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.
Conclusion
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
