House of Commons - Communities and Local Government's Departmental Annual Report 2009, and the performance of the Department in 2008-09 - Communities and Local Government Committee

Communities and Local Government's Departmental Annual Report 2009, and the performance of the Department in 2008-09 - Communities and Local Government Committee Contents

3 The capacity of CLG to deal with challenges of the past year

The challenges facing CLG

38. The Chartered Institute of Housing, commenting to us on its perception of CLG's recent performance, rightly points out the challenges facing CLG this past year:

Commenting on the department at this time has to consider the unique challenges presented by [the]unprecedented external environment. We would note that the current financial and housing turmoil appears to have placed significant pressures on CLG. It has been noticeable that staff have been moved from existing work to deliver new emergency programmes (the range of mortgage rescue activities, the Housing Pledge). This is in addition to an important and ongoing core programme (local government reform, an ambitious housing development programme anchored in the 2007 Housing Green Paper, planning reforms, and significant institutional change internally and externally with the creation of the FSA [Financial Services Authority], HCA [Homes and Communities Agency], IPC [Infrastructure Planning Commission], NTV [National Tenant Voice]).[34]

39. The recession has obviously required changes to spending programmes across Government: CLG is not the only Department affected. However, the extent of the task facing CLG in particular should be acknowledged. As the Permanent Secretary told us:

Communities and Local Government made by far and away the biggest set of changes in its programmes. £1.5 billion was a very significant proportion of our expenditure that was refocused to do new things in different ways with a very high success rate. I am proud of what we have done for our Ministers on that. [35]

40. Chapter 2 of the DAR sets out in more detail the action which CLG has taken to respond to the changing economic situation. In particular—alongside its regular programme of work—it has:

reprofiled its planned expenditure, with over £1.5bn of investment brought forward from 2010-11 to support housing and regeneration activity; and looked across all of its policy areas to ensure that the Department, together with its local and national delivery partners, is responding effectively to the changed economic circumstances (para 2.4);
taken practical steps to ensure that homeowners who are concerned about the risk of repossession have access to advice and information; and provided wider support for householders to support the supply of private sector and affordable housing (para 2.5);
provided help to councils, communities and business, including supporting the 125 English local authorities affected by the collapse of the Icelandic banks in October 2008 (para 2.6);
commissioned Professor Michael Parkinson to assess the impact of the credit crunch on the commercial property sector, the housing market and the regeneration sector (para 2.6);
worked with the Department for Work and Pensions to deliver the Future Jobs Fund (para 2.6); and
"managed and refreshed" Local Area Agreements, in particular looking at how local partnerships have been able to respond locally to the impacts of the downturn (para 2.8).

41. In our oral and written questioning for this inquiry, we focussed particularly on the £1.5bn of budget changes to which the Permanent Secretary referred in the quotation above. We reproduce the Department's response to our request for a clear explanation of those changes, made to deliver the Prime Minister's 'Housing Pledge', in an Appendix to this Report.

42. The Chartered Institute of Housing suggested that this allocation of funding from other Government Departments to the Housing Pledge "reflects well on the department in attracting (scarce) public funding to housing as a government priority."[36] As the CIH goes on to point out, there is no evidence that the work of CLG itself was responsible for securing the funding: "Obviously, what is not clear from this is how much of this was informed by CLG work and how much was a simple political/cabinet decision and therefore in effect little directly to do with the department per se".[37] However, as Richard McCarthy, CLG's Director General of Housing and Planning, noted, "of the £1.5 billion allocated to new investment in housing around, £600 million of money from the department, reprioritised and reprofiled, geared in some £900 million of money from elsewhere in government".[38]

43. CLG responded well, then, in adjusting its spending programme to take account of the economic downturn; but how well equipped is the Department to meet the challenges of its day-to-day policy work? We have commented on this issue in successive earlier reports on the Department's performance, concluding last year that

Notwithstanding the advances noted in the Department's Annual Report and in the Capability Review, we have yet to see consistent and sustained evidence that the Department possesses the full range of skills required for the effective formulation and delivery of the policies for which it is responsible. We look forward to seeing further progress in the Department's 2009 Report.[39]

44. The 2009 DAR devotes a section to "Building our capacity", setting out the action which the Department has taken to address points made by us and others, including in the most recent Cabinet Office "Capability Review" of its performance. In particular, it notes:

We have continued to strengthen our skills and capabilities on policy and delivery. The governance of the Department has been strengthened, both through the appointment of six senior non-executives drawn from across the third and private sectors and local government, and through the role of the Delivery Sub-Committee which continues to be responsible for scrutinising and ensuring the successful delivery of the Department's key, high risk delivery programmes. We have also implemented a tailored programme and project management (PPM) training package, and are on track to have trained 50 per cent of staff from Executive Officer to Director level by March 2010, including all key project and programme managers.

We have continued to embed evidence and analysis throughout the Department. Our work on the spatial impacts of the recession and our new Local Analysis and Delivery Unit, provide a strong platform for ensuring our policies and programmes reflect and address the new challenges arising from the downturn. We have also continued to build skills and awareness across policy teams, including by increasing co-location of policy and analytical teams. Our Special Projects Unit, led by Stephen Aldridge, provides a new dedicated resource to consider long-term challenges, while our flexible analyst pool enhances our ability to respond to new demands and priorities.

We have continued to improve the quality and transparency of our policy assessments through a further strengthening of our impact assessment process, driven by the new Chief Economist sign-off process and accompanied by focused training to strengthen assessment of equality impacts. We have also demonstrated our commitment to the principles of Better Regulation through our dedication to the Government's Code of Practice for public consultations and through our continued improvement in stakeholder engagement, confirmed by the results in our 2008 Stakeholder Survey.[40]

45. This last point, on stakeholder engagement, is taken up later, along with comment on how CLG works with other Government Departments, under the heading of "Maximising our impact with staff and stakeholders":

Together with our new Homes and Communities Agency, we have worked closely with housebuilders, lenders and other key agencies to develop interventions which respond to the impacts of the housing market downturn and to ensure these new schemes are delivered effectively. This includes our successful work with the banking sector to deliver the new Homeowner Mortgage Support Scheme, with major lenders either due to participate or to offer a comparable scheme.

Our reach across government continues to grow, in particular through LAA and MAA negotiations which have secured high-profile engagement in other departments to deliver challenging targets for localities and regions in their highest priority areas. We continue collaborative cross-government work to deliver PSAs 20 and 21 and we are active participants on the boards for other PSAs where we make a major contribution. Many of our key achievements set out in this report have been based on strong partnership working arrangements, including:

devising and implementing our response to the housing difficulties during the downturn (HM Treasury);
tackling worklessness through the Working Neighbourhood Fund and the new Future Jobs Fund (DWP);
tackling violent extremism and considering the impacts of migration on our communities (Home Office);
responding to the emergency situation in Zimbabwe (FCO, DWP), and in the UK, to the swine flu outbreak (DH).[41]

STAKEHOLDER ENGAGEMENT

46. Stakeholder engagement was mentioned by a number of those who sent us written evidence on CLG's performance. The picture which emerges from this evidence is a mixed one, but suggests improving performance and generally reflects the impact of the measures which the Department refers to in its Annual Report. The National Housing Federation, for example, told us:

The Department has worked well with the Federation on operational issues and has a good level of interaction with the housing association sector in responding to issues as they arise. Historically, on strategic policy such as the Housing and Regeneration Act 2008 and Community Infrastructure Levy (CIL) there has been a tendency to form specific proposals behind closed doors and publish them before opening discussions with stakeholders as to how they should function in practice. This has resulted in extensive refinement of the policy proposals through the parliamentary process and in consultation with the Department which has delayed implementation and affected performance.

Enabling input from stakeholders in forming policies and testing ideas at an earlier stage in the process would have improved their effectiveness and allowed more focus on implementation. However, there have been recent improvements in this area, with the sector working effectively with the Department to develop and implement, for example, mortgage rescue schemes.[42]

47. Similarly, the National Council for Voluntary Organisations commented

Our sector plays a key role in meeting CLG policy objectives in partnership with councils and with other local public sector bodies. It is therefore important that CLG maintains an effective relationship with representative organisations such as NCVO so that it understands the impact of its work and adapts its programmes and policies accordingly. [...] I think it would be fair to say that NCVO has had a mixed experience of CLG but that performance is certainly improving. In the past we have been concerned by the way in which CLG has tended to silo civil society as being the responsibility of its third sector staff rather than recognising our policy contribution in for example bringing insight into how to revitalise local democracy. […] Better relationships with officials have now been developed, enabling NCVO to input its thoughts and those of its members more effectively.[43]

48. Responding on behalf of the Department to criticisms of its stakeholder engagement, Mr McCarthy commented on CLG and the NHF working together on the mortgage rescue scheme, and made a wider point about the department's approach to this issue:

[The NHF] helped us design the mortgage rescue scheme. It has regular engagement across the piece. Indeed, one of the things that we try to do is to empower our directors and our deputy directors so that stakeholder engagement is not just about people sitting at the top of the office; it is about the way we do our business. [44]

49. We welcome the steps which the Department has made, and continues to make, to improve the way in which it engages with its stakeholders in the formulation and delivery of policy. However, even the best stakeholder engagement is no substitute for effective policy formulation and delivery within the Department, as we go on to discuss below.

SKILLS IN THE DEPARTMENT

50. In the course of our oral evidence sessions, we considered a number of issues which, arguably, demonstrated continued weaknesses in the Department's policy formulation and delivery. We discuss briefly here two examples which have already come up in the course of this Report: the Fire and Rescue Service projects Firelink, Firebuy, FiReControl and New Dimension; and the Mortgage Rescue Scheme. We also consider the National Audit Office's recent report on financial management in the Department.

Fire and Rescue Service projects

51. As we conclude above, it is clear from the National Audit Office's comments on the range of projects undertaken in the Fire Service that project management skills are lacking in the Department and that this is having a serious effect on the achievement of the Department's objectives.[45] In a recent Treasury Minute in response to reports from the Committee of Public Accounts, CLG acknowledges this area of weakness, and sets out some steps which it has taken to address them:

The Department has done much to address [weaknesses in the programme management of New Dimension] since 2005 and now has improved systems in place. For example: the lessons learnt on New Dimension were picked up by the Department's then emerging FiReControl project which put in place specialist resource covering programme management, and commercial and quality assurance competencies. The Department's finance and procurement functions are now closely involved in the running of the Fire and Resilience Programme Board (which considers not only New Dimension but the Firelink and FiReControl projects as well). There are regular meetings on budget issues between the policy and project functions. Additionally a new Head of Procurement has been appointed with an increased portfolio of practical experience, which he is bringing to the function. The Department is addressing the acknowledged areas of weakness working with business units including Fire and Resilience Directorate.[46]

52. Questioned in oral evidence on whether the problems the Department has had over these programmes were in part due to the fact that the staff involved did not have the requisite skills, the Permanent Secretary replied

In part, yes. If I look at the development of those programmes over the while we have been running them, in our jargon the 'client-side' of managing those contractors is a tough call. We brought a range of specialist professional expertise into the FiReControl team and if I look back now at the work we have done in relation to that, I can see places where we could have done better. I think the balance here is important though. The delays we have experienced on both Firelink and FiReControl have been about the technology platform. We have had world-class suppliers who won these jobs in competitive tender, who have been unable to deliver a satisfactory product on the timescale which they promised. In those circumstances we have been open, talked with our stakeholders about it and reformulated the timetable. That has been very frustrating and expensive for us. The main thing is that failure of technology and platforms, but I hope nobody would sit in front of you and say their side of the work could not have been improved, I know we could have done better on that.[47]

53. Following the evidence we took during our sessions on the DAR, we decided to undertake an inquiry specifically into the FiReControl project. The evidence we have received suggests very strongly that, notwithstanding the measures which CLG and its Permanent Secretary mention above, the weaknesses which have beset that programme persist. We will have more to say on this subject in a separate report in due course.

Mortgage Rescue scheme

54. Notwithstanding the positive comments from the National Housing Federation on stakeholder engagement which we reproduce above, the mortgage rescue scheme also demonstrates some Departmental weaknesses. According to figures obtained in advance of time of our oral evidence session, only 23 registered social landlords had joined the scheme, and it was evident that some local authorities had not displayed as much enthusiasm for the scheme as had others. This left some vulnerable people at risk of not being able to access the help the scheme provided. Questioned about this, Mr McCarthy acknowledged the early weaknesses in the scheme:

I think it is fair to say that was a threat but [...] we have taken action on both fronts to try to ensure that does not occur [...] We are doing some very targeted activity to ensure that in particular in those areas we are both supporting and, I have to say, challenging those authorities about the provision of those services.[48]

Later, the Minister similarly noted the improvements which had been made to the scheme, but similarly acknowledged the weaknesses in the formulation and delivery of the policy which had made those changes necessary and hindered its early effectiveness:

To be fair yes, I think they did. The weaknesses that I saw when I came into the job in June included us not having enough housing associations that were ready and signed up as part of the scheme; we are raising that number now. I do not think enough lenders were looking hard at whether the Mortgage Rescue Scheme might be appropriate for some of their borrowers who were really in trouble and we have done that with the central team. I have also allowed the Homes and Communities Agency to flex the grant rates that are there because what housing associations were finding as they looked to take on these properties was that there was actually quite a large bill often to bring them up to the sort of standard before they would let them as a housing association and that had not been anticipated in the way we originally designed the scheme.[49]

Financial management skills of CLG staff

55. In July 2009, the National Audit Office published Financial Management in the Department for Communities and Local Government. That report noted the problems CLG has in delivering its financial objectives: it acknowledged that commitment has been shown in improving financial leadership and governance, but concluded that CLG has more work to do to embed financial management throughout the organisation:

The Department is committed to good financial management at senior management and Board level and has introduced processes to improve its financial management systems and the financial capability of its staff. The Department does still have more to do to embed good financial management throughout the organisation, which is made more challenging by the complex delivery framework within which it operates.[50]

56. The Local Government Association, in written evidence to us, cited that NAO report and also commented on the financial management of CLG, demonstrating the effects of the lack of skills in this area:

We have concerns over the financial management of the department which, in turn, impacts on the resources of councils and, ultimately, residents. The National Audit Office report…demonstrated that the "Department cannot accurately report expenditure against its strategic objectives or other outcome indicators". Its slow decision-making and financial management has a direct impact on our members: for example, under spending by £722m, when the bulk of the department's expenditure is grants to local government having clear knock-on effects.[51]

57. The NAO performance brief reiterated the comments from its July Report praising good financial management at senior level, but continued by saying that

[t]he Department still has more to do [...] to embed good financial management throughout the organisation.We found that the Department should have more financially trained staff given its size and expenditure. As at June 2008, some 28 per cent of the Department's finance staff were professionally qualified, compared to an average across public sector organisations of 34 per cent. The Department recognises the need to increase the proportion of financially qualified staff within its finance teams and considers that it is making improvements in this area. The Department told us that it has restructured the Finance division to separate transaction processing from business support and created a business partnering team. It has also redeployed some existing staff and recruited qualified and experienced finance staff. The Department estimates that half of the 28 staff in the business partnering team were appointed from outside the Department.[52]

58. In oral evidence, Hunada Nouss, Director General, Finance and Corporate Services, acknowledged the points made in the NAO briefing, whilst setting out what action the Department has taken in response:

I think the NAO Report recognises that we have made outstanding progress over the last three years where we had very little professionalisation in the finance function and it has moved significantly. Part of the recruitment…is about bringing in more professional staff to lead the function and drive much more improvement in systems processes, quality of management information to improve the management conversations and also engaging with the policy teams to ensure they understand good financial management. We have made a lot of progress, but I would never be complacent about this. There is a lot more we can do in terms of ensuring all policy is well-grounded in our understanding of both affordability and value for money. That is part of what my finance business partners do, sitting alongside policy teams.[53]

STAFF MOVEMENT AND MINISTERIAL CHANGES

59. A recent Parliamentary written answer setting out the average (median) years in post, by grade level, for staff in Communities and Local Government as at end of March 2009 suggests one possible contributory factor to the problems which the Department has experienced with effective policy formulation and delivery:

	Average years (median)
AA	2.9
AO	2.0
EO	0.9
HEO	0.7
SEO	0.9
Grade 7	0.7
Grade 6	0.8
SCS	0.9
All grades	0.8

Source: HC Deb, 12 October 2009, col 313W

This answer suggests that, on average, an official in CLG can expect to have been in his or her particular post in the Department for just 0.8 years (about 9 months). It is questionable how effective an individual can expect to be in a post after such a short time.

60. We questioned the Permanent Secretary on this point in oral evidence. His answers bring us back around to the challenges which have faced the Department in the period since our last report on its performance:

This year will have been a more rapid figure than normal because we made some very significant shifts of staffing resource to cope with the recession. Particularly in the housing area where we have taken on completely new areas of work, we have had to move staff from their previous sector, so that will have added to the turnover [...] If you take, for example, the suite of work we have done on repossessions, 12 months ago none of that was available through the Department and a completely new set of interventions of support, which has been effective across a range of situations, has been put into place with a whole set of new partnerships and so forth. That has required us to shift the balance of staff and to move from low priority work on to the higher priority work.[54]

61. This same point was highlighted in written evidence from the CIH, who also demonstrated some of the consequences:

The re-prioritisation of department resources (both capital and staffing) is not unwelcome, reflecting as it does decisions that are being made across the economy to respond to troubling times. However it has meant that there has been a period of unusual fluidity. This has impacted on continuity of some work. Perhaps most notable for CIH has been the shift of focus from what we believe are some fundamental and important long term questions (such as rental housing reform and the "parking" of the green paper on this) to more immediate responses. While we recognise that resources need to be best allocated, the long term vision should not be lost. In this, chopping and changing of priorities within the department has had an impact externally—as people contributing their ideas and time to specific areas of work see their contributions marginalised (albeit understanding the wider pressures).[55]

62. The turnover of staff postings in the Department is mirrored in another problem which the Department has experienced, and on which we have commented before—albeit one over which the Department itself can have little influence. That is the frequency of Ministerial change in the Department. The Chartered Institute of Housing, commenting on Departmental capability, told us:

Perhaps most notable has been the revolving door of Ministers. Delivering a coherent programme of work and policy in these times would be difficult enough with strong leadership and direction, let alone with frequent changes to the Secretary of State and their ministers of state. Each new minister takes time to get up to speed with existing priorities and also brings with them fresh thinking. Despite the professionalism of the civil service this would appear to consume senior officials' time and energy in a way that could be more productively employed.[56]

The National Housing Federation made a similar point:

The rapid turnover of ministers in recent years has made it more difficult for the sector to build long term relationships with the Department. Performance, and indeed the degree of openness and engagement, not just with ministers, but across the whole department, has differed between ministerial regimes.[57]

We commented on this point in a recent follow-up report on the effect of the credit crunch on the Government's housing policies. We concluded, "While we recognise the need for changes to Ministerial posts, it is vital that CLG has continuity in its housing policy: regular changes in the responsible Minister do not further that aim."[58]

63. Since it was established on 5 May 2006 to succeed the Office of the Deputy Prime Minister, CLG has had:

three Secretaries of State
three Ministers of State for Local Government, and
four Ministers of State for Housing,

to say nothing of the numerous appointments at parliamentary under-secretary level. The average length of time in post of a CLG senior minister at the time of our oral evidence session was barely a year. Just as it is questionable how effective a member of CLG staff may expect to be after just 9 months in the post, so it is questionable how effective Ministers can expect to be if they are in post for just a year.

64. Ministerial appointments are a matter for the Prime Minister. Doubtless many factors enter into the equation when he is considering Ministerial reshuffles. The effect on Departmental performance, however, should not be the least of those factors. The rapid turnover—or revolving door, as one of our witnesses put it—of Ministers in the Department is bound adversely to affect its performance. Effective policy-making and delivery suffers where officials' time and energy is consumed with getting to grips with a new Minister; it is enhanced when well-informed Ministers remain in place long enough to see their programmes through. Our experience supports the recent conclusion of the Public Administration Committee, in the report of its inquiry into Good Government, that

what is [...] crucial is leaving ministers in post for longer so that they can cultivate the knowledge and relationships they need in order to govern well. Assuming that the right appointments have been made in the first place, this would help ensure that government develops the ministerial capacity it needs to function effectively.[59]

Departmental capacity: conclusion

65. In our last report on CLG's performance, we said that we looked forward to seeing further progress in the development of the Department's capacity. The challenges of the economic downturn have changed the policy context very considerably since then. Recognising the very substantial changes which have been made to its policies and programmes to meet those challenges, we commend CLG for the action which it has taken to meet Ministers' priorities in this difficult period. We also recognise the steps which the Department has taken to strengthen its capacity and equip itself to deliver on those priorities. We conclude that we still have yet to see consistent and sustained evidence that the Department possesses the full range of skills required for the effective formulation and delivery of the policies for which it is responsible. We expect to see further progress recorded in the next Departmental Annual Report.

66. The Department can help itself in the task of improving its capability by improving its workforce planning. Leaving staff in post for an average of just 9 months before moving them on to something new is not a sensible way to run an organisation. If our successors in the next Parliament choose to repeat this exercise of examining the performance of the Department next year, we would expect them to look for evidence that this issue has been addressed.

67. Meanwhile, the issue of Ministerial turnover, though it is one which has an equally negative effect on Departmental performance, is not one which the Department itself has any power to address. For that, we must appeal to the Prime Minister. We urge the Prime Minister to take greater account of the prerequisites for effective government when conducting Ministerial reshuffles.

68. Finally, we urge both officials and Ministers in the Department not to allow the challenges of the economic downturn to distract them from long-term policy goals, especially in housing. We are pleased to see that the Government has now, some considerable time later than originally expected,[60] addressed the Chartered Institute of Housing's concern about rental housing reform.[61] We ourselves, meanwhile, have in a recent report called on the Government to consider the long-term future of the balance of housing tenures.[62]These are important issues for the future of the country and will require considered and rigorous policy formulation as well, in due course, as effective delivery. It will also be crucial that the Department engage effectively with its stakeholders, both within and outside Government, if the questions which these issues raise are to be resolved successfully.