8 The commercial exemption (section
43) and the application of FOI to outsourced public services
Competitiveness
and the commercial exemption
223. Section 43 exempts information from the
Act if it is a trade secret (subject to a public interest test)
or if its release would, or would be likely to, prejudice the
commercial interests of "any person", including the
public body holding the data.[390]
224. Witnesses told us that local authorities,
universities, NHS organisations and other public bodies are working
in increasingly competitive environments. Some witnesses believe
that being subject to FOI makes it more difficult for public bodies
to compete with their private competitors who can access information
through the Act while maintaining the confidentiality of their
similar information. Leeds City Council told us: "Section
41 (information provided in confidence), and section 43 (commercial
interests) have not been applied in a way which acknowledges the
potential prejudice to authorities and to bidders for public contracts."[391]
The University of Bath said: "Universities operate in a competitive
arena and the fact that the FOIA applies to some higher education
providers but not others (such as for profit providers, which
will equally be receiving government money through the Student
Loan Company) acts against a level playing-field."[392]
The Foundation Trust Network told us:
As some of these commercial interests [making requests]
are direct competitors for NHS contracts, it was felt that the
ability to lodge requests with FTs but not independent sector
providers of public services meant that an uneven playing field
had been created. FTs are unable to seek out comparable competitor
information from independent sector organisations. There was support
for the principle of equity being applied, to all providers of
public services, whatever their ownership model.[393]
The Centre for Public Scrutiny observed that the
application of the Act solely to local authorities in the context
of greater private sector delivery of public services meant the
FOI regime would "become increasingly separated from reality"
but notes this issue is not considered by the Memorandum.[394]
225. Some concerns over the operation of the
commercial exemption focused on its interpretation by the Information
Commissioner's Office rather than the legislation itself. The
University of Oxford noted that a recent case involving the application
of section 43 to fund-raising by universities appeared to conclude
that it did apply to such activities but the ICO had not yet revised
its guidance. The 1994 Group describes the operation of this clause
as "complex" and said that: "In a more competitive
and market driven system it is entirely inappropriate, and against
commercial interests, to subject one group of higher education
providers to FOIA obligations for potentially commercially sensitive
information."[395]
The Russell Group gave the following example where a university
might be disadvantaged by the Act: "New providers, such as
those being encouraged by BIS, might seek teaching materials,
which have been developed using public funds, for commercial gain
but need not make their own material available. A recent Cabinet
Office consultation even cited this as an example of open data."[396]
Professor Trevor McMillan told us that "my understanding
is that one university has already been obliged by a decision
to release some of its teaching materials. If I remember rightly,
it was the university of Central Lancashire." Professor McMillan
noted that requestor blindness meant the university did not know
what had happened to the material after publication.[397]
Publicly and privately-funded
functions
226. Universities receiving financial support
under section 65 of the Further and Higher Education Act 1992
are subject to the Act. Several of our witnesses from the university
sector suggested that those activities carried out by universities
which receive public funding should be subject to the right to
access information. Figures on the proportion of universities'
activities that are publicly-funded varied. Universities UK told
us that:
The balance of funding within public institutions
in the UK has changed from 61% public funding in 2005-06 to 55.9%
in 2009-10, and this trend is expected to continue. David Willetts,
Minister of State for Universities and Science, has recently confirmed
that student fees will be treated as private income, potentially
lowering this ratio significantly. Further evidence of the shift
in funding can be seen in the reduction of the HEFCE teaching
grant received by institutions, which will be replaced by income
from tuition fees. The grant is predicted to drop from 66% in
2010-11 to approximately 22% in 2014-15 as a proportion of overall
teaching income.[398]
(sources: HESA (2011) Finance Plus Cheltenham: HESA; Universities
UK (2012) Futures for higher education: analysing trends London:
UUK p. 7).
227. The University of London commented that
the European Union defined a public body as one which receives
more than 50% of its funding from the state. It commented: "As
the cost of higher education is increasingly to be directed towards
the student rather than the government, Universities cannot be
expected to face the same regulatory burden and level of scrutiny
as befits a central government department or local authority."[399]
228. Some witnesses from the university sector
suggested that the Act was inappropriate for their institutions.
Durham University said:
[...] we believe that we should be removed from Schedule
1 as the legislation is unnecessary for us and the wider higher
education sector. The University believes that the objectives
of the Act could be achieved more effectively in the higher education
sector through a code of practice, perhaps including the requirement
to develop and maintain a Publication Scheme, and accountability
to HEFCE rather than the Information Commissioner's Office.[400]
229. Other submissions suggested that a more
proportionate use of the Act would be to limit it to functions
funded by pubic money or the management and administration of
the institution. The University of Bath observed: "some organisations
like the BBC are only subject to the FOIA in respect of their
use of public money; a clear case could be put for a similar principle
applying to providers of higher education."[401]
Universities UK also cited the example of the BBC together with
the Universities and Colleges Admissions Service.[402]
Representatives from the university sector accepted, however,
that the distinction between publicly and privately-funded aspects
of a university's activities was not straightforward. Dr Rodney
Eastwood told us: "Should [right to access information] in
future be related to activity that is funded from the public purse,
whether by a public or a private organisation, it is clearly much
more difficult to apply. Everything that we do is partly privately
funded. Some things that we do are entirely privately funded,
but everything else is partly privately funded."[403]
Professor Ian Diamond agreed that there was a "grey area"
in ascertaining requests relating to publicly or privately funded
functions: "the odd [request] would be absolutely clear,
but the great majority would be in the middle grey area."[404]
230. The Information Commissioner did not agree
that universities should be removed from the jurisdiction of the
Act:
[...] just because universities get a lot of money
from the private sector, it does not mean that they are not a
very important part of the public realm. Students, parents and
schools will expect universities to be publicly accountable, and
they are public authorities.
The Commissioner also suggested that universities
"sometimes need to conduct their case a bit better than they
have in some celebrated cases." As a result, Mr Graham told
us: "We want to work very closely with the higher education
sectorI will be talking to vice-chancellors shortlyand
we would be delighted if Universities UK would give some helpful
guidance to the sector in co-operation with the Information Commissioner's
Office."[405]
231. We do not have sufficient
evidence to come to a conclusion on whether section 43 operates
effectively to protect the competitiveness of public bodies when
competing for public sector contracts. However, there is a strong
public interest in competition between public and private sector
bodies being conducted on a level playing field to ensure the
best outcome for the taxpayer. With the increasing contracting
out of public services we recommend the Government keeps this
issue under review, and if public sector bodies are found to be
at a disadvantage we expect either that section 43 will be amended
or another model found to protect such commercial interests.
232. We agree with the Information
Commissioner that universities are an important part of the public
realm and we believe that they are generally regarded by the public
and by those working in universities as important public institutions.
We do not therefore recommend that universities should be removed
from the jurisdiction of the Act. We make separate recommendations
in paragraph 214 to deal with potential problems the Act may create
for university research.
Private companies and public
funding
233. Section 3(2)(b) provides that material
held by a private company "on behalf of" a public authority
with which it has a contract is subject to the Act but other information
is not. The Memorandum notes that "the question of whether
information is held on behalf of a public authority can be complex."[406]
234. We heard some evidence that requestors may
find it difficult to access information arising from functions
funded by the public sector but exercised by private companies.
The Information Commissioner was strongly of the opinion that
the right to access information must follow public money:
[...] if more and more services are delivered by
alternative providers who are not public authorities, how do we
get accountability? The Prime Minister dealt with that the other
day in one respect, by saying that it is about accountability,
through tracking expenditure and outcomes. That is certainly part
of it, but we nevertheless need to find ways of holding the alternative
providers to account if they are trousering very large sums of
public money and carrying out public purposes contracted by authorities.[407]
235. The Deputy Information Commissioner, Graham
Smith, explained to us the two ways in which the right to access
information could be preserved:
If information is held on behalf of the public authority,
then it is still covered by the Freedom of Information Act. The
Secretary of State for Justice has the power to designate bodies
for the purposes of the Act, but they can be designated only to
a certain extent. If you have a body that is created specifically
for this purpose, or it has a large number of definable relationships
with public authorities, then I think it will be possible to cover
those issues with a section 5 order under the Freedom of Information
Act [...]. The other way that you can do it, which is less clear,
is to have something in the contracting arrangements that imposes
requirements on the new contracting body to disclose information
to the commissioning body, but probably backed up with an obligation
to co-operate, with access to information law. Something similar
was done under the code of practice when the Act was first brought
into force, and I think that it has been reasonably effective.[408]
236. Dr Ben Worthy of the UCL Constitution Unit,
told us that the Unit's research amongst local government officials
on the use of contract terms to protect the right to access information
had found "two responses were given about private companies
on requests that covered things done by private companies rather
than the authority. The first thing that a lot of people said
is that most companies are very co-operative, particularly the
public-facing ones. It was only in a small percentage of cases
that they caused trouble, but I got the sense that, when they
did cause trouble, they caused real trouble."[409]
The problem, Dr Worthy explained, was that, in a large contract,
a public authority would be reluctant to "imperil" that
contract if the company refused to "play ball on this one
issue."[410]
237. We asked local government representatives
how they ensured the right to access information was protected
when services were contracted out, and how those relationships
worked. The answers we received were reassuring. Edward Hammond
of the Centre for Public Scrutiny confirmed that "a lot of
councils will, as a matter of course, include a section on transparency
and access to data, certainly in major contracts."[411]
Local government officials giving evidence to us confirmed that
was their practice. James Rogers of Leeds City Council told us:
"Our view on that in Leeds would be that the provider is
holding the information on our behalf. It is effectively still
Leeds City Council public information. Therefore we would still
be responsible for providing that from the request. That request
may need to come to us direct to retrieve and provide that information,
but we would provide it as ours."[412]
Mr Rogers confirmed that Leeds Council would require the contractor
to keep adequate records. Roger Gough of Kent County Council told
us his local authority took the same approach.[413]
He also noted that there was a potential problem with the burden
that could be placed as a result on smaller contractors, particularly
as local authorities sought to use smaller, local organisations
to deliver services. Tracey Phillips, of Lambeth Council, agreed
this could present a problem but her authority was taking the
view that "it is a case of forwarding the burden on to them,
but with our help and assistance on how to do that."[414]
238. The Campaign for Freedom of Information,
among others, suggests that: "The FOI Act envisages that
[a] contractor who provides a service on behalf of a public authority,
which it is the authority's function to provide, can be designated
as a public authority subject to the Act in its own right. We
think the use of this provision to make contractors directly subject
to FOI should now be considered [...]. Failing that, the Act should
be reassessed in light of contracting out and amended to ensure
that the public's rights to information about public authority
services and functions are fully preserved when these are provided
by contractors."[415]
239. The right to access information
must not be undermined by the increased use of private providers
in delivering public services. The evidence we have received suggests
that the use of contractual terms to protect the right to access
information is currently working relatively well. We note the
indication that some public bodies may be reluctant to take action
if a private provider compliant with all other contractual terms
fails to honour its obligations in this area. In a rapidly changing
commissioning landscape this has the potential fundamentally to
undermine the Act. We remind all concerned that the right to access
information is crucial to ensuring accountability and transparency
for the spending of taxpayers' money, and that contracts for private
or voluntary sector provision of public services should always
contain clear and enforceable obligations which enable the commissioning
authority to meet FOI requirements.
240. We believe that contracts
provide a more practical basis for applying FOI to outsourced
services than partial designation of commercial companies under
section 5 of the Act, although it may be necessary to use designation
powers if contract provisions are not put in place and enforced.
We recommend that the Information Commissioner monitors complaints
and applications for guidance in this area to him from public
authorities.
390 Section 43 Back
391
Ev 146 Back
392
Ev w33 Back
393
Ev 110 Back
394
Ev 150 Back
395
Ev w89 Back
396
Ev 106 Back
397
Q 110 Back
398
Ev w76 Back
399
Ev w60 Back
400
Ev w39 Back
401
Ev w33 Back
402
Ev w76 Back
403
Q 111 Back
404
Q 112 Back
405
Q 238 Back
406
Memo, p23 Back
407
Q 238 Back
408
Q 240 Back
409
Q 85 Back
410
Q 86 Back
411
Ibid. Back
412
Q 436 Back
413
Ibid. Back
414
Q 437 Back
415
Ev 156 Back
|