impact Unit has started actually to try to find something out about these compliance costs.

  814. Yes, I wanted finally just to ask you that, because I thought the paper that you gave us was very interesting on that. Basically, what you argued was, we have had these compliance cost assessments being done for the private sector, for a number of years now, but we have got these huge compliance costs in the public sector which do not have the same treatment and they ought to have; that was the essence of what you were saying?
  (Professor Hood) Yes. I think compliance costs are difficult to measure, both in the private sector and in the public sector, and the way that I tried to measure them, in the study that I did a few years ago, was to look only at the costs of interacting with regulators or overseers, so I did not look at any of the costs that might be associated with changing your policies or changing your practices, but only what it cost you to set up the meetings, provide the papers, provide the information, etc., so just that very sense of compliance costs. And my figures, I will immediately say, were very rough, approximate estimates, but I believe that there are good reasons for assuming that compliance costs in that sense, just the interaction with the regulator, of public sector overseers, cannot run out at less than £1 billion a year, cannot do so.

  815. And just as we produce these assessments, when we introduce legislation, for the impact upon business, would it not be a sensible idea to have similar things with every piece of legislation for its impact on the public sector, in terms of cost, too?
  (Professor Hood) This is what I have argued for, and I think it would be in the spirit of transparency. And I believe that we are beginning to know more about these compliance costs, and I think we will know more as the Regulatory Impact Unit develops its work.

  Chairman: Thank you very much.

Mr White

  816. Just to follow on that point, is not the compliance costs, that we do, a very crude measure at the moment, it does not distinguish between a large company and a small business? And, in the public sector, the Conservative Government introduced regulations for parish audits, and I have got one parish which is about 60 people, which has a budget of £600 a year, of which £300 is the audit fee, to the Audit Commission. Is not that, we are getting the level of compliance costs, whether it be public or private sector, one of the issues that is crucial?
  (Professor Hood) Very much so, and we also found that in the study that I did with my colleagues some years ago. I believe, in fact, that there is a very close similarity between the public and the private sector in that sense; the compliance costs do tend to be higher for the smaller organisations.

  817. Did you look at the voluntary sector?
  (Professor Hood) No. We only looked at the public sector.

  818. Is not one of the cases that the role of the media, in terms of the generation of regulation, is one of the issues that tends to be forgotten, because what happens is the media whip up an issue, create a scapegoat, the Government's response is, "Well, we'd better create a regulatory unit, to make sure it never happens again," another regulatory body gets added, and when the issue has died down in the press this regulatory body is still there and the original reason for it is gone?
  (Professor Hood) This is the so-called tombstone theory of regulatory creation, and I think that it does apply to some cases, though I do not think it can explain absolutely every kind of regulatory initiative. I think, actually, in many cases, it is a well-publicised minority. But if that really is an issue, one of the things that I suggested, in my earlier writing on this, is that if that is the case then should we not have some set testing of these regulators, that if they have to be created in response to some perceived crisis could we not put a fixed life on them after which point they have to be investigated? On the whole, we did not find, among the regulators that we looked at, that there was very widespread use of sunset, that is fixed terms of existence for these bodies.

  819. One of the issues about the different regulators, and I will just quote an example in my own local authority, where they have combined education and children's social services into one department, they have just recently been inspected by both the SSI, the Social Services Inspectorate, and by OFSTED, and both OFSTED and SSI found it very hard actually to work out, because their own little tick in the box was not there, in one separate silo. The two had been joined together and they found it very hard to work out the interaction between the two. And you had two different sets of inspections, with two different inspectors coming to try to get to grips with the problem. And, as the Modernising Government argued for more joined-up government, is not that going to become more of a problem?
  (Professor Hood) Indeed, we found that, with the regulators that we looked at, in many cases the demands that they made on the bodies that they were inspecting, or evaluating, were not co-ordinated, so that, indeed, you might find that you suddenly had a rash of inspections at a single time, which might be hard for an organisation to cope with, and might, indeed, ask for the same kind of information in different forms, and the like. And this goes to the point that I have been making earlier, that there is a case for looking at these practices across the piece. If there is a real case for diversity, and if there is a really good reason for one inspecting or evaluating body to work in a different way from another, well, that case can be made; but if it is simply an inertia process then there ought to be ways of coping with that.

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