Bank of England’s central services Contents

2Working practices in the Bank

Complex and costly systems and processes

15.The Bank spent £188 million on central services in 2017–18, including £101.4 million on technology, £58.7 million on property, procurement and security, and £15.8 million on Human Resources (HR). The cost of the Bank’s central services is high compared to benchmarks with comparable central government bodies. The cost of HR within the Bank per full-time equivalent staff member was 15% above the central government benchmark in 2016–17, the latest year where comparable data is available. The Bank told us that the cost of its central services was high compared to the benchmark because it had invested heavily in bringing the Prudential Regulation Authority into the Bank. This had required a significant increase in staff and support, including harmonising the terms and conditions of staff across the Bank. It similarly told us that the cost of its HR was high compared to the benchmark because it had invested in diversity and inclusion, talent management and staff well-being.23

16.The Bank has 700 job titles, which are divided into 11 salary bands. The Bank conceded that having 700 job titles does “clog the system” and prevented the Bank from being as efficient as it could be. It told us that it had reviewed the cost of its recruitment in light of benchmarking which showed that the Bank’s recruitment costs were 68.7% more than central government bodies. The Bank told us that its recruitment costs were affected by its need for staff to undergo a high standard of security vetting and the high cost of recruitment to policy committees. It admitted, however, that it had a “clunky” recruitment system which added to the costs of recruiting new staff. It told us that it had changed its recruitment system in 2018 and reduced recruitment costs by 9% as a result. The Bank committed to reducing costs further in 2019 but it did not specify by how much.24

17.The cost of the Bank’s ICT was 33.6% more than other central Government organisations in 2016–17. The Bank asserted that its IT requirements were different to government departments or other public sector organisations because it operates the UK’s financial settlement system, with £600 billion a day going through the Bank of England. It told us that it needed to have higher levels of service availability than central government as the UK depends on the service being available and the system cannot be in a position where it might fail.25 In 2016–17 the service was not available 0.01% of the time compared to 0.37% in central government.26 The Bank acknowledged that its larger spend on ICT was also due to high levels of manual processors and legacy IT systems. It pointed to the incorporation of the Prudential Regulation Authority which duplicated many applications and required much integration of data systems and data sets. The Bank told us that the integration of these systems took a substantial amount of time to deal with, and that its data centre migration programme had been cleansing many of those systems and applications, which took additional time.27 The Bank acknowledged there was “room for significant efficiency improvements” in areas of its IT.28

18.The Bank has not routinely and systematically benchmarked the costs of its central services and has few measures to assess the cost-effectiveness of central services. The Bank accepted that it needed to be more systematic about its benchmarking. It told us it was reviewing which benchmarks it should use from the public sector, financial sector, central banks and central government, and that it would have benchmarks in place by mid 2019. The Bank committed to using these benchmarks to set its targets from 2020 onwards.29

Compliance in the Bank

19.The Bank made £10 million worth of purchases without following its policy to consult its central procurement team. In June 2018, the Bank’s procurement team and its Internal Audit identified that between December 2016 and December 2017, 200 purchases above £25,000 had been made without staff consulting the procurement team, despite there being a policy that staff should do so. Further investigation by the Bank identified that the procurement team had not been consulted for £10 million worth of purchases. The Bank estimated that better value might have been achieved for £2 million worth of purchases and that this could have saved up to £200,000. The Bank told us that it had identified the issue of non-compliance internally and then considered whether or not to punish the individuals involved. The Bank said it had recognised that its procurement systems had not been fit-for-purpose and told us that in May 2017 it introduced a three-year programme to improve its procurement processes. The Bank told us that it expected this programme to achieve savings, but highlighted that the precise amount would become clear in April 2019 when the target operating model would be in place. The Bank told us that it expected that procurement, and particularly technology procurement, would contribute much of its target savings of £9 million by 2021 and £15 million a year from 2021–22.30

20.There was no evidence to suggest that staff were required to explain why they had not complied with the Bank’s procurement policy. We asked the Bank why it had not done anything about non-compliance with its procurement policy. The Bank told us that it had decided that it could not do this because its procurement policy was not sufficiently clear or fit for purpose. The Bank told us that its management and internal audit had agreed that the best way to fix the problem was to improve the procurement policy, to get the process and controls supporting those policies right and to make sure that they were implemented as quickly as possible. However, the Bank updated its procurement policy just one week before our inquiry to make it clear that staff must consult its central procurement team for any purchase over £25,000. The Bank told us that it had brought this forward from other planned changes to processes and controls which are due to take place in March 2019.31

21.The Bank asserted that there were now consequences for staff for non-compliance with it procurement policy. The Bank told us that, at the meeting of its Court of Directors in December 2018, it had reiterated that the Bank would not accept non-compliance with the Bank’s policy. It explained that all breaches of compliance policies now had a consequence, which were proportionate and escalated depending on the nature of the breach. The Bank told that us its practice was not a “one strike and you’re out culture” and that staff were encouraged to report honest errors and it would deal with non-compliance through discussion and training.32 It told us that depending on the severity of the breach, there could be an impact on a member of staff’s performance assessment and remuneration. If it was an egregious act or a pattern of non-compliance, it might lead to dismissal. A manager could also face consequences if they had not trained their staff to be compliant.33

22.We asked how the Bank was going to police its updated procurement policy. The Bank explained that supplier invoices had to be matched to a purchase order or it would trigger a breach in the Bank’s procurement policy. Each breach was now reported to the Bank’s risk committee and the executive risk committee, who determined the consequences.34 We asked the Bank if it was concerned that instances of non-compliance in the Bank would affect its reputation and confidence among high street banks and other financial institutions that it regulates. The Bank asserted that it “could not be more clear” that non-compliance was not acceptable and there would be consequences.35

The need to modernise working practices

23.The Bank is seeking to deliver cultural change within the organisation. In 2017–18 it set a cap on its total headcount of 4,281 full-time equivalents. From 2018–19 the Bank committed to containing its costs, excluding the cost of producing notes and pensions, at £476 million. We asked the Bank about the scale of the cultural challenge it faced in areas such as personnel and procurement in order to control its costs. The Bank said that managing cost pressures from Brexit meant that the culture was changing rapidly.36 The Bank recognised that culture within in an organisation was the hardest thing to change. It told us that it was encouraged that the NAO had found that senior staff it interviewed were supportive of central services’ plans to modernise and simplify systems and hoped that change would translate to savings being recharged to the business.37

24.The Bank asserted that its Court of Directors was attuned to efficiency and effectiveness. In recruiting new employees, the first point discussed with applicants was about making a public-sector contribution, while the work environment and investment in training were discussed alongside the actual pay.38 The Bank told us that the NAO’s recommendations around measurement had prompted a very important change because the idea of connecting cost and performance metrics was new for the Bank, and it was now working to implement the change.39 The Bank explained that it had also made changes to modernise its pension scheme. It made a significant adjustment several years ago to change longer-standing members from a final salary scheme to a career average scheme. New recruits make a percentage contribution of just over 1%.40

25.The Bank has both competitive and non-competitive promotion processes, the latter of which involves the re-evaluation of roles. Since 2015 it has re-evaluated around 200 roles and made around 200 in-role promotions. We were concerned that having 700 different job titles in the Bank meant that staff could more easily “game the system” by claiming that they had undertaken a special job or by asking for more money to remain an employee. The Bank assured us that this could not happen. It asserted that it had 11 grades and that different job titles fell within those bands. It told us that all salaries were compared to benchmarks and that job titles were descriptors only and did not link to pay. The Bank explained that staff were paid more by being promoted to another band and the remuneration committee considered compensation and remuneration in those bands.41

26.We asked the Bank why it had in-role promotions. The Bank explained that an external review in 2012, following the financial crisis, had recommended that the Bank should consider allowing technical experts and specialists to stay in their roles for longer, rather than incentivising them to move to a completely new role to get a promotion. For example, if a specialist such as a macroeconomist or a risk specialist developed their skills and experience so that they were the world expert, the Bank should promote them in-role. The Bank assured us that individuals or their managers could not make this decision without proper approvals because the Bank had a promotion process. It explained that managers had to nominate people against a number of criteria, which were considered by HR, and a panel interview decided whether they would be promoted. The process is overseen by a group of directors across the Bank. It told us that in 2017–18 63 people were nominated for promotion, 51 were given interviews and 47 were promoted, which represented just over 1% of staff.42

27.We challenged the Bank about why there were so many in-role promotions and whether its new operating model would have only one system for promotions, or two or three. The Bank told us that this would be decided as part of its target operating model work and would be in place by April 2019. The Bank said it was not keen to stop in-role promotions because it needed to have sufficient depth of knowledge to enable its staff to challenge external members of the Monetary Policy Committee.43 We asked the Bank how many specialist roles are recruited from outside. The Bank told us it had recruited 641 staff last year including 142 graduates, school leavers, and apprentices and 499 people with experience, such as specialists in risk, cyber security, and economists. The Bank undertook to write to the Committee in mid-2019 setting out the roles and skills it will need across the organisation and the implications for recruitment, retention and redundancies.44

23 Qq 2–4; C&AG’s Report, Figure 2, page 15 and Figure 15, page 42

24 Q 3, 32; C&AG’s Report, Figure 15, page 42

25 Qq 18–19

26 Q 20; C&AG’s Report, Figure 15, page 42

27 Qq 25–28

28 Q 24

29 Q 6–7; C&AG’s report, paragraphs 2.19–2.20, page 30

30 Qq 64, 113, 123, C&AG’s report para 2.16

31 Q 64 and 66; C&AG’s report para 2.16

32 Qq 64–65

33 Qq 69–70

34 Qq 67–69

35 Qq 81–83

36 Q 71

37 Q 129; C&AG’s report, paragraph 2.17, page 29

38 Q 72

39 Q 126

40 Qq 73–77

41 Qq 30–36

42 Qq 33–34, 37

43 Qq 40–42

44 Qq 47–54

Published: 13 March 2019