Written evidence from Prospect
INTRODUCTION
1. Prospect is a trade union representing
122,000 professionals, managers and specialists across all sectors
of the economy including defence, agriculture, heritage, energy,
transport and communications. We represent 37,000 members in the
Civil Service Departments, Agencies and Non Departmental Public
Bodies including in 63 of the bodies covered by the Government's
announcement on quango reform on 14 October.
2. As identified in our submission to the
Select Committee on "Good Government" in the 2008-09
Parliamentary session, we have genuine and longstanding concerns
that central government does not do enough to maintain and develop
the specialist capacity on which it depends to deliver key functions.
The targets set by the Spending Review for cutting jobs intensify
our concerns and, unfortunately, the so-called "bonfire of
the quangos" has done nothing to alleviate them.
Q1 How should the Government decide which
public bodies should be abolished?
3. Prospect deplores the fact that the announcement
on 14 October was made with little or no consultation with experts
and users. In our view each of the proposals for abolition should
be fully and properly scrutinised, setting out for each public
body:
— What it actually costs;
— What functions, if any, will transfer
elsewhere;
— The genuine net cost or saving from abolishing
each body, after accounting for the costs of redundancy and delivering
services elsewhere;
— An independent analysis of the net wider
economic, social, cultural or other costs of abolishing each public
body; and
— The need for continued access to expert/scientific
advice.
Q2 Are the three criteria outlined by the
Government the correct ones? Should there be others, for example
an additional value for money criterion?
4. The criteria put forward by the Government
create the scope for confusion. They appear to imply that technical
expertise, political impartiality and transparency are mutually
exclusive attributes. In Prospect's view they are not, and neither
do they apply exclusively to the functions carried out by Non-Departmental
Public Bodies. In any event, it would seem that these criteria
have been applied only in a very superficial manner to the decisions
announced on 14 October.
5. Prospect would not oppose consideration
of value for money as an additional criterion in assessing the
continuing value of Non-Departmental Public Bodies, as set out
in our response to question 5. However, there should also be a
broader assessment of public value, along the lines identified
in Q1. The Forestry Commission, which is the subject of provisions
in the Public Bodies Bill enabling future privatisation, is an
interesting case study as is the Audit Commission, discussed later
in this submission.
What it actually costs
There is no definitive valuation of the Forestry
Commission estate. Whilst the cash flow from sale of timber can
be quite easily quantified, the value for tourism, ecosystem services
such as water and renewable energy, and cultural services such
as education and recreation, is simply not known.
What functions, if any, will transfer elsewhere
Undoubtedly some functions would continue, including
sale of timber. In addition, there may be a private market for
some recreational and other commercial activities. However, breaking
up the Forestry Commission estate is likely to reduce the range
and scale of these activities and others, notably long-term research,
would simply not be undertaken by the private sector. For example:
Biosecurity and sustainability: Forestry
Commission research is at the forefront of maintaining all tree
stocks and wood health within the UK. Disparate organisations/companies
would not see it as part of their remit to organise and fund the
research needed to maintain the UK's ability to grow our own wood
stocks.
Contribution to carbon reduction: Forests
make an important contribution to the UK's environmental objectives,
including by acting as a significant mechanism for sequestration
and storage of carbon dioxide. Forestry Commission researchers
are investigating the effects of changing forest management strategies
and their impact on CO2 mitigation. Again, this work would not
be funded by private forest owners.
The genuine net cost or saving from abolishing each
body, after accounting for the costs of redundancy and delivering
services elsewhere
The Forestry Commission is already engaged in
a programme to streamline its functions, which will include staff
redundancies, and undoubtedly some savings will result from this.
However, core services of forest management are already undertaken
at a high level of efficiency, working closely with private contractors,
and this would be impeded by fragmentation. It is very difficult
to quantify the costs of reduced public access in financial terms,
though there will certainly be adverse implications for health
and education. Equally whilst abandoning research programmes may
produce a short-term financial saving, the longer-term detrimental
impact on ability to mitigate and adapt to the effects of climate
change is more difficult to cost.
An independent analysis of the net wider economic,
social, cultural or other costs of abolishing each public body
The work of the Forestry Commission brings broad
economic, environmental, social and health benefits:
Scale: Forest management is a capital-intensive
business where efficiencies rise quickly with scale. Up to 80%
of Forestry Commission operations are already carried out by private
businesses acting as contractors, where the Commission's scale
of operations means that contractors can justify investment in
capital equipment because they achieve high levels of utilisation
by moving equipment between forests and regions. Timber production
and forest management already have a high level of private-sector
involvement and are highly efficient.
Support for the wood processing industry:
The UK wood processing industry is one of the most modern and
efficient in the world. This is because the Forestry Commission
guarantees security of supply, albeit at current market rates.
This enables processors to invest in new technology and in market
innovation in the knowledge that they have secure supplies of
raw material. By contrast, private sector landowners typically
reduce sales when prices are low and flood markets at times of
high prices, so that processors have little security of supply.
This has been a major problem even in countries such as Sweden,
and is one of the reasons for Scandinavian investment in UK wood
processing.
Wildlife conservation: Although forests
occupy just 9% of the UK land area they contain 25% of areas designated
for their wildlife. They are highly important for biodiversity
in the UK. Many plant and animal wildlife species need extensive
areas of habitat. Breaking up the forest estate so that different
management regimes operate across small areas of forest is likely
to have a major negative impact on biodiversity.
Support for local economies: Although
there is no definitive assessment of the value of public forests
to tourism, it was evident that the impact of the Foot and Mouth
Disease crisis of 2001 on forest closures had devastating consequences
for many local tourist businesses. Anecdotal evidence from the
Forest of Dean suggests that tourism businesses dependent on the
forest generate cash flows around 400% greater than the forest
itself generates from timber sales.
Social health and education: The public
forests attract around two million school visits each year, supported
by rangers and by infrastructure such as forest classrooms. This
may be the only opportunity that many of those children will have
to experience applied science and technology or to see wildlife
management. Benefits to health include exercise, escape from pollution,
mental well-being and rehabilitation. The Forestry Commission
works proactively in partnership with other organisations to support
access for all, including the disabled and less mobile.
Continued access to expert/scientific advice
In addition to long-term research, as outlined
above, the Forestry Commission provides expert advice in areas
such as:
Water management: Most forests are managed
with little or no input of pesticides and fertilizer. In areas
such as Thetford, water from aquifers under farmland has to be
mixed with water from underneath the forest to make it usable
without treatment to remove nitrates and pesticide residues. Forestry
Commission research has improved the quality of run-off and local
land stability. Research into the effects of land usage on water
tables and water infrastructure is continuing and will contribute
to better understanding of how our water usage and supply is likely
to change as our climate continues to change.
Renewable energy and materials: The current
structure of the Forestry Commission allows strategic management
of a large public landed estate, much of it located in areas where
wind and hydro energy is commercially viable. The capacity for
utility companies such as E.ON to deal with a single landowner
with a high level of technical and engineering competence means
that the public forests attract investment in renewable energy
schemes.
6. In summary, application of these broader
criteria demonstrates that an evidence-based assessment does not
support privatisation of the Forestry Commission.
Q5 How can the Government ensure that the
abolition/merger/reabsorption of public bodies result in long-term
savings?
7. In Prospect's view it will be very difficult
for the Government to do this. Nearly 80% of Non Departmental
Public Body expenditure is made by just 15 organisations. Much
of the money spent cannot realistically be reduced simply by abolishing
a body: 65% of NDPB costs are in grants that are passed on to
others, for instance to fund university research, skills training,
legal aid and other core government functions.
8. Furthermore, some public bodies deliver
savings through the work they undertake, such as the Audit Commission
delivering financial probity and the Environment Agency and Natural
England providing environmental protection. Failure to do this
would have both a financial and broader societal cost.
9. Science advisory committees account for
nearly half of all arms length bodies, but most do not have their
own budgets: they simply offer a way of bringing expert advice
to policy makers at a lower cost than through consultancy contracts.
For example, two key pesticide advisory bodies (the Advisory Committee
on Pesticides and the Pesticides Residues Committee) received
just £66,000 of government funding in 2008-09. Pollution
experts on the Air Quality Expert Group (ACEG) are paid a nominal
fee, far below usual consultancy rates, to attend meetings and
carry out a considerable amount of work between meetings at no
cost to government. If AQEG is abolished this support will be
lost and the cost of obtaining expert scientific advice on air
quality will rise significantly. It is also likely that the nature
of the advice will change as Departments under severe financial
pressure will pay for specific pieces of advice, rather than being
able to call on it on a continuing basis. Undoubtedly this will
reduce flexibility and agility of response.
Q7 Will the abolition of public bodies lead
to increased public accountability?
10. The case of the Audit Commission quite
clearly demonstrates that abolition will reduce public accountability,
not increase it. The Audit Commission currently has responsibility
for auditing the accounts of local government bodies and the NHS
in England, but it is not simply an auditing body. It provides
significant advice to public bodies on improving the way they
operate, and also operates the National Fraud Initiative to assist
councils in preventing fraud. The Audit Commission was created
during the last Conservative administration to ensure that public
audit was not wholly placed in the hands of private sector companies
whose control and governance is unrestricted by the democratic
process.
11. During its existence the Audit Commission
has taken the lead in the identification and examination of a
number of high profile issues resulting from malpractice in local
authorities. Between 1985 and 1986 32 councillors in Lambeth and
a further 47 in Liverpool were banned from office and surcharged
as a result of illegal activity over rateable incomes. The Audit
Commission also discovered the hugely fraudulent behaviour of
members of Westminster Council between 1987 and 1989. These practices
were uncovered as a result of those being audited having no control
over the appointment of auditors. By contrast, the ethical approach
of private sector audit companies has recently been criticised
by the Financial Reporting Council's Professional Oversight Board.
In addition, there are salutary lessons from privatisation of
other core business functions such as IT, and R&D: Government
must retain its intelligent customer to ensure delivery of good
quality, affordable services from the private sector.
12. Since 1996 the Audit Commission has
run the National Fraud Initiative, which has traced £614
million in fraud over that period, including £215 million
in 2008-09 alone. It is unclear from the Secretary of State's
announcement whether or where this work will be continued, and
if it is to cease how the lost revenues from fraud detection will
be made up.
13. The Audit Commission also provides a
service of performance analysis for local authorities, housing
authorities and fire and rescue services. One recent piece of
work into fire and rescue services in England highlighted the
severe risk to service provision that would arise if there was
major industrial dispute given that cover for fire and rescue
services is provided by the army, whose forces are heavily stretched
by the operational deployment in Afghanistan. The team that undertook
this work has already been subject to a redundancy exercise. Staff
are in the process of leaving the Audit Commission with total
closure of this function scheduled for January 2011. This decision
was not subject to Parliamentary scrutiny.
14. Despite all this and in advance of the
Government's wider announcement about the future of Public Bodies,
in August the Secretary of State for Communities and Local Government
announced the abolition of the Audit Commission on the basis of
a claimed annual saving of £50 million. This saving has not
been substantiated. In particular there are major financial implications
in relation to pensions and redundancy costs.
15. The Audit Commission has a funded pension
scheme, separate from the Principal Civil Service Pension Scheme,
with currents assets of around £620 million. It is funded
at a healthy 97% of liabilities on an ongoing basis. However,
if the Audit Commission is closed pension liabilities of around
£800 million will immediately crystallize. As the scheme
has no Treasury Guarantee the options appear to be either to take
the scheme's assets and liabilities into the public purse, causing
a deficit to the Treasury of in the region of £200 million,
or to cast the members of the scheme (both working and pensioners)
onto the mercy of the Pension Protection Fund. This would mean
that the Government as employer would be the first user of this
safety net.
16. There will also be significant liabilities
accruing from making contractual redundancy payments—which
are not linked to Civil Service redundancy terms but are much
more in line with the Audit Commission's private sector comparators.
These far outweigh the reserves available to the Audit Commission.
Prospect's estimate is that the funding gap amounts to around
£50 million. Again there would be an immediate detrimental
impact to the public purse.
17. External stakeholders have recently
indicated a high level of concern about the closure of the Audit
Commission and the potential sale of its audit practice. The Financial
Reporting Council stated that further concentration of work in
the hands of the big four audit companies was unhealthy, whilst
the Institute of Chartered Accountants in England and Wales (ICAEW)
stated that the abolition of the Audit Commission would undoubtedly
increase the cost of public audit.
18. Regrettably the nature of the Government's
announcements and unfortunate Ministerial statements have clouded
the debate. Many of the public bodies identified for closure are
run at little cost to the taxpayer and provide government with
high quality advice and information. The examples we have given
of the Forestry Commission and Audit Commission, both larger bodies
with key functions, demonstrate that the issues for consideration
are more complex than may at first appear.
19. In Prospect's view these examples clearly
illustrates the need for a more robust framework to ensure accountability.
Our proposal is that when a public body is identified for closure,
there should be a transparent consultation to assess its value
and continuing requirement for the functions undertaken based
on the criteria proposed in response to Q1. Consultation responses
should be published and made subject to scrutiny by the Select
Committee who should, as in any other inquiry, have the ability
to examine witnesses and make a balanced recommendation and to
publish their findings.
November 2010
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