Spend, spend, spend? - the mismanagement of the Learning and Skills Council's capital programme in further education colleges - Innovation, Universities, Science and Skills Committee Contents

5  DIUS oversight of the LSC

78. The 2009 Foster Review was damning of DIUS's oversight of the LSC, commenting that "There has been insufficient clarity and understanding around the relationship between the LSC and DIUS, and their respective responsibilities, authority and need for information. Meetings have been frequent but evidently not effective in foreseeing and averting recent difficulties." [131] It added "DIUS monitored the LSC during the period and had most of the information that was actually collected and held centrally by the LSC. Senior staff in DIUS could have probed more actively the robustness of the forward projections of future funding commitments. Their challenge was insufficiently incisive to uncover ongoing flaws in implementation." [132]

79. It is not as if there was a shortage of DIUS oversight. We have already noted that DIUS staff sat on certain LSC committees and groups, as well as the National Council. There were a series of meetings between staff at various levels within the LSC and DIUS throughout the period that the programme was running into difficulties. Ministers also met senior DIUS staff on a number of occasions, as set out in the Annex.

80. So what went wrong? Mark Haysom commented that the tone and state of relations between the two organisations had at the same time intensified and soured after the announcement that the LSC was going to be abolished in 2010:

To my knowledge, there is nothing that the LSC does, there is no management information that the LSC has, that is not shared with DIUS and the level of scrutiny has always been intense. And, just to return to my comment a moment ago about the Machinery of Government, it had become even more intense thereafter.[133]

Yes, but they had a perfectly legitimate cause for doing that because they were going to have to pick up responsibility, one way or another, for everything the LSC did from an end date, so it was a perfectly legitimate 'crawling all over', if you like. But the impact of that was a kind of paralysis in terms of the ability of the Learning and Skills Council to take its own decisions.[134]

81. We have already noted that the poor risk management at the LSC was not added to the risk table in the DIUS Departmental Report 2008 (although it was included in the Department's 2007-08 Accounts). This is perhaps indicative of a general failure within DIUS to appreciate warning signs. It is arguable, for example, that the Department should have been more in tune with the tone of discussions within the FE sector. As one of the college representatives pointed out, rumours about the sustainability of the programme were circulating during 2008:

I think it is fair to say that in the sector before that period there was a general feeling of unease growing because we are all intelligent people, so are the local LSC offices, and so on, and we could see that the volume was building up. I am one of the colleges in that group of 70-odd colleges between approval in principle and approval in detail, and at a meeting in September 2008 we received approval in principle for £96 million and Bradford College, who were also there on the same day, received approval in principle for over £100 million. It does not take a genius to work out that those sorts of figures cannot go on for very long given the finite size of the budget.[135]

And at the National Council meeting in November 2008 Stephen Marston of DIUS was not urging caution, as the Minutes state:

Members were concerned about the pressure on the capital budget especially given the added pressures of the unstable economy. It was suggested that a clear steer from Ministers was required over whether to continue with capital spend at all costs, or slow down. Stephen Marston commented that Treasury's steer was to bring forward capital spend, especially on the public side. [136]

82. We were told that none of the problems surfaced at a senior level in DIUS until late November/early December (after the Public Accounts Committee hearing on the NAO report).[137] The one point of ambiguity we identified was in the minutes of an LSC External Advisory Group[138] meeting on 30 September 2008, which stated:

Item 6. Investing in Specialisation: The LSC's Capital Skills Prospectus

6.1 Laurence Leader presented the LSC's Capital Skills Prospectus to members,  who welcomed the general approach.

6.2 There was a strong governance aspect to this work, with the new Regional Councils taking a lead in considering these proposals.

6.3 The Prospectus was clear but the proposals were likely to generate a lot of demand, with associated risks. Ministers were currently considering these risks. (emphasis added)

6.4 Reference needed to be made in the document to the increase in demand from learners as a result of capital investment.

6.5 The focus on specialisation for colleges was a concern, given the current economic situation. [139]

83. When we raised this with the then Secretary of State he told us "I have to say, Chairman, I do not know and I have never known what that refers to."[140]

84. We ask the LSC and DBIS to clarify the remark made in the minutes of the LSC External Advisory Group meeting in September 2008 that Ministers were considering risks associated with the FE college capital programme.

The NDPB Review

85. DIUS stated in its memorandum that "Sir Andrew found that the scrutiny by DIUS of LSC management of the capital programme had been insufficiently rigorous. The Secretary of State therefore asked the Permanent Secretary to carry out a review of the DIUS's relationships with all of its Non-Departmental Public Bodies to ensure that there is clarity about accountability and responsibility. This is underway."[141] The then Secretary of State went further when giving oral evidence to us, pointing to weaknesses in the logic behind NDPBs:

the theory of NDPBs when they were first set up, that they protect ministers from the political flack when things go wrong, does not appear to work as well as some of us might have liked […] My conclusion is you should use NDPBs where they are necessary, but not otherwise […] I think the SFA will show that we will have simpler decision-making, clearer lines of accountability, and you can never be sure about these things, but a better prospect of making sure this does not happen again.[142]

86. While, as he stressed to us, the new Skills Funding Agency will "not be an NDPB"[143], we note that the Young People's Learning Agency which will work with local authorities is to be "a new slim-line non-departmental public body." [144]

Conclusion

87. Lessons must be learned by DBIS and across Government from the events at the LSC in 2008. DIUS clearly failed in its oversight duties. As we noted earlier in this Report the same management problems that befell LSC were also there in DIUS—a key official did not report back to more senior staff about the Capital Affordability Review; there was a wider lack of challenge; and a total failure to pick-up messages from the sector (or apply common sense) about the scale of commitments which were being made.

88. The then Secretary of State told us that "the theory of NDPBs when they were first set up, that they protect ministers from the political flack when things go wrong, does not appear to work as well as some of us might have liked […] My conclusion is you should use NDPBs where they are necessary, but not otherwise." Events at the LSC show that NDPBs can diffuse political and financial accountability to such an extent that serious problems are not identified or addressed and responsibility for failure is at best unclear. In this case the situation was made worse by the prospect of the NDPB being wound-up; the Department should have realised that this could affect operations and ensured that its oversight was effective. We conclude that a review of the operation of NDPBs not just across DIUS (now DBIS) but the whole of Government is urgently required.

DCSF

89. While DIUS was the LSC's sponsoring department, the Department for Children, Schools and Families is also involved in the college building programme. Mark Haysom suggested that DCSF took a hands-off approach, as revealed in this exchange:

Q56 Mr Marsden: You mentioned very helpfully the issue of Machinery of Government changes and I want to ask you a straightforward question: given that some 49% of the income into this sector comes from DCSF, although the sponsoring Department is DIUS, did you at any time over that period have discussions formally or informally with officials or ministers in DCSF?

Mr Haysom: About?

Q57 Mr Marsden: About the capital programme?

Mr Haysom: I cannot recollect during 2008 having discussions.

Q58 Mr Marsden: So no discussions with no ----

Mr Haysom: Not about the overall state of the programme.

Q59 Mr Marsden: So no involvement with DCSF at all?

Mr Haysom: There were discussions going on about the fact that we ----

Q60 Mr Marsden: But you never sat down with senior officials at DCSF or met with them informally or discussed informally any of the aspects of the capital programme?

Mr Haysom: We discussed the split that had occurred in the budget and the actual pressures that had happened as a consequence of that and we discussed the fact that we could have been in a situation where there was potentially pressure on one side of the budget and underspend on the other, but, beyond that, we did not have any discussions.

90. In the last part of this exchange Mark Haysom was noting a point discussed in the LSC's Capital Committee in September and October 2008 about the splitting of the capital budget. The Minutes of the Committee meeting on 19 September linked this to the potential overspend, noting "the retrospective splitting and ring-fencing of the capital budget into ringfenced DIUS and DCSF portions, without warning, last November ie retrospectively in-year. Previously the LSC had had a single line capital budget and was able to offset FE capital spend against the 16-19 Capital Fund."[145]

91. The 22 October Capital Committee Minutes noted that:

The 16-19 Capital Investment fund is now ring-fenced and the previous years underspend on 16-19 capital was retained by DCSF instead of being carried forward.[146]

92. The 157 Group argued that forthcoming changes in the governance of sixth form colleges should mean that "sixth form college applications […] should be transferred to the BSF [Building Schools for the Future] Programme and resources should also be transferred from BSF to BCF to take account of the costs of sixth form college projects already approved under BCF."[147] The memorandum from the Association of Colleges complained that DCSF appeared to have released only £80 million out of a £700 million budget towards Colleges, and added that it was possible that "DIUS capital grants are cross-subsidising pre-19 education."[148] It suggested that, compared to the process that colleges would have to now endure, "the same level of rigour has not been applied in the spending of the capital budgets for school and university modernisation (£18 billion and £2.2 billion respectively in the period 2008 to 2011)"[149] and concluded that "the two Departments need to pool relevant funds into a single college capital budget."[150]

93. As far as we can see DCSF was a silent partner in this situation, though it is clear that within the LSC the splitting of the capital budget was regarded as a critical factor in making management of the programme more difficult. We note the points made by the 157 Group about the possible transfer of some projects to the Building Schools for the Future programme and urge DBIS and DCSF to work together to establish whether this is an appropriate way forward. We also recommend that the proposal for a single college capital budget using pooled DCSF and DBIS funds is investigated with the outcome of the review reported to Parliament in the form of a Written Ministerial Statement.

---

131   2009 Foster Review, Summary, p 6 Back

132   As above Back

133   Q 53 Back

134   Q 76 Back

135   Q 95 Back

136   LSC, National Council minutes, 4 November 2008, para 4.5 Back

137   See paras 26-28 Back

138   The EAG brings together training providers and sector, College and LSC representatives. Full membership available at http://readingroom.lsc.gov.uk/lsc/National/nat-eagmembership26mar09v30-mar09.pdf Back

139   LSC, External Advisory Group minutes, 30 September 2008 Back

140   Q 252 Back

141   Ev 33, para 12 Back

142   Q 274 Back

143   As above Back

144   DCSF, Apprenticeships, Children, Skills and Learning Bill: summary of proposals in the Bill Back

145   LSC, Capital Committee minutes, 19 September, para 3.7 Back

146   LSC, Capital Committee minutes, 22 October, para 6.1 Back

147   Ev 44, para 2.2 Back

148   Ev 37, para 9 Back

149   Ev 37, para 9 Back

150   Ev 38, para 13 Back

---

Prepared 17 July 2009