IPSA Draft Main Estimate 2011-12









Evidence heard in Public

Questions 1 - 35


1 . This is a corrected transcript of evidence taken in public. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2. The transcript is an approved formal record of these proceedings.

Oral Evidence

Taken before the Speaker's Committee for the Independent Parliamentary Standards Authority

on Tuesday 10 May 2011

Members present:

John Bercow (Chair)

Mr Nicholas Brown

Bob Russell

Laura Sandys

Mr Charles Walker

Sir George Young

Sir Anthony Holland (Lay Member)

Examination of Witnesses

Witnesses: Professor Sir Ian Kennedy, Chair, Scott Woolveridge, Acting Chief Executive, and Bob Evans, Director of Finance, IPSA, gave evidence.

Q1 Chair: Professor Sir Ian Kennedy, Scott, Bob, welcome and thank you for coming today. The purpose of this meeting is, of course, to review the estimate of IPSA’s use of resources and to decide whether the Committee is satisfied that the estimate is consistent with the efficient and cost-effective discharge by IPSA of its functions.

Before we begin, I ought to explain my approach to the chairmanship of this Committee. I consider that this is primarily an occasion for my colleagues on the Committee to put their questions to you. My role as Chair will be to enable them to do so, acting more in the style of the neutral Chair of a Public Bill Committee or, indeed, as in the proceedings of the House, rather than as the Chair of a Select Committee, who often takes part in the questioning him or herself. I do not expect to ask questions. Sir Ian, do you wish to make any opening remarks?

Sir Ian Kennedy: Mr Speaker, if I may-and at the risk of trying the patience of those who heard some of what I said when we met in private before-I shall make a couple of very brief opening remarks. First of all, thank you very much for greeting us and explaining your role. I am not going to rehearse the past and what came before the creation of IPSA, save to point out and remind everyone that, effectively, the scandal-as it was described, I think properly-of 2009 and before is now behind us. IPSA has been able to create a new start both for MPs and for taxpayers.

IPSA was created at breakneck speed, as you know, Mr Speaker, and we obviously did not get everything right, neither operationally nor as regards the scheme of rules, but we sought to adjust rapidly and we made an early commitment, as you know, to review the scheme. In that review, which was completed a short time ago, we sought to take account of your request in last year’s meeting to make certain changes-changes to the scheme that we judged to be fair to MPs and to taxpayers, and changes to the way in which we operate, not least to simplify the system further. I have said in public and I repeat here that we see IPSA’s progress as a journey whereby the review and the changes we have introduced are the next phase towards simplification on the one hand and an increase in public confidence and trust on the other.

What you have before you today is the board’s determination of what is needed to carry out our duty. We are aware of the need to be cost-effective. As you will have seen from the papers, we are making a significant saving in operational costs, on a like-for-like basis, of 10%, against what I promised last year of 5%; and in staffing, savings of 16%. Our productivity is improving and Scott will refer to some examples, if pressed. I should say that the cost is a journey and, as the system evolves, so will the costs.

Currently, we are not yet in a steady state. For example, if we are to make changes in certain areas, as we must, we have to make technological innovation and we also have to address the question of pay and pensions. Let me give an example of changes to technology: if we are going to-as we intend to do within a matter of weeks-change the system of accounting for mileage, that will initially need an investment in IT, but thereafter it will save time both for MPs and as regards IPSA’s activities. That is an introductory set of remarks, Mr Speaker. I am now in your hands.

Chair: Sir Ian, thank you very much indeed for those remarks. We will start off with Nick Brown.

Q2 Mr Brown: When we met last year and recommended the first estimate to the Speaker and therefore to the House, we expressed concerns about the administrative costs of the new scheme. You will be very familiar with Members of Parliament complaining that it is clunky, time-consuming and fiddly because of the need to send receipts separately, make the claim online and so on. We rather hoped last year that you would reflect on alternatives and on whether it is possible to have something that is more clear-cut and user-friendly. I suppose the issue that looms largest in these considerations is the question of the second home allowance, rather than the question of a rent-based scheme in an IPSA-approved bedsit. Could you talk us through the board’s consideration of alternative schemes and give us a view of how the debate went and why you came to the conclusions you did?

Sir Ian Kennedy: Gosh. The first point to make, I suppose, is that if by alternative schemes one has in mind a reversion to what was-namely, block grants of all allowances-there was no consideration that that was a possible option, not least given the view of taxpayers and the public on that and the context in which we had been established. Thereafter the decision was made to think in terms of a system based on budgets rather than allowances, and expenses for those matters in which MPs had personal expenditure. On the latter, the notion endorsed by the Prime Minister and the leaders of other parties-that the critical principles should be independence, accountability and transparency-informed the way in which we operated.

Any 21st-century system of tracking expenses ought to be based on modern technology. I know that, in the past, you have referred to a paper-based system, but if one were to do the costings of that, one would discover that it is significantly more expensive and the risks of getting it wrong regarding accuracy and loss of data-leaving aside the obligation of transparency, whereby everything has to be published-are greater. We have looked into that and perhaps Scott or Bob will take you through some details.

Given that we are in that territory of budgets and an off-the-shelf expenses system familiar across the public and voluntary sector, it was merely a question of ensuring that, over time, we developed the system so that it would become less of a burden for MPs, because we were quite prepared to say that, as initially developed, it had more than wrinkles-it had, if you like, creases in it-but we ironed those out as the representations were made to us. We think that we have begun this journey of clarity and simplification which over time will take us towards the direction that you have in mind, but it is a journey-a journey born of rigorous accountability and assurance for the public and how far and how quickly we can go towards where you, in the fullness of time, would wish us to be.

Mr Brown: My core point is that there are quite high transaction costs for relatively small amounts of money.

Sir Ian Kennedy: I do not know how one begins to address the transactional costs, and I will defer to experts on either side of me, but if you look at one way of assessing the costs of IPSA, in terms of its administrative costs compared with the amount of money it disburses, those costs are just less than 4%. If you compare that across the public and private sectors, it is on the low side or the very low side in terms of administrative burden. If you look at it in sums of money, IPSA is seeking an estimate of just over £6 million, and if you look at comparative bodies such as the Electoral Commission and others, you will find that their administrative costs are significantly higher.

Mr Brown: Just for completeness, could you also tell us what the argument is against viring money from the office administration budgets to the staff budget, for example?

Sir Ian Kennedy: There is an argument of principle about virement, namely that these are not sums of money in the old language of allowances, but are spending to be contained within that budget, but as time goes on and as we are able to push budgets together perhaps, so, in part, we will make those problems of virement go away. You have seen that already in the consolidation over the last review of two of the office budgets, so that that particular question went away.

Q3 Mr Brown: How would you respond to the criticism that MPs found the new structures inflexible? All MPs do not work in the same way, and all constituencies do not require the same sort of servicing. We all have different responsibilities.

Sir Ian Kennedy: Absolutely, 650 MPs are unique in how they perceive the world and how they work-but Parliament in its wisdom created one, overarching, independent regulatory body that must find a median way, which is to have a set of overarching rules which will, if you like, take account of the disparate needs of MPs. The way to do that, from the perspective of the board, is this journey towards the greater allocation of responsibility and discretion to MPs and less prescriptive rules, but there is a group of MPs who would prefer prescriptive rules, because then they can say to whomever asks, "Ah well, this is within the rules and this isn’t." That is a function of public confidence, not of anything that you or I can do in this room. As we move towards public confidence being regained-I think the last year has shown that what was is no longer the case: MPs are working within the rules and money is being disbursed appropriately-so we can play our part in rebuilding that confidence and can go on that journey.

Mr Brown: John, I don’t want to hog this, but I want just one last question.

Chair: Of course.

Q4 Mr Brown: Surely it is consistent with what you have just said to allow Members of Parliament-provided that the transaction is transparent and properly explained and the public money is properly accounted for-to say, "The individual pressures in my constituency require that I spend more on staff and less on office administration."

Sir Ian Kennedy: If I may say so, that is an exceedingly helpful question for the board to hear, because of the whole issue of how and what MPs need. Your constituency in Newcastle is very different from a constituency in the West of England, for example, and I understand that your needs are significantly different. That is why the liaison group, which I welcome, was created, so as to have the conversation which we intend to have over the coming months about how best to wrestle with the issue of staffing needs and constituency office needs. We inherited-you know we were established quickly and had to put something in place-a somewhat rigid sense of 3.5 staff and this being the office space. Through the good offices of the liaison group, we wish to disaggregate all those arguments and to work on what might be an improved model.

Q5 Chair: That is an extremely helpful reply, Sir Ian. The appetite of my colleagues for asking questions is almost insatiable, but we have a lot to get through, so I know we will all take account of that.

Sir Ian Kennedy: Is that to remind me not to speak too much?

Chair: No, not at all. That was an immensely helpful reply.

Q6 Sir George Young: Good morning, Sir Ian. May we turn to the big picture? You have put in a bid for £172.098 million for your resource budget, which is a small increase on last year on an annualised basis. Last year, you had no idea of the pattern of claims, so you bid on the basis of everyone claiming the maximum. We now know from your forecast outturn for last year that there are significant underspends-a £34 million underspend is forecast.

Against that background and the injunction from the Treasury that Parliament expects Departments to submit for approval estimates based on taut and realistic spending plans, is it realistic to put in a bid for next year again on the basis that every MP will claim every single penny to which they are entitled, when we know that there was an underspend of 23% last year? Can you not help the Government to reduce public expenditure by putting in a bid that more accurately reflects what is likely to happen?

Sir Ian Kennedy: Sir George, I completely understand the point. If I can pick up the last part of your proposition-more accurately reflects-our difficulty is that we do not know yet what does accurately reflect, because we do not have a steady state. We have some sense, but colleagues on either side will confirm that spending began to move up towards the end of the year. After our last meeting, the board reconsidered whether to use the notion of the potential maximum, which is, after all, what MPs are entitled to and therefore if they have that need they should be entitled to claim it, as against what we saw to be the emerging pattern of spending. The board confirmed its commitment to stay with the maximum, because that is the least risk-prone position to be in. If it is your view that we should take it back and consider it again, I am happy here to undertake that we will do that.

Q7 Sir George Young: That is a generous offer, which obviously the Committee, Mr Speaker, would want to reflect on. I take it from that that if the bid were to be reduced to a realistic figure-perhaps the one that was touched on in Mr Evans’ letter dated 5 May-this might be something that IPSA could live with, and it would help to show that expenditure was likely to fall rather than go up, which is where we are at the moment with the bid.

Sir Ian Kennedy: Yes. Thank you for referring to Mr Evans’ letter. You will be aware of the proposal from the Treasury that there be what is called a DUP. That may or may not help the argument: in one sense it does; in another sense it does not because the bottom line remains the same. Certainly I will take the whole issue back.

Sir George Young: That is a very helpful exchange. Thank you.

Q8 Bob Russell: Mr Speaker, I sincerely hope that Sir George’s line of questioning will not be fulfilled, because I think that is a recipe for encouraging lazy MPs rather than hard-working MPs. It is far better to have unallocated money than to have insufficient, because we are not 650 branches of McDonalds. Would you agree with me that the 650 MPs approach their work in different ways? Can you confirm that you do not take into account in the allocation of allowances to MPs those who have all or some of their staff based in Westminster? In other words, IPSA’s remit does not cover the accommodation costs in the Palace of Westminster.

Sir Ian Kennedy: Thank you for your first remarks, which echo what I was saying. It is a matter that the board has wrestled with. If we have a view that these are the budgets that MPs are entitled to, then it is not for us to say that that money should not be made available, but Sir George is making a perfectly valid point that a pattern of spending is beginning to emerge, which could equally serve as a guide. As regards your second point, although you use the word "allowances", I think I understand what you mean and I am going to refer to Scott.

Scott Woolveridge: We are aware that some MPs do not have much activity in the Palace of Westminster and all their activity happens in their constituency. There are occasions where those MPs’ office costs in their constituency have been somewhat higher, because the telephone bills are higher or their postal costs are higher or whatever. Where that happens, we have the avenue of a contingency claim to take account of those situations, and a number of MPs have taken advantage of that route-including you. It is perfectly legitimate. The issue we have, as you say, is that every MP behaves slightly differently-there is no standard practice. We cannot set up 650 different schemes. We have to take a view that will look at the thing in totality, and inevitably there will be slightly different circumstances. That is why we have the contingency capability to take account of those situations.

Q9 Bob Russell: I am extremely grateful for that. The totality is the important thing here. I come from a local government background where virement happens on a regular and ongoing basis. I used to be chairman of the finance and policy committee, where virements were things we agreed to as and when. We have already had a very welcome move with the merger of two of the budgets. I urge the IPSA board to give serious consideration to having a total merger of the global sums. Okay, put limitations on it-you cannot vire more than 10%, or whatever-but it would resolve the dilemma for many MPs if there was total freedom to move money from this heading to that heading. That, I am sure, would remove most of the anguish that is still there.

Sir Ian Kennedy: Mr Russell, that is very helpful. Thank you. We will take that idea forward. That is one of the matters that we can discuss how to operate it in detail through the liaison group, but if you have transparency over here as the mechanism for assurance for the public, the other restrictions are less important.

Q10 Bob Russell: I think the transparency is the important thing. I have no problems with that, but I do have a serious problem with the constraint on the total allocation. The way I operate my constituency reflects my belief that if I moved all my staff up to London, the cost to the public purse would be greater and the service to my constituents would be considerably less.

Sir Ian Kennedy: That is very helpful. Thank you.

Q11 Laura Sandys: I am particularly interested in the figures. Sir Ian, when you state that the overall administration costs of our budgets is 4%, that does not include the fully loaded costs. One thing we must do to be transparent from a public perspective is put the full costs of the scheme, and that includes the administration costs of our staff. That is currently calculated to be £1.9 million-close to £2 million-in addition to your budget. On that basis, do you still believe that you are offering a cost-effective service?

Sir Ian Kennedy: The answer to the last question is yes. As regards the more particular point about fully loaded costs, I will ask Scott to respond.

Scott Woolveridge: We talked a little bit about this the last time we appeared before you. It is very difficult, verging on impossible, to get a realistic view of what 650 different offices doing things in different ways costs. In my experience in the private sector, I have never seen that kind of activity undertaken.

Coming out of the conversation we had last time, we did do some more thinking on what we thought the costs would be to essentially do the data entry burden that is now with MPs to use the online system. We came up with a figure of something in the region of £136,000 to £150,000 a year. Looking at the way the House did it, that would be about 30% more efficient than doing it the old Fees Office regime. I think that would be reasonable.

That does not chime with the figure you quoted, which simply goes to prove the point that it is difficult. I am working on estimates of how long I think a unit would take to data enter using the system. I am not quite sure where your figure is calculated from, but it simply proves the point that these things are almost impossible to make objective.

The way we look at the world is that having the MP doing the data entry is probably a more effective, efficient and accurate mechanism than having us do it as well. We are also concerned about the potential for double counting. Within an MP’s salary and staff budget, we would expect some of the work to manage expenses to be included. If we start counting it as well, potentially, the same activity could be counted in two places. We descend into estimates based on guesses very quickly.

Q12 Laura Sandys: Obviously this is my first term in Parliament, but from discussing this with MPs who were here during the last Parliament, I know this scheme takes significantly more administration time than their relationship with the Fees Office did. There are needs for greater transparency and systems that you have put in place, but I still urge you to look at what many of us consider a disproportionate amount of staff time taken up with this particular process. May I follow on with one further question?

Chair: A supplementary question? Certainly.

Q13 Laura Sandys: That brings us on to look at the percentage of what you spend on your corporate services and delivery and what you spend on the administration of the scheme. It seems unusual for an organisation whose main function is this back-office function-I appreciate that there is a regulation function-that they are almost similar in cost. The cost of your corporate services side is almost the same as that of the administration of the scheme, and it seems extremely high, from the point of view of your central costs, now that we have the full breakdown between that and the scheme administration.

Sir Ian Kennedy: I will bring Bob in on this if I may, but may I push back on the previous proposition about the disproportionate amount of time? I think that the liaison group exists to explore the notion of time-how much time is taken and what is a proper amount of time. Clearly, from our perspective and that of taxpayers, it is right that some time is spent on rendering account as to what is done with tens of thousands of pounds of taxpayers’ money. Mr Russell’s intervention demonstrates that. The right amount of time should be not a matter of a guess here, a rumour there, a claim there, but of some kind of analysis that I wish the liaison group to embark upon. It may well be that the effort expended by MPs in operating the older system was somewhat less, but the concomitant effort on the other side of the fence, in terms of administering it through the Fees Office, was significantly more expensive than the cost that we currently bear. When you compare staff costs, for example, that is the case.

Scott Woolveridge: It is also true that the old system landed in a place where the House accounts were qualified, because it was not possible to establish where all the money had gone. The old system may have been easier to run for the Members concerned, but it did not necessarily provide assurance and transparency in terms of the way that the money was spent. The way that we do it now provides that assurance.

Sir Ian Kennedy: You will remember, Ms Sandys, that £11.6 million was dispensed by the Fees Office; for about £3.5 million, there was no clear indication of what it had been spent on; for the rest, there was no evidence to demonstrate that the trail was completely clear. That is a lot of taxpayers’ money regarding which, in the last year under the old system, the NAO was not content to sign the accounts.

Chair: I just want to bring in Nick Brown again, and then Sir Anthony Holland.

Q14 Mr Brown: Could we check that the National Audit Office is now satisfied that your accounts, as currently presented, will be signed off?

Sir Ian Kennedy: Mr Brown, the accounts are about to be put to the NAO. We will be going through the process, and as you know it will end in June-July. We are in negotiations with the NAO.

Bob Evans: We had an interim audit in February, and the NAO were quite satisfied with the accounts at that point. They will come in for the final audit at the end of next week, but I have had various discussions with the NAO and they are very content with the approach that we are taking so far. I do not expect a qualification.

Q15 Mr Brown: That is an advance on what they last said to us, which can only be a good thing. They were expressing reservations when we last met them.

Sir Ian Kennedy: I am surprised to hear that. I have no knowledge of that.

Q16 Sir Anthony Holland: Sir Ian, obviously I am here for the first time in this particular exercise-

Sir Ian Kennedy: I am hardly a regular myself.

Sir Anthony Holland: Yes. I am sorry that you cannot have the benefit of the opinion of my colleagues, neither of whom could be here today. I arrived at this role with a pretty open mind-with no particular views. I suppose that my overwhelming view at that point was that we had to work together to get a system that satisfies both the interests of parliamentarians and those of the taxpayer. What I am going to say now is more general than particular, but I can get to the particular if you wish. I know that my colleagues have agreed with what I am going to say, and they know full well the force with which I am going to say it, so there is no misunderstanding in that context.

I am starting, I suppose like any lawyer does, with the fact that we are driven by legislation and we have to review the estimate and decide whether we are satisfied that the estimate is consistent with efficient and cost-effective discharge of your organisation. I am bound to say that, having spent with my colleagues some six hours at your organisation over two days, the overwhelming view that we had at the end of it was that there was not a great deal of attention to cost-effectiveness or value for money.

Now, I do not want to go into examples, but I will do so if you wish, and you may wish to come back here when we let you have those examples. Certainly, there seemed to me, and, indeed, to my colleagues, that there was no sense of proportion. As a taxpayer-I am a taxpayer, not a parliamentarian-I just felt that you were diving down into details in a way to which, frankly, a taxpayer would say, "Is that really necessary?" It may be to satisfy the media, or it may be to satisfy those who are pruriently curious as to what Members of Parliament are doing, but is it value for money? I think that one has to take that into account in getting both the parliamentarians and yourselves on side, so that the system is operated to everyone’s satisfaction.

I will give you one example, because it hit me very much at the time that we were at IPSA. Someone talked about the cost of publications and redacting information, and I had had a genuine regard as to whether the fact that you are committed to publishing every two months meant that the cost of the redaction was thereby increased out of all proportion to the value of the information that is being dealt with for the benefit of giving it to the media and, in turn, members of the public. My overall concern was this lack of value for money.

To ensure that you strongly get the view of not only me, but also of my colleagues, one of them wrote to me and said this last night: "Tony’s observation of scant evidence of a value-for-money focus in our induction sessions with IPSA is a cause for concern, which I share, echoes of which are to be seen in the Chief Secretary to the Treasury’s letter to the Speaker dated 27 April 2011. Bob Evans’ briefing notes on cost provide a superficially robust defence of all the current cost lines, but no evidence of a desire to achieve any meaningful step change in achieving the same or similar results for less. This is disappointing on two fronts, namely the remit of the efficient and cost-effective discharge of the IPSA of its functions and also the particularly challenging economic backdrop facing both the nation as a whole and the public sector in particular." Those were the comments of Liz McMeikan who, of course, is not a lawyer. I have not reproduced Janet Gaymer’s, because hers will obviously be similar to mine as she is a lawyer. They give you a flavour of where we, as independent members, are coming from. We have no axe to grind-I have a taxpayer’s axe, if anything-but I did have serious concerns, and you may wish to have more detail from us and then come back here and redress those, but we did feel very strongly, Mr Speaker, about those issues.

Chair: Sir Anthony, thank you very much. Sir Ian, would you like to respond?

Sir Ian Kennedy: My first response is that it would have been more helpful to have received that prior to being confronted with it in this room. My second response is to say that I do not recognise a lack of attention to value for money. It goes through virtually everything that the board is concerned with, and perusal of the board’s minutes would indicate that attention is constantly paid to challenging whether this is an appropriate disbursal of public money. If there are particular proposals or concrete indications of appropriate savings, commensurate with what we regard as our independent judgment as to what is the proper fulfilment of our statutory duties, let us have them, and we will of course take account of them.

Q17 Bob Russell: I am grateful to you, Sir Ian, for saying that the IPSA board will look at the prospect of the virement between office costs and staff and vice versa. If you are looking for simplification, I ask the board also to consider two possibilities. When MPs purchase railway tickets for either themselves or their staff, it is done electronically. I do not see why it is necessary subsequently to follow that up with a paper trail chase of submitting the ticket and invoices-it has already been done electronically. If that aspect alone was removed, it would be of some help.

As for mileage claims, I suggest a system whereby, as there was in the past, there is a blanket monthly mileage-whatever is agreed-and journeys beyond that would have to be identified. The general public would say of anyone claiming for a two-mile, four-mile journey or a six-mile journey, "He’s a tight-fisted git, isn’t he?" whereas in reality such claims add up. A system whereby there was an agreed global sum per month and anything beyond that was claimable would be another easing of the bureaucracy. I have to say, Sir Ian, that the bureaucracy is the real bugbear. We all acknowledge the transparency but, if we could reduce the bureaucracy, it would be great.

Sir Ian Kennedy: Mr Russell, the tension is between what it is you need to produce the transparency which is appropriate, and what it is that you should not be doing because it is too excessive. We understand that, and that is the battle with which we are constantly dealing. As for what you said about mileage, it is a very well taken point. As you may know, within a matter of weeks, the system will be changed and we will be moving to a monthly tab on mileage. Scott, do you want to talk about the other matter?

Scott Woolveridge: The train issue is difficult for us. What we get from the train companies is the fact that expenditure was made when the Barclaycard was used. We do not know who was travelling, where they were travelling and on which service they were travelling. If you travelled by air, we would get that information from the airlines. We have been in conversation with the credit card provider to see if we can expand the information that comes to us automatically. We are not having a great deal of joy in that domain, but we are continuing to push on it. When we are dealing with train tickets, we need to establish who was on the train, where they were going and where that train was going. We are also in conversation with the travel providers at the House, because it may be that they can provide more information for us, which would obviate the need for tickets to be supplied to us. We are doing that right now.

We recognise that transport is a big issue, but it comes down to transparency. If all I know is that somebody bought a ticket from East Midlands Trains, it is difficult for me to say to the public, "I know that Mr Russell was travelling to Derby that day." I have to find some way to establish who was on the train and where they were going. We are continuing to do find a way to do that. The current situation is not what I want it to be; we recognise that life is difficult. The data that we get are not sufficient at the moment, which is why we ask for tickets as proof.

Q18 Sir George Young: Within your corporate costs is an element for support for pay and pension work. You will know that very shortly we plan to transfer responsibility for MPs’ pay and, before April next year, responsibility for MPs’ pensions. There is a budget for £290,000 for the cost of staff, which appears just to be for two posts. Will you explain how you have arrived at that figure?

Bob Evans: I am very happy to answer the question, based on my experiences of having looked after MPs’ and Ministers’ pay at the Treasury in the 1990s. The table is slightly misleading because, although it is in the staff column, the £290,000 consists of more than just the costs of IPSA staff. We also have to make provision for pay surveys to provide data for any review or setting of MPs’ pay. Given my experience, I am particularly concerned to make sure that we have provision for legal advice, which will be very important when we start looking at the matter. I also think that we will need to buy in expertise on pensions. We can recruit a reward specialist, as one of those two posts, but we will need to set some money aside to buy professional advice on the pensioners’ issue. The £290,000 is split broadly into £100,000 for pay for the two specialists, with something like 70K to 80K for pay surveys, 70K for legal advice and the balance for other issues.

Q19 Sir George Young: Can I press you a little more on that? The SSRB has a considerable body of knowledge on the subjects of pay and pensions. To what extent do you plan to be in touch with it to assist you in your new duties?

Sir Ian Kennedy: Sir George, we have already had a number of meetings on this matter, not only with the SSRB, but with your colleagues in the House as well. We have begun to explore ways forward. Until the powers have commenced and the board can stand back and say, "What do we need to do and how best do we do it in the light of securing value for money?", I would prefer to leave the precise dealings we will have with the SSRB and/or others to another day.

Q20 Sir George Young: Will the SSRB be charging you for this?

Sir Ian Kennedy: One would assume that that is the case, yes.

Chair: Thank you. I think we will move on to some questions from Laura Sandys.

Q21 Laura Sandys: In many ways I am returning to a previous question to which we did not get an answer, on the split between your corporate costs and the administration of the scheme. We are still looking at 45% of your costs being related to non-administration costs, such as corporate services and regulation. In the light of what Sir Anthony has said, and the Danny Alexander letter, Departments are looking at a 33% reduction in costs. When you start to look at those corporate costs and you cannot find much of a reduction, from a value-for-money perspective, I would like you to look again.

Sir Ian Kennedy: Forgive me, Mr Speaker, but we are already beginning from a position of finding a 10% like-for-like reduction in costs this year, as against last year, as well as a 16% cut in staffing for this year, as against last year, like-for-like. That is the beginning of a demonstration of the cuts I undertook to make when I appeared before this Committee last year. There is a context-goodness gracious me-because this was an organisation set up at great speed against a background of the need for something to be in place to begin to restore public confidence. That has been achieved. Now we are on that journey to find ways of doing that in a more simple and cost-efficient manner. That is accepted. It will take some time. In last year’s meeting, Sir George reminded me of the Treasury statement of 25% over five years. We were urged to take account of that in the Speaker’s letter to me after that meeting. I undertook to look for savings of at least 5% year on year. We have achieved 10% in the first year, which I regard as significant progress.

Scott Woolveridge: It is worth also bearing in mind that IPSA is a small organisation, but it does exist, so there will be a chief executive, there will be a director of operations, there will be a director of finance and so on. If this was a private business, I would be seeking to grow and spread my cost base across a wider bunch of customers. Clearly, I cannot do that. Some of the corporate functions we have may look top-heavy, because we are a small organisation. If I may go into fantasy land for a moment, if we were processing four times the number of claims, the corporate services groups would not grow any further, but IPSA has been established as an independent organisation, so those functions are acquired. That is why it looks a little top-heavy.

Q22 Laura Sandys: Let us be frank: some of the choices you have made, such as location and some of the IT contracts you have entered into, are expensive by other Department norms.

Sir Ian Kennedy: With the very greatest respect, that is not the case with accommodation. Bob, you might want to take the point about accommodation.

Bob Evans: If I can backtrack a bit, there is a slight misunderstanding about the figures. What we are describing in the cost drivers paper are corporate services, and are largely concerned with paying MPs’ pay and expenses. The payroll function is almost wholly devoted to MPs and MPs’ staff. The finance function is completely devoted to that. The number of invoices you pay for IPSA administrative costs is trivial in comparison with the volume of MPs’ expense claims. The IT team, which is only two people, is wholly devoted to keeping the expenses system running. The bulk of those costs are about delivery of the scheme rather than about the overheads of IPSA.

Sir Ian Kennedy: Mr Speaker, forgive me, I was going to ask Bob to dilate on accommodation.

Bob Evans: On accommodation, we selected the property on a competitive process and looked at a number of properties in the Whitehall/Westminster area. The issue is, of course, what is available at the time. The property that IPSA chose-Portland House-was considerably cheaper than any on the Crown Estate. We made quite a saving compared with going into a Government building at the time. It is difficult to make comparisons; you can look at benchmarks. Our current costs benchmark reasonably well compared with costs in the local area and of equivalent Crown buildings. I do not think that is being extravagant. I have explained to the Committee before that this is an area I want to look at. I do not think the lease we have is expensive or does not offer value for money, but I would like to reduce costs where I can. I have an exercise in hand to see whether we can reduce the amount of accommodation we have, or whether it would be worth moving to another building, although the costs of moving out and writing off fixtures and fittings suggest that is probably not economic. We have a lease for five years, which is a reasonable period of time to amortise the investment we have made.

Q23 Sir Anthony Holland: On the issue of cost effectiveness and value for money, because I think that is what you are searching for, and in terms of the question of proportionality and how a taxpayer would look at the matter, to drill down on the issue of communications and publications, you have plainly arrived at a strategic decision for the moment to do what you are doing in that area. However, the question does not seem to be answered as to how much value for money you are getting from employing a number of people in both communications and publications in dealing with the matter in the way that you are. It is the drilling down to the detail that worries me. When I was watching the presentation in this area, I got the clear view that it was slightly out of kilter and proportion to what information you were actually trying to give to the public and the media. That is purely an illustration. The only way you are going to cut costs-and that is what everything is about these days-is by saying, "Do we need to do that to fulfil our statutory role?" That is all I ask.

Sir Ian Kennedy: Absolutely. Mr Speaker, may I can respond to that, as it is a central issue. You, Sir Anthony, might take a different view of the role of publication or how we do it, but we are charged with taking a decision about publication. It is at the heart, centre and nature of the scheme that we have created, and it is in response to the Prime Minister’s view and that of the leaders of other political parties. You have heard others here today talk about the supremacy of transparency. Transparency is therefore translated into publication. You publish claims made, and ensure that you publish those in a manner that is fair, accurate and is not going to cause misleading stories to emerge. That is a complicated process, and we took you through that. Now, if it can be demonstrated that we can provide the same measure of assurance to the public, the same information with the same measure of assurance to MPs that we will keep data that should not be made public secret or private, and that we will not make mistakes-we have made six mistakes in 72,000 claims, which is six mistakes too many, because reputations are on the line-if we can do that more cost efficiently while preserving that position, then I am open to suggestion. We have streamlined it somewhat, but it is absolutely critical that we publish and that we do so in a way that the public find out what they need to find out, and that MPs are satisfied and have appropriate assurances that we will not put into the public domain the things that should not be put into the public domain. And, as you were taken through the process, that requires some effort.

Q24 Sir Anthony Holland: Frequency and cost determine the value for money.

Sir Ian Kennedy: Not entirely, Sir Anthony. The nature of how you define the project ultimately determines the value for money. In other words, you define it as what you are going to do. On frequency, as you will know as you were taken through the conversations, we have considered whether we should have less frequency or more frequency. There are extra, if you like, political issues there as to whether, if you do it infrequently, it then becomes something that becomes an event in itself, rather than a matter of routine publication and so on and so forth. So, there are other meta-considerations beyond the particularity of publishing information, which we also have, as a board, borne in mind. Scott.

Scott Woolveridge: I agree with everything that Ian has said.

Sir Ian Kennedy: Just as well, if I may say.

Scott Woolveridge: If we did not publish, those costs would not be there-that is the key thing. If you look at how many people have looked at the information and what use they have made of it, the fact that it is there is the point. You can measure how many letters we get after a publication round, and that is not really a measure of the success. The fact that the information is there in the public domain is what is important. If we published once a year, I think it is legitimate that people could point to us and say that we are not being as open as we should be. You could look at this as the price of transparency. You can move the levers any way you want. If you choose to publish that frequently, that is what it will cost you.

It is also true, and we discussed this when you came to see us, that we could deploy fewer checks on the data. You could fly an airline that had not checked its engine before it took off. We know, from when we have made the mistakes that Sir Ian referred to, the pain and suffering, frustration and anguish that that has caused Members of Parliament. We understand that a reputation is a very precious thing to an MP, and we think that it is value for money to make sure that we protect that reputation by making sure that we do not put information in the public domain that would be potentially damaging. If that costs perhaps a little bit more than a cursory check, we think that is worth doing.

Q25 Sir Anthony Holland: The analogy with an aeroplane is a bad one, because of course it is not the essential part of what you are about. If I could just zero in on this issue, with respect Mr Speaker, one more time. What would the difference in cost be-you can presumably have this information if you publish on a quarterly basis or every four months-to your staffing?

Scott Woolveridge: I do not have those figures instantly to hand. We have not done the work in quite that way. It would have an impact. Whether it would make a difference in terms of a whole full-time equivalent, we could get back to you on very quickly.

Sir Ian Kennedy: Mr Speaker, if I can just interject one more time. There is a view of value for money, Sir Anthony, which is really concerned with cost and price, but that is not the whole story of value for money, as you know very well. Value for money is also about what is valuable and it is valuable, currently, for the public-the taxpayer-to be able to have a system to which they can look regularly and routinely to discover how their money has been disbursed. That is a valuable political contribution to what was one of our important remits, namely restoring, or contributing to the restoration of, confidence in Parliament. I regard, and the board regards it, as so valuable that it is significantly value for money to do it in the way that we are doing it: ensuring that it is safe, ensuring that we do not damage the reputations of MPs and ensuring that the public gets to know what they are entitled to know.

Q26 Sir Anthony Holland: We could argue about this all day, Mr Speaker, because it is a question of what the statute says.

Sir Ian Kennedy: The statute says value for money or cost effectiveness. I have argued that one feature of the effectiveness of the cost is whether it produces for the public at large that which they would value having access to. That is what we are statutorily required to do, and in our view we have taken an independent judgment and arrived at the judgment that we have arrived at.

Chair: I thank you for that exchange, which, as has been said, could continue but it has been of interest and illuminating.

Q27 Mr Charles Walker: On the compliance officer function budget, there seems to be an increase of plus 8.6% on 2010-11. What does the compliance officer do? Most people accept that the scheme, although sometimes difficult to navigate, is not one that people would want to abuse, so what does the compliance officer do?

Sir Ian Kennedy: You will know that the compliance officer was an office created in the last days of the previous Government, as part of an add-on to the legislation on constitutional governance and so on. IPSA is in the position whereby it is responsible for the accounts, or the estimate, to the compliance officer; but on the other hand, it must give the compliance officer that which he judges to be the necessary amount to do the job.

The initial assessment was that two members of staff would be required to set up the scheme, set up the necessary training of the procedures that were to be used and to establish protocols with various other external and internal organisations. Most importantly, there had to be staff there just in case there were complaints. They then began to deal with inquiries and to deal with a preliminary notion of investigation. At the same time, the interim compliance officer was replaced by a permanent fixed-term official. From the point of view of the board, because it was really finger-in-the-wind territory as to how many staff would be needed, we were clear that the contractual basis on which the staff were appointed was of a fixed-term nature so that it was amenable to being reviewed.

Now that the compliance officer is in place, there will be a quarterly report to the board against agreed performance indicators, and over the next several weeks there will be a detailed exploration of costs and resources, bearing in mind some of experience of what is happening. What is happening is about 100 enquiries a month to the compliance officer, and a number of preliminary investigations.

Q28 Mr Walker: How many investigations, involving how many Members of Parliament?

Sir Ian Kennedy: This is territory on which it is important for me to establish that the compliance officer is, if you like, of IPSA but not with IPSA. It is an independent body, and we are anxious to observe our general oversight in terms of resources without impinging on the capacity to make discreet and independent judgments. After all, IPSA is amenable to being investigated by the compliance officer. I can say in more general terms that, as far as I know, it is around 40-odd preliminary investigations.

Q29 Mr Walker: Forty investigations?

Sir Ian Kennedy: That is the last figure I was made aware of.

Q30 Mr Walker: I know that you are not an expert on what he is up to, but he obviously has to put forward a budget to you to get £333,000. How many complaints? You say it is processing 100 complaints a month.

Sir Ian Kennedy: A hundred enquiries. We will, of course, be receiving reports as to what those constitute. Having had an initial view that two staff might be needed, over time-Sir Anthony, who has much greater experience in this field than I or indeed most others have, will know this-you have to come to a view as to what numbers of staff might be needed when we reach a steady state of what might be the predicted monthly activity, not only coming in, but also then being acted on.

Q31 Mr Walker: There was a view, when we met in slightly more trying circumstances last July, that the compliance officer would be fairly underutilised. I think we discussed that perhaps he could be part-time, working two or three days a week. Does that look likely to happen?

Sir Ian Kennedy: Mr Walker, you are absolutely right. Were those times trying? The appointment still is part-time, and it is still subject to review. The report will be required by the board on exactly how much time is needed, whether by the staff or by the compliance officer, so that adjustments may be made.

Q32 Mr Walker: I am sorry to try your patience, Mr Speaker, and I do not want to be argumentative, but there is just one thing that concerns me. The whole expenses scheme was to restore confidence in Parliament and Members of Parliament. I would just say that a Member of Parliament is much more important than a leader of a political party-we must remember that this is for Parliament, not about what the leaders of political parties are interested in, because often their ambition diverges from the ambition of Parliament. However, with 40 colleagues under investigation, that is hardly likely to restore the standing of Parliament.

Sir Ian Kennedy: I take your point. I do not want to get into territory that is not mine. The compliance officer will be reporting on the dedicated website, which is completely separate from ours, as to the nature of those complaints. They may in fact be minor infractions that are to do with the growing pains of getting used to any system, and my understanding is that that is the case, such that they are never going to become or grow into anything like a formal investigation. They are preliminary inquiries, asking, "What’s going on in this particular thing?" So I do not think, if I may say so on the record, that they make any statement about a reversion to anything like what we had before. What we are seeing now, as I have already said, is MPs living within and behaving according to the rules, and I pay tribute to them in that regard.

Chair: We really need to finish by 11.50. It is now 11.47. I am going to ask Tony Holland and Bob Russell to come in briefly.

Q33 Sir Anthony Holland: I have a quick point to make. Sir Ian may be surprised, but in support of what has been said about the compliance officer, I have considerable experience of this in the context of the FSA. The scheme, as it is enacted in statute, is pretty woolly in this area, and I suspect that it will or could cause incredible difficulties on sensitivities of both MPs and how the process is done. When I was at IPSA last week, I saw the projections, and there were some errors. Although they have been through some lawyers, in fact they have got it wrong and your colleagues agreed with me that there were some errors there. It is a very tricky area, and it is something that I want to have a detailed examination on to agree how it is going to work, because it is not easy or straightforward, and there are vast opportunities for judicial review by various people.

Chair: That is helpful. We will just move to Bob.

Q34 Bob Russell: Sir Ian, I am wondering how many of those inquiries that have been through to the compliance officer have emanated either from political opponents or from the media. I might as well come clean now: I am one of the 40 against whom a complaint has been made, and I am pretty confident that I know where from. The claim has been agreed and paid by IPSA, and there is absolutely nothing wrong, but I can see my political opponents using this-

Chair: Order. Although this may well be relevant to your concerns about IPSA, Bob, it has absolutely nothing to do with the scrutiny of the estimate. Sorry, but we really must draw things to a close.

Q35 Bob Russell: Mr Speaker, the point that I am making is that IPSA needs to look with its estimates as to whether people could possibly, for political reasons, misuse the good offices of the compliance office and IPSA by making, if you like, false allegations.

Sir Ian Kennedy: Sir Anthony is absolutely right. This is a complex area. One thing that is important is where transparency should come in and where it should not come in. In my view, these initial expressions of concern should not be a matter for transparency, because they are initial expressions of concern. If anything then transpires that is worthy of investigation, that might be a point at which you move into transparency and openness. Outing yourself, Mr Russell, is one thing, but IPSA might not take the same view.

Chair: Sir Ian, Scott and Bob, thank you very much indeed for your answers today. On a personal note, may I thank you, Sir Ian, for your stoicism, patience and evident good humour today? We are discussing extremely important matters, but you are always unfailingly courteous and today you were on very humorous form. We thank you for that.

Sir Ian Kennedy: Sufferance is the badge of all our tribe.

Chair: We will ask you now to withdraw and we shall consider your evidence further among ourselves. Thank you.

Prepared 1st June 2011