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

Written evidence from Prospect


  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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