UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1503-iii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

ACCOUNTABILITY

MONDAY 6 FEBRUARY 2012

SIR BOB KERSLAKE KCB and SIR NICHOLAS MACPHERSON KCB

Evidence heard in Public

Questions 1 - 92

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Oral Evidence

Taken before the Public Accounts Committee

on Monday 6 February 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Matthew Hancock

Meg Hillier

Fiona Mactaggart

Austin Mitchell

James Wharton

________________

Amyas Morse, Comptroller and Auditor General, gave evidence. Gabrielle Cohen, Assistant Auditor General, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

Examination of Witnesses

Witnesses: Sir Bob Kerslake KCB, Permanent Secretary, DCLG and Head of the Home Civil Service, and Sir Nicholas Macpherson KCB, Permanent Secretary, HM Treasury, gave evidence.

Q1 Chair: Welcome to both of you. Congratulations, Sir Bob, on your promotion. We are going to have a session to try to understand rather better the division of responsibility you have. May I just make the rules of engagement clear to you? As you know, our style is that we want to hear direct answers to the questions we ask, and I will interrupt if I think you are waffling or not answering the question. If we take things on that level, people will perhaps understand where we are coming from. On the whole, I think we do not interrupt, but I wanted to say that at the start.

I cannot remember how many sessions we have had on this subject, but we all accept that this is an incredibly difficult set of issues that you are trying to tackle and that we want resolved in a way that enables us to follow the taxpayer’s pound. This is about trying to marry that accountability for the taxpayer’s pound with localism. I do not mean this as a policy question, but as I was reading the papers over the weekend, I was struck by something. If we are moving into a world where we are saying that local people are entirely responsible for what their local authorities do, parents are entirely responsible for understanding what schools are up to and for deciding whether they are happy with all sorts of things, and patients are responsible for deciding whether they are happy with what happens in hospitals, have you given up on value for money? Does that no longer matter?

Sir Bob Kerslake: The short answer, if you are looking for pithy answers, is no. Value for money, and securing it, remain a fundamental responsibility of accounting officers in Government. We would not, in any way, see the changes that are happening as removing that responsibility to secure systems that achieve value for money.

Q2 Chair: Could you just speak up, Bob? I am really sorry.

Sir Bob Kerslake: I beg your pardon. What I was saying was that the short answer is no. I do not think that in any way means we have given up on value for money. The role of accounting officers to secure value for money remains the same; we do not, in any sense, see that as having changed. If there is a change here, it is about how the system works to secure value for money, rather than an expectation that an individual accounting officer can run and operate every day-to-day transaction to secure value for money. What we are about is ensuring we have effective systems to secure value for money, but the responsibility for value for money still stands. I am sure Nick would not have a different view.

Q3 Chair: Do you agree with that? Or is it just that a school that becomes less popular will close and a hospital-I am thinking of my own-that cannot sort itself out will go bust? My hospital has actually probably been bust for 20 years, but you will allow it to go bust.

Sir Nicholas Macpherson: I am sure that will happen.

Q4 Chair: You are sure it will happen?

Sir Nicholas Macpherson: No, sorry. Let me give you a straight answer. Value for money is critically important. Successive Governments have had different strategies for improving public services, and that matters. We have all got to be conscious of the limits of the market and of choice. Why do Government get involved in the provision of services in the first place? Primarily because there is some sort of market failure. What this Government are trying to do in a sense-this follows very much in the tradition of much of the reform under the last Government-is to inject choice where that can make a difference in levering up performance. Whatever role you have for the market in public services, you will always need to retain some sort of step-in right. It is striking that when you read these statements in relation to health and education, there is that step-in right. It is critical to the system to have enough understanding of where and why there is failure.

Q5 Chair: I hear that, but if I am honest with you, when I looked through, I thought that the education one was the weakest. They have all come a long way since we started the discussions. The education one is probably the weakest. I said jokingly that the health one is the most centralising in a localised world. I do not know how much of the NHS budget Nicholson will end up controlling. Do you know what proportion he will end up controlling? Over 90% I reckon. He is going to do it in a really Stalinist way, as is his wont.

Sir Nicholas Macpherson: Yes.

Q6 Stephen Barclay: Can I just clarify the value? One individual will be accountable for how much health spending?

Sir Nicholas Macpherson: If it is 90%, it will be heading towards £100 billion. That is not unique. The accounting officer for the Department for Work and Pensions is responsible for a system that hands out in excess of £100 billion.

Q7 Stephen Barclay: It may not be unique, but does it work? If I could perhaps just take a very quick example of that, I was quite surprised that Sir David Nicholson was both the accounting officer for the NHS IT project and the senior responsible owner for it, yet he did not sit on the NHS IT board. So that was quite a significant value-for-money issue. How is he being held accountable for that failure-if at all-and can you be accountable for what was the biggest IT programme if you do not even sit on the IT board? How does that work?

Sir Nicholas Macpherson: In a formal sense, as an accounting officer, the buck stops with you in terms of the value for money of individual projects or programmes. I do not think it is surprising that he is the accounting officer for the programme. I am not close enough to the individual issue of IT to understand or be able to explain why he was SRO as well as the accounting officer. Normally, generally, accounting officers would delegate responsibility for programmes, but I suspect that, in the case of IT, it has been such an important issue that he felt he had to be the SRO.

Sir Bob Kerslake: I think that that must be right, but can one individual have accountability for that size of money? They can if you see that accountability means that they ensure there is an effective system of driving value for money and that the system is working in the way it was intended. Can they know where every pound is being spent? No, it is absolutely impossible. Can you reasonably hold them to account for running a system that ensures probity and has intervention regimes where you are concerned about failure, as Nick has said? Absolutely. That is the whole point.

Q8 Stephen Barclay: I do not think anyone would dispute that. That is a perfectly logical and valid rationale. What is unclear is what the tipping point is. We had a major NHS IT programme that went spectacularly wrong. We have looked at it repeatedly as a Committee. Clearly, that is not a tipping point for the accountable officer in this instance. He is going to be the head of the new commissioning body. What is unclear to us as we look at these projects twice a week is how many projects and at what sort of scale do you need to get wrong before you are held accountable?

Sir Bob Kerslake: That is an almost impossible question to answer in the generality, is it not?

Q9 Stephen Barclay: Well, taking health.

Sir Bob Kerslake: I cannot answer the specifics. I do not know what the underlying issues were around who did what and who was therefore judged to be responsible. But what I can say in the generality is that you cannot say it is two projects or three projects, because it hugely depends on the area they were responsible for, the actions they took and the level of risk involved in the project.

Q10 Mr Bacon: That is a very, very interesting point, Sir Bob. That point came out when Anne McGuire, the right hon. Member for Stirling, was on the Committee. She asked a question about risk management at the time when the NHS IT contracts were let. Simply because I have followed it with an anorakish enthusiasm since 2002, I followed up with a question about the risks for him, because it happened to be the case that the document "Delivering 21st century IT", which was published in June 2002 and promulgated the national strategy for IT in the health service-it got renamed the National Programme for IT in the NHS-had, in the first version, an appendix that was basically the project profile model. It listed a total risk score of 53 out of a maximum of 72-that is to say, it was extremely high risk. When the later thing was published, of the four appendices of which the project profile model containing this very high risk scoring was one, the four had magically turned into three, and the project profile model was no longer there, so it was not possible for anyone looking at it to see what the risk was or how high it was, although it had been internally known that the risks were very high from the start.

I do not have a huge amount of sympathy for Sir David in the way that the NHS IT programme has been run, but I do accept that he was not there at the beginning. The contracts were something that he inherited; he happened therefore, because he was the chief executive for a long time, and still is I believe, to be the senior responsible owner for a long time, but the programme did not start with him, it started before him, with Sir John Patterson as the director-general for IT and the permanent secretary at its initiation possibly being Sir Nigel Crisp-I cannot remember, and it might have been even earlier. The point is, however, that the knowledge of just how high risk it was was contained in and available internally in the Department. That was not made publicly available but came out later. It is quite possibly one of the main reasons that things went wrong-that information about how risky it was was held too closely.

Sir Bob Kerslake: It is a fair challenge to say that transparency around projects, on where the issues lie, is a key feature. A key feature as well-frankly, the civil service has not been good at this-is risk awareness, not just at official level but at Minister level, and then active risk management. Often plenty of work on risk is done, but what actually flows from the risk analysis is less good.

Q11 Mr Bacon: One might take the Work programme report that the NAO has done, which we are taking evidence on this coming Wednesday, because it flags up a whole range of different risks-the risk of a big-bang approach, the risk of deciding the thing you are going to do before you write your business case, then writing it afterwards, or the risks of not having the IT properly in place. All of those things, which we have heard of many, many times on this Committee, simply identify that if those risks are there, overall the project will be more risky, not necessarily that it will go wrong, but that it will be more risky. That information is now, because the NAO has done a study identifying those risks, in the public domain. Would you agree that that is to the good and for the benefit of taxpayers, if that sort of information is available earlier to the public and to Parliament?

Sir Bob Kerslake: The more visibility there is about risks on major projects, the more likely it is that people will be aware of the potential consequences and manage them more actively. You still have to form judgments on individual projects but, as a generality, a key issue is about risk awareness and active management of risks. As you know, I was in front of this Committee last year-

Chair: You will have to speak up, Bob, sorry.

Sir Bob Kerslake: I beg your pardon. I was saying that visibility of risk and active risk management are critical. You will know that I came in front of this Committee last year on a project called FiReControl where those issues were very apparent. The other thing that is very clear now is that we need much more consistency-when someone takes on a project, they need to see it through.

Q12 Stephen Barclay: Picking up on that point, I very much welcome that you say greater transparency to Parliament would be of benefit but, as I understand it, the major projects team, which is looking at an early stage of the significant spend, will only report to the Committee once a year. Do you think that is sufficient transparency?

Sir Bob Kerslake: It would be difficult for me to give you an answer on that particular project. Really, that needs to come from the officer responsible for that project.

Q13 Stephen Barclay: That is part of the Efficiency and Reform Group in the Cabinet Office, which is looking at all the major projects, the bigger spend. I presume that it is RAG rating those projects and highlighting at an early stage where the greatest risk is, but there seems a reluctance to share that data with the Committee at an early stage, because it doesn’t want to flag where the risks of projects are. That seems slightly at odds with the reply that you gave a moment ago.

Sir Bob Kerslake: I can only give you a general answer. I think you are receiving evidence on that particular report, and that is clearly something that you would want to put to them.

Q14 Chair: I want to move back. We have the same thing on the Work programme, where we don’t have data, although I understand that some of us don’t actually know what’s happening on your own patch. I gather that there is something in the papers today. If you want transparency and an early assessment, data are absolutely central.

May I bring you back to where I started? I know that Amyas then wants to come in. When one looks at education and says, "Is there value for money?", they say, on Ofsted inspections, that Ofsted does not look for value for money. They then look at input-how much money they give, how much money goes per pupil. That’s not value for money; that’s how you, Government, decide to distribute it. They then look at parental choice. There is a classic in one of the papers. Customers will want a library to be open whether or not that is on a value-for-money basis-that seems a sensible decision. All those things are going on. Within this report, value for money-in the education one in particular-is just not addressed. You see the words every now and then, but are they going to ensure it? I don’t know.

We are beginning to get information back from the academy schools. We have had the first instance, which I know the NAO is looking at, of an academy school-it is not a free school-that has gone off and spent £200 k on a house in France or something like that. You raise your eyebrows and so did we. That is a value-for-money issue. They may be getting very good results for their kids, they may be staying within their budgets and they may have probity, but the current framework and system outlined here won’t get it for us. In the end, you are left thinking that this Committee will have to go off and spot check hospitals, schools and local authorities.

Mr Bacon: And make trips to France.

Chair: And not make trips to France. But that isn’t there. I just don’t get it. I don’t read it in the documents as they are presented to me.

Sir Bob Kerslake: Again, these are questions that you will direct to Education, but let me say a few words.

Q15 Chair: We could have had Education and Health here this afternoon, but we decided not to and, in a way, in your new role, Sir Bob, I think you have to take responsibility as head of the civil service beyond that. I want an answer from you on that, unless I am completely misinterpreting your new role.

Sir Bob Kerslake: I will give you an answer, but what I am saying is that if you want to pursue this in more detail, it would make sense to have somebody from Education here. On where accountability lies in an individual school, clearly schools have head teachers and governing bodies that are responsible for securing value for money, and they are open to challenge, either by parents, if they do not believe that the school is being run well, or, indeed, by the Department, if it believes that money is being spent inappropriately.

Q16 Chair: But that is the question I am putting to you. As a parent, what I care about is whether my kid has good teachers in front of them and whether they are getting the qualifications that I want them to get-that is what I care about as a parent. Ofsted looks at quality-great, fine-but it doesn’t look at value for money. The Department looks at what money it puts into a school-absolutely fine-and looks at its distribution formula. There is nobody in the system that looks at whether the school is giving us, the taxpayer, value for money, until the shit hits the fan-I am sorry, I should not have said that-when we discover, for example, money going to buy a property in France.

Sir Bob Kerslake: There is a funding team that takes responsibility for the funding that goes to schools.

Chair: Quite-input.

Sir Nicholas Macpherson: Can I have a go at answering this? I totally understand your concern and I recognise why you focused on schools rather than on hospitals, primarily because there are so many schools across the country-I think there are 20,000 or maybe more. I think it is fair to say that assessing value for money in schools has always been difficult, whatever the regime. I don’t think, in the days when local authorities were responsible for every nook and cranny of every school, local authorities had very good indicators of value for money.

Implicit in the regime, and to a degree explicit in the statement-I recognise this is still, even now, work in progress-is the view that, give or take the odd percentage, schools funding is pretty regular across the country. It is on a per pupil basis, so the idea that one school is getting hugely more than another one is, I think, generally not the case.

Q17 Stephen Barclay: The difference is with the funding formula.

Sir Nicholas Macpherson: There is difference within the funding formula, but in any given area the funding formula should be reasonably similar. So the view is-[Interruption.] Coming back to how the regime works, the regime is based on choice. You would expect, over time, the high-performing schools to attract more pupils than the low-performing ones, so you would expect that the unit costs of the poorly performing school would go up, and that would give you an indicator-comparatively speaking, and, as a trend over time-of value for money. I can see you are looking sceptical and I understand why you might be sceptical, but if a market depends on people exercising choice, and if the funding follows the pupil, the schools whose pupil rolls are falling are going to get into trouble. Ultimately, the Department for Education can of course step in. So I think there is a regime there. Inevitably you cannot have a league table of 20,000 schools and a precise measure of VFM.

Q18 Chair: That is why I asked you the first question. Are you just leaving it to the market, and don’t you really care about VFM? Because if you are leaving it to the market that is fine, but we need clarity on that.

Sir Nicholas Macpherson: It is a controlled market. This is not an unfettered market. If it were an unfettered market, we would just give vouchers out to people and let them get on with it.

Sir Bob Kerslake: Before you come in there, I want to just check the paragraph reference there. If you look at page 9 of the education statement, it contains a pretty clear list of the things that are expected in relation to the agency, and how the funding framework works. Included in that, for example, is that they have to produce budgets, and those budgets must be agreed by the governing body and submitted to the Secretary of State. So this isn’t a system that wholly relies on the market to ensure things are done properly. There is quite a lot of testing of things here, and quite a lot of holding to account on performance, both educationally and financially.

Q19 Matthew Hancock: I wanted to raise exactly this point, using the example of education, if we can, because precisely because there is per pupil funding it makes it easier, in a sense, to devolve responsibility and work with it as a case model, because there isn’t a question of how many things are needed. We know how many pupils there are, and you can count them-unlike, say, hip operations, when need is more difficult to determine.

I have exactly the opposite concern to Margaret’s, because, as Margaret was arguing, you can look at outcomes, and league tables show outcomes. If you had a precise per pupil input, you could measure inputs against outcomes, which is exactly what value for money is, so you would be able to get a very precise version of value for money. Now, how it was delivered-I am talking about value-added outcomes, of course-may be very innovative. It may even have some things which would be regarded as raising eyebrows, like having a house in France, but you would be able to link inputs to outcomes. But there are two concerns I have with that. The first is there is not an equal per pupil funding formula-setting aside the pupil premium, where it is a policy decision not to have equal per pupil funding. That therefore makes it harder to make this value-for-money judgment. Should we not be looking at results and the value-added leagues, and comparing that with the amount of per pupil funding that actually goes in, rather than assuming that there is a flat rate? However much we would like there to be one, we are a long way from there.

Sir Bob Kerslake: The whole point about the variants in funding rate per pupil in schools is to reflect the differing challenges faced by those schools in achieving results. By far the biggest and most dominant feature of school funding concerns the number of pupils. That is overwhelmingly the most dominant feature, but it still gives you a pretty good measure of how that school is performing in terms of outcomes or outputs for its costs.

Q20 Matthew Hancock: But shouldn’t we be able to look publicly at the amount of money that goes in, as well as the outcomes on the other side, in order to make exactly that comparison?

Chair: I agree with you about that, Matt.

Sir Nicholas Macpherson: I see no reason why we shouldn’t be able to produce data that show money in, and over time that sort of analysis could be instructive. My recollection from having looked at this in the past is that you have to factor in simple things. People are at secondary school for seven years, and following a change of regime it will take several years before improvements begin to feed through.

At the heart of this, accounting officers and Departments have to satisfy themselves that the system is robust. I would welcome it if, without trying to run every school, the Department produced analysis-either in conjunction with the NAO or off its own back-that will provide answers to the questions that you set out, Mr Hancock.

Chair: Matt’s idea would be one way of doing that. That is not set out in the education statement as it is now.

Sir Bob Kerslake: I’ve just checked with the team, and expenditure per school is published.

Q21 Matthew Hancock: So you could map it over. I have a second concern. Given that in the new set-up you want to get audit and accountability into highly devolved bodies in several different public services, how do you ensure that you do not overdo things and swamp them, and recreate exactly the sort of top-down control that the whole reform is trying to get rid of?

The easiest answer-even more so at the Dispatch Box in the Chamber of the House of Commons-is to take responsibility for every single thing that goes on in any public service. How do we make sure that we get accountability and value for money, but that in doing so we do not swamp precisely the sort of innovation and local responsiveness that we are trying to encourage?

Sir Bob Kerslake: Both health and education are trying to achieve that, in health by focusing on the outcomes, and in schools by focusing on the attainment that those schools achieve. They are trying to avoid detailed micro-management of individual schools. You are quite right: if we go back into that world, we will have undermined the whole purpose of the new model. That doesn’t mean-this is the point I was making earlier-that you completely say that anything goes. There are some expectations and processes, and as the number of academies grows, the trick will be about how you get that balance right and resist the temptation to start micro-managing in response to challenges and queries that will inevitably take place.

Q22 Amyas Morse: I just wanted to comment. Listening to what you said about the system, I think it is a very fair proposition to say that you can be fairly accountable for a system. There are a lot of new roles in the system for accountability, as has been discussed. When we did some work on academies, we found quite low levels of compliance with financial returns, sending information and things of that sort. The question that I am concerned about comes when we go through a process that starts not performing terribly well; is it because the process is broken or because it is just unaccustomed and needs to get more effective? I am interested to know what your thoughts are on those questions and how you will determine them. The point that concerns me most is how we are going to get quality information into the centre. Much of this can only work, any more than intervention can in the case of failure, if you know in good time, against key points of information, whether or not something is working as it should. What I am concerned about is that there will be shortfalls, challenges and creditors building up, on what may simply be trying to get the system to work properly. How will we get this working from early on?

Sir Bob Kerslake: My personal view is that we need to be clear on what the data are that will tell us whether or not we are hitting a problem, and we have to be absolutely relentless in getting the data back from schools and others on time. If you cut the amount of data that you require, one thing you cannot do is say that you are not too bothered whether or not it comes in. That system does not work. If you are going to have fewer data, you have to be very rigorous about getting them back on time and very active in assessing what the data tell you, because they are the only thing you then have to judge how the system is performing.

Sir Nicholas Macpherson: You do need a basic discipline at the heart of the system. It is almost tempting to ask for additional information on this or that, and it is always tempting to change the data. Coming back to Mr Hancock’s point, you can only really understand what is going on if you collect the same data over a long period of time. Everybody is full of good intentions at this stage, but this Committee has a role in holding us to account.

Just picking up on Amyas’s point, the National Audit Office and the Treasury will have a role in this. With the consolidation of the Government’s account, you will have to give an opinion on the Department for Education’s expenditure. If there is not the information on individual academies, which is the clear responsibility of the Department for Education, I would be expecting you to qualify their accounts. It is that sort of thing that will concentrate people’s minds. This is accountability in action.

Q23 Austin Mitchell: We will have oversight bodies for local services-for health and education. We looked at the issue of education with academies and of care quality as well. We were concerned that the oversight bodies did not have the capability, the capacity or the information to exercise sufficient power over value for money. Take the academies; they are going to explode. By 2015, we will be saying, "We are all academies now." Have the oversight bodies got the capacity to ensure value for money in that explosion? Have they got the information or the resources? I saw that Sir Michael Wilshaw, the new head of Ofsted, has called on Ministers to appoint dozens of local troubleshooters, or school commissioners, to identify problems early. Is that not going to mean that we will have to have an enormous number of troubleshooters, local commissioners and whatever just to oversee value for money in this exploding situation?

Sir Bob Kerslake: It is clear to me that as the number of academies grows, so the Department is going to have to strengthen its arrangements for overseeing these academies. Is that capacity in place now? Clearly it is not.

Q24 Austin Mitchell: Is it in place locally?

Sir Bob Kerslake: The full capacity is not there at the moment-

Q25 Chair: That means more money.

Sir Bob Kerslake: I was going to say that over time-

Q26 Chair: Will you give them more money?

Sir Bob Kerslake: They have to do it within their existing budgets-let’s be clear. As the number of academies grows, so the capacity of the funding agency will have to reflect that.

Sir Nicholas Macpherson: There is a balance to be struck. Your point about having armies of commissioners around the country-

Q27 Austin Mitchell: It is not my point. It is Sir Michael’s.

Sir Nicholas Macpherson: On Sir Michael’s point, I have not read his evidence. I do not want to comment on that. What you want to avoid here is replicating local education authorities. If you are just going to have endless quangos that ultimately are the same as LEAs, you are not really getting the benefits of the policy, since part of the logic of the academy programme is to free up control and devolve responsibility. So there is a balance to be struck. Of course, you want the information. We have been talking about how you might develop that information. You do need capacity. Ofsted has already got capacity, but I think the YPLA will need capacity, too.

Going back to our earlier point, the heart of this system is around money following the pupil. It is a quasi-market, which means stepping back a bit in terms of the dead hand of central Whitehall control.

Q28 Austin Mitchell: I am concerned about local control. What Sir Michael was suggesting was local commissioners or some kind of local oversight body. In future, all these academies are going to be grouped in bigger groups, which will not be local groups. They will be national groups, creating and supporting academies locally.

My kids went to Hereford school, which has now suddenly emerged as a maritime academy. It is not actually near the sea, but it is a maritime academy. A parent came to me to say they had been to complain about something at the school, and nobody on the staff would see them. They were referred to Birmingham, where the group had its headquarters. So she had to ring Birmingham. They sent her a complaint form. She sent it back to them and then they sent it to the school. The school still would not see her. The school replied to the form and it went up and down like that. How are you going to maintain value for money and local supervision-the local commissioners that Sir Michael is talking about-in a situation where there are sprawling groups all over the country? It will be a mess.

Sir Bob Kerslake: The agency will have to have the capacity to carry out its responsibilities. That is absolutely the case, and that will mean in some cases having some locally based people and in some cases dealing with the clusters or consortiums that there now are.

Q29 Austin Mitchell: So it is up to the group to maintain value for money in its academies?

Sir Bob Kerslake: Clearly, they have a responsibility to secure value for money in each of their academies. They will be held to account for that, as Nick has said, through parents and through the Department in terms of their performance. But the funding agency-this is the point that I was making earlier-will have to be sized according to the number of academies that we have. What we want to avoid is getting back into a world where they are micro-managed by large numbers of people. That is the point I am making.

Q30 Fiona Mactaggart: Do you accept that one of the things that people seem to do in any system is gaming? For example, we have seen it in the number of schools that target specifically those pupils just on the borderline of five As to Cs and they push them over.

Sir Bob Kerslake: Every system has the temptation for gaming. No system has ever been invented that does not have that possibility.

Q31 Fiona Mactaggart: In those circumstances, how do the accountability statements that we are looking at tackle the issue of gaming? I do not see anything that admits to having a way of tackling that.

Sir Bob Kerslake: Every bit of it will test whether people are following the system that we have set up. If there is gaming going on, and it is observed-

Q32 Fiona Mactaggart: How will you observe it?

Sir Bob Kerslake: It could be observed in schools: one of the things that came up last time was whistleblowing. There are the whistleblowing policies that might occur. It might be through the funding agency picking up the issues. It might be through local MPs raising issues and challenging it; or it might be through parents raising issues. There is a whole number of ways in which people are gaming the system, if you like, acting in a way that distorts the intent. That will become known, and then it is for the Department to act on that. It is not going to be one source that that comes from.

Q33 Fiona Mactaggart: I am struck by these accountability systems depending too much on data. Within data, there is a lot of room for gaming. You could have a class of people. For example, let’s take the Work programme. There could be people on JSA divided into different risk groups. Within those risk groups, there are people on employment support allowance, who have a past work history and have temporarily been ill. The risk of them getting into work is much higher than someone who has never worked and happens to be on ESA because they are a heroin addict. Yet, both of them in data sets are in the same category.

My concern is that your systems are not sufficiently sensitive to the differences within counting categories to prevent gaming. I don’t think people whistleblow about that, hardly at all. I am not convinced there is anything sufficiently robust. Being local and getting gossip and having some power probably is sufficiently robust; but these are systems that don’t have people with power who have listening mechanisms locally in them.

Sir Bob Kerslake: If you are talking about schools, they have governing bodies.

Q34 Fiona Mactaggart: The governing body is the gamer.

Sir Bob Kerslake: Sometimes.

Q35 Fiona Mactaggart: Sometimes. Very often they are consenting in the gaming, because it means their school wins in your counting systems.

Sir Bob Kerslake: In what sense is that different from the position we are in now? That is the bit I am puzzled about.

Q36 Fiona Mactaggart: In one small sense-and I don’t think it is a big enough one, personally. I think a local education authority that has a lot of elected politicians can pick up local gossip. I think local gossip spots this kind of thing and is quite a powerful form of accountability. I don’t think we have built in any of those democratic mechanisms in these accountability statements, and I am worried about it.

Sir Nicholas Macpherson: But isn’t that a broader policy issue you are raising? The fact is that successive Governments, not just this Government but the previous Government-

Q37 Fiona Mactaggart: I didn’t like it much when they did it, either, but carry on.

Sir Nicholas Macpherson: Successive Governments, no doubt reflecting a consensus across the House of Commons, have moved from a system where local authorities were very much in the driving seat when it came to resourcing schools and holding them to account, to a system that is increasingly centralised. That has gone on right back to Margaret Thatcher, the late 1980s and Mr Baker. I may be wrong, but I can’t remember any example where a Government have sought to move things back to local authorities. That is a policy decision, no doubt reflecting the will in some way of the people. That is the policy context.

Our job is set against that background and a belief that somehow schools can be better run if the local authority-your source of local power, information and gossip-is kept out of it. Given those constraints, our job is to come up with the best way possible of holding these organisations to account. Inevitably there is a degree of compromise, because at the heart of the policy is the idea that if only you free up the front line it will be all right.

One way not to free up the front line is for the Treasury to send 413 questions to each school. There is a balance to be struck. I am sorry to keep coming back to this. The reason the state gets involved in the first place is that there is fundamentally a market failure. There is always going to be a degree of compromise-a slight sense of messiness. These are fiendishly difficult things to make work successfully. That is why Governments of all persuasions over the years continue to fine-tune the system.

Q38 Chair: Can I ask you a couple of quick questions and then go to Meg and Stephen? First, you talked about whistleblowing. It is only in one statement. Can we presume that in all the accountability statements there will be something about whistleblowing? Yes? Because we think it is important.

Sir Bob Kerslake: Yes.

Q39 Chair: Can we also presume that all the funding bodies have an explicit obligation to consider value for money being achieved, because that does not appear yet in the statements? Even though it may be in the system, if you are a school, a hospital or a Work programme provider, you know that this is one of your duties. Can we say yes or no to that?

Sir Bob Kerslake: That is a perfectly reasonable request.

Chair: Thank you.

Q40 Mr Bacon: The statement that it is a perfectly reasonable request is not the same as yes. Could we just be clear that what you meant when you said that that was a perfectly reasonable request was, indeed, yes?

Sir Bob Kerslake: From my perspective, it is a perfectly reasonable request, but I cannot speak on behalf of every Government Department.

Q41 Chair: You are the Head of the Civil Service-

Sir Bob Kerslake: I can say that I would make it a clear expectation from me that it should happen.

Q42 Chair: And you would agree with that, Sir Nick?

Sir Nicholas Macpherson: Coming from the Treasury, I can agree with-

Q43 Chair: We all accept that this is fiercely difficult. No one pretends that this is easy. But let us move to health. Who would be responsible if there were a system-wide failure on MRSA?

Sir Bob Kerslake: I am not close to the judgment on this, but clearly if it is a system-wide weakness that has been known about but not addressed, there must be some accountability for the accounting officer.

Q44 Chair: David Nicholson would be responsible?

Sir Bob Kerslake: Yes.

Q45 Chair: It is not clear to me, actually. Would he be responsible or would the 10, 15, 20 or 30 hospitals be responsible?

Sir Bob Kerslake: If there was a known system-wide failure that he was aware of and had not acted on, then clearly he must take some responsibility for that, surely.

Q46 Chair: Let us take another one. We have done a number of reports on high value procurement-does that ring a bell with you?-relating to MRI scanners and things like that where we say pretty clearly that at the moment the NHS is wasting money, because the NHS buys them all over the place and could do better if it bulk bought. In the new world, who will be responsible for ensuring that we get value for money through the procurement in the NHS?

Sir Bob Kerslake: That goes back to the point I made earlier. The accounting officer must be sure that there are effective systems of getting value for money from procurement even if they are doing all-

Q47 Chair: I am not trying to trick you. It is just that there is a real tension there.

Sir Bob Kerslake: I hope I am giving you a straightforward answer. Who is responsible for ensuring that procurement overall is done effectively in the health service: clearly that is with the accounting officer, but they cannot and will not be involved in every procurement decision and they will not run a system where everything is run from the centre.

Q48 Stephen Barclay: But should they not be challenging outliers? It is a statement of common sense to say that they will not be reviewing every decision. The question and the exchange that we had with Sir David Nicholson, to which the Chair has referred, was where you had significant outliers within the NHS. He, as the accounting officer, said, "It is not my job to question why they are outliers. That is an issue for the local foundation trust board, and it is for them to question the hospital executives and ask why they are paying over the odds or why there is maverick spend on the ward in small orders and out-of-date prices. It is not my job as the accounting officer at the centre to get that data on outliers that was provided by the NAO and question why this foundation hospital is spending so much more than the one down the road." What you seem to be saying, Sir Bob, is that it is the responsibility of the accounting officer. Is that the case?

Sir Bob Kerslake: What I am saying is that if he thinks that the individual trusts have sufficient grip, bite and attention to value for money that they will pick up these issues and know themselves that they are an outlier and do something about it, then he clearly would want the responsibility to lie with them. If he thinks there is a systemic weakness that means that they are not doing that, then he needs to look at how the system works. That is probably what I am saying. There is a huge difference between-

Q49 Stephen Barclay: But that is not the evidence he gave the Committee. He said he was not doing that, and that is not unique to Sir David. We have concentrated on health, but as you will recall from the aircraft carriers, where we had a discussion with Sir Nicholas over whether affordability should be grounds on which to seek a letter of direction, the permanent secretary did not seek a letter of direction and should have done. So again, there is confusion, it seems, as to what the role of the accounting officer is, particularly such as in health where it is devolved.

Sir Nicholas Macpherson: As you know, we have revised our guidance to ensure that affordability, both in the short term and the medium term, is a relevant factor in seeking a direction which reflects the dialogue with this Committee, and I think that is important.

I cannot speak for Sir David Nicholson and I have not seen the context of his evidence, but just to give the view from the Department which seeks to represent the taxpayer, in the short run, if you are an outlier that may be explicable for all sorts of reasons and I would expect the board to play a role.

I think if there was a persistent set of outliers and there was no sign of improvement, that sounds to me that you have got a system problem and at that point, rather like with local authorities, which Bob has been very much involved with, you would begin to turn up the volume and maybe take action. In extremis you should be able to step in.

Q50 Chair: Three of us want to come in.

Let me just follow the MRI thing, because the MRI is interesting. A company came to see me that provides MRI scans for the NHS, right? They said to me that one of the reasons they are efficient is that they have 50 of these MRI scans, so they are buying five a year-they have a life of about 10 years. That means that they have got a bit of clout in the market and they can extract a better price. Okay?

When we looked at that area, it was absolutely clear that if you could achieve that same sort of bulk buying in the NHS, you might be able to save a lot of money in procurement. There is no way, with the current accountabilities-even though you say, "You’ve got some outliers, you might come in"-that procurement is actually effectively going to give us value for money with the individual independence of the individual trusts. It’s just not going to happen.

Sir Bob Kerslake: That’s just the bit I would challenge. Sorry, do you want to come in on that? [Interruption.] I just don’t agree with you there. It is a perfectly fair challenge for Sir David to say to trusts, when they come to him and say "We haven’t got enough money", "Why on earth aren’t you collaborating on MRI?" It is exactly the same thing as we do with local authorities.

When we came to you around FiReControl, we made it very clear that we wanted them to collaborate to get value for money from the new arrangement. So I think it is perfectly possible for him to challenge them and say, "Why aren’t you collaborating to get best value for money?", because I think that is perfectly-

Q51 Stephen Barclay: The question is why it’s not been happening, because we had significant outliers on the health side. There were some hospitals with three times the number of staff per bed compared to others. In one hospital, 61% of it’s admissions were A and E and in another hospital it was 19%. Of course, it is logical-there are various factors which may explain why there is a variance-but what was puzzling was why the permanent secretary did not understand why there was such a variance.

It is not just a health issue. When we looked at youth offending, the Department was picking up 3,000 different data sets from local authorities on youth offending, but when the NAO highlighted that one part of Somerset-North Somerset-had a different success rate from the rest of Somerset, and asked whether the Department understood why, answer there was none, because the Department did not understand; it had not analysed what was working so that it could take the innovation in one area and socialise it more across the country.

To me, what you are saying is exactly what should be happening. It is not for the Department at the centre to be second-guessing each procurement decision or to be second-guessing those decisions of the local trusts or the local youth offending, but it should be analysing where best practice is, identifying that and populating that more widely, and that’s not what’s been happening.

What’s surprising me about your answers today is that you are stating, again, what should be happening, not explaining why it’s not been happening and what is going to change.

Sir Bob Kerslake: It is a perfectly fair challenge to say that each system should have ways of actively analysing data and testing whether there is a systemic issue of poor value for money. That may or may not be done by the Department, of course; in the case of local government, we have looked to do it collaboratively with the LGA and for the LGA to do some of the challenging. But it is a perfectly reasonable test of the system statements to ask, "Have you got enough in-built challenge in the system to get value for money?"

Chair: I think it sounds a bit like words, rather than practice.

Q52 Meg Hillier: I am great localist, and I am a believer in localism in many respects-possibly, I have minor disagreements with current Government policy, but, generally, I am moving in that direction-but it is not as if everything was perfect before. If you look at police procurement, for instance, and do an analysis of how many police forces have helicopters and how they procured those, it is quite fascinating. It is fascinating that ego seems to override common sense and value for money, if I can put it that way. You talked, Sir Nicholas, about a degree of messiness, and I have to say that it slightly alarms me to hear that from the permanent secretary to the Treasury. You talked about getting the balance right being difficult, but there must be a way. For example, if one of my constituents wanted to know the cost of something the council, an academy or a GP commissioner is doing, how will anyone know the unit cost and be able to do any comparison? Where does that direct accountability to the public come in? Surely, it will come in only by having data that are more robust but simple enough for the average man or woman on the street in Hackney to get.

Sir Bob Kerslake: You are right that if you are going to make public accountability work, you have to have comparative data. We have issued guidance on that to local authorities, and the LGA is doing a lot of work to strengthen the comparative data. We think things are likely to get to better place if the sector itself does that in relation to local government than if we try to dictate everything from the Department. But, if I can take your point about the principle, the principle that if you are going to look for more local accountability, you need more access to usable data, must be right.

Q53 Meg Hillier: Can I go back, then, to the schools example? We have a lot of academies in my borough, and we are very pleased with how they are doing. They are run separately; they are not part of a chain. You can have issues. For instance, in one case, a whistleblower came to see me with some concerns. It was difficult at a local level for me or anyone else to find direct comparative information. The next place you could raise concerns was with the governors, but if there was a concern with the governance, it was then a very big step from the governors to the Government. We cannot quite do enough yet at local level before things escalate right up to the Secretary of State, which is a very big leap. I think most of us, whatever our politics, would agree that it is not really realistic that the Secretary of State could or should micro-manage schools to that extent; it is not really possible for him-it is currently a him-to do that. Going back to the example of schools, do you not think that although the YPLA may have a role, there need to be carrots and sticks, and perhaps even tougher sanctions, for governors so that they do a good job? Governing bodies are not all perfect, by a long way. It is quite a demanding job, and I am not sure that all governing bodies are up to the job. I have to stress that I am not talking about Hackney particularly, but I am not sure that all governing bodies are up to being as accountable as you both hope they will be.

Sir Nicholas Macpherson: To come back to what we were discussing earlier. Paragraph 71 of the education statement says, "In terms of data transparency, Academy financial data will be available from the spring of 2012 and will then be made available alongside maintained schools’ data and headline attainment indicators." Here is a clear statement of intent. Spring 2012 is only a couple of months or so from now. It should be possible for the NAO and, indeed, this Committee and the Treasury to check whether these data are being provided; if they are not, it is the duty of all of us to hold the Department to account.

Q54 Meg Hillier: In Treasury language, this seems simple. If a constituent of mine in Hackney is a parent and they are concerned about, or just want to know about, something at their child’s school, they can look it up. If you ever look at school websites, you find that they are impenetrable. You can never find actual data you want. Sometimes you cannot find the names of staff. How simple can it be made so that if the average parent has a concern-let us say, about the amount of money being spent on a particular subject area, or on special needs in their child’s school-they can find that data at school level and then compare it? Without that direct accountability, we might as well have all not devolved-either party-schools, education, down to more local management. Without that direct accountability, we might as well have it all run from Whitehall, it seems to me.

Sir Bob Kerslake: You are asking about how they find that data.

Q55 Meg Hillier: Easily. A lot of my constituents are not very literate, but they know that something might be wrong. They might be concerned that their child is not receiving something-special educational needs is a good case in point.

Sir Bob Kerslake: It is a fair test, and the question might be, "What are the expectations on all schools, not just academies, in the clear and transparent publication of their data?" We could take that point up with the Department.

Your earlier point was about the distance between the school and the Department. That bears on Nick’s earlier point that a policy choice has been made about this, in effect to move away from a model in which the local authority is in the middle of the process-the intermediate tier is not there. That is an almost inevitable consequence of the system that we have created here. What it does put an onus on, is your point about the way in which the school operates and the openness and clarity with which it publishes its data.

Q56 Meg Hillier: So really, this is a challenge for us-who watches the schools?

Sir Nicholas Macpherson: You have identified the central issue to the transparency agenda. Transparency will only drive up performance if there is genuine transparency and you can get the information. If you don’t get the information, none of this can possibly work as a strategy. I can recall working on this area in the last decade and working very closely with Sir Michael Barber, who was head of the Prime Minister’s Delivery Unit-a very fine man indeed. I did some work with him on this and we were much influenced by the more successful management information systems in some of the US states. It has been slightly undermined by the programme, "The Wire", but Baltimore’s CompStat system was regarded as very good.

I remember, in an earlier era, going to California and looking at the performance of FE colleges in California, where there was very developed, very accessible data. The challenge that you are setting Whitehall is to produce a small number of indicators in a way that is very accessible and enables comparisons. If you can do that and stick to it, this could actually represent major progress, but if we can’t deliver it, the policy will almost certainly fail.

Q57 Meg Hillier: Do you require GP consortia, academies-or, indeed, any school-and police forces under the new commissioners, to produce the data in a particular way at local level as well? It only works if you do it at both ends.

Sir Bob Kerslake: That is the question. I personally do not know how much this is specified for GPs, but your challenge-whether the data is published in a way that is readily accessible and understandable-is a good one. I share Nick’s view that if you move away from some of the current arrangements, it puts a much higher premium on that being right.

Q58 Meg Hillier: If every Government come in and fiddle around with the league tables, one of the reasons politicians do that is because if it is left to experts-the schools or institutions themselves-they will produce data in a way that puts them, as Fiona Mactaggart was saying, in their best light. For example, if you look across school rotas and you see how they present, they will present the best figures they can for their school. It took the Government to intervene to say, "Actually, you are not including English and Maths in that, so the results look much better than they were, but did not actually give parents a real picture." It cannot be down to politicians in every case; we need to be talking about the system here.

Sir Nicholas Macpherson: It is an improvement that we are even talking about this. We have not had these system statements before. The fact that we are talking about it represents major progress, because none of the issues we are discussing are new. I am quite convinced that these statements are a start, but they can improve further. I would encourage you, as you talk to Departments, to really home in on the data issue and ask, "What’s going on? Are you standardising it?" and put the burden of proof on them.

Q59 Chair: We will. I know Amyas wants to come in. Are you driving these system statements or is the Department?

Sir Bob Kerslake: There will be a requirement under the reform rules that every Department has to do them by the summer, so it will be a combination of Nick and me driving it.

Q60 Chair: Who is reviewing them?

Sir Bob Kerslake: Interestingly, one of the things that we have said is that the audit and risk committees of each of the Departments should be testing and challenging, which is one way of getting some separate tests-the non-executives will look at it. I think that we will do a joint exercise once they have all been done for the first round.

Q61 Chair: You will review them centrally.

Sir Bob Kerslake: Yes, and we will ask the question, "Are they doing what we thought they should do?"

Q62 Chair: Just to make it absolutely clear from our point of view: yes, you want data, which are accountable and understandable locally, but you also want data that enable comparisons.

Sir Bob Kerslake: Yes.

Q63 Chair: As long as everyone is clear on that. That will need some central direction.

Sir Bob Kerslake: If you want to get consistent data, there is no other way through it, is there?

Q64 Chair: Right. Amyas, did you want to say something?

Q65 Amyas Morse: Two things very quickly. One, I referenced back to David Nicholson-I hope that I am not misquoting him-who said, as far as not reinventing the wheel in every place and therefore getting value for money that way, that he would very much welcome a "comply or explain approach". In other words, you are free to make whatever decisions you like locally, but if they are eccentric or producing very unusually odd results in terms of value for money, you should expect, as part of your accountability, to explain why you made those decisions. You should not be inscrutable about that. As regards information as data, may I ask if you intend therefore to have a comprehensive data strategy of some kind?

Sir Bob Kerslake: Each Department will have its own data strategy. Are you talking about one across Government?

Q66 Amyas Morse: Yes, because there is an increasing amount of shared functionality and a shared approached in central Government, so don’t you think that it is desirable that there should be an approach that sets minimum standards across Government and that says what we expect for data to be usable?

Sir Bob Kerslake: Ian Watmore is not here, and he will no doubt challenge me on this if I get it wrong, but, from memory, I think that there is a plan to produce something cross-Government. We will come back with the detail on that, Amyas.

Q67 Amyas Morse: In making this work, that is pretty vital to be honest.

Sir Bob Kerslake: On your first point about comply or explain, I think that that is absolutely right. If you are an outlier, you should know that you are an outlier and know why you are.

Q68 Chair: Can I raise some other issues that you think of as complex issues? We looked at neurological conditions in health recently. It is an interesting area. I do not know whether anybody picked up the NAO Report. There has been a 38% increase in expenditure with very little impact on outcomes, and that was because it was very decentralised. They let the money flow into localities. They did not have a baseline-the data we just talked about-they never measured the improvements and they did not do any collection across the piece, whereas you look at the heart, stroke or cancer strategies, and that is Nicholson at his best and most centralist, and the outcomes have been pretty good. We have not done the Report yet, but we are left thinking that in those circumstances you need more central prescription. In fact, in his evidence to us, Nicholson called it "national leadership"-I think that was the term. How does that all fit in? It seems to be another area of saying to all these trusts, "Go off and do your own thing. You’ll have your own budget," but we do care about the outcomes on something as complex as neurological conditions, so we want some toughness there, too. I cannot see the balance of that in the health statements.

Sir Bob Kerslake: I must confess to not having read the NAO Report on neurological conditions, so I cannot answer on the detail.

Q69 Chair: No doubt you will get cross about our Report when it comes out.

Sir Bob Kerslake: The point I would make is that there is not an assumption here that everything is automatically better done locally. There can and will be circumstances where a judgment is made that it can be done better as a nationally run initiative. We would say that the default shouldn’t be that it’s right to do it centrally; the default should be to test whether it can be done better locally.

Q70 Chair: Who will check on that? The accounting officer? I don’t know; take whoever becomes permanent secretary at the DFE or Helen Ghosh at the Home Office. They can take the decision on what is done centrally rather than-

Sir Bob Kerslake: It won’t be a decision taken by the permanent secretaries. It’s much more likely to be a ministerial decision, and that will be a policy choice about how something is best delivered, on advice from officials.

Q71 Chair: What about if you look where there are issues going across Departments? Again, we had one last week. We looked at FE colleges. We had a bit of difficulty with that one, because BIS was appearing before us, but BIS, while accepting policy responsibility, wasn’t accepting much other responsibility. You’re left with a problem of consistency and proper accountability across Departments. Another one would be adult care. You can have local authorities delivering a lot of that, and the NHS delivering quite a lot of it. Again, it’s another complexity I put to you. I don’t get from the papers we’ve had any feel of how you resolve those complexities.

Sir Bob Kerslake: One of the ways we’re trying to resolve it is through the pilots that we’ve just initiated on whole place community budgets, which are precisely trying to see whether a different approach would allow better joining up and better choices locally. We’re running-

Q72 Chair: Where are you experimenting with this?

Sir Bob Kerslake: We are doing four of those across the country, and the whole purpose is to test whether the sorts of frustration you describe across services can be better dealt with through a local combination. There are ways of improving the situation. The issue of joined-up government is as old as government, I suspect, but there’s at least the possibility that we might address some of those issues better by trying to join it up locally.

Q73 James Wharton: I have found it a fascinating discussion so far. I think I have a broad understanding of the system that you’re trying to set up and the checks and balances-the mechanisms-within it. I am a little concerned, though, about some of the discussion about information that’s going to be available and the quality of that information, because ultimately the higher you go up the chain of accountability, the further away you’re going to be from the people who are collecting that information. We’ve had some discussion about the risk of people gaming the system-looking to provide information that sheds the best, most positive light on the work that they’re doing. Ultimately, are you able to give us a clear answer as to who will be responsible both for checking the quality of the information that is being provided-whether it is accurate in measuring what it is said to be measuring-and for reviewing the information that should be provided and adapting it as situations and circumstances change? Who will take on that role?

Sir Bob Kerslake: That is quite clearly a departmental responsibility. If it has specified certain information, it is its responsibility to ensure the integrity of that information, especially if it’s being used for important decisions, and to check that it is continuing to ask the right questions in terms of information. That must lie with the Department. It’s a crucial thing that Departments do.

Q74 James Wharton: What is the process of review going to be for assessing that? The danger with this-it’s a bit like the talk of whistleblowers being a mechanism for addressing problems when they arise-is that whistleblowers inevitably come along after an event and tell you something has gone wrong. I imagine that if the Department is overseeing this as an ongoing process, there needs to be a constant review of the information that is being collected, not just of its quality, but of the questions that are being asked. How will that process work in the Department?

Sir Bob Kerslake: There should be a constant review. It will vary between Departments, but they might well use, for example, their internal audit teams to look at the quality of the data collected. That would be a very good thing for audit teams to do. They might also ask the question, by the way, as to whether they are carrying on collecting data that is completely useless. They should do all those things. We’re talking about audit teams and all their policy and review teams. It will vary between Departments, but they should all have a mechanism for doing that as a routine.

Q75 James Wharton: What about ensuring that that takes place? It sounds fine-the information will be constantly audited and looked at. Will there be an individual or a part of a Department that is responsible for that? Will it be made clear who is responsible for it? Will they have a programme of reviewing the data that are being provided, or will it just be something that you expect audit teams to do as part of their routine work? Will we be able to say to you, "What is that Department’s plan for ensuring that the information it collects is both accurate and appropriate?"

Sir Bob Kerslake: It will vary between Departments. Some do have information officers who take responsibility for all the information that their Department pulls together and others will no doubt have it led by a number of people in the Department. I cannot give you a single answer, although I am happy to come back to the Committee and give you some information on this.

Q76 James Wharton: Do you think it will be possible to provide a reasonably precise, single answer to that question? It is all well and good to say, "The audit teams will pick it up and the Department will pick it up and look at it," but we are looking for a formalised policy statement document, which shows that there will be a process.

Sir Bob Kerslake: What we will do is come back and advise you what goes on now and what consistency there is on this issue.

Q77 Chair: Can I ask for some specifics about a couple of issues with foundation trusts? We are clear that from now to 2016-I think that I have the right year-they will be overseen by Monitor and accountable through Monitor. That stops at 2016, and then what? We almost started on this in our first hearing: the idea of having 120 foundation trusts outside in the corridor seeing us one-to-one. I think that Richard said that. It is beyond practical belief.

Sir Bob Kerslake: You cannot reasonably expect to track every single foundation trust.

Q78 Chair: But how is it going to happen? So Monitor stops and they are all self-appointing oligarchies, because if you are on a board of one, you are appointing the next board. They do their accounts into Companies House, and it is all public money, of course, mainly.

Sir Bob Kerslake: That is a question that you should ask David on how he will secure the position on those.

Q79 Chair: Are you concerned as the head of the civil service? Are you concerned as the Treasury?

Sir Bob Kerslake: If he has not got a clear answer, of course we will be.

Q80 Chair: So could we at least assume from you that you would look to a system for accountability for what will be £100 billion or more?

Sir Bob Kerslake: Yes.

Q81 Chair: Thank you. Can I ask about the Audit Commission? Why is it taking so long to wind it up and what is that costing you?

Sir Bob Kerslake: The first thing to say is that we are market-testing the local audit work. That is being done under the same framework as was used previously. The Audit Commission will shortly be announcing the outcome of that process. What that does is a radical change: it moves a large part of the work that was previously done through the Audit Commission-through its district audit service-to external providers, so therefore the Audit Commission will reduce substantially.

The second thing that we are doing is having regular conversations with Amyas and the NAO about it taking on its new role in terms of value-for-money audits of local government. All the things that we can do ahead of legislation, we are doing. The consequence of that will be an Audit Commission that is significantly smaller than it is now, with a significant saving of costs. The remaining part of it would require legislative space to be taken through. The intention is to produce a draft Bill later this year.

Q82 Chair: It has now moved to later on this year. Does that mean it is no longer spring?

Sir Bob Kerslake: Spring, yes, but I was being cautious.

Q83 Chair: Does that mean June or July, rather than October?

Sir Bob Kerslake: It is well in hand and I will stick with spring, if I can.

Q84 Chair: We are looking forward to working with other Committees to give that pre-legislative scrutiny, but you have not quite answered the question of what the delay is costing you.

Sir Bob Kerslake: I don’t think that the delay is costing anything, actually. We are already saving money. The Audit Commission has reduced in size in anticipation of the changes. I do not want to prejudge the outcome of the tendering process, but we fully anticipate that producing savings as well.

Q85 Chair: It is not quite the answer. You are saying that keeping the status quo is not adding into the bill.

Sir Bob Kerslake: What I am saying is that we are not keeping the status quo, because significant change is already happening ahead of legislation.

Q86 Chair: You said you are market-testing. That, again, does not give you a value-for-money answer. How do you know that that is going to be better value for money than the Audit Commission’s audit practice?

Sir Bob Kerslake: The Audit Commission is doing a tendering process, I should have said actually-it was loose language-and as part of that tendering process, it will do a full value-for-money evaluation of the bids that come in.

Q87 Chair: Against each other, not against the current-

Sir Bob Kerslake: Against the current baseline as well.

Q88 Chair: Against the current baseline. Okay.

Sir Bob Kerslake: So then we will look at how much it costs-

Q89 Chair: Good. I think this is really helpful. We accept that there is a lot of progress. I hope you accept, with us, that this is a really thorny issue, and I do not think we are there yet. Can I tell you how we intend to progress? We will produce a Report, with probably some recommendations of where we think we are not there yet. Then we will, as Sir Nick suggested, pursue this vigorously at every inquiry we are doing and probably come back to the government-wide implications a year from now, with you, hopefully, in the usual way, having taken on board our very sensible recommendations and perhaps even having enacted them, so that we do not have to haul you back on those. There is a lot of work that still needs to be done to get this better-to ensure that we really follow the taxpayer’s pound and get best value.

Sir Bob Kerslake: We would both say that this is a challenging issue. I hope that you would accept that some serious effort has been made to get to grips with it in each of the Departments. As I said earlier, we would look to their audit and risk committees and their non-execs to play a key role in this. It is work in progress, though, and it will get stronger over coming months.

Q90 Mr Bacon: I have one quick question at the end about the whole issue of accountability in relation to a very important area of expenditure-namely, Network Rail. We had the Permanent Secretary from the Department for Transport in front of us recently, who tried to describe Network Rail as a private organisation. Of course, the NAO does not have access to it. It seems to us likely that some of the problems in Network Rail, which eventually led to the departure of the last chief executive, might have been uncovered earlier if the NAO had had access. The same, of course, is probably true of the Financial Services Authority. This is probably a question for Sir Nick rather than for Sir Bob: do you regard the present position in relation to the scrutiny of Network Rail, which uses taxpayers’ money, as satisfactory?

Sir Nicholas Macpherson: I think that the National Audit Office should audit public sector organisations. Network Rail is classified to the private sector. I would not advocate NAO audit, so long as it remains in the private sector. There is a separate policy question about the governance of Network Rail. If that were to change-for example, were the Government to seek to control it in a way which resulted in its transfer back on to the Government’s balance sheet-I would most certainly want the NAO to play a role. For me, it comes down to the boundary between the public and the private sectors.

Q91 Mr Bacon: For me, it comes down to whether public money is involved or not-that is the real issue. I know that there is this strange, not to say bizarre or ludicrous, structure that Network Rail currently has, with these members. You can look them up on the internet, but how they actually get to be members is not clear. You may have seen the recent "Panorama", where a commuter and campaigner tried to become a member of Network Rail, but was turned down fairly summarily and early on in the process.

The issue is surely not the boundary, in quite the way you describe it, between private and public, as if Network Rail were a normal private sector organisation, which plainly it is not. It does not share any of the characteristics of most private sector organisations. The enormous amount of public money that is spent on it is surely the issue, as is the access of the National Audit Office to the auditing of public money.

Sir Nicholas Macpherson: If an organisation is in the public sector, the NAO should audit it; that is my view. Network Rail is clearly close to the boundary. There are other private sector organisations that derive nearly all their income from the public sector, but they are not subject to public sector audit.

Q92 Chair: They should be subject to FOI.

Sir Nicholas Macpherson: These are all policy issues. I know this will disappoint you, Mr Bacon, and I share your concern about getting these things right. You have described a fairly arcane structure-some might call it byzantine-but it is a matter for the Government of the day to take a view on it. So far, this Government have chosen not to change that structure, but a man of your influence may succeed in securing some change.

Chair: Thank you very much, indeed.

Prepared 7th February 2012