Supplementary memorandum submitted by
Paula Diggle, Treasury Officer of Accounts
QUESTION 130 (MR
RICHARD BACON):
CONFIDENTIALITY IN
PUBLIC SECTOR
SETTLEMENTS
Mr Bacon asked whether the Treasury had issued guidance
on confidentiality clauses similar to the existing guidance on
settlements paid to individual employees in the public service.
2. As I thought at the time, the short answer
is no. It may be helpful if I explain.
3. The long standing existing guidance on staff
severance payments was most recently restated in August 2005.
The basic rule is that such payments should normally be within
the contractual terms and conditions of the post, and that any
departure from this approach should be exceptional. The guidance
goes on to advise that that any undertakings about confidentiality
in special severance settlements should leave the transactions
concerned open to adequate public scrutiny, including by the NAO
and PAC.
4. The guidance leaves open scope for a measure
of confidentiality—albeit exceptionally—because there
could be cases where the Accounting Officer concerned might judge
it to be in the public interest. Any such judgement would have
to take account of all the other relevant factors, which might
include value for money, the scope for repercussions elsewhere
in the public service, and so on. Generally the Treasury is reluctant
to support confidential settlements because they can encourage
public service employers to pay well above the odds. Thus they
tend to offer poor value for money.
5. In the case of HMRC's settlement with EDS,
similar principles apply. It was for David Varney as Accounting
Officer to take a judgement, on the facts of the case, about the
best outcome for his department and the public service generally.
As he explained to the Committee, the factors he brought in to
the balance included the scale and quality of the financial outcome,
the cost of continuing with the court case, the avoidance of diversion
of senior management time, and the certainty to be achieved. It
was entirely proper for him to weigh these features of the potential
deal; and he took legal advice about the prognosis of the legal
action had it continued. As he explained to the committee, he
assessed that appreciably better value for money could be delivered
with a confidentiality clause similar to that common in commercial
contractual settlements—of which he cited some relevant
experience.
6. The judgment he took differs from that in
a severance case in at least one important respect. Unlike a severance
settlement, the scope for repercussions from HMRC's deal was not
a significant risk to be considered because the exact circumstances
of a similar high profile contractual case are unlikely to recur.
Such disputes are rare; whereas severance settlements are relatively
common, and occur in a wide variety of different public bodies,
which could be affected by precedents elsewhere.
7. Moreover, HMRC has in no way avoided proper
public scrutiny. As the witnesses explained, NAO has been privy
to the details of the settlement with the contractor. An appropriate,
audited, disclosure will be included in HMRC's resource accounts
for 2005-06. In addition, the Committee had a full opportunity
to hold HMRC to account in the private session of the hearing
on 14 December, when the witnesses explained their approach in
some depth.
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