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

8  Conclusions and wider implications

Budget management

141. We were warned that a similar situation could arise again with other budgets managed by the LSC. Graham Moore, Chair of the 157 Group, told us:

Another issue that I think comes out of the Foster Report is that this can happen again, and we have with Train to Gain at the moment all the signs that we might be in the same sort of situation but under different management and leadership. It is being tackled with a degree of gusto, albeit a bit late, but I think we must learn from Foster about the way in which we deal with these funding issues.[210]

142. Recent advice to providers from the LSC about Train to Gain funding indicates that, indeed, problems had arisen though steps were being taken to address them:

because of your collective success in delivering to young people and providing Train to Gain, projected demand has increased to a level which if not managed effectively, would be greater than the budget available. This in turn has led to our need to discuss with you your actual and forecast position and to include within that discussion a review of performance.[211]

143. We were advised by Geoff Russell, acting LSC Chief Executive, that he had already made significant changes to the organisation's systems:

in the private sector it would be unthinkable not to have the chief internal auditor report directly to the chief executive with a dotted line to the chairman of the Audit Committee, and I think it was probably less than two weeks before I was in position before I made that change.[212]

144. How the LSC now deals with Train to Gain and Adult Apprenticeship funding, where it is again having to introduce additional prioritisation because of potential overcommitment, will need to be monitored closely. We recommend that the new Business, Innovation and Skills Committee maintains our scrutiny of this policy area.

145. Geoff Russell also rightly identified the tensions between demand-led and needs-based structures, commenting "we need to move from demand-led to needs-based, not just in capital but across our programmes […] We have moved from an environment where it was, 'How much do you want?' to 'This is what you can have. Where is the best place to put it?'"[213] Adding "as to the college programme, you have heard that it was kind of who was first in the queue. Clearly we need to move away from that […] I think we have to move in the same direction on all our programmes."[214]

146. But the then Secretary of State maintained the importance of demand-led provision, even if it led to increased risks:

If you wanted me to pull out, frankly, a generic problem here, we are trying to move the skill system to a much more demand-led and responsive system from a system that most people have regarded as too centralist, bureaucratic and rigid.[215]

147. The Minutes of the 22 April LSC National Council meeting included a summary of a discussion with the Secretaries of State for Children, Schools and Families and Innovation, Universities and Skills. "Comments and requests from members" [of the Council] included the stark statement "Acknowledge the danger of repeating the capital experience with Train to Gain and Sixth Form funding if robust action was not taken in time to manage demand within available resources. Put processes in place to ensure robust future projection to avoid 'surprises'" In responding, the Secretaries of State advised "A more sophisticated demand led approach: 'demand' to mean 'informed demand', not necessarily 'first come first served'."[216]

148. There is an ongoing tension between demand-led and needs-based provision which needs to be resolved between the LSC and DIUS (now DBIS) and across government more widely. The Secretary of State for Children, Schools and Families and the then Secretary of State for Innovation, Universities and Skills told the LSC Council in April 2009 that they wanted "informed demand" rather than prioritisation on a "first come first served" basis. We ask DBIS to set out precisely what is meant by "informed demand", and how this links to the way in which the LSC and the new Skills Funding Agency and Young People's Learning Agency will manage their programmes.


149. Perhaps the most telling description of the situation was given to us by the then Secretary of State:

one of the things I found in discussing this issue is it is sometimes described as though there were a group of people who knew exactly what was going on and they did not tell other people exactly what was going on. I am afraid the problem was there was a group of people that we might have expected to know what was going on who did not themselves have a full grasp of it and, therefore, could not communicate the problem to us.[217]

150. The programme of capital investment in FE colleges has greatly benefited some colleges, communities and students but in a haphazard manner. We conclude that both DIUS and the LSC are jointly liable for not recognising the weak points of a capital programme which suffered from no overall budget and poor management information, but which was being heavily marketed by the LSC to colleges. A heinously complicated management structure within the LSC and the approaching Machinery of Government changes bred a lack of responsibility and gave an air of distraction. Everyone wanted this laudable programme to succeed and so failure became unthinkable. Mark Haysom alluded to this when he said "why was the capital programme not on the risk register? I think, well, I know, because it was seen to be a success, that flipping into, in record time, a situation of over-demand was not seen to be an issue on the radar. I am sorry, but it was not."

151. We believe that the greater the freedom given to arms-length agencies by Government departments to carry through major public expenditure programmes, the greater the obligation on the senior management of those agencies to observe due diligence over internal reviews of that expenditure. That includes being proactive in flagging up potential major resource problems to the sponsoring Government department. It is clear that this was not done in the case of LSC and DIUS. It is, above all, a sorry story of management within the LSC compounded by failures of government oversight within DIUS which is likely to cost hundreds of millions of pounds.

152. Looking forward, the decision-making structure will shortly become even more complicated as the number of organisations involved increases from three (LSC, DIUS, DCSF) to five (Department for Business, Innovation and Skills, DCSF, Local authorities, Skills Funding Agency, Young People's Learning Agency). Both the transition to these new arrangements (which will be led by a new Department) and the new arrangements themselves have the potential to repeat and compound all the problems we have identified throughout this report. The new Department for Business, Innovation and Skills and the new management of the LSC must ensure that this does not happen.

210   Q 151 Back

211   www.lsc.gov.uk/news/latestnews/news-19052009.htm. This subject, along with the FE capital programme, was the subject of a recent edition of the Radio 4 programme 'File on 4'. A transcript of the programme is available at http://news.bbc.co.uk/1/hi/programmes/file_on_4/7427982.stm Back

212   Q 231 Back

213   Q 239 Back

214   Q 242 Back

215   Q 251 Back

216   LSC, National Council minutes, 22 April 2009 Back

217   Q 250 Back

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