Departments’ oversight of arm’s-length bodies Contents

Conclusions and recommendations

1.For too long government has had no clear criteria for determining what is best done by departments and what is best done through arm’s-length bodies. Departments have not been consistent in how they determine what should be an arm’s-length body and what should not. The result is that the current landscape of what is and is not an arm’s-length body is, as described by the Cabinet Office itself, “an accident of history” rather than the result of any clear and consistent rationale. We recognise that the Cabinet Office is trying to inject more discipline and logic into the classification process; in April 2016 it published new classification guidance for arm’s-length bodies, and it has introduced a new programme of reviews. But given the importance of arm’s-length bodies to delivering services, and the scale of spending through them, it is disappointing that more has not been done earlier.

Recommendation: Alongside its Treasury Minute response to this report, the Cabinet Office should provide us with clear criteria departments must consider when deciding if delivery should be through arm’s length bodies, and set out by when it expects departments to have come into line with its guidance.

2.Unclear lines of accountability between departments and arm’s-length bodies mean that it is not clear who to hold to account. Members of the public interacting with an arm’s-length body should be able to find out easily what the chain of command is from arm’s-length bodies through to departments. But departments do not have a consistent, open approach to setting out accountabilities that makes it easy to establish who is responsible for what. Departmental accountability system statements are supposed to make lines of accountability clear and transparent, but, despite our earlier recommendation, not all departments have them, or indeed see the benefits of them. Framework documents set out in more detail the operational relationship between arm’s-length bodies and departments, but these too are not always in place and are not a substitute for a transparent description of overall accountability arrangements.

Recommendation: Departments should set out clearly, in published accountability system statements, the accountability relationships between arm’s-length bodies and departments, in a way that members of the public can understand. They should also clearly set out the responsibilities and accountabilities of each arm’s-length body in published, and up to date, framework documents.

3.Departments do not consistently have the information necessary to understand how their arm’s-length bodies are performing. For oversight of arms-length bodies to be effective, departments must have a good understanding of how the bodies they are responsible for are performing, and of where there is scope for improvement. Of course, the amount of information held and monitored by departments needs to be proportionate to the size and role of particular bodies. But currently departments do not have a good understanding of what specific performance measures are critical to understanding how well their bodies are performing. More benchmarking of performance would improve efficiency by highlighting where there is scope for improvement. But departments do not do enough to compare the performance of similar types of arm’s-length bodies, such as museums and galleries, or to compare common functions between arm’s-length bodies, such as customer service, or to compare performance with private sector organisations. The Cabinet Office has recently begun to compare similar types of arm’s-length bodies through its programme of ‘tailored reviews’.

Recommendation: The Cabinet Office should work with departments to make sure that they have robust but proportionate measures of arm’s-length body performance. Departments should make more use of benchmarking to assess performance, and think beyond both departmental and public sector boundaries for comparators.

4.We are not convinced that departments’ oversight arrangements are proportionate to the relative risks and opportunities presented by different arm’s-length bodies. Departments generally use risk-based approaches to oversee their arm’s-length bodies, which results in some arms-length bodies being subject to closer and stricter oversight than others. But departments do not share knowledge about what works well in applying different approaches, and senior managers across departments rarely discuss how best to oversee and manage arm’s-length bodies. Departments’ existing oversight arrangements can introduce costs and bureaucracy, or duplicate existing governance arrangements in arm’s-length bodies. We heard examples of approaches that focus unduly on compliance and control, rather than improving the value contributed by arm’s-length bodies. The Cabinet Office acknowledged that its approach in recent years to improving the ‘sponsorship’ function across government has not worked well. It described moving to a system that was more tailored towards treating individual departmental groups as a whole, and that considered how each group should be best governed, based on some common principles.

Recommendation: The Cabinet Office, working with departments, needs to build on the National Audit Office report in setting out a principles-based framework for overseeing arm’s-length bodies.

5.It is far from clear that departments draw on the operational expertise of arm’s-length bodies and people using services when developing policies. When challenged about the development of policy, we were surprised that our departmental witnesses did not put more emphasis on the importance of involving delivery bodies from an early stage. Departments risk missing opportunities to improve services by not making the most of arm’s-length bodies’ experience and expertise and that of the users of services. Arm’s-length bodies know a great deal about service users’ needs and how to improve services, and departments acknowledged they could do more to incorporate such feedback when developing policy.

Recommendation: Departments should set out what more they will do to demonstrate that they are drawing on the experience of arm’s-length bodies and service users when policies are being developed.

6.Delays in the public appointments process create risks for the effective governance of arm’s-length bodies. The power to appoint and remove non-executive board members is an important means through which departments’ oversee arm’s-length bodies. Departments and the Cabinet Office acknowledge the skills and experience that non-executives bring to arms-length bodies. But the process to appoint them is lengthy and burdensome and risks putting off good candidates. The Grimstone review, published in March 2016, has made a number of recommendations to improve the public appointments process.

Recommendation: The Cabinet Office should update us by July 2017 on its response to the Grimstone review and the progress made by departments in streamlining the appointments process.

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18 October 2016