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


Examination of Witnesses (Questions 260-279)

RT HON JOHN DENHAM MP AND MR STEPHEN MARSTON

20 MAY 2009

  Q260  Mr Marsden: Could you check that and confirm it to the committee?

  Mr Marston: Yes, I will.[2]

The LSC Finance and Resources Board met on 29 May. That Board does have a DIUS observer and the Deputy Director of the Finance and Performance Division attends. The May Finance and Resources Board considered papers on FE capital including the Edwards Report.

  Q261 Mr Marsden: I want to also move you on to the evidence hearing that the Permanent Secretary attended in November 2008 before the Public Accounts Committee. When we had Mark Haysom before us last week, I asked him questions about the nature of his preparation for that session because, of course, he and the then Permanent Secretary gave the Public Accounts Committee on that occasion the impression that most, if not all, things in the garden were rosy, and they did that perhaps to some extent reflecting the previous NAO report; but I asked Mark Haysom, "You must have realised you would be asked questions about the capital project. Did you not go back to your line managers and say, `I want to know everything about this—the good and the bad. I am not just there to tell everything is wonderful, but I need to be prepared for difficult probing questions?'" Did you do that with the Permanent Secretary? Did you go through what we might call a SWOT analysis in business—strengths, weaknesses, opportunities, threats—or did you say, "Look, we ought to look at this because this is 15% of our budget"?

  Mr Marston: We certainly did, as we always do, a very thorough briefing and discussion with the Permanent Secretary, but I was looking back at the NAO report yesterday and it is one of the characteristics of this—

  Q262  Mr Marsden: Can I not allow you to take us on to the NAO report, interesting though that is, because I am talking very specifically about the appearance before the Public Accounts Committee in November, which, of course, was subsequent to that report. I accept that that report might have lulled a certain sense of security, both into your officials and also into the LSC, but, nevertheless, knowing within your department that there were these other things going around, would it have been reasonable to go back and ask about this Edwards capital report, "Where has it got to?", and all the rest of it?

  Mr Marston: When preparing for that PAC hearing, I certainly was personally not aware.

  Q263  Mr Marsden: And there was no feed-through mechanism from your officials, medium or higher ranking, to say to you, "The Permanent Secretary really ought to be aware of the on-going issue of this report which has now surfaced in two or three different bits of the LSC." There was no programme percolating up to you to prepare the Permanent Secretary for his session before the Public Accounts Committee.

  Mr Marston: Not on that issue, no, because what we thought we were doing was examining, addressing, responding to the findings and conclusions of the Edwards Report.

  Q264  Mr Marsden: I am trying to look at future structures. Do you think in hindsight that, when people like the Permanent Secretary appear before committees of that nature, it might be useful if there was a little bit more bottom up in the organisation as well as top down?

  Mr Marston: I am sure that is right, yes. We must learn a number of lessons from this whole situation, and that is one of them, that in preparing for that sort of session we need to try and grab hold of all of the information and understanding that we have in the organisation that is relevant to that discussion. It may just be worth saying, though, that even at that stage, even in November, as the Secretary of State has said, understanding the full depth of what was going on was really quite elusive. We knew we had a problem; we really did not at that stage, even then, after all that that happened, know the scale of what was going on.

  Q265  Graham Stringer: On that point, you have both said that the conclusions of the Edwards Report were not accepted. Who were they not accepted by, on what basis were they not accepted and did that lack of acceptance get into any briefings to the Permanent Secretary in any way?

  Mr Marston: I apologise; I am being unclear. I do not think it is quite right to say, flat out, it was not accepted. It was understood. People received it, they read it, but the follow-up actions they took were as we have described and, with hindsight, they were not the right actions. We should have moved faster, we should have moved more urgently to say this is flagging something potentially very serious, we must understand and we must investigate that, but I do not think it is quite right to say no action was taken.

  Mr Denham: What I understood Sir Andrew Foster's report to say was not that it was rejected but that some of its conclusions were challenged; they were debated; people were arguing about the analysis and whether this was the correct description of the problem. I did not mean to suggest that it had been rejected in terms of there is nothing here, but I think the Foster Report actually sets out that there was a debate. One of the critical issues was it was never brought to a head.

  Q266  Graham Stringer: I understand the communication issues. What I am trying to get at, perhaps rejection is too strong a word, but what was the evidential basis that that original capital programme report doubted?

  Mr Marston: My understanding is that it was on the basis of the information that people had at the time that was very, very far from complete. If you like, the above-the-surface, visible bit of all of this was what was coming through to the capital committee in terms of projects that were quite a long way down the pipeline, and if you look at that bit of the process, certainly what I was seeing in the LSC papers, it had every appearance of being rigorous, robust—all of it was costed, everything was carefully scrutinised, it was all vetted, for value for money. It looked as though it was a secure, robust process of you just took that little chunk of the whole sequence. What I think the Edwards Report was getting at, and we simply did not have the management information to confirm or deny, was right down in the pipeline in the less formal bit, all building up very, very rapidly, and no-one had that bit of information to offset against Edwards. If you just looked at the formal bit, we could still manage, as we have managed, within the budget we had each year. We have not overspent our budget, because the formal bit set against the budget we have is still matching.

  Q267  Graham Stringer: John, this is a story of a capital budget essentially getting out of control, and that happens from time to time, but there is another side to it that appals me. How can a Labour Government allow a capital programme to be demand-led so that money is spent—I have got nothing against Poole and Dorset—in great quantities in Poole and Dorset and is not spent in the centre of Manchester or Birmingham? The Building Schools for the Future programme was very clearly focused on areas of deprivation and need. Why did a Labour Government not insist that this capital programme went in that direction?

  Mr Denham: Indeed. The history of the capital programme was that in the first few years when the investment began to flow, from about 2001 onwards, the LSC and the Department had actually had great difficulty in spending the capital that was available. There was a need but it was not then that there was a huge flow of schemes coming forward. This may in part be that for a very long period of time the centre had been denied any public sector capital, so the only people who thought about investing were people with land to sell or buildings to sell or they could re-invest. So, going back even two years, the problem was, in part, seen as one of driving up demand, in which case demand-led responding to entrepreneurial colleges was seen as a reasonable thing to do, and within the regions—because one of the problems, we now know, was a very devolved programme—LSC staff engaged with colleges to bring programmes forward. Obviously, the speed at which that worked and the acceleration that took place created a situation where, as Foster has said, the schemes in the pipeline were there on the basis of the demand and not on prioritisation. With hindsight, had we understood how the system was going to accelerate and how demand would exceed supply, we would have taken a different approach, but at the time, going back a year ago, at the beginning of the spending review, when we had the money to talk about, that was not seen as the initial problem. Had we had better feedback on what was already out there, then we would have taken a different view.

  Q268  Graham Stringer: That is a slightly strange answer, is it not, because even if the programme needed kick-starting, a Labour Government, surely, would always prioritise areas of greatest need? There is always a finite amount of money, but if you are allowed to be demand-led, then you are going to get some very strange results.

  Mr Denham: All of the evidence from the PAC report was that the individual schemes that were coming forward were meeting genuine educational need and were producing good designs and good value for money, and actually I am fairly certain that in Poole and in Dorset there are real educational needs that would be represented by any Labour Government. It is true, the programme has not been limited to, for example, a set of the most deprived constituencies in the country—that is not the approach that we took—but we did take comfort from the independent views of this programme, none of which raised any questions, and the PAC report did not raise any questions that we were diverting capital to areas where it was not really necessary or it was not going to produce good educational results for people who really needed to benefit form it. I am quite prepared to accept, with the benefit of hindsight, given what we know about demand and supply, we could have taken a different approach, and we have now to look at prioritisation of the programme as it goes forward, but I do not think that it was an unreasonable approach to take.

  Q269  Graham Stringer: Obviously, where there are young people there is educational demand throughout the country, by definition. Do you think the department should look at its definitions of demand, because we heard from earlier witnesses that there was actually a definitional problem? You can have demand anywhere, but I would say as a Labour MP that we should be looking not just at demand but very acutely at where there is deprivation and need to override that: because, not just on the capital programme, but on the funding methodology and student lending numbers, there is evidence, not that there is not demand, there is clearly demand, but that it is going disproportionately to more affluent areas.

  Mr Denham: Can we unpick that? Certainly in prioritising the money that we now have available, issues like those are going to be—and I am not sure what has gone on in previous evidence sessions—clearly among the criteria that now have to be applied to the programme to get fair and acceptable results. So we do have to prioritise it and we do have to take criteria like that into play. We also have to be careful about our definitions. Regeneration is an issue that has often been raised in the House as a criteria. You can actually regenerate a market town or you can regenerate a deprived inner city area, so you have to be clear what you are talking about when you are talking about regeneration, but I think that prioritisation is necessary. I have not seen an analysis yet, it may be the committee has, that suggests that large amounts of money have gone to places where you really would not have wanted to do something. I think we need to say that, whilst this has been a demand-led programme, I have not yet been to see a college that has been done under the programme where I have come away thinking why it is that—

  Q270  Chairman: I think the point is, if you look at Bradford, which is one of the most deprived areas, my particular region, the fact that it has got absolutely nothing when it could have got what it wanted in terms of a limited bill, that is the bit, Secretary of State, that we find it very difficult to understand.

  Mr Denham: Chairman, there is an issue here that we may need to think about. A demand-led system, or any system actually, even one which has prioritisation, depends on colleges having the capacity to put proposals forward. Colleges, as you know, Chairman (and this is quite important) are independently led and autonomously run and colleges do need to have the initiative to put proposals forward.

  Q271  Chairman: They need helping, do they not, Secretary of State?

  Mr Denham: They do need helping, but it is quite clear that that is what LSC staff have been doing rather too successfully, actually. Maybe that is part of the criticism. They have been out there encouraging the people to put ideas in, but there has to be 50% at least that comes from the colleges themselves. I would also say, Chairman, that is not a particular reflection on Bradford, because I have not studied the position in Bradford and so I do not want those in Bradford to be taking that as a criticism of those particular colleges. I do not know the situation there in detail.

  Q272  Graham Stringer: I will not bore you with the details of where I think the money is going, but I will write to you about it before this committee reports, and I would be grateful for a reply, but I turn to my final question. You said in your opening remarks that you are not in control of very much.

  Mr Denham: We do not run very much.

  Q273  Graham Stringer: I am sorry.

  Mr Denham: I would like to put that on the record. I do not directly run very much, Chairman.

  Q274  Graham Stringer: You do not directly run, which makes control difficult, I guess, in those circumstances. From this experience, which is not a happy experience, do you think there is anything to be learnt? Are quangos the way forward or should some of this business be brought back into local authorities? There has always been a competition. Different governments have taken things out of local authorities and open democratic control and they have put them into quangos. That debate will go on for ever. Do you think there is anything to be learnt from this experience?

  Mr Denham: Even before this experience we had taken the decision that for adult skills the LSC would be abolished and we would have a skills funding agency which would not be an NDPB, and obviously part of that was stimulated by the machinery of government changes. But when we came to assess what we would want as a replacement, I could not see that the complexities of an arms' length body added anything to the ability to take good decisions. Patently obviously, 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, and Mr Boswell is nodding. So you do not get in any way insulated from this because there is an arms' length body, at the end of the day you are still the Minister; and I have been to the House to apologise for this. My conclusion is you should use NDPBs where they are necessary, but not otherwise. I do think on the university side, for a whole host of reasons which I do not want to go into now because we have discussed them just recently, there is an enormous advantage in having the Higher Education Funding Council as a buffer between central government and the universities. But in this area 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.

  Q275  Mr Boswell: I think, by nodding, I have set into the text that you spoke of my experience. Can I advert back to the general interface between the department and LSC? We know that they are a body in run down and they will be transformed, for the reason you have explained. In one of the more colourful phases of evidence, Mark Haysom said that your staff are "crawling all over the LSC", and that is obviously much wider than the engagement with the capital programme which should have taken place. I just wonder if you would comment more generally on how that process is being handled? Will it be handled, as you mentioned, through Stephen or will it be handled by somebody else so there is, as it were, a single point of reference, or is it handled at Secretary of State and Chairman level, and, if I may add to that a final point, there is another player in all this—we have not, of course, had evidence from them before us—and that is DSCF, who have a very strong interest. So in the process of moving from where we were, which I think is acknowledged to be not entirely satisfactory, to where we would like to be in the way that you said, Secretary of State, how is this all being managed? A by-product of that may be that this problem was not picked up as it should have been, but can we have some confidence that there is a coherent view which is taking us from where we were to where we are going to be?

  Chairman: Because it could be an even bigger mess.

  Q276  Mr Boswell: Somebody already mentioned Train to Gain this morning as an example, although I do not want to lead you into that.

  Mr Denham: No, although I actually acknowledged in the debate on Monday that some of the issues about a move towards a more demand-led system when you have fixed budgets are not exactly the same as in this case, but they raise the same questions. How can you free up your system but do it in a way which is still compatible with proper control and public finance? So I acknowledge, Mr Boswell, that we need to be ahead of this. I cannot now recall the context of Mark Haysom's comments. I think there are two issues. There is at the moment, of course, a great deal of discussion between the LSC, my department, DCSF and the emerging YPLA about staffing structures, responsibilities, how finances will work, and so on. So there is a huge amount of engagement that is led day-to-day by Susan Pember, personnel issues and giving staff the chance to choose between a number of different organisations in which they might develop their careers and so on. The second area is that I think, inevitably, for example, the funding of skills, the relative prioritisation, say, that you give to Train to Gain the flexibilities you do or do not give providers, inevitably are of concern to the Department and Ministers because we are accountable for the overall impact of the skills policy, and I am quite sure it is the case that parts of the LSC would say, "I wish they would just give us a cheque at the beginning of the year and tell us to run the best skills policy we can and then come back at the end of the year." It cannot work like that. Indeed, one of the reasons for saying that when the LSC is replaced we want a skills funding agency just acknowledges the reality that we are bound to take an interest in how money is prioritised and how policies are developed. I wonder if Stephen can say a bit more about the management processes.

  Q277  Mr Boswell: That would be helpful.

  Mr Marston: On Mr Boswell's specific question on how we are handling the transition to the new structure, my opposite number in DCSF, Lesley Longstone, and I chair a programme board which also involves the LSC chief executive, colleagues and the local authorities, and that is where we try to understand everything that we need to do.

  Q278  Mr Boswell: And that has got a risk management system presumably built in?

  Mr Marston: Yes, and capital is now on the risk register.

  Q279  Dr Iddon: John, what prospects are there still for colleges that have received approval in principle but not in detail for the future?

  Mr Denham: As you know, Mr Iddon, we received some extra funding at the Budget—an extra £300 million for this spending review, so that is this current financial year and next—and the ability to plan into the next spending review period which we had not had previously. So that does produce some scope to allow some schemes to go ahead. The position at the moment, as I suspect Mr Russell described to you, is the LSC are developing the criteria which should be used for prioritisation, are currently working through the exercise of how they will apply those to the existing schemes and are looking the schemes that this will be applied to, to make sure that in each case we can get value for money and that the investment that we make in individual schemes strikes the right balance between getting schemes under way and making the best use of money and getting as many schemes as possible into the system.


2   Footnote by witness: The LSC Management Group is an internal LSC meeting and there was no DIUS representation either on that date or at its other meetings. Back


 
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