Public Administration Committee - Minutes of EvidenceHC 74

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Oral Evidence

Taken before the Public Administration Select Committee

on Tuesday 12 February 2013

Members present:

Mr Bernard Jenkin (Chair)

Paul Flynn

Robert Halfon

Kelvin Hopkins

Greg Mulholland

Priti Patel

Mr Steve Reed

Lindsay Roy


Examination of Witness

Witness: Lord Browne of Madingley, Government’s Lead Non-Executive Director, gave evidence.

Q259 Chair: May I welcome our witness to this session about the future of the Civil Service? Could I ask you to identify yourself for the record please?

Lord Browne of Madingley: Certainly. I am John Browne, a crossbench member of the House of Lords and the Government’s lead independent director.

Q260 Chair: You will recall that you gave the non-executive directors two out of 10 last time we saw you-a few months ago. Are you ready to revise the score yet?

Lord Browne of Madingley: Yes, I am. Four or a bit more than four would be a good score at the moment, but it is contingent upon reading the evaluations of the boards. This would be a second round of evaluations, which are not yet in. I would give it four to five on the basis of anecdote and experience, but I would like to see the actual evaluations come in before I finalise my score.

Q261 Chair: Lord Heseltine in his evidence to us in December questioned whether the non-executive directors have enough secretarial backup in order to be able to do their job effectively. Do you share that analysis?

Lord Browne of Madingley: First of all, the nonexecutive directors are doing pretty well exactly what was described in the Governance Code established when they were set up. That included having a board secretariat. The board secretariats are improving; there was very little activity in that area and I reported on that in my first report in the first year. It appears to have got better. The board secretariats have training and they are much more focused on servicing the non-executive directors with matters that come in front of the boards.

Q262 Chair: When you say a board secretariat, is that a central secretariat in the Cabinet Office?

Lord Browne of Madingley: No, each Department has its own.

Q263 Chair: Do you think there is sufficient understanding in the Cabinet Office and around Government that the non-executive directors do have a crucial role in the process of governance of the Civil Service and governance not just of mentoring Departments but of the governance process?

Lord Browne of Madingley: It is impossible to give a direct and clear answer. I would say the following: first, I do think what the non-executive directors are doing is proscribed and prescribed by the Governance Code set up in 2010. It made it pretty clear that nonexecutives were, when you boil down all the words, effectively advisory and they worked, in effect, at the grace and favour-maybe that is too strong a word-of the Secretary of State of each Department, who was the chairman of the board. Without the goodwill of the Secretary of State primarily, I think the non-executive’s role would be heavily diminished. That is very important to remember. There has been no mission creep or redefinition of the non-executive directors, other than that which is in the Governance Code. That is really quite important to note.

Q264 Chair: That is very interesting because there are clearly some parts of Government that feel that the non-executive directors-and it may be a feeling this Committee is developing as well-are part of the corporate leadership of Government. Therefore, they are intended to try to convey the collective agenda of Government through this federalised system of Government Departments. Otherwise they are just private mentors of Government Departments all doing their own thing, contributing to the fragmentation rather than the collective effort.

Lord Browne of Madingley: There are several points. First of all, I am going to come back to what is actually written on the piece of paper that describes what they do. That is the Governance Code. That is quite important to remember. The quality of the nonexecutive says that their sheer force of personality gives them presence, influence and probably more authority just by being there than would otherwise be the case for a normal adviser. You could say that they are just people who advise-private advisers-but they are more than that. They do actually sit on these boards when the boards work; they advise the Department, the Secretary of State and the Permanent Secretary; and they challenge what they see to the extent they are permitted to do so. Many people have said they would like to look at different rules and different powers for the non-executives, but until those are changed the non-executives are very much controlled by the existing document that governs their powers.

Q265 Chair: I think we are at crosspurposes, Lord Browne. I am not suggesting that they should have different powers. All I am suggesting is that they should have collective understanding of what, for example, is in the Civil Service reform plan. They should be helping it to be implemented rather than just have an agenda set by their own Departments.

Lord Browne of Madingley: The non-executives do actually work crossGovernment. We meet the non-executive directors as a whole in conference several times a year. We also meet in conference as a set of lead non-executive directors several times a year to share best practice and to understand what is going on. That is important. Secondly, the non-executive directors have been invited-and they have accepted-to sit on the various committees and subcommittees that are involved in the Civil Service reform programme, which in itself is based on the five themes I reported in my first report to you.

Q266 Chair: How many of your non-executives do you think are happy and how many do you think are not very happy?

Lord Browne of Madingley: Happiness is probably the wrong description for any director doing anything. Whether they think they are doing what they were asked to do and whether they are achieving under the rules of the Governance Code, most of them would say they are getting something done and they think it is fulfilling. The reason I say that is so far we have only lost four non-executive directors. One retired because he had far too much to do. The other one was involved in an internal Barclays bank inquiry. The third, who was on the DCMS board, became the Chairman of the Arts Council, so that would have been a rather difficult conflict to have had. The fourth, in the Department for Education, became a Minister and went to the House of Lords, so he could not stay there either. We lost four for very good reasons1.

Q267 Chair: Out of how many?

Lord Browne of Madingley: Out of 60. We are also now looking at refreshing and renewing the appointments of non-executives because their threeyear terms are about to come up. We obviously cannot replace all of them; we will extend some; we are in discussion with Secretaries of State to see how to handle upcoming vacancies.

Q268 Chair: Would it surprise you to learn that we have picked up a fair amount of frustration amongst non-executive directors, some of whom feel a little bit lost and a little bit pointless and are wondering what they are really expected to achieve?

Lord Browne of Madingley: It does not surprise me at all, but on the other hand it is very difficult to debate anecdote. That is why I want to come back and say I think we need to debate the results of the board evaluation when we have that in hand later this year. That will give us a much better view of what the broad balance of people are thinking. I am absolutely sure that any collection of people will certainly have a good chunk of people who say it is not working, a good chunk of people who say that it is working superbly, and other people in the middle who say it is working according to the circumstances of what they came in to do. I would like to see the board evaluations.

Q269 Chair: Do you think the frustration reflects the fact that the Government itself is not very clear about the direction of the Civil Service and the direction of the reorganisation of Government? Is the confusion coming from higher up?

Lord Browne of Madingley: When I spoke to you last time, I said that one of the things that the non-executive directors found very frustrating was the lack of clarity on priorities. That is still the case.

Q270 Chair: Are you able to have some input to represent that view, and how do you represent that view into the Cabinet Office and the Civil Service reform plan?

Lord Browne of Madingley: Very much so. Variously it depends on which Department it is. I see and hear that non-executives are still trying to push very hard for clarity, for reduced agendas, for getting things done and for getting the right people in the right places to get things done. On Civil Service reform, again, my colleagues are making their best efforts to keep pushing for clarity. If I may, it is clarity about a few things being done very well and, in particular, when those things are defined, the associated work programme is of sufficient detail and granularity to be able to hold people to account. We find that is still not the case.

Q271 Paul Flynn: When you gave evidence to us last summer, you spoke of the frustration of non-executive board members at the poor attendance of Ministers. Caroline Spelman told us that her Ministers had very good attendance, but Nick Harvey said there was only one Minister in addition to the Secretary of State who was allowed to attend their management meetings. Is this sensible? Shouldn’t all the junior Ministers attend the management meetings or be allowed to? The excuse given was it was more manageable with a smaller team, which is a strong argument for having a committee of one.

Lord Browne of Madingley: Every style is possible of course, but I think, again, the original design for the boards was that the Secretary of State and quite a few junior Ministers would attend the boards. They did not. The attendance of junior Ministers, as I put in my last report, was poor. I then wrote to say this really needs to change and it has been changing. I will not know whether it has changed across the board until I have seen the results of the second board survey.

Q272 Paul Flynn: The information from Nick Harvey is that the other junior Ministers apart from one were not members of that committee, so they could not possibly attend. Does this make sense? The junior Ministers have to take all the flak in the House; shouldn’t they be part of the decisionmaking process?

Lord Browne of Madingley: I would expect so, but I would need to look at the reasons why someone has made this decision. Again, originally it was to have a broadbased representation of the political representatives, i.e. the Secretary of State and the Ministers, the officials-the Permanent Secretary and other senior officials-and then the non-executives. The original thought was onethird/onethird/onethird on the board just to keep the balance of everyone together.

Q273 Paul Flynn: Could you give us an illustration of the different decisions by the management board and by the ministerial team? For example, where would the decision on something like the recent invasion of Mali have come about? Was it considered by the board or by the ministerial team?

Lord Browne of Madingley: I have absolutely no idea, I am afraid. I just do not know how that would be considered in the Foreign Office.

Q274 Paul Flynn: Can you give us a general idea what is considered by the board and what is considered by the ministerial team? Where does the line go down?

Lord Browne of Madingley: The board looks at a programme of decisions that are the implementation of strategy. It also therefore looks at the strategy to see whether it can be implemented. These are strategies that mandate the Government to do certain things. What it does not do is change the mandate of the Government, obviously. It is directed by the most important things that the Government has said it is going to do. They are all reflected in the business plans or the plans for each Department, and so that is a rolling agenda through the board.

Very importantly, the risk committee looks at the risks associated with the implementation of Government policy, and that is variously successful. Obviously in some places it has not been successful because the wrong things have been referred to these committees. The committees are very much in the hands of the Secretaries of State.

Q275 Paul Flynn: We have heard a lot of evidence of the miserable lives of junior Ministers and how senior Ministers run around trying to make some work for them to do to give them the appearance of having some purpose in their lives. It was illustrated in Chris Mullin’s book when he was a junior Minister. Just because they are not members of their boards, it will add further to their insignificance.

Lord Browne of Madingley: I have never been a Minister. I do not know what it is like being a junior Minister. What I can comment on is my own experience in corporate life: it is really important to incorporate into a meeting everyone who has part of a decision. Actually great decisionmaking starts with having great meetings-meetings where everyone associated with both making the decision and taking it away are there and heard.

Q276 Paul Flynn: When was a recent golden age of decision-making that you could draw our attention to so we can admire it?

Lord Browne of Madingley: Where? In anywhere?

Q277 Paul Flynn: In recent Governments. I have been here for 25 years; tell me what the glorious moments were when wonderful decisions were taken.

Lord Browne of Madingley: That I do not know.

Paul Flynn: They have somehow missed me.

Chair: The assassination of Julius Caesar.

Paul Flynn: That is even before my time. Taking only the last 25 years, when was this?

Lord Browne of Madingley: I have taken a reinterpretation after seeing the new version at the Donmar. The answer is I do not know. I am not a historian of government, so I cannot comment on that.

Q278 Paul Flynn: You just mentioned these glories of decisions where wonderful, pristine and perfect decisions are taken in some never-never land you have just been describing to us. We are agog to find out when it was.

Lord Browne of Madingley: It is not in government. It is in my experience of corporate life. Remember, I am not a Government servant.

Paul Flynn: Thank you.

Chair: Mr Flynn is our resident cynic. Every Committee needs one.

Lord Browne of Madingley: I would say that there are many books written on great decisionmaking in corporate life, and also some bad decisions.

Chair: You are very welcome to send us a reading list.

Q279 Lindsay Roy: Lord Browne, recently there have been several high-profile cases about competence issues in the Civil Service, and Mr Hopkins will pursue the west coast main line later on. How pervasive are these issues of competence?

Lord Browne of Madingley: What is being asked of the Civil Service is obviously different from what has been asked in the past. There are big gaps in competence and skill in certain areas. For example, the leadership of major projects is clearly a gap that needs to be filled, so one action that the non-executive directors did take was to establish this longterm-and I do stress that it is not going to be overnight-training for major projects leadership with Oxford University. All senior responsible officers are going through that, and it would be wonderful if we could, for example, say no one could run a project unless they had been through that.

A second area is commercial skills across the board. There is a big lack and they have to be of a very high quality, because any company will have people who have spent their entire life honing their skills of negotiation. If you put those people against a civil servant who only does this as a part-time job, I think you know what the answer is going to be. We have to upgrade the skills there. I pick these two as examples because I think they are really quite important.

The role of Government as a commissioning agent that contracts things means that the skills of contracting, procurement and commercial activity need to be much more honed. There is activity. I am very pleased to see in the Civil Service reform a whole strand to reskill the Civil Service. That is important. Then there is Lord Heseltine’s view that we need to get more people in from the outside world on secondment as well as on permanent employment. That would help to expand the quality of what happens.

Q280 Lindsay Roy: The Prime Minister has lauded the worldbeating talents of the Civil Service, but he has also spoken about a changing culture. You have given us two examples; are there any others you would like to give us?

Lord Browne of Madingley: Those are the two that are front of mind in my view.

Q281 Lindsay Roy: How do we gauge the effectiveness of this programme of leadership training and commercial activity?

Lord Browne of Madingley: First of all, it will take time. I do not think any of this can happen in a two or three-year timescale; it is a five to 10year timescale. It requires change in quite a lot of people. You should be able to see it not by how many people have gone through a programme, but whether the projects are done better, whether procurement is done more effectively and whether in retrospect the deals are better. Those sorts of things are the ultimate test.

Q282 Lindsay Roy: Is there a set of criteria already in place against which to gauge effectiveness?

Lord Browne of Madingley: No. As I replied to the Chairman, I think the targeting of reform still requires more work on granular targets. Maybe that is an ugly way of putting it-more detail. As I am sure everybody knows, the best way to get anything done is to keep constant as many things as possible, focus on the one thing you need to change, be incredibly clear about what it is you want to have done, put some measurement behind it, and keep measuring and going back and saying, "How are you doing?" It seems to me that the next step of Civil Service reform is to put those detailed targets in place.

Q283 Lindsay Roy: So as non-executive directors, have you been pushing for that?

Lord Browne of Madingley: We will push as much as we can and see how far we can take it.

Q284 Priti Patel: Lord Browne, I want to question you about trust, in particular, and non-executives, but in response to Mr Roy you have mentioned several things, including leadership, competence and skills, and granular targets and delivery. To what extent is the whole concept of vision essential to that as well? Targets and delivery can be part of the process of the Civil Service, but are we ambitious enough in having a solid, very clearly defined vision in terms of how the Civil Service should function and what it should be achieving? Then obviously processes would just follow automatically.

Lord Browne of Madingley: I am reluctant to use the word "vision", but I think a purpose has been outlined in the various sets of speeches and so forth about what it is that is expected of the Civil Service. The thing that I have observed is that it is not repeated enough times. The most important thing about having a purpose or a vision is for everybody to understand it. Again, in my experience you cannot repeat it enough.

Q285 Chair: Do you mean the word "strategy"?

Lord Browne of Madingley: Strategy is probably the next level down, which is actually getting it bolted down into actionable pieces. I do not like the word "vision".

Chair: Mission.

Lord Browne of Madingley: A mission or a purpose might be to have a Civil Service that is this big, doing these things at this level of competence, measured by something.

Q286 Priti Patel: Just to follow on from that, do you feel that is because there is a lack of corporate experience within the Civil Service? You will know from your own background and experience-having a mission, a vision or a defined objective, when you are accountable to shareholders and wider public, with targets, etc-it is more deliverable within that framework. There is an intrinsic understanding within the corporate world compared with the Civil Service. Do you think it is because of that lack of experience?

Lord Browne of Madingley: Partly. Of course, there was a big debate about Government being so different from any other experience in the entire world that nothing was relevant to Government administration. That cannot be right, but equally Government administration is not business. It is absolutely not business and the ultimate test, of course, is there is only one Department that has any revenue, which is the Treasury-HMRC. Everybody else has costs, and you would not normally find that in business.

There are many other things about flexibility, broader scope and what have you, but there are many things that could be learnt from activities all over the world in the corporate area. One of those is to set a very clear mission or a clear purpose and to not vary it. To get the very best performance out of anybody, there is a limit to the number of things you can change simultaneously. If you destabilise too many things, it means people cannot focus on one or two things, and most people cannot do more than one or two things at once; it is very difficult.

Q287 Lindsay Roy: Would you agree that mission, strategy and implementation plans are the easy bit? It is the corporate approach and tenacity to achieving them that are absolutely critical to success.

Lord Browne of Madingley: The purpose bit, at least, when it is done is very easy, but you have to be clear about it. If I may, my observation with so many people is that they get bored with the purpose and they want to keep changing it. You must not do that; you need to stick with the purpose even if you are bored with it because you would destabilise too many people too quickly. That is important. Then with the right care, you can make it a very actionable plan. There is plenty of learning that allows you to take a purpose and then make it into a set of actionable plans.

Q288 Lindsay Roy: But it does require that tenacity to see it through.

Lord Browne of Madingley: Absolutely.

Q289 Priti Patel: In your evidence last July, you said that non-executive directors could improve trust between Ministers and civil servants by acting as a bridge between the two. In light of some of the very public concerns that have been raised about officials blocking decisions and tension in the relationship between officials and Ministers, what role have non-executives in your view played in improving the relationships?

Lord Browne of Madingley: The answer is I cannot answer directly because I do not have evidence in front of me that says, "These are the 10 things that people have done." However, my impression is that non-executives, and in particular lead non-executives, have the trust of both the Secretary of State and the Permanent Secretary in many Departments. I listen to what they say, and that is simply based on the anecdotes that I hear. I think that is quite important. I do not know where all these stories came from, but I do think that the non-executives help in this area. They cannot be the magic bullet that makes everything perfect, but lead non-executive directors can be a place where both sides can say something and it can go nowhere else.

Q290 Chair: This trust problem between Ministers and civil servants is pretty urgent. Don’t you feel involved with it and don’t you want to make sure that your non-executives are engaged with it?

Lord Browne of Madingley: We are all engaged with it. We have no power to make it better, and so rather than frustrate ourselves by trying to do things outside our powers, we just observe it. It is very good: when teams work together, they work well; when they work against each other, they do not work well.

Q291 Kelvin Hopkins: The review of the west coast main line rail franchising fiasco was led by the Department for Transport’s lead non-executive director, Sam Laidlaw. Is this really the kind of work that you envisaged non-executive directors undertaking?

Lord Browne of Madingley: No, it was not entirely. It allows me to say that I think most non-executive directors are doing things beyond what they expected to do. They are doing things that are important for Departments other than being on the board. This means that they are giving a tremendous amount of time to the activity, far more than they originally thought they were going to do. But Sam Laidlaw is a very competent businessman. He was someone who was knowledgeable about what the Department was doing and seemed to be a very good chair of such an inquiry.

Q292 Kelvin Hopkins: It seems to me that you are going to come up with a cosier report if you have the non-executive directors investigating something that has gone on in their own Department, rather than an external person doing the investigation.

Lord Browne of Madingley: I would not make that assumption at the beginning because I think non-executives do absolutely maintain a high degree of independence. Therefore, I hope they have an independent judgment of what they do, so I would not make that assumption at the beginning. Sam Laidlaw’s report demonstrated a high degree of independence.

Q293 Kelvin Hopkins: I do not doubt his honesty and integrity, but you are going to get a different kind of report if you have somebody from outside who perhaps goes in.

Lord Browne of Madingley: I think he was not the only person doing this report.

Q294 Kelvin Hopkins: Was he serviced by some of the civil servants from the Department?

Lord Browne of Madingley: You would have to ask him for details, I am afraid.

Q295 Kelvin Hopkins: They are not going to come up with critical conclusions about their bosses, are they?

Lord Browne of Madingley: No, but I think it is like everything. There is a balance between knowledge and conflict. You have to get that balance just right. You can always have people who know nothing about the subject come in-intelligent people who do a very good job, I am sure-but equally someone who knows something about the subject, the area or the players might get to the answer a bit faster and might produce a better answer. Therefore, it is a judgment of the degree of conflict that is involved, if any, in the tasks that are given. We find this very much with the appointment of nonexecutives. There is always the chance of a small conflict. The question is how the conflict is managed, and we try to keep them very minor. We obviously do not put a big agricultural producer on the board of Defra or put recipients of grants from DCMS on the board of DCMS. It is a matter of getting the right balance.

Q296 Kelvin Hopkins: Not to put too fine a point on it, but there was a strong suggestion at the time that a decision was quietly made at a very early stage to give the franchise to FirstGroup. That was basically to give them some cash up front because they were not financially very strong and they did not want to see FirstGroup franchises failing elsewhere because of underfunding. They would have got away with it had Virgin not kicked up such a fuss and made such a stink about it.

Lord Browne of Madingley: All I know-and I cannot even remember it now-is what I have read in the report. I am afraid that is all I know about this.

Q297 Kelvin Hopkins: Should the departmental board have picked up on the problems at the Department for Transport at an earlier stage?

Lord Browne of Madingley: Again, I think it is what the report says. I summarised some of the report by this: there are two important things to get something done. One is to have the right process and procedures-the right process of getting things done-but process and procedures do not work unless you have the right people in place as well. You need both the right people with the knowledge, understanding and the skill in place, as well as the right process and procedures. One cannot overwhelm the other in these areas.

Q298 Kelvin Hopkins: I draw a parallel between a governing body of an educational institution and the management. Having spent many years on governing bodies like that, as a chair indeed, going in and trying to sort out a problem when something has gone seriously wrong was not a job for someone like me, however able I might be. It was a job for perhaps an auditor, a professional accountant or someone who really knows how things work in management terms, not just somebody who is involved in governance.

Lord Browne of Madingley: If I recall correctly, Sam Laidlaw’s inquiry team included an independent legal firm, an accountant and an internal auditor, if I am not mistaken. I would need to check that to look exactly at the composition of the team. I think it would be no different, though, in a corporate life, for example, to appoint one non-executive director to do an inquiry or the chairman of the audit committee of the board, and then equip her or him with the right professional skills and other members to get the job done.

Q299 Kelvin Hopkins: Those are basically my questions, but I still believe that the conclusions they came up with-that they could not deal with the strength of the negotiators on the franchisee side and that the civil servants had left-were all very comfortable conclusions that did not point the finger at what had gone wrong right at the beginning. Somebody had made a decision, if I may use the term, to railroad something through, and they did not actually succeed in the end.

Lord Browne of Madingley: As to the report, you should really ask Sam Laidlaw for evidence.

Q300 Mr Reed: Lord Browne, in your evidence to the Committee last July you expressed some considerable surprise at the inadequacy of management information in Government Departments. Since then have you seen any evidence of improvement?

Lord Browne of Madingley: Yes, but not across the board. There are definitely improved pockets of management information. We have seen some very interesting work done by the Ministry of Justice, for example. The Cabinet Office board gets much better management information than it used to. I see pockets of it, but there still needs to be more stress placed on this. The important thing is that management information is meant to produce information that shows that decisions are made based on that information.

Q301 Mr Reed: What do you think the barriers are that are stopping other Departments from performing better, in the way you have just described for the MoJ and the Cabinet Office?

Lord Browne of Madingley: The most important thing about management information is it has to be wanted and it needs to be wanted at the very top. As the old phrase goes, what is measured is treasured and what is treasured is measured, and without treasuring it, nothing is going to happen. It needs to be demanded from the top consistently.

Q302 Mr Reed: What role can non-executives play in making that happen?

Lord Browne of Madingley: Just that-pushing the need for management information and to actually look at how a decision tracks by its impact as it goes through the system. That is what management information does.

Q303 Mr Reed: The better use of management information is a technique that the Civil Service could and should import from the private sector and the corporate world. Are there any other business techniques that could transfer into the Civil Service that would be similarly beneficial?

Lord Browne of Madingley: The question is too broad to be answered specifically. I will give you some examples: management information, really understanding the management of talent and the use of incentives are very important. I do not mean necessarily financial incentives, but when you set up any project or any activity, part and parcel of setting it up, of course, is to work out how to align the people inside the project with the outcome you want. That is about incentives and it does not happen automatically. It is part and parcel of the design. That is quite important.

Q304 Mr Reed: Could you just expand on the incentives a little more?

Lord Browne of Madingley: In my past and present experience of corporate life, they are financial as well as developmental. They go from the very simple things of having points in time where you look at a team and say, "Well done," to the longer term, which is, "These leaders have done very well; therefore, they can be promoted"-that is a very big incentive-to, "We set out a target to produce £100. I agreed with the team that they would get 5% of it, so I have £5 to distribute and I will do that." That is part of the design; it is not part of administration. It is really important to get that, and that is the effective use of incentives.

Q305 Chair: Do you think there is sufficient understanding in Government that policy and implementation are closely linked in that way?

Lord Browne of Madingley: More so, yes. It is a statement of the obvious: policy that cannot be implemented is not policy. Statements of policy are very often contingent upon their ability to be implemented.

Q306 Chair: Why do you think this whole management information thing is taking so infernally long?

Lord Browne of Madingley: It is a culture change. It is a change that is very deepseated and there is no doubt it is coming along. But you need to measure things. They are not just things that happen. You should want to be measured against what you have committed to do. It is part of culture.

Q307 Priti Patel: Can I just come in on that point? On the purpose of non-executives, you have mentioned that you sense they are powerless. They clearly have a role to play, and you have highlighted where, but they are powerless in some aspects as well, with regard to the west coast main line example. Do you think there is an opportunity to strengthen their remit so that they can actually bring in change to a greater extent and actually bring that in alongside many of the cultural, management changes that you have just highlighted across Government Departments?

Lord Browne of Madingley: There is a possibility, but one piece of the design cannot just be altered unilaterally. For example, the selection and appointment of the non-executives was done in a way that was appropriate for advisers. The selection and appointment of people who have mandatory power is a very different matter. It has to be much more public, for example. Then the implications for everything from the accountability of the Permanent Secretary to the accountability of the Secretary of State have to be thought through very carefully. Having a check and balance, again, is no bad thing in my mind, but I do not know quite how to do it.

Q308 Chair: Lord Browne, what do you think about the conversation going on about the appointment of Permanent Secretaries?

Lord Browne of Madingley: The non-executives, of course, had a role written in that they would be part of the selection process. That has worked well. It did not work in one case, and as a result of it I agreed a further strengthened protocol with the Head of the Civil Service, with a letter we wrote and sent to everybody, about the role of a non-executive as one of the people who sat on the selection panel for Permanent Secretaries. I believe that bit of it is apparently going quite well.

Q309 Chair: Lord Heseltine said that NEDs should make recommendations. Does their role extend to making recommendations?

Lord Browne of Madingley: As part of the interview panel, absolutely. They have that power already.

Q310 Chair: So at the moment NEDs are not frustrated about their lack of involvement in Permanent Secretary appointments.

Lord Browne of Madingley: Not to my knowledge. They were, because we had this issue with the Ministry of Justice that resulted in the protocol letter.

Q311 Chair: Presumably you see this role as intrinsic to there being a bridge between Ministers and officials.

Lord Browne of Madingley: Yes. They are not the appointment authority; they are one voice in the appointment.

Q312 Chair: What do you think about the proposal being put forward that Ministers in those Departments should actually have the decisive role in the appointment of Permanent Secretaries? Richard Wilson described it as a return to patronage.

Lord Browne of Madingley: These are very emotional words. What I have observed happening is that choices are offered to Ministers, and they take one or other of the choices that they are given.

Q313 Chair: The criticism is that that is not what they are offered at the moment. We had one former Cabinet Minister saying that she was allowed to be interviewed by each of the candidates, but she was not allowed to interview them and then the choice was made by this independent panel, and she had no control over the outcome. Do you recognise that?

Lord Browne of Madingley: I have read the evidence. I just have not seen it happen like that, and I have not actually asked my colleagues exactly what is going on here. Actually we are meeting this week-a good moment to reflect on what is happening.

Q314 Chair: In business it would be extraordinary for the chief executive of a company not to have control over the appointment of the managing director.

Lord Browne of Madingley: It would.

Q315 Chair: Yet that is the case in Government.

Lord Browne of Madingley: They would not have unilateral control. The senior appointments have to be balanced, and any good board would have a nominations and governance committee that would look very carefully at what the chief executive is doing to the direct reports of the chief executive. Then the chief executive would be looking very carefully and would want to make sure air and light went into the appointment process, and it was not just "people like me", as it were, being appointed.

Q316 Chair: If the Government does not in the end implement the proposal, do you think that Secretaries of State should appoint their own Permanent Secretaries, and that would not necessarily be completely disastrous? You think the system can be made to work.

Lord Browne of Madingley: You have asked me a double negative question, so I have to be very careful in answering it, Chairman. You can choose to do it any way at all, so long as you do avoid this question of patronage. I agree with that. Actually there has to be a good, rational basis for decisionmaking. It is right that equal candidates should be offered for selection by an interview panel. It would be really very impoverished if there were only one person who could do the job. If there are two people who could do the job, they are probably two different personalities and the Secretary of State should pick between the two of them, I would think.

Q317 Chair: In the private sector, it is reckoned to take three years before a managing director really will get a grip of a big company. The churn at the top of Government Departments is pretty destructive, isn’t it?

Lord Browne of Madingley: I have already said something about this. I do think it needs to slow down. It is not just the Permanent Secretaries; it is the directors-general, the next people down. There is a lot of substance knowledge that needs to be obtained.

Q318 Chair: Do you think socalled competencybased interviews value direct experience in a Government Department enough?

Lord Browne of Madingley: I am not quite sure I understand what a competencybased interview is.

Q319 Chair: I am so glad you do not. We use the term because we are told that modern recruitment is based around competencybased interviews, but in fact what we want is people with deep and detailed knowledge of the Government Department that they are going to be running. Very often we seem to finish up with Permanent Secretaries who do not have that deep and detailed knowledge of their Department.

Lord Browne of Madingley: Putting it in basic terms, it seems to me that interviewers need to conclude whether the person is competent to do the job. If that is what competencybased interviewing means, then I agree with that.

Q320 Chair: Do you think experience in that Department is valued enough as a criterion for the appropriate of the Permanent Secretary.

Lord Browne of Madingley: It is an important criterion, but you have to examine whether you can get relevant experience in another field in another way. You would expect someone in a very strong profession, for example, to have professional qualifications and professional experience. You need someone running finances to be qualified to do that; you need someone running the HR who is qualified to do that; you need someone running procurement who is qualified to do that. There are some jobs where you could say there is experience in other areas that might contribute, but there are some jobs that are so functionally based-if I can use a buzzword, and they are actually a function-that you need very direct experience and training in that function. IT is another example.

Q321 Chair: On your favourite measure, which is nought to 10, how well would you score the Government on the ability to appoint Permanent Secretaries?

Lord Browne of Madingley: I am going to pass. I do not know is the answer.

Chair: You disappoint me.

Lord Browne of Madingley: It is a demonstration of management information: only relevant-

Chair: I take it it is not a 10 then. Anyway, thank you very much indeed, Lord Browne. We are very interested in your role in the Cabinet Office as lead nonexecutive director and helping to lead the change programme in Government around the Civil Service reform plan. I have no doubt we will have you back again soon. Thank you very much indeed.

Lord Browne of Madingley: Thank you for having me.

Examination of Witness

Witness: Lord O’Donnell GCB, former Cabinet Secretary.

Q322 Chair: I very much welcome our second witness this morning on our inquiry into the future of the Civil Service. Could you just identify yourself for the record, please?

Lord O’Donnell: Sure. I am Lord O’Donnell, former Cabinet Secretary and Head of the Civil Service. I am currently a member of the House of Lords.

Q323 Chair: We welcome you back about a year after your valedictory session. I very much wonder how you are feeling as you read the newspapers about the evidence of disquiet and unhappiness that seems to be of course magnified by the journalists but nevertheless evident at the top of the Civil Service and between Ministers and officials. How do you feel about that?

Lord O’Donnell: First of all, I am very delighted to be back. Secondly, I am more delighted that you used the word "evidence" twice in that question, because that has been sorely missing from this debate. You refer to newspaper stories. I like to use evidence; I think evidencebased policy is absolutely crucial. If we are looking at the state of the Civil Service, I would stress that for me the really important thing about the public sector is public sector outcomes. Is Government doing a good job? The Civil Service is a part of that, but I think there has been far too much attention paid to it. There are lots and lots of other things that could make hugely more difference if we changed them.

In terms of the Civil Service, if you want to look at that, I am very disappointed that we have so many negative stories between Ministers and civil servants. I am reassured by the evidence that the Civil Service stills feel engaged. Their engagement scores from the big evidence base that we have, which is the People Survey, have gone up. The evidence strongly supports that senior civil servants feel they are doing a worthwhile job. In terms of the numbers leaving, around 5% say they would like to leave as soon as possible. That is about where it has been for the last three years, so there is not much change there.

The area that I am most disappointed about, though, is this mood and tone. It was interesting listening to all the things you were saying about the private sector there. I think nonexecutives have been a fantastic improvement, but they have been there a long time-long before the change of Government. I am learning things about the private sector quite a lot and you do learn the strengths and weaknesses of the private sector. In general it is a lot easier in the private sector than in public sector. That is my experience, having been outside for a while. There are things both sides could learn from the other.

Q324 Chair: You mentioned the mood and tone. What is giving rise in your view to this unhappy mood and tone?

Lord O’Donnell: I think it is hardly surprising. If you are a civil servant, what has happened to you in the last few years? Your promotion prospects have deteriorated quite significantly; you have looked around you, and this is the smallest Civil Service for 70 years; pay has been frozen for a large proportion of civil servants; and your pension has been reduced in real value considerably. Civil servants can put up with all of those things. There is also the increase in desire: people want better for less. There is a lot going on. No one can accuse this Government of not having radical changes in education, welfare, health, you name it-there are lots of big things going on.

One of the disappointing things is, because we are not very good at measuring outcomes, we cannot show what I believe to be the case: that productivity has risen dramatically. We have this big reduction in numbers, and outputs still seem to be going along quite happily. There is a big change there, and what they need in these circumstances is what the private sector would now be doing. That is trying to encourage and inspire its workforce and commending them for the things they are doing well. That is what the private sector does well. They of course also have the ability to incentivise.

We are in a world where we have become less clear about outcomes. In the old days of targets, whatever you thought about them, we had a clear set of targets. That is not the case anymore. Targets are verboten. Secondly, incentives: even the small bonuses that were paid in the past are basically taboo as well. You have a real problem. If you want to incentivise people, look at the great successes; look at the great success since I have left of the Olympics. The Civil Service were managing across a change of administration to deliver a project using the best skills of the private sector with the public sector. There were big incentive structures; we got people in from outside; we paid them a lot; and we kept them in post for a long time. All of these things we did because we could for that project. We do not have those freedoms for other projects, alas.

Q325 Chair: You have explained why the Civil Service might be frustrated and unhappy; they are unclear about their objectives and unincentivised. A lot of this mood and tone, though, is being very directly generated by Ministers. What do you feel this is about?

Lord O’Donnell: If I were a Minister I would be frustrated. I would be frustrated that the world economy has not done what I hoped it would do and be frustrated, therefore, that the UK economy, with its main trading partner growing very slowly, is not performing and the growth forecasts that have been put forward by the OBR have not been hit for some time. That has meant the deficit reduction programme is taking longer and, therefore, we are going to have a period where all of these outcomes of the financial crisis are going to take longer. I am not surprised they are frustrated.

Q326 Chair: So basically you put your hand on Francis Maude’s shoulder and say, "There, there. I know it’s very tough but there’s basically nothing wrong."

Lord O’Donnell: No, there are plenty of things that we can improve. I have already mentioned quite a number of areas where things could be improved. We have been modernising the Civil Service for a long time now. There is this great feeling that things have changed-non-executives were an important part of the appointment of Permanent Secretaries long before the change of Government. Let’s just be clear about this. They are really valuable. What happened with the change of Government is we got in a new batch, who have been incredibly useful and incredibly valuable. I completely agree with what Lord Browne was saying: it is the ability to focus, and I think you referred to the strategy. We need to get clear outcomes, then get on with it and not muck around and change things along the way, and be clear that the outcomes are deliverable. One of your sets of questions was related to whether they were deliverable at a time when you are cutting staff by 20%, where you might want to have filled in the gaps by bringing in consultants, and you are not allowed to do that. We need to be careful about whether we have laid out that vision well and are getting the resources to do it.

Q327 Chair: What do you feel about this very direct blaming that Ministers are putting at the door of the Civil Service?

Lord O’Donnell: It is not something you would see in the private sector, is it? I remember the Ratner case was a pretty classic example.

Q328 Chair: Why do you think Ministers have felt compelled to do this? Is it just the recession? Is it just the economic climate? I think there is a bit more to it than that, isn’t there?

Lord O’Donnell: There are times when projects are not going as well as they would like and I think they are looking around for who to blame. You could at times blame your colleagues, but that gets into a very public row.

Q329 Chair: I agree with you that the blame game is very destructive, but there is something giving rise to this that is much more fundamental than I think you are engaging with at the moment. What do you think it is?

Lord O’Donnell: I am not sure, having spoken to a number of Ministers. I think you will find there are a lot of Ministers who are happy with the service they are getting; there are some others who are not, for reasons that are not really related to the Civil Service. They are related to the nature of what they are trying to do with the resources they have. They are very frustrated about that and I understand that.

Q330 Chair: We are told the whole NorthcoteTrevelyan model is in the lastchance saloon.

Lord O’Donnell: Having just two years ago finally, after 150 years, put NorthcoteTrevelyan on a legislative basis, I think that is a very odd description.

Chair: They are not my words.

Lord O’Donnell: Who said that?

Chair: Francis Maude.

Lord O’Donnell: I think that that is severely wrong. Let’s go back to the evidence.

Chair: Why do you think he is saying this? What is behind this?

Lord O’Donnell: Ask him.

Q331 Chair: Was there none of this frustration about when you were Cabinet Secretary?

Lord O’Donnell: There are always frustrations that we cannot suddenly wave a magic wand and change the welfare system or suddenly get rid of a big deficit. These things take time. Within the public sector, we are operating to a number of constraints as well. We have legislation that may have been right at the time but is actually constraining for the future. The interesting thing for me is now I sit in the House of Lords. Listening every day in the House of Lords, there is not a day that goes by without someone asking for more regulation of some kind or another. We are getting it now with food and financial regulation. You name it: every time something happens, Parliament comes up with, "We would like more Government, more regulation. Thank you very much." With constrained resources in the Civil Service-I am not saying it is wrong; do not get me wrong-this is a difficult when you are trying to cut your admin budgets in every single Department by onethird.

Q332 Priti Patel: You have given the analogy of the private sector, obviously alongside your experience of the Civil Service. Most private sector companies and corporations have their leaders-their chairmen and chief executives-and a very defined leadership mission or whatever you want to call it. In light of the current frustrations on both the side of Ministers and civil servants, do you have the sense that the Civil Service itself has strong enough leadership to reconcile some of these spats, divisions and frustrations that are being echoed in the press on a regular basis?

Lord O’Donnell: I have every confidence in the Civil Service side, but the Chairman mentioned this point about the length of time chief executives have to get to grips with things-I think you said three years. One of the biggest issues is, curiously enough, the decisionmakers in Government are Ministers. If you want clarity and real followthrough, keep the Ministers in place for longer. As it happens, an unintended byproduct of coalition is that we are starting to get that. That is a thoroughly helpful and good thing. We need clarity of mission.

When you get a change of Secretary of State-this has happened to me a number of times in various Departments I can think back to-within the same party, the whole emphasis of what they are trying to do has shifted dramatically. That is hard to live with in terms of the organisation you are doing. In a sense you are trying to bypass the political/ministerial end and go to the Civil Service end. You cannot. You should start from an analysis of what Government is trying to achieve. If you can get clarity about outcomes and consistency of purpose there, those are the perfect conditions for the Civil Service to get on with its job of implementing the Government’s programme.

Q333 Priti Patel: If we were to break that down per Government Department, do you feel that there is enough strength of leadership within the Permanent Secretaries to cascade that down to the civil servants within each Government Department?

Lord O’Donnell: Yes, I think so. If you look at what they have been doing in a time when you have frozen pay, reduced the value of their pensions and you are cutting their jobs, you would have thought it is a pretty tough leadership or management task to stop the engagement scores-when you ask 300,000 civil servants-falling through the floor. In fact they have gone up. That says to me they are doing something right.

Q334 Mr Reed: One of the things that Lord Browne said to us is you need extreme clarity of purpose in an organisation, and that needs to be consistent through a period of time, even once you may have got bored of repeating it. From what you are saying to us, you do not believe the Civil Service is getting that from Ministers.

Lord O’Donnell: It is hard, in that what you would like is a very clear strategic approach that laid out the outcomes Ministers want to achieve. Then you can talk about various ways of getting to them. We have moved away from that outcomebased approach, so that has created some issues. The discussions I have had with some people within Government were all: "I have it wrong and it should not be about outcomes; it should be about setting up some frameworks so other people can deliver outcomes." Those outcomes might be different things, but it is not Government’s job to specify what the outcomes are. I think that is a much harder world in which to show leadership.

Q335 Mr Reed: Do you believe that Ministers are properly supported or perhaps trained to do the job that is expected of them when they first come in?

Lord O’Donnell: No, of course not. Ministers come into the job not having gone through any training programme. This is absolutely clear, and the Institute for Government is doing some work. I would love it to do more in terms of developing MPs into potential Ministers, so when they come in they understand what it is. The lot of a junior Minister is a pretty dreadful lot. They are often excluded from senior decision-making. There is the way we do reshuffles, whereby we start with the Cabinet and then we go down, as opposed to saying, "The issue is Defence. Let’s pick a team that’s right to run the Department of Defence," and picking the whole ministerial team. I have tried this. I have not succeeded in persuading Prime Ministers of that view, but I think that is important.

Then junior Ministers quite often get frustrated about the support they get. I discussed this on a radio programme quite recently with some. Quite often that is a reflection of the power struggle within the Department. I would really like junior Ministers much more bound into the team, given much clearer objectives and appraisals. Couldn’t we have some appraisals? Couldn’t we have some outcomes for them? Couldn’t we then assess them? Couldn’t the Secretary of State write something on how well their junior Ministers are doing, which would feed in? These are quite radical ideas that do not actually happen at the moment.

Q336 Mr Reed: Going back to the Chairman’s question earlier on in the session about why Ministers may feel so frustrated, do you think their frustration is a manifestation of a lack of that support and training?

Lord O’Donnell: I think that is part of it, but I also think it is part of this desire that things happen very quickly. Actually, given the fact that a lot of our IT systems are legacy systems and there has been underinvestment in a lot of the capital and maintenance side, trying to make changes is a very difficult task.

Q337 Chair: If I could chip in at this particular moment, I have had this conversation with Ministers and with Francis Maude in particular; he would not mind me reporting this conversation. I think the Government came in believing that, if Ministers were strong and clear in their direction, the Civil Service would perform and senior civil servants would deliver. They say it is simply not happening, and the idea of getting another lecture from a former Cabinet Secretary about just being clear in their objectives is going to drive them mad. They say it is not working. What do you think the problem is? Have you discussed it with them?

Lord O’Donnell: It is not my job to discuss it.

Q338 Chair: No, I appreciate it is not your job, but you must meet them in the bars or on the chat programmes.

Lord O’Donnell: Can you get them to give you specific examples of what it is that is going wrong? To use the words of Lord Browne, let’s get into the granularity of this and let’s discuss what it is they are trying to achieve. Let’s look at the outcomes. P.S. Why aren’t you prepared to put the money in to do the evaluation?

Q339 Chair: I see. We need higher public spending.

Lord O’Donnell: No, you can reallocate it or do less and actually try to think, in the way the private sector would, about what your three priorities are. Let’s really concentrate on changing in those areas, as opposed to, "I’m Secretary of State. It’s my legacy. I’m going to change everything." Let’s concentrate on the things that will make the biggest difference to the public.

Q340 Chair: It is granular. It is about asking for things to be done, apparent agreement being reached and then finding that people who leave the meeting go and say something else, and it is not done. Why do you think that is happening?

Lord O’Donnell: It might happen because the person they are reporting to-their Secretary of State-actually does not agree with it.

Chair: Right. It is the Ministers’ fault.

Q341 Paul Flynn: I was on the previous Committee here and I have heard previous Ministers-David Blunkett and Ken Clarke-talk about the last Government and the Government before that and make the same point about rubber levers. They pull on the rubber lever and nothing happens. I do not think this is a bad thing. Seeing as it is the present Government in power, we view it a different way. It is probably an advantage. We have a Government with all kinds of eccentric and extreme ideas; you need the Civil Service to act as a moderator to give stability to Government.

Chair: Is that the question?

Paul Flynn: It is. Is this not a vital function of the Civil Service: to guard us from the-

Lord O’Donnell: The vital function of the Civil Service is to implement the programme of the democratically elected Government, but it is also our job along the way to challenge that.

Q342 Chair: Challenge? This is obstruction. Ministers do not mind civil servants honestly saying, "You shouldn’t do this because…" What they cannot stand is apparent agreement and a decision made, and then it not happening. That is not challenge, is it?

Lord O’Donnell: No, but if that agreement is made and it is true that it is genuinely there across Government-as opposed to one Minister thinking, "I’ve agreed this," and some other Ministers saying, "I do not care what he thinks he’s agreed. Actually this is the way we are going to do it"-then you have a problem that should be resolved at Cabinet.

Q343 Chair: You must have had some experience of that happening.

Lord O’Donnell: Absolutely.

Chair: So why does it happen and what is the answer to it?

Lord O’Donnell: Civil servants are in this situation where, curiously enough, sometimes when Ministers disagree, they choose not to say it to each other directly.

Q344 Chair: Is it a collective problem?

Lord O’Donnell: Quite often people will agree to something in principle, and they will reallocate some power from Departments to the centre to get on with things and they will give the centre certain control over various things. When they hit the rubber, a Department quite often feels that the centre is slowing them down in delivering what they want and is asking them lots of questions when they just want to get on and deliver something. That is when you get into problems. The civil servants are trying their best to reconcile those differing positions.

Q345 Lindsay Roy: It feels like one of the key questions from a civil servant to the Minister would be, "Is that realistic within the timescale you want it delivered?" in terms of outcome.

Lord O’Donnell: Yes.

Lindsay Roy: That is where there is often a perception of blocking. It is not blocking; it is just a dialogue as to whether it needs two years or three years to achieve the outcome.

Lord O’Donnell: We have seen that in various cases, and there was one in education recently, where a Minister requested something and was told, "That cannot be implemented in that timescale," and then it is up to the Minister to decide whether they want to press on regardless or do it. You will find that with some Ministers, when you go to them and say, "We cannot do that within that timescale with these resources. We need either a longer timescale, more resources, or we need to move these constraints on the way we do it"-that is often part of it, but they are very political issues-you get to a situation where you have to find a way through these things. In the end, if Ministers decide they are going to do it, they do it.

Q346 Priti Patel: Obviously things are not working; there are tensions and there are frustrations being echoed. Do you attribute some of this to a breakdown of trust or a breakdown in the way of working?

Lord O’Donnell: I think the media have decided to amplify this rather more than it is.

Chair: But it is there.

Lord O’Donnell: It is there, but it does not make my top 10 of things that would really make a difference in terms of effectiveness of Government. Most of these things are pretty much second order. Trust is important; we do need trust between the two. When you get things that everybody is reading about in the media and everyone is talking about them as we are today, that in itself is going to be an issue that raises the question of trust. I think trust should be earned on both sides by a respect on both sides and real clarity about what each is trying to do.

Q347 Chair: What does the Civil Service need to do in order to facilitate this more effectively, given that you are inevitably going to have inexperienced Ministers coming into post? I hear a certain amount of resistance from you at the moment-that the Civil Service does not bear six of the other half dozen of the blame here. If a relationship is breaking down, it is never one person’s fault.

Lord O’Donnell: That is true. What we observe is we are in a world where we are asking Government to get involved in more and more things. We want them to solve problems of obesity; we want them to solve problems of climate change; we want them to do all sorts of things. You are putting more and more demands on Government at a time when you would like Government to be spending less. That in itself is a challenge. The longterm demographics are going to be a challenge for all of us, and the social care thing is a very good step forward on that.

Q348 Chair: What is it that the Civil Service needs to rethink in order to try to help Ministers get over this problem? Actually what the Civil Service is doing at the moment, and you are doing it now, is pushing back this problem to Ministers. You are saying, "This isn’t our fault. Ministers have to get themselves sorted out". The Civil Service runs 95% of this country; Ministers float over the top and come and go. The responsibility is with this great constitutional instrument called the Civil Service. What does the Civil Service have to do to improve this?

Lord O’Donnell: The key decisions are 100% made by Ministers.

Chair: Of course, but what can the Civil Service do?

Lord O’Donnell: You cannot just say, "Of course," and then just leave it to one side.

Chair: What can the Civil Service do to improve this situation?

Lord O’Donnell: I was very clear when I took office as Cabinet Secretary that I thought the way the Civil Service needed to change was a) to stick with the traditional values of honesty, objectivity, integrity and impartiality, but b) to add to them. This is the bit that I would still emphasise today. We need more pace, more professionalism, and we need pride and passion in our public sector ethos. That to me is the bit that we really need to get on. I still think pace; I would like us to be more innovative and I would like us to be more risktaking. Parliament could certainly help in that. I would love to look forward to all those occasions when the PAC starts looking at the successes, and I know you have done some stuff on the Olympics. That is good; I think that is important.

We need to start looking at the things we do well as well as the things we do badly. I agree on the projects. One of the areas where we needed to improve our professionalism was on finance and HR. We got in a lot more finance and HR professionals. Were we too closed?

Q349 Chair: What I am hearing, Lord O’Donnell, is that you do not question any of your previous analysis and that there is nothing you need to rethink about how this relationship with Ministers and civil servants is working.

Lord O’Donnell: I would not say that.

Q350 Chair: What is it we need to change?

Paul Flynn: Francis Maude, I think. You must remember that the Chairman is one of the small and dwindling circle of admirers of Francis Maude.

Lord O’Donnell: Francis Maude has come in and is trying to do a very difficult job. He has been faced with trying to improve value for money; he has done some excellent work on procurement and all the rest of it. I think he is trying to modernise the Civil Service. Personally, on some things I disagree with him, but on a lot of things we are in the same place-on more professionalism and more pace. I tried very much to open up the SCS to outsiders; I think a quarter have come in from outside. If you look at the appointment processes for Permanent Secretaries, DGs and directors, those three groups, over the last five years we tried to open those up to outsiders coming in. When we have opened them up, about half of the outsiders have got the positions.

Chair: Very briefly, Mr Reed, and then we must get to Mr Hopkins.

Q351 Mr Reed: It will be brief. From local government, with which I am more familiar, I have seen examples of councils that have delivered significant change and councils that have tried to and failed. What seems to be the difference is that, when an organisation tries to impose change or a new direction from the top without buying in the hearts and minds of the whole organisation and the people who work for it, it does not work. I am wondering from this conversation whether some Ministers are coming in, saying they want change to happen and then six months later are surprised it has not. Are they doing enough work with the Permanent Secretaries to buy in the understanding of the organisation so that it knows why it is supposed to be doing what it is being told to do?

Lord O’Donnell: There is a very clear leadership mantra I started within the Civil Service. If you want to take people with you, you just need to do something very simple. That is spell out the future-the vision thing that John Browne was nervous about-that we are trying to achieve. That has to be in terms of something that really gets people, like public sector ethos-better service for the public. Once you have laid out that that is what you are trying to get to, then-your point exactly-engage the staff on how you are going to achieve that. Then, to get back to the point the Chairman was on about, deliver it. It is: future, engage, deliver.

Q352 Mr Reed: Does that happen with some of these change programmes?

Lord O’Donnell: That is the emphasis we are pushing through for the whole of the Civil Service. That leadership mantra is being taught through the whole of the SCS; we have taught it at various Civil Service Live occasions. That is what we are trying to do. Ministers see that very much as what the Civil Service do, and maybe they should do more of it.

Q353 Kelvin Hopkins: You have talked about power struggle, and I am interested to know where power really lies. There are a number of competing components in Government including, significantly, special advisers, and special advisers who are close to the Prime Minister in particular. This question does not necessarily reflect my view, but it is a question I have to raise: former Ministers and commentators have criticised the staffing of the No. 10 policy unit by civil servants and not by special advisers. Do you accept the criticism that this may have placed No. 10 in a weaker political position?

Lord O’Donnell: First of all, it is for the Prime Minister to decide whom he wants in his policy unit. He could choose to have a mix. When I worked as press secretary for John Major, I remember him starting off thinking about what he wanted in his policy unit, and he took a mix of special advisers and civil servants. I thought that worked incredibly well as a policy unit. I do not see any reason why you cannot have a mix. Coalition makes that more complicated, but my view has always been that No. 10 is unusual in that globally Prime Ministers have ended up being more powerful. That is a global phenomenon because of the nature of globalisation. Therefore, they do need a lot of support, and I think they need strong Civil Service and political support.

Q354 Kelvin Hopkins: We have seen this week a report of a payout to a civil servant over claims of bullying by special advisers in the Department for Education. Those are special advisers who apparently undertake random acts of verbal aggression-in other words lots of swearing, shouting and foulmouthed language-against civil servants. Surely there is a very unhappy relationship going on now. I have a view about this, but I would like to hear your view.

Lord O’Donnell: I think they are probably mimicking some television programmes that they have seen and have not gone on Leadership 101 or Management 101. That is again a problem.

Chair: May I interrupt and say that the television programme was mimicking what was going on in Government?

Lord O’Donnell: I think in this case causation goes both ways, Mr Chairman.

Q355 Kelvin Hopkins: Armando Iannucci, who writes this type of stuff, is astonished that when he writes something he has imagined, it turns out to be true.

Lord O’Donnell: I think you are right, and I have always said that I am absolutely not against special advisers. The issue should be about quality, not quantity. Good special advisers are really good for the Civil Service. Good special advisers help Ministers. By good special advisers I mean special advisers that know the subject and also do the politics. Unfortunately, we have a large number of special advisers who do the media. That is what they do. They burnish the credentials of their Secretary of State. The sooner we can get away from that to special advisers realising they work for the Government, the better.

Chair: Are you thinking back to our report?

Lord O’Donnell: Yes. There were lots of things in that I would strongly agree with.

Q356 Kelvin Hopkins: I travel by train, and from time to time I bump into quite senior civil servants; once I bumped into a Permanent Secretary-years ago. An anonymous civil servant recently spoke to me on the train; I do not know where he worked, where he lives or whatever. He said that the reality now is that special advisers are bullying civil servants, staffing is being cut so they are all being overloaded, and they are under constant stress and being demoralised. He also said that, when it comes to evidencebased policy, what happens is somebody dreams up policy and then they try to fit evidence to make the policy look realistic. Are you not in a situation where Government is trying to do daft things, but the civil servants cannot actually take pot shots at Government, because that is not their job? Their job is to carry out what Governments wish to do.

Lord O’Donnell: This policybased evidence is a very bad idea. What we can do is just champion, as you will find every civil servant doing, evidencebased policy. I am trying in my own little way to get out there as a oneman band for randomised control trials, to get a much better quality of evidence and much better data. When Lord Browne refers to management information, he is dealing with something where we think, "Yes, please," but your management information for a Government Department will be lots of input information.

Q357 Chair: Surely one of the jobs of the Senior Civil Service is to ensure that there is management information available, whether Ministers want to look at it or not.

Lord O’Donnell: No, it is there. It is there but it is quite limited.

Q358 Chair: I do not think Lord Browne or Lord Heseltine think it is there.

Lord O’Donnell: Lord Heseltine wanted a certain form in terms of MINIS. I think there is plenty of information there. When I was there in the Cabinet Office with our non-executives, including Lord Browne, there was in a sense a bit too much information and it was not presented very well. One of the issues we still have-and it is the bane of the public sector-is trying to get really good output information.

Q359 Kelvin Hopkins: I have said this before and I will say it again. My view is that the last Government and this Government is trying to force through a revolution towards a more privatised and a more liberalised world, with less Government and more things done by the private sector. In a sense, civil servants are being asked to dissolve the very thing they work in and they are understandably unhappy about this. Many of them think it just simply does not work. In revolutionary situations, politicians need commissars to make sure things happen at every level. The special advisers are like commissars driving through things even if they are daft. Isn’t that the situation?

Lord O’Donnell: I would not say that. If special advisers are really getting involved in the policy process, from a political point of view, I would probably welcome that. The problem is quite often they spend their time briefing, and that is where they are having most of their say.

Q360 Mr Reed: In your evidence in 2011 you told the Committee that you believed the Civil Service was not risk averse but that implementation could be slowed down by things such as statutory requirements, consultation periods, EU regulations and similar. The Civil Service reform plan does not address such obstacles, so are we going to end up with a Civil Service that Ministers do not want because we are not able to address the issues that are frustrating them?

Lord O’Donnell: This gets to the heart of it. The concept of the Civil Service reform plan is something I grapple with. What you want to ask is: what is it Government is trying to achieve? It is a public sector issue here, and then the Civil Service is part of it, but I would say some of the biggest issues or some of the biggest problems are that we look at problems completely the wrong way. We are assuming that the way individuals respond to incentives is-to use the jargon-a neoclassical economic way of doing things. That is absolutely not the way people behave.

Q361 Chair: So you do not like the Civil Service reform plan.

Lord O’Donnell: No, but of itself this is not going to make a dramatic difference to the effectiveness of Government.

Q362 Chair: So the Government is obsessing about the wrong thing?

Lord O’Donnell: It is a small part and I do not want to be defensive about it. I would never be complacent about the Civil Service: let’s improve it; let’s try to make it pacier, more professional and all of those things. That is great, but if you really want to improve public sector outcomes, I think there is a radical transformation necessary. It is really thinking about the very basics of what Governments need to do and how they need to do it.

Q363 Mr Reed: So then in your view the reform plan does not examine the first principles of either the Civil Service or Government?

Lord O’Donnell: There are some good things in there. They are starting to look at the behavioural stuff; and there is the Prime Minister’s thing-that we really should be about maximising well-being. All of these things you could put towards a coherent plan of how to improve Government effectiveness.

Q364 Chair: We might finish up agreeing with you. We decided to call this inquiry "The Future of the Civil Service" not "Civil Service Reform" because we wanted it to be wider.

Lord O’Donnell: I would strongly agree with that. Once you have decided all of those things, you can then decide what kind of Civil Service you need to best deliver it.

Q365 Mr Reed: Could you just briefly clarify what those things are? What are the principles that we should be starting with?

Lord O’Donnell: Number one, the principle we should be starting with is clarity of outcomes. This was said by lots of people. If you really want to deliver, and in a way the private sector is really good, say, "We are going to try to achieve this." Trying to get outcomes as stable as possible is another principle. A crossbencher would say this, but as far as we can we should get crossparty agreement on some of the big, long-term issues. Social care would be a classic topical example. Get that clarity of outcomes, and then make up your minds about how you want to deliver them and what the right ways to deliver them are. The two principles there are: what is best for the user, or the public, and what is best value for the taxpayer. If you can get those two things right, then it may be that this should be delivered by the Civil Service; it may be that it should be delivered by a private sector company; it may be that you need a publicprivate partnership. I would be quite neutral about that. What I would care about is what gets it right for the public and the taxpayer.

Mr Reed: So focus on the outcomes.

Lord O’Donnell: Focus on the outcomes.

Q366 Lindsay Roy: There has been a proposal by Government to increase ministerial involvement in Permanent Secretary appointments. Is that something you support?

Lord O’Donnell: No. There is a lot of ministerial involvement at the moment. There always has been. Ministers get to clear the job description; if they want to, they can have a session with all of the candidates; they can have a say about whether they want people outside or internally in the Civil Service to be considered for the appointment. Quite often it is Ministers who say, "No, I do not want you to go external on this. I want you to go internal." That is an issue. I would say there is plenty of involvement, and in the end the Secretary of State has a veto and the Prime Minister has a veto. We saw that quite recently. In the end, if they do not like the person who comes through, we start again.

Q367 Lindsay Roy: If you get the specification right and the criteria right, on what basis can you have a veto?

Lord O’Donnell: That is our system. In the end if you get the specification and the criteria right and the panel have thought that this is the right person for it, and the Secretary of State says, "They may be the right person in your eyes, but from a personality point of view"-or something else-"I think that I cannot work effectively with that person," then I think it is quite important for us to listen. Actually if a Permanent Secretary starts off and the Secretary of State does not think they can work effectively with them, the chances of that Permanent Secretary being effective are very small. It is right that we have that part of the system.

Q368 Lindsay Roy: Are we not saying when we leet people that any one of the three or four who are leeted could do the job effectively?

Lord O’Donnell: Quite often they will go through that, but the panel will say, "This is the person we think is really good."

Q369 Lindsay Roy: I understand that, but in essence in leeting people the notion is that initially, from the information you have, any one of the three or four who have been interviewed could do the job effectively.

Lord O’Donnell: I am not sure. You are only partway through the process. The reason you interview is to test out various areas where, on the paperwork and the experience, you have a view about someone, but you actually want to test whether they understand what it is like to operate in the very political world of being a Permanent Secretary.

Q370 Lindsay Roy: You said you were very open to bringing new people in and to competitive interviews, and yet you arranged managed moves to DWP and to Defence that were not open to competition. Why was that?

Lord O’Donnell: You discuss it with the Secretary of State and first of all you are saying to them, "Do you want to go externally?" so we will look outside, so there will be the big package. If they say no, then you are down to the internal. If you are there with an internal, you will have a view about who the relevant candidates will be internally. Sometimes it is quite obvious that there is one person that is the best person for it, and the Secretary of State, if they agree with that, will do a managed move. You want an experienced Permanent Secretary. If somebody says to me, as one Secretary of State has, "I want a new Permanent Secretary, but it has to be someone who has already been a Permanent Secretary," then you are quite constrained.

Q371 Lindsay Roy: How did you know that the skill sets and the ways of working of these individuals were compatible with expectations? Was that in the detail that you discussed with the Secretary of State?

Lord O’Donnell: Yes, exactly. What you are trying to do is talk to the Secretary of State about what it is they are looking for. What do they see in a Permanent Secretary? Do they want a Permanent Secretary that is going to be there all the time, a chief policy adviser on hand 24 hours a day? There is obviously an element of that in all Permanent Secretary posts. Or do you have someone who says, "My real challenge for this Department at the moment is implementation. I want you to be out there talking to the troops, engaging them and getting them to deliver"-doing all of that? Quite rightly, at different times Secretaries of State will want different sorts of skill sets for their Permanent Secretaries.

Q372 Lindsay Roy: Did this initiative to have a closed approach come from the Ministers and were they happy with the outcome of the process?

Lord O’Donnell: You would only ever go closed if you had the approval of the Secretary of State.

Q373 Lindsay Roy: Were you approached by the Secretary of State or was it your initiative to approach the Secretary of State himself or herself?

Lord O’Donnell: If a Permanent Secretary decides they are coming up to retirement, the first thing I would do is go and talk to the Secretary of State about what they want to look for and give them the options: "Do you want to go for an open competition? Do you want to go for a closed competition? Do you want to go for a managed move?" It is their choice.

Q374 Chair: Do you not think what has given rise to this proposal is that in fact, paradoxically, Secretaries of State probably have less influence over Permanent Secretary appointments than they had before there was open recruitment, formal interviews and assessments by independent panels, competency-based interviews, and before there was the bringing in from outside of people with very limited experience in Government Departments? In the old days, there used to be a sherry with the Cabinet Secretary and a discussion about the names that might be considered, and the Secretary of State would have quite a lot of influence over the process.

Lord O’Donnell: I cannot say for the sherry days. I was not there in the sherry days. I can safely say I never knowingly had sherry with a Cabinet Minister.

Chair: Today it would be pinot grigio, wouldn’t it?

Lord O’Donnell: Yes. We would certainly have a discussion with them, and as to the idea you would have a discussion with them only when there is a move, you are looking at succession plans all the time. We have long and complex discussions in the senior leadership committees of the Civil Service about succession plans.

Q375 Chair: Now you no longer plan careers in the Civil Service like they used to be planned-like the armed forces plan people’s careers, for example. They could not run the armed forces on the basis of open recruitment and open selection. This is a much more chaotic process in some respects than it used to be.

Lord O’Donnell: There are certainly advantages from being able to go outside to look for talent.

Q376 Chair: I think that is a yes, isn’t it? It is a more random process now.

Lord O’Donnell: It certainly adds a dimension of uncertainty, because you will be getting people in from outside who look really good and you hope will develop well. Some will and some will not. Actually in a Civil Service that needs to take a few more risks, I was always on the side of let’s try that.

Q377 Chair: If you are going to bring in outsiders, should they not be brought in and groomed for the job?

Lord O’Donnell: Absolutely.

Chair: They should be brought in at DG level or Deputy Permanent Secretary level in order that they are groomed for the job rather than just parachuted in.

Lord O’Donnell: That is totally right. If you look at the proportion of externals at Director, DG and Permanent Secretary, you will find much more at Director, quite a few at DG and virtually none at Permanent Secretary.

Q378 Paul Flynn: There was recently a very rare event where David Kennedy had been approved as the Permanent Secretary at Energy by a Committee chaired by Bob Kerslake. He was acceptable and enthusiastically accepted, we understand, by Ed Davey, the Secretary of State for Energy and Climate Change. The Prime Minister intervened, rejected him and put someone else in. The only plausible reason is that it was part of the pressure the Prime Minister was under politically from the global warming deniers in his Department, because David Kennedy has an intelligent and objective view of the future.

Chair: Question, please. We have had this speech before.

Paul Flynn: Is it worrying if you get Prime Ministers going around and overturning people who have been put there by what was an acceptable system? That has not happened for many years.

Lord O’Donnell: We have a system, as I explained, where there is a panel and the Secretary of State has a veto and the Prime Minister has a veto. If we were in a world where those vetos were used regularly, I would be very worried. What was demonstrated by this is that veto exists and it can be used. I would be deeply concerned if that became a common thing. There would be something wrong with the system if that happened often, but for it to happen once, you can say it is part of the system and it demonstrates that Permanent Secretaries have to work with their Secretaries of State and be acceptable to the Prime Minister in our system.

Q379 Chair: Briefly, on accountability, do you think the Haldane model holds true?

Lord O’Donnell: I have very strong views about accountability. I think Ministers should be accountable for what happens in their Departments. There are all sorts of possibilities for devolving that accountability. The idea that civil servants are not accountable I try to reconcile with the fact that we seem to appear at lots of Select Committees, even after we have retired.

Chair: We are very grateful to you.

Lord O’Donnell: I am very happy to be here. I do think the accountability system is sensible the way we have got it. If we got to a stage where named civil servants were going to be accountable for specific projects then, if I were that civil servant, I would want to have the power and the responsibility to ensure that I could manage that.

Q380 Chair: Do you recognise that there is potentially a problem that the Permanent Secretary or the official covers for the Minister in front of the Select Committee and then the Minister dumps it on the Civil Service, and then nobody is accountable? That does seem to happen rather a lot.

Lord O’Donnell: I would say that should not happen.

Q381 Chair: I do not want to go into examples that might be personally invidious to people, but it does happen, doesn’t it?

Lord O’Donnell: It does happen and I think that is a huge mistake on all sides.

Q382 Chair: How do we get through billions and billions of wasteful procurement projects and nobody is ever held accountable?

Lord O’Donnell: There are ways you could improve accountability there. For a long time-I remember this from 20 years ago-we have gone down this route where the answer has always been, "Let’s get the private sector person in. They’re brilliant at this". We have had various reviews of procurement activity; we have had Ministers like Lord Drayson who have come in with lots of private sector experience. We have to understand that procurement in something like Defence is a difficult area.

Q383 Chair: Looking at the health service and the Mid Staffordshire Inquiry, the Francis report, there is an uncomfortable feeling that individuals have not been made accountable for this.

Lord O’Donnell: I do not think anyone can have been a public servant and not felt that here is a dereliction of duty by public servants and felt very bad about that.

Q384 Chair: Do you think that Ministers are anxious not to put senior officials into the spotlight because they are so dependent upon senior officials for protection from fallout when things go wrong in the health service?

Lord O’Donnell: This is one of those ultimate things: we need to decide who it is you are going to give the power and responsibility to. At the moment it rests with Ministers in most cases.

Q385 Chair: Do you think accountability is manageable in such a vast organisation as the health service?

Lord O’Donnell: That is why you might well want to delegate accountability and, if you are going to do that, you have to delegate with it the power and the responsibility to manage it. You cannot have one without the other.

Q386 Chair: You were serenading the virtue of targets and the Francis Report highlights targets and the determination to meet targets as possibly one of the incentives that militated against better, stronger and clearer leadership.

Lord O’Donnell: That tells you that the way it was delegated was incorrect. They did not have the right outcome measures. They had some very partial outcome measures.

Q387 Chair: Who was responsible for those outcome measures?

Lord O’Donnell: Ministers.

Q388 Chair: No Ministers were crossexamined by the Francis Inquiry.

Lord O’Donnell: Indeed.

Q389 Chair: Doesn’t it leave you feeling uncomfortable? I’m uncomfortable about it.

Lord O’Donnell: It does. If you look at the example I know best, on monetary policy, you have set up a very clear targetbased regime-inflation targeting-and you have given power and responsibility, and the Governor is accountable.

Chair: We celebrate your success with monetary policy.

Lord O’Donnell: It is a clear version of accountability.

Q390 Chair: How should we approach the problem of accountability in the health service in this context?

Lord O’Donnell: You have got to decide if Ministers are prepared to delegate the power and responsibility and to specify clear outcomes.

Q391 Chair: How are the people locally going to be held accountable?

Lord O’Donnell: It goes back to Mr Reed’s question. You have got to specify what the outcomes you want are.

Chair: It sounds like targets to me.

Lord O’Donnell: No. I would say you can get something quite general about the well-being of your patients and then say, "Here are some indicators of it". It cannot ever be reduced to a couple of waiting times indicators; it has got to be something about the satisfaction of those patients and getting some user feedback-getting a broad case of what that hospital is trying to achieve.

Q392 Chair: But you agree with me that there is something wrong if the chief executive of that hospital has not been held accountable, and none of the area or PCT officials, none of the officials in the Department and no Minister has been held accountable for what happened at Mid Staffs.

Lord O’Donnell: I think that is where you get to a situation where you have not set up a regime where you can have power and responsibility, and accountability, and sort it out so that when things go wrong you know who to blame.

Q393 Chair: So you could excuse us for looking a little further into that.

Lord O’Donnell: It is a complex area, but where I would concentrate on is trying to get those accountability regimes right.

Q394 Greg Mulholland: Lord O’Donnell, could I just ask you about staff turnover-"churn"-in the Civil Service? It is clearly an issue at the moment and perhaps has always been. Looking at Permanent Secretaries who were there in 2010 at the time of the general election, remarkably, only two of the 16 Departments still have the same one. In the case of four Departments there have been three in a little over two years. That surely cannot be a good thing for the kind of leadership that we need. During your tenure, do you think you did enough to seek to keep Permanent Secretaries in place?

Lord O’Donnell: There are two issues there. Turnover for the Civil Service as a whole is very low at the moment. That is a separate issue; we could come back to that, but I wanted to get that on the record. The interesting question about Permanent Secretaries is when I came to office in 2005, taking over from Sir Andrew Turnbull-as he was then-he had created a situation where a number of Permanent Secretaries were about to go. That allowed me to be involved in the appointment of the next set of Permanent Secretaries, which I did around 2005 to 2006.

I had a very settled team throughout my period as Cabinet Secretary. What we tried to do was to say what we wanted these Permanent Secretaries to do was to be in office, to know their subject very well-the Chairman has been going on about this-to know their Departments well and to be able to be there to manage whatever outcome was thrown up by the general election-to help the new Secretaries of State, if there were new Secretaries of State of State, to come in. Obviously it was a slightly different outcome than might have been expected in the sense of the coalition.

What you had then was a number of Permanent Secretaries who were due to move. It does not surprise me at all that there was a big turnover then. I could have predicted it two or three years beforehand; that is precisely what was planned and, therefore, that is what happened. You will get this; you are trying to bring on the talent underneath to be sure that you have got people who can take over from those and you have got your succession plans in place, but occasionally those are disrupted by factors beyond your control-the death of Lesley Strathie being a tragic example where your best laid plans have to be amended.

Q395 Greg Mulholland: You say that the overall turnover rate in the Civil Service is very low. Sue Cameron in The Telegraph says that staff turnover over the past two years in the Treasury has been "an almost unbelievable 50%". Is that still the case? I am not talking about Permanent Secretaries.

Lord O’Donnell: If you look at staff turnover in the Treasury, you will find that it has been, from memory, 25% to 30% virtually every year for the last six years or more. It is a department with very high turnover rates-too high, in my view.

Q396 Chair: That might explain a lot. In the private sector, if your business is turning over more than 15% of its senior management, you are in trouble.

Lord O’Donnell: Yes. I think we have got a problem of both too low turnover in certain aspects of the Civil Service-there are areas where the turnover rates are well below your 15%-and too high. It is quite clear that in the Treasury the turnover rate is too high. Part of the problem is that the Treasury is a highly regarded Department and, as I go out to the private sector, they are all desperately trying to hire people from the Treasury. They give them a very good training and they pay them vastly more. Because of my daughter’s position, I am looking at graduate salaries at the moment. If you were joining an investment bank you would be on £40,000plus; if you join the Civil Service fast stream, which is probably more difficult to get into, you will be on something around the low £20,000s. There is a big difference.

Q397 Greg Mulholland: I just want to finally raise the interesting evidence from Lord Adonis. I do not know if you have seen that. He was talking about the difficulties of keeping a Permanent Secretary in place. He came to see you-he said, "I… took the unusual step of going to see the Cabinet Secretary". When he raised this problem and what you as the Head of the Civil Service could do to help that, you apparently said, "My dear Andrew, I am only the Head of the Civil Service; I do not manage it". Were you saying that the Head of the Civil Service does not have a role in terms of trying to keep people in post?

Lord O’Donnell: To be honest, I do not remember that conversation. When it comes to Permanent Secretary appointments-precisely the discussion we have had there-I am not the sole decisionmaker by any means. It is a panel that does it; the Secretary of State has a veto; the Prime Minister has a veto; and so I am constrained. I cannot do the Sir Humphrey thing of saying, "A is going to go there. B is going to go there" irrespective of what Ministers want. It is very much done in partnership.

Q398 Chair: Can I just ask about this recruitment and retention point? You are free to say this now, but the £140,000 salary cap is pretty silly, isn’t it? It is not very helpful.

Lord O’Donnell: No, it is not helpful.

Q399 Chair: The pay freeze in the Civil Service has not actually saved much money because the payroll costs seem to go on going up, do they not?

Lord O’Donnell: That is because it is not a complete pay freeze.

Q400 Chair: Would it not be better to give Departments payroll budgets within which they can set terms and conditions as they feel is appropriate in order to be able to retain people that they need to retain?

Lord O’Donnell: I would not do it that way. The reason I would not do it that way is because you can imagine that some Departments, who have got better settlements than others, would then have more money to spend on those things and, given that the kind of skill set you are looking for quite often might be someone that is in another Department, you will then get biddingup between those Departments. The Department that gets the most generous budget settlement will end up bidding away the best people. Is that the right thing?

I would rather go down the route of skill sets. As Lord Browne said, we do have some issues about shortages on commissioning and on commercial skills. If you are a commercial person you are paid a vast amount in the private sector to negotiate the kinds of franchises that were referred to earlier. Therefore, they have the skills. That group of people are not the ones who are so much imbued with the public sector ethos, so we have to pay the going rate for some of those people. If we do not pay the going rate, we will end up with secondrate people, I am afraid. The people who turn out within the Civil Service to be really good contract negotiators will look around and be bid away by the outside.

Q401 Chair: So there needs to be a much more sophisticated function at the centre of Government about how to manage this.

Lord O’Donnell: We do need to think about variable pay, performancerelated pay, whether we can get the incentive structures right and whether we can use pay systems, in the way that any modern HR function would say.

Q402 Chair: Should the Minister for the Civil Service-or rather Francis Maude, who represents the Prime Minister in this role-have a personnel department reporting to him through his Permanent Secretary that deals with this on a much more handson basis as opposed to the present, which does not seem to work?

Lord O’Donnell: We have got HR expertise within the Cabinet Office and we have given those professional things. The big issues you have discussed do not require massive amounts of HR skill. They require some political decisions, do they not? You mentioned the pay, the bonus structure and the incentive structure-this is not rocket science in HR. This is the basics.

Q403 Paul Flynn: You have rejoiced in improvements in what you call productivity, which meant getting the same amount of work done by fewer people. That means, to civil servants on humble pay, one person doing the job of two people or sometimes three people. At the top of the Civil Service, when you retired, three people were appointed to do your job. Is this leading by example?

Lord O’Donnell: Let me stress that I think you can get productivity up by doing things better and doing things in different ways. This is why I think it is very important to say better for less, not more for less. We should not be trying to get civil servants to work twice as hard; we should be trying to get them to work twice as effectively.

In terms of the split of my particular role, the Prime Minister decided that he wanted to have separate people being Cabinet Secretary and Head of the Civil Service, and a separate Permanent Secretary for the Cabinet Office. The latter I think I would have done myself-I said this-but he decided that and I can understand the reasons. During coalition government, the Cabinet Secretary has a lot of extra things to do in terms of trying to manage coalition. For the Head of Civil Service it is a particularly difficult time, hence the nature of the questioning we have got.

Q404 Paul Flynn: Were there problems in the way that you handled the three jobs?

Lord O’Donnell: I am sure there are things that I did not do as well as I could have done. I am sure there are areas where if I devoted more time to it I could have improved outcomes, so having more resource there was good. Like I say, given the needs of coalition, I would have moved to having a separate Permanent Secretary in the Cabinet Office.

Q405 Paul Flynn: So if we get back to oneparty government, we could see it reverting to being one job, not three jobs. The Trinity will become God again.

Lord O’Donnell: I think this is very much a solution for the times we are in at the moment and when it comes to a change of administration, even if it is another coalition-we know about coalition now, so we have learnt a lot about making coalitions operate-that will be an open question.

Q406 Paul Flynn: I love the answer to this question, so I will ask it again. Could you explain how appointing three highlypaid people to do the work of one highlypaid person did not cost anything?

Lord O’Donnell: Because, for example, Bob Kerslake was already being paid as a Permanent Secretary and he took on the job of Permanent Secretary and Head of the Civil Service. We had people within the Cabinet Office who could carry on doing that and they paid them less than they paid the one who was doing all three jobs.

Q407 Paul Flynn: So the three salaries were the same or less than yours.

Lord O’Donnell: Yes. Sorry, the three salaries each individually were less than mine.

Q408 Paul Flynn: But the total was a great deal more.

Lord O’Donnell: The total was more, but remember Bob Kerslake was already being paid a salary as Cabinet Secretary of DCLG.

Q409 Paul Flynn: Could you just tell me which official-Bob Kerslake or Jeremy Heywood-should ultimately be responsible for the success of the Civil Service reform programme?

Lord O’Donnell: I think they are jointly responsible for it.

Paul Flynn: That is not an answer.

Lord O’Donnell: Yes, it is an answer.

Q410 Paul Flynn: It is a mystery. We heard yesterday that the Pope resigned, which we did not think possible-we heard God has resigned-and now we have this mystery of two civil servants in one. When I ask you which one does this and does that and you answer that they both do it, it seems a recipe for chaos.

Lord O’Donnell: No, I disagree, in the sense that you want policy making to be right and you want execution to be right. When people are thinking about policies you want for them to be thinking all the time, "Is this implementable? Is it deliverable?" You need the two things very close. We had it in the form of one person doing Cabinet Secretary and Head of the Civil Service. We had had them separate for a large proportion of the history of the Civil Service. They have been separate. It is not like this has never happened before and at the moment I think you need both aspects to be right. If you gave it to just one or the other, that would be a mistake, in my view.

Paul Flynn: I am grateful for your answers-not so much the last ones.

Q411 Chair: Can I just ask you a very simple question? How well do you think the new arrangement is working?

Lord O’Donnell: It is very hard to tell from outside because I am not living with it day by day. It is a very difficult time to be managing the Civil Service and doing the jobs they are doing. These are not easy times with the way the economy is going. I personally think they are both doing a very good job.

Q412 Chair: Do you think their peer group amongst the Permanent Secretaries treats the two roles with the same parity of esteem?

Lord O’Donnell: I think the peer group treats them both according to what they need.

Q413 Chair: I guess that is a "no" then.

Lord O’Donnell: No, it is different. If you are really worried about the policy side of things and you want to get a policy thing through, you talk to Jeremy; if you are worried about the Civil Service side, you talk to Bob.

Q414 Chair: Do you think it is working better than the previous arrangement?

Lord O’Donnell: That is impossible to say.

Q415 Chair: That is a very honest answer. I appreciate that. Do you think if the next arrangement were to restore the unity of the two roles and have a Permanent Secretary in the Cabinet Office who acts as the alter ego of the Cabinet Secretary and Head of the Civil Service and takes a number of the reports-because I remember you complaining about how many reports you had-you could split the number of reports between the oneonone reporting structure, but you need not necessarily split the role of Cabinet Secretary and Head of the Civil Service?

Lord O’Donnell: Yes, but once you start trying to split the Permanent Secretaries, they all want to report to the Cabinet Secretary and Head of the Civil Service. In principle yes, and I think probably that is the right answer. In practice, they will all want to report to-

Q416 Chair: We asked the Government to review this six months on and they said six months would be too soon. It is now a year on. Do you think they should be reviewing this arrangement?

Lord O’Donnell: With any change you would want to assess how well it is doing, and they are living with this all the time, so they will look at it. I do not know if they are reviewing it or not, but I would say with all changes it is worth having a look at it. One year may be too short a time to have evaluated whether it is working or not. You always have to wonder about the counterfactual: what would you have done if you did not do that?

Chair: You have been very voluble today and passionate, as you always are. Thank you very much, Lord O’Donnell, for being with us this morning. I have no doubt we will have you back again at some stage.

[1] Note from witness: The total figure is in fact 7 as Doreen Langston (former DFID), Stewart Gilliand (former CLG) and Hanif Lalani (former DfT) stepped down before the end of their contracts for personal reasons.

Prepared 5th September 2013