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Post-legislative scrutiny of the Freedom of Information Act 2000 - Justice Committee Contents

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 sector—I will be talking to vice-chancellors shortly—and 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   IbidBack

414   Q 437  Back

415   Ev 156  Back

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© Parliamentary copyright 2012
Prepared 26 July 2012