House of Commons - Audit and inspection of local authorities - Communities and Local Government Committee

Audit and inspection of local authorities - Communities and Local Government Committee Contents

6 Inspection—improving services

Development of inspection

71. Improving service standards and efficiency are permanent challenges for the public sector. To these ends, the 1997 Labour Government developed a regime whereby it set targets, provided funding and employed inspection services to report and to drive progress. For local government, the principal inspection role was undertaken by the Audit Commission.

72. Whereas the need for audit is long established, the idea of intensive inspection as a means to drive improvement in local government services, value for money and governance is relatively new. The 1997 Labour Government replaced the compulsory competitive tendering requirements with a duty to provide best value—a combination of quality and cost. The Best Value Inspection Service was set up, under the Audit Commission, to inspect local services following best value reviews, and to publish reports with scores for service quality and prospects for improvement. Yet only a year or so into its task the Commission realised that the best value system was excessively bureaucratic and unsustainable, for both the Audit Commission and local government.[114] The Audit Commission proposed comprehensive performance assessment—an assessment of the council as a whole, including corporate capacity, service standards and performance management arrangements—and subsequently undertook CPA of all local authorities (twice) between 2002 and 2008. In 2009 the Audit Commission replaced CPA with comprehensive area assessment, which sought to encourage the council and its various partners to work together more effectively for the benefit of the area. Although CAA took account of a wider set of players than CPA, the Audit Commission's responsibility was restricted to local government, and it was still, in effect, the local authorities that were judged.

73. One of the first actions of the present Secretary of State was to instruct the Audit Commission to cease work on CAA. The Government has no plans to replace CAA with any other form of centrally-imposed inspection. Inspection will remain for services to vulnerable people—but Audit Commission is not directly responsible for those.

A driver of improvement?

74. The effectiveness of inspection—particularly CPA and latterly CAA—has not been easy to ascertain. The view of Professor Martin was that CPA had led to improvements, particularly in its early stages, getting councils to take tough decisions.[115] The Audit Commission noted the "shock impact of CPA"[116] and cited research by Cardiff University (by Professor Martin[117]) showing improved performance by councils following CPA. The Chairman of the Audit Commission said that if its work improved local government efficiency by just 1% that would represent £2bn of savings. Ipsos MORI, which undertook much of the public opinion research associated with CPA, told us that inspection was popular with the public, although the public's interest was relatively superficial and the "excellent" CPA ratings awards to some councils were at odds with the public's view. Ipsos MORI provided data on the views of local authority chief executives: the majority agreed that CPA had had a significant impact but a majority also stated that the burden of CPA outweighed its benefits.[118] APSE concluded that the Audit Commission had achieved improvements "against the priorities that were set by Government". There was a natural cycle to these systems and "an inspection service should work itself out of a job".[119] The Women's Resource Centre said that CPA had forced local authorities to pay greater attention to equalities and women's rights and that these were now being downplayed.

75. The Local Government Association criticised the "excessive burden" of inspection, estimated by the NAO to cost local and central government combined some £2bn per annum.[120] Councillors Light and Shortland, representing the Local Government Association, acknowledged that CPA—with the power of the Audit Commission behind it—had had impact and had obliged their councils to make changes. However, they cited cases which, in their views, the Audit Commission's recommendations were inappropriate for local circumstances and the changes proved to be for the worse.[121] The LGA strongly supported the abolition of CAA, which it believed had failed to address its criticisms of CPA. Individual councils were also critical, including Essex County Council, whose chief executive is a former Audit Commission senior manager:

122

76. Peter Holland, President of the Chief Fire Officers Association, said that although CPA had made a significant positive impact in its initial stages, latterly it had "generated its own intrusion".[123] The District Council Network argued that CAA focused on upper tier authorities and was of no value to district councils. Other witnesses, such as the TaxPayers' Alliance and Age UK, said that CPA was too bureaucratic and process-driven; the TaxPayers' Alliance doubted that sustainable change came as a result. Professor John Seddon, possibly the most outspoken critic of the "command and control" system in general and the Audit Commission in particular, pointed to Portsmouth Council, whose housing service had been downgraded by the Audit Commission for failing to undertake benchmarking, despite providing an efficient and popular service.[124] He said that it had long been known in the private sector that you cannot "inspect quality in" and lampooned inspection as "having your face to the inspector and your backside to the customer."[125]

77. The majority of our witnesses would probably concur with the view that CPA had impact, particularly in its early stages, but that the impacts were not always locally appropriate and that the costs grew to outweigh the benefits. Performance improved but so did service costs and the overall impact on efficiency was unclear.[126] Many strong views have been expressed on these issues, but there has been no formal official investigation of the efficacy of the recent performance management regimes. The NAO has not undertaken any such study.[127] Some other areas of public service have done so. For example, child protection services have undergone several reviews, most recently the Munro Review, which recommended a reduction in central prescription and control. It concluded that government should:

128

78. The "command and control" system has an appealing logic: ministers set objectives and targets, local government devises the delivery methods, and an inspection service reports and drives improvement. Yet this has proved to be highly controversial and its benefits uncertain. There has not been a proper examination of issues relating to performance management, inspection and how to drive improvement in local government. A rigorous, dispassionate review of public sector performance management regimes, including targets, indicators, inspection methods and their alternatives, is long overdue.

Sector-led performance management

79. Despite the failings of best value, CPA and CAA, there was a concern amongst some witnesses, such as Professor Martin, that without some form of external inspection, some councils would lack impetus to improve. In his view, it was the wrong time to withdraw inspection, although he also suggested that inspection was more appropriate in a time of central government "largesse" than cuts.[129]

80. The Local Government Association was firmly against further external inspection, centrally-imposed targets and indicators. In its view, the financial cuts and public expectations were powerful drivers for improvement and efficiency. It also claimed—with some support[130]—that local government was now better run and more deserving of trust and responsibility than ten years ago.[131] This suggests that although the centrally imposed regimes of the last government may have proved their value in setting local government on the right track, the time has indeed now arrived when they had served their purpose. However, it might also suggest that there will always remain a tension between driving improvement from the centre and securing improvement through delegation and trust. This tension will not disappear, whatever approach the government of the day favours.

81. The Local Government Association has proposed its own regime of sector-led performance management, with peer reviews, a data hub (to provide comparative data on costs and outcomes) and best practice guidance.[132] These may prove to be the most practicable way forward although there remains a risk that some local authorities may opt out of such voluntary arrangements. The Government has not formally endorsed these proposals although the Minister suggested that "peer inspection and peer review have an important part to play" particularly in sounding the alarm on failing councils.[133]

82. We accept that the era of centrally-imposed targets and routine external inspection of local government is over. Innovation and local solutions are more important than assessment. In the current climate the severe budget reductions faced by local government will drive change in most local authorities.

83. We anticipate an extended role for scrutiny and internal audit by local authorities.[134]As we note in our report on localism, the local authority scrutiny function is an under-appreciated tool for local accountability. Local authorities themselves, and others, viewed effective scrutiny by non-executive councillors as a necessary complement to greater local discretion and less central oversight. The Centre for Public Scrutiny argued in evidence to that inquiry that as an accountability mechanism, the scrutiny function is credible, legitimate and proven to have genuine impact on services. Councillors acting in this official capacity arguably stand a much better chance than an informed minority of public 'armchair auditors' of making effective use of spending data. Furthermore, scrutiny is a way of addressing performance that is more public-facing than peer review, and several organisations pointed out that its scope could be broadened to involve other stakeholders alongside elected members.[135] We recommended in that report that the Government address the contribution to accountability that can be made by robust—and if necessary enhanced—local authority scrutiny functions.[136]

84. We welcome the LGA's proposals for sector-led performance management. However, they suffer from the limitation that they are optional and there is no formal mechanism to identify poorly performing local authorities, who may choose not to participate. It remains to be seen how vigorously and effectively they are implemented. The Government should clarify its position on sector-led arrangements and whether it intends to provide any further policy or legislative framework. We return to the issue of serious service failure below.

Performance indicators and public reporting

85. In addition to ending CAA, the Government has told local authorities that it no longer intends to collect national indicators.[137] Indeed, DCLG is compiling a single data list with the intention of limiting the data demands made of local government by Whitehall. The Government is emphasising that local government should place more information in the public domain but it will be for local government to decide which data and in what format:

138

86. Some of our witnesses were concerned that, without a standardised and mandatory system, the public would not be able to access comprehensive data, place them in context or compare them with other councils. APSE suggested a 'dashboard' of five national performance indicators (PIs). However, APSE's member survey showed concerns that simplification of performance information could mislead the public and would be misused by the media.[139] David Walker asked why any national indicators were required under a regime of localism in which local government was trusted.[140]

87. The LGA is proposing its own system of comparative data with a focus on outcomes. The LGA believes this would be more useful than the previous system. It is unclear how this would be better than the system overseen by the Audit Commission, which went to great lengths to ensure that data were robust and to enable analysis on a fair basis—for example by comparison against authorities of a similar type or with similar socio-economic characteristics.. Furthermore, the wider problems associated with performance data—including gaming and perverse incentives—would still exist.[141]

88. It now seems inevitable that there will be a lack of comprehensive, consistent data on which authorities can be compared. There are calls to reinstate some limited form of national indicators to allow comparison between councils. This may seem attractive but it is unclear how it would avoid the problems and anomalies of the previous indicator sets. We consider that the emphasis, at least for now, should be on comprehensive local reporting against local objectives with maximum transparency. Nevertheless the need for a broader perspective will remain. We recommend that the need for and adequacy of comparative performance data be reviewed two years from now, once the new arrangements have bedded in.

Variation, failure and intervention

89. It is inevitable that, under a more devolved system, services will vary in their nature and standard. Councillor Fleming, representing the District Councils Network, argued that the mentality that all councils had to be the same was harmful; under localism, more variation would occur, which he welcomed.[142] Variations in service standards will be generally acceptable if they are to the benefit of local people; if people perceive that they are receiving a lower standard of service than those in other localities, they will be apt to complain. It is unclear to what extent ministers will accept variety in service standards. DCLG Permanent Secretary Sir Bob Kerslake has commented:

143

90. As we pointed out in our recent report on localism, Ministers will need to rein in their interventionist instincts if the Government's localism agenda is to be credible. The litmus test of localism will be the Government's reaction to local decisions with which it disagrees: continued Ministerial intervention in matters of service standards such as the frequency of local bin collections is not compatible with a genuinely localist agenda.[144] We recommended in that report a strengthening of the mechanisms for local democratic accountability, in particular the local authority scrutiny function, in order to forestall campaigning groups' reliance on national government to enforce acceptable standards of service.[145]

91. At some point, however, local variety becomes failure. The Government says it is "not proposing great changes" to its powers of intervention;[146] but, without the Audit Commission or any other body charged with examining and reporting on local authority services (other than those for children and vulnerable adults), it is not clear how services at risk of failure would be identified, nor how ministers would intervene if it appeared necessary. The Minister suggested that responsibility for raising the alarm would be spread more widely and peer review members would write "to the auditor, the Secretary of State or whoever is required."[147] As we note above, however, peer review will be essentially voluntary and underperforming local authorities may opt out of it. The Audit Commission Chairman raised his concerns that the arrangements for identifying failure and for intervening would be weaker.[148]

92. Some argue—as we discussed in our recent report on Localism—that the risk of failure must be accepted as inherent in decentralisation, and that central government should intervene only when there is a clear national interest requiring action.[149] Others, however—including leading figures in the sector itself—accept that central government needs to continue to act as a failsafe, protecting localities from the most severe consequences of failure.[150] We recommended in that report that the Government make clear the grounds on which intervention in local services would be deemed necessary. In the context of this current report, it is clear that not only the grounds, but also the mechanisms, for such intervention need to be clarified.

93. It would be idle to pretend that intervention by central government in the conduct of local authorities is never going to be necessary. It should therefore be well-regulated and based on clear and transparently-applied criteria—preferably statutory. Some local authorities will inevitably perform better than others. In some cases, council services will fall below acceptable standards, or a council itself may fail. We reiterate the recommendation in our report on Localism that the Government make clear the grounds on which intervention in local services will be deemed necessary. We further recommend that, in cases of serious service or corporate failure, the Government set out not only the grounds on which intervention might take place, but also the mechanisms that would trigger intervention and how it would be undertaken . It should do so in close consultation with the local government sector, including the Local Government Association, but mindful of the fact that the LGA is a voluntary membership body which may not itself be capable of identifying or dealing with all cases of serious service failure.

114 Follow the money, p 473, 2008 Back

115 Q 2 Back

116 Ev 165 and Q 253 Back

117 Ev 128 Back

118 Ev 154 Back

119 Qq 335 and 337 Back

120 Ev 140. This figure was reported to the Lyons Commission. It does not relate purely to the activities of the Audit Commission. Back

121 Q 57 Back

122 Ev w12 Back

123 Q 58 Back

124 Q 335 and Ev w44 Back

125 Q 373 and John Seddon Systems thinking in the public sector, 2008 Back