5 Annex 1: Letter from Chair to Sir
Nicholas Macpherson on draft Corporate Governance Code
Sir Nicholas Macpherson KCB
Permanent Secretary
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
30 March 2011
Dear Sir Nicholas
PAC hearing on accountability
At the Committee's hearing on 19 January we explored
the governance reforms and wider issues of financial accountability
in relation to the reform and localism agenda.
We intend to pursue the financial accountability
issues in our formal report based on the evidence we heard on
these issues. Our report will take as its starting point that
government intends to continue to discharge its financial accountability
to Parliament through the Accounting Officer. With that in mind,
we will set out our view of the elements that need to be in place
to make the Accounting Officer model effective and we will consider
the current reform programme for public services against this
framework.
In the meantime, and in response to your letter of
13 January on the draft Corporate Governance Code and Sir Gus
O'Donnell's letter of 14 December on the draft Cabinet Manual,
I thought it would be useful to set out the Committee's conclusions
on the new governance arrangements which we hope you will consider
as you finalise the new Code and Cabinet Manual.
Given that the Accounting Officer model of financial
accountability endures, we are concerned to ensure that the responsibilities
can be discharged appropriately. Our recent experience demonstrates
reluctance on the part of some Accounting Officers to accept full
responsibility for the stewardship of public money, and some hesitation
about seeking directions from Ministers when confronted with proposals
that do not represent value for money. We therefore welcome your
commitment to undertake further work to clarify Accounting Officer
accountabilities and to look again at Treasury guidance on the
circumstances in which directions should be sought. We also welcome
the commitment made by the Treasury to set out clearly the pre-requisites
for good financial management in its guidance to departments,
and to emphasise the importance of affordability and sustainability.
In our view the new powers of non-executives to recommend
the dismissal of Accounting Officers could undermine the position
of Accounting Officers by making them more reluctant to challenge
decisions which in their opinion are not value for money or feasible.
We therefore welcome the Treasury's commitment to refresh the
guidance so the grounds on which Accounting Officers should seek
directions include feasibility, in order to remove doubt about
when a direction should be sought. We also welcome the commitment
to improve transparency, and would expect the Government to publish
ministerial directions soon after they are issued, rather than
waiting for the publication of the department's accounts.
The new Corporate Governance Code introduces a number
of changes in departmental governance. We were assured that the
constitutional roles of Ministers and officials remain unchanged,
but there must be no scope for confusion. We recognise that the
neat distinction between policy and implementation has blurred.
In the operating environment, officials are involved in policy
development and Ministers see policies through into implementation.
We welcome the Government's efforts to develop guidance on this
further. The Government should ensure that Treasury and Cabinet
Office guidance recognises the reality of the blurring of policy
and delivery roles for Ministers and officials, with support and
challenge from non-executives. In particular, it should take into
account the role of the strengthened non-executives, especially
their power to challenge decisions and the impact of their new
power to recommend to the Prime Minister or Cabinet Secretary
the removal of the department's Permanent Secretary.
Given the enhanced position of non-executives on
the boards of government departments derives mainly from their
independence, we were surprised to see some confusion over the
appointment process. Non-executives were appointed before a proper
appointment system and procedures were in place. We understand
the need to ensure that non-executives are able to work with both
Ministers and Accounting Officers, but we believe that this should
be balanced against the need for their independence. If Ministers
are to be subject to effective challenge, the appointment process
for non-executives must be open, transparent and independent of
the Minister to whom the non-executive is to work.
We discussed at the hearing the current weaknesses
in personal accountability for major projects due to the high
turnover of Senior Responsible Owners, which undermines accountability
to Parliament for major projects and has led to cost overruns
and delays. We heard about the efforts of the Cabinet Office's
Efficiency and Reform Group to improve professional project management
skills and provide a high degree of oversight to major projects.
We recognise some of the barriers facing the Government, including
the challenge to retain good Senior Responsible Owners. We would
expect the Cabinet Office to work with the lead non-executive,
Lord Browne, to prepare a fresh action plan to enhance financial
and project management expertise, drawing on private sector experience.
It would be helpful if the Cabinet Office could provide us with
an update of its current approach to improving financial and project
management expertise, and an assessment of progress to date.
Overall, we found the discussions at the Committee's
hearing on 19 January very constructive, and we welcome the assurances
given at the hearing that new guidance will be developed. I look
forward to receiving your response to the matters raised in this
letter, and in particular your assurances that the Committee's
concerns will be addressed. I have copied this letter to Sir Gus
O'Donnell.
Rt Hon Margaret Hodge MP
Chair, Committee of Public Accounts
| 
