Written evidence from the Institute for
Government
EXECUTIVE SUMMARY
— 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.
INTRODUCTION
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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