Departments’ oversight of arm’s-length bodies Contents

1Purpose, accountability and understanding performance

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Justice, the Department for Environment Food & Rural Affairs, the Department for Culture, Media and Sport, and the Cabinet Office on the oversight of arm’s-length bodies.1

2.Departments oversee and manage the relationship with their arm’s-length bodies, which they rely on to carry out a range of important functions. Overall, according to the Cabinet Office, there are 467 arm’s-length bodies spending some £250 billion of taxpayers’ money. Three of these bodies—HM Revenue & Customs, NHS England and the Skills Funding Agency—account for more than £200 billion. The scale of arm’s-length bodies varies hugely, from large executive agencies to smaller, non-departmental public bodies. But they are often vital to delivering departments’ strategic objectives, and provide critical services to the public. Arms-length bodies operate with varying degrees of independence, but in all cases departmental Accounting Officers remain ultimately accountable to Parliament for the bodies they oversee.2

3.The Cabinet provides support and guidance to departments about the creation, governance and ‘sponsorship’ of public bodies. It relies on departments to follow its guidelines and to establish appropriate sponsorship arrangements for the arm’s-length bodies in each departmental group. The Cabinet Office also owns the process for reviewing arm’s-length bodies to examine whether they should continue to exist, and it produces an annual ‘Public Bodies’ report, which aims to provide greater transparency about public bodies.3

The rationale for having arm’s-length bodies

4.We questioned the departments about the rationale for arm’s-length bodies and the criteria used when deciding to create one rather than the activities being undertaken inside a department. The Cabinet Office told us that departments could set up arm’s-length bodies where there was a need for particular technical or specialist expertise that was more difficult to bring into the Civil Service, or where there was a need for a greater level of political or ministerial independence. They may also be set up where departments need particular freedoms around pay, for instance, to attract people with particular skills.4

5.The Cabinet Office recognised that the landscape of arm’s-length bodies was “not particularly clear across government”, “very messy”, and to some degree “an accident of history”.5 In April 2016 it published a ‘classification review’, which concluded that there should be only three categories of arm’s-length body—executive agencies, non-departmental public bodies, and non-ministerial departments—which are, in that order, progressively more remote from government departments. It recommended that in the future, all new public bodies be set up under one of these three categories.6

6.The Cabinet Office has also readjusted its ‘triennial reviews’ of public bodies, which had been limited to non-departmental public bodies, to a system of risk-based ‘tailored reviews’. The tailored reviews are intended to be proportionate to the size and type of public body, more flexible in timing and approach, and to include executive agencies and non-ministerial departments. The Cabinet Office has also introduced new ‘functional reviews’, which take a cross-cutting look at particular areas of activity, such as regulation. The Cabinet Office hopes that these reviews will, over the course of this parliament, judge whether all arm’s-length bodies are appropriate in their current form.7

Lines of accountability

7.Increasing devolution and localisation means that responsibility for spending taxpayers’ money is more dispersed. It is very important that if a citizen is interacting with one of those bodies, they can easily find out what the chain of command is. But there is no single list describing all the arm’s-length bodies across government. Whilst the Cabinet Office publishes a list of public bodies, there are other lists containing different numbers and constructed for different purposes, which could lead to confusion.8

8.We have previously recommended that all departments should prepare accountability system statements covering all of the accountability relationships and processes within that department, making clear who is accountable for what at all levels of the system from the Accounting Officer down.9 These are important because they allow citizens to see who is responsible for what, where taxpayers’ money goes, and who is accountable for it. Two of the departments we took evidence from, the Ministry of Justice and the Department for Culture, Media & Sport, did not have accountability system statements in place. The Ministry of Justice accepted that it would be useful to set out in a public and accessible statement its accountability system, to make it easier for external scrutineers to understand. The Department for Culture, Media & Sport, on the other hand, told us it had no plans to introduce an accountability system statement. It considered that its management agreements and framework agreements were comprehensive, and the governance statement in its accounts described the most important lines of accountability. But it committed to discuss with its audit and risk committee whether to set out accountabilities in more detail.10

9.In addition to an accountability system statement, framework documents for each arm’s-length body should set out in more detail the operational relationship between the arm’s-length bodies and the relevant government department. The Cabinet Office considered that departments should have framework documents in place for each arm’s-length body, but this was not yet the case across the board.11 The National Audit Office found that 2 of the 12 arm’s-length bodies examined did not have framework documents in place.12

Understanding performance

10.We asked departments what data they had to assess how their arm’s-length bodies were performing, and their relative costs and benefits. The Department for Culture, Media & Sport told us that it had good financial data, and data about operational performance (such as visitor figures for museums) and the services offered by its arm’s-length bodies. However, it said that it did not have a very detailed understanding of the bodies’ ‘business models’ and would like to have more detail on that. It told us it had management agreements with all of its arm’s-length bodies which set out a range of indicators, but that these did not cover all the areas it wanted. The Department told us it did not have the standard measures that would enable it to look at the performance of similar bodies by the same measure. It was, however, launching a review of museums which would consider how to develop measures for benchmarking.13

11.The Ministry of Justice told us that having good Key Performance Indicators to demonstrate what its arms-length bodies are delivering was “an absolute given” without which governance would not be complete. However, it also said it would like to improve on data being more in real-time, and that it could do more on publishing data and on drawing comparisons. The Department for Environment Food & Rural Affairs considered that it had good data on costs and benefits in some particular areas, citing countryside stewardship schemes and flood defences. It said that it was developing performance information that was properly integrated with its planning system, which in turn would make sure it was tracking delivery of relevant commitments.14

12.When asked about benchmarking with the private sector on customer service, the Department for Environment Food & Rural Affairs did not think it had done any such benchmarking before. It considered that it needed to do so as it developed its ‘target operating model’. The Cabinet Office also did not think it was doing any benchmarking of arms-length bodies’ performance with the private sector. It argued that its new programme of tailored reviews of arm’s-length bodies—which included a private sector perspective through the involvement of senior, non-executive directors from the relevant department—was also an opportunity to take forward such work.15

1 C&AG’s Report, Departments’ oversight of arm’s-length bodies: a comparative study, Session 2016–17, HC 507, 5 July 2016

2 Q 23; C&AG’s Report, paras 1, 5

3 C&AG’s Report, para 1.4

6 Q 18; C&AG’s Report, para 2.3

8 Qq 19-23; C&AG’s report, para 2, 1.4, 2.4

9 Committee of Public Accounts, Accountability to Parliament for taxpayers’ money, Thirty-ninth report of Session 2015–156, HC 732, May 2016; C&AG’s report, para 2.8

12 C&AG’s Report, paragraph 11 and 2.6

© Parliamentary copyright 2015

18 October 2016