Good Governance and Civil Service Reform
Written evidence submitted by IFG (GG 06)
Summary
1.
The Institute for Government’s research on civil service reform suggests that:
a.
The scale of reform – and downsizing – facing the civil service is bigger than anything seen since the Second World War
b.
The civil service faces a critical challenge: how to deliver ‘better for less’. Yet, there is limited experience of undertaking large scale transformation in Whitehall.
c.
Two longstanding issues for Whitehall also need to be addressed: a lack of strategic capacity at the centre of government and difficulty in co-ordinating policy and delivery across departments
d.
Current governance arrangements vary greatly in their effectiveness between departments. In particular, departmental boards suffer from not having a well defined role and should be focused on performance and financial management
e.
Looking ahead, governance will need to adapt to reflect shifting forms of accountability and different roles for the civil service as the vision for the Big Society is realised.
Introduction
2.
The Institute for Government is an independent charity helping to improve government effectiveness. We work with all the main political parties in Westminster and with senior civil servants in Whitehall, providing evidence-based advice that draws on best practice from around the world.
3.
Civil service reform and good governance is a core part of the Institute’s work. The Institute has published several reports which are directly relevant, including:
a.
Shaping Up: A Whitehall for the Future
b.
Smaller and Better? Whitehall after the cuts
c.
The state of commissioning: preparing Whitehall for outcomes-based commissioning
d.
Six steps to making Whitehall boards work
This submission draws on and summarises all of this work.
Scale of civil service reform
4.
Civil service reform has been an almost constant theme since at least the 1980s when Margaret Thatcher argued that Whitehall was overstaffed, inefficient and badly managed. The ambition set out by the incoming Conservative government over the period 1980 to 1984 was to cut civil service numbers by a little over 10%. However, the scale of reform facing the civil service at this moment is potentially far greater. The current period combines a strong political commitment to change at the same time as the largest reduction in public spending in the UK since at least the Second World War.
5.
The Government has made it clear that its first priority is to deal with the deficit, and has already taken steps to reduce government spending. Taken together, the June Emergency Budget and the Spending Review will result in an overall cut in public spending of £81bn over the next four years. Unprotected departments have an average overall settlement reduction of 20% , and all departments have committed to at least a one third reduction of their administrative spending. Though there are obviously variations in approach by department, this will broadly result in annual administrative spending reductions of 6-8% for the next four years. The government is looking to do ‘better’, and in some cases very different things, ‘for less’, which will undoubtedly lead to reductions in the number of civil servants in Whitehall departments and their arm’s length bodies.
6.
However, this Government’s plans for Whitehall go well beyond spending cuts and headcount reductions. The Prime Minister has spoken of his desire to "turn government on its head". There have already been major reforms to public services as part of the move towards a ‘Post-Bureaucratic Age’ and the Big Society. These will have major implications for the future functions, structures and accountability mechanisms across the civil service.
7.
Given this context, the civil service faces at least four major issues: addressing existing challenges, improving current governance arrangements, managing the transformation process and reshaping itself for new roles in the future. We address each of these in turn below.
Existing challenges in the civil service
8.
In Shaping Up, we identified three key challenges facing the civil service:
a.
A lack of strategic capacity at the ‘centre’ (Cabinet Office, HM Treasury and No. 10) to create and maintain a whole of government strategy that sets out priorities for an entire parliamentary term
b.
Mechanisms for co-ordinating policy and delivery between departments are still dominated by siloed thinking, making it difficult to manage cross-cutting policy issues
c.
Governance within departments remains variable across the civil service.
9.
Our research found that, in an international context, the UK’s model of government emphasises both a strong Prime Minister and strong departments with wide-ranging autonomy to spend budgets, recruit employees and manage delivery systems. The downside to this model of strong line ministries is that the central institutions possess few tools beyond the brute force of political edict to make sure that a fragmented government adds up to more than the sum of its parts. Indeed, central government departments are under pressure to change as politicians aim for a smaller, more strategic Whitehall. The Cabinet Office, in particular, needs to clarify its value-adding role. We suggested it might be more effective as a ‘department of strategy and capability’ with a remit to work collaboratively with Cabinet and departments to set out a strategic framework of high-level goals to guide the work of government and build the capability necessary to realise ministers’ top priorities.
10.
Delivering joined-up government is difficult because Whitehall is not a unitary entity but a federation of departments. It is designed predominantly along departmental lines for the purposes of budget allocation, accountability and career development. Cross-cutting issues such as social exclusion or childhood can all fall through the gaps. We recommended that government should address this problem by: making changes to appraisal and line management arrangements to create stronger incentives to collaborate; facilitating the sharing of information and other resources; and appointing a small number of Secretaries of State who are directly responsible for the most important cross-cutting issues, sitting outside departments but with their own pooled budgets (though the overall number of ministers should not increase).
11.
These issues remain critical as part of any civil service reform. The specific challenge of improving governance arrangements in Whitehall is addressed in more detail below.
Current governance arrangements and challenges
12.
Good governance is important to ensure that the civil service functions effectively, particularly during periods of major reform. Over the last 24 months, we have run a stream of work analysing the functions, structures and performance of Whitehall boards. In earlier research, we explored board effectiveness, looking at capability reviews and staff survey results (asking staff whether they feel their department is well run). Results of this analysis showed that the quality of leadership varies widely across Whitehall. At one end of the spectrum, less than 30% of staff at DCMS think the department is well run, compared to two-thirds at HM Treasury. Averaged across all departments, less than half of staff feel their department is well managed. The quality of departmental leadership, as measured by staff surveys, is a crucial proxy for the effectiveness of departmental boards. While these numbers encompass a spectrum of leadership positions, they are a poor reflection on the most senior levels of government and emphasise the importance of improving governance at the top of departments.
13.
Our research suggests that in addition to highly variable performance, the very role of boards remains ill-defined across Whitehall. We found that the best boards focus heavily on performance management and meet regularly with ministers to shape joint strategy but there are several common barriers to board effectiveness, including poor engagement with ministers, lack of challenge in board discussions, ineffective use of non-executive directors (NEDs) and accountability arrangements. We made a number of recommendations, most importantly:
a.
Creating a joint strategy board to be chaired by the Secretary of State
b.
Strengthening the role of NEDs
c.
Empowering finance directors
d.
Establishing a comprehensive evaluation and development programme for boards.
14.
The importance of board performance has been recognised by the new government, and plans to reform departmental boards are currently underway. Shortly after the general election, the Cabinet Office outlined the Coalition’s vision for governance reform, publishing an enhanced protocol for departmental boards. The protocol represents the first true shake-up of Whitehall boards, and is buttressed by strong political support from Francis Maude and David Cameron. The protocol will introduce several significant changes including:
a.
Installing Secretaries of State as Chairman of their department’s board
b.
Altering the composition of boards to include junior ministers
c.
Reducing the number of officials
d.
Creating the new position of lead non-executive director for each board.
15.
However, whilst the current plans are a step in the right direction, there is a great deal more that needs to be addressed. Based on the results of our interviews with board members, and taking into account all aspects of the Cabinet Office’s new boards’ protocol, we think the following steps should be taken:
a.
Address the lack of clarity surrounding role and responsibility in some boards
b.
Ensure Secretaries of State take their new role as Chair seriously and perform well
c.
Make all aspects (within reason) of board business and performance transparent
d.
Require annual evaluations of board performance, including regular external review
e.
Make lead NEDs central in the appraisal of board members, as well as the recruitment process.
Managing transformation
16.
Given the scale of change and downsizing required, virtually all departments will be undergoing major change programmes. Simply relying on natural wastage and recruitment freezes is unlikely to achieve the slimming down required in most departments. Moreover, this would not achieve the transformation in Whitehall that the Government is seeking. However, with almost universally rising budgets for departments since 1999, there is very limited experience in the UK civil service of successfully undertaking transformations on anything like a comparable scale to what is now required.
17.
The most successful example we have identified where outcomes have been measured is the transformation within the Department for Work and Pensions between 2004 and 2007. According to the National Audit Office report the department achieved: £1.446bn efficiency savings (£1.068bn cash releasing), a headcount reduction of 31,100, relocation of over 4,000 posts from London and the South East two years early and redeployment of 10,000 staff to customer facing roles. Moreover, productivity was found to have increased by about 15% between 2004/05 and 2007/08. Whilst this suggests that major improvements are possible in the civil service whilst reorganising and slimming down, even this is on a smaller scale than is likely to be required over the coming years.
18.
We are currently working with the Ministry of Justice to evaluate its change programme ‘Transforming Justice’, which was initiated in February 2009. It is too early to have produced easily measurable results, but our research gives a qualitative insight into the challenges of leading major change programmes can. The Institute’s evaluation shows that leadership and building capability are vital components in ensuring progress at all stages of transformation . The Ministry of Justice addressed this through having a dedicated and accountable lead for change at board level and the formation of a cohesive ‘change coalition’ of influential senior staff from across previously disparate business groups. Staff from across the departments were empowered to drive change themselves, with 1,000 staff signed up as advocates of Transforming Justice.
19.
Our evaluation is ongoing and can provide insights for those planning further transformation in the Ministry of Justice and across Whitehall. We intend to share our findings as we complete interim stages of the research.
Looking forward
20.
Moves towards a Post-Bureacratic Age and the Big Society imply the need for a civil service which is more strategic, enabling and transparent, as public service provision becomes more diverse and closer to the citizen. This will have major implications for governance both in terms of shifting roles for the civil service and more complex accountability structures.
21.
One of the most important shifts in the role of the civil service will be the significant acceleration from delivering services to commissioning them with payments by results based on achieving a defined set of outcomes. Whitehall will, if it achieves this successfully, shift its skills base from one that prescribes treatment to one which sets outcomes and structures markets. Whitehall must have a workforce that is rewarded, incentivised and expert in its knowledge so that it can develop a complete understanding of users, communities, external delivery chains and local markets in the delivery of services. It needs to face much more out of Whitehall and be ready to reflect up the experiences of those users and markets to shape the Government’s approach to commissioning and funding. To ensure ongoing good governance of markets in the provision of public services, the same rules that apply to the publishing of Government data and statistics should apply to organisations commissioned to deliver public services.
22.
Civil servants and front line services will need to respond to an increasingly complex web of accountability, even as top down performance management reduces. The government’s reform plans include changes to accountability arrangements, such as the introduction of elected police commissioners and publication of spending information, which encourage accountability to flow outwards to citizens and communities rather than upwards to Whitehall. In some cases, such as the expansion of academy schools, reforms are creating a more direct relationship between ministers and front line services. Despite these changes the government remains committed to ministerial accountability to Parliament, which provides the overwhelming majority of funding for public services. Meeting the principle of accountability to Parliament without compromising the operational independence of decentralised services or constricting new sources of accountability will be a challenge. Ministers, civil servants and parliamentarians will need clarity about who is accountable, for what, and to whom; as well as about who is responsible for stepping in if things go wrong, and in what circumstances.
23.
The Institute looks forward to supporting PASC with this inquiry in any way we can.
January 2011
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