Read Before Burning: How to increase the effectiveness and accountability of quangos

8/8/2019 Read Before Burning: How to increase the effectiveness and accountability of quangos

1/74

READ BEFORE BURNING

Arms length government for a new administration

Tom Gash with Sir Ian Magee, Jill Rutter and Nicole Smith


2/74


3/74

READ BEFORE BURNING

Arms length government for a new administration

Tom Gash with Sir Ian Magee, Jill Rutter and Nicole Smith


4/74

4


5/74

Foreword 5

Foreword

When Sir Gus ODonnell spoke at the launch o the Institute or Government, he suggested that one

o the areas that could beneit rom Institute scrutiny was arms length government. We took up thatchallenge and this report is the outcome o that work.

We have drawn on expertise and experience inside and outside government. As the reportdemonstrates, we need to move the debate on arms length bodies (ALBs) beyond a sterile numbersgame, to recognise that all governments will and should put some unctions at arms length romgovernment, but that degrees o necessary independence dier, which should be relected in theway ALBs are ormed and managed. Since ALBs will remain a vital part o the state, it is in all ourinterests or both sides government and arms length body to be clear about what their roles andresponsibilities are and to invest in equipping both sides those working in ALBs and those lookingater the relationships in government with the skills they need to serve the public better. And we

need Parliament to step up to playing a bigger role in making sure government and ALBs perorm asthe public has the right to expect.

Above all, we need a sensible, balanced conversation about the pros and cons o distance romexecutive control versus perceived lack o democratic legitimacy to decide how to make that choiceand how to make sure the arrangements we have are in the public interest.

Our report aims to promote that debate. In the past, public discourse on ALBs has been characterisedby more heat than light. We want to change that which is why we ask government and peopleinterested in the uture o arms length government to Read beore Burning.

Lord Bichard o Nailsworth, July 2010


6/74

6


7/74

Contents 7

Contents

Foreword 5

About the authors 8

Acknowledgements 9

Executive summary 10

1. Introduction 16

2. An overview of the landscape 18

3. Challenges 31

4. Recommendations 52

5. Conclusions 63

Appendices 64-70

Bibliography 64

Acronyms 69

Endnotes 70


8/74

8 About the authors

Tom Gash is a Fellow o the Institute or Government. He joined the Institute in January 2008.

Tom previously worked as a consultant in the Boston Consulting Groups organisation andchange practice area and as an adviser on home aairs in the Prime Ministers Strategy Unit.Tom specialises in the areas o crime policy and organisational eectiveness, with a specialinterest in perormance management and organisation design. Outside the Institute, he advisesoverseas governments on public management and strategy development and is currentlyconducting private research on crime.

Sir Ian Magee CB is a Senior Fellow o the Institute or Government. Ian was SecondPermanent Secretary at the Department or Constitutional Aairs and Head o Proession orOperational Delivery or the Civil Service. He was a CEO o three dierent executive agencies.Ian was a member o the Capability Review team or the Cabinet Oice, and with another

Permanent Secretary had a continuing role in holding the Cabinet Secretary to account orprogress. He is currently a Senior Adviser to Booz and Company, a Non-Executive Director othe Live Group plc, and an Executive Coach to senior civil servants and others. He conducted areview o criminality inormation or the Home Secretary, published in July 2008, and a reviewo the Legal Services Commission, published in March 2010. Ian is a Fellow o the SunningdaleInstitute and has a special interest in public sector leadership.

Jill Rutter joined the Institute or Government as a Whitehall ellow on secondment romthe Department o Environment Food and Rural Aairs (Dera) where she had been Directoro Strategy and Sustainable Development. Previously she worked or BP, the Treasury and thePrime Ministers Policy Unit. At Dera, she sponsored the Sustainable Development Commissionand oversaw its change o status rom advisory to executive non-departmental public body.

Nicole Smith is an Associate o the Institute or Government. Until early 2008, she was theDeputy Chie Executive o the Electoral Commission, the UK regulator o political parties.Her previous experience includes nearly 10 years working at senior levels in the Home Oiceand two years as Assistant Director o the Constitution Unit think tank. Nicole now runsher own management consultancy irm and also holds a number o public appointments,including Board Member o the Legal Services Board, Panel Chair or the Judicial AppointmentsCommission and Fitness to Practice Panelist or the Nursing and Midwiery Council.

About the authors


9/74

Acknowledgements 9

Many people generously contributed time and expertise to this report. We would like to thank

those people who attended and contributed to the series o seminars that were held at theInstitute as part o this research project, those who were interviewed, and those who took part inbackground discussions with Institute or Government sta. We would also like to thank memberso all political parties who responded to our research indings and made helpul suggestions.

Special thanks are due to James McGibney, the Institute or Government research intern whoundertook much o the initial background work on this project; Sandy Gordon and the NationalAudit Oice or leading the analysis o executive non-departmental public body expenditure;Proessor Matthew Flinders, who was a continual source o advice in the early stages o this work;and Martin Hurst, a Director at the Department or Environment, Food and Rural Aairs (Dera),who was an invaluable critical riend who contributed greatly to strengthening the reports

recommendations.

Many sta, governors and associates o the Institute or Government contributed to this report.Lord Bichard o Nailsworth, Dr David Halpern, Dr Bill Moyes, Lord Sainsbury o Turville and JulianWood all made signiicant analytical contributions. Paul Drinkwater and Nadine Smith providedvital support during the publication process.

All views, errors and omissions are, o course, those o the authors.

Acknowledgements


10/74

10 Executive summary

The more I look into these bodies, the more convinced I am that the current situation owes

far more to history than it does to operational effectiveness. Sir Gus ODonnell, speech atthe launch of the institute for Government, 2009.

Arms length bodies (ALBs), known not so aectionately by the public as quangos, are nowundamental to the eective running o the British state. They protect the constitution, regulatebig business and provide a wide range o executive unctions and expert advice. They employthe vast majority o the countrys civil servants. These 900-plus bodies also control vast sumso public money, accounting or over 13% o government expenditure, not including NHSspending or the value o the social security payments that they administer.

Yet politicians, and perhaps the public, ear that all is not right with arms length government.They worry that some ALBs perorm unctions that are simply unaordable or a state withnet debt o over 60% o national income.1 They are concerned that the reedoms enjoyedby ALBs make them unaccountable and ineicient, inluenced by examples o high-proileailures, such as those around SATs marking in 2008, or the regulation o MPs expenses. Andthey worry about political patronage, observing appointments o board members who appearunrepresentative o the population as a whole, high salaries paid to a handul o ALB chies,and rare (but well-publicised) examples o ALBs campaigning against government policy aparticular irritation to ministers o the day. Many people also ind the whole ALB system to beincredibly conusing. Our research ound at least 11 types o ALB but no consistency over whybodies were given the institutional orm they were.

Politicians have duly responded and the Coalition government, like the Labour governmentit ollowed, has committed to sweeping reorm o ALBs. We will reorm the ineicient andunelected quango state, promised Nick Clegg at his irst major speech ater taking oice asDeputy Prime Minister. Action is already under way. On 24 May 2010, emergency budgetmeasures announced a signiicant reduction in the number o ALBs and savings o 500 million.And new cabinet ministers are at the time o writing drawing up plans or urther reductions inquango numbers.

The situation is amiliar to students o government. In 1979, Margaret Thatcher was electedon a promise o a bonire o quangos and in 1997 Tony Blair came to oice with similarpledges. Both got rid o some smaller organisations and merged others, although their Cabinetcolleagues went on to produce new ALBs to pursue their latest policy objectives. Meanwhile,the perormance and accountability issues associated with ALBs endured and the public, whilehighly trusting o speciic organisations, remained generally sceptical over how well governmenthad gripped the issue.

This report argues that the new administration must avoid repeating history and that reormo arms length government must go beyond a simple numbers game, the traditional post-election cull o ALBs. First, we need to recognise that at least some public unctions are bestperormed with a degree o reedom rom ministerial control. Ensuring that the Arts Council, orexample, has reedom over grant-making decisions, or example, ensures more expert decision-making and reduces the risks o perceived or actual government patronage.

Second, a simple cull o ALB numbers does not always amount to major reductions in cost.Research conducted or us by the National Audit Oice (NAO) shows that nearly 80% onon-departmental public body (NDPB) expenditure is located in just 15 NDPBs (out o nearly

Executive summary


11/74


800 executive and advisory NDPBs), while just seven executive agencies employ more than

three quarters o all agency sta. Whats more, much o the money spent by NDPBs couldnot realistically be reduced by simply by abolishing a body: 75% o NDPB costs are grants thatare passed on to others, unding universities, legal aid and other core government unctions. Tomake cuts in these areas, diicult policy decisions would be required. Advisory bodies, usuallythe irst target in a government cull, account or nearly hal o all ALBs but most do not evenhave their own budgets and simply oer a way o bringing expert advice to policy-makers atlower cost than they would through consultancy contracts. Mergers, another deault in a cull,can also be problematic: Institute or Government and NAO research has shown the signiicantcosts and disruption that have resulted rom past government reorganisations more than750 million in direct costs over our years rom 2005 to 2009 although mergers can, onoccasion, bring beneits (IG 2010; Dunleavy and White 2010; NAO 2010b).

Third, there are currently major challenges acing ALBs, which a cull would not address, eveni accompanied by wider eiciency measures. We ound a number o problems that appearcommon to many ALBs, and particularly to non-ministerial departments (NMDs) and executiveNDPBs. The main problems highlighted by our research are:

Lack of clarity over ALB roles and responsibilities, which can lead to signiicantduplication o activity between ALBs and sponsor departments, occasional neglect oimportant issues, and problems o policy coordination. O these, the issue o duplicationappears to be a particular concern, with examples o entire unctions being duplicatedacross NDPBs and their sponsor departments.

Difficulties in achieving the right balance between freedom and control of ALBs. Weound examples o both micro-management o ALBs and institutional neglect. Whilemicro-management creates administrative burdens in terms o reporting, neglect canresult in ALBs being less in touch with governments policy objectives and leaves sponsordepartments less able to manage risk and perormance. Where apparent, both imbalancescontributed to low-trust institutional relationships, and sometimes led to downward spiralso institutional conlict.

These diiculties were underpinned by the hasty creation o many new ALBs, inadequateinitial clariication o roles and subsequent institutional drit. ALBs remain the one part ogovernment without any routine process o independent review, meaning that inquiries typicallytake place only ater things have gone badly wrong. Findings such as those o the irst reviewo the Youth Justice Board (YJB) since its creation in 1997 are thereore typical: the reviewerssaw uncertainty and a lack o clarity on its role, both inside the YJB and also among sponsoringdepartments and stakeholders (Street 2010).

Conusion over ALB roles and responsibility is also a result o the overall incoherence o theinstitutional landscape. Because the orm that an ALB takes appears to bear little relation to itsunction, there is no easy way or ALBs and departments to determine their respective roles andresponsibilities. Sponsor teams can ind themselves going back to primary legislation to checktheir powers over each body, while ALBs are oten unsure o when they must seek departmental

permission or speciic decisions. The complexity o the landscape makes it harder or ministersto understand their role in relation to ALBs, a diiculty exacerbated by high rates o ministerialrotation, which also make it more diicult or politicians to hold ALBs to account over thelonger term.


12/74


Skills gaps also undermine the eectiveness o arms length government. The role o

sponsorship is oten undervalued in Whitehall, meaning that sponsors receive relatively littlespecialised proessional development, and sharing o best practice is limited. Good perormancemanagement is essential or eective arms length government, yet Whitehalls capability inthis area is particularly weak. Many departments do not make clear their expectations in termso perormance, nor the sanctions or dierent levels o overspending (NAO 2010b). New ALBboard members, meanwhile, oten ind themselves to be unsupported in a new and complexoperating environment, particularly i they arrive rom a private sector background.

These diiculties make a clear case or tightening the management and accountability oALBs, rather than pursuing a simple cull. But there is a ourth reason why a cull per se is toocrude a response. Public worries stem not just rom the number o ALBs but rom the lack

o transparency around current institutional arrangements, concerns over airness in termso appointments and pay, and a eeling that ALBs somehow escape sanction when things gowrong. Many o these concerns are only loosely grounded in evidence the public does otenblame ALBs or operational ailures and NDPB chairs and executive agency chie executivesare sometimes orced to resign but the act that the public inds it so diicult to understandarrangements is clearly a problem in itsel. It is certainly air to say that government has notdemonstrated that quangoland is under control, it being extremely hard to determine theirnumbers, institutional arrangements and spending. And more could be done to demonstrateairness in the appointments process and to build diversity o ALB board members.

This report puts orward a series o proposals that would go some way towards addressing themore undamental problems aced by arms length government in England. To ensure that ALBsare set up on a more stable ooting, with greater clarity o organisational role, responsibilitiesand reedoms:

1. Parliament should ensure that no new ALB can be established without a writtenbusiness case, which must be approved by the Cabinet Office and subjected toscrutiny by the relevant select committee and by the Public Administration SelectCommittee (PASC). The PASC should have a speciic horizon-scanning remit to ensurethat the orm an ALB takes ollows rom the unction it perorms. Given the costs anddisruption involved, these committees should also scrutinise business cases or any

proposed reorganisations o existing bodies, and no reorganisation should be permittedwithout a clear business case.

2. Government should ensure that legislation for new ALBs includes sunset clauses,deining the expected time when the new body should undergo a GAP Review (see below)and/or be disbanded.


13/74


To guarantee that roles and responsibilities remain clearly deined and to maintain institutional

perormance:

3. Government should introduce Governance and Performance (GAP) Reviews, to beconducted every three to ive years or all ALBs spending over 50 million. Unlike oldQuinquennial Reviews, GAP Reviews should ensure that both ALBs and their sponsordepartments are delivering against their responsibilities and that these responsibilitiesare clearly deined. Reviews should be conducted by individuals who are suicientlyindependent o government and the review methodology should include a peer reviewelement to stimulate cross-sector learning. Reviews should be published and given thepower to recommend that an ALB should be disbanded or its orm changed.

To develop skills in ALBs and sponsor teams:

4. Departments and ALBs should ensure that ministers, ALB appointees and thosemoving into sponsorship roles within departments receive appropriate briefing,induction and mentoring. ALB appointees must be provided with opportunities tounderstand the wider context o departmental business and sponsor teams must providespecialist training on building and maintaining eective relationships, at both individualand corporate levels.

5. The NAO should increase thematic reviews o unctions such as grant allocation andbenchmark ALB eiciency, in order to promote best practice across ALBs and sponsor

teams.

6. Government should expand the role of the Public Bodies team in the Cabinet Officeto deliver the recommendations in this report. This team (or a lead department) shouldalso act as an expert resource or departments, acilitating the sharing o best practiceacross sponsorship teams and ensuring the availability o appropriate training or sponsorteams and ALB board members.

To build public conidence:

7. Government should provide a complete list of all ALBs, alongside details o their

expenditure, the names o the lead oicials responsible or sponsoring them, and links totheir websites (building on the work o Directgov).

8. The Office of the Commissioner of Public Appointments should build on currentwork which ensures a air and transparent process in public appointments by conducting aresearch exercise to check (and demonstrate) that air outcomes have been achieved. Thisexercise would check that the proportion o qualiied applicants o each political ailiationis approximately relected in the proportion o oers made, and would investigate i theydo not.

9. ALBs should publish transparent information on their role, relationship to

government, funding and performance (including the publication o their GAP HealthChecks) in a standard ormat. This can be done simply and at low cost through currentannual reports and through a orm o kitemark on website ront pages which linksthrough to this core inormation, as has been implemented in Wales.


14/74


To set arms length government on a more stable long-term ooting:

10. Government should implement a new, simpler taxonomy for ALBs wherebyorganisational orm relates clearly to the unction an ALB perorms, building on theproposals in this report (see Figure 1). Under the taxonomy proposed here, NMDswould no longer exist and most advisory NDPBs would be treated as expert advisorycommittees to departments with no independent legal existence. The incrementalversion o this proposal would be to ensure that all new ALBs should be set up withinthis ramework and existing organisations should gradually migrate to the ramework,adapting their governance, perormance management and appointments arrangementsto it this taxonomy as ar as is possible without primary legislation, or usingdepartmental legislation as it happened. A big bang approach to implement the change

more rapidly would require speciic primary legislation, to give reorganisation powers,backed up by a rat o secondary legislation. One option could be or organisations to bereclassiied in a small number o bills, as has been done in Scotland.

Figure 1: A new taxonomy for arms length bodies

Source: Institute or Government

Constitutional oversight

Regulatory regime settersGuarantors of standardsIndependent watchdogs

Discretionary grant - giving

Discretionary enforcement &inspection

Stewardship of national assets

Delegated implementation ofgovernment policy

Free from executive control Accountable to Parliament notministers

Parliamentary role in appointments Budget agreed with Parliament

Ministerial appointments- but approved by Parliament

Sets own strategy within statutoryframework but with regard to deptguidance. Potential for limited powerof direction with parliamentary oversight

Budget approved by the department

Board appointed & appraised bydepartment & subject to dismissal for

poor performance. Major bodieshearings in Parliament

Business plan & budget signed off bydepartment

Constitutionally part of the department- no independent board & CE appointed

through civil service processes Budget decided by department Civil service terms & conditions

Constitutionalbodies

Independent publicinterest bodies

Departmental sponsoredbodies

Executive agencies

Core departments

Expert advice to government(no executive functions)

...no longer defined as ALBs unless operatingwith their own staff and/or budgetExpert advisory committees

Function Form Governance


15/74


In combination, these proposals are likely to generate signiicant inancial and perormance

beneits, by reducing duplication o work between departments and ALBs and between dierentALBs. They oer the beneits o tighter accountability too, along with the potential to rebuildpublic trust in ALBs and government more generally. While implementing these proposals isnot entirely without diiculty, postponing more undamental reorm o ALBs risks a repeat othe age-old cycle o culls ollowed by prolieration. Ministers, oicials and leaders in ALBs mustembrace the opportunity provided by the iscal climate and actively address the real problemso arms length government in England.


16/74

16 Introduction

1.1 Purpose of this reportThis report is intended to inorm the current political and public debate about the uture oarms length bodies (ALBs). It aims to:

Improve public, political and official understanding o ALBs, highlighting their originsand history, and detailing what they do and how much they spend.

Identify a number of performance issues or ALBs and assess the causes o theseproblems.

Investigate public confidence in arms length government and, in particular, to identiyactors that contribute to low levels o public trust in arms length government.

Highlight potential solutions to the challenges identiied, including a new ramework ormanaging government at arms length.

The report ocuses on ALBs that operate at a national level, and thereore does not oerextensive analysis or recommendations or bodies whose primary accountability relationship iswith regional or local government. The report does not directly address management o ALBsby devolved administrations in Scotland, Wales, and Northern Ireland, although many o theissues are similar.

This report does not seek to assess the eectiveness o individual organisations or makerecommendations regarding the continued existence o speciic ALBs.

1.2 TerminologyWe use the term arms length bodies (ALBs) to reer to organisations that are part o the statebut do not operate within traditional departmental structures. In theory, all ALBs operate withsomewhat greater reedom rom direct ministerial control than government departments.These reedoms vary depending on the ALB in question but can include managerial reedoms(or example, reedom rom civil service terms and conditions) and constitutional reedoms (orexample, an independently appointed chairman who cannot be dismissed by ministers exceptin cases o misconduct or incapacity) and reedoms to oer independent views on governmentpolicy.

As we shall see, the term ALB covers a wide range o dierent classiications or types o body,the main types being executive agencies, executive and advisory non-departmental publicbodies (NDPBs) and non-ministerial departments (NMDs). While, in theory, the dierentcategories indicate diering degrees and types o reedom, in practice reedoms can varyas much between organisations o the same category as between organisations o dierentcategories. The scale and unctions perormed by these bodies vary widely, with organisationsranging rom big delivery organisations such as Jobcentre Plus (an executive agency whichoperates with very limited managerial reedoms); to NMDs like the Food Standards Agency;regulatory bodies such as OCom, which regulates the communications industry; and varioustribunals and expert advisory groups like the Advisory Council on the Misuse o Drugs, anadvisory NDPB.

Some commentators do not treat executive agencies as being ALBs as they are constitutionally

still part o their parent departments. However, as is more usual, we include executive agencieswithin our analysis, not least because executive agencies are requently reclassiied as othertypes o ALB and vice versa.2

1. Introduction


17/74

Introduction 17

ALBs have been variously named in the past as: non-departmental organisations, non-

departmental agencies, public bodies, interstitial organisations, ad hoc agencies, statutoryauthorities, paragovernmental agencies, parastatal agencies, ringe bodies and intermediatebodies, among others (Hogwood 1995). ALBs are most commonly reerred to by commentatorsand the public as quangos (an even more misleading term when spelt out in ull). This term, likethose above, is oten used loosely, sometimes applying to all public bodies and at other times toa narrower set o bodies.3

1.3 MethodThis report is the product o a one-year engagement with those working in this area and isbased on:

Areviewofacademic,parliamentaryandgovernmentliteratureonALBs. AnalysisofexecutiveNDPBexpenditure,conductedincollaborationwiththeNational

Audit Oice (NAO).

Fourseminarsinvolvingnearly50attendees(ALBchairs,chiefexecutivesandnon-executive directors, ministers, civil servants, and academics).

Twentyunstructuredinterviewsanddiscussionstotestthefindingsoftheresearch.

TheexperienceoftheauthorsandInstitutestaffwhohaveworkedinarangeofALBsandinthe departments that sponsor them.

This research is closely tied to the Institutes learning and development programme, including itsAction Learning Set or NDPB chie executives and its recently established partnership with thePublic Chairs Forum.

In parallel with this report, the Institute has published a series o practical guidance notes orministers, departments and public bodies on key aspects o making arms length managementwork, ocusing on developing eective relationships at all levels (IG 2010).4

1.4 Structure of this reportThe remainder o this report is divided into our main sections

Abriefoverview of the landscape o arms length government, providing theoretical and

historical background and mapping the current types, numbers and expenditure o ALBs.

Areviewofthecurrentchallenges within ALBs and or arms length government in general.This section looks at a range o issues including those relating to:

- Cost

- Perormance and cost-eectiveness

- Legitimacy and public trust in ALBs.

Recommendations or improving arms length management in uture, which the Institutewill be reining and developing over the coming months.

Conclusions drawn rom this research and next steps or the Institute or Government in

supporting and advising government in this area.


18/74

18 Overview o the landscape

2.1 TheoryThere are a number o valid reasons or placing public sector bodies at arms length rompolitics:

1. To depoliticise decision-making and build public trust, by increasing the actual andperceived independence o decisions, where political inluence is seen as undesirable ordestabilising.5 Examples include grant-making bodies (e.g. Arts Council), regulatory bodies(e.g. Ocom), tribunals (e.g. Police Arbitration Tribunal).

2. To increase managerial freedoms, including:

Freedomfromcivilservicemanagerialnorms,includingpaynorms(e.g.Driverand

Vehicle Licensing Agency).Freedomtofocusonaspecialistfunction,ratherthanbeingalow-priorityareawithina

government department (e.g. Health and Saety Executive).

3. To allow government to access external skills and expertise, oten at lower cost thanconsultancy or research (e.g. Science Advisory Council).

Oten these reasons combine. They can also combine with reasons o political expedience.Setting up a new body can provide politicians and oicials with a way o demonstratingsomething is being done. And arms length organisations can be perceived as useul sources osupport or cover or unpopular political decisions, or example when the National Institute or

Clinical Excellence (NICE) makes decisions over which new drugs oer value or money or thetaxpayer.

The most recently announced ALB, the Oice or Budget Responsibility, could be seen ascombining a number o these theoretical and practical reasons or creation.

2.2 HistoryALBs have a long historical pedigree, with early English additions including the SewersCommission as ar back as 1540. As the role o the state expanded through the 19th and 20thcenturies, the number o ALBs grew, with the legal status o bodies varying considerably. By1975, the Bowen Review identiied approximately 778 ringe bodies, though stated that thisigure was likely to be a considerable underestimate o the number o ALBs.

As early as 1918, the Haldane Review assessed governments use o ALBs and concluded that,while such bodies were necessary, the number o them needed to be actively controlled.Following similar reviews, including that o Lord Anderson in 1945, the issue o quangoprolieration came to be seen as an increasing problem. Public and political critiques questionedthe legitimacy and eiciency o the still undeined number o public service institutionsoperating at arms length rom direct political control.

The 1980s was a period o considerable change in the ALB landscape, as Margaret Thatcheracted on her 1979 maniesto commitment to signiicantly reduce the number o ALBs. In 1980,Sir Leo Pliatzkys review sought to provide a clearer picture o the number o ringe bodiesand identiied 489 executive bodes, 1,561 advisory bodies and 67 tribunal bodies.6 He alsocoined the term non-departmental public bodies (NDPBs) or executive bodies in an attempt to

2. Overview of the landscape


19/74

Overview o the landscape 19

delineate and circumscribe government-related bodies rom the much broader range o bodies

that were labelled as quangos in public debate. Like Bowen beore him, Pliatzky also restatedthe need to rationalise both executive NDPBs and the wider landscape. During the years oConservative rule, the number o executive NDPBs was kept under close review and went roman estimated 492 in 1979 to just 320 NDPBs in 1995. However, while the number o bodies wasreduced, their total expenditure actually increased signiicantly, partly because several NDPBswere simply merged (Flinders 2008).

Yet, while the 1980s saw a reduction in the number o executive NDPBs, a number o othertypes o ALBs thrived. The number o NMDs, or example, grew, with cynics suggesting thatgrowth in this area was largely a result o eorts to escape being counted in governmentigures or the number o NDPBs. In addition, as the Next Steps initiative gathered pace it

brought an entirely new institutional orm, the executive agency, onto the ALB landscape (Ibbs1988). Next Steps promoted the disaggregation o ministerial departments into a large onumber o single-ocused, semi-autonomous bodies called executive agencies. Ibbs and othersargued that such bodies could ocus more eectively on delivery and other unctions that wereviewed as being insuiciently prioritised by policy-ocused departments. Ibbs initially proposedthat executive agencies became directly accountable to Parliament but this proposal wasrejected and agencies were set up to report to Parliament through the ministers o their sponsordepartments. The irst executive agency, the Vehicle Inspectorate, was launched in August1988.

The Labour administrations o 19972010 retained a similar approach to ALBs as predecessoradministrations. On the one hand, there were periodic attacks on the number o ALBs buton the other hand new organisations prolierated and total expenditure on government atarms length increased in real terms (Flinders 2008). Indeed, nearly 200 new NDPBs wereestablished in the 10 years rom May 1997, almost as many as were abolished as a result oamalgamations and abolitions (CO 2009). The overall number o NDPBs reporting to Whitehalldropped considerably over this period, however, due the transer o several bodies to devolvedadministrations in Scotland and Wales (see Figure 2). Excluding the transer o NDPBs todevolved administrations, there was a reduction o 91 in the total number o NDPBs (CO 2010).However, evidence rom the NAO suggests that many restructurings o NDPBs and the widerALB landscape have not been careully planned (NAO 2010b).


20/74


Figure 2: NDPBs reporting to Whitehall

Note: This chart shows all NDPBs rather than all ALBs. It thereore excludes executive agencies, NMDs and public corporations.

Source: CO 2010

In July 2009, the Chie Secretary to the Treasury, Liam Byrne, announced a review o ALBs,which was taken orward as part o the governments Public Value Programme. In March 2010,

this review announced the then governments plans to: ReduceALBexpenditureby500millionby2012(areductionofaround6%basedon

Treasury estimates o ALB expenditure).

ReducethenumberofALBsbyover120,thevastbulkofreductionsbeingverysmalladvisory bodies, with minimal expenditure, or as a result o mergers (see Figure 3).

Ensuregreatercareinsettingupnewbodies,andensuresunsetclausesarereducedfornew bodies.

ImposerestrictionsontheuseoflobbyingandPRconsultantsbyALBsandnew

requirements or ALB transparency.

0

200

400

600

800

1000

1200

20092008200720062005200420032002200120001999199819971996

1194

1128

10731057

1035 1025

834 849 839

910883

827

790766


21/74


Figure 3: 2010 Labour government plans for reducing the number of ALBs

Source: HMT 2010a

2.3 The current landscapeAs shown above, and noted by government itsel, the current system o classiying publicbodies has grown over time in response to an existing and complex delivery landscape Thisis essentially a pragmatic approach (CO 2008). What this means in reality is that there is noone right way o classiying bodies but instead a number o dierent categorisations, manyo which are applied inconsistently. Using one set o common classiications, the Institute

identiied at least 11 types o ALBs (see Figure 4). This list does not include government tradingunds, as trading und status is conerred on bodies with a pre-existing institutional orm.7 Forexample, the Ordnance Survey is an executive agency but it has also been given trading undstatus, which simply indicates that it must receive at least 50% o its revenue rom goods andservices provided on a commercial basis.

In addition to this example o dual status, there are some interesting udges. For example, boththe National Archive and the Central Oice o Inormation have dual status as both agenciesand NMDs.

0 10 20 30 40 50 60Advisory bodies on Justices of the Peace

Regional agricultural wages bodies

'Reduce' skills sector bodies (by 2012)

Reconfiguration of courtboards

Single military museums body

Single Sentencing Council

Absorb Medical Education & Training board within GMC

HM Inspectorate of Courts AdministrationAbolition

Mergers/restructuring

1

1

1

3

4

30

31

52


22/74


23/74


The institutional orm that an organisation takes is not directly related to the unction that

the organisation perorms. For example, governance arrangements or public sector regulatorsvary widely. Osted, Ogem, Owat, PostComm and the Oice or the Rail Regulator are allNMDs; Ocom and the Civil Aviation Authority are public corporations; Companies House isan executive agency and several others (including Monitor and the Legal Services Board) areexecutive NDPBs. Similarly the Prison Service is part o the National Oender ManagementService, an executive agency, while the prison estate or young people is operated by theYouth Justice Board, an NDPB. A survey o executive agency chie executives in 2002 reinorcessuch examples, with 17% o the 127 respondents reporting that the primary unction o theirorganisation was not delivery but regulation (OPSR 2002).

It is important to note also that the names given to dierent types o ALBs do not always

relect their institutional status. Indeed, many ALB names appear to actively mislead. TheEnvironment Agency and Regional Development Agencies are not in act executive agencies butexecutive NDPBs. Further, the names o speciic categories o body are deceptive. As the heado one NMD noted at an Institute event held as part o this research:

The first thing you need to know about being a non-ministerial department isthat you have a minister and you are not a proper department.

Similarly, the terminology independent can be somewhat unhelpul, as it implies completereedom rom democratic oversight, which rarely applies.

Indeed, while the public critique is that they are unaccountable, the deinitions providedhere make it clear that ALBs all have some accountability mechanisms in place. All but a ewparliamentary bodies have a sponsor department responsible or communication betweengovernment and the organisation in question. Where ALBs are responsible or taking decisionson individual cases, there will normally be established routes o administrative appeal, whichmay lead ultimately to a tribunal or other quasi-judicial appellant body. In addition, theParliamentary Ombudsman can carry out independent investigations into complaints aboutUK government departments and their agencies, and most national ALBs. The nature o theaccountability or ALBs depends on a range o actors, including inancial arrangements, powerso hiring and iring o ALB heads, and scrutiny and perormance management protocols. Thesearrangements are sometimes detailed in the legislation that established the ALB in question,sometimes in ramework documents produced by sponsor departments outlining theinstitutional remit, and occasionally they are simply a matter o custom or interpretation.

There are also oten sot accountability or answerability requirements or ALBs, which areintended to enable public scrutiny. The Lords Select Committee on the Constitution undertookan inquiry into state regulators in 2004 and developed a typical model o organisations thatthey answered to (shown in Figure 5 in grey and black). In addition, other orms o scrutiny andanswerability common to most NDPBs and public corporations exist, shown here in blue.


24/74


Figure 5: Accountability and answerability mechanisms for regulators

Note: OCPA is Oice o the Commissioner or Public Appointments; FOI is Freedom o Inormation, the legal requirement or governmentbodies to disclose speciic types o inormation

Source: Adapted rom HoL 2004

Within the wide range o dierent types o ALB there are in excess o 900 organisations,although data in this area are notoriously unreliable. Indeed, in 2002, the Governments BetterRegulation Task Force concluded that it doubted that even ministers are aware o many othe bodies or which they are responsible, and a undamental review o all public bodies in2003 was quickly swamped by the number and diversity o those uncovered, ailing to publishits inal report. Best estimates, shown in Figure 6, show that nearly hal o all ALBs are in actadvisory bodies. Another large group in terms o numbers is the 192 executive NDPBs, around

30 o which are libraries, museums and galleries that are considered a core part o the nationalheritage. Independent monitoring boards, which simply provide a legal ooting or prisonvisitors, account or another 150 ALBs. And the other large group in terms o numbers is theexecutive agencies.8

Independent

regulators

Parliament

The CourtsMinisters

Citizens

Consumer representative

bodies

Customers & consumers

Regulated companies

Interest groups

OCPA

FOI

NAO


25/74


Figure 6: Number of English ALBs by type (best estimates)

Sources: As shown CO 2010; Flinders 2008

However, when it comes to spending, the story o ALBs is entirely dierent. While theyaccount or the largest number o bodies, advisory NDPBs have relatively low expenditure andare usually resourced directly rom the budgets o their sponsoring departments. The sameis true o the independent monitoring boards, responsible or ensuring humane treatmentprisoners and residents o other orms o secure accommodation. Meanwhile, while accountingor relatively ewer bodies, executive NDPBs account or the most signiicant proportion o

government expenditure (Figure 7).

Figure 7: Estimated ALB expenditure, excluding transfer payments*

Notes: The data quality o the sources used is not considered to be high and data relate to dierent years (latest available data used).

* Transer payments comprise mainly social security payments, such as jobseekers allowance and state pension contributions. Transerpayments, amounting to some 125 billion per year, are largely managed by executive agencies o the Department o Work and Pensions(NAO orthcoming).Sources: As shown

0 100 200 300 400 500Other

Central bank

Parliamentary bodies

Special health authorities

Independent statutory bodies

Public corporations

Non-ministerial departments

Executive agencies

Tribunal NDPBs

Independent monitoring boards

Executive NDPBs

Advisory NDPBs 405

192

150

19

75

29

23

23

12

5

1

= 766 NDPBsat March2009,according toCabinet Office

+ 168 otherclassified ALBsaccording toProfessor MattFlinders, aleadingacademic inthis area(2008)

+ an unknownnumber of

ALBs that havenot beenclassified

?

0 10 20 30 40 50

Other

Tribunal NDPBs

Independent monitoring boards

Advisory NDPBs

Independent Statutory bodies

Parliamentary bodies

Special Health Authorities

Public corporations

Non-ministerial departments

Executive agencies

Executive NDPBs

Government grant

Expenditure from

other income

38.4 8.1

18.1 7.5

19.3

4 15.4

46.5bn(CO 2010)

25.7bn(Flinders 2008)

19.3bn(NAO, 2007/08 resource accounts)



134m(2008 annual reports)

42m(Flinders 2008)

These bodies are usuallysupported, and resourced bytheir sponsoring Department.(Split of revenue, sources notknown)

Not able to locate

Split of revenue

sources not known


26/74


Neither the Treasury nor any organisation provides a comprehensive public breakdown or

expenditure by each type o ALB. This means that the data shown in Figure 7 is drawn rommultiple sources and its reliability cannot be assured. However, discussions with NAO andTreasury oicials have provided some assurance that igures are not wildly inaccurate, withthe possible exception o igures or public corporations.9 The Treasurys own estimate ogovernment grants to ALBs is around 80 billion (HMT 2010a).10 Using this igure, this suggeststhat ALB expenditure accounts or around 13% o governments Total Managed Expenditure(621 billion estimated out-turn in 200809).

Given the iscal context, many point to the ALBs and particularly NDPBs as an area wheredramatic inroads might be made into the government deicit. Certainly, ALBs cannot beexempt rom deicit reduction measures (McCrae et al 2009). But it is important to note that a

signiicant proportion o ALB spend cannot be reduced through standard eiciency measures.Around three quarters o NDPB expenditure is on grants, which the NDPBs distribute to others,rather than on sta and administrative costs (see Figure 8). The levels o these grants dependon policy decisions, or example the level o unding that government provides or universities,sport, the arts or lood deences. The politics o reducing spending in these areas is thereoredierent to reducing expenditure through eliminating government waste.

Figure 8: Executive NDPB expenditure by type, bn, 200708

Note: Figures exclude movements in provision at the Nuclear Decommissioning AgencySource: Analysis o ull year 200708 data (NAO unpublished analysis)

Any iscal consolidation will also need to bear in mind that the vast bulk o ALB expenditure isby just a ew speciic agencies and executive NDPBs. In 2008, the 15 largest NDPBs controlledover three quarters o executive NDPB expenditure and the seven largest executive agenciesemployed over three quarters o agency or NMD sta (see Figures 9 and 10). Focusing on the

cost-eectiveness o just a ew large ALBs might thereore be expected to produce a signiicantimpact on government inances and perormance.

Grant expenditure 32.0

Other 2.4

Other admin & operations 4.6

Staff costs 4.0

75%

9%

11%

6%


27/74


Figure 9: Executive NDPB costs by organisation bn, 200708

Note: Each bar represents one o the 152 executive NDPBs or which NAO have ull-year data.Source: NAO unpublished analysis

Figure 10: Executive agency and NMD staff by organisation FTEs, Q3 2008

Source: ONS 2009

JobCentre Plus

Public Sector Prison Service

Top 7 by FTE = 78% of total

0

10

20

30

40

50

60

70

80

0

2

4

6

8

10

12

Top 15 by expenditure = 77% of total


28/74


A inal note on ALB expenditure is that many ALBs raise revenue o their own. Agencies with

trading und status must, by deinition, raise at least 50% o their income rom commercialsources while executive NDPBs raise money through industry levies (or example the much-maligned Potato Council is paid or by levies on the industry it represents and promotes);donations, such as those to museums and galleries classiied as NDPBs; and commercialsources. While government grants still account or around 80% o executive NDPB income (seeFigure 11), the ability or ALBs to raise revenue o their own may be an important aspect o theiroperation though in as ar as such revenue is possible only because o a statutory power, somemight regard it as a orm o indirect taxation. In may also be worth noting in the current iscalcontext that increased charging or services that were previously ully unded by governmenthas been a characteristic o previous successul consolidations internationally (McCrae et al 2009).

Figure 11: Executive NDPB income and expenditure, bn, 200708

Source: NAO unpublished analysis

2.4 The political environmentThe current Coalition government comprises two parties with maniesto pledges to ocus onreorm o the ALB landscape. In July 2009, Conservative leader David Cameron argued that:

The problem today is that too much of what government does is actually doneby people that no-one can vote out, by organisations that feel no pressure toanswer for what happens and in a way that is relatively unaccountable

Im convinced that the growth of the quango state is one of the main reasons somany people feel that nothing ever changes; nothing will ever get done and thatgovernments automatic response to any problem is to pass the buck and sendpeople from pillar to post until they just give up in exasperated fury.

And Nick Clegg, Deputy Prime Minister and Liberal Democrat leader, argued in 2009:

Central government in Whitehall is too big, too powerful and too expensive. We couldsave billions by scrapping entire government departments and culling quangos.

34bn grant-in-aid to NDPBs 8bn other income

30bn grant expenditure 10bn operations 2bn capital


29/74


These views represent a number o the strains that run through public and media criticisms o

government at arms length. There are two main strains within the critique, which reinorce oneanother:

1. Efficiency concerns: Many critics believe that ALBs perorm government unctions thatare not needed or peripheral or that insuicient transparency or control has createdineicient practices in ALBs, including high salaries by public sector standards. Thesecriticisms are sometimes, as in Nick Cleggs analysis, linked to wider critiques o biggovernment more generally and to a sense that some ALBs outlive their original purposeand accrete additional unctions.

2. Accountability concerns: A glance at comments rom the public in online orums quicklyshows that the public believe many ALBs to be beyond public inluence and subject to

insuicient public scrutiny. This crisis o legitimacy is ampliied by concerns over socialrepresentativeness o ALB board members and chairs. Such criticisms are sometimeslinked to wider critiques o a broken political system in the wake o the parliamentaryexpenses scandal and ongoing pressures or electoral reorm.

The Coalition government has taken immediate action to demonstrate their commitment toreorm o the ALB landscape. On 24 May emergency budget measures announced a reductionin the number o ALBs and savings o 500 million. On 8 June, the Chancellor made the urtherannouncement that: Departments will be asked to reduce administrative spending in centralWhitehall and quangos by at least a third (HMT 2010b). Interestingly, the Chancellor avoided thenormal call to cull a speciic number o ALBs. The timetable or implementation o other promisedConservative and Liberal Democrat reductions is to be determined. However, a number oministers have already begun to announce reductions in the number and expenditure o ALBs. Forexample, in June 2010, Business Secretary Vince Cable announced that 13 ALBs aced immediatechanges; eight had been abolished (seven regional industrial development boards and the HearingAid Council); one, Investors in People, will be merged with the UK Commission or Employmentand Skills; our would continue but without direct government unding.

Shared Conservative and Liberal Democrat commitments include:

TheintroductionofsunsetclausesforallnewALBs,inordertoensurebodiesthatarenolonger it or purpose are phased out (as planned by the Labour government).

AmoreextensivereductioninthenumberofALBs.Bothpartiesopposepolicyworkbeing carried out outside the department, with David Cameron arguing that ALBs will belimited to strictly administrative unctions, with all policy work returning to Whitehalldepartments. David Camerons speech in July 2009 outlined three tests or whether anALB should continue to exist:

1. When a precise technical operation needs to be perormed to ulil a ministerialmandate.

2. When there is a need or politically impartial decisions to be made about thedistribution o taxpayers money.

3. When acts need to be transparently determined. RulestoconstrainALBexpenditureonadvertisingandpublicrelations(asplannedbythe

Labour government).


30/74


Public pressure, political commitments and the iscal context suggest that the ALB landscape

is likely to undergo signiicant change in the coming years. Change is likely to be increased tooby turnover o those in ALB leadership roles. In previous political transitions, a number o NDPBchairs have resigned or been moved on, sometimes because they have been perceived as tooclosely tied to the policy agenda o the previous administration and sometimes because odiiculties in orming relationships with incoming ministers.

Key findings: Overview of the ALB landscape

ALBsprovideanumberoffunctionsthatareessentialtotheeffectiverunningof

the state. There are good reasons or perorming at least some o these unctionsin organisations that are at arms length rom direct ministerial control.

HundredsofALBshavebeensetup,restructuredorabolishedoverthepastdecades, with little evidence o underlying strategy having underpinned individualdecisions.

Sincethe1970s,reformsinthisareahavegenerallyfocusedoncullsofALBnumbers, although steps have also been taken to ensure the political impartialityo ALB appointees. These culls oten eliminate advisory NDPBs, bodies that spendrelatively little, or initiate restructurings, which can be costly and disruptive.

Today,thereareatleast11categoriesofALB.TheformofanALBisnotdirectly

linked to the unction it perorms and the names given to ALBs oten appeardesigned to mislead about status. Governance arrangements are highly varied.

Thereareover900ALBsreportingtoWhitehallandALBsareresponsibleforover13% o total government expenditure. They receive government unding o around80 billion per year.

ThebulkofALBexpenditureisbylargedelivery-focusedexecutiveagenciesandexecutive NDPBs. While they account or around hal o all ALBs, advisory NDPBsrarely have budgets o their own and spend little.

Spendingisconcentratedinjustafeworganisations.Over75%ofexecutiveNDPB

expenditure is controlled by just 15 organisations, while over 75% o executiveagency sta are employed by just seven bodies. The vast majority o NDPBexpenditure is distributed to other organisations in grants and is thereore drivenby governments policy choices rather than issues o operational eiciency.

Publicandpoliticalconcernsaboutthecost-effectivenessandlegitimacyofALBsare translating into urther reorm eorts, with all parties supporting reductions inthe cost and numbers o ALBs.


31/74

Challenges 31

3.1 Cost reductionAs shown in section 2, ALBs perorm a wide range o unctions but the public questionswhether some o these unctions need to be provided by government. This question is nowparticularly poignant, given governments need to reduce public expenditure in order to reducethe budget deicit and government debt.

Those countries that have successully tackled large deicits, like that o the UK, have typicallysucceeded by undamentally reassessing the scale and type o services that the state canprovide, and by making greater use o charging or ees or some services (McCrae et al 2009).Choices about which services the state will continue to supply and und are ultimately political,but it is clear that ALBs cannot be exempt rom such reassessment given the proportion ogovernment expenditure that they now control.

Based on consolidations overseas, there is clear potential to reduce the governments deicit byassessing ALBs and asking:

DothefunctionsperformedbyeachALBstillneedtobecarriedoutinthepublicsector?

Dothesefunctionsneedtobefundedbygovernmentgrantsorshouldtheybefundedbyleviesonaspecificgroupofbeneficiaries,orthroughcharging?

Whichorganisationshouldperformthefunction?Canprivateorvoluntarysectororganisationsprovideeffectivelyatlowercost?Shouldtheexistingbodycarryoutthe

function,orshouldanotherbodycarryoutthefunction?

As seen above, the Labour government conducted a review o this kind early in 2010 and theCoalition government is conducting a similar review, with a view to more radical and immediateexpenditure reductions, also in 2010.

In the past year, the Labour and Coalition governments have been investigating urtherways o reducing costs in arms length government. In 2009, Labours Operational EiciencyProgramme highlighted ive key areas o potential savings: back-oice operations and IT,collaborative procurement, asset management and sales, property, and local incentives andempowerment. Many o the recommendations o this report were aimed at ALBs as well as

departments and ocused on encouraging sharing o back oice, IT, procurement and assets toachieve economies o scale (HMT 2009b).

This drive towards back-oice eiciency has led some departments to worry that they lack thestatutory powers to ensure that NDPBs, in particular, are delivering value or money in theseareas. While they can eectively set budgets or almost all NDPBs, some senior civil servantsare concerned that this lever is too blunt and that reduced budgets would not lead to decisionsthat they elt appropriate, such as rationalisation o estates or use o departmental sharedservices.

3. Challenges


32/74

32 Challenges

Our research did reveal examples o apparent back-oice ineiciencies in some ALBs, including

underoccupied ALB headquarters that could be shared between bodies and ailure to pooladvertising budgets across ALBs carrying out similar unctions. However, it is not clear eitherthat such ineiciencies are limited to ALBs or that departments lack the required mechanismsto encourage better practice. ALB accounting oicers must account or value or money,like departmental accounting oicers, and departments budget-setting inluence remainsconsiderable. I departments have evidence that an NDPB, or example, is spending too muchon, say, buildings then it can highlight the issue as justiication or reducing the overall budget,leaving it to the NDPB to ind the most cost-eective solution or addressing the issue. Further,it appears that some o the reasons orwarded by ALBs or reusing to take speciic stepsare well ounded. For example, we ound ALBs that were being pressured into sharing back-oice services with its sponsor department when these were either directly more expensiveor appeared less expensive but were insuiciently tailored to organisational needs, meaningadditional expenses would be incurred. In this context, the Treasurys March 2010 guidelines orALBs regarding back-oice services, which emphasise a model o comply or explain, appearsappropriate (HMT 2010a).

It does appear, however, that there are shortages o good quality, comparable managementinormation on which to base value-or-money assessments in relation to back oice, IT, assetsand procurement. Departments and ALBs sometimes base judgements on dierent data; thereare ew comparable metrics or benchmarking back-oice eiciency and, on occasion, data aresimply unavailable. This makes it harder to achieve accurate and collective judgements. The

NAO has repeatedly highlighted the shortage o benchmarking data as a barrier to improvingbudgeting and eiciency in government overall, and this issue appears to be equally relevant toensuring the value or money o ALBs. As the Operational Eiciency Programme highlighted,there is a strong signal that, to meet current challenges, management inormation relating tooperational eiciency needs to be improved (HMT 2009b).

In the absence o such inormation, the debate over how much control departments shouldexert over ALB back-oice practice is likely to continue. Some questions are largely empiricalbut, without good data, decisions may be based on theories o perormance, such as viewson whether eiciency beneits o scale and collaboration generally outweigh the beneits ospecialisation. Other debates will revolve at least partly around matters o principle. There are

those who argue, or example, that accounting oicers must have control over all decisionsthat may impact on operational perormance, including apparently second-order issues such asoice location while others say that dierential accountabilities can be maintained. Similarly,there are those who argue that the reedom that an ALB needs to perorm its unction (orexample, distributing arts unding) is not materially aected by decisions relating to somesecond-order management issues while others say that departmental control over any aspecto management leads down a slippery slope, eroding reedoms, and makes maintaining clarityo institutional roles and responsibilities still harder.

3.2 Performance and cost-effectivenessAs shown in section 2, there are a range o theoretical reasons or placing speciic public

unctions at arms length rom political control. However, there is very little empirical evidenceon whether a particular institutional orm is good (or bad) or promoting eectiveness. Indeed,there have been no major attempts by government to measure the impact on perormance


33/74

Challenges 33

o operating in a speciic organisational orm. On the one hand, this is surprising: ALBs were

set up in order to improve perormance and the impact o changes to institutional status onperormance might reasonably have been expected to have been evaluated. On the otherhand, assessing the impact o governance and accountability arrangements on perormance isnotoriously diicult and any assessment is made still more diicult by the diversity in numbersand types o ALBs. Whats more, there is little comparative data on ALB perormance that couldorm the basis or any assessment, as government does not have a systematic way o measuringthe perormance o NDPBs.11 And, in any case, theory would suggest that universal conclusionscould not be easily drawn out as appropriate institutional arrangements should depend on theunction that an organisation perorms.

In this context, assessments o arms length government rely heavily on theoretical arguments

and qualitative evidence about the impact o institutional arrangements on eectiveness.Major sources include the views o people working in and inormation rom periodic reviewsand inquiries into individual ALBs, such as the Magee Review o the Legal Services Commission(Magee 2010).

Using these sources, our research revealed three main areas that need attention i ALBcost-eectiveness is to improve, all o which emerged as recurring themes in Institute orGovernment events, interviews and discussions:

1. Insuicient clarity on the respective roles and responsibilities o ALBs and their sponsordepartments.

2. Weak mechanisms or maintaining productive institutional relationships between ALBsand sponsor departments.

3. Insuicient ocus on developing skills o those involved in operating arms lengthgovernment.

These indings do not relate to all types o ALB equally, with available evidence suggesting thatNMDs and NDPBs raise greater challenges than parliamentary bodies and executive agencies.

Clarifying roles and responsibilities

The irst, and primary, theme highlighted by our research was that ALB perormance otensuered due to a lack o clarity about the purpose o the ALB and the division o responsibilitiesbetween ALBs and their sponsoring department. As one NDPB chie executive noted:

Clarity of roles and responsibilities is the most important factor for effectiveness you have to have that clear sense of purpose.

Yet discussions revealed that this clarity was rarely achieved. As a ormer government ministernoted:

The arrangements just arent very clear and Im not sure how closely people

stick to them.


34/74

34 Challenges

A series o reviews o NDPBs has also ound organisations that have insuicient clarity on their

purpose. For example, a 2010 review o the Youth Justice Board, an executive NDPB that hadnot been reviewed or 12 years, ound:

uncertainty and a lack of clarity on its role, both inside the YJB and also amongsponsoring departments and stakeholders. (Street 2010)

The House o Lords Select Committee on Regulators equally elt that it was necessary tohighlight issues o role and remit. One o its two main conclusions to its 200607 Inquiryreport was that:

Independent regulators statutory remits should be comprised of limited, clearly

set out duties and that the statutes should give a clear steer to the regulators onhow those duties should be prioritised. (HoL 2007)

Similarly, as a senior civil servant noted, many involved in ALBs have diering views on theirroles and responsibilities.

Some Director Generals think they have some line management control overtheir NDPBs, while others disagree there is a very wide variety of views onwhat they can and cant ask an NDPB to do.

According to Treasury guidance, the ramework document or each NDPB should clearly set out

the NDPBs purpose, governance and accountability arrangements, and those activities whichwill require clearance rom the department (HMT 2009a). However, a recent NAO analysis o41 large NDPBs spending over 60 million illustrates the extent to which many responsibilityarrangements are let undeined, or example in relation to changes in policy or the scale othe organisation (see Figure 12). Our wider research suggests that this situation is replicated insmaller NDPBs and, indeed, lack o clarity in these bodies is oten more acute.


35/74

Challenges 35

Figure 12: Areas where departmental approval must be sought

Note: Sample o 41 NDPBs spending over 60 million per year

Source: NAO 2010a (igure 2)

Where there was a ailure to deine or stick to roles and responsibilities, we ound a range oassociated problems, including:

Duplication, particularly in the policy function. Sponsor departments and their ALBssometimes have dierent views about where policy responsibility should sit. While there isgeneral agreement that major policy issues are a matter or ministers, some believe thatALBs are best placed to advise on speciic issues because o their more detailed technicalknowledge, while others believe that policy advice should always come rom, or through,the department. It was noticeable that it was not always ALBs that pushed or an increased

role in policy-making. Advocacy roles or ALBs have sometimes been added during thelegislative process, as a deliberate counterweight to central government. And departmentshave oten encouraged ALBs to carry out policy analysis due to their deeper expertise andknowledge o speciic subjects. Such dierences o view oten maniested themselves insigniicant duplication o eort between ALBs and sponsors. On occasion, entire standingteams existed covering similar policy areas in both the ALB and its sponsor department. Inother instances, departments deemed ALBs to have perormed speciic pieces o researchor advice poorly and elt it necessary either to replicate the work themselves or to contractresearch and advice rom third parties. As the reviewers o Department or Education andSkills (DES) capability wrote in 2006:

0

10

20

30

40

50

60

70

80

Engage in

property or finance

lease agreement

Borrow funds

or make grant/loan

to third party

Incur expenditure

funded by

additional income

Change to

policy or practice

change to

scale of operation

yes, trigger defned yes, trigger undefned no not known


36/74

36 Challenges

Responsibilities, funding arrangements and relationships with NDPBs are

not always managed in the way they were originally established by theDepartment. There are also examples of overlapping responsibilities betweenthe Department and its NDPBs. This sometimes leads to a perception of man-to-man marking, with the Department creating unnecessary parallel capacity.Activity in different parts of the Department is not always coordinated and cancause confusion. (CO 2006a)

There is a lack of clarity in the supplier base as to who is now calling theshots over policy. This may be inhibiting effective delivery of ministers policyintentions. Magee Review of Legal Services Commission, 2010

Neglect of specific issues. Some examples were raised o speciic issues alling betweenthe cracks o a department and an ALB it sponsored. These issues tend to be identiiedretrospectively, when an issue has suddenly become a problem and no-one has ownership.Examples include diiculties o inancial planning in DES, where a Capability Reviewsuggested problems stemmed rom a lack o contact between NDPB inance directors andthose o the department, along with poor inancial management expertise (CO 2006a).Reporting on problems encountered in the urther education capital building programme,Sir Andrew Foster stated:

There were warnings of overheating as early as February 2008, but there wasdelay and confusion in addressing them I have been forced to conclude that

the crisis was predictable and probably avoidable. Certainly, it could have beenmitigated if action had been taken earlier. (Foster 2009)

Weak policy coordination. A range o assessments have highlighted that Whitehall isgenerally weak at coordinating policy across departmental boundaries (see, or example,Parker et al 2010). This study ound that these problems are also ound in relation tocoordinating policy between departments and the ALBs they sponsor. Interviewees notedthat ALBs oten elt that they were not suiciently involved in the policy-making process,while representatives o departments oten elt that ALBs were insuiciently responsive tochanges in the government policy agenda. Many related such problems to a lack o clarityas to when and how ALBs should be involved in the policy-making process. There can also

be coordination diiculties when a number o ALBs work in a speciic policy area and wherethey are reluctant to act together and pool resources, or support a central governmentinitiative.

Problems with maintaining clear accountability arrangements. Most theoreticalrameworks that provide guidance on creating strong accountability mechanismsemphasise that the irst step is to ensure that accountable individuals know what they areresponsible or (see Figure 13). The ailure to clearly deine responsibilities is partly revealedby diiculties in determining responsibility when things go wrong in ALBs, as shown inhigh-proile inquiries such as that into the Rural Payments Agency or the Qualiications andCurriculum Authority (QCA).


37/74

Challenges 37

These problems that tie back to ailures in clariying roles and responsibilities are clearlysigniicant. However, our research suggests that lack o clarity is caused by deeper actors as setout below, such as hasty creation; lack o eective reviews o impact; conusion o responsibilityacross the wider institutional landscape; and misleading terminology.

The hasty creation of bodiesMany people we spoke to who had been involved in establishing new ALBs testiied to asomewhat chaotic process around the ormation o ALBs, particularly where they were set upas a political response to a perceived crisis. The decision to set up a new body may be taken inthe heat o the moment, under pressure to be seen to be responding, without considerationo whether an existing body could or should have its role slightly extended. Those involved inthis process rarely had previous experience o establishing new bodies and limited knowledgeo theoretical and technical issues in arms length government more generally.12 There wasno centre o expertise or them to draw on. Those involved in setting up bodies also eltthat central guidance was excessively ormulaic and would have liked more positive supportin deining statutory arrangements and ramework documents. Such issues mean that theinstitutional orm that some ALBs have taken are oten the result o arbitrary rather thanplanned actors and many involved in the process were dissatisied with the degree o clarityprovided on institutional remit. This is problematic because, as other research studies havepointed out:

When a public body is regarded as having been established through a fudge,the lack of clarity around why it has been created and what it is there to do canobstruct its ability to succeed. (Veredus 2006)

The absence of structured checks of ALB role and institutional form

Until eight years ago, each government department was obliged to conduct reviews o thepublic bodies or which they were responsible every ive years. These Quinquennial Reviewswere scrapped ater the 2002 Alexander Report ound that An estimated 5 million perannum is spent on Quinquennial Reviews, yet there are ew examples o the process itsel

Figure 13: Four principles of accountability

1. Clarity of accountability: The person accountable must know what he or she isaccountable or, and to whom he or she is accountable and these accountabilitiesmust be documented and publicly available.

2. Sufficiency of control: The person accountable must have suicient control overthe outcomes or which he or she is held responsible.

3. Clarity of consequences: The person accountable must be made aware o thelikely consequences that will result rom carrying out responsibilities at above orbelow deined levels (and consequences should be proportionate).

4. Sufficiency of information: There must be enough inormation available tojudge whether responsibilities have been perormed.

Source: Institute or Government synthesis o a range o sources, including Pollitt and Bouckaert 2004 and Bovens 2007


38/74

38 Challenges

producing signiicant business change (CO 2002). Interviewees highlighted that many o these

problems were due to the act that the reviews were conducted by the department meaningthat they were not independent, they did not assess how departmental practices might beinhibiting eectiveness, and ailed to provide challenge to ministers on decisions to set upand retain speciic bodies. In 2003, Quinquennial Reviews were replaced in 2003 by end-to-end or landscape reviews linked to Public Service Agreement targets set or each governmentdepartment but these are entirely optional or departments. As a result, several large NDPBshave not been subject to review or 10 years or more, and many NMDs have never beensubjected to independent review as they were not picked up in Quinquennial or CapabilityReviews.13

In addition, reviews tend to be reactive, oten instigated ollowing the emergence o high-proile

issues, as in the case o the review o the Advisory Council on Misuse o Drugs. The MageeReview o the Legal Services Commission (LSC) highlighted the absence o regular externalreview as a major contributor to the conusion over the respective roles and responsibilitieso the LSC and the Ministry o Justice: changes in the policy environment were not relected,perormance issues were not highlighted and dealt with early enough, and problems becameembedded and more diicult to resolve (Magee 2010).

The absence o ormal review is exacerbated by ailures to ollow Treasury guidance, whichadvises that departments review ALB ramework documents every three years. According to anNAO survey, only 54% o NDPB sponsor teams reviewed ramework documents at least everythree years (NAO 2010a). And nearly a third o big-spending NDPBs had not been inormallyreviewed within the last ive years (see Figure 14) (NAO 2010a).

Figure 14: Last evaluation of NDPB being optimum delivery vehicle for 41 NDPBsspending over 60 million per year (%, self-reported by departments)

Note: Evaluation here is categorised in broad terms, and ranges rom an independent, expert assessment and stakeholder consultations toless ormal discussions between department and NDPB

Source: NAO 2010a

None in the last 5 years

Within last 5 years

Within last year

Within last 3 years

Unknown

27

729

29

7


39/74

Challenges 39

The overall confusion in the institutional landscape

Weaknesses o existing ramework documents and ailures to update them are elt more acutelybecause o the overall lack o consistency in the management o ALBs. There is oten littletheoretical or empirical justiication or the degree o reedom enjoyed by speciic ALBs. Giventheir unctions, a number o ALBs appear to have been given either too much or insuicientindependence rom political inluence, increasing the risk that disagreements will arise overinstitutional roles and reedoms.14 ALBs and sponsors look to precedent and practice in similarbodies or clues about how a speciic relationship should operate. However, the inconsistentdesignation and application o institutional status means that neither experience nor practiceelsewhere are reliable guides or how a speciic body should be treated. Sponsor departmentsand ALBs thereore oten settle on dierent views regarding an ALBs role and reedoms,

generating conlict over roles and responsibilities. Our research suggested that this issue appliesparticularly to ministers who move requently between departments and to ALB appointeeswho have experience o previous bodies.

The overall impression rom our research was that the beneits o a lexible approach toeach organisation are thereore oten outweighed by the complexity that results romcurrent variations in governance and relationships with sponsor departments. Complexityleads to signiicant reinventing o the wheel or each organisation, particularly becausemechanisms or sharing best practice across ALBs and sponsor departments are weak (seesection 3.3). A lack o clarity on standard practice also enables renegotiations o institutionalstatus, with some changes to status being made without direct ministerial involvement in

decisions. For example, 16 o 41 NDPBs surveyed by the NAO in 2010 had departmentalrepresentatives attending board meetings, some being actively involved in decision-making.Although board representation is currently most oten a matter o departmental discretion,board representation undamentally aects the departments ability to distance itsel romoperational responsibility when things go wrong. For example, the act that the Departmentor Children, Schools and Families (DCSF) had observers at the Qualiications and CurriculumDevelopment Agency (then QCA) board led DCSF Select Committee Chairman Barry Sheermanto state:

We are not saying Ed Balls (Schools Secretary) and Jim Knight the SchoolsMinister were manipulating everything They werent doing that, but at the

same time their fingerprints are on part of this in the sense that the departmenthas observers at all these meetings.

Flexibility is clearly required in some areas but areas o lexibility are rarely explicitly agreed, norare clear reasons provided or dierential practices. Further, the degree o lexibility currentlyallowed creates additional costs or sponsors. As one sponsor pointed out:

At times were going back to primary legislation to work out what we can andcant do, if there is any! And we have to keep going back because the rules seemsto be different for most of our ALBs.


40/74

40 Challenges

Misleading terminology

Seminars repeatedly highlighted that the names o institutional orms and speciic ALBsencouraged alse impressions about the degree o autonomy that an ALB should enjoy.Managers reer to ramework documents only on an (at best) periodic basis, so institutionalnames provide an important signal to managers and the wider public about an ALBs role andreedoms. The labels o non-ministerial department, non-departmental and independentappear to be particularly misleading, as applied currently.

Maintaining productive institutional relationships

The second major issue or perormance cited by participants in our research was the challengeo maintaining constructive relationships between ALBs and sponsor teams in the department.

Our research supports that o Veredus, which ound that:Around 60% of people we spoke to said that they had experienced difficultieswith the sponsor/NDPB relationship. (Veredus 2006)

Our research showed tensions ranging rom chairs and chie executives eeling unable toaccess key decision-makers within the department, to tensions over the setting o businesstargets, to aspects o corporate governance and sta pay. Departments meanwhile complainedabout turnover in ALBs, as well as the unrealistic expectations o smaller ALBs regarding theimportance the department would attach to them and the level o ministerial access theywould be given. These issues did not apply only to executive NDPBs but also to NMDs, public

corporations and parliamentary bodies. Issues also aected some executive agencies although,in general, executive agencies experienced ewer diiculties, presumably because their reedomsrom departmental control are extremely limited. It should be noted, however, that while therewere oten diiculties, most people were able to manage around them and relationships rarelybroke down entirely. Hence, around three quarters o the large NDPBs recently surveyed by theNational Audit Oice reported good or very good overall relationships with their sponsordepartment (NAO 2010a).

Nonetheless, our research clearly ound that many ALBs and sponsors elt that they had not yetachieved an appropriate balance between reedom and control. Current practice varies widely,even across larger bodies as shown in Figure 15.


41/74

Challenges 41

Figure 15: Frequency of NDPB and departmental sponsor meeting for 41 NDPBs spending

over 60 million (%)

Source: NAO 2010a

Some variation in sponsorship practices is, o course, desirable. Institute or Governmentseminars repeatedly identiied the need or proportionate sponsorship, whereby smaller bodies

o less strategic signiicance require less scrutiny. However, those working in this area reported:

Some NDPBs report unnecessary micro-management and others reportbenign neglect. Capability Review of the Department for Trade and Industry(CO 2006b)

Our research highlighted reports o both:

Neglect of ALBs: It is clear that some ALBs undergo relatively little scrutiny and aredeemed to be out o sight and out o mind o their sponsor departments. Smaller, higher-perorming or less politically sensitive bodies may require less scrutiny and supervision but

we ound that there had been relatively little scrutiny o quite large ALBs (as detailed insection 3.1 above). Where relationships become too distant, it is more diicult to generateappropriate perormance pressures, to ensure coordination o policy and delivery or toidentiy potential risks or political sensitivities.

Micro-management of ALBs: On occasions, departments direct ALBs in a way thatdamaged the organisations ability to carry out a core unction with an appropriate degreeo independence. For example, ollowing problems in exam-marking in 2007, a cross-partyselect committee concluded: We believe that DCSF has involved itsel too much in thedetail o delivery, placing undue constraints on the executive decision-making abilities o itsagency [QCA] (BBC 2009).

Monthly

Quarterly

Weekly

34

Less than quarterly

15

49

2


42/74

42 Challenges

Even where micro-management does not extend to inappropriate direction-setting, it can

increase bureaucratic burdens or ALBs in terms o reporting on actions and decisions, withALB representatives complaining about repeated requests or inormation which served noobvious purpose. As one ormer c

Documents

Read Before Burning: How to increase the effectiveness and accountability of quangos