House of Commons - Communities and Local Government's Departmental Annual Report 2008 - Communities and Local Government Committee

Communities and Local Government's Departmental Annual Report 2008 - Communities and Local Government Committee Contents

3 The Department's performance

Public Service Agreements

18. In our Report on CLG and its Annual Report of 2007, we concluded that the Annual Report

would benefit further from a consolidated table pulling together the information set out individually in separate chapters on each Public Service Agreement target […] we recommend that relevant information from the Technical note on PSA target achievement be included in future Annual Reports to enable easier checking of progress.[20]

This recommendation has been acted on. The 2008 Annual Report has a table in Annex A detailing overall progress for each PSA and for each sub target; meanwhile, the main body of the Report features a box devoted to each PSA target defining the overall target and setting out the performance indicators which constitute the sub-targets by which the overall target's achievement is to be judged, together with an assessment of progress towards each one. This addition has resulted in a far clearer, better-structured and more comprehensive presentation of the information. We commend the Permanent Secretary and his team for continuing to improve the standard of the Departmental Annual Report and for the clear and helpful presentation of the information it contains, which makes a significant contribution to the ability of Parliament and the public to hold the Department to account.

19. The following table summarises CLG's performance against the Spending Review 2004 PSAs as reported in the 2007 Autumn Performance Report, in the 2008 Annual Report and in the 2008 Autumn Performance Report.

Performance

PSA Name 2007 Autumn Performance Report 2008 Departmental Annual Report 2008 Autumn Performance Report

1 Neighbourhood renewal Slippage Slippage Slippage

2 Regional economic performance On Course Slippage Some progress[21]

3 Fire Slippage Slippage Slippage

4 Local Government On Course On Course Partly Met

5 Housing supply On Course On Course On Course

6 Planning Slippage Not Met Partly Met

7 Decent homes Slippage Slippage Slippage

8 Liveability Slippage Slippage Slippage

9 Gender equality Moved to Government Equalities Office

10 Race equality and community cohesion Not Met Slippage Partly Met

20. On the face of it, this summary shows decidedly unimpressive performance by the Department against its own targets. The Department is "on course" to meet only one target, housing supply—and there must be severe doubts given the current state of the housing market whether that assessment can be sustained. Three of the remaining targets have been "partly met", another showing "some progress"; and the remaining four show "slippage".

21. We questioned both the Permanent Secretary and the Secretary of State on the overall performance of the Department as summarised in the 2008 Departmental Annual Report. "Pretty good" was the verdict of the Permanent Secretary.[22] The Secretary of State, appearing later, seems to have considered this a little over-generous: "reasonable" was her considered opinion.[23] Both fell back on the argument, originally stated in the memorandum sent to us by the Department following publication of the DAR, that the "headline" results did not accurately reflect the Department's overall performance:

Progress has been made across the Department's priority areas. Whilst only two PSAs are rated overall as "on course", 65per cent of the Department's sub-targets and indicators are either "ahead", "met" or "on course". For example, overall progress against the PSA 1 Neighbourhood Renewal target is assessed as slippage despite five out of six sub-targets being either ahead or on course. Similarly, the Planning PSA requires eight sub targets to be met for success. As such, the overall 'not met' status masks success against 50per cent of the sub targets so far.[24]

The Secretary of State concluded, "I accept entirely that on a surface reading it does not look the best of results but […] I would seek to argue that underneath, our performance is fairly robust and we are constantly trying to achieve the targets that we set for ourselves."[25]

22. Our view is that the Department's overall performance so far very much reflects the verdict of the Cabinet Office's most recent Capability Review: good progress; an encouraging 'direction of travel'; some important achievements; but overall still some way short of maximum effectiveness. We accept the Department's argument that the 'headline' summary of achievement against the nine Public Service Agreement targets set for it following the 2004 Comprehensive Spending Review masks its actual performance, which looks rather better when assessed by the total number of sub-targets and indicators rated "ahead", "met" or "on course". However, even good progress on, or achievement of, 65per cent of those sub-targets and indicators cannot be described as impressive. We commend the Department for its achievements so far, but hope that performance as judged by achievement of the targets and indicators set for it will be shown to have improved significantly in future assessments.

23. Furthermore, we consider that the Department's reliance on the argument that the "headline" assessments do not accurately reflect the Department's actual overall performance represents a failure in itself on the part of the Department, or at least of its predecessors. Questioned on this subject at our first oral evidence session, the Permanent Secretary, Peter Housden, remarked:

What is the purpose of PSAs? Well, they were to shape the Government's priorities, to galvanise action up and down the country on these issues and to provide accountability. In that sense I think they have succeeded and you can point to some real advances.[26]

We agree with Mr Housden to the extent that PSAs have shaped the Government's priorities and galvanised action. By the Department's own admission, however, they have failed to provide fully transparent accountability. As the Secretary of State told us, "If you look at the way that those PSAs were originally formulated under the previous spending review they were indeed quite complex, some of them have turned out to be perhaps not entirely the best measures of outcomes."[27] If CLG's Public Service Agreements are to serve their purpose not only as a means of expressing the Government's priorities and galvanising action, but also of enabling Parliament and the public of holding the Department to account for the £34bn of public money for which it is responsible, it must be possible to rely on the Department's reported performance against them as a true measure of its performance.

24. The National Audit Office's briefing for us on the Department's performance explains the changes made to Public Service Agreements and other Departmental targets and indicators following the 2007 Comprehensive Spending Review:

Public Service Agreement targets

The Comprehensive Spending Review 2007 replaced the 110 largely departmental based PSA targets agreed in 2004 with 30 new inter-departmental PSAs. These new PSAs set out the Government's top priorities for the period and are outcome, rather than target, focused. Each PSA will be delivered across Government, with each PSA having a lead Department.

The Department [for Communities and Local Government] leads on two new PSAs: to increase long-term housing supply and affordability (PSA 20); and to build more cohesive, empowered and active communities (PSA 21). As the lead department, it will be responsible for performance against these two PSAs, even though it will be relying on the performance of other departments to deliver some of the underlying indicators. Published 'delivery agreements' have been agreed for each PSA, setting out the role of each contributing department.

In addition to leading on two PSAs, the Department contributes to [a number of other PSAs for which other Government Departments have lead responsibility].

Departmental Strategic Objectives

The CSR 2007 also sets out the Department's Strategic Objectives (DSOs). These DSOs represent the range of the Department's business and are underpinned by a number of indicators. These indicators are taken from the PSA indicators the Department leads on, and those it contributes to. Other DSO indicators are not part of the CSR 2007 PSA targets, but have been developed to ensure accountability for the entire range of the Department's business. The Department has six DSOs over the CSR 2007 period. These are:

to support local government that empowers individuals and communities and delivers high quality services efficiently (DSO 1);
to improve the supply, environmental performance and quality of housing that is more responsive to the needs of individuals, communities and the economy (DSO 2);
to build prosperous communities by improving the economic performance of cities, sub-regions and local areas, promoting regeneration and tackling deprivation (DSO 3);
to develop communities that are cohesive, active and resilient to extremism (DSO 4);
to provide a more efficient, effective and transparent planning system that supports and facilitates sustainable development, including the Government's objectives in relation to housing growth, infrastructure delivery, economic development and climate change (DSO 5);
ensuring safer communities by providing the framework for the Fire and Rescue Service and other agencies to prevent and respond to emergencies (DSO 6).[28]

CLG's Autumn Performance Report 2008 maps which DSOs contribute to each of the two new PSAs under the Department's leadership.[29]

25. As well as providing a further assessment of progress on the PSAs set in the 2004 Spending Review (SR04), as reported above, CLG's Autumn Performance Report 2008 makes the first assessment of progress on the two new PSAs led by the Department as well as the Department's progress towards its six new Departmental Strategic Objectives. In all but one of those six areas, no overall assessment of progress has yet been made; although all the indicators are in place, in many cases the first figures by which to judge progress are not available, and in others baseline figures have yet to be set. Even for the one DSO given an assessment, the Department felt unable to reach an assessment on the PSA which is largely underpinned by that DSO. That is because, while national data were available for that DSO's indicators, the Department did not have the local position.[30] The Department assesses that there has been 'some progress' for the other PSA—PSA 20—but has no data for April 2008 onwards for most of the six DSO indicators which underpin that PSA.[31] It is therefore not yet possible for us to judge how robust a measurement of the Department's performance the new indicators are, nor how well PSA 20 and PSA 21 are being delivered. However, next time the Secretary of State comes before us to discuss her Department's overall performance, we do not expect her to have to rely on complaints about the nature of the indicators which have been set in order to explain apparently poor performance. We look forward to seeing not only improved overall performance by the Department, but also a performance framework which provides genuine accountability both to Parliament and to the Department's many stakeholders for the whole range of its work.

Efficiency targets

26. In common with the rest of Government, the Department is required to make substantial efficiency savings following the Gershon review of the civil service. The Annual Report records that the Department was on course to meet its three main efficiency targets under the 2004 Spending Review—on central efficiency, workforce reduction and relocation—by the end of March 2008, and indeed had already met two of them.

27. The Department's central efficiency target was to achieve at least 2.5 per cent per annum efficiency gains equating to at least £620m by March 2008, of which at least two thirds (approx £413 million) was to be cash-releasing. The Annual Report 2008 forecast the delivery of £1,231 million efficiency gains, of which £673 million were cash-releasing, by March 2008.[32] The Department has since, in its 2008 Autumn Performance Report, reported the 'final' assessment that it met this target by delivering £1,444 million efficiency gains as at 31 March 2008, of which £829 million (57 per cent) were cash-releasing.[33] Within those overall totals, the Department experienced some difficulty in achieving its planned administrative efficiency savings of £25m: the forecast savings recorded in the Annual Report were lower and the final figure reported in the Autumn Performance Report was only £17.2m.[34] However, the resultant shortfall has been made up for by gains in other areas.[35]

28. Its workforce reduction target was to achieve, in the Department as a whole (including agencies and non-departmental public bodies), a reduction of 400 full time equivalent (FTE) posts by the end of March 2008. At least 250 of these were to be Headquarters and Government Office civil service posts. The Department has significantly out-performed this target. The Department recently reported a workforce reduction of 1,170 full time equivalent posts (against the June 2004 baseline) in the Department and Government Offices as at 31 March 2008.[36] Voluntary redundancies accounted for approximately half the reported reduction in posts. The Department does not have a central compulsory redundancy programme, but a voluntary early exit scheme. This scheme is open on a self-selection basis and secured 466 voluntary redundancies between 2004-05 and 2006-07. During this period there were two compulsory redundancies. Natural wastage for the same period totalled 982 members of staff.[37]

29. The relocation target was to relocate 240 FTE posts out of London and the greater South East by 2010. The Department reported that 205 full time equivalent posts were relocated to 31 March 2008,[38] and 220 to June 2008.[39]

30. The Department has two further efficiency targets as part of the SR 2004:

Across the whole of local government, including fire, police, schools and local authorities, leading and coordinating delivery of £6.45 billion efficiency gains per annum by March 2008. Of this, £1.38 billion is to be secured from the Department's areas of direct responsibility (housing, homelessness, fire, procurement, and cross cutting areas). The Department reported that by the end of December 2007, £7.024 billion of efficiencies had been achieved since April 2004, meeting the £6.45 billion target early. The Department forecast that £8.2 billion in total would be secured by March 2008, including £2.1 billion which would be secured in the Department's area of responsibility. The Autumn Performance Report provides a final assessment of £9.030 billion. This is £2.58 billion in excess of the target, and the Autumn Performance Report notes that £764m of this will be carried forward to score against the CSR Value for Money target.[40] Some other government departments have also had part of their SR04 efficiency improvements carried over in this way, calculated on the basis of the excess performance that comprised cash releasing savings, to avoid departments delaying efficiency measures so that they might be scored instead against the CSR programme to the detriment of the SR04 initiative.
Across the social housing sector, to achieve at least £835 million efficiency gains per annum by March 2008. The Department reported that £898 million efficiency gains had been reported by December 2007 and therefore this target was achieved early. The Autumn Performance Report provides a final assessment of £1.167 billion.[41]

31. The Department's apparently impressive performance in achieving its efficiency targets naturally raises the obvious question: was its predecessor, the Office of the Deputy Prime Minister, significantly overstaffed or inefficient? We put this question to the Secretary of State, who replied

I do not think it would automatically lead me to that conclusion. As with most developing situations there is a constant drive in the Department […] to drive out efficiencies, to make sure that you put more people at the front end delivering policy and fewer people in administrative roles. In a way it is a little bit similar to the discussion we have just had around the FiReControl system, introducing smarter ways of working very often can release people to do the jobs that you think are a priority and I think that is what has been happening in the Department over the last couple of years, trying to ask if there is a better, smarter way of doing our business and that means that we can prioritise other areas. […] I want to look at the skills capacity and numbers we have got who are able to deliver that new way of working for us. I think that will be a priority for us to look at. I do not think it is automatically the case that because we can do our business on fewer people than before we were completely bloated and inefficient.[42]

32. Further efficiency savings are now being demanded of the Department. As part of the 2007 Comprehensive Spending Review, the Department must directly deliver efficiencies of £887 million by 2011. As with all government departments, all savings are to be cash-releasing. These efficiencies will be delivered by the central Department and its agencies. Regional Development Agencies, which delivered 25 per cent of the Department's efficiencies over the SR 2004 period, will no longer contribute to the Department's efficiency target. Local government is also expected to find £4.9 billion of savings.[43] The Autumn Performance Report notes that the Department will make annual assessments of progress on its CSR Value for Money targets, the first being in the 2009 Annual Report.[44]

33. As part of these expected savings, the Department's Value for Money Delivery Agreement includes a target to deliver £43 million of administration efficiencies over the CSR 2007 period.[45] Noting the Department's failure to achieve even the much lower figure of £25m set for it over the SR04 period, we asked why it expected to be able to deliver this demanding target. The reply was as follows:

The administration Value for Money gains which the Department has agreed to deliver over the 3 year CSR07 settlement period will reflect gains realised across the whole Department (again including the Government Offices [for the Regions]). The Department will look to achieve value for money by maintaining outputs and ensuring that its resources are deployed in support of its priorities, achieving the necessary cash reductions through a combination of bearing down on low impact and low priority work, and establishing a group corporate services strategy to improve delivery of corporate services across the wider family (including NDPBs), as well as further reducing and better utilising its estate.[46]

34. We congratulate the Department on the achievement of its SR04 efficiency targets. We will watch with interest to see whether it is capable of achieving the further demanding targets which have been set for it in the CSR07 period, particularly in central administration.

Housing

ECO-TOWNS

35. In July 2007, the Government invited local authorities and developers to propose locations for eco-towns. The Annual Report states that:

Eco-towns will be entirely new towns which are exemplar green developments of 5,000-20,000 homes. The objective is to have five schemes by 2016 and 10 schemes by 2020 delivering a total of up to 100,000 homes. They will be designed to meet the highest standards of sustainability, including low and zero carbon technologies and good public transport, and will lead the way in design, facilities and services, and community involvement. [47]

36. Officials told us on 13 October that the maximum number of homes had now been reduced to 15,000 per eco-town, because no applicant had offered a larger number. They continued:

We hope to have up to ten eco-towns. That is the current position we are in […] At this stage the indications are that five could be significantly in construction with significant homes built by that date and up to ten in total by 2020, but we need to go through this carefully.[48]

The Minister for Housing, Margaret Beckett, later told us that the Government "are at a somewhat early stage" with regards to eco-towns. She reiterated the fact that five were being continued in their early stages, with the hope of identifying 10 at a later stage.[49]

37. CLG has since published a planning policy statement listing the standards for eco-towns and announcing a second round of consultation. The accompanying Sustainability Appraisal and Habitats Regulations Assessment concludes that one site only out of the proposed 10 sites—located at Rackheath, Greater Norwich—was 'generally suitable' for the programme, receiving top marks on sustainability.[50] However, according to requirements set out in the planning policy statement, eco-towns should have at least 5,000 homes: Rackheath's proposed scheme is for 3,400 homes only.[51]

38. The eco-towns policy is clearly in some difficulty. It was bound to be affected adversely by the general slowdown in the housing market, but even so the difference between the original vision and the proposals which are now emerging is considerable. Only one site has been fully approved, and that site offers fewer than the original minimum 5,000 new homes required under the scheme. The ambition described in the Annual Report of a total of "up to 100,000 homes" looks highly unlikely to be achieved: the eco-town programme, even if successful, will make no huge contribution to the very significant problem of housing supply which is, rightly, one of the Department's top priorities.

39. Like HIPs, which we consider further below, this policy appears to be one of the victims of the Department's weaknesses in engaging and enthusing its delivery partners. The Department's Annual Report claims that "Our partners in the public, private and voluntary sectors think the Department is getting better at involving them in the development of policy and in engaging with them when we announce new or changed policies." Those involved with the eco-towns policy may find this difficult to believe. Putting this policy back on track to deliver the Prime Minister's early claims for it will be a difficult task and a severe test of the Department's progress in a crucial aspect of improving its performance.

DECENT HOMES (SR04 PSA 7)

40. 'Decent Homes' refers to Public Service Agreement 7:

By 2010, bring all social housing into decent condition, with most of this improvement taking place in deprived areas and, increase the proportion of vulnerable people who live in homes that are in decent condition.

41. According to the Annual Report, the Decent Homes initiative had, by April 2007, installed 580,000 new kitchens, 440,000 new bathrooms and 910,000 new central heating systems into council homes, at a cost of more than £23 billion. Richard McCarthy told the Committee on 13 October that around £40 billion would be spent by the end of the programme.[52] About 95 per cent. of all social sector homes are expected to meet the Decent Homes criteria by the time that the programme concludes in 2010, with work continuing after that date for those which remain.[53]

42. Last year we praised the programme as one of CLG's success stories. However, it remains unclear whether any further social housing improvement programme will follow Decent Homes after 2010. The Government has not yet taken any decisions about investment in existing social housing following on from the current Decent Homes programme.[54] The future of social housing investment is being considered as part of the current review of housing finance, due to report in the spring, with public consultation expected to follow. We expect to return to this subject later in the year, but in the meantime, we express once again our commendation of the Department for what it has achieved through the Decent Homes programme, and encourage Ministers to ensure that arrangements are put in place in a timely fashion to ensure that those achievements can be built on. There must be no return to the underinvestment which made this massive programme necessary.

Decent Homes funding for improvements to domestic heating

43. One particular issue which we raised during our oral evidence sessions on the 2008 Annual Report was the apparent inequality in the current system whereby private tenants can apply for a grant from Warm Front to replace an old heating system, but someone living in social housing who has not yet been fortunate enough to have had their home refurbished under the Decent Homes programme simply has to wait until it breaks down. The Minister acknowledged this problem: "I am very mindful of the fact that there is this apparent inequality and in particular that some of those who may be experiencing it are among some of the most vulnerable."[55] She was, however, unable to give us any commitment even to look at ways of solving it, only commenting "It is not an easy problem to resolve, as I am sure the Committee is well aware". We acknowledge the difficulty of attempting to ensure that two entirely different sets of funding streams deliver fair results for people in apparently similar circumstances. We cannot, however, accept that the problem is insurmountable. We invite the Department to look at ways in which some of the most vulnerable people with old and inefficient heating systems who are not eligible for a Warm Front grant can be given the same access to decent heating as their neighbours in private sector housing.

Arms Length Management Organisation (ALMO) funding: Decent Homes and the Olympics

44. Our scrutiny of CLG's Departmental Annual Report of last year led us to consider further, through examination of subsequent CLG Estimates and accompanying memoranda, one particular issue affecting funding for the Decent Homes programme. During oral evidence on the Departmental Annual Report 2007, the Department's Director General of Housing and Planning, Richard McCarthy, told us that the Department had used money from underspends on the Decent Homes programme to support other programmes (so that the Department could have it back the following year).[56] Noting that the Winter Supplementary Estimate for 2007-08 provided for £80 million to be drawn down from Capital EYF as gap funding for the Decent Homes programme, we asked the Department to clarify whether there was a connection between that draw-down and the use of the programme's money for other projects. The Department's response confirmed that there was no such connection; but it went on to explain in further detail what movement of capital resources there had been out of and into the Decent Homes ALMO programme since 2005-06. These figures showed that a total of £29m over 2006-07 and 2007-08 had been transferred out of the Decent Homes ALMO programme and into the budget for the Olympics.

45. Concerned about this transfer of funds away from a programme in which we have a longstanding interest, and which we consider to be of considerable importance, we asked the Department for an explanation and justification of its decision. It responded as follows:

A funding package of £405m from the Department was agreed for infrastructure and regeneration costs associated with the Olympics […] Of the total £405 million, the ALMO programme contributed £29m over two years, less than 2 per cent of the ALMO budget for this period. This contribution was fixed during the latter half of 2005 during the preparations for the submission of the Department's Main Estimate for 2006-07 when there was a clear expectation that the ALMO programme would be unlikely to utilise all the capital resources available to it over the next two financial years, 2006-07 and 2007-08. That proved to be the case: the budgets for each of these two years were then adjusted downwards by £15m and £14m respectively.

It remains that no ALMO that was spending from the ALMO programme in each of 2006/07 and 2007/08 should have had to reduce its planned total spend as a result of the transfer to the Olympics. The ALMO programme as a whole has been subject to some slippage over 2006-08, and we do not believe that any ALMO's investment programme will have been affected by this transfer. It is our intention to ensure through future Spending Reviews that all established ALMOs will be able to deliver their Decent Homes programmes on the basis of spending plans they agree with the Department.[57]

46. We recognise the potential for the Olympics to contribute to CLG's policy objectives, by "delivering legacy liveability, housing and employment benefits in one of the most deprived parts of the country";[58] and we are reassured by the Government's confirmation that no ALMO should have had to reduce its planned total spend as a result of the transfer to the Olympics. On the other hand, it is of concern that the ALMO programme has been subject to slippage, and that it continues to be so: as the NAO reports, 17 local authorities have yet to agree a revised deadline for the achievement of the Decent Homes standard as their ALMO is yet to draw down the funding.[59] As noted above, we expect to return to the subject of ALMOs and their contribution to the Decent Homes programme later this year, and we will be considering carefully the implications of the Government's expenditure decisions on the outcome of that programme.

HOME INFORMATION PACKS

47. Home Information Packs (HIPs), introduced to improve and speed up the process of buying and selling a house, came fully into force in December 2007. By March 2008 over 452,000 had been produced.[60] The average cost of a HIP ranges from £300 to £350; the Department reports that HIPs are reducing the cost of local searches by an average of £30.[61] The Permanent Secretary told us on 13 October that the total number produced was now more than 800,000.[62] The National Audit Office cites Departmental research that found that 72 per cent. of sellers were satisfied with the HIP; it also found that 40 per cent. of buyers saw the HIP for the property they were purchasing, with half of those seeing the HIP after making an offer, but that 77 per cent of buyers said that the HIP had had no effect on their decision to buy.[63]

48. Margaret Beckett acknowledged that HIPs had their shortcomings: "I fully accept that they [HIPs] are perhaps not the perfect vehicle one might wish to see."[64] Responding to a suggestion that they were adding to the problems in the housing market, however, she went on to say that, while they may provide an efficient way of gathering information and cut short search time, they are "an absolute drop in the ocean; they do not affect the housing market."[65] The Annual Report—which this year, unlike last, at least acknowledges some of the difficulties the policy has encountered—further admits that "it is clear that some consumers are not seeing the HIP and therefore not getting their full benefit…We will continue to work with stakeholders to enhance and further improve the HIP so consumers get the information they want at the right time."[66] At our second oral evidence session, we put it to the Minister that the information contained in HIPs may well become out of date because of the current stagnant housing market. She accepted that this was a matter of concern and assured us that the issue was being looked at with the relevant authorities.[67]

49. In our last Report, we said that HIPs were an example of CLG's inability to build the relationships it needs if it is to succeed in taking partners with it across the whole range of policy. This point stands again, one year on. The results of the mishandling of the introduction of the HIPs policy are now evident, in that CLG is still struggling to perfect the scheme at a time when the housing market needs more robust and effective initiatives. We hope that the Department's acknowledgement in its Annual Report that the policy is not yet delivering its full benefit reflects a renewed effort on its part to work effectively with its partners to ensure that it does so, and welcome the indications from the Department that that is the case.[68]

Flooding

50. June and July 2007 saw very high rainfall, which led to two periods of serious flooding. That flooding affected many areas, particularly South and East Yorkshire and Humberside in June, and Gloucester and Oxfordshire in July. According to the Department for Business, Enterprise and Regulatory Reform, an estimated £3.1 billion of damage was caused by the flooding, with 48,000 people displaced.[69]

51. CLG had responsibility for three crucial aspects of policy affecting last year's floods: building and planning regulations that affect the risk of flooding and its impact; co-ordination of the flood recovery programme; and funding to local authorities for responses to flooding and other emergencies. Coordination of the flood recovery programme was recognised in the Department's Annual Report as an important feature of its work in the period which it covers, to the extent that the Secretary of State refers to it in her Foreword; it is also cited as an example of how the Department has worked to "lead and enthuse partners in creating successful communities and services."[70] The floods recovery Minister, John Healey MP, told us:

Pitt's view was that the collaboration led by the team we rapidly set up in DCLG across government departments but also with agencies at a regional level and with local authorities was part of the reason that he felt and some local authorities felt that the period of necessary support during the early days and then continuing through the recovery period was well managed, it was well coordinated and we were ready to respond rapidly.[71]

52. The Minister refers in the quotation above to the review, set up by the Government following the floods and conducted by Sir Michael Pitt, which investigated why the flooding was so extensive; whether it could have been predicted or prevented; and the adequacy of the emergency response. Pitt's interim report recommended that CLG should, in future, have formal responsibility for co-ordinating recovery from flooding emergencies, and the final report "encourage[d] CLG to set out clearly the duties and responsibilities of its lead department role in the recovery phase, and to explain how it will work in partnership with other government departments and regional and local bodies."[72] At our first evidence session, Mr. Rossington, the acting Director General, Communities Group, was asked what steps he had taken to deliver this recommendation. Mr. Rossington did not have a clear response, stating that "All the recommendations which relate to our Department will obviously be monitored very closely with others".[73] We are pleased to note that CLG has now "developed and implemented a recovery plan which sets out its responsibilities and how it will work across Government, and the wider public and private sectors to support recovering communities, in cases where national co-ordination is required."[74] We commend the Department on its work following the 2007 floods: the success of further such work will, as it did then, depend crucially, once again, on the ability of the Department to lead and enthuse its partners.

53. At the same time as the Pitt Review was being conducted, the Audit Commission carried out its own review of the effects of the flooding on the finances and services of local public bodies. Staying Afloat: Financing Emergencies was published in December 2007. It contained a wide range of conclusions and recommendations about the effect of the floods, local authorities' preparedness for them, and the effectiveness of the arrangements for a response. Of particular relevance to the work of CLG was its conclusion concerning the arrangements for meeting the costs of recovery from emergencies:

The risks associated with catastrophic events are currently shared between local government, central government and insurers. However, the current arrangements are neither transparent nor optimal in terms of minimising the overall costs to the taxpayer or ensuring that appropriate measures are taken to reduce risks…Central government and local authorities, perhaps through the Local Government Association, should work together to determine the clearest and most cost effective way to share the risks of catastrophic events. This should include a consideration of how to finance any changes in responsibility for risk […] The government needs to develop, as far as possible, a clear approach to the support it will provide to local public bodies in the event of a catastrophic event.[75]

54. This recommendation was initially rejected by the Government. A press release from John Healey responding to the Commission's work said:

We welcome the Audit Commission's praise for Government's generous and prompt response to the floods but we do not agree with key parts of their wider analysis. Communities wanted quick and comprehensive support, not a response set out in a rulebook six inches thick.[76]

55. However, the final report of the Pitt Review reached remarkably similar conclusions. Pitt recommended that financial assistance should be revised to improve speed, simplicity and certainty and maximise value for money for public finances collectively, rather than for central or local government alone, arguing, "Central government should have pre-planned rather than ad-hoc arrangements to contribute towards the financial burden of recovery from the most exceptional emergencies, on a formula basis." [77] This recommendation was subject to no such instant rejection by the Government.

56. Mr Healey defended his response to the Audit Commission's conclusions by saying that the Commission's report

seemed to suggest that somehow there needed to be a single scheme for helping with the costs that local authorities might incur in dealing with floods or recovering from floods. I do not accept that and did not accept it at the time. I think our experience and our track record over the last year have demonstrated that because the impact and what is necessary to deal with the emergency and recovery is so different in different areas, the risk of having a single scheme I think introduces an inflexibility into it.[78]

Pressed on whether further clarity could be brought to the funding arrangements for recovery, however, he added "there is more that we can do and we are preparing some work because Pitt encouraged us to do this, to make the principles of how government may respond in these sorts of circumstances."[79]

57. We are pleased to see that the Government's formal response to the Pitt Review, which has now been published, has acknowledged "that it would be helpful to give local authorities greater certainty about the circumstances under which the Government will consider providing additional support." The response confirmed that

we are developing pre-planned funding principles, which will provide:

more certainty for local authorities by setting out the sort of exceptional circumstances when Government will consider stepping in to provide support; and the sort of recovery costs which will be covered;
greater consistency between Departments in their funding provision;
ease of use, with the arrangements clearly explained in the National Recovery Guidance, and Government Offices providing, as far as possible, the first point of contact for local authorities.[80]

58. The good sense of the Audit Commission's recommendations was later confirmed by the report of the Pitt Review. The Minister's somewhat ill-considered and over-hasty initial response to the Commission's recommendations may simply have reflected the perceived need for an instant riposte to any apparent criticism. It may also, however, reflect the weakness identified by successive Capability Reviews in the Department's willingness and ability to base its policies consistently on the evidence, rather than preconceptions. We are pleased that the right conclusion was eventually reached, and look forward to more considered responses in the future to useful contributions to the formulation and improvement of policy such as the Audit Commission's report.

Fire and Rescue

RESPONSE TIMES

59. In our Report last year, we criticised the Department for its suggestion that longer recent response times to fires was not considered a 'worsening' of service, noting that "even if 80 per cent of fire deaths occur before an emergency call is made, speed of response still matters in the remaining 20 per cent of cases, to those who may be injured by fire and to the owners of property on fire." We recommended that research which the Department was already planning into the impact of traffic on response times be extended to consider means of achieving quicker response.[81]

60. The National Audit Office summarised the latest position for us:

The response times of Fire and Rescue Services are increasing. In 2006 35 per cent of fires were responded to in less than five minutes, whereas in 2000 this was 46 per cent. Overall, FRSs' response times have increased by 14 per cent between 2000 and 2006. During the same period traffic has increased by nine per cent. The Department has commissioned a research project to look at the reasons behind, and the impact of, increasing response times. The report is currently being finalised for publication during autumn 2008. The report's provisional conclusions indicate that increased response times to fires are mainly a result of increased traffic, and may contribute to around 13 additional fatalities each year. However this is against a background of dwelling fire fatalities falling by 142 between 1996 and 2006. The Department is encouraging the Fire and Rescue Service to consider further means to counter the effect of traffic and to reduce reliance on emergency response, for instance by further increased fire prevention.[82]

61. Sir Ken Knight, the Government's Chief Fire and Rescue Adviser, defended the Fire Service's policy on response times as follows:

It [worsening response times] is not the sole story nor, I would suggest, is it the sole time that is important in saving lives. The time from when a fire starts to when the occupant is aware it is there—the time from ignition to the time of awareness—is where smoke alarms play a very big part in ensuring people are aware of a fire from a very, very early stage, particularly the most vulnerable. There is a very strong correlation between fire deaths and deprivation. The second time is the point at which people are aware there is a fire and the fire services are actually called. Those two earlier times are even more critical I would suggest, certainly from my experience, in saving lives than actually the speed of response from the time the fire engine is running from its respective fire station or wherever it is coming from to the call. You are right in showing that certainly response times, that last part, has got longer. I am pleased to say that home fire detection—the first part—has got quicker because people are becoming much more aware of fires, particularly those most at risk. We are currently undertaking a study which will be completed shortly. In the main it is probably due to traffic. […] I am confident that we will ensure that many more lives are saved not by response time itself but by those earlier times which are absolutely crucial in the reduction of lives lost.[83]

62. We commend the Fire Service for the preventative work which it has been doing, which has clearly had a significant impact in reducing fire deaths; and we acknowledge that response times are not the "sole story" when it comes to reducing deaths from fire. Nonetheless, as we said last year, speed of response still matters in the 20 per cent of cases where deaths occur after the emergency call is made, to those who may be injured by fire and to the owners of property on fire; we would add that it may also matter to firefighters themselves. Increased response times continue to represent a worse service. We therefore recommend that the Department build on the research which it has undertaken since our Report of last year[84] and continue to encourage the Fire and Rescue Service to consider further means to counter the effect of traffic and improve response times.

FIRECONTROL AND FIREBUY

63. FiReControl is a CLG-led project to replace 46 existing fire control rooms for individual Fire Services with nine amalgamated Regional Control Centres (RCCs), mirroring the regional administrative structure of the Government Offices for the Regions. The project was begun in 2004 and is due for completion in 2009. CLG expects the first centres to go live next October.[85] Firebuy was set up as a national procurement body for the Fire and Rescue Service in 2005, with the intention of making economies of scale savings on the £300 million the FRS spends annually on goods and services, including such things as uniforms.

64. Substantial financial benefits were claimed for both these projects when they were originally proposed. The 2007 business case for the FiReControl project, estimating total project and running costs to be £1,400 million over 15 years to 2019-20, projected national savings of some 28 per cent per year on running costs.[86] However, Part 2 of the 2008 Business Case estimates that there will be an overall saving of just 10 per cent.[87] Firebuy, meanwhile, has failed even to recoup its set-up costs: it has cost the Department £6 million since 2005-06 but so far has only generated savings of £1.5 million.[88]

65. Ministers and officials told a similar story on the FiReControl project: acknowledging that the originally expected savings would not materialise, but arguing that it was never just about the money. Sir Ken Knight, the Chief Fire and Rescue Adviser, told us

Personally I do not think we should focus just on cost because there is a far bigger reason for having regional fire control. It is about the resilience of the fire control moving from the existing 47 disparate fire controls that cannot talk to each other technically to nine interoperable regional fire controls.[89]

The Secretary of State, meanwhile, said

The primary motivation of the FiReControl programme was not simply to save money; the primary motivation was to have a much better system than enables all the control centres to interact with each other and provide a national resilience system for the whole of the country.[90]

The situation with Firebuy, however, was not so easily defensible. Questioned about this project, David Rossington, acting Director General of the Communities Group in CLG, opened with the slightly disingenuous "The position on Firebuy is that it has contributed some savings"[91] and conceded only when pressed that "these are obviously not as much as was originally hoped for."[92]

66. Both these projects are clear examples of the Department's failure consistently to base policy making and delivery on the evidence. FiReControl was a controversial project from the outset: the Department used over-inflated savings figures to bolster the case for policy and operational arguments it feared it was in danger of losing in the face of opposition from the Fire Brigades Union, some fire authority boards and others.[93] Firebuy, meanwhile, has been shown simply to be over-optimistic (though we retain hope that it can generate further savings over the longer term).

67. The Department's Annual Report informs its readers that CLG has

had a sustained focus throughout the year on improving our knowledge base and ensuring we use evidence and analysis more rigorously across the Department. We have increased the number of economist posts in the Department, put all of the Department's senior staff through analytical training, and set up three Expert Panels of academics, consultants and practitioners to provide additional analytical resource and challenge.[94]

Both FiReControl and Firebuy would clearly have benefited from more rigorous analysis in the policy formation stage, especially from those with the sort of financial and economic expertise which the Department has now recruited. We welcome the steps which the Department has taken to address the gaps in its analytical capability, and look forward to seeing the fruits of those steps in far more robust and accurate policy formation in the future.

European Regional Development Fund

68. Paragraphs 4.10-12 of CLG's Annual Report refer to financial corrections imposed by the European Commission on the Department as a result of concerns about the management of European Regional Development Fund (ERDF) grant monies:

In April 2007, the European Commission suspended payments to 2000-06 round ERDF programmes in six of the nine English regions pending clarification that the programmes had been managed in accordance with the relevant regulations. Following detailed audit work, the Department was able to satisfy the Commission that the majority of the programmes had been managed correctly and the suspensions were lifted. However, the Commission had residual concerns, over the North West Objective 2 and Urban programmes, leading to the imposition of a financial correction of €25m.[95]

This "financial correction" is in practice a fine imposed by the Commission on the UK because of a failure properly to account for funds allocated to it by the EU.

69. We first raised questions with the Department on the suspension of payments from the EDRF following publication of the Department's 2007-08 Winter Supplementary Estimate.[96] In subsequent correspondence with our Chair in March 2008, the Minister responsible, Rt Hon John Healey MP, noted the EC's decision to impose a financial correction, and explained how the fine would be covered:

[…] notification was received from the Commission last week which confirmed its decision to impose a financial correction of just under €25 million on the North West Objective 2 and Urban programme.

We are disappointed that despite significant action to address Commission concerns, it still felt it necessary to impose a financial correction. However, the correction is less than half the amount initially proposed and is small compared to the £3.7 billion the UK receives through this funding. I can also confirm that no projects will lose out as any costs would be met by central government.

The financial correction of €25 million will be deducted from claims already made to the EC. The amounts payable for EDRF are denominated in euros. During the suspension of payments period the value of the euro has significantly appreciated against the GB pound. As a result and despite the financial correction, CLG will now receive more in GB pound terms than the original value of the claim and there will be no adverse budgetary impact as Parliamentary Estimates are in GB pounds.[97]

At the time, we were reassured by the Minister's explanation of the result of the EC's fine, and in particular his assurance that there would be "no adverse budgetary impact", as a result of exchange rate gains (which, in a somewhat circular process, would not have been realised had the payment of grant monies not been suspended as a result of the irregularities which would eventually result in the imposition of the fine).

70. However, that was not, unfortunately, the end of the story. The Annual Report subsequently added:

We and the regions are continuing to work closely with the Commission to clear any outstanding issues and to ensure successful closure of the 2000-06 round of ERDF programmes. […] Following a sample audit of 1997-99 programmes, the European Commission has proposed additional financial corrections in respect of that earlier programme. The Department is considering the Commission's findings.[98]

71. The Commission's findings are now resulting in further "financial corrections" being imposed on the UK, for which the Department is having to make provision. These affect not just the 2000-06 programme, and are not confined to North-West projects.[99] The Department's accounts for 2007-08 show that in addition to the €25m (£19.8m) fine already imposed by the EC, the Department has identified another £8m which will be disallowed and also expects a further £73m of possible further losses (see table below) which has had to be borne on its budget.[100] The Department did not have to transfer money from other programmes in 2007-08 in order to fund this provision, but it has had to do so in the current year as some of those £73m of provisions have materialised (as we explain below). The sums were covered in 2007-08 by a combination of the exchange rate gains referred to above, and a "write-back" to the accounts of £61m erroneously borne on earlier years' accounts because of accounting errors in previous years.[101] Nonetheless, this still represents the loss to the EDRF programme of money which could have been used for development projects. The Department has had to write off a further £8m and make provisions to write off another £73m. Without these adjustments, the exchange rate gains that have arisen routinely on ERDF payments as the pound has continued to fall (and the fortuitous £61m accounting error) could have been used to bolster ERDF projects in the UK.[102]

ERDF costs identified by CLG's 2007-08 Resource Accounts

1997-99 programme 2000-06 programme Inter-reg programme Totals

Sums borne by DCLG's budget (and Estimates) in 2007-08:

'Financial correction' by EC £20m £20m

Further ERDF grant payments to be disallowed, identified by DCLG £7m £1m £8m

'Provisions' (expected liabilities, but of uncertain timing or amount) £26m £41m £6m £73m

Liabilities not borne by DCLG's budget (and Estimates) in 2007-08, but which might affect future years' budgets if the liability crystallises:

'Contingent Liabilities' (possible future liabilities, contingent on some future event occurring) £76m £62m £11m £149m

Totals £109m £124m £17m £250m

72. The Department's Winter Supplementary Estimate for 2008-09 shows that the Department has now run out of alternative means of paying for the corrections expected to be imposed by the European Commission, and is having to raid the budgets of specific other programmes to fund them. The "increase in resources for European Regional Development Fund […] to cover ERDF financial corrections in respect of old programmes" noted in the explanatory memorandum accompanying the Estimate has been funded by transferring "uncommitted resources" from other programmes, as follows:

£5.5m from voted provision for the Homes and Communities Agency
£2m from Thames Gateway
£2m from research
£1m from Sustainable Communities
£4m from the Fire Improvement Programme
£5m from mapping services, and
£2.8m from the Queen Elizabeth II Conference Centre Agency.[103]

This amounts to a total of £22.3m of money which Parliament had previously voted for important programmes such as the HCA and the Thames Gateway, both of which have a crucial role to play in the vital task of increasing housing supply, being moved away to pay for earlier incompetence on the part of the Department and its agents.[104]

73. These are unlikely, however, to be the last such transfers from other programmes which will need to be made to cover the cost of disallowed ERDF grants. The Department's accounts for 2007-08 show a contingent liability relating to ERDF corrections of some £149m, as shown in the table above, some or all of which will hit the Department's budget in future years. In total, the Department's accounts suggested that its total loss could eventually be up to some £250m as a result of the mismanagement of European funds.

74. The Department appears to have learnt its lesson from this episode. Memoranda to us[105] have set out actions which the Government has taken to improve the management of EDRF grants, including the creation of a "central risk register" designed "to identify and address threats and opportunities related to the successful delivery of ERDF programmes and to help avoid or minimise the chances of financial correction or de-commitment by the Commission".[106] The Government is also working hard to convince the Commission to keep any further corrections to a minimum, and the final sum is unlikely to be as high as the £149m contingent liability identified in the accounts. In a response to our questions on the matter, the Department says:

Following successful hearings at the Commission in June and July 2008, the additional financial corrections in respect of the 1997-99 programmes were reduced immediately from £109m to £48 million. This figure is now subject to the result of further analysis by the EC of the substantial evidence and argument we have presented. The Department is confident that this analysis will lead to further reductions in the amount of the proposed correction.[107]

75. Nevertheless, the total value of the financial corrections imposed as a result of the mismanagement of these European funds is likely to represent a substantial sum. The Department will not be able to rely on exchange rate gains or "write-backs" from earlier accounting errors to cover any further losses. Indeed, if the pound were to strengthen in future, the department could make exchange rate losses on administering ERDF payments, which it would have to cover from within its overall budget. We trust that the ongoing improvements which the Department has made in its relationships with its partners, and the strengthening of its capacity to ensure effective delivery of outcomes, will ensure that no more badly-needed funding disappears as a result of the incompetence and mismanagement which characterised these programmes.

20 HC (2007-08) 170, para 17. Back

21 Now incorporated into CSR07 PSA 7 and reported on in the Department for Business, Enterprise and Regulatory Reform's Autumn Performance Report 2008. Back

22 Q76 Back

23 Q107 Back

24 Ev 33, paras 13-14. Back

25 Q 107 Back

26 Q 76 Back

27 Q 107 Back

28 NAO, paras 4.1 to 4.4. Back

29 Communities and Local Government, Autumn Performance Report 2008, November 2008 (hereafter "APR"), pp. 93-4. Back

30 APR, p.28 (including footnote 33). Back

31 APR, p.15. PSA 20 performance is drawn from six DSO indicators - 2.1, 2.2, 2.3, 2.4, 2.5 and 5.2. The Autumn Performance Report suggests that there are data available for the period since April 2008 (the start of the CSR period) for 2.4 and 5.2. There is recent data for 2.5 but without a baseline in place at this stage performance progress cannot be assessed. Back