Examination of Witnesses (Questions 1-19)
MR NICK
MACPHERSON, MR
JON THOMPSON
AND MS
GILL RIDER
28 APRIL 2008
Q1 Chairman: Good afternoon and welcome
to the Committee of Public Accounts where today we are considering
the Comptroller and Auditor General's Report on Managing Financial
Resources to deliver better public services. We welcome back
to our Committee Nick Macpherson who is Permanent Secretary and
Accounting Officer at Her Majesty's Treasury; Jon Thompson who
is the Director General of Corporate Services at the Department
for Children, Schools and Families and recently appointed Managing
Director of Public Sector Financial Management and Head of the
Government Finance Profession; and Gill Rider who is Director
General of the Civil Service Capabilities Group in the Cabinet
Office. You are all very welcome. This is clearly a very important
subject. May I ask you perhaps Mr Macpherson to start by looking
at paragraph 3.19 of the Comptroller and Auditor General's Report
where we see "Only 41 per cent of departments stated that
policy proposals forwarded to decision-makers invariably included
a poor financial appraisal". This rather surprised me when
I read this. What are you doing about it?
Mr Macpherson: It rather surprised
me when I read it. There are longstanding Treasury requirements
and guidance to departments about integrating financial appraisals
into the decision-making process. We have only recently reiterated
that guidance in publishing Managing Public Money last
autumn, but I took this finding very seriously and we will be
pursuing opportunities both on the finance director net, but also
in the general guidance which goes out to ensure that we get a
better percentage than this.
Q2 Chairman: Good; I am sure we can
deal with this point then, thank you for that answer. Can you
now look at paragraph 3.9 which is about departments needing to
make further progress in managing their assets and liabilities?
You will see, if we look at paragraphs 3.9 and 3.10, " ...
in response to our survey 19 per cent of departments (who collectively
manage assets of £23 billion) rated themselves weak at managing
their balance sheet)". How can we be sure the Government
are getting best value from this enormous asset base if 19% of
departments themselves say they are weak at this job?
Mr Macpherson: I agree that 19%
is too high a figure. The Treasury have been seeking to do a number
of things in recent years to improve asset management. First,
as part of the spending review process, it has asked departments
to produce asset management strategies, which I would hope would
concentrate the minds of the senior management of each department,
but also through guidance, the longstanding Green Book on investment
appraisal which the Treasury have produced for at least two or
three decades, we really need to ensure that assets are used better.
We have asset sales targets which should also concentrate minds
but the Treasury will be continuing to focus on this and if the
strategies are of poor quality, we will be following that up.
Q3 Chairman: That is something you
are following up. Good. We are doing very well here. Ms Rider,
could I ask you about Permanent Secretaries? If we look at paragraph
2.25, we read " ... financial matters do not automatically
feature in Permanent Secretaries' performance assessment criteria.
Each Permanent Secretary defines his or her criteria in consultation
with the Head of the Home Civil Service". Why do financial
matters not routinely figure in their performance criteria?
Ms Rider: Well of course they
all have routinely figured and certainly no Permanent Secretary
would take his eye off the ball or her eye off the ball of the
accounts of the department and what is going on. Indeed last year
we issued new guidance not just on Permanent Secretaries' performance,
appraisal and process but also for the whole of the senior Civil
Service and in that we made it explicit that finance would be
an important part of it. There are now three criteria in the objective-setting
process. Essentially the business objectives, that is those of
the department, corporate objectives, what you are doing to make
sure that things work effectively across the Civil Service and
then the capability criteria, which we have now been very explicit
about, are essentially finance, efficiency and people management.
Q4 Chairman: So, if we were reading
this report say in a year's time, this paragraph would not feature
in this way, would it?
Ms Rider: I very much hope so.
Q5 Chairman: Thank you very much
for that. Then, if I could go on asking you Ms Rider on this point,
there is something which is quite important which we read about
in paragraph 2.18 which is the standards in finance required by
the Professional Skills for Government programme. Again we read
here in paragraph 2.18 " ... the Cabinet Office does not
trust the reliability of the data and so has abandoned the self-assessment
questionnaires". Why is that?
Ms Rider: PSG is quite new; it
is essentially only two years' old, we are just going into the
third year. What actually happened was that in the first year
we did essentially a self-assessment evaluation of what people's
skills are in the SCS and what we have done since, in last year,
was create a new skills strategy and as part of that we did another
detailed analysis. What that second analysis showed us was that
we really need a more robust methodology for assessment and we
are in the process of designing that now. That assessment will
not just be the self-assessment for which we have a baseline,
but we will also do some interviewing of people to get some qualitative
assessment to make sure that we are getting accurate reflection.
So it is not so much that we do not have a baseline of data, it
is that we need more granularity to it, to get much more specific
about the skills as they relate to levels and as they relate to
individuals.
Q6 Chairman: Mr Thompson, I have
had a little campaign in the years that I have had this job of
trying to ensure that all finance directors are professionally
qualified. You have made good progress so congratulations. Is
the finance director of the MoD financially qualified?
Mr Thompson: Not yet, no.
Q7 Chairman: Why not?
Mr Thompson: I am not sure that
I am particularly aware of the history. Mr Macpherson may be able
to fill it in.
Mr Macpherson: Jon has only recently
taken over and he is engaging very rapidly but I have been involved
in the history on this.
Q8 Chairman: It is Mr Trevor Wooley,
is it not? He is a very fine gentleman I am sure, but he is not
financially qualified and he is the finance director of one of
the worst performers, namely the MoD.
Mr Macpherson: He is not financially
qualified, that is an issue which I know this Committee rightly
has taken up with the Permanent Secretary of the Ministry of Defence,
as indeed have I and indeed Treasury ministers. The good news
is that I understand that he is about to get a process underway
with a view to appointing a new finance director whom I assume
will be qualified. Actually, to be fair to the MoD, they did advertise
this job a couple of years or so ago, but failed to find a qualified
person. This time I am sure they will succeed because although
it is a challenging job, it would be an extremely interesting
job.
Q9 Chairman: I do not want to go
on too long about this particular point but I think this Committee
have won this campaign and I am sure that you have been even more
influential than we have been. How are you bedding these skills
further down below the level of finance director?
Mr Thompson: The finance community
has grown quite significantly, so it is not just at the director
general level which is, if you like, the board appointment. We
have a significant number at the finance director level, the next
level down in the Civil Service, and indeed at the deputy director
level as well. If you took the Department for Work and Pensions
as an example of that, not only does that have a qualified director
general of finance it has eight finance directors spread across
the totality of the business. There are significant increases
down the pyramid and I think it would be right to say that the
overall numbers, which are in the Report, have passed through
4,000 "qualifieds", in terms of an update of some of
the information here. There is a pyramid beginning to grow and
we will see that grow over time.
Q10 Chairman: Why do we read in paragraph
3.18 " ... 43 per cent of departments either had no business
plan or, if they did, it only covered a single year"? This
would not be tolerated in the private sector, would it?
Mr Thompson: No, it would not.
To be fair, the comprehensive spending review process of 2007
provides all of the essential elements of what we would regard
as a business plan, so you have the departmental strategic objectives,
the public service agreements, the key performance indicators,
the delivery agreements and the three-year settlement. If you
put those five pieces together, together with the asset management
plan, then you are beginning to form what looks very much like
a business plan; we have not labelled it in that way. It is for
Mr Macpherson and me then to consider whether we should take that
final step and brigade those six things together and call it that
and to all intents and purposes we have most of the major elements
in place.
Q11 Chairman: So Mr Macpherson, why
do we not just have a simple business plan for all departments?
Mr Macpherson: We are moving in
that direction.
Q12 Chairman: You are. Lastly, Mr
Macpherson, we have the excellent gentleman on your right, but
we are used to dealing with Dame Mary Keegan and Sir Andrew Likerman,
his predecessors, excellent people, who were full time and he
is only part time. Is this a reflection that you think the job
is now done?
Mr Macpherson: No, the job is
not done and, in a sense, it will never be done because we can
improve further. It is fair to remember that both Dame Mary and
Sir Andrew were part time. Latterly Mary had been working just
two days a week and Sir Andrew combined it with being a professor
at the London Business School. You should not be concerned about
the time put into the job. Rather, Jon's appointment reflects
the way the finance community has developed. It is right that
the Treasury should provide direction to this process and have
expertise, but now that we do have professional finance directors
in place, it actually makes sense, in my view, for a leading practitioner,
namely Jon, who I really think—this is probably the real
kiss of death here—is extremely talented and runs a very
tight ship at his department, to take the lead. From here on,
we have a director at the Treasury in the form of Ken Beeton,
who is a finance professional, and my friend Mal Singh, who is
behind me, continues to run the support unit but this is an efficient
and an effective way to tackle the issue.
Q13 Mr Touhig: The Chairman mentioned
the number of directors of finance who do not have professional
qualifications. In 2004, just 39% of directors of finance had
professional qualifications. It is a bit like flying the Atlantic
in a plane with a trainee pilot at the controls.
Mr Macpherson: That is why we
now have 93% who are qualified finance directors. As the Chairman
was saying, the pressure from this Committee has been helpful.
The Treasury also convinced itself this was the way forward. We
have mentioned the Ministry of Defence. Just for the record, HMRC
has an interim at the moment who actually is an actuary and was
a finance director in a FTSE 100 company but is not qualified.
However, he is an interim and he should be going soon. The final
piece in the jigsaw is the Crown Prosecution Service where the
finance director is currently qualifying as a professional.
Q14 Mr Touhig: So you are making
some considerable progress.
Mr Macpherson: Yes.
Q15 Mr Touhig: When will all departments
have them?
Mr Macpherson: In terms of the
main departments, there are those three departments left and I
would hope by the end of this year.
Q16 Mr Touhig: Is that a target,
a hope, an aspiration?
Mr Macpherson: It is a prediction
and I am happy to be held to account on it.
Q17 Mr Touhig: Are all departments'
heads of finance board members as well, on the board of their
departments?
Mr Macpherson: Yes.
Q18 Mr Touhig: They should be, should
they not?
Mr Macpherson: They should be.
The Treasury Officer of Accounts is nodding at me.
Ms Diggle: There are some who
are not yet on the board.
Mr Macpherson: Since this was
written, the Department for International Development has joined
other departments in putting their Finance Director on the board.
Ms Diggle: Indeed.
Q19 Mr Touhig: Is it your ambition
that all finance directors should be on the board?
Mr Macpherson: Yes, they should
be.
| 
