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

Written evidence from the Institute for Government


    — Current reform efforts need to be based on sound business plans if savings are to be delivered. Government and Parliament need to monitor these closely as past experience suggests that reorganisations do not necessarily lead to savings. Reorganisation alone will not deliver the scale of savings required as much ALB[1] spend is passed through to third parties.

    — The Government has an opportunity to implement changes in the way in which it deals with remaining ALBs to secure greater public confidence and better performance. Those changes alone are not enough and the Government should use its proposed legislation to introduce a simpler and more robust taxonomy for ALBs based on the freedom they need from ministerial intervention to ensure public confidence in the performance of their functions.


  The IFG published a report in July 2010, Read Before Burning, which made a number of proposals for better governance of arm's length government going forward. We believe that the proposed Public Bodies Bill offers an opportunity to rethink the relations between government and these bodies; put governance onto a more robust and consistent basis and develop the skills and capabilities in both government and remaining ALBs to ensure better results in the future. Our evidence therefore concentrates on Question 8 on the committee's list.

Questions 1-2; 4-6

  The Government has made a clear political decision that fewer government functions should be performed by bodies established at arm's length from government. That is a legitimate political choice. Where the Government is taking a pragmatic look at ALBs it needs to ask, as for any government function:

    — Whether the function needs to exist at all?

    — Whether the function could be performed better/more cost effectively elsewhere?

    — Whether abolishing the body will deliver acceptable results at a sustainable lower level of cost?

  IFG research and earlier work suggests that the process of closure and reorganisation will need to be tightly managed in order to deliver savings and realise potential benefits. Explicit business cases are needed to determine the costs and benefits associated with each reorganisation. Business plans should show how savings will be made and what happens to functions. There are considerable legacy costs in organisations which may entail substantial upfront expenditure eg pensions liabilities, IT costs, estates. There are also risks that need to be managed around loss of expertise from specialist organisations. The Government should make sure it learns the lessons of past rationalisations.

  Work commissioned from the National Audit Office (NAO) shows that the bulk of money is spent by a few arm's length organisations, with 80% of executive NDPB spending concentrated in just 15 bodies; and 75% of that is not spending on the NDPB itself but is passed on to third parties in the form of grants or is used to fund public services.[2] While there may be scope for some streamlining of administrative functions and reductions in overhead costs, significant savings will also depend on reductions in these programmes whether they continue to be performed by the ALB or are taken back inside departments.

  Read Before Burning proposed that PASC and relevant select committees should scrutinise business plans before the establishment of new ALBs. That recommendation was accepted by the Government. Given the current scale of reorganisation going ahead, we think it would make sense for both PASC and individual Select Committees to scrutinise the Government's business cases for reorganisations to make sure they are sustainable and offer value for money.

Q3:   Are the three criteria outlined by the Government correct? Should there be others eg VFM?

  Read Before Burning did not offer an explicit alternative to the criteria set out by the Prime Minister for putting functions at arm's length. However, it is implicit in our proposed new way of classifying bodies. 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. Any decision to put a function at arm's length needs to balance the loss in direct ministerial control against the benefit of demonstrable independence from political interference. That leads us to propose a modification of the criteria, with the following functions at arm's length:

    — Bodies which exercise constitutional oversight of government and/or the political process;

    — Bodies which set regulatory regimes, set standards and are independent watchdogs of government activity; and

    — Bodies which are discretionary grant-givers, enforcers or are responsible for the long-term stewardship of public assets.

  The significant difference from the Prime Minister's criteria is that we 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. This is an elaboration of the PM's third criterion on independent determination of the facts. We do not see any necessary reason why technical functions should be put at arm's length from government, unless that is necessary to command public confidence. They may be more suitably put into executive agencies, which are effectively business units of departments. As our report makes clear, we do not think it makes sense to regard advisory bodies, with no executive functions, as part of the arm's length landscape.

Q7:   Will the abolition of public bodies lead to increased public accountability?

  We do not think rationalisation of the arm's length landscape will necessarily improve accountability. Indeed there may be a trade-off between the relative transparency of decision-making in an ALB, with a Board and Chief Executive publicly answerable for decisions, and more direct ministerial accountability. The Institute is addressing these issues in work due to be published later this year on ministerial accountability.

Q8:   How could the Government improve the accountability and effectiveness of remaining public bodies?

  We think it is vital that the Government uses the opportunity presented by radical reform of ALBs to put all remaining public bodies onto a more robust basis going forward. Our report, Read Before Burning, published in July, set out potential actions under four major headings:

    — Changes to ensure ALBs are set up and managed on a more stable footing;

    — Changes to develop skills in ALBs and departmental sponsor teams;

    — Changes needed to build public confidence; and

    — Implementation of a new and much clearer way of classifying public bodies that relates form more closely to function and ensures governance reflects the degree of freedom the body needs to perform that function.

  These recommendations flow from the principal findings of our research. That revealed a muddled picture that had evolved over time, with like bodies having different governance and freedoms. There is a lack of transparency over the numbers, budgets and functions of bodies, and bodies' own websites are poor at making clear their relationship to departments. Many bodies had been unreviewed for a long time, and had acquired new roles. Others suffered from micro-management by departments, with unnecessary duplication of functions. There was little investment either in the sponsorship function within departments, or in preparing new appointees to ALB boards for their role. It was too easy to set up new ALBs—but too often in the past reductions of numbers of ALBs had focussed on the long tail of advisory bodies without getting to grips with the few big bodies which spend the lion's share of the money and employ most of the people. More generally, the lack of any central capacity on ALBs, whether in the Cabinet Office, Treasury or in a lead department, meant there was little means of sharing best practice, departments managed like bodies in different ways, and the Office of the Commissioner of Public Appointments did too little to ensure public confidence in the impartiality of the appointments process.

  We think the Government should address these deficiencies which will be essential to ensure that it gets best value out of remaining arm's length. Our report makes specific recommendations under each heading.

(a)  Changes needed to ensure ALBs are set up and managed on a more stable footing

  We have three major recommendations under this heading. The key aim is to make sure that ALBs are only set up when there is a good business case, and that they do not outlive their usefulness and remain fit for purpose. The first recommendation, to give PASC a role in scrutinising the business case for new ALBs, has already been accepted by the Minister for the Cabinet Office. We also think individual select committees should scrutinise proposed changes in their department.

  To guard against self-perpetuation and mission creep, we recommend that all new legislation for ALBs should contain a sunset clause, defining the expected time when a body should be wound up or subject to what we call a Governance and Performance review. It was clear from our research (and from government capability reviews which only touch tangentially on ALBs) that there is a need to have regular reviews of both the performance of individual ALBs and the way in which the relationship is being managed by the department. We suggest these happen every three to five years for bodies with a spend over £50 million. This would prevent the sort of situation revealed in my report on the Legal Services Commission, which had not been reviewed in 10 years since its establishment. Its role had changed significantly over that period and governance arrangements had not kept pace with the changes.[3]

(b)  Changes to develop skills in ALBs and sponsor teams

  Interviews with people on both sides of the relationship revealed a lack of skills and understanding of the public sector operating environment. Many people in ALBs complained about rapid turnover in sponsor teams, and, too often, newly recruited board members and Chief Executives, who had been appointed because of their private sector experience, were inadequately prepared for their new roles.

  We think these shortcomings can be addressed by more systematic briefing and induction on recruitment to new roles both for people joining ALBs and moving into sponsor roles. Departments need to make sure that new appointees to ALBs understand the wider context of departmental business and sponsor teams need to provide specialist training on building and maintaining effective relationships. Ministerial induction also needs to cover managing relationships with ALBs.

  This greater focus on training and induction can be bolstered in two ways. The National Audit Office does relatively little systemic work on arm's length bodies (focusing instead on problems in individual bodies such as the Equalities and Human Rights Commission and the Qualifications and Curriculum Authority). More thematic reviews by the NAO of ALB functions, such as grant allocation and benchmarking efficiency would both help transfer best practice and help more effective performance management. The NAO has started to do this, with its recent report on performance management of ALBs. At the same time, and as recommended in the Institute for Government's report, Shaping Up,[4] we see a bigger role for the Cabinet Office in taking a strategic overview of arm's length bodies and building capacity across Whitehall. This would give a bigger role to the Public Bodies team. If the Cabinet Office did not want to do this, an alternative would be to implement a lead department model.

(c)  Changes needed to build public confidence

  There is a real gap between public confidence in individual arm's length bodies, where their independence from government is a source of credibility (as evidenced for example in the current Government's desire to bolster public confidence in fiscal forecasts by establishing the Office for Budget Responsibility) and public and political concern about the "Government's unelected, inefficient quangos" in aggregate.[5] We believe the Government should address this in three ways.

  First, the Government needs finally to implement the recommendation from an earlier PASC report to bring together and publish in one place a comprehensive overview of all ALBs, with details of their expenditure and the names of the departments and sponsor officials. This could be expanded to cover salary details and clear accountability arrangements.

  Second, the Office of the Commissioner for Public Appointments should build on current work which is designed to ensure a fair and transparent process for individual public appointments by researching whether fair outcomes have been delivered in practice.

  Third, all ALBs should be required to publish transparent information on their role, relationship to government, funding and performance, including their latest GAP review on their website in a standard format. At the moment, this information is very inaccessible.

(d)  Implementation of a new and much clearer way of classifying public bodies

  We see the changes outlined above as being necessary to secure better value, performance and public confidence in the arm's length landscape, but not sufficient. The Government should take the opportunity it is creating through proposed legislation to clarify the tangled picture on status and governance, with bodies with the same or very similar functions having unlike status and governance. Our research identified at least 11 types of ALB; but we also found that over half so-called ALBs are in fact advisory committees with no independent budget or staff.

  In our report we propose a new much simpler taxonomy for ALBs, where the principal determinant of status and governance is the degree of freedom the ALB needs to perform its function credibly. This proposed new taxonomy differentiates between four categories of arm's length body:

    Constitutional bodies, which are accountable to Parliament, not ministers. These are the bodies which exercise constitutional oversight and need to be clearly protected against any form of ministerial influence. They would include the NAO, Electoral Commission and Parliamentary Ombudsman.

    Independent Public Interest Bodies. This category would include the regulators, the standard setters and the watchdogs of government activity, whose credibility depends on their decision-making being free from day-to-day ministerial intervention. Ministers would still remain responsible for the statutory framework in which these bodies operate, but Parliament would have to approve key appointments (as the Treasury has agreed for the Chair of the OBR), and would hold the Chief Executives and Chairs to account for the strategy they set and for individual decisions within that framework. This status would apply to bodies such as the economic regulators and competition authorities, the food regulation functions of the Food Standards Agency, the UK Statistics Authority and the Climate Change Committee. We have also proposed that this would be the appropriate status for the OBR, a view endorsed by the outgoing Chair, Sir Alan Budd in evidence to the Treasury Select Committee in July.[6]

    Departmental Sponsored Bodies. This category would include the bodies where ministers want to stand apart from individual decisions, whether on grant-giving, enforcement or managing assets, and potentially appoint more dedicated expertise, but where the body should operate within a strategic framework set by the department. These would have a much closer relationship with the sponsor department, which would have the right to attend Board meetings. This category would include many of the current Executive NDPBs and apply to bodies such as the Arts Council, Health and Safety Executive, Higher Education Funding Council and Ofsted. This would also be the appropriate way of treating the proposed NHS Commissioning Board.

    Executive Agencies, which would continue as now.

  This taxonomy modification would deliver two significant changes. First, the long tail of advisory NDPBs cease to be regarded as arm's length bodies. This both corresponds to their actual status—as advisory committees to government departments—and also removes the temptation to cull large numbers of small bodies and call it reform. Second, the anachronistic and confusing category of non-ministerial department disappears. These bodies migrate across the proposed new categories. Some, such as Ofgem, become IPIBs. Others, such as the Forestry Commission may become DSBs. Others, such as the National School for Government and the Export Credits Guarantee Department, would become Executive Agencies. It is interesting that the Treasury Select Committee has proposed that the only way of giving the OBR sufficient independence from the Treasury to perform its function is to make it a non-ministerial department, with a raft of protections laid out in primary legislation. In our view, NMDs have the least clear status of all ALBs and that status alone is no guarantee of independence; indeed many are managed like executive agencies. This illustrates the case for being able to slot a new body like OBR into a category of like bodies.

  This new categorisation would give greater clarity to roles and responsibilities for remaining bodies; allow consistent implementation across government; enable ministers and Parliament to understand much better the degrees of freedom with which different bodies operate. These changes could either be implemented gradually, as individual bodies are reformed, or through the proposed new legislation.

  The new taxonomy would impose an additional burden on Parliament. Parliament's ability to hold public bodies effectively to account forms part of the separate IFG project on accountabilities, to be published by the end of the year.

September 2010

1   Arms Length Body Back

2   Unpublished NAO research for the IFG. Figures refer to 2007-08. Back

3   I Magee, Review of Legal Aid and Governance, 2010 Back

4   Shaping Up: A Whitehall for the Future (IFG, January 2010) Back

5   Nick Clegg speech, 19 May 2010 Back

6   "I found the report from the Institute for Government Read before Burning, which, as I am sure the Committee knows, is a report about what it calls arm's length bodies, very helpful. It actually mentions the OBR in this report and it suggests that there should be a category called an independent public interest body with not total independence but a fair degree of independence, one from the top in terms of independence, and that would seem rather a good model and rather a good category for the OBR to fit into. That is my personal view on this matter so as I have thought about it further I thought that was a very neat way of categorising bodies and rather a good place to put the OBR." Sir, Alan Budd, evidence to the TSC. IFG has also submitted evidence to the committee. Back

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