House of Commons - Smaller Government: Shrinking the Quango State

Smaller Government: Shrinking the Quango State - Public Administration Committee Contents

2 The Government's review

8. Shortly after its election, the Coalition Government undertook a review of all public bodies sponsored by departments, excluding executive agencies. The stated aim of this review was "primarily" to increase the accountability of government.[5] To achieve this the review attempted to identify functions that could be transferred from public bodies to central departments. The Government argued that ministers would then be directly responsible for these activities, and could be held to account by Parliament for the discharge of these functions. We evaluate the merits of this position in Chapter 6.[6] A total of 901 public bodies were considered as part of the review. Table 1 (below) provides a summary of the review's outcomes.

Table 1: Outcome of Public Bodies Review

Outcome Number Percentage

Abolished 192 21%

Merged 118 13%

Retained 380 42%

Retained and Reformed 171 19%

Under Review 40 4%

9. Francis Maude, Minister for the Cabinet Office, described how the review was to be conducted when he reported to the House on its outcome:

I have led an intensive review into public bodies, subjecting each to four tests. The first test was existential and asked, does the body need to exist and do its functions need to be carried out at all? The answer to that question in some cases was no. [...]

If, as in most cases, the body's functions were deemed necessary, we then sought to establish whether those functions should properly be carried out at arm's length to government. If the body carries out a highly technical activity, is required to be politically impartial or needs to act independently to establish facts, then it is right for it to remain outside direct ministerial accountability.[7]

10. Before this, and the accompanying written statement, the only explanation of the tests we can find is in David Cameron's speech of July 2009 on public bodies reform where he described the second set of tests:

there are three particular areas where the public would want reassurance that actions, decisions, or the provision of services are insulated from political influence.

The first is when a precise technical operation needs to be performed to fulfill a ministerial mandate. In these circumstances the public needs to know that people with the right training, professional knowledge and specialist skills are carrying out the work.

The second area where it may be right to delegate power to an independent body is when there is a need for politically impartial decisions to be made about the distribution of taxpayers' money. In areas like the arts and science, the public expects funding on merit, not favouritism.

The third area where there is likely to be a need for independent action is when facts need to be transparently determined. We have seen how information, once in a politician's hands, can be distorted to score a political point. A freeze becomes a zero percent rise. Cuts in capital expenditure become increases. Of course this has not been the preserve of any particular government, at any particular time.[8]

11. From these comments we deduce that there was a two stage process: first, whether a body was performing a function that it was necessary for the State to perform - the "existential test". If a body passed this stage then the Government used three further tests to determine whether the function needed to be delivered outside a central department - the "technical" test, the "impartiality" test and the "facts" test.

12. We asked the public bodies that gave evidence to us whether the second stage tests had been explained to them. Ms Done, Chair of the Youth Justice Board (YJB) replied that "I don't think there was anyone able to explain what they all individually meant."[9] Mr Sinclair, Director of the Taxpayers' Alliance also expressed concern about the lack of clarity in the tests, commenting that the Government had come up with a series of criteria that were "very easy to fudge."[10]

13. We asked the Minister how the tests had been defined, focusing specifically on the "technical" test. He responded that:

Well, if it's doing something that does not require—where the decisions being made are purely technical, I think that's the consideration: where you're not making policy judgments.[11]

... for example, the Child Maintenance and Enforcement Commission will become an executive agency, because actually that is fulfilling an important public function—not a technical one in that sense—which should be accountable to Parliament. Sometimes, there are technical functions that the public will expect to be clearly not capable of being interfered with by ministers.[12]

This seems an odd basis on which to make a decision as it implies that a technical function cannot be an important public function. Regulating pollution, the example the Minister later gave of a technical function, is surely an important public function.[13]

14. Francis Maude also said that the application of the test was not "absolutely precise" and that:

at the end of it, we're making judgments about whether we think public functions—state functions—have to be delivered in a way that is unaccountable. These are tests that help us to reach those judgments; this is not a precise science.[14]

These comments caused us to doubt whether the tests had been properly thought through or whether they were capable of clear definition. We wrote to the Cabinet Office to ask whether it had issued guidance or clarification to departments explaining the tests. The Cabinet Office wrote to all departments in June with an "initial view on how the four tests could apply to each department's public bodies". The Cabinet Office also said that a series of meetings on how to apply the tests had taken place, at both official and ministerial level. However, no written guidance had been issued.[15]

15. It is also unclear whether all three of the tests the Government set were necessary in determining whether a function should remain at arm's length from Government. The IfG, during its research for its report Read Before Burning, conducted its own evaluation of public bodies and the level of independence they need to discharge their functions properly. Their evidence states that:

The key issue for deciding to put a function at arm's length is the degree of independence from day-to-day ministerial intervention needed to enable the body to command public confidence that it can perform its function in the public interest.[16]

The IfG said that its analysis "put less emphasis on technical expertise and more on the need to give independence to bodies which need to command public confidence in their ability to scrutinise government and to develop regulatory or standards regimes" and concluded that there was "no necessary reason why technical functions should be put at arm's length from government, unless that is necessary to command public confidence."[17]

16. The Minister acknowledged that some technical functions were already exercised by executive agencies.[18] He went on to argue that technical functions should remain outside the department when this was necessary to ensure public confidence that the function was being discharged impartially.

What I think we mean is that this is a function that the public would not expect to be carried out—it overlaps into the criterion about political impartiality—a function that requires political impartiality—where you would not expect the decisions on technical issues to be able to be overset by ministers or councillors.[19]

17. This argument is premised on ensuring that technical functions which needed to be beyond ministerial influence were discharged in a way that was demonstrably politically impartial. When pressed as to whether technical function itself was a relevant criterion, he responded that it was necessary "because it overlaps, but there are plenty of these bodies that will continue to exist because they in some way meet more than one of these tests."[20] Based on these comments we can see no reason why the "technical" test should be one of the tests at all.

18. We have similar doubts about the third test: the "facts" test. This appears to be a sub-section of the wider political impartiality test. Only five bodies have been retained on these grounds,[21] although there are more than five bodies that independently establish facts. Francis Maude explained that for a body to pass this test it needed to "measure facts in a way that requires it to be seen to be independent of government".[22] The common denominator for all three tests is independence from government. In addition to the existential test, "impartiality" is the only other criterion public bodies should be asked to meet, regardless of their functions.

19. The three second stage "tests" may have seemed superficially plausible at the outset, but they are hopelessly unclear. "Impartiality" is the test that is relevant and this appears to be the motivating factor behind the other two tests. In fact, the "technical" test and the "facts" test serve only to confuse.

ADDITIONAL TEST?

20. The Government's four tests focus on two issues, whether or not the body performs a necessary function ("existential" test); and whether this function needs to be, and appears to be, independent of political influence ("impartiality test"). They are silent on a range of other issues, such as the implication of changes on the wider public policy framework, value for money, or current performance of organisations. We asked our witnesses whether these or any other considerations should have been included in the review. We were told by Sir Ian Magee, IfG that value for money should have been incorporated into these tests.[23] Similarly, Karamjit Singh, the Social Fund Commissioner, argued that the criteria were too limited because they failed to take account of the current performance of, and value for money being achieved by, existing bodies.[24]

21. The Government has repeatedly said that these reforms are "primarily" about improving accountability. While cost savings would be achieved, they were not the main force motivating the review. However, the Government has introduced considerations that seem to be about value for money in the Public Bodies Reform Bill [Lords]. Clause 8 of the Bill says that when exercising the powers given to them by the Bill Ministers must have regard to:

i. achieving increased efficiency, effectiveness and economy in the exercise of public functions; and

ii. securing appropriate accountability to Ministers in the exercise of such functions.[25]

While this does not explicitly say that value for money is an issue that Ministers should consider, increasing efficiency and effectiveness and economy in the exercise of public functions would appear to be similar to increasing value for money in the delivery of these functions. Achieving value for money is a perfectly legitimate aim for the Government, and one that we are keen for it to pursue, but it should be transparent about its motivation.

22. We are also concerned that difference between the original government tests and the provisions of Clause 8 of the Bill (above) will lead to confusion. Currently, there are the "existential" and "impartiality" tests which were used in the Government review; while tests concerned with accountability and efficiency are written into the Public Bodies Reform Bill.

23. The tests used in the review should be the tests contained in the Bill. Confusion about the three second stage tests might explain why the tests the Government used in the review are not those outlined in Clause 8 of the Public Bodies Reform Bill [Lords]. The inclusion of a "value for money" test in the Bill but not the review is a further inconsistency. There should be a single set of tests that covers: whether a function needs to be performed (existential), whether it is appropriate for it to be performed independently by a public body (impartiality); and how it can be delivered most cost-effectively (value for money). The present incoherence and inconsistencies cannot have helped the conduct of the review or the drafting of the Bill.

Review process

Consultation

24. The Government's most recent guidance on consultation, issued in July 2008, states that "effective consultation brings to light valuable information which the Government can use to design effective solutions. Put simply, effective consultation allows the Government to make informed decisions on matters of policy [...]".[26] However, the Government does not seem to have followed its own advice when deciding how to proceed with public bodies reform. Many witnesses told us that they felt the Government had failed to conduct a proper consultation exercise when performing this review.

25. The Public and Commercial Services (PCS) Union's written evidence stated that they had "major concerns" about the lack of consultation with those that use and provide public bodies' services.[27] This was a theme that the unions expanded upon during their oral evidence. Charles Cochrane, Secretary of the Council of Civil Service Unions told us that:

Whilst we initiated some discussions with the Cabinet Office to ask both about the general process of reviews and abolition of public bodies and of the Bill, we certainly weren't subject to any formal consultation.[28]

Jonathan Baume, Secretary-General of the FDA said that:

We were not consulted beforehand. On one or two cases we might have had about an hour's advance notice of announcements being made, but certainly no advance consultation.[29]

Commenting on the decision to abolish the regional development agencies, Geoff Lewtas of PCS, complained that:

There has been no debate at all about the real reasons for that decision and no possibility since of any proper consultation that means you can have a dialogue about the reasoning behind it and the justification for it and start to examine those arguments and discuss them in a proper manner.[30]

26. Public bodies themselves were not consulted in any consistent way. For example, Christopher Banks, Chair of the Public Chairs Forum[31] said that there is a "sense of tokenism" in the Government's engagement with bodies under review. He quotes one Chair who said that:

The Government's version of involving an ALB [Arm's Length Body] in the decision about its future appears to be telling it that it is being reviewed and that they will be told the outcome at the end of the process.[32]

Frances Done, Chair of the Youth Justice Board (YJB), also reported that the Board had not been directly consulted about the decision to abolish it.[33]

27. The Minister was asked what consultation the Government had undertaken in advance of taking these decisions. He responded that the level of consultation would have been "very varied [...] in some cases, will have been quite extensive; in other cases, will have been very little."[34] He explained that this was because the reviews were conducted by individual departments and each of them will have followed their own procedures. He also said that:

These are essentially decisions in principle; these are decisions made where departments will know, or should know and I'm sure do, in a great deal of detail what those bodies do, what their functions are and how they are carried out.[35]

This can only mean that he believes that the nature of the decisions the Government was taking meant that consultation was unnecessary; that these were academic questions which could be answered solely by thinking about the type of function that a body performs. This is not the case. As a minimum the bodies affected by these reforms should have been consulted to see how they thought the Government's tests applied to them.

28. We are not alone in expressing concerns about the lack of consultation. The Lords Constitution Committee recommended that all orders made using the Public Bodies Reform Bill should use the "super affirmative procedure" which would involve publishing the order in draft for consultation.[36] The Government has itself acknowledged that there is a need for greater consultation as it has brought forward it own amendments to the Bill that would require it to consult before bringing forward an order to implement a change to a public body.[37]

29. The Government did not consult properly on these proposals. When undertaking such a fundamental review of the machinery of government it is desirable and sensible to do so. We welcome that fact the Government is now taking steps to rectify this, but question how useful consultation can be, given that decisions on the future of many bodies have already been taken. Having agreed to amend the Bill to allow for more consultation we expect these consultations to have real effect on the outcome of the review; even if this means reversing decisions that have already been made. We expect the Government to give us such an assurance in its response to this Report.

APPLYING THE TESTS

30. We also have concerns that the Governments did not apply its tests consistently.

Lack of explanation

31. In several cases, the Government has declined to provide an explanation for why it intends to retain a body. This has happened in cases where:

i. The body is being retained and subject to radical reforms e.g. Environment Agency, Equalities and Human Rights Commission, Financial Reporting Council, Forestry Commission, Homes and Communities Agency and Natural England;

ii. Two or more bodies are being merged e.g.: Certification Office and Central Arbitration Committee; Competition Commission and Office of Fair Trading; Postcomm and Ofcom; Gambling Commission and National Lottery Commission; UK Sport and Sport England; Pensions Ombudsman and Pensions Protection Fund Ombudsman; Serious Organised Crime Agency into the new National Crime Agency; and Crown Prosecution Service and Revenue and Customs Prosecutions Office; and

iii. The body is simply being retained e.g. Competitions Appeals Tribunal, Equality 2025, Health and Safety Executive, Monitor, OFWAT, and Royal Mail Holdings Plc.[38]

This suggests that some decisions may have been taken without reference to the tests.

Transparency: a further test?

32. The Ministry of Justice has retained bodies on the grounds of "transparency" despite the fact that this is not one of the tests that the Government laid down.[39] Since it has retained other quangos on the grounds of technical function and impartiality, we can presume that it has used the term transparency in place of the "facts" test. However, the use of an additional term to justify a decision suggests that the tests were not applied consistently.

Similar bodies treated differently

33. Finally there is evidence of similar bodies being treated differently. For example, Sir Ian Magee, IfG, said that it was not immediately clear "[...] why arts and sport funding needs to be independent, but film funding doesn't need to be independent".[40] Professor Flinders, Sheffield University, gave further examples:

There are many examples where you can't find any explanation for why one body is going and another one is being kept. Why get rid of the Security Industry Authority and keep the Gangmasters Licensing Authority? Why keep seven Research Councils? Why get rid of the HFEA and keep NICE? [...] The process for assessing the future births, deaths and marriages of public bodies has simply not been transparent; nobody understands it.[41]

34. There was also a general agreement amongst the academics that this inconsistency had been at least partially caused by the speed at which the review had been conducted. Professor Talbot commented that he could not imagine that the process had been conducted with the necessary care due to the "extraordinary pace" at which the Government had proceeded.[42]

35. Mr Burkard, Centre for Policy Studies made a similar point, noting that the speed at which the review had been conducted had led to some bodies not receiving the level of detailed scrutiny that was required.

The fact that the thing was rushed has a lot to do with political necessity to show that something has been done, but the fact that it was rushed also meant that an awful lot of bodies that probably need a lot more scrutiny haven't received that kind of scrutiny.[43]

36. When challenged about whether the tests had been applied consistently, the Minister insisted "that the results of the review are reasonably consistent."[44] He also said that his ministerial responsibilities included overseeing the review "to ensure that it was carried out in a way that was reasonably consistent." We suggested the possibility of an analysis being produced on how the tests had been applied. He replied that:

I'd recommend you looking in detail at what each department has said and see whether you think they're meeting that—what you would like to see. I think you'll find that quite a lot of them have done that.[45]

In the first instance it is the responsibility of the Minister of the Cabinet Office to ascertain whether each department has applied the tests consistently.

37. We are not convinced that the Government has applied its tests consistently. Neither can we find any evidence to suggest that it took any steps to ensure a uniform approach was taken. We recommend that the Cabinet Office publish details on how the tests have been applied to all public bodies that are still under review, so we can ensure that in future these tests are applied consistently.

38. The lack of consultation and inconsistent application of the tests, which are themselves confusing, have led us to conclude that there was no coherent and consistent process for reviewing public bodies. The Minister's own comments seem to confirm this. He said, "What process each one went through, I suspect, will have varied enormously".[46] When asked directly whether the Cabinet Office had issued any guidance as to how departments should conduct this review, he replied:

No, we simply said, "These are the tests which you must apply," and we then have oversight of the results of the review, and we test the conclusions that the departments have reached and, as I made clear in the statement whenever it was—two weeks ago—some of the reviews are not yet complete and some of the bodies are still being considered.[47]

The Cabinet Office's submission also states that no written guidance was given to departments on how to apply the tests, but that consistency was ensured through discussion between officials in the Cabinet Office and other departments.[48]

39. The Cabinet Office should have offered guidance to departments on how to conduct these reviews of public bodies; including provision for a meaningful consultation exercise and details on how the tests should be applied. While this might have taken longer, we see no reason that justifies rushing the review process. This extra time would have allowed the Government to conduct a measured and balanced review, and also have given it the opportunity to consider in more detail which functions it was necessary to retain.

5 With value for money being a secondary consideration. Back

6 See para 73 ff Back

7 HC Deb 14 October 2010, col 505 (our emphasis) Back

8 http://www.conservatives.com/News/Speeches/2009/07/David_Cameron_People_Power_-_Reforming_Quangos.aspx (our emphasis) Back

9 Q 20 Back

10 Q 302 Back

11 Q 57 Back

12 Q 59 Back

13 Qq 58-59 Back

14 Q 67 Back

15 Ev 62 Back

16 Ev 50 Back