Select Committee on Treasury Third Report


Best Practice

58. The Treasury plays an important role in disseminating examples of best practice throughout Whitehall. Sir Michael Partridge told us that "the Treasury is extremely effective at transmitting financial lessons from Whitehall. If something goes wrong in the accounts, the [department] gets a letter copied all around Whitehall saying 'This has occurred in another Department and you need to watch this' and you do something about this". Sir Michael Partridge regretted that similar advice was not available in relation to policy issues.[124] An important development has been the formation of the Office of Government Commerce, an executive agency of the Treasury, which is intended to promote best practice in Government procurement, measure and benchmark procurement performance across Government and provide a centre of excellence for procurement skills, amongst other aims.[125] In some areas, however, the Treasury has not set a good example for the rest of Whitehall to follow. We examine below three specific areas: the Treasury's management structure, its staff, and its building.


59. We asked several questions about the internal structure of the Treasury, in particular about the reorganisations which occur from time to time and the Ministerial input into them.[126] One surprising discovery was that the Treasury has a non-executive director, Margaret Exley, "whose background is as a senior management consultant specialising in the management of change and human resource issues".[127] Reference to Ms Exley and her role is missing from the Treasury's most recent annual report. Sir Andrew Turnbull stressed that Ms Exley did not perform a role similar to that of non-executive directors in business. He described her as "a valuable external source of advice and wisdom rather than part of the accountability framework".[128] Ms Exley provided us with a memorandum explaining her role, which emphasised that her contribution was to management issues rather than to policy or detailed personnel questions.[129] We can see that the appointment of Ms Exley as a 'non-executive director' is an interesting experiment in obtaining an outsider's view and advice on management issues. We are not convinced that the title 'non-executive director' is an accurate description of this role and indeed it may be confusing. In any event, we recommend that the Treasury's annual report to Parliament should include an account of the role and activities of anyone who occupies this position in future.


60. The Treasury told us that it needed "to employ high-calibre staff; to develop them quickly; and to treat them as a prized asset".[130] The Treasury's memorandum included details about its recruitment practices, training and staff development and also flagged up some problem areas, most notably that "our staffing is at present not truly representative of the diversity of the UK population".[131] After our inquiry was under-way, a stress audit of the Treasury's staff was concluded, which the Treasury sent to us. The report identified excess workloads and hours as causing high stress levels, particularly for staff from ethnic minorities.[132] Staff consistently described the department as a "cold, rather unfriendly and uncaring place to work", with a "macho culture" and poor management.[133] Workplace bullying, particularly by line managers, was also identified as a more significant problem than in other Whitehall departments.[134]

61. In their memorandum, the Treasury's Public and Commercial Service Union Branch said that "on the whole ... senior management's interest in the welfare of staff has increased in recent years and the Treasury's 'culture' is somewhat more open and tolerant than it used to be".[135] The problems identified by the stress audit were attributed to the ever-increasing demands of Ministers, recruitment problems and the traditionally low profile in the department of management skills.[136] The trade union representatives were disappointed that "suggested measures to encourage a better balance between work and lifestyle merely reflect existing policies that are perceived by a majority of staff to have had little impact".[137]

62. Sir Andrew Turnbull thought that bullying and the other problems identified in the stress audit might be due to the type of people recruited by the Treasury, the work they did, and the pressure to produce high-quality work quickly. He said that the Treasury was "a hard driving place and it ought to become a more human, more people oriented place" and that managers would undertake training to help "produce people who are better managers of people as well as managers of policy or managers of resources".[138] The Treasury set out in more detail its approach to the long-hours culture in a memorandum to us.[139]

63. Women, people from ethnic minorities and people with disabilities are under-represented in the Treasury, especially in its Senior Civil Service grades. The department has SDA targets to increase the representation of women, people from ethnic minorities and people with disabilities in Senior Civil Service grades by 2004-05. For example, it is hoped to raise the proportion of women in Senior Civil Service grades from 19 per cent at the moment to 34 per cent.[140] Sir Andrew Turnbull argued that action in this area was needed for two reasons: "there are certain skills and experience that you get from having a workforce that represents the population as a whole. The insight you will get will be better and more soundly based if the organisation is closer to the society that it is trying to influence. Secondly we are not tapping all available talent."[141] He identified hidden biases in recruitment as hindrances to broadening the diversity of the Treasury, which it was hoped were now being overcome, and also pointed to the diversity training being undertaken by management.[142] The department's Public and Commercial Service Union Branch wrote that management's plans for increasing diversity were "strong on diagnostics, awareness raising and better training opportunities" but "no standing strategic steering group is in place to take the plan forward".[143]

64. The stress audit of Treasury staff does not give the impression that the department is a particularly pleasant place in which to work. Senior management accepts that working hours are too long, staff are too pressured, many managers lack management skills, bullying and harassment are significant problems, and that women, people from ethnic minorities and people with disabilities are not sufficiently represented in the organisation, particularly at senior levels. Although the Management Board acknowledges these problems, the Treasury's Public and Commercial Service Union branch did not think its rhetoric was being matched with appropriate action. We also detected a certain complacency in the evidence given by Treasury officials. Training managers to manage and to recognise diversity issues are standard fare in public sector organisations: the Treasury clearly needs to do an awful lot more. We recommend that the Treasury draws up an action plan to improve the department's culture and working conditions and to ensure that the targets set for the representation of women, people with ethnic minorities and people with disabilities are met. This action plan should have a Board level sponsor and an update on progress should be published regularly; amongst other benefits this would facilitate parliamentary scrutiny.


  65. The Treasury building, which is on the corner of Parliament and Great George Streets in Westminster, was designed as a Government office, built between 1898 and 1917 and is a Grade II* listed building. The Treasury did not move in until 1940 when its old building was damaged by bombs. The Sub-committee visited the building on 12 April 2000 and was left in no doubt of the need for action. The problems seen during this visit are described in the Treasury memorandum of 14 April 2000 where it states that "the ... building remains largely as it was when built ... and is inflexible and inefficient ... Extensive structural and remedial work is needed to preserve and improve this historic building ... there are problems with water penetration in the basement areas, and the electrical and safety systems need replacing".[144]

66. Mr Kenneth Clarke MP, the then Chancellor of the Exchequer, announced on 24 January 1995 that the Treasury building would be redeveloped under the Private Finance Initiative (PFI) and on 13 September 1996 announced that Exchequer Partnership plc had been appointed to undertake the redevelopment. Treasury officials gave oral evidence to the Treasury Committee on the PFI project on 25 November 1996, before which details were given of the bidding process.[145] It was stated that 41 expressions of interest to redevelop had been received, from which eight candidates were interviewed. The best four were then selected but two of these dropped out. The Treasury expected bids from the remaining two but only one, from Exchequer Partnership plc, was received within the stipulated time. During the evidence session,[146] the then Permanent Secretary, Sir Terence Burns, was asked how only one final bid could give good value for money for the taxpayer. He explained that discussions had been held with both of the organisations that were left in the competition and both went to the stage of best and final offer. He said that they had consulted with legal advisers before deciding that the second bid was not compliant within the time limit. Sir Terence was questioned further on the normal presumption in PFI contracts that there will be competitive tendering.[147] He replied that it was competitively tendered right up to the end and that the bidding party was unaware, when its bid was made, that the other party would drop out.

67. Exchequer Partnership put forward two options.[148] Both involved the demolition and rebuilding of the core of the St James' Park end of the building to provide offices for the Treasury. Scheme A envisaged the remainder of the building being used as offices while Scheme B envisaged new residential and hotel provision in those parts not taken by the Treasury. On 16 January 1997 the Treasury announced that commercial heads of terms of agreement had been signed with Exchequer Partnership on the basis of Scheme B. During the redevelopment it was planned that there would be arrangements to decant staff to Vauxhall.

68. On 31 July 1997, the Paymaster General in the new Government announced that the Chancellor of the Exchequer had decided to terminate negotiations with Exchequer Partnership. In a letter to the Chairman of the Treasury Committee, the Paymaster General stated that, at a time when all Departments were undertaking comprehensive spending reviews and were subject to extremely tight expenditure controls, the Chancellor was unwilling to embark on a major construction project of this scale. He went on to say that while the project represented good value for money in its own terms, given wider considerations the deal should not go ahead.[149]

69. In July 1999, the Chief Secretary to the Treasury announced that plans had been approved for the refurbishment of the Treasury building under the terms of a new PFI deal with Exchequer Partnership.[150] Under this scheme the Treasury would remain at the Whitehall end of the building while its new accommodation at the St James's Park end was refurbished. The move is scheduled to take place in 2002, after which the Treasury will occupy just under half of the building. Exchequer Partnership would be responsible for letting the non-Treasury space to another public sector tenant. On 4 May 2000, it was announced that the deal had reached financial close and work began in summer 2000. In oral evidence to the Sub-committee on 14 December 2000, Sir Andrew Turnbull said that construction was "pretty close to schedule".[151]

70. In oral evidence on 11 May 2000, Sir Andrew Turnbull explained how the original scheme had been abandoned, and a new, if not entirely dissimilar, scheme had been arrived at.[152] He told the Sub-committee that the agreement in 1996-97 involved a choice of partner and a basic scheme followed by negotiations. When the agreement of January 1997 was put to incoming Ministers they raised a number of questions, particularly about the desirability of private sector tenants renting the Parliament Street end of the building, elements of the scheme which were "a bit gold plated", and the mechanism for decanting staff which raised the prospect of Ministers moving to Vauxhall. When it was realised that refurbishment was essential, officials were asked to go back to Exchequer Partnership and negotiate certain modifications to the original deal. The arrangements for decanting staff were changed and the new deal specified that the non-Treasury part of the building had to be offered to public sector clients before it could be offered to the private sector.

71. We also heard evidence from Mr Clarke, who was Chancellor when the original deal was struck.[153] He thought that the real problems were the arrangements for decanting staff, because a move to Vauxhall was not very popular with the department, and "a little sensitivity about sharing with a private sector tenant". The present Chancellor had been persuaded to scrap the whole thing "whereupon," he continued, "they found the water rising in the cellar and they have got to do something about it".

72. The Treasury will pay Exchequer Partnership £14.037 million per annum, at March 1999 prices, the sum to be up-rated annually in line with inflation, for 35 years for its refurbished and fully serviced accommodation.[154] The department pointed out that it was difficult to compare the cost of the present scheme with its predecessor because the new scheme was a refurbishment rather than a more extensive redevelopment and did not rely on a private sector tenant or involve complex arrangements for decanting staff.[155] Nevertheless, the Treasury told us that, in terms of construction costs, the present deal was cheaper than either the previous deal or the rejected Scheme A and the discounted cost of the new deal is significantly lower than the Public Sector Comparator (PSC). The PSC was prepared independently of the bid under the supervision of a senior Treasury economist, although it could not be sufficiently detailed to provide a true comparison with a PFI option. A PSC was prepared in 1996, although the guidance at the time did not insist upon a PSC for projects which involved no public money or which would not have gone ahead other than as PFI projects, but was only used after Exchequer Partnership became the sole bidder for the contract.[156]

73. As we indicate above, there can be no doubt that action was required both to improve the Treasury's working environment and to remedy serious defects in the Treasury building. It is surprising that the arrangements for the tendering process ended with only one viable bid on the table. It was, of course, to be expected that any new Government would wish to examine a project of this kind inherited from a previous administration but the main reasons for the abandonment of the original project were a reluctance to see the private sector move into one half of the building and for Ministers to move out to Vauxhall while the work was undertaken. When it became clear that action had to be taken, it was decided simply to revise the original scheme with the same private sector partner as before without ensuring that a proper tendering process was carried out, although we note the innovative nature of the deal now in place.[157] The Treasury had an excellent opportunity in the refurbishment of its own building to set an example of best practice in the development of PFI projects. We invite the Treasury to take this opportunity to explain why it revived a version of the original PFI deal with the original private sector partner without a fresh tendering process and to report on the progress of the project.

124   Q514 Back

125   Office of Government Commerce: Alignment Review, Nov 00, p9 Back

126   For example Qq55-67 and Qq236, 253 about Mr Clarke's involvement in the 1993 review of the Treasury's management and functions Back

127   Ev, p4 paragraph 4.5 Back

128   Q68 Back

129   App 5 Back

130   Ev, p4 paragraph 4.4 Back

131   Ev, p5 paragraph 4.6 Back

132   Sir Andrew Turnbull's covering note to the Stress Audit sent to Treasury staff and Ev, pp24-6 annexes A and B Back

133   Stress Audit, paragraph Back

134   Ibid, paragraph 3.3 Back

135   App 6, paragraph 5 Back

136   Stress Audit, paragraphs 11-14, 20 Back

137   Ibid, paragraph 22 Back

138   Qq573-5 Back

139   Ev, pp23-4 paragraphs 2-9 Back

140   HM Treasury Service Delivery Agreement 2000, section E Back

141   Q77 Back

142   Qq82-3, 85, 573 Back

143   App 6, paragraph 22 Back

144   Ev, p 6 paragraphs 5.8-5.9 Back

145   Treasury Committee, Third Report, 1996-97, The 1996 Budget, HC129-II, Ev, p122 Back

146   Ibid., Q11 Back

147   Ibid., Q17 Back

148   Ev, pp132-5 Back

149   And see HC Deb, 31 Jul 97, c450w Back

150   Treasury Committee, Fourth Report, 1999-2000, The Private Finance Initiative, HC147, App 2 Back

151   Q569 Back

152   Qq94-5 Back

153   Q273 Back

154   Ev, p7 paragraph 5.12 and pp132-4 paragraphs 1-5 Back

155   Ev, pp132-5 Back

156   Ibid. Back

157   Q107 Back

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