Examination of Witnesses (Questions 40-59)
MR NICK
MACPHERSON, MR
JON THOMPSON
AND MS
GILL RIDER
28 APRIL 2008
Q40 Keith Hill: What are we doing
about it? What are you doing about it?
Mr Macpherson: Quite a lot. It
comes back to my point about transparency. The more information
we have, the better. That does not mean that you go around making
demands; you can make too many demands on departments. However,
what you really want is good quality time series which is published
and out there and, rather like local authorities with the comprehensive
performance assessment, actually a bit of naming and shaming,
a few league tables make a big difference. In our conversations
with departments we would be asking where their data is and it
comes back to the earlier point about output measures; if you
are in the business of getting people into work, you certainly
need some data around whether you are succeeding or not.
Q41 Keith Hill: And in those conversations,
have you set targets with departments? Have you set any timelines
in terms of the quality of their reporting of basic data?
Mr Macpherson: Yes and we have
worked very closely with them. A good example is the Home Office
where I can remember coming before this Committee three or four
years ago and being asked who was performing really badly and
eventually I `fessed up and I said, despite the fact that my Permanent
Secretary colleague would get quite irritated, that the Home Office
had a lot of work to do. Since then, our concerns were borne out
and the Comptroller and Auditor General qualified their accounts.
By working really intensively with the Department, actually getting
alongside them, working in partnership, they have come a very
long way and I am optimistic that their accounts, this year, will
be published in good time and I do not want to tempt fate, but
I am confident that they will be.
Q42 Keith Hill: I am sure that is
the right thing to do. It is a source of somewhat wry observation,
is it not, that the more that we go in for transparency, the more
political damage can result to governments. I think, for example,
of the prisoners and the deportation of prisoners without leave
to remain which broke upon us last year. May I turn then to a
different topic which is the issue of the reallocation of resources
when programmes are perceived to be failing and this is dealt
with in part four, paragraphs 4.11 to 4.14 on page 32. There is
a paradox here, is there not, in that if you look at Figure 17
you find that overwhelmingly departments feel they are capable
of identifying when programmes are failing, but overwhelmingly
fail to take any action on the subject? Why is that?
Mr Macpherson: It is in the nature
of failing programmes that one of the indicators of failure is
an inability to control costs and so on. So often, when things
start to go wrong, actually your financial pressures increase,
which makes it difficult to reallocate resources. If you are operating
in a market, the measure of success in a market is to put resources
in the things which will yield the biggest returns and get out
of failing lines of business. The public sector does not have
those same market pressures, so it requires management to focus
on this in a slightly different way. I would hope that progress
is being made, not least because the budget constraint which departments
are operating under is biting in a way which it perhaps has not
in recent years. Again, I cannot claim that we have got this absolutely
right.
Q43 Keith Hill: Can you think of
any examples where programmes have been stopped in mid-stream,
as it were, when they have obviously been found to be failing?
Mr Macpherson: There are two sorts:
there are the ones which have become so expensive and the return
appears so small that you get rid of them and I could send you
some examples. I suppose the more interesting ones are where actually
they are doing okay but the Government could get a better social
return by moving money somewhere else, in a sense allocative efficiency.
Those are the ones which are rather more challenging.
Q44 Keith Hill: How are we at that,
because I want to draw your attention to paragraphs 4.13 and 4.14
which discuss the department capability reviews led by the Cabinet
Office? These are reviews seeking to identify the capacity of
departments to plan, resource and prioritise their programmes.
You will see on page 33 that Figure 18 shows that of the 17 departments
which have been subject to review only seven were regarded as
well placed at being able to plan, resource and prioritise and
only four as being able to manage performance. What do you say
to that?
Mr Macpherson: It is encouraging
that some are well placed, but clearly there are many which have
to do a whole lot better. I mentioned the Home Office before.
When they were reviewed in July 2006, they got the worst mark
you could get, which was serious, and that was red and since then,
they have actually improved their performance a great deal. This
is another example of transparency. As someone who has just been
capability reviewed myself in the Treasury only a few months ago,
it does not half concentrate your mind, so I would hope that some
of these departments, where it is an urgent development area,
are raising their game.
Q45 Keith Hill: Absolutely finally,
there is a reference in paragraph 4.14 to benchmarking against
their peers and established best practice frameworks. Who are
the comparators with which departments are expected to compare
themselves and benchmark themselves?
Mr Macpherson: I was talking to
David Varney last week who works on the transformation programme
and he was saying that they benchmark, say, call centres. There
are many call centres across Government and there is best practice
in the private sector, so you would want to compare all these
things. Especially when you are doing common processes, it should
be and is relatively easy to compare and that can actually have
quite a big effect.
Q46 Keith Hill: You are comparing
within the public sector rather than with the private sector.
Mr Macpherson: You can do both.
On the one hand, you want to get the worst performers in the public
sector up to the best performers, but actually you want also to
see what is going on in the private sector; so you want to be
doing both.
Q47 Angela Browning: In the recommendations
on page nine, the very first recommendation is on the lack of
financial skills and awareness among non-finance staff and the
NAO Report goes on to make specific recommendations as to why
this is important. I would just like to take you through that
particular chapter and some of the points made there. In paragraphs
2.13 and 2.14, it does point out, for example " ... two
departments, the Department for Work and Pensions and the Foreign
and Commonwealth Office, have included Finance Skills for All
as part of their wider business transformation programmes".
As you read through this Report, it is rather strange; you keep
wondering why some departments do and some departments do not.
Is it as laissez-faire as it sounds?
Mr Macpherson: It is not laissez-faire.
I was just talking about the capability reviews. If you got a
bad mark in the capability review process, that is kind of an
incentive to treat this as a priority and, on the whole, those
departments which are putting real focus on this are the ones
who have the most progress to make. It is no coincidence that
we were just talking about the Department for Work and Pensions
and the bad report it got from the National Audit Office on this.
Similarly, the Foreign Office historically has been very good
at diplomacy and such like, but finance has never been its strongest
point. It reflects where departments feel they are which will
be informed by external measures like capability reviews, but
also Treasury pressure. The Treasury will put pressure on departments
which need to get better at this.
Q48 Angela Browning: If you look
just below to Case Example 1 on page 16 which involves the Department
of Transport, it goes on to give a very good account. Surely when
we talk about benchmarking, internally within Government, across
departments, benchmarking and sharing good practice in case studies
like this show very clearly that actually it still feels as though
they are all working in silos and not disseminating. What are
you actually going to do about that?
Ms Rider: One of the things we
have done is we have created a thing called the corporate functions
board which is chaired by David Bell which brings together the
head of the corporate services profession; so Jon and I, me for
HR, Jon for finance. One thing which is very focused on is exactly
this issue of how to get the best practice and how to get to benchmarks
and how to share the knowledge across the different groups. You
are absolutely right that if we could get everybody up to the
standard of the best, we would be doing very well and part of
the corporate functions board is to make that happen.
Q49 Angela Browning: Is there not
something a little more significant underlining this? What are
you actually trying to bring about? I am particularly focused
here on that group of people who are non-finance staff. You are
trying to bring about a culture change and that is always very
difficult. It is not just about who goes on which course and attains
certain accreditation or whatever: it is about bringing about
a culture change. The challenge of culture change is surely with
the senior managers at the top of the department. I do not see
a strategy here. As I said at the beginning, it all feels a bit
laissez-faire. I do not see the overall strategy, the blueprint
which says we recognise this as an area which is important and
it is number one on the recommendations in the NAO Report. Let
us look at Figure 7 on page 18. This worries me considerably and
this is about the relationship between the finance function and
other areas of the department. To my astonishment, where we see
the worst situation is with human resources. Are human resources
not critically involved in recruitment? Are human resources not
critically involved in staff development for people who are already
employed? They talk them through, do they not, what the career
options are, how they can improve their performance, take on new
qualifications, et cetera? The very department which I would have
thought was key to this cultural change is right at the bottom
of the list. Can you give this Committee an explanation for why
that is?
Ms Rider: I can talk as head of
HR profession about the things we are trying to do to address
some of these issues and I recognise that this is not the best
place to be.
Q50 Angela Browning: It is the worst
place to be.
Ms Rider: Since I have been here,
within the HR profession we are learning a lot from what the other
professions have done and PSG, the whole thing, actually applies
to the HR professions as much as it does to anyone else. So we
are focused on, firstly, some changes at the top. Secondly, we
are putting in place a new career structure for HR so that we
know where people are, what skills they have, how people can move
around HR to get the right experiences so that we are building
our own talent in a much more systematic way. Thirdly, what we
are doing is creating an HR academy to train and develop our staff
so that we get a better quality. What the newly created HR Leaders'
Council has done is recognise that there are several areas where
we just simply need to get better. There is an amount of transactional
stuff we have to get better at and then there is an amount of
skills we need in terms of how you really operate at a board level
as an HR professional and that we need to get better at. So we
are doing a lot of things but we do clearly need to interact very
much better with finance and that is a two-way thing. Jon and
I are certainly very committed to making sure that we do work
together. We are planning to bring together the leaders of both
professions in the autumn and the very subject matter will be
these sorts of things. What this quite rightly points out is that
there is a set of skills that we need to develop and for some
reason that is not getting translated into the training development
plans for all the people. So we need to make sure we get this
working together.
Q51 Angela Browning: Has it occurred
to you that perhaps your HR department are not culturally signed
up to this?
Ms Rider: I do not believe that
is the case. What HR knows it needs to do is to make some significant
improvements on a range of things and what that range of things
is varies by department. We do understand this is a culture change.
Mr Macpherson: One solution which
we have in our department is for the finance director also to
be head of HR, which is also true of Jon, is it not?
Mr Thompson: Yes, and indeed,
in relation to Table 7, I also have procurement strategy and IT
and estates.
Ms Rider: Because they work well
together.
Q52 Angela Browning: Yes. The reason
this report worries me is that it sounds very good, for example,
when we look at the number of people who have completed courses
and a lot of them are on-line courses. I do not see the follow-through.
In other words, you are ticking a lot of boxes because people
are doing something, but I do not actually see the follow-through
to ensure that that is translated into the overall cultural change
and, most importantly, the raising of the standard of financial
qualification, but that then translated into how it affects outcomes
in the workplace.
Ms Rider: The one thing I would
add to that is that we are now very carefully making sure that
every individual's objectives and performance assessment processes
pick up on these things and each individual has a dialogue with
their line manager about how they are doing and how they are performing.
We are building that in.
Q53 Angela Browning: I would feel
more comfortable if I thought that going away from this particular
evidence session you could take with you something which I really
feel is lacking still and that there is an imperative to this
is terms of the whole structure of a department, those financially
qualified and those non-financially qualified, and I do not quite
get that feel. I do hope that the lady and gentlemen in front
of us today will take that away. Unless you actually achieve that,
you might tick a lot of boxes but you will not see the outcome.
Mr Macpherson: I totally agree.
It is about culture change and it is about getting senior management
not to regard finance as something rather grubby which somebody
else does but as integral to what we do. If we could achieve that,
we would make a huge difference.
Q54 Angela Browning: May I just give
you the example and I am sure it is one you will be familiar with?
Back in the early 1980s, the manufacturing industries worldwide,
including the UK, changed because of the new system that came
in, culturally very, very challenging, called the just-in-time
system. One of the things that that depended on in the culture
change in manufacturing was that everybody, regardless of the
job that they did in a factory, whether it was at the board level
or whether it was somebody putting a widget in, fully understood
what contribution their action made to the overall production
of a product at the end and financially how what they did made
a difference.
Ms Rider: Absolutely.
Angela Browning: Unless you bring
about that full cultural change, you are going to be coming back
in front of us many, many times. I am sure you would welcome that
but perhaps your time might be spent better elsewhere.
Q55 Chairman: Can you deliver a just-in-time
culture?
Mr Macpherson: You know the public
sector, you have people appearing before you regularly. We can
do this, but it is a challenge and it is not just something you
do for Christmas, it is about how you actually live, how you work
and how people behave throughout organisations and that is down
to senior leaders like ourselves. We cannot hide behind other
people on this; we need to get a grip.
Q56 Geraldine Smith: Is the problem
not that you can hide behind other people, you can hide behind
the masters if something goes wrong and the culture is "What
is the worst that can happen, if I make some huge mistake, if
I lose a few million pounds?". We are always seeing people,
permanent secretaries, in front of this Committee and they talk
about millions of pounds as though they were pence, that it is
just a learning curve, that you have to take risks, you have to
move forward and they just dismiss huge amounts of public money.
Surely, it is about the culture.
Mr Macpherson: It is about the
culture.
Q57 Geraldine Smith: I feel shocked
when you say that senior managers think the financial management
is nothing to do with them really. They should not be senior managers
then.
Mr Macpherson: I totally agree
with you. I am not saying that is the case now, I am just saying
that it reflects history and the way the Civil Service evolved
through the late 19th century and most of the 20th century. We
are making progress on this. In terms of accountability, I am
slightly more optimistic than you. It is not as easy as it may
have been 10, 20, 30 years ago to hide behind ministerial accountability.
We have seen some senior managers leave the Civil Service in recent
years, some actually in a very public way being accountable for
their actions. Coming back to the whole issue of public service
agreements, departmental strategic objectives, there is a far
greater sense of accountability. Each of our objectives in the
Treasury has a named senior official who is associated with it
and accountable for it and it is actually quite difficult to hide
on these matters.
Q58 Geraldine Smith: So you have
4,000 finance professionals working in Government at the moment
but you think that is not enough and you need to grow your financial
profession. What would you say is a suitable number? How many
should you have in Government?
Mr Macpherson: Jon will try to
answer this question, but I would be cautious about getting into
a numbers game because it is not just the professionals. You need
to have professionals and they should not just be in the finance
area, as this Report says. I am looking forward to having one
becoming a permanent secretary.
Q59 Geraldine Smith: That is the
problem: they are not in the finance area. You have finance directors
who do not have the professional qualifications. Is that not part
of your problem? You have 4,000 people who are professionally
qualified, but some of those are not your finance directors. They
do not have the qualifications.
Mr Macpherson: Coming back to
an earlier point, finance directors on the whole now, despite
one or two very high profile exceptions, are qualified. Increasingly
the people who are working to them are qualified and, as Jon was
saying, there is a sort of pyramid effect. This is in relation
to the Civil Service and the Civil Service is getting smaller
so I am reluctant to point to some number, but Jon, do you have
a number in mind?
Mr Thompson: I honestly could
not tell you what the right number is. We need to go back to your
question which is that we fully accept the recommendation, number
one; let us make that clear. We do need to do something about
that. We need to do more and we definitely need to tackle the
cultural issue of making sure that budget holders have the right
kind of support, that they have personal objectives about their
management of their budget and that they have the right kinds
of skills and training if they need that, but it very much depends
on their experience. The number needs to be higher. I could not
tell you what the number, overall, should be in terms of qualified
finance professionals.
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