Examination of Witnesses (Questions 1-19)
ALEX ALLAN,
BARBARA MOORHOUSE
AND ROD
CLARK
17 JULY 2007
Q1 Chairman: Mr Allan, Ms Moorhouse,
Mr Clark, welcome to the Committee. We are very much depleted
by a combination of death, by the appointment of numerous members
to various front benches and to the business actually going on
in the House at the moment; so we do apologise for that.
Alex Allan: I understand, and
I was, of course, very saddened by Mr Khabra's death.
Q2 Chairman: It was a blow to the Committee
and I think all who had dealings with him. You state that you
followed the Treasury guidance and liaised with other departments
on the assessment of performance against PSAs, but something went
wrong and the wrong assessments appeared for PSA 1 and measure
one for PSA 2 in the Annual Report. How did it happen? I notice
a correction slip was issued on 12 June, which was the day after
we sent you our written questions pointing this out. Had it been
discovered previously?
Alex Allan: I will ask Rod Clark
to answer questions about the sequence. I am afraid I am not proud
of what happened. What happened was that the timing of publication
and the timing of further discussions with the Home Office meant
that we did not get the most up-to-date information in the printed
report, but perhaps I can ask Rod Clark to explain a little more
of the background.
Rod Clark: They were errors for
which I must apologise. The error on PSA 1 was actually picked
up on the day of publication. There had been exchanges with the
Home Office in the Office of Criminal Justice Reform and a drafting
error simply had not been picked up. In some ways the correction
actually improved the assessment on PSA 1. On PSA 2, where we
took a more pessimistic view, it was really the result, as Alex
was saying, of a combination of us rushing to get the report out
while we were still the Department for Constitutional Affairs,
so as not to confuse people too much, and the Home Office delaying
their report and some further thought given to exactly what the
correct assessment should be in the interim. We did identify certainly
the first error very quickly and we were intending to issue an
erratum slip in any case.
Q3 Mr Tyrie: How have you improved
your financial planning processes since the capability review
identified planning and resourcing as requiring urgent attention
and development?
Alex Allan: We have done a number
of steps, both in terms of tightening up a lot of our procedures,
making absolutely clear across all the different parts of the
department what the processes were, for getting approval. We have,
in particular, and this links into another of the recommendations
in the capability review, looked at our change management functions
and in particular some of the projects which were effectively
investing, spending money through a change programme in order
to achieve certain benefits. We have now got a much tighter system
of gated release for funds so that projects are given a certain
budget and they are told, "That is the amount that has been
released to you now", and, subject to meeting certain performance,
certain gateways, we will release more money. So, I think that
the position right across the department has improved immeasurably
and, of course, a lot of that is down to Barbara Moorhouse, who
has been leading the work on this as the Director General of Finance,
and she may want to add a bit to that.
Barbara Moorhouse: I think it
is a major challenge for all Government departments to relate
their spending as closely as any of us would like to the precise
outcomes and to make sure that we put any funds that we are given
in the place where they will do the greatest amount of good for
the beneficiaries of those public services. As part of our preparation
for the Comprehensive Spending Review we worked very hard to develop,
for the first time within DCA at least, a financial plan, which
actually took us a long way forward in terms of having a detailed
understanding of exactly where the money was going to be spent,
representing the portfolio of change programmes that Alex has
described, the expenditure for all of our main operating units,
such as the courts and tribunals, and obviously to take forward
the projections of how those businesses are going to change and
how we are going to improve the delivery of the department overall
within the CSR period.
Q4 Mr Tyrie: How far are you prepared
to go in giving us a hostage to fortune that things are in a much
better state and we are not going to be here in a year's time
with some other catastrophe to report?
Alex Allan: As I say, clearly
the further ahead you go, there are some big policy challenges
and in order for us to live within our budget, and particularly
looking ahead, as we have now assumed the responsibilities of
the Ministry of Justice, we have clearly got some big challenges
on Legal Aid. I know from your report, obviously, you have looked
at this very thoroughly, delivering changes to legal aid and living
within the Legal Aid settlement, there is quite a lot of work
still to do. Similarly, on the prisons/probation side of the business
there is still a lot more to do, as, indeed, the new Secretary
of State has made clear, I think, since his appointment. One of
the things that we have done, as you know, is asked Lord Carter
to undertake a further review, building on the review he did some
years ago for what was then the Home Office, to look longer-term
at how we get supply and demand for prison places into balance,
which is obviously an essential part of living within the financial
settlement we have got and the deal that was done with the Treasury
in June when there was an announcement of the end of custody licence
scheme and also the building of some additional prison places.
A certain amount was funded up-front by the Treasury but, equally,
the Treasury said, "In principle we agree to a certain amount
of extra places but the actual timing and funding has to await
the outcome of Lord Carter's review", and that is now going
on. I believe that we have now got the systems in place that will
enable us to have a much better grip on what is going on. I do
not pretend that suddenly means that the issues which underlie
our spending will get any easier.
Q5 Mr Tyrie: Setting aside the policy
issues for a moment, perhaps this is a little unfair, but on a
scale of one to 10, what is your confidence level?
Alex Allan: My confidence level
in what?
Q6 Mr Tyrie: That you have now sorted
out these financial planning processes to the point where you
are confident they are going to deliver what you think they are
going to deliver in a year's time?
Alex Allan: I will ask Barbara
to answer that, since she is in charge, but I am confident in
the processes. I am not quite sure how you will measure us in
a year's time. As I say, it is a combination of: have we got the
processes in place to understand what we are actually doing to
actually appreciate the problem, but then have we also got the
policies in place that will deliver it?
Q7 Mr Tyrie: The policies are difficult.
You do not make the policies, but the processes you have a responsibility
for.
Alex Allan: I am pretty confident
in the processes.
Q8 Mr Tyrie: You are giving us 10
out of 10 for those?
Alex Allan: If you can ever do
that.
Barbara Moorhouse: Can I unpick
this poisoned chalice, if you can do such a thing. The first is
that one of the great advantages of the kind of financial planning
that we have now put in place is that we have got much greater
visibility than in the past, and they still will, I am sure, but
hopefully to a much less material level than they had in the past,
with a good planning system, things should not come as a surprise.
I am very confident that we have got now tracking systems to cover
things like forward projections of legal aid expenditure, a forecasting
system within the department which is reasonably robust and we
have got a much better tracking of things like risks and downstream
costs than we had two years ago. So on the process to understand
what is impacting on our financial projections and our financial
forecasts, I think we have good confidence in those, as Alex has
indicated. Clearly all that the planning process will do is to
indicate that there is potentially a problem, for example a risk
that is likely to crystallise, an operational challenge that is
arising or a need for policy action to be taken to contain costs,
and from thereon it is not a reflection of the planning process,
that has done its job at this stage. It is then a matter for policy
framework changes, for good operational delivery on the ground
and, where necessary, for the department to take the decisions
in prioritisation and remedial action if the planning system suggests
that there is going to be an over spend. So, I think we are now
much more confident that we are in command of our future. However,
the actions will still prove, I am sure, to be very difficult
as and where overspends may arise on big areas of challenge like
prisons, probation and legal aid. That must be true.
Alex Allan: The other area where
I think we would like to do more, and we have done some but there
is a huge amount to do, is actually in looking at unit costs of
services and issues like that and comparative unit costs across
different parts of the business. That is something that across
government I think departments have been making some progress,
but they are not there yet. We would like to know more in terms
of getting better management information about all the components
of our businesses, what the cost of each type of activity is and
how that compares in different parts of the country.
Q9 Mr Tyrie: Can I turn to the Comprehensive
Spending Review Settlement and the 3.5% reduction? What areas
of your departmental budget are going to receive less?
Alex Allan: I am not sure I recognise
the 3.5%.
Q10 Mr Tyrie: The DCA Annual Report
says that core funding, including the provision for legal aid,
would be reduced by 3.5% annually compared to 2007-08 funding
taking our budget to approximately four billion over the CSR period.
Alex Allan: Thank you.
Q11 Mr Tyrie: We are talking about
the same numbers.
Alex Allan: There are two different
sides to that, one is legal aid—and this is the DCA part
of the new department. On legal aid we have a series of plans
which, as you know, and I mentioned a while ago, involve a number
of changes to the processes, to the ways in which fees are determined,
and so on, and so there is a line for legal aid based on achieving
that. At the same time we will be looking for efficiency savings
across the rest of the department, and I believe there is plenty
of scope for doing that. For example, when you look at what can
be received through initiatives such as simple, speedy summary
justice in the Magistrates Courts where the pilots showed huge
success in reducing the number of hearings for particular cases,
and by means of a bit of upfront investment by not just our department,
at least in the prosecution service preparing the cases before
they came to court, the percentage where we were able to have
a single hearing went up dramatically. I think that changes like
that do illustrate what we can do to drive out efficiency right
across the department.
Q12 Mr Tyrie: What is the balance
between Legal Aid and these other efficiency savings or savings
initiatives within the 3.5%, if you could divide it up for me?
Alex Allan: Barbara may be able
to give the breakdown.
Barbara Moorhouse: Our CSR settlement
funds legal aid at flat cash—in other words it is given,
relatively speaking, a more generous settlement than the rest
of the department which has, as you rightly say, to accommodate
a 3.5% reduction in its overall expenditure. The reason that our
target is slightly higher than the 3% which has been set for the
CSR settlement as a whole is because we have received modernisation
funding, and that is a reflection of the fact that the Treasury
accepted our argument that the only way to reduce our costs base
over the longer term was to be able to invest in modernisation
improvements that would enable us to reduce costs over time, most
clearly but not confined to the use of IT systems, for example,
to substitute for manual processes, which obviously require a
higher headcount to manage and can also be perhaps more prone
to error. Perhaps the easiest way to answer this is to start with
a very simple analysis of where the department actually spends
its money, excluding legal aid. We spend about 30% of our costs
base, excluding legal aid, and this is old DCA, this is not the
Ministry of Justice—I am afraid I do not have the same analysis
in the same way, but it will not be untypical—on the payroll.
So the more that we can intelligently reduce the numbers of people
that we employ by improving processes and systems and doing things
more effectively, that would be an obvious area for efficiency,
and we have, indeed, made substantial headcount reductions, partly
as a reflection of our Gershon targets and also more generally
across the department in recent years. About 17% of our costs
base is judicial salaries, and, obviously the more effectively
we use the courts, the more effectively we also use our judicial
costs. We spend about 15% of our costs base on premises, and the
more that we can rationalise the use of buildings, which is currently
a major issue for us, particularly with the arrival of the Ministry
of Justice, that too would represent a significant saving for
us. There is 22% being spent on goods and services, including
consultancy, where I am sure the Committee will be pleased to
note the reduction that we have made, and we will continue to
press for procurement savings. Then there is around 7% in other
smaller costs and around 8% in that change programme expenditure
which is intended to deliver benefits over time and was an explicit
part of our CSR settlement.
Q13 Mr Tyrie: It would be very helpful
if you could give us, not now but on a piece of paper, a rough
break down of where you expect to find that 3.5% based on those
same subject headings that you have just given us.
Barbara Moorhouse: You will appreciate
at this stage, given that we are still very much into the planning
for the Ministry of Justice, it will not be precise, but we can
give you an indication as to the areas of work that we are working
on and developing to address exactly that question.
Q14 Mr Tyrie: Yes, that would be
helpful. We did ask for a copy of the five-year financial plans
that you referred to in the Annual Report. You are nodding your
head, Mr Clark. We are wondering why we have not had them.
Alex Allan: This is the business
plan.
Rod Clark: The five-year plan,
I think, is the operating plan which I think the report refers
to as "in production". It is still being developed at
the moment and it is the result of a great deal of on-going activity
at the moment.
Barbara Moorhouse: Clearly our
CSR settlement still has some elements outstanding with the Treasury
round things like our value for money plans, which relate specifically
to the question that you have just asked. We are also in the process
of finalising the last bits of the Ministry of Justice transfers
with the Home Office, and until those are complete we cannot produce
a definitive financial plan, and obviously we need that to do
the definitive business.
Q15 Mr Tyrie: Could we have that,
do you think? What you are going to tell me is we cannot have
that until you have completed your negotiations for the Treasury,
which is fair enough, but can you give us some idea when that
will be?
Barbara Moorhouse: A couple of
months.
Alex Allan: Yes, probably at the
time when the CSR settlement finally is announced. The Chancellor
announces and then it comes into completion.
Q16 Mr Tyrie: When do you expect
to publish the Ministry of Justice business plan?
Rod Clark: We expect to have that
within the next few weeks. Understandably enough, we have had
to do some rapid thinking now that we are a Ministry of Justice
in pulling together plans from the former DCA and the areas that
have come to us from the Home Office. We need to agree that internally,
and agree it with our ministers, and then it will be an internal
document for basically internal planning purposes, but we are
happy to share it with the Committee.
Q17 Mr Tyrie: It might be helpful
when you publish that in the next few weeks—I presume it
is not already drafted so there is time to alter it—if that
contains a clear indication of the key resource areas that you
feel might come under strain so we can take a look at how you
are viewing and forecasting the problems that lie ahead.
Alex Allan: Yes, we have to work
out the business plan. There will be a further document later
when we have actually got the financial plan based on the CRS
settlement, so I do not know that the business plan itself will
have all the information that you want, but we will try and give
you as much as we can and then follow that up later.
Rod Clark: The business plan,
obviously, has a shorter time—
Mr Tyrie: Would you send it in with an
accompanying note? I think it is the sort of thing that should
be in the public domain.
Q18 Chairman: The only thing you
have not shared with us is the full detail of the quarterly efficiency
reports, whereas other committees have had their departments share
the full detail with them. Why is that?
Alex Allan: I thought in the latest
material following your questions that we had supplied you with
the detailed quarterly figures. Certainly, if we have not, we
are very happy to do so.
Q19 Chairman: In the case of the
Office of Government Commerce, we have got just a limited extract
and the profile of planned delivery across the spending review
period was not included, so there are a number of gaps there?
Barbara Moorhouse: Clearly, at
the moment we have an efficiency programme which is based on the
Gershon objectives which will come to a conclusion only part way
through the CSR period. As yet we do not have formally agreed
efficiency targets, other than the 3.5%, for the CSR period as
a whole. So, perhaps we can just be clear what time period we
are looking for. We should have provided you with information
on the Gershon targets, as far as I am aware. The issue is what
targets may or may not come into effect thereafter, and we do
not have a definitive equivalent of Gershon throughout the whole
of the CRS period, only the efficiency levels that we have earlier
described.
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