The Work of Ofsted - Children, Schools and Families Committee Contents

Examination of Witnesses (Questions 340-359)



  Q340 Mr Chaytor: With research functions, for example, would all similar organisations include those as corporate administrative functions, or would they appear in a different section of the budget? Is there a standard reporting procedure that all Government Departments and agencies and non-departmental public bodies use?

  Vanessa Howlison: In terms of the administration budget, absolutely there is. Our accounts are audited by the National Audit Office, and we are both clear that we are charging the right costs to administration in terms of reporting to Treasury. In terms of our research and international division, it provides a lot of data to support front-line inspection and, as it happens, that team is managed from within our corporate services division, but I think it is very much more related to supporting the front line. In fact, within the reorganised structure, front-line divisions will manage that team's work. There is no standard way of dealing with it, but I am clear that what we charge against our administration costs budget is in line with Treasury requirements.

  Q341 Mr Heppell: I got a little confused with the stuff about inflation. Were the targets at the very beginning set with, or without, inflation?

  Vanessa Howlison: The target was set without inflation. We were told to reduce our costs by 30% compared with our costs in 2003-04. We went back to the Better Regulation Executive and said, "Are you aware that unless you account for inflation you are requiring a 42% reduction from us, not a 30% reduction?" It is unfortunate that the headline 30% does not really capture the size of the savings that we have been required to make.

  Q342 Mr Heppell: The difficulty for me is that I am not sure whether you have met your target or not. If you account for inflation, you have met it with lots to spare. If you do not account for inflation, you have failed to meet it.

  Vanessa Howlison: I am not saying that we have met the target yet—I am saying that there are things that we still need to do, but it is not possible to make some of those savings until certain points in time are reached. Given that we were already embarking on an extended piece of procurement from September 2009 to retender our existing contracts in any case, I do not think that it would be wise to renegotiate those contracts when they only had nine months left to run. Our old inspection frameworks do not end until then, and we needed time to develop our new frameworks and to consult on them. Having that time is very important, but we ensured that we went back to the Better Regulation Executive, made our trajectory very clear and made sure that it was comfortable with that. We are not alone in having a little more time to do this.

  Q343 Mr Heppell: Was the Ofsted report wrong when it said that Ofsted "will achieve the ... target of 30% reduction in costs that we have been set"?

  Vanessa Howlison: The important thing to focus on is that we have worked hand in hand with the Better Regulation Executive throughout, to ensure that we came to a position that we have agreed on. Obviously the target was for a 30% reduction, and we were committed to making that reduction. The first thing that we did to get to that position was to find ways to make the remaining savings. When the report was written, that was our intention, but having had time to consider how we would make those savings, it has become clear that we could not make them in full by 2008-09, so we went back to the Better Regulation Executive to ensure that it understood the position and was comfortable with it.

  Q344 Mr Heppell: Did it say that that was okay and that you could count inflation?

  Vanessa Howlison: To be honest, it is more concerned that we remain committed to achieving our savings in full. I think that we have done very well compared both with some of the other organisations that had mergers planned at the same time and with other inspectorates. I feel very positive about the savings that we have made.

  Q345 Mr Heppell: What you are saying is that the savings have been made without hurting your core aims or harming Ofsted at all.

  Vanessa Howlison: Absolutely, that has been our focus. It is not easy for any organisation to make significant savings and the first savings are always the easiest to find. We have done a lot of work on fundamental restructuring, particularly of our back office, to make those changes, but you cannot make those savings overnight. Our corporate costs have come down more rapidly than some of the other savings will—those savings depend on contract end dates. We have made those savings as fast as we can without impacting unduly on the business.

  Q346 Mr Heppell: I feel as if I am delivering a Catch-22. This may be an unfair question, but one priority identified by Ofsted in the strategic plan was better value for money. To achieve that I would have thought that that budget would not have been touched—it might have increased—but, there has been a 30% reduction in the budget for achieving better value for money. You might say that that itself is achieving better value for money, but it seems to me that, as achieving better value for money was one of your priorities, that was a budget that should not have been touched.

  Vanessa Howlison: I am an accountant, but achieving better value for money is not just about reducing costs. It is about cost, but it is also about impact. We have been clear in the work that we have done on our inspection frameworks about the need to ensure that Ofsted is making these savings without damaging impact. In fact, we want to make these savings while enhancing our impact. That is our aim.

  Q347 Mr Heppell: I have a follow-up question about the remarks you made about the corporate budget being reduced. Does that mean that your administrative budget has been reduced? I ask that, because when I look at these figures, it seems that the total resource budget seems to be going down. It went up until 2005-06, but then it seems to have gone down. I do not think that the administration budget has followed that. For 2006-07, it actually increased, while you were cutting back on the total budget. What is the reason for that?

  Vanessa Howlison: We expect our administration cost budget to reduce. However, the difficulty is that, in the intervening years, the Treasury requires us to charge some of the costs of achieving that corporate change against administration costs. So, for example, with the costs that we will incur in moving to smaller premises in London, which will be incurred this year and next year, we are required to charge them against our administration cost target. In the long run, it is absolutely the case that our administration cost budget will come down, but in the intervening years, when we have to charge the cost of these corporate changes to the administration cost budget, it is difficult to bring that budget down as fast as you would expect.

  Q348 Mr Heppell: On that last point, what are you doing to the corporate budget? Does it cover human resources? If you have fewer staff, are there redundancies?

  Vanessa Howlison: Yes, is likely there will be some redundancies. One of the things that we have done is look carefully at how we deliver our corporate services. In the past, if you take finance as an example, there were independent finance teams in each of our regional offices, linked to the centre but operating independently. We looked carefully at that model and we did not believe that it was the most effective or cost-efficient model of delivering finance, so we have made some structural changes, as a result of that review. That has also been the pattern in human resources and some of our other corporate functions. It is difficult to make those changes without redundancies. Making those changes obviously reduces staffing and generates some redundancies as a result, so we have also reduced the number of staff in corporate services over the past two years.

  Q349 Mr Heppell: Do you think that the target was set too high in the first place?

  Vanessa Howlison: I do not think that the target was set too high, because we have a savings target and a savings plan that shows that we can achieve that savings target. I think that the target was set with quite a short time scale for implementation, because the target was set for us in 2006. Two and a half years might sound like quite a long time, but when you have long-running contracts and when you need to restructure functions and departments on that scale, those things take time. You need to go through a period of consultation and ensure that you are doing the right thing, then enact those savings. That all takes time. The time scale was certainly challenging, but we have savings proposals that show that we can meet the target, but just not by 2008-09.

  Q350 Mr Heppell: Should not the target have been easier to hit? I say that because if it was 2003-04 to 2010, in the middle of that you had 2006, where the budget rose considerably. I am trying to say things by arguing the wrong way round here. Perhaps it was harder, because you had the higher number to come down to, rather than the 2003 number.

  Vanessa Howlison: Yes.

  Mr Heppell: Okay, I get it.

  Vanessa Howlison: We had a budget in 2003-04 of £266 million, which rose in 2004-05 and in 2005-06, but from 2005-06 the chart starts to fall. So we were starting to make savings for a range of reasons, before the BRE's target was even set, but from a higher point.

  Q351 Chairman: Chief Inspector, that was a very interesting set of questions and answers between John and Vanessa, but I could not help a wry smile when Vanessa mentioned two and a half years, and of course you would not give that to a school in special measures to sort itself out, would you?

  Christine Gilbert: I listened to that interchange. The power of setting the target is strong because it gave us a very strong discipline to do particular things—not in all the existing inspectorates, but certainly in the new organisation. However, there was also the simplicity that nothing would change in that time, and things have changed in that time. We could have made the target without doing a number of things that we are now doing, but we decided, for instance, that the sort of IT we need for supporting the organisation was a significant cost, so that is the sort of thing we negotiated. Having said that, I was struck by the question about whether we had enough resources. We are now very clear with both the Department for Children, Schools and Families and the Department for Innovation, Universities and Skills that we cannot keep taking on additional work without something else being dropped or additional money being allocated to the budget in future years. One of the things that we were asked to do, for example, was inspect children's centres, and we waited until agreement had been given for that before saying that we would do it. To do that, DCSF had to get the BRE Committee's permission, and Melanie could give you several examples. That is smaller in the area of DIUS, and it is not easy for us. I think that we have been through the easy years in that regard.

  Q352 Mr Carswell: My first question is for Christine and then I have a couple of questions for Vanessa. Parliament theoretically approves your budget, as it votes on estimates. Some people might say that that simply rubber-stamps budgets for a whole range of quangos in different areas and that there is no real scope for examination, and Vanessa has talked about having to go back and negotiate with the Better Regulation Executive. Do you, as Chief Inspector, think that it would enhance Ofsted's accountability if your annual budget was subject to the formal approval of the House of Commons, perhaps by a vote of this Committee?

  Christine Gilbert: We do not make representations to the BRE, as the DCSF does that on our behalf. Vanessa, as she will explain in a moment, has had a number of discussions with the DCSF, which, even after the split came, is the lead Department with responsibility for that. I think that the budget is certainly scrutinised: I have a board meeting tomorrow at which the board will scrutinise the budget. Our negotiations with the DCSF are, I think, fairly public and subject to scrutiny.

  Q353 Mr Carswell: With respect, that is not the legislature scrutinising it, but yourself and the Executive. Would it enhance your accountability if you were directly accountable to Parliament for your annual budget?

  Christine Gilbert: I am perfectly happy with the way it is organised at the moment.

  Q354 Mr Carswell: In 2007-08 there was a £12 million, 6% increase in your budget. Was any of that on head count or on topping-up pension contributions, for example, and were is it going?

  Vanessa Howlison: We had an additional cost in 2007-08 relating to the staff who used to work for the Commission for Social Care Inspection and who joined Ofsted. They had not previously been part of the principal civil service pension scheme, so when they were transferred, we were required to pick up the cost of the top-up payment on their pensions to transfer them into the civil service pension scheme. We were required to do that.

  Q355 Mr Carswell: Was that exclusively for new people coming in, rather than existing employees?

  Vanessa Howlison: Yes, it related to people who had previously worked for the CSCI and who were transferred to Ofsted on TUPE-like arrangements. It did not include those from the adult learning inspectorate or elsewhere, because they are already civil servants and already had access to the principal civil service pension scheme.

  Q356 Mr Carswell: So, you have not had to increase the budget to top-up the pension pot for existing employees.

  Vanessa Howlison: That is correct.

  Q357 Mr Carswell: It is, as you say, very impressive how the total budget from 2002-03 to 2010 has gone down. Forgive my scepticism, but has there been some budgetary sleight of hand? Are you re-jigging the accounts, or reclassifying one form of expenditure as another? You say that you have reduced your budget by that impressive amount, but was the Ofsted of 2002-03 the same organisation as it will be in 2010, other than being a super-efficient one, by all accounts? Are you merging two different quangos, or is Whitehall reclassifying one bit of expenditure as something else? Forgive my scepticism, but I find it extraordinary that you can reduce your expenditure by that amount without some Treasury sleight of hand.

  Vanessa Howlison: I can assure you that there has certainly been no Treasury sleight of hand, and there has been no sleight of hand from this accountant either. One difficulty was that the baseline year of 2003-04 was before Ofsted existed in its current form, so we had to go back and look at Ofsted's predecessor organisations, identify how much they cost in 2003-04 and add those figures together to get a comparative figure. The 2003-04 budget is what Ofsted would have had if it had existed in its current format. Those figures were submitted to the Better Regulation Executive, which signed them off before using them as the baseline from which Ofsted needed to reduce its costs. There has been no sleight of hand in there; those are real reductions and are all cashable. It has been quite a long journey, and not an easy one at times, but I am more than happy to provide further evidence to you to show that the reductions are real. That is one reason why things have taken a little longer.

  Q358 Mr Carswell: I have one final question. To achieve that reduction—you said 42% in real terms—you must either have scaled back your functions massively, or have let a lot of people go, or you must have been mega-inefficient beforehand. Which is it?

  Vanessa Howlison: Obviously, the number of staff we employ has gone down. We have tried to make our reductions through natural wastage where possible, and we have been very careful about filling vacancies in the past year or two. If you take Ofsted's predecessor organisations, the old Ofsted had been set a Gershon target to reduce head count by 400, I think it was, and to reduce its budget significantly—I think by £25 million. So, the old Ofsted was already on that journey, from 2005-06. When the merger happened, there was an immediate saving of £15 million because we had a lot of savings on back-office functions. For example, the adult learning inspectorate had its own finance and HR functions, but in the larger, merged organisation, there was an immediate saving there because we did not need to have those separate functions. There was also a significant saving on property. The adult learning inspectorate had an office in Coventry which was not needed after 2007-08, so there has been a £500,000 a year saving as a result of that alone. Also, the comparative £266 million includes a proportion of the Commission for Social Care Inspection's total costs—18.2%. That includes 18.2% of its office accommodation. As Ofsted's delivery model is to home base its inspection staff, we did not need to provide office accommodation for the people who transferred in, so there was a natural saving there as well.

  Q359 Chairman: I would not accuse you, Vanessa, or you Chief Inspector, of creative accounting, but could the figures hide a diminution of quality? Is the inspection system that has replaced the adult learning inspectorate as good in quality as it was? Could some of the problems that we have seen in the inspection system for children's services be because we have been trying to do things on the cheap?

  Vanessa Howlison: In terms of children's services, that is an area where we have not reduced our costs at all. When you look at our costs for reducing the cost of inspection per learner and user, year on year, you will see some reductions in children's social care, for example, but that is because they are full-costed. It is just showing you the reduction in our corporate services cost behind it. That is not an area that we have targeted for reductions.

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