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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