UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 650-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Committee of Public Accounts

Comprehensive Spending Review: Departmental Business Plans

Wednesday 9 February 2011

Rt Hon Oliver Letwin MP AND Rt Hon Danny Alexander MP

Evidence heard in Public Questions 91 - 200

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Committee of Public Accounts Committee

on Wednesday 9 February 2011

Members present:

Rt Hon Margaret Hodge (Chair)

Mr Richard Bacon

Stella Creasy

Jackie Doyle Price

Matthew Hancock

Chris Heaton-Harris

Mrs Anne McGuire

Austin Mitchell

Nick Smith

James Wharton

________________

Amyas Morse, Comptroller and Auditor General, gave evidence. Gabrielle Cohen, Assistant Auditor General, NAO, Nick Sloan, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, NAO, were in attendance.

Examination of Witnesses

Witnesses: Rt hon. Oliver Letwin MP, Minister of State, Cabinet Office, and Rt hon. Danny Alexander MP, Chief Secretary to the Treasury, gave evidence.

Q91 Chair : Welcome to you both and thank you very much for volunteering to come and appear before the Committee. We have had a series of hearings that really are there to support us in trying to understand how we can then best hold the Government to account during the process of the implementation of the comprehensive spending review and your coalition reform programme as well. We have had one private hearing and then one public hearing, so it is really helpful to hear your views, but we realise things are evolving and it is pretty iterative at the moment, but it might be helpful for you to get some of our early feelings on it. I don’t know who wants to answer this one, but we originally started this by looking at the business plans and I just wondered how you would define those business plans. What are they?

Danny Alexander: Do you want to go first?

Oliver Letwin: Yes, I’ll shoot on that. I think actually they have a remarkably clear definition. It will be for the Committee to decide whether it is the right definition, but we are clear about what they are trying to do and what they are not trying to do. They are the classical exposition, the definitive exposition, of what it is that Departments are meant to do that is within their control-I will come back to that point in a moment-to make a reality of what is in the coalition programme for government.

To bring out more clearly what that means they are not, they are not plans for the operation of business as usual. I mean, Departments have to do job centres and prisons-they have had since time immemorial; they have to continue to do so. Permanent secretaries will need plans to work out human resources for doing it. That is not this. Nor are they what lies underneath this, which we are aware, of course, that particular Departments are developing, which is their own plans for how to manage their own staff to carry out each of the items that are in these business plans-so how a Department allocates it resources, what kinds of committee structures or groups of officials it sets up to make sure that it is implemented. Again, that is not here.

At the high level, it is the question of what the product looks like: what pieces of legislation you are going to introduce; what specific administrative changes you are going to make-that is what is in here and all of it is tied to the programme for government. The only two other things that are here are a necessary consequence of our effort to make sure that you and others will be able to hold us to account in relation to those plans-which we think is in our interests; this is not a sort of charitable activity-one of which is a set of inputs, the financial inputs, that accompany these plans, the amount of money that is available to the Department.

Q92 Chair : That is not there yet.

Oliver Letwin: It is not there in full yet and will be at the next iteration.

Q93 Chair : Which will be?

Oliver Letwin: Probably at the start of the next financial year.

Q94 Chair : So by April. One of the questions was really around there are not costings attached and that is why I said I appreciate it is iterative-

Oliver Letwin: Yes, our intention is to produce a set of these plans that benefit from the further work that we are doing in a series of White Papers, building the programme for government and building on the spending review 2010 to give a full picture of the financial inputs. There is a kind of placeholder in there at the moment, rather than the full information. I’m sure you will want to ask Danny more about that.

But then there is another thing, a third thing-again, it is not fully there yet-which is the outcomes, indicators of the outcomes. It is our intention that in the not-too-distant future-but not on the same kind of timescale; it will take somewhat longer-you should be able to drill down from the aggregate outcomes to much more specific ones. Just as through the transparency mechanisms that we are putting in place for both central and local government, you will be able to look down and find out what is being spent down to quite small amounts of money and be able to identify the unit costs of quite small entities. We hope you will be able to look down from, shall we say, the number of pupils in Britain who are getting GCSE grades A to C in given subjects, to how well a particular local authority area is performing, how well within that academies versus local authority schools, and indeed, in the end, right down to the individual schools. There is a gradual move towards a very great deal of transparency about the outcomes that arise from the combination of what we inherited and what we are doing here.

Q95 Chair : Okay. Now-

Danny Alexander: May I-

Q96 Chair : Yes. Please do.

Danny Alexander: -perhaps add something in relation to two of those points. Oliver’s initial point was that these business plans are a tool both for us to ensure that the Departments deliver on the commitments that we made in the coalition agreement, and also for you and for other Select Committees, and for Parliament and for the public, to be kept abreast of how we are getting on with delivering those things-so it is a tool of accountability.

I think the last point Oliver made is also very important and I think it cuts to the point that you were asking about: what is the next iteration of this? Because the transparency part of the plans is something that will prove to be very useful in terms of the input cost indicators, the impact indicators, the data on common areas of spend, which will be comparable between Departments so that Committees and others can make comparisons. That is something that has particularly been in a sort of consultative phase, with the round of business plans we published last year, where engagement has been going on at departmental level with, for example, departmental Select Committees on the choice of data sets and so on, where experts and stakeholders in individual Departments’ work have been engaged with that. As well as adding in commitments made by some of the important strategies that the Government are bringing forward at the moment, the development of those indicators through that consultative process will, I think, also be an area where you will see change at the next iteration in April.

Q97 Chair : Okay. Now, they are therefore partial, right, because they reflect the agreement? We will be interested in holding you to account for spending, so we will be interested in indicators and data right across the field. David Normington, when he gave us evidence, said there is nothing in here about running the UK Borders Agency, which is obviously a big part of-or was-his empire, and we will want to see indicators around it. Because they are partial, I think I want to get a feel as to how they fit in with your overarching priority, which is the deficit reduction. You have your coalition agreement priorities set out in the business plans. You then have this overarching ambition to reduce expenditure by £81 billion. How are the two going to gel together, because that is really important for us?

Oliver Letwin: Do you want to start?

Danny Alexander: Yes, I will, yes. The first thing to say is many of the structural reforms that are set out in the business plans are a necessary part of that process, because the objective that sits behind many of those reforms is to ensure that we continue to get good or better outcomes under circumstances where there is less public money to spend. In the DWP business plan, we set out the Work Programme, for example, which we think is going to be a more effective way within that system of getting people back into work. We can go through other examples, but therefore the structural reforms are an important part of Departments living within their spending review settlements and ensuring that they continue to maintain and improve the outcomes of the services that they manage and deliver.

Obviously the data that are provided in the business plans, particularly in the common areas of spend, are very important to managing the efficiency agenda within Departments to ensure that they can deliver the 33% or more reduction in their administration budgets, which we set out in the spending review. Honestly, we in the Treasury are keeping a very close eye, day by day, week by week, month by month, on how Departments are getting on in living within their spending review settlements in every area of their activity.

Q98 Chair : With respect, it does not really give me an answer, because what we will want to be able to look at is Department of Health, DWP, whatever it is, and say, "You have an ambition to reduce spending by x. Within that you have a commitment to implement coalition agreement y," but how do we see that whole picture? The reason why I asked the question was originally-I do now understand the purpose of the business plans-I took them, in my naive way, that they were business plans for the whole of each Department’s expenditure. They are not; they concern coalition agreement implementation, so we need a context in which we can look at the whole of a Department, given that is really the overarching priority of you in government.

Oliver Letwin: I am trying to imagine myself in your position and obviously it is going to be inadequate, because you understand where you are coming from better than I am going to, but I think it may be helpful if I say this: these are primarily designed, as Danny was mentioning a moment or two ago, as a tool for us, because we have a responsibility to the Prime Minister, the Deputy Prime Minister and to the Cabinet to make sure that we implement our programme for government.

We think, incidentally, that they will be useful not only to you, but to other Committees, departmental Committees and so on, but actually if they were no use to anybody we would still need them for that purpose. That is a separate question from the question: are Departments spending the amounts of money that they said they would spend on the things that they are spending it on? As a matter of fact, the inputs listed here will help to search for that, but I am sure that you will want to call accounting officers and Secretaries of State and so on to account for what they are doing on that, and the business plan and structural reform plans here, neither impede nor help with that process.

Chair : Okay.

Oliver Letwin: The connection, therefore, is a connection of ideas, of just the kind that Danny was bringing out. I’m not asking you to share this view, but our view is that it is more likely that Departments will be able to live within the spending constraints and produce good outcomes if they take the actions that we are putting down here. The point at which I suspect the circle comes round and joins the starting point from your point of view is that the outcome measures here will be, of course, a product of many things: partly the scene we inherited; partly the actions and reactions of hundreds of thousands, maybe millions, of people around the country that we cannot control, but where we hope to have created proper incentives; and partly our actions in the structural reform plans that change structures that should have effects. You will be able to judge, looking at the outcomes and looking at the overall inputs and much other information besides whether we have improved outcomes and whether the Departments-

Q99 Chair : Okay, but let me just pursue that and then I will bring in Anne. Let me just pursue with some-and these may be wrong, so this is why it is good that we are meeting at an early stage. For example, take the health reforms-absolutely classic. In health you have the ambition to find £15 billion to £20 billion-worth of financial savings. You have a reform agenda as yet uncosted; the two could clash. The reform agenda is part of the business plan; the savings go on somewhere else. How do you reconcile that? Take another one-two others I came across. One: free schools-maybe wrong, maybe right-but according to the papers, £50 million has been set aside to implement free schools. One is costing us £15 million. How are you going to ensure that you stay within your budget or meet the financial cuts? A third one is the Home Office abolition of police authorities. The Home Office has set aside £50 million for that, and we are now told that setting up and running a new system will cost £130 million. There seems to me, in the pursuit of your coalition agreement reform agenda, a conflict in those three examples between that and your overarching ambition to cut public spending.

Danny Alexander: Shall we start with health?

Oliver Letwin: Let me start by saying something about health, and then Danny may want to move on to the other cases, too. Our view is directly contrary to yours; that is to say we think that the only way in which we can achieve the savings that the health service needs to achieve over the period in which it needs to achieve them in to live within its real terms constant budget while accommodating 3% or 4% growth in demand, as we all know over the period-

Q100 Chair : David Nicholson thinks it is a great risk. I just say that to you.

Oliver Letwin: Okay. Our view is the only way in which we are going to achieve that goal, which is a very arduous goal to achieve, is by introducing changes that change the incentives and locate in the GP, essentially, the combined incentive for high quality outcomes for their patients and an incentive to control the money that is used to achieve those. Now, of course, we are very happy to talk in detail about-

Q101 Chair : If it were to go wrong, how would the two come together? I gave you three examples; maybe I am wrong on the three, because there is not much that information in the public domain. But if that sort of tension emerges, and my guess from my years in government is that it will, how are you going to reconcile those two?

Oliver Letwin: I think that the difference of view between us-this is a difference of view, and we will only know four years later who was right about this, and I guess in some sense we will never know because we will not know the counterfactual-stems from the fact that we do not think the status quo is a riskfree option.

Q102 Chair : Nobody is suggesting that.

Oliver Letwin: In fact, we think it is hugely risky. We do not think there is a conflict between the changes we propose and achieving the savings we propose; we think it is, in fact, impossible to achieve those savings with the status quo.

Chair : What about the two little-

Oliver Letwin: It is, of course questionable whether we will do so even with-

Q103 Chair : Take the two little examples. There is a big one on health and there is a debate, and we will see how that goes on. But take the two small examples, where you have in your business plan the Home Office example of setting up elected police commissioners. It looks as if it will cost very, very much more than you have put the budget thing, and the other example, free schools. Goodness knows whether it is right or wrong, but everybody is saying £15 million on one, and you have only a budget provision of £50 million.

Danny Alexander: May I just say something about health, if you don’t mind, before we move on? Others may want to ask about health, but I think it is very important. Oliver is right that, in each of these cases, we think that these reforms will help to deliver a combination of better outcomes and/or reduced cost or both. In health, you are right to say that there is a very large amount of money and a very significant area of our public service involved, and therefore quite rightly, in addition to setting out the plans in the business plans-they do not just sort of sit there and we wait to see what happens-on that one Oliver and I have spent a great deal of our time working through with David Nicholson, Andrew Lansley and the Department of Health precisely how the reform programme and the need to make savings interacts in terms of how the application of some of the policies we set out in spending review assist in that process; so the pay freeze and the reduction in bureaucracy that the reforms deliver.

But then, of course, you are right to say-I know you have discussed this with David Nicholson, so I shall not repeat it-that there are significant proportions of those savings that are either driven by commissioner behaviour or by providers. The reforms set out in the business plan are there to change fundamentally the way in which the commissioning side of that equation works, which actually works with the grain of the sorts of measures that can help to reduce cost and improve outcomes, particular moving more care-

Chair : I think all I am saying to you on that-

Danny Alexander: So the two things work very closely together.

Q104 Chair : I do understand. All I am saying to you is David Nicholson said to us there is a huge risk and there is a tension. I accept that you sit on one side of that argument; we had the evidence from David Nicholson on the other side of the argument. In a way, maybe the answer to those questions, it seems to me, is it is a tension between No. 10, which is you, Oliver, sitting there implementing the coalition agreement propositions, and No. 11, who is-I know you are shaking your head, but I would be absolutely amazed if there was not some truth in this-there for deficit reduction, and I was trying to draw out examples that illustrated that tension and ask you how are you going to resolve it. Not ask you to justify your policy, which we are not interested in, actually. It is not our job to be interested in policy.

Danny Alexander: No, no sure. Well, first, I know that people have been conditioned over the years to tensions emerging between No. 10 and No. 11-

Mrs McGuire: Perhaps since the 17th century.

Danny Alexander: And who knows? That may be proved to be right in years to come. But there is very close working together here and of course the question you ask, in a sense, goes back to the spending review, because in my discussions with Cabinet colleagues in the spending review we worked through what were the coalition priorities in their areas and how much did they think they would need to spend to achieve those, and obviously, my job is to bear down on those costs as much as possible.

Q105 Chair : So have you a quick answer on the free schools or the police authorities?

Danny Alexander: With the police authorities, the purpose of the reform is to give local people more control and more say over the way policing works in their area.

Q106 Chair : And if it costs more than you have put budget in there for?

Danny Alexander: No, I do not think it does. I do not think it does.

Q107 Stella Creasy: I think the thing that concerns us all is if you have got a proposal now, why haven’t you also got the numbers now to show that you can connect these two dots together; that we can overcome some of the concerns we might have about tension?

Danny Alexander: Because in the case of the police authorities that is something that the Home Office is working through all the details on. As the Chair said right at the beginning, many of these things are policies that are being worked through as legislation goes through the House and so on, and they will, no doubt, bring forward that information to committees such as yours as time goes on. What I am confident about is that those things have been factored in appropriately to the way the department spending review settlements have been calculated. I do not know if you want to add anything?

Oliver Letwin: Yes, let’s just take the police case, because it is quite an interesting one. But just before I do, may I just make an observation? I accept it is unusual. I had, myself, when previously working as an apparatchik in No. 10, under a different Administration-it was not particular to the previous one-experienced some tension between No. 10 and No. 11. I am aware this can happen. We are living in a very strange time in which, not only are there two parties in coalition, but actually No. 10 and No. 11 are in coalition. While we are at it, the Cabinet Office-

Q108 Chair : Early days. Early days.

Oliver Letwin: It is. Marriages do not always survive, but this one seems so far to be made in heaven. Danny and I tend to do things together for the very good reason that we think that is a good way of making sure that this is perpetuated. So, there is not a tension of ambition. It was not a Treasury spending review or a No. 10 spending review-it was a combined spending review, which is why we feel very confident at the moment that we really have got these things in sync.

Now, come back to the police commissioners. There are two things going on here of an administrative kind and then there is a change in structures and incentives, and it is important to understand the whole package. Administratively, a set of people in police authorities who cost a given amount of money are ceasing to exist as police authorities. Another set of people who do not yet exist are coming into existence as police commissioners, and there is no reason to suppose that we are going to end up with a net increase in cost as a result. But in addition, and much more importantly, because the whole police equation makes both of those sums very tiny, we believe-and of course it is open to debate and will eventually be open to the proof of the pudding-that the incentives, which the combination of crime maps, beat meetings and the election of police commissioners will create, for police officers with reduced amounts of inputs because of the spending review to police properly and deliver what people want from policing will be vastly greater than they are at the moment and therefore we think that the total equation of spending on policing will get much more bang for the buck. We may be right or wrong about that, but that is the structure.

Q109 Stella Creasy: I appreciate on that particular issue, but actually let’s go back to what these are, which seem like the prenup agreement then on that coalition that you have got together. What you are telling us is, until you have the numbers, these may be subject to change. Is that fair to say?

Oliver Letwin: No. No, what we are telling you is-

Q110 Stella Creasy: So why don’t we have the numbers then now?

Oliver Letwin: In the spending review, sums have been allocated for policing. These will be lived within. In order to ensure that we end up with the best possible value for money, which is the best possible policing for that total amount, we think that the changes involving decommissioning the police authorities, inserting the police commissioners and having crime maps and beat meetings, is the right combination to deliver.

Q111 Chair : The first figure that we have got-I am going to go to Anne who has been waiting patiently, because I cannot get it out of you-in the budget is £50 million, which was set aside to achieve these changes, and the current budget is £130 million. That is all, and therefore, for me, that is a tension.

Danny Alexander: Well, the elections for the police and crime commissioners are forecast to cost £50 million in 2012-13 and thereafter every four years.

Q112 Chair : The £130 million is the latest Home Office estimate for cost of setting up the new system and running the new system, so it is above.

Danny Alexander: Yes, but as Oliver says, there are also costs to the current system. There are significant costs to running police authorities, and so there are savings on the one side and-

Q113 Chair : But your budget has been broken.

Danny Alexander: This is precisely why we need to deliver these reforms to ensure that we get better outcomes from policing for reduced resources going in.

Q114 Matthew Hancock: Hold on, there seems to be a disagreement. You have just said it will not be broken because it was a-

Oliver Letwin: The overall budget for policing has not been broken; we have no intention that it should be broken.

Chair : No, it was what was-

Oliver Letwin: We believe that the savings will outweigh the costs.

Chair : We will look at these sums, but if we see a figure that is set aside for the cost of setting it up, which is £50 million-and we are not even started on the thing-and now the latest estimate, £130 million, you begin to think, "What is happening here?" There is a little bit of that.

Q115 Mrs McGuire: I am still a little confused as to why you have decided to call these business plans, because, frankly, I think in some ways you have created a stick to hit yourselves over the head with, and I think you may well be doing a fine job on it. I do not think it is clear, either from the contribution that we had from officials, or, frankly, from what we have heard so far this afternoon, how you are going to use these plans that we have-we have seen a few of them-as management tools or tools of public accountability?

Oliver Letwin: Well, perhaps it would help if I describe to you what we do. But, before I do that, let me just say: yes, we have created a stick to beat ourselves with, intentionally.

Q116 Mrs McGuire: I am talking about actually calling them business plans, when they bear very little resemblance to any business plan ever known to man or woman or beast in the past.

Oliver Letwin: If the Committee wishes to suggest a different name for them, we will look into it; I do not attach any great importance to the name. They are what they are. We have been very clear about what they are. If they should have in your view a different name, please recommend a name to us. But we have created them as a stick to beat ourselves with intentionally, because we think it is helpful and creative that people should be able to ask whether the Government have done what the Government said that they were going to do at, roughly speaking, the times that they said that they would do them. That is a very conscious process.

Now, that comes back to your question of how we can use it as a "management tool". I want to point out first of all: it is not a question of management, because Danny and I-and indeed the Prime Minister, the Deputy Prime Minister and the Chancellor-are not trying to manage each Department; we are trying to hold them to account at the centre. This provides us with a means of doing so, and the way we do it is very straightforward.

Every month, each Department has to report on how it has performed against these plans. We have been very open, and we have published the cases in which Departments have slipped and the reasons why they have slipped, and of course we are not being ludicrous about it. We do not complain if a Department has slipped by a few days, because something has intervened. These things happen, but we are being open about it so people can see and if a Department starts slipping up a lot and we have not got good explanations, we cause a fuss. I can describe to you, if you want, the escalation of that fuss internally.

Then, on a quarterly basis, Danny and I sit down with each of the Secretaries of State and permanent secretaries and go through the whole process that they’ve been through in the last three months, and what we are expecting and the business plans expect they will do in the next three months, and they explain to us where they are encountering difficulties, and we talk about how to resolve those difficulties. This is a tool for accountability to the centre in the sense of No. 10, the Cabinet Office and the Treasury together, of each Department for carrying out the Government’s programme. That is the process.

Q117 Mrs McGuire: And how are we to judge the success of the reform programme that is laid out here. I will give you an example, "Safeguard the future of the Royal Mail. To seek to ensure an injection of private capital into the Royal Mail." There is no indication of how much that injection ought to be; as a matter of fact there is not even a start and an end point to it in the BIS plan, and at the bottom the milestones are a Postal Services Bill introduced and a State Aid Notification submitted, which means that somebody has written to the EU. Now, can you tell me why that should be called a business plan, when frankly it is just how Government roll out their programme? There is nothing distinctive in here that will give us a handle on whether or not the reforms have been successful. How are we to judge whether it is as indistinct as what is in front of us?

Oliver Letwin: There are three senses in which you can judge the success of our programme for government. One: at the very simplest level, which is what Danny and I are in this context first concerned with, is have we actually done the things we set out to do and translated them into legislative, administrative actions? That is what these programmes are about. That is an important thing to do; it is not something that every Government always do, and no Government will ever do it perfectly, including us. But it is important to try to make sure that the programme for government that we set out actually happens. That involves things within our control, which are administrative actions and legislative actions.

The second way you can judge whether it is a success is: are the things that should flow from those changes, according to our view, happening on the ground? So if we take the case of the education changes for example, in the plans themselves it says we will have a Bill at a certain time and we will make certain regulatory changes at a certain time; that is in our control. The question is whether we have done that. On the second level, have the academies and free schools that we say will come about, come about? If no academy or free school ever arrived, clearly you would judge that that was not a good outcome. If you look at the situation or others look at the situation and see that not many have, they can take their own view about whether it is enough to constitute a successful implementation.

The third stage, which I think is much the most interesting in terms of value for money, which I take it is the particular prerogative of this Committee, is to look at the inputs and outcomes. Regardless of exactly what the explanation is-obviously, as a Government, while I do not think we are responsible for the outcome in school x or school y, we are responsible for the outcome of the school system as a whole; we are responsible for making sure that at the end of the period of these reforms, things are improving, more children are getting better results and more children are moving on to jobs and so on. Those sorts of things are the indicators that we described at the beginning. You will be able to say, "Yes, you did what you said you were going to do in terms of legislation and administration. Yes, there were free schools and academies," you might say, "But we don’t judge that you did enough good in terms of the outcomes." We will enable you and the rest of the public to have that information very straightforwardly, so those judgments can be made.

Q118 Mrs McGuire: But how are you going to judge whether or not you have been successful in terms of outcomes, given the fact that you have said quite clearly that you are against targets? You are against any-as I understand it-indicators that would allow you to compare.

Oliver Letwin: No, no, no. We’re not-

Q119 Mrs McGuire: I don’t understand how you are going to judge whether your business plan has been successful.

Oliver Letwin: We are going to judge it by looking at the outcomes, which will be transparent, and looking at the inputs and seeing whether things are getting better and whether we think they have got better enough. But our judging it is not terribly interesting to anybody, because people do not take much notice of how I judge myself. You will be able to judge. The public will be able to judge. The public will be able to see what has been done, what the outcomes were, how much has been spent and then take a view. They will either reelect us or not reelect us. That is the pressure that we are under.

Danny Alexander: May I just add something on that?

Chair : Yes, please do.

Danny Alexander: Whether you call it a business plan or not, I think it is quite a good term for it, in fact, because it is a plan for how Government are going to deliver their business. But it is novel that a Government set out not only what their policy objective is but the steps administratively they are going to take in order to achieve that. You are right; in some business plans the steps are more detailed than others, because there are fewer steps or because there is work still to be done to look at precisely how that gets broken down.

It will mean that you, other parliamentarians and the public will be able to see immediately-because this will be available-if a particular Department has missed a particular deadline in its business plan, as we will. We will be asking Departments for explanations of what has happened, and sometimes there will be good reasons and sometimes there will be things we need to take action on to improve on. I think from the point of view of accountability, having a much clearer, publicly set out, understanding of the process that Departments are going to go through in order to deliver their business is a step forward in terms of accountability. Sitting alongside the range of data here and the much greater range of data that will be provided transparently elsewhere in Government, not least the data on expenditure above £25,000, the COINS database being published and so on, there is actually a great deal of information that will be available for people who wish to examine in detail how Government are going about their business.

Mrs McGuire: But it is so loosely specified, it is difficult to understand the line of accountability.

Q120 Chair : I am going to go to Chris, but one thing before I do, arising out of what Danny has just said: I looked on the website this morning and, actually, the Treasury has done jolly well and probably you put a tick on all the milestones you have met.

Danny Alexander: I think, in fact, we are behind on one.

Q121 Chair : But I have to say, Oliver, out of the 15 things you should have done by the end of January, you have only done five. So whose head is rolling for that?

Oliver Letwin: It is perfectly true that our Department is behind on some things.

Chair : A lot. It literally is five out of 15.

Oliver Letwin: It is behind on a number of things, and this is a matter to which we are attending.

Chair : Sorry, you have only done five out of 15.

Oliver Letwin: This is a matter to which we are attending.

Q122 Chair : So who is accountable? Who is responsible?

Oliver Letwin: Well, Danny and I have had conversations with Francis about this and we will continue to do so. I have to say that in many of the cases there are good explanations and in some cases things have fallen behind, and where they have fallen behind, we need to cure them and that is true in many Departments and will continue to be so, incidentally. As we go through this process we will continue to be transparent about this; we will continue to find that there are cases-

Chair : But will you-

Danny Alexander: I think it is important to say it is not a sort of mechanistic relationship; somehow the fact that someone has missed a deadline. There may be-

Chair : Only hit a third of deadlines. That is pretty bad.

Danny Alexander: We always want to know why, but sometimes there are good reasons, such as, I think in Defra’s case there is a particular international obligation that is in their business plan, and because an international meeting was moved, that goal is going to be met later. In our case-

Chair : You have done quite well.

Danny Alexander: -the one thing where the Treasury is behind is in relation to a commitment to looking at the economy in Northern Ireland.

Chair : Northern Ireland.

Danny Alexander: It is a very important thing and it is something that is taking a little more time than we’d expected because we need to work with a number of people to get that right. It is not as if every deadline that is missed means some sort of catastrophic failure, but it does mean that there is a trigger for proper accountability within Government to understand what is going on, what is being done to put matters right and how that is going to go forward.

Chair : So when we have you back in six months’ time you will have done better, will you?

Q123 Stella Creasy: What stage are you at in the incentives process in that with the Cabinet Office, then? Just so we know how this works. If you have only hit five, looking at what you set out, that first of all the Minister will find themselves having a discussion with the Chief Secretary, and then it moves on to the Chief Secretary, the permanent secretary and the head of the civil service, and then it talks about the Secretary of State meeting with Prime Minister and the Deputy Prime Minister. What stage is the Cabinet Office at in that process of incentives?

Matthew Hancock: I get the impression that the Minister of State’s accountability is quite high on that.

Stella Creasy: We need to understand how this process of intervention will work; so what stage are you at?

Oliver Letwin: Just so you know, the Cabinet Office has not only had discussions with Danny and myself, but the permanent secretaries involved-there are rather a lot of them-have had conversations with officials in No. 10, and there have been discussions with the Cabinet Office board about this. This is being taken seriously. It is not-

Q124 Stella Creasy: So you are not yet at the stage of the Prime Minister and the Deputy Prime Minister?

Oliver Letwin: No, it has not got to that stage-

Stella Creasy: That’s the next stage.

Oliver Letwin: -because most of the reasons for the slippage are perfectly understandable. But nevertheless that escalation is there and of course-I do not know whether I can convey this adequately-we are trying to be grown up about this and make this all transparent and that means we, also, have to be grown up in our relationships with Departments and not be pernickety about it and accept that there will be slippages. The big question is whether there are things that are really going wrong, in the sense not that they have slipped by a week here, or a week there, or even two or three weeks, but rather is there something where there is no likelihood that we are going to remedy it soon, because some structural difficulty has arisen, and this is a tool for working through that and trying to deal with it as it comes up.

Q125 Stella Creasy: How many other Departments are in this process as well. I mean, how many others have got to that stage of intervention?

Oliver Letwin: If you look at the list-

Danny Alexander: In every case where-

Q126 Stella Creasy: So you are having the meetings with every Department?

Danny Alexander: In every case first of all there will be discussions at official level to find out the reasons, then, if necessary, Oliver and I will get involved. We also, I think as Oliver said earlier, have quarterly meetings with-

Q127 Stella Creasy: But as you pointed out, some Departments are doing better than others, so how many are at this stage, where there is now that positive intervention process that you are talking about?

Matthew Hancock: It’s all on the internet.

Stella Creasy: And at what level is it going to?

Oliver Letwin : In the case of almost all Departments there have been slippages and there have been these discussions at official level and in the case of almost all Departments those will come up, as they did do at the last quarterly review, at the next quarterly review.

Q128 Stella Creasy: So do you feel that this works as an intervention process?

Oliver Letwin: Yes, I think it is, absolutely. If you look at the question: are we making-whether you agree with what we are doing or disagree with what we are doing-significant progress against the programme for government, I think the answer is, yes, we are, and one of the reasons we are is that this process exists. It is not, of course, foolproof; it is not the only reason. Many of our colleagues would be proceeding with implementation anyway, but it is a very good way of creating a stimulus for everybody to be moving along the path we are trying to move along.

Danny Alexander: Sorry, Chair. I think it is a very effective process for holding Departments to account for delivering the commitments that we committed ourselves to in the coalition agreement. I think it works from that point of view. Certainly in the early stages we will see-you will be able to judge as well as we will, because the information will be transparently available-how it is working.

Q129 Stella Creasy: We will know how many meetings you have had?

Danny Alexander: You will certainly know where deadlines have been missed and how far behind people are and that is a question I am sure departmental select committees want to ask. One thing I wanted to add, because I know you have an interest in the departmental boards-

Chair : Yes.

Danny Alexander: On the departmental boards, as they have been described and as they are now operating, the business plans are a key tool for them in holding Departments to account, too. So, there is accountability operating through these business plans at a number of different levels, both within Departments and to the centre of Government to Departments.

Q130 Chris Heaton-Harris: I was imagining the fact that, had you been at this Committee a couple of years ago, we would not have had any of these benchmarks by which to measure you, and they are quite easily accessible. I have a couple of concerns. I am not convinced all Departments are going far enough, quickly enough, and I just wonder, initially how did the Departments individually take to all this? Was there a bit of kind of Stockholm syndrome, longing for the times of old, where they were massively controlled from the centre, or were they quite happy to be given an element of freedom but with this element of very different control from the very top?

Oliver Letwin: Well, all I can do really is describe to you what it felt like from our side as we negotiated with Secretaries of State. Perhaps it is useful to say that these are not their business plans or our business plans, they are collective business plans. They are owned by the Departments but the whole Government have bought into them. It was a process of negotiation. I would be misleading the Committee if I were to say that it was a totally smooth process in which there were no discussions about what should be there or what the dates would be or anything of that sort. There were such discussions and there were negotiations, and I am sure that from time to time there were annoyances that that was going on, because busy Ministers were being distracted. But actually my impression is that departmental Ministers have come to see this process of having regular reviews and having the documents, so they know what it is that they are trying to achieve, is actually quite a useful way of managing their Departments. At least, that is what they say to us; the Committee may ask them and find out whether this is what they say to you too.

Q131 Chris Heaton-Harris: For the purpose of this Committee, which is the value for money checker in Parliament, there is some concern-it is a genuine concern-that you are taking away a number of things that Departments have been measured by in the past. Now, personally, I think politics is all about outputs and how you measure those and share the information about those, so I am very interested in how you are going to deliver that sort of information to us, to the National Audit Office, by Department, via accounting officer-I would assume-and how the public get hold of it. We are equally interested in when you expect us to be able to see massive improvements in, say, public sector productivity. When is that going to match private sector productivity; when is the public going to see the massive improvements that they expect from the coalition, based on the coalition agreement, in those areas?

Danny Alexander: The first thing to say in relation to the first part of your question, which is about how this relates to the expenditure side of the equation, is that the business plans were drawn up alongside the spending review process and so the discussions that I was having with Departments about where they could make savings and the costs that they could incur from delivering different policies were alongside the conversations that we having at the same time with them about the nature of the business plans. There has been a very close alignment right through that process with how we develop the business plans and the allocations that we made to Departments in the spending review.

You make the comment that this is taking away information that perhaps may have been provided in the past. I think in a number of respects, actually, this is providing a greater degree of information. For example, many of the input cost indicators will be unit cost measures. I know this Committee over the years has requested more information be provided on a unit cost basis. The data on common areas of spend, which I think is a key area for understanding administrative costs, will be provided on a comparable basis between Departments. I know one of the problems that has beset people trying to understand Government expenditure on administration has been that each Department seems to describe it in a slightly different way, so you feel like you are comparing apples with pears, and it is very hard to tell. That too will help the process of holding to account. In each case in the business plan we have set out the various stages in which we intend to deliver the reforms and clearly, as those reforms are progressed, we will expect people to see the benefits of them.

Q132 Chair : If I can come in on that, the worry, which I think that Chris was discussing, is how we follow the pound in-health is the classic example-a GP consortium or in an independent foundation trust; how we follow the pound in a free school or an academy; how we follow the pound in a new directly elected police authority; or, indeed, how we follow the pound in local authorities now with the impending abolition of the Audit Commission. That is the only way we can judge value for money. You can get your policy intent, but how do you follow the pound in all that?

Danny Alexander: I think it is true to say that many of the reforms are creating a much more diverse range of accountabilities within the system; accountability not just of departmental Ministers at a central level, but also-

Chair : For Parliament.

Danny Alexander: -of GPs to patients, of police commissioners to their electorates, who will hold them to account in the end for their performance. In the case of the NHS, the GP consortia will have accounting officers who are accountable to or who report in to the NHS Commissioning Board. You will hold David Nicholson, I am sure, to account in his capacity as chair of the NHS Commissioning Board, just as you have held him to account over recent years as the accounting officer for the NHS.

Oliver Letwin: Perhaps it would help if I added that in many cases-I want to come back to the question that Chris was asking in a moment-you will be able to see a direct relationship at the institutional level. You will know the amount of dedicated school grant that a particular academy has received, and it is our intention that you should also be able to get, on the web, clearly and easily-we are working on this-the results achieved in that academy. So if you want to do it academy by academy, you will be able to do it. If you want to aggregate across academies, you will be able to do it. If you want to aggregate across academies in a particular area compared with the LEA schools in that area, you will be able to do it. If you want to look at free schools compared with academies, you will be able to do it. Not just you but actually everybody, because our experience-yours as well as ours-is that there is a whole world out there of people who are good at mashing these things up-

Q133 Chair : Apples and pears or apples and apples?

Oliver Letwin: That will be for you to judge and others to judge. We are creating a system of democratic accountability in which there will be contestable methods of comparing these things and the truth will emerge, we believe, from that.

May I just answer the point that Chris was raising? I think we have not wholly answered it yet. You were saying, Chris, that you were really interested in the question of the outcomes achieved by Government, and that is our view, too: we think in the end we will be judged-should be judged-by the electorate and by Parliament on the basis of the outcomes we have achieved overall and then you can subdivide into specific outcomes. It is the outcome measures in here that in the end are the real test.

But-and this is a really important point, which I accept is really difficult for us and difficult for everybody to deal with-because we are building for the long term here and because we do not think that shortterm fixes work, we accept that many of the things we are doing are likely to yield dividends in later years, rather than earlier ones-in some cases, alas, beyond the time of the Parliament. We hope we can show some significant progress within the lifetime of the Parliament in many of these areas, but it is a very determined approach, which Danny and I and the Prime Minister and Deputy Prime Minister and other colleagues around the Cabinet table have taken, not to find quickfix methods of getting good outcomes results for a period, just because of the electoral cycle. We are trying to build structures that deliver good, sustainable, longterm outcomes and therefore the progress in many cases will be relatively slow. I would ask-I do not expect to be given much quarter on this-but I would ask the Committee and, indeed, the public in general to recognise that that is the process we are going through and that this is a longterm approach.

Q134 Austin Mitchell: We are getting anxious, Chair, because politicians talk more than civil servants. But I am getting puzzled too, because under your brilliant, perceptive questioning, and that of Anne, this concept is becoming more and more nebulous. Oliver tells us they are what they are and not what they claim to be in the title "business plans". He is also telling us it is a means of keeping Departments accountable, whereas the civil servants told us that transparency can drive development. So the purpose is to make information available to us-that is the Committee-to Departments and to the public at large. Transparency is the driver, not accountability or instructions from on high. I put it to you that they are really a gloss on a mess. In other words, these business plans were arrived at after a process of cuts that was massive and lacerating and that was not rational at all-it was a panic measure-and Departments are then invited to go away and form a business plan around that.

I will give you an example. Danny’s distinguished predecessor, David Laws, recounts in his book that he wanted cuts in the Ministry of Justice, so he rang up Ken Clarke, who was, I think, driving his taxi at the time and says, "Look Ken, can you take a cut that is 50% larger than the one we told you you are going to have?" I forget the proportions. And Ken said to him, "Oh, sure, sure, sure." And the Department is then forced to go away and turn that into a business plan. This is turning a dog’s breakfast into something rational, isn’t it?

Danny Alexander: Well, can I start off with that one? The first thing I would say is that I know this is not the purpose of this hearing, but I think I should just for a second defend the spending review, because we did, as a Government, come into office with the largest budget deficit this country has ever seen-

Chair : You do not need to say that in this-

Austin Mitchell : Oh, woe, woe.

Danny Alexander: The rational response to that was to try and put the country’s finances back in order, but no one wants to enter into that debate. But I think in a sense both-

Chair : Keep out of that.

Mrs McGuire: Skip to the next page.

Danny Alexander: -the business plans are about both accountability and transparency. They are about accountability in the way that Oliver and I have tried to describe-

Q135 Austin Mitchell: They are an attempt to put a public relations gloss on something decided by negotiations, pressure and irrational haste.

Danny Alexander: No, they are not. What they are doing is setting out the reforms to public services that we think are right and necessary to both increase accountability to individuals and to communities, and to ensure that we deliver better results with less public money. I think there is a sort of philosophical difference between this Government and our immediate predecessor in that we do not believe that the way to improve public services is simply by pouring more and more money in through a funnel controlled in Whitehall, centralised here, with minute scale control-

Q136 Austin Mitchell: What was with all the platitudes? What you are doing is-

Danny Alexander: May I answer the question? And then by all means come back.

Austin Mitchell: Well, I do not want to put you-?

Danny Alexander: So what we are seeking to do with many of these reforms is to increase accountability to individuals, to communities, to decentralise power to frontline staff so that they have more freedom and responsibility to deliver the better public services that they know that they can, freed from the centralising control of huge numbers of targets and agreements and so on and so forth.

Austin Mitchell: Which Oliver tells us is going maintained through these business -

Q137 Chair : Can I just come in on one thing there? We have got 17 plans, according to the NAO; 1200 reform actions, whatever they are; and 600 milestones.

Oliver Letwin: Yes.

Q138 Chair : Are you prioritising between those?

Oliver Letwin: Sorry, we have a programme for government-right or wrong. I am not asking Austin to buy into our programme for government; he and I have agreed about one thing and disagreed about everything else for as long as I can remember, which is fine. But it is our programme for Government, right; it is a product of the coalition.

Q139 Chair : So they are all equally-

Oliver Letwin: Exactly. We have an obligation to the public to put that programme into action, we believe. Now, of course, as in any vastly complex and arduous undertaking, there will be some things that encounter one kind of difficulty or another and there will be adjustments as we go; of course there will. We are quite grown up enough to recognise that, and, of course, there are some things that matter even more to us than others do. But the fact is the whole of that programme matters to us and we are trying to implement the lot of it. I know it may sound strange, but I have, as Danny knows, on the whiteboard in my room-

Danny Alexander: He does.

Oliver Letwin: I have a list of all the things we are trying to achieve.

Q140 Chair : What, all these actions?

Oliver Letwin: All the substantive changes that we are trying to achieve, I have a list of and I spend a lot of time-and so does Danny-trying to make sure that we are doing it. Now, once you have a programme like that, obviously you have to try to break it down into steps, if you are serious about it; it depends whether it is a joke or serious, but if it is serious you have to break it down into steps and you have to work out with the people who are responsible for implementing it about how long it will take them to do each of these things, not trying to be ludicrous and play games with dates, but trying to get it right. Then you have to be reasonably flexible, but at the same time, reasonably dynamic in making sure it occurs. If you are trying to plan a campaign like that, that is the only way you can rationally proceed.

If I could just clobber one mythology before it gets going with the brilliance of Austin’s rhetoric, first of all the prototypes of these plans were developed when we, the Conservative party, were in opposition, long before the spending review was even thought of, and, indeed, at a time when the Government-

Austin Mitchell: I want a scale.

Oliver Letwin: -appeared to be very rich and was spending an enormous amount of money. It was developed out of what was our programme.

When we came to a coalition Government and we created a programme for government, two very important things changed. One was, of course, in the course of the negotiations not everything that the Conservative party wanted to do in opposition was agreed, and some things that we had not wanted to do were agreed, so we had to adjust the business plans to reflect that. Secondly, the shadow Secretaries of State with whom we had been negotiating were not all in place; some had been replaced by Liberal Democrats, others by different Conservatives, and we had to negotiate that. All of that went on in the first few months before we had got locked into the spending review proper. I am just telling you as a matter of historical fact that the mythology you have just purveyed is the reverse of the case.

Now, just finally-just so I am absolutely open with the Committee-it is of course true that once we were engaged in the spending review process, we rightly asked each other-and in discussions with the secretaries of state asked them-is everything here sustainable in the light of where we are on the Spending Review, and came to the conclusion that with some minor modifications it was. So that is the process we followed. Now, whether it is a good outcome or not a good outcome, it is not something that was manufactured-

Q141 Austin Mitchell: Are Departments competent to carry it out, because-

Chair : Austin, let Matt-

Austin Mitchell: Hang on, finish this question. Lord Adonis told us that he knew of no country which had substantially reduced costs while simultaneously cutting the Civil Service. Are you satisfied that the Departments can develop effective plans and sustain them at the same time as they are firing large numbers of their staff?

Oliver Letwin: Yes.

Danny Alexander: Yes.

Q142 Matthew Hancock: That leads quite nicely to a question I wanted to pursue, because one of the things you just said, Danny, is that this new Government have a different attitude to the previous Government. I have been on this Committee for 10 months and, about twice a week, we have civil servants, normally sitting where you are, trying to explain what happened in some great spending catastrophe, and we watch. It is like a master-class in how not to spend public money, and aside from some of the forward-looking things that we are doing and some good examples, which do not get enough press coverage, that is what we look at. And the two things that come up over and over again are a lack of accountability and poor data.

This is not only in the public sector. We have discovered that, when RBS was part-nationalised, there were 20 different data systems on which its assets were-you will know this-recorded, and so they did not have management data. So, it has been quite encouraging to hear about what you are talking about in terms of accountability and also data. You explained that to us rather than us having to press you on where the accountability is, but my question is that under the previous Administration there were targets. Some of those targets were published; responses to the targets were, in some cases, published, so how will accountability and data be stronger than before?

Oliver Letwin: Can I answer part of that, and Danny may want to answer the other part? And may I just preface what I am about to say by revealing to you the most important fact I have discovered in the last 10 months sitting on the other side of the fence? There is incredibly little good quality information in Whitehall, at the centre of Whitehall, about what is going on in Whitehall. I have laboured mightily-and not yet wholly successfully, though we are well on the way-to do something that I was really, genuinely astonished to find we were not able to do, and there was no system that we inherited for doing it, which is to find out what the Government are doing by way of regulation. You might think that there would be a perfect database, not of some complicated external realities, which, God knows, it is difficult enough to get, but just of what the Government were doing, and there was not. We are now close to having such a database. That is just one small example of the problem of getting good information at the centre about what is happening around this very complicated machine, and it is crucial and part of our task.

You were right that we have got rid of a whole series of targets, and the reason we think that accountability-which, incidentally, is the flipside of transparency; we see accountability and transparency as one thing just looked at from two points of view-the reason we think we would get better transparency and better accountability is because we will provide a much higher level of detailed information on outcomes and inputs. And if you know inputs and you know outcomes, then it is possible for you and for those working for you, and for those who are nowhere near this building but are sitting in deepest, darkest Oxfordshire or Sussex or Glasgow, to look at the internet and start mashing this stuff up and start producing comparisons that may be very uncomfortable for us. And we want to give them that capacity because we think we will learn from it and we will be able to improve matters if we get that kind of information.

Q143 Matthew Hancock: So, are you saying that that sort of data do not exist for internal management purposes?

Oliver Letwin: That is correct.

Q144 Chair: What sort of data don’t exist?

Oliver Letwin: If you asked whether, at any time in the last 50 years, it was possible for the Prime Minister of the day to ring someone up and get easily, like that, the amount that goes into each school, the upshot of each school, and so on and so forth, in a readily digestible form that enabled him to make all sorts of comparisons, the answer is, most of the time, it wasn’t.

Q145 Matthew Hancock: And are you using schools there as an example or as the worst case?

Oliver Letwin: Just as-

Chair: I have to say to you, I really must, as an ex-DF-

Oliver Letwin: One example among hundreds.

Chair: There was a lot of data published on money going to individual schools and results in individual schools.

Oliver Letwin: There are massive data

Chair: It may be not useful to you but it was there.

Q146 Matthew Hancock: My question was about management information-that is what I am talking about. That is being able to use data in a useful way.

Oliver Letwin: That is what there is not much of.

Danny Alexander: Just to say directly to that that the Treasury is leading a financial transformation programme, which is bringing together a lot of work that is already going on to improve the financial-management information that is available to Government, and it includes something called Project Oscar, which is about replacing the Treasury’s public spending database. I think your analysis is right, which is that, of course, there was an awful lot of information. I think that, looking at this Committee’s reports over the years, I get the fact that many of you would think that the quality of that information was deeply variable. Often it was not on a comparable basis; it was very hard to tell from one Department to another whether you were looking at the same sort of information. And so it is something that we are taking incredibly seriously to improve the quality of information, improve the comparability of information, and, as Oliver says, to improve the transparency of information, all three of which, I think, are important tools for accountability.

Q147 Chair: Can you give me some assurance that it is not going to be death by data, but that it is going to be information that organisations, individuals, citizens can actually make sense of?

Danny Alexander: There is a huge range of sorts of information and data that can be provided and, obviously, in the business plans, we are seeking to set out input-cost measures and impact measures that are clear and simple and transparent, but because a dataset like, say, the COINS database is not immediately accessible to every member of the public, I do not think it should be something that inhibits the Treasury from publishing it; what we have found is that there are organisations out there who will take the data that is made available, as in the COINS database. In the case of the COINS database, it has been turned into a fantastic website that looks at, and makes transparent, information on spending. So, it is not always going to be the Government who take that richness of data, albeit that it is complex and in forms that require a great deal of processing and turns them into something useful, but just because we do not necessarily have the resources to devote to that task, in the case of the COINS database, for example, does not mean we should not make that public, because it will, in the end, find its way into useful datasets.

Q148 Chair: I think all of us welcome greater accountability. Everybody welcomes that; it is just that it’s got to be intelligible and, if it is not intelligible, it ceases to be useful and it may hit the same objections that you have to the data that were collected by the previous Government.

Oliver Letwin: I am sorry to labour the point but I want, in response to that, to amplify what Danny was just saying. We think we have a responsibility to ourselves, because we want to get at it, and to you principally, but others as well, to produce impact data and outcome data that is readily usable, readily comparable: you can see how the administrative costs are looking across comparisons that are sensible; you can see what outcomes there are, how they are moving, in a sensible way. We think we have that responsibility, but, actually, we are really in an internet age-and I am not sure we have collectively yet caught up sufficiently with this-in which people will do much better things with this data than we can do ourselves. And what Danny is saying is it is not peripheral, it is not an add-on; actually, when you look at what people are already beginning to do in just a few days with the crime maps, you discover the power of this. Once people have that power in their hands, they will start to use it and they will produce conclusions that are uncomfortable for us, and that is good for us.

Danny Alexander: By way of an example-and this is not by way of a Treasury endorsement by any means, but as an example-wheredoesmymoneygo.org is a website that has been set up to help taxpayers understand where their money goes, which has taken primarily data from the COINS database and put it into a form that people can use, but that simply was not possible when the COINS database was kept secret. Now, there are limitations to the amount of work the Treasury can responsibly spend public money on making the COINS database intelligible, but this is an example that shows that there are people out there who will do that for us. And across the datasets that are being released, I think you will find more and more of that sort of thing going on-as Oliver said, with the crime maps, with transport information; all sorts of things-where the data that is released is made use of in interesting ways.

Q149 Matthew Hancock: Sorry, I go back to my original question, which is: how much does the replacement of the old PSA targets with the new business plans enhance that process?

Oliver Letwin: That is a really central question. So, I think it is a question of two models. Under the first model, the Government set out a set of outcome targets and then, in some way which they do not specify externally, they manage, so far as they can, to reach those outcome targets. Because those targets are typically set on particular dates and so on-this is for events in the outside world: the number of people that get hip replacements; the waiting-list time; the number of people getting a particular grade in primary schools-whatever it may be-and once you have those targets, of course the whole machine of the state comes to bear and, if it is Wednesday and, on Friday, there is going to be a target missed, there is a huge effort to do something, pull some levers, send some people out, to make sure you match that target. Our analysis-obviously a debatable issue-is that that leads to short-termism and, ultimately, to poor long-run performance.

What is the alternative? The alternative is that the Government set out, in a very clear-minded, extremely acceptable way and very transparent way, the things that are under their control-the administrative changes, the legislative changes-and hold themselves to account for doing that. It also sets out very clearly the inputs and the outcomes that are achieved and then allows others to judge whether the mix is good, bad or indifferent in any given Department, at any given level or across the whole. And we think that creates a good long-term incentive for Government, which is what is in the public interest, of forcing us to attend not to whether this particular thing has happened on this particular day, but whether the long-run trends in all of these many areas are moving in the right direction. It also enables you and others to judge that and to haul us over the coals, if you think we are not doing that. And you could look at inputs and outcomes and say, "They do not seem to match".

Danny Alexander: And can I just add that I think that is particularly important from a spending-control perspective, because I suspect that the sort of process that Oliver described in relation to the sort of old mechanism often would drive, in the short-term, their decisions to try and shovel more and more money into something in order to just inch it over the line. And in an environment where public spending is rightly constrained and where Government need to focus-and Government, I think, should always but certainly in these sorts of moment focus-on input costs, thinking through the reform programme that delivers the outcomes is essential to ensuring that we maintain close control over spending over the next years.

Q150 Matthew Hancock: The fact that we have already had an exchange about the Cabinet Office missing some of its targets and the Treasury missing one shows that there is effectiveness to the publication of that sort of data.

Q151 Nick Smith: I absolutely accept that the coalition Government took time to get on their feet and to get their act together. Having said that, six months’ real time should have been enough to come up with draft examples of your outcomes and costs. You have not done that yet. You say you will have it by the end of this financial year. Give us some examples of the outcomes you anticipate that will not be short-term, that will be meaningful, and that electors will understand.

Danny Alexander: In fact, in the draft business plans, there were set out a whole range of input and outcome indicators that were proposed by Departments. So, in each and every one of the business plans that were set out, there are a range of proposed measures where they are open to consultation, and that consultation process finished last week. A number of departmental select committees-for example, the BIS Select Committee-engaged very closely with that Department on the correct choice of indicators. The Departments are currently working on refreshing their plans and working their revised lists of indicators in the light of that consultation. That will come to us in the next two or three weeks and will inform the discussions that we then have about the finalised business plans for April.

So, it is wrong to say that we have not come up with lists of potential outcome and input-cost indicators; they are all in there, in the plans that were published, but it seems entirely right and sensible that there should be a process of consultation with stakeholders, with the public, with Parliament to ensure that, when we press go on the indicators at the start of the next financial year, we have a set of measures that, first, we can all have available from the very start and, secondly, on which we have engaged with interested parties to make sure that that list has been robustly tested.

Q152 Nick Smith: And how easily will you be able to explain the £8 billion planned savings in clinical efficiencies in the health service plans?

Danny Alexander: Do you mean through those indicators?

Nick Smith: Yes-easily?

Danny Alexander: I am not sure the indicators are there to explain how we are going to make savings; the indicators are there to show what is happening to input costs, often on a unit-cost basis. It is there to show what are the impacts that are being felt in the community, in the different areas that we are measuring, and I am sure that how you find the £18 billion savings will be clearly explained as you go through your regular sessions with David Nicholson and with the permanent secretary in the Department of Health. That is where that accountability happens.

Oliver Letwin: I think it is important that you understand where this lies, as we see it, in the process of your proper and necessary investigations. You will be able to see from this what the structural changes that we have made are and whether we have made them. You will be able to see what the inputs are and you will be able to see what the outcomes are. You will, of course, be able to see in much more detail both inputs and outcomes by interviewing the Department in any given case and, in your case, the Department of Health. But you will also then be able to the common questions that are not here, which relate to the linkage between the inputs and the outputs. What we are doing here is to provide you with the starting point for that investigation, because if you see that the inputs are, in a particular domain, going up a lot, but the outcomes are going down a lot, you will want to focus on that domain. If, in another domain, the inputs have gone down a lot and the outcomes seem to be improving a lot, you may not want to focus on that domain. So, this provides you with a basis for the detailed investigation of the linkages. We, meanwhile, of course, are working very hard also to investigate those same questions, so this is useful for our purposes, for the same reason.

Danny Alexander: And it is worth just adding to that, if I may-sorry, Chair, I know we need to move on but, in many cases, the input-cost indicators that are proposed and the impact indicators that are proposed are closely linked. So, in the Department for Transport business plan, it is proposed that they have an input-cost measure of the costs of the maintaining the Highways Agency’s motorway and A-road network per lane mile, and the impact indicator on the reliability of journeys on the Highways Agency’s motorway and A-road network, where you will quite easily be able to take both sets of information, compare one to the other and either form conclusions or interrogate Departments on whatever it is you think about that.

Q153 James Wharton: I have just one related question to what we have been talking about, and then I would like to go off in a slightly different direction, which is just about making vast amounts of data available to the public; it is quite an exciting innovation that we are interested to see how that works, but is there a danger with that that, when you provide information on whatever it might be-police reports-that a group with a particular interest then start a campaign to get something else recorded. I know that one of the complaints that I get from police officer is, "Well, we have to fill out all these forms and record all this information". If you create a thirst for that data-whilst, obviously, the Government is very clear it is against regulation-you could create red tape by measuring additional things. How is the Government going to resist the pressures to say, "Well, can’t you provide this? Can’t you measure that? Can’t we increase the data we record on-?’ whatever it might be.

Oliver Letwin: I think that is a serious issue and one, in fact, we have quite intensively discussed. And it is a balancing act. It is a balancing act that is not based on a static position, because, as we find better ways of enabling people-in some cases, literally, better technologies-to record things more easily, we can release more information without imposing additional burdens. And in quite a lot of domains at the moment, there are still antiquated systems of recording. Some of your Committee’s advisors have commented on this in the past and they are very knowledgeable about it.

And where we can improve on that and, therefore, make it easier to reveal more information without imposing additional burdens-and, indeed, in some cases, rather reducing burdens-we wish to do so. But there will come points at which there are tensions here, and so we have tried to focus on kinds of information that are really important to make the kinds of decisions people want to make. If I could just refer to two specific kinds of example, I keep returning to crime maps, because it is incredibly important that Mrs Jones and her neighbours know what is going on on their street and in the neighbourhood, so that they can hold their local police to account and make decisions about whom they vote for as police commissioners accordingly.

But it is also, if I am a patient, the case that I want to know what the outcomes are that I will get from different GPs, judging by their record, which should be transparent, therefore, and when I go to the GP and work out with the GP where I might want to have, say, my hip replaced, what outcomes I can expect in all sorts of senses: the patient-reported outcome that we are working on, having that information transparently available; the objective information about the time it took to get the operation; the objective information about the cure rates; the objective information about what will happen post-the-operation.

Now, those sorts of pieces of information are not interest-group-derived; they are derived from our sense of what people need in order to be able to make choices, hold things to account and so on, and that we will not compromise on. Where people have extra pieces of information that they want to get for some particular reason of the kind you are talking about, we will try to oblige but always balance that against the knowledge that we may otherwise impose-if you do too much-too much burden on the producers.

Danny Alexander: It is also worth saying that Departments are spending time evaluating the datasets that they collect to make sure that they are collecting data that is necessary and not imposing unnecessary burdens. So, the NHS White Paper, for example, announced a review of the datasets that are collected within the NHS to see that they have strategic fit, if you like, with priorities. The DCLG is doing a piece of work to go out with a single list of all the data that central Government require from local government, to then be co-ordinated through a single gateway, the purpose being, firstly, of course, to make sure we are collecting the information that is necessary, but secondly to make sure that we are not placing an unnecessary burden on local authorities. And of course, once that is established, if Departments then want to collect additional information from local authorities, that will be imposing a new burden, which will have to be dealt with in the normal way.

Q154 Chair: I think there will be a vote soon. I do not know whether we can get through it before; we may have to come back. Let us see how we go.

Amyas Morse: Sorry, I will just ask a very quick question. You have mentioned a different presentation of data and being able to see from the top to the bottom, and you’ve got a project working. This is all dependent on a very large IT programme, is it? I am a bit struck by the difference between the sort of information we are talking about and the sort of quality and consistency of information that is available now. How is that leap of quality and availability going to be made, can I ask?

Danny Alexander: First, it is not all dependent on some giant Government IT programme that we have been keeping secret-I promise you that-and if it was the new major projects authority, which we are establishing, that will have a role from the start to the finish of the project to make sure that, if the Government ever decide to come forward with a giant IT scheme, we will manage it properly.

Chair: We will hold you to account for that, Danny. That is a jolly dangerous statement.

Danny Alexander: The purpose of establishing the authority is to do that, but that-

Amyas Morse: It just crossed my mind as you were speaking.

Danny Alexander: But that is not the question. In terms of the quality of data within the Government and the comparability and so on, the project that we are operating through the Treasury, particularly the Project Oscar, will be important in ensuring that the quality of data of the sort that I think you need is improved.

Oliver Letwin: Can I just offer the observation? I am very conscious that I am teaching grandmothers to suck eggs, but I have been really astonished by some of the assumptions I have discovered in Whitehall about how complicated it is, not in 1920 or 1990 or 2000, but in 2011 to gather data virtually real-time and be able to interrogate it relatively easily. There is this thing called the internet, which is jolly nifty: we do not have to pay for it or buy it or invent it; it exists. Actually, with a quite simple PC, you can enter data into it pretty easily. People know how to mash it up extremely well. And I keep on finding, genuinely, cases of the assumption that it is complicated or expensive. It is neither.

Q155 Mr Bacon: Can I ask you about this, because this fascinates me? One of the things I have been intrigued by for years is how the Government manage to get things wrong so often, particularly because the civil service hires many of the very brightest people in the country, and there is a great paradox here that, despite hiring the brightest people in the country-

Chair: Especially in the Ministry of Transport.

Mr Bacon: We have discussed this with Gus O’Donnell-nonetheless, they manage to get things wrong. And I think probably part of the answer is that they are hired on the basis of their cognitive ability for playing with ideas rather than their ability to make things happen and get things done. The capability reviews that the Cabinet Office did, which you will be familiar with-the National Audit Office did a study on them-looked at 10 criteria across 17 Departments and, in those 170 cases, in two thirds of them Departments were less than well placed. If you are prevented somehow from delivering the outcomes that you are after, it is likely to be because of these basic failures in things we have seen many, many times-in HR management, finance management, IT management and so on-where there are basic holes. How is it that these basic holes have been allowed to sit there for so long with all these incredibly bright people?

Danny Alexander: I am sure Oliver will have a view on that.

Mr Bacon: And I do want to ask Oliver about it as well because Oliver was in Whitehall in the ’80s, so it should not be completely a surprise to him.

Danny Alexander: I am quite sure that there will be mistakes made under this Government, just as there have been under previous Governments. I hope these new mechanisms will help to catch them early, but they will certainly be made. One of the things that we have identified in the Efficiency and Reform Group, which we have set up to try and look at some of these issues from the centre, and the Efficiency Board, which Francis Maude and I chair, is particularly weaknesses in project-management skills, for example, and I think that is something you have identified as a Committee over the years too. And that is an area where there is clearly improvement needed in terms of training and in terms of recruiting people particularly with those skills, making sure that they stick with projects throughout rather than changing the senior responsible officer every six months on a project, so you have people who take responsibility, who have the skills, who see the projects through. Now, that, of course, is going to take some time, your point is absolutely right.

Q156 Chair: You say it takes time. It is a consistent finding at almost every ruddy report that we do.

Nick Smith: Absolutely.

Chair: And I have to say we had Gus O’Donnell giving us evidence saying, for example, on project-management skills-in a sense, it was a rather gloomy bit of evidence-where he said, "You’ll never have them within the Civil Service because we don’t pay enough, so we’ll never be able to." Our Government tried to train project managers and we failed. What is going to change under what you do, given this negative view we had from the Cabinet Secretary?

Danny Alexander: It is also part of the reason why some of the changes we are making are to do-and I mentioned the major projects authority-with having a central pool of skill and experience that can help-

Q157 Chair: Are you going to pay them more?

Danny Alexander: There isn’t a lot of money around at the moment but we do-

Chair: No, quite.

Danny Alexander: So, I have to sign off every single public servant where it is proposed to pay them more than the salary of the Prime Minister, and there isn’t a lot of money around.

Q158 Chair: So, does that mean no or yes?

Danny Alexander: No, no, but there are good people within Whitehall, actually, who do know about this, and what you would find, if you looked at particular Departments-I have one recent experience in mind-is that you have some very good people with very good commercial experience and knowledge but they are not necessarily working on the projects that are highest-risk or have the most need of those skills. And so, part of it is about aligning the skills that do exist, either through a central authority or within Departments, with the areas that are riskiest to make sure that the right skills are being applied to the right things, and those risky projects might not be the most-

Q159 Chair: I have to say that Gus O’Donnell’s view was really that you could not do it, unless you paid more. He said, even if you train them up, you would lose them because they could go and work for maybe a company that I used to work for at triple the salary.

Oliver Letwin: Can I just offer an observation on this, which is about us as politicians and a Government rather than civil servants? Actually, a lot of this is about, we believe, not trying to do things that Government are not good at doing in the first place, and that is a political decision that is our responsibility. And a great part of this programme is about trying to push power out to places where people can exercise it on the basis of contestability and accountability directly to the people that they are serving, precisely because we do not think that we, as politicians in particular, are particularly well placed to manage things a long way away in hugely complex organisations. And so part of this is about modesty, if you like, of approach.

Secondly, coming back to the earlier point that the Comptroller and Auditor General was raising, it is important that we recognise that a lot can now be done fairly simply and fairly cheaply, and often the best is the enemy of the good in these matters. You can get a pretty good approximation to a good database without spending anything at all these days. You can get messages out to people without spending anything and so on.

Third and, I think, crucially, I think it is really important that we do not underestimate the Civil Service. Actually, I think that there are very talented people who are very capable of one particular kind of thing, which they came into the Civil Service to do, which is to help us structure policy and implement it in a way which will enable other people to do jobs well. If you try and turn them into amateur managers of this or that, it will not work, but if you get them to help you design structures within which professional managers can answer to the needs of the people that they are serving, I think they are very talented and very serious.

Chair: I am sorry, we are going to have to reconvene, because there are a lot of people enthusiastic to put other issues to you. Thank you.

Sitting suspended for a Division in the House.

On resuming-

Chair: I will let Richard just come in with one thing he wanted to pursue from where you were.

Q160 Mr Bacon: I would just like to pursue further this question of capability inside Departments and capacity. I have no doubt at all it is a mistake to underestimate the skills of the civil service. As I said in my own first question, undoubtedly there is no question about this: anybody who encounters top civil servants is repeatedly reminded of this. The civil service hires many of the brightest people in the country and there is no question about that. Whether they are the right people to do some of the jobs or whether they are given the training and their formation in their careers helps them do what it is that they need to do is a separate question from their overall level of intelligence.

But what interests me is you’ve got this enormous swirling programme of change inside government, whether it is in local government, whether it is in the health service, whether it is in schools and many other areas-police, someone mentioned earlier-and you said in answer to an earlier question that it will not work if you are trying to turn these top civil servants into amateur managers, and yet there has to be, if this is going to work within this tight envelope of spending and the cost reductions that have to take place, some expert management going on if this de-layering is to happen in the right way. What are you doing to reassure yourselves that the right skills are there in the Departments to make this happen? Because it is not obvious to me that the right skills are there.

From what we have seen, from the NAO’s reports that it has done-it has done a whole suite of studies on financial management; IT, we have already spoken of. By the way, you do have a big IT project up your sleeve-it is called the Universal Credit-although I am not sure if anyone has yet seriously got to grips with how that is going to pan out in terms of the IT implications if it is to be truly simplified. Certainly the computer journalists I talk to about it do not seem to think anyone has. But what evidence have you got that the skills that will be required exist inside Departments to make these things happen in the right way?

Oliver Letwin: I am sure that Danny will want to say something about the question of the de-layering and the skills-human resources skills-which are very much his and Francis’s domain. But I think I can best answer your question by illustrating what I was trying to get at in a previous answer, which sort of deals head-on, I think, with much of what you are raising. I think we could take many cases, but let us take one case, which is the question of the planning system in the sense of town and country planning. Although I am sure that many people in Parliament and around the country have differing views about exactly what is wrong with it and exactly how it should be changed, I think more or less everybody agrees it is not in a terribly good place and has not been for a very long time. This is not a partisan remark about this regime or the last regime.

Now, we could have brought forward a set of changes or proposed changes to that that would involve very detailed interventions-there are already some-in every local plan, and we could have tried to create an Office of Planning with a civil servant running it and vast armies of people underneath that, so that we were trying to plan correctly for each neighbourhood. I personally, and governmentally, I, and we, do not think that would be the right approach, for other reasons, but quite apart from that, just in terms of the concerns of the Public Accounts Committee, I think that would have failed magnificently because that sort of activity, I doubt we have the people to do. But that is not the choice you have made. The choice you have made is, on the contrary, to say, within a framework of rules, which we think civil servants are very well able to advise us on the construction of, that local neighbourhoods should go about organising the production of their own plans. They would have the power to do so.

Q161 Mr Bacon: Can I stop you there? Because I fully understand that. Last Friday, I sat in with my local market town parish council, Diss town council, with all the neighbouring villages, and they want to get a neighbourhood plan together, and it is perfectly obvious that they are better equipped and incentivised to do that than anybody else on the planet-granted. But that is not really what I am talking about: I am talking about these big changes, where there are large amounts of money and large amounts of people currently at the centre, whether it is in health or whether it is in education, where, yes, there will be big changes.

To take the example of academies, we had evidence from some of the academy providers-Ark and one or two others-who were stunning: some of the best, most impressive witnesses, most credible witnesses I have ever seen in 10 years on this Committee. When we got to the Department and the civil servants, it was not transparently obvious that they realised there was still, notwithstanding all the autonomy that would be created and granted to the academies, an underlying requirement to have accountability, because it was public money, back to Parliament. It seemed to almost have escaped them. It had to be really set down in black and white by the Comptroller and Auditor General, actually, in that hearing, as well as by members of the Committee.

And then one gets into the risks of these things, and there are major reforms-obviously, we have looked at the health landscape-major reforms afoot in health, which may or may not deliver the outcomes that we seek. Let us hope that they are successful, but it involves huge risks. But the departmental business plans do not seem to go anywhere near risk. Their Permanent Secretaries are now supposedly having risk for breakfast, lunch and dinner; they have risk tattooed on their eyelids; they have to sign statements from internal control in which they say that they have taken account of all their risks, and this process that we are discussing today, which is an interesting process, does not seem to go anywhere near that issue, which is the whole issue of risk management, which is incredibly important for whether these things are successfully delivered or not.

Oliver Letwin: I am happy to discuss any case, of course, you want to pursue, but let us take the case of the school changes that you are talking about. Of course, it is the case-of course, it is the case-that, when a pupil and that pupil’s parents choose to go to an academy and take with them the Dedicated Schools Grant-taxpayers’ money-it is appropriate that there should be a system for accountability; of course it is. What is the system that we are setting up for accountability? It is the transparency of the results and the ability of entrants to enter that open network of schools and contest-

Q162 Chair: Can I just interrupt? We are value for money and that is not financial accountability, and that is the worry through a lot of these reforms. A child may do really well in an academy. The academy’s finances may be all over the ruddy place-they have overspent-

Mr Bacon: You are talking about customer accountability.

Oliver Letwin: Forgive me, but it was only because I was prevented from continuing my remarks that I did not get to the point of answering your, as it turns out, question. The only money that the academy will have is the money that it gets from the Dedicated Schools Grant, and as well as being accountable to the parents for the performance and to the choices that parents make, which will ultimately determine how many of these Dedicated Schools Grants get to it in a marketplace-a contestable marketplace-as well as that, the school will have to control its finances, because otherwise it will not have enough money to continue its activities. This is familiar to us in all other contestable marketplaces.

Q163 Chair: And if it doesn’t?

Oliver Letwin: And we have attended very closely to the question, which is a policy question and is a structural issue: "Does there need to be a continuity regime" or "failure regime"-however you want to put it-"which is available to make sure that, if that goes wrong, steps can be taken within the system to put that school in a better position?" And we have, as a matter of fact, consulted many people, including some present in this room, about what those continuity regimes might look like in general, and we are working with individual Departments-in this particular case, in Education, but also in Health and in many other domains-to get them to establish proper continuity regimes. And the point I am making is that, if you are looking for value for money at the level of the individual institution, we are creating circumstances that mean that the people running that particular institution, that school, that hospital or whatever have a strong incentive, both to control their budget and get good outcomes. That is where that comes to bear.

If you are looking for value for money across the system as a whole, the question is whether, within that contestable arrangement, the outcomes compared to the inputs are getting better. Now, those are two kinds of judgment you can make. It is not the same as micro-managing this and it does not require someone in Whitehall to do what I do not think anyone in Whitehall-

Q164 Chair: I think you are not answering the question. What happens if the school overspends or fails?

Oliver Letwin: The continuity regime comes in to play.

Q165 Chair: And who runs that? So, who is acceptable?

Oliver Letwin: In each case, the continuity regime will specify who takes over and under what circumstances, and how the management is replaced and by whom, and whether, for example, another school comes in and takes over and helps run it until it gets better, and so on. That is what continuity regimes that we are designing are designed to do.

Danny Alexander: May I add something? Quite a few things have been said and I would not mind just adding to one or two of them.

Oliver Letwin: I am sorry.

Danny Alexander: No, no, I do not mean by you, necessarily, though, in many cases, by you. On the continuity regimes, it is a very important piece of work that we are doing as part of the public service reforms because, in a whole range of different areas, we need to make sure that if there is individual institutional failure, either in terms of outcomes or in terms of finances, there are regimes in place that ensure that there can be a continuity of service for the public, or the users of the service, whilst whatever change that needs to take place takes place. And clearly the nature of the change to take place will depend a lot on the risk appetite that we have different areas of the public sector. Because that is a very important piece of work and it is a piece of work that is underway at the moment, we have been engaging with a whole range of experts in the area, including regulators, and including the Comptroller and Auditor General. We have asked advice from the NAO in these things too, so we are working very hard to make sure that the principles that we set out for how these continuity regimes work deliver answers to some of the questions that you are quite rightly probing.

On the academies specifically, which you mentioned, clearly headteachers are the acceptable officers of academies, and the Department for Education funds those academies according to agreements that are set out with them. The Department for Education and the accounting officer, clearly, can be brought before you, as can the accounting officers of any individual academy, and I think that you have made some comments about the financial accountability arrangements for academies. The DfE have given the YPLA-the relevant agency-the funding agency-a remit to work on and develop the academies’ financial relationships with Government, so that some of the things that you have raised can be addressed in the next academic year. So, no doubt you will talk to them about that again, but I hope you will find that some of your comments have been addressed in the financial handbook that is being developed for those academies, to make sure that the financial accountability is properly in place.

The question about risk is a very important question, and certainly in my work in the Treasury in terms of making sure that Departments live within their Spending Review settlements, understanding where the risks are in terms of public expenditure is critical to this and, in fact, not only do Treasury spending teams keep in touch with Departments on a day-by-day and week-by-week basis, and report to me on what they find, but I am about to start a process of examining Department spending plans to ensure that they are able to live within their settlements. There will be a meeting shortly of the Public Expenditure Committee to look at that, and I will be meeting, based on where I identify the major risks as being, with the relevant Secretaries of State to make sure that, from a Treasury control-of-public-money point of view, that Departments have plans in place to live within their Spending Review settlements, both in the simple arithmetical sense but, more importantly, in the sense of being able to deliver what they have promised within the amount of money that we have made available.

Q166 Stella Creasy: I have been involved in business planning in a local government level, and actually one of the things that we did was to have a risk-management grid, and I do not see any of that in this. Things will happen that will knock you off course. What planning are you doing for your ability to actually deal with that, and will that be public data? Because I have not seen anything approaching a kind of risk-management data. So, what happens when you do find academies have a variation in the way in which they deal with finances? Where is the evidence that you are learning from those experiences and you are planning for things that might go wrong that might knock you off course?

Oliver Letwin: I think that the origin of your question is a very fundamentally different understanding of what we are trying to achieve than we are actually engaged in. You are asking how we are going to manage the risk of an academy.

Q167 Stella Creasy: No, no, I am asking how you are going to manage risk. To give you an example, in local government, we would look at a range of policies that we were trying to introduce and a range of milestones that we might have set, and I have to say I would have been worried if half of our actions had no milestones at all, but that is your whiteboard. But we would say, looking at all these things we want to achieve, what are the other things that might happen that would also stop us achieving those, and what are we doing to address those? So, whether it would be a big financial crisis, whether there may be a natural disaster, whether something would happen to the town hall ICT system, for example, where is your risk-management process that allows you to be confident that the context in which you are bringing these business plans forward is achievable?

Oliver Letwin: But if what you are talking about is the business plans as opposed to, on the ground, the academies, in this particular case-

Q168 Stella Creasy: No, I am sorry, I am not actually talking about the academies per se; I am talking about that as an example of something that you would have to risk-manage.

Oliver Letwin: I understand, but you need to distinguish. Because we are trying to be open networks within which there is contest between different providers, we are not trying to manage the risks of each provider. We are trying, of course, to manage the process of change to that kind of system. That is what these business plans are about. Now, if you are asking me whether we got a way of dealing with the fact that some of your colleagues in their lordships’ house have taken a lot longer arguing about a particular bill than we anticipated, so some other bills will slip beyond their timescales, no, we have not got a process for managing that, because you cannot have a process for managing that. You have to deal with it and live with the fact that there will be some slippage, because we live in a democracy in which people have rights in the House of Lords to talk a lot. And that is how it is, and we could have wasted a lot of time having risk-management systems for that, but it would not make any sense.

I think there is a very serious set of questions about financial risk for the system as a whole in each case, and that we are attending to in the way that Danny described. There is the serious question about the risk at an institutional level within the context of an open public service, and that we are handling in terms of the continuity regimes which both Danny and I have talked about, and I do not understand at which level you think there is not some way we are designing of dealing with risk, and I think it is because you think of a management system-

Q169 Stella Creasy: Sorry, I think you are slightly misunderstanding. The kind of data I am talking about having, and having a shared institutional understanding of, about the things that you are trying to deliver and the things that might happen that might make them more or less deliverable, and how you then account for them. That is a perfectly standard business-planning process.

Danny Alexander: May I have a go?

Oliver Letwin: Yes, please, Danny.

Danny Alexander: Because Oliver is absolutely right to say that we are opening up public-service provision, and so what we are delivering in the business plan are structural reforms. Now, there may be risks associated with delivery of those structural reforms, which clearly form part and parcel of the conversations that we have with Secretaries of State. As I mentioned earlier, Oliver and I have spent a great deal of time with Andrew Lansley and his team discussing with them the process of delivering the reformed structures to the NHS that we, as a Government, intend to deliver, and we work through those in the normal way and, of course, Departments-and I am sure you will ask the individual Departments about this as they go-will have their systems for identifying where those risks are and bringing those forward, because they will then also be risks to delivering the milestones set out in the business plan. So, if a Department, through its processes, identifies that there is some particular reason why their ability to meet a certain milestone is seriously at risk, then that is something that I would expect them to bring to our attention so that we can have discussion with them about how it is handled and how it is managed.

Q170 Stella Creasy: But you do not have a cross-departmental risk-management grid.

Danny Alexander: I think I answered that question earlier.

Q171 Stella Creasy: You didn’t. I am asking for a very specific piece of information that is a fairly standard-practice thing to do, both in the private sector and at, certainly, a local-government sector, about trying to assess the risks that you face in delivering the projects that you are trying to achieve. One of the things that keeps coming back to our Committee is where events have happened and issues have come about to Departments, which have caused problems in the value-for-money assessment that they make. So, their ability to deliver things has changed, and I am worried that you are not bringing that data. You are not sort of saying, "Do you have a list of projects on your whiteboard? Are some marked red/amber/green, for example? Are some that you think are more a challenge than others?" Do you have that kind of overview?

Oliver Letwin: We certainly do have a view about things which are more challenging than others.

Q172 Stella Creasy: So, is that going to be published?

Oliver Letwin: No, certainly not; Departments have, as Danny says, obviously all sorts of internal mechanisms for trying to assess the risks of delivery of the things that they are charged with. We are not trying to manage the Departments. We are trying to hold the Departments to account.

Q173 Stella Creasy: But will that data be published? Will we be able to look at these risk-management grids?

Oliver Letwin: Will each individual Department be able to give you the way in which it has assessed the risk to its delivery? If you ask it, I assume it will, yes. You are a very powerful Select Committee and, if you go and ask a Department to give you that sort of information, I am sure they will come and testify, and I am sure the Permanent Secretary will, as an accounting officer, wish you to do that to you. And, indeed, I think you have the power to command them to do so, so that’s fine, but we are not trying to manage.

I understand that there may be simply a very strong difference of view between us about what the appropriate thing is, but if we can leave that ideological dispute aside, as a matter of fact we are not trying from the centre to manage Departments. We are not asking Departments from the centre to manage each individual institution. We are trying to hold Departments to account for whether they are doing things, and leave it to them to plan through and manage those risks, and they are, through these structures, trying to create open networks within which individual actors take risks and manage those risks, so an individual academy will need its risk-management plan and so on. This is a really very fundamental point because I think, if I understand the genesis of your question, it is based on an assumption that Danny and I, or some other set of people at the centre, are trying to manage a hierarchy; we are not.

Q174 Matthew Hancock: So, what risks are you responsible for managing?

Oliver Letwin: We are not responsible for managing risks at all; we are responsible for making sure that the structures we put in place are adequate to managing risks. So, for example, if the continuity regimes that are put in place are not effective because we have not thought properly about the principles of them and have not negotiated them properly with Departments, and therefore when an academy falls over there is not an appropriate way of dealing with it, then I think Danny and I would be severely criticised.

Q175 Mr Bacon: That reminds me of Baby P in Haringey because, of course, Baby P in Haringey happened in a four-star authority. Everything was ticked; all the boxes were there; it was all in line; all the stars lined up; it was all perfect on paper; and yet there was a huge problem.

Oliver Letwin: Yes, the difference here is what we are trying to do is to get away from monopoly provision with all those risks inherent in it and to move to a system of contestability, where the people at the coalface have a very strong incentive to deliver, to manage risk and so on. That is the fundamental shift we are trying to achieve.

Danny Alexander: So, can I just answer your question about responsibility? I am responsible for understanding what are the risks to delivering the settlements that we agreed in the spending review and ensuring that action is taken to address those risks, so that we live within the spending plans that we set out. I am not responsible for managing the Departments to make sure that they have the plans in place; I am responsible for understanding that, keeping on top of it and identifying where the risks are, so that I can then go and have pretty firm conversations with people in the Departments to make sure that they in run have put plans in place to address whatever the risk that has been identified is.

Q176 Matthew Hancock: So, to address the specific case that came up at the start on health that the Chair brought up, you have a responsibility to ensure that risks are being adequately managed in the transition process, and mitigated where possible.

Danny Alexander: Yes, absolutely, though our responsibility is to understand from the centre what those risks are and where the greater risks of not acting and not reforming lie, and to work with the Department who is responsible for delivering the reform plan to make sure that we are satisfied that they have got a grip on dealing with those questions, and I believe that they have, very firmly.

Oliver Letwin: May I just add, because this is very important? Going back to something-I think it was you, Chair, who said a long while back in the conversation about David Nicholson’s remarks. I hope you will ask David Nicholson formally-and we shall certainly go back and ask him formally-this question: given the envelope of money that is available, which is broadly real-terms-constancy, and given the increasing demands on the health service, is the greater risk to leave things as they are or to make the changes that we plan? And I understand from our conversations with him that he is very clear that the greater risk would be to leave things as they are, and that is a very important point.

Q177 Chair: I will look back at our transcript, but I am not sure that he actually said that.

Oliver Letwin: Why don’t you ask him that question-

Chair: I don’t think we framed it precisely in that way.

Oliver Letwin: Why don’t you ask him that question specifically?

Danny Alexander: I gather he attends reasonably regularly so you will have another chance.

Q178 Chair: Pardon? I know, he does. Now, I will let Jackie, who has been waiting really patiently, and then I’ve got three or four issues very quickly, because we have kept you for a long time.

Q179 Jackie Doyle-Price: I just want to come back and try and understand something that Danny said just before we broke, when we were talking about the lack of project-management skills in the civil service, and I have lost count of the amount of times we have seen that really jeopardise value for money in this Committee. And you mentioned that there really wasn’t very much money around, and that is where I would particularly like to challenge, because is this not somewhere where we need to spend more in order to save? And I just want to highlight two examples to you, which is why I have come to that conclusion. The first is that Nick Macpherson has told us that we’ve got a lot more financial efficiency since the civil service invested in financial discipline more effectively. And the second one is: when you look at the failures of this project management, the amounts of money that it ends up wasting are horrendous. This week alone, we published a report on the M25, which shows that a nine-year delay in managing a project has actually cost £1 billion to the taxpayer. Isn’t this an area where more money spent would actually deliver, in the longer term, better value for money for the taxpayer?

Danny Alexander: I think that it is definitely true to say that this is an area where action needs to be taken to take steps to ensure that we get better value for the taxpayer, because your second point about the costs of these things going wrong is clearly hugely important, and this Committee has identified over the years far too many cases for anyone involved in Government to be comfortable with of where projects have gone wrong. That does not necessarily mean you have to spend more money.

I think the point I was making earlier is that, in my relatively brief time in Government so far, I have encountered projects and I have encountered individuals who have very strong levels of project-management skills. It is not always the case that the people with the best project-management skills are allocated to the riskiest projects and it is not always the case that the people with the best project-management skills stay with the riskiest projects and that people move around; it certainly has not always been in the past that there is a central authority with the ability to step in and assess projects at each phase of the project to make sure that it is on track, that it has answered the relevant questions that you would expect to be asked, and that remedial action has been taken where problems have been identified, so that you do not move into a procurement process, for example, until there is an understanding of precisely what it is that is seeking to be procured and that you do not end up with a situation, which I know has been identified many times and I think it was the case with your M25 report, where specifications and people were constantly changing and, as a result, cost was added and delay was built into the system.

So, I think there are a number of steps that Government can take, some of which we are-many of which we are-taking, and I think that the work we are doing in the Efficiency and Reform Board is looking very much at these issues and, like many things, it is a work in progress, but we very much identify that the problem that you have highlighted is a serious one, but it is not the case-it is very much not the case-that the answer to every problem that Government identifies is to spend more money, and I would hope that this Committee, of all committees, would understand that.

Q180 Jackie Doyle-Price: But you can look at how you reward staff and retain them, and there is, I think, clearly more that can be done on that. But just going back to the M25 example, in terms of the system you’ve got here, can you give this Committee an assurance that a nine-year delay to a project would be picked up and remedied earlier through this process?

Danny Alexander: A nine-year delay to a project would definitely be picked up, yes, and I hope remedied.

Q181 Chair: I have to tell you, in that particular instance, Ruth Kelly did ask for a review as to whether it was a value-for-money project, and the data on which the review was based proved to be erroneous, so she took a decision. It was a really interesting example.

Danny Alexander: It is a very interesting one where data are so important.

Q182 Chair: Basically, had they got the right figures, she would have taken a different decision. I will just leave you with that with a warning note.

Q183 Mrs McGuire: Can I, in some ways, flip back to some of our earlier discussion to try to understand how a judgment is going to be made about whether or not we are getting good value for money? And I suppose this question is directed at Danny, or to Danny, sorry-"at Danny" sounds a bit aggressive. What actual efforts have you made as the Chief Secretary to ensure that the programme that is identified in these things that we are all now calling business plans-some of us have a view of whether or not they are business plans, what real action are you taking to make sure that what is in here is good value for money? And it is not about whether or not you throw money at things or whether or not there are cuts in expenditure; it is how you have assessed good value for money.

Danny Alexander: In the course of the Spending Review, of course value for money is assessed in all the normal ways by the Treasury and at my direction. Quite a lot of the business plans, for example, relate to capital projects that are going to be delivered by Departments. We, in the Spending Review, undertook a unique-the first time Government has ever done this, perhaps surprisingly-prioritisation process of all the capital bids from Departments from all parts of Government. We looked at the cost-benefit analysis and the value for money of each and every one of those across the whole of Government and formed a view about capital expenditure based on that information, overlaid by our own judgments, obviously, so that it wasn’t the case of saying to Department x, ‘Here is your capital budget-now you decide what to do with it’.

Q184 Mr Bacon: Are you saying we did not go through that prior to this Government. I am interested: you said "surprisingly, it was not done before". We were just talking about the A11 and the best benefit-cost ratio, which beautifully came out for us at 20:1, I think, and duly the Government took a-

Danny Alexander: There never been-

Q185 Mr Bacon: But you said that did not happen-

Danny Alexander: There has never been a zero-based review of capital spending looking across government as a whole and making a judgment.

Q186 Mrs McGuire: That is different from saying there was never an assessment made. You are talking about zero-based budget.

Danny Alexander: Assessments were made. Hold on, I just want to answer the question. Assessments were made of value for money, but what you would find is that-

Q187 Mrs McGuire: That is different from a zero-based budget.

Danny Alexander: You might have one Department that was delivering-because it had a capital budget-a project that had low value for money, because that was what was available to it, and another Department delivery projects with high value for money, because that is what was available to it. The A11 is incidental to this, not for you, obviously.

Mr Bacon: Certainly not.

Danny Alexander: But from the point of view of the decision-making process. We then, as a consequence of that, decided to spend more money on capital expenditure within the Department for Transport over the next four years than the last four years, precisely because that is where the benefit-cost was strongest.

Q188 Mr Bacon: But why? I would not expect the Department for Transport to compare itself with, shall we say, the capital projects going on in a different Department and for the other Department to say, "Well, actually, our benefit-cost ratio is not so good, so you had better give more money to the DfT". You would not expect them to do it, but you would expect somebody in the Treasury to do that, and I go on to my point about the civil service hiring the brightest people in the country: why was nobody in the centre asking those questions?

Oliver Letwin: May I answer this, because I observed this as a member of the Public Expenditure Committee and saw this was not a failing in the past of Treasury civil servants; it was the failing of-again, a non-partisan remark; it extended through many, many, many years-Cabinet government? We made a decision to make these decisions in a Public Expenditure Committee composed of members of the Government, and we sat around and we decided that we would do this on a synoptic basis. That was always available to Ministers in previous regimes. They did not decide to do it. Why they did not will undoubtedly have to do with balance of power and all the complicated things that go on. We made a decision to do it rationally. You cannot blame the civil servants for not having told their political masters to do it rationally.

Q189 Mrs McGuire: Can I just put this, then? A great deal of discussions today has been about how we are accountable to Parliament, how Government is accountable to Parliament, how Ministers and civil servants are accountable to this Committee in terms of spending. And we have also heard about all this data that is going to be out there, and I think to quote you, Oliver, you said that "people can mash the data". Now, given the fact that the majority of people actually will not be able to mash the data, even if they had the information to do it, how, in terms of accountability to the people that we are supposed to be serving and for whose end we are delivering a series of public services in which everybody may want or need to do it, are those individuals able to make a judgment about whether or not the services that are being delivered to them are value for money? There will be some organisations that will mash the data, but assuming that the majority of people will not be able to undertake that skill.

Oliver Letwin: Of course. Not only the majority-99.9% of people do not do it for themselves. It is a service that is available to everybody who goes on the internet and uses what has been done. But it is not just those services that will arise and are arising already; it is also the things we put into the public domain. So, we are going to make sure that, when a person goes to their PC, they can find out which of the GPs available to them in the area have performed better and which worse.

Q190 Mrs McGuire: So, you will be setting minimum standards.

Oliver Letwin: No, we are enabling people to see how they have each performed.

Q191 Mrs McGuire: But how can an individual judge what they can expect in terms of the standard of care from a general practitioner in practice if they do not have a standard against which to judge it? Is it Dr Cameron or is it Dr Kildare? Or is it both.

Oliver Letwin: If you can see 10 GPs and one of them has a very large number of patients who have been successfully cured and, when you look at the outcomes reported by a patient, they all say, "He was an excellent GP. He got me cured very well", and another, who is in the opposite position, you can make an informed judgment.

Q192 Mrs McGuire: But what if the sick and the terminally ill go to the second doctor and his outcomes in terms of fatalities are not as good as the first doctor? How do you make that assessment?

Oliver Letwin: Hold on: I thought you were asking a question about accountability and transparency, and I am saying that we are providing arrangements in which individual patients, when making decisions, will have available to them outcomes that have been achieved in different places, because we think people are, on the whole-there are cases where they need help but, on the whole-intelligent and able to make judgments on the basis of transparent information. Similarly about schools, similarly crime maps and so on and so forth.

Q193 Mrs McGuire: Can I give you this piece of advice to take away with you? You should read our inequalities in health report, and you will see that there are areas where the outcomes in terms of sickness and health and fatalities are different in different parts of the country.

Oliver Letwin: You bet. They are worse than at any time since the Victorian age after years of micro-management from the top-

Mrs McGuire: Yes, we know the reasons.

Oliver Letwin: Which is why we have established a public health budget, which is ringfenced and which is going to involve payment by results.

Q194 Mrs McGuire: We know the reasons but I am asking you: how, in terms of accountability, is the individual person going to make that rational assessment-and you are a man that wants to see us all make rational assessments-how are those assessments going to be made if there are no minimum standards that people can expect?

Oliver Letwin: Of course there are minimum standards.

Q195 Mrs McGuire: You have said already there are none.

Oliver Letwin: There are minimum clinical standards but you were asking not about the minimum clinical standards but about whether there is an accountability system, and there is. We are putting one in place. And we are putting accountability systems in place in every domain, so that the people who are doing the providing are accountable.

Danny Alexander: But I think there is a fairly fundamental question, or difference of opinion that sits behind the question, which is that we do not believe that-I think this is something that has been tested almost to destruction over the last few years-that a system which micro-manages the work of public servants according to a huge network of targets and outcomes either delivers better outcomes in terms of people, which is precisely the question that you are asking, or gives people the information they need to make those informed judgments.

Q196 Mrs McGuire: I am not talking about micro-management. Please don’t think I am talking about micro-management. I am talking about, how, in terms of accountability, you make the judgments. Sorry.

Danny Alexander: That is the fundamental shift that we are making with this new system of accountability.

Q197 Chair: I think we have been round this one. One area which we have not covered-and I think we have covered most of them-is just, if I go back to the business plans, they are silos, the departmental business plans, and lots of issues are cross-departmental, so public health, we have just mentioned, would be one; children might be another. How, within the business-plan structure, are you tackling those cross-departmental?

Oliver Letwin: Right, we have thought a lot about that and built that in to the business plans. Let me take a particular case, though we are happy to discuss it in general as well, if you want: one of the particular projects that we were keenest to promote was the payment by results-a case of direct accountability-in drug recovery; this is about getting people out of drug dependency, which we think is incredibly important. And clearly, the Ministry of Justice, the Department of Health, the Home Office and, peripherally, some other Departments as well are involved, and so, first of all, we gathered together a group of people from all of these Departments-both at ministerial level and at official level-to work up the policy; secondly, we incorporated, in this particular case, in the Department of Health’s business plan, the actions that we had decided it should take, but we have also included in other relevant departmental business plans actions that support those actions, and that is paralleled in a large number of other cases. And one of the roles that Danny and I have to perform is precisely to make sure that these things are articulated in a way that delivers across-

Q198 Chair: And the counter to that, if you’ve got an unintended consequence, where an action in one Department, you know, endlessly-You may disagree with them, but housing benefit, homelessness or cutting prison places, crime, if there is that unintended consequence, what happens?

Danny Alexander: Can I just take a step back from that first, because I think it is a very important question? In the spending review, and subsequently, we have, obviously, identified a number of areas where these sorts of interactions take place. The criminal justice system is the classic example, where you have the Home Office, the Ministry of Justice and the Attorney-General’s Department, and various agencies of each Department, all of whom come together to form the criminal justice system. And in order to make that system more efficient, there needs to be better working between those Departments to look at interactions between their work, and that is a piece of work that the Treasury has encouraged and is working with those Departments now to see where savings can be made, from a Treasury point of view, and where efficiencies can be delivered and where we can make the system more streamlined.

The second thing is that, as Oliver says, how this links in with the business plans is, in a number of areas, we are developing overarching strategies. So, I will take the example of social mobility, where we will shortly be coming out with a social-mobility strategy. That will be something that is worked on together by a number of Ministers from different Departments to ensure that it takes a strategic approach, looking at all the different sorts of actions. The things that are identified in that strategy-the actions-will then be built into the business plans so that the business-plan process ensures that all the different elements that were decided upon in a strategic way by Government are then delivered by the Departments who hold those responsibilities.

Q199 Chair: And unintended consequences?

Oliver Letwin: We should also answer you on the specific point about the unintended consequences. So, let us suppose that we discovered that recidivism is going up, despite the efforts of the Ministry of Justice through its rehabilitation PBR and the DWP through its work programme for prisoners when they leave prison and the drug recovery programme from the Department of Health that I was mentioning-despite all those efforts, recidivism was, for some reason, rising. Now, clearly, this would be a worry to Government, to you and so on, and it would have an effect on prison crowding and so on. And we would then have to look at what we identify as the causes of rising recidivism despite these programmes; we would have to look at whether these programmes were not delivering. You and we would have a very good way of measuring that, because, if they were not delivering, then the providers would not have been paid. The point of paying by results is, if there are no results, you don’t get paid. So, actually, input costs into those programmes would be very low, because the providers wouldn’t have got the money, but the outputs-the outcomes-would be very poor, speculatively, in this case.

Now, clearly, we would then have to ask if that was happening not just in one provider, a perfectly likely occurrence and is part of the scheme, so to speak, that some providers will succeed, some will fail, but if, across the ward, they were failing, then that would indicate that there was a structural failing in the way we had designed the system. And so, we would go back to the relevant Secretaries of State and say, "We and you have clearly made an error here. We have not managed to get a payment-by-results system that is producing the results. It is not producing payments either". I suppose, in one sense, that is good value for money-no result, no payment-but it is not doing the job you want it to do. "Now let us go back and think how we could change that arrangement so that it might do better".

And this is the distinction; I hope-and we have had a very interesting conversation-that we are leaving you, because I think Danny and I both feel passionately about this, with the impression, which is true, that, whether right or wrong, we have a very clear view about two different things. We are not trying to micro-manage the results down at the institutional level. We are taking responsibility for whether the structures as a whole deliver outcomes. And we can be judged by whether the inputs are achieving the outcomes across the structure as a whole.

Q200 Chair: I think we do understand that and all I would reiterate back to you: our primary concern is to ensure that we can follow the pound and, therefore, hold you to account in Parliament for the public expenditure.

Oliver Letwin: And we want you to be able to do that.

Chair: Thanks very much, and thanks for your patience in spending some time with us.

Oliver Letwin: Thank you.

Danny Alexander: Thank you.