Evidence heard in Public

Questions 1 - 78



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Oral Evidence

Taken before the Public Accounts Committee

on Wednesday 14 September 2011

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stella Creasy

Jackie Doyle-Price

Matthew Hancock

Chris Heaton-Harris

Joseph Johnson

Mrs Anne McGuire

Austin Mitchell

Ian Swales

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

Examination of Witnesses

Witnesses: Dame Helen Ghosh DCB, Permanent Secretary, Home Office, Sir Bob Kerslake KCB, Permanent Secretary, Department for Communities and Local Government, and Sir Nicholas Macpherson KCB, Permanent Secretary, HM Treasury, gave evidence.

Q1 Chair: Welcome again, Sir Bob-twice in a week-and welcome to the other two permanent secretaries. This is not a usual session, in that we are trying to work through with you a system that will provide proper accountability, within the new structures, to Parliament in the landscape that we have.

I might preface this by saying that although we very much welcome the work you have done so far, Sir Bob, on DCLG and on the Home Office, I hope that you recognise that the devolution will be to bodies that will have elections to them. That is very different from the landscape on both education and health. We will want another session when those documents are out-I hope Sir Nick will agree-to look at those before we come back to you with our final view on whether we think the systems are robust enough to provide proper accountability to Parliament. If we can see this in that context, I think it will be helpful. It is very much work in progress.

This is a tough agenda. Thank you for your paper, Sir Bob. I wanted to start by saying that as I read it, there seem to me to be some internal inconsistencies, which I want to tease out, that inevitably arise out of a localism agenda and a traditional accounting officer agenda. Perhaps you can provide some clarity to us about them. Let me first of all take what I think were some internal inconsistencies in the document. In paragraph 36, you say: "Ultimately the commissioning body will be held to account for ensuring that…contracts deliver the intended outcomes and that they have secured value for money." In the commissioning body, I take there to be some accounting officers. That is fine, and it seems to be a case of "traditional accounting officer-tick." You then go either to paragraph 5-are you with me?

Sir Bob Kerslake: Which document are you looking at?

Chair: Your document. Your little bit of paper; that is what I was reading.

Sir Bob Kerslake: Right. I beg your pardon; I have got it here.

Chair: I am sure you had help writing it, but I take it as yours.

Sir Bob Kerslake: It is mine.

Chair: At the end of paragraph 36, you say: "Ultimately the commissioning body will be held to account for ensuring that…the contracts deliver the intended outcomes and that they have secured value for money." That, to me, is a traditional accounting officer statement. I then look at paragraph 5, at the end of which you say-this is the tension-"Accounting Officers…should not be seen as directly responsible for, or managing the actions of, individual local institutions." Look at paragraph 42, which is a similar one, where you say: "The public accountability for providing quality services and good financial management should remain firmly with the provider." It is just inconsistent. I think you have to ask where the buck stops. Does it stop as in paragraph 36, or is it different? I don’t get it.

Sir Bob Kerslake: Shall I kick off by saying a few words? To get a bit of context here, the issue we are seeking to grapple with is how we establish a clear system of accountability in a world that has a complex range of providers and institutions responsible for that particular area of service delivery. The truth is that that has always been the case, in a way. It has always been the case that you have, say, 353 local authorities-

Chair: You will have to speak up.

Sir Bob Kerslake: I beg your pardon. There has always been complexity and large numbers of organisations, but the localism agenda raises the importance of this issue, because it involves transferring more power down; it involves a more diverse range of providers; and it involves reductions in the burdens of data and so on. The challenge we set ourselves was how to approach the issue. With those two things that you referred to, we tried to reflect the fact that the relationship between the accounting officer and others in the system responsible for delivery does vary. My relationship, for example, with a local authority, which is a democratically elected body, is different from that local authority’s relationship with a contractual provider that is delivering under a contract from the authority’s commissioner.

You have different types of relationships in the system, and within those relationships there is an impact on the way accountability works. Ultimately, the accounting officers-those of us here today, if you like-are the people responsible for the system that operates with regard to the delivery of value for money and probity within the area of our responsibility. In my case, that is local government; in Helen’s case, the police. In reality and practically, we are not able to say that we are responsible for every transaction, decision and activity on an operational basis. That is an unrealistic expectation, and that has never been the case. What I think it is reasonable to ask us to be responsible for is describing the system we have and identifying how that system works to deliver value for money, early intervention in the case of service failure and so on.

Chair: But-

Sir Bob Kerslake: Let me finish the point, because it is critical. In describing that system, you will necessarily have different situations of responsibility in how it works for a direct contractual relationship and how it works in the funding of a local authority. The two examples you cited reflect those two different types of circumstance.

Q2 Chair: Let me just say to you that trying to define the distinction between a system and an individual failure, which is what we are interested in, is extremely difficult. I do not get how it will work in practice. If there is an individual failure in a police force somewhere, it suggests that the system has gone wrong, so trying to create a distinction between the two will not hold.

Dame Helen Ghosh: Although one will then use the system to correct the failure. What is interesting about paragraph 35 or 36 is that it is describing in rather abstract terms the role of commissioning. Going back to Bob’s point, in some cases it would be different. In some cases-I can think of an instance in the Home Office-our Departments, under our direct control, will be commissioning. With something like the Work programme or Jobcentre Plus, the accounting officer is effectively the commissioner responsible for the contract.

In my case, in the new world-subject to parliamentary passage-the PCC may be the commissioner, and he or she may buy services from A.N. Other. I need to be sure that there is a system for picking up whether he or she commissions services that are not good value for money or that fail. The system statement that I have given you is for the present situation. In the future situation, I will need-and will have-Her Majesty’s Inspectorate of Constabulary, and comparative value-for-money figures. I will be able to say, and ultimately the Home Secretary will be able to say, "That is a failing service," or "That is a failing force," and I can intervene and/or do a variety of other things. The problem with paragraph 35 is that it tries to squash those two situations in together, and there will be a variety of situations there.

Q3 Chair: From what you have just said, you accept that an instance of failure is a demonstration of a failure of a system.

Dame Helen Ghosh: No, I would say that that is the moment when the system has to operate. The rationale behind the system statements and Bob’s paper, and the way we have approached issues around localisation-if that is the noun-is that the Government are, of course, committed to the principle of localism and greater local accountability and, in my case and in Bob’s, the working of democratic local accountability, but they are conscious that you need systems that will deal with failure. That is something that we both have in the present systems and will have in future systems. It is proof that the system works if the system picks up the failure and deals with it.

Q4 Matthew Hancock: On exactly this point, all three of you shook your heads when the Chair put it to you that an individual’s failure demonstrates a failure of the system. I would agree that an individual failure does not necessarily demonstrate failure of the system. However, how do you keep accountability at that lower level? When there is an individual failure, all the pressures will be to drive accountability up to the level of the system. It is all very well stating it in advance, but in practice, how will you make that happen?

Dame Helen Ghosh: It seems to me that the present approach we take to local authority failure is a very good example that counters your point.

Sir Bob Kerslake: That is what I was going to cite as an example.

Q5 Matthew Hancock: What about where there are not local elections? I accept that when there is a local election, it is easier. Take the health service, for instance; Nick, maybe you could come in on this. Local hospital chiefs are the accounting officers, but when a hospital goes bust, there are questions at Prime Minister’s questions.

Sir Nicholas Macpherson: It is, and Britain is a pretty centralised state. From time to time, Governments have tried to step back a bit, and they do find it difficult. The case that you mention is a good one. Certainly from a Treasury perspective, what I would expect a Department or accounting officer to do in the case of an individual failure is to have the capacity to understand why that failure took place. If it was just a basic failure to implement basic controls-an error of management-that should not result in a change to the system. Sometimes you can learn from failures and actually identify systemic problems that made that failure more likely. For example, occasionally you hear about horrible things in relation to children’s services. Then there are inquiries and, sometimes, systemic changes as a result of those inquiries.

I do not think that this is a simple issue. It has never been a simple issue. I do not think that there is anything in recent changes that have somehow changed fundamentally the relative role between the central Department, the Secretary of State, the accounting officer, and the local body delivering the service.

Sir Bob Kerslake: Just to add to that, the nature of the failure would be very relevant here. To take Nick’s example, if an authority had recently been inspected for its children’s services and come out as a good authority, and then there was a massive failure-

Chair: Baby P.

Sir Bob Kerslake: That is a good example. That must raise questions about the thoroughness or otherwise of the inspection process.

Q6 Joseph Johnson: I just wanted to check that I did not mishear something Sir Bob said at the end of his opening statement in response to Margaret’s question. Did I hear you say that a reduction in the amount of data was part of the localism agenda?

Sir Bob Kerslake: Yes, and it is right to say that. What Government have said is that, in a period when money is tight, there should be a conscious effort to ask whether all of the data that central Government ask for is necessary or relevant. One of the exercises that Government have done is to reduce the burden on local government of data collection, so there has been a reduction.

Q7 Joseph Johnson: In a scenario where we are moving away from having a small number of accounting officers per big Department-in health, for example, where we are moving from one accounting officer to every chief executive of every foundation trust being an accounting officer-how, in a world where we want less data, are we going to hold each individual chief executive of each individual foundation trust consistently to account?

Sir Bob Kerslake: That is a good question. The issue is what data you are seeking. You need to be very clear about the data you need to satisfy yourself about the operation of the hospital so that, if there were a failure, you could pick it up early and intervene. I am not suggesting that you do not have any data. What was asked was whether the extent of the data request was right.

Q8 Joseph Johnson: That seems at odds with the Government’s other agenda, which is transparency. Why are we imposing an obligation to reduce the amount of data when we are simultaneously arguing that maximum transparency is the best way to drive efficiency and value for money?

Sir Bob Kerslake: I do not think the two are inconsistent. Much of the data the Government requested were not on how the organisations work; they were on what central Government thought might be useful at some point.

Q9 Chair: But that is about the nature of the data. That is quality, not quantity. You might want to collect different data, but Jo is on to a really important point. If you are going to have independent providers, transparency and data become ever more important for accountability. Of course they have to be the right data, but you should not start from a presumption of less data.

Sir Bob Kerslake: We should start from a presumption that we only look for data that are genuinely useful.

Q10 Chair: We all agree on that.

Sir Bob Kerslake: The point I would make on transparency, on which I will finish, is that one part of the thinking is that, in some aspects, we should be providing more information and data, but the focus of the additional available data should be on the users of services and the electorate. Part of the shift is to reduce the ask from Government while increasing transparency.

Q11 Joseph Johnson: The users of services do not have a value-for-money agenda.

Sir Bob Kerslake: That is a matter of opinion. They will test and challenge value for money.

Q12 Chair: They won’t. They will challenge quality.

Sir Bob Kerslake: I am saying that it is not either/or. You should give information to the public so that they can make a judgment, whether it is on individual spend or value for money. The accounting officer also has to have systems that enable the officer to satisfy-

Q13 Joseph Johnson: Sorry, who is going to give information to the individual user of an NHS foundation trust hospital on the amount of tax that he or she has contributed to the service that he or she has just consumed? If you are leaving it to consumers to judge value for money, how will anyone using a hospital service have the data to enable them to do so?

Sir Bob Kerslake: No, I did not say that. I said that we want consumers to be better informed, so that they can take views on services; I did not say that they are the only people who take a view on that. The accounting officer also has to ask that question.

Sir Nicholas Macpherson: I would not be totally defeatist on consumers understanding value for money. You have elections every so often, and the taxpayer is quite good at passing judgment.

Q14 Joseph Johnson: But in a very indirect manner, rather than Department by Department.

Sir Nicholas Macpherson: I have always thought that the Government could do more to explain the cost of services to taxpayers.

Q15 Austin Mitchell: It is not the cost. We want to know whether they are getting value for money; the cost is not important.

Sir Nicholas Macpherson: To come back to your main point, I think the Committee and the Treasury will have an important role in satisfying themselves that the system as a whole is providing value for money. You will need indicators to do that. There is an agenda across Government to reduce the number of indicators, which is a perfectly sensible thing to do. Left to its own devices, Whitehall proliferates indicators, and you can have hundreds of them, which is not much help. The accounting officer will be responsible for the system. Part of system responsibility is being able to provide assurance that there is sufficient information on whether the system is performing.

Q16 Joseph Johnson: Going back to the example of health, an accounting officer is an individual chief executive of a foundation trust. We will have several hundred of them. If it is their decision, and it is at their discretion, what data to provide, how will the Comptroller and Auditor General hold the whole system to account?

Sir Bob Kerslake: You will have another conversation, no doubt, with Una on health, but I am not suggesting that the data provided or created are wholly within the discretion of the foundation trust.

Q17 Joseph Johnson: So who will drive consistency?

Sir Bob Kerslake: The accounting officer must first ask the question about what consistent data they want in order to carry out their responsibilities.

Q18 Chair: Which accounting officer?

Sir Bob Kerslake: The accounting officer for the health service-the over-arching system.

Sir Nicholas Macpherson: Take the example of health. If there is a problem with trusts, you can get individual chief executives of trusts to appear before you, but I would hope that, when you did, you would also invite the accounting officer for the health service as a whole, because they need to satisfy themselves that the system is working. To do that, they have to be able to provide sufficient information to you-the people who hold them to account-that the system is delivering. I am reasonably confident that, not least because of your pressure, accounting officers will have to deliver that information to you.

Q19 Ian Swales: It is quite interesting to listen to this discussion, because it illustrates the point that an awful lot of the decision makers in this world grew up, as I did, in the period when you had to specify data, design forms, and then go off and ask people for it. Anybody of the next generation knows that data are not like that. You go online, and somebody has put it there, and it comes up. In other words, it is the pull-push thing. Do you have to push data at people, or do they just pull it?

There is a link with the Government’s IT strategy, which we reviewed recently in this room. If the Government are to deliver their IT strategy, particularly in the area of cloud computing, over the time scale that they are talking about, the people involved in this agenda need to get connected to it very quickly and start talking about what sort of data they want up there-not on their desks, but available for everybody. That connects back to the transparency agenda, which Mr Hancock and others have been talking about. Unless we align the IT strategy with the sort of things we are talking about now, we will not move out of the dark ages.

Sir Bob Kerslake: It is an entirely fair challenge. We are trying to say that, for example, the work that has been done around crime statistics is data that is out there for individuals to look at and ask questions about. I am trying to avoid a binary view about the issue-a view that either raw data for the public are out there, which they can access and take a view about, or performance and value-for-money data for the accounting officer. It is not one or the other; you will need both.

Dame Helen Ghosh: You will need both. To pick up the Chairman’s first point, this is part of a discussion you have having. You will be learning lessons and reaching conclusions as you go along. Our example-the example of the future with police and crime commissioners, subject to the views of the Houses-shows that it is not binary. As Bob says, it is an enormous success. There have been millions of hits on our crime maps, which are very accessible locally. There may be some dispute about whose street is shown up where, but they are terrifically successful. We will be launching very soon a link between that material-how many crimes are happening in your area-and the crime comparator, which will enable you to link that through to the result of the investigation, how much it cost and how effective your local force was in dealing with it. It is very people-friendly.

Q20 Ian Swales: That illustrates the next point that I was about to make. The idea that we meet the transparency agenda separately by dumping on to the internet, as we are doing, massive spreadsheets that are completely indigestible, and not giving the public any performance data-the idea that only you and your team have a right to performance data-to me, that is the old-fashioned world. Dame Helen has given an excellent example of where she has actually decided on performance data and value. That is out there for the public as well; it is not just the raw data-crime, crime, crime. It has actually been brought together, mapped and so on. The real challenge for other Departments is to pick up that sort of idea and make sure that it is not just the mandarins who get performance data.

Sir Bob Kerslake: Again, that is a fair challenge. As you know, there are quite contested views about these issues. Some argue quite passionately that what you should do is put masses of raw data out there and the so-called armchair auditors will harness it and find out information. There are others who say that that is a very difficult task for them to do. I don’t think, personally, that you should say that it is either one or the other of those things. I think you can put the raw data out there and people can then, if they are so inclined, use that, but you should also have other information.

Q21 Ian Swales: In order for Dame Helen to do what she’s done, she had an IT strategy sitting behind it that has delivered it. My real question is: will there be an IT strategy sitting behind this work that will move us into the future and not rely on the approaches of the past?

Sir Bob Kerslake: I think each accounting officer will need to look at the strategy that they need to deliver their aims.

Q22 Amyas Morse: I am interested in the use of the term accounting officer. Going on with the health area, of course, as you acknowledge, there will be an awful lot of accounting officers. Presumably, they will have the same obligations that you describe. They will all be accountable for value for money in their trusts and so forth, and they will all need good-quality information in order to be able to run their entities properly. Neither the auditors nor, I think, yourselves should need different information from what they have. We are making this into something incredibly complicated. It is only complicated to produce information if you ask for what I call hand-prepared information. There should be good systems that allow someone who is an accounting officer to tell whether they are delivering value for money in their own trust, and they should be under a clear duty, if I may suggest, to do so. They should be held to account to that and they should have information systems. If they do not have information that allows them to know whether they are delivering value for money, it is highly likely that they are not carrying out that duty adequately.

Sir Bob Kerslake: I absolutely agree with your first point about the need for them to have their own good systems to identify value for money to ensure proper probity and so on. It would be nice to think that that easily translates into data at national level. All my experience in life-many years as a local government finance officer-is that it is never that simple. Getting comparable data-

Q23 Amyas Morse: It should be getting a lot simpler these days.

Sir Bob Kerslake: You may be right, but all I can say is that it is often not as easy as it looks to do the translation from one to the other.

Q24 Chair: I want to come to Austin and Anne, but first I would like to pursue that little point. If you are going to get value for money, you need to have data that are comparable.

Dame Helen Ghosh: Yes.

Q25 Chair: That means that you will have to dictate, as central Government Department accounting officers, the sort of data that each police authority-

Dame Helen Ghosh: Yes.

Q26 Chair: Are you happy with that and is it what you are going to do?

Dame Helen Ghosh: Back to my point about crime maps, we will have a continuum and the data should flow through. We have the crime map and the crime comparator. We will then, as we have now, continue to have value for money studies done by Her Majesty’s inspectorate, which will enable the more nerdy public to look at-

Q27 Chair: But they will need the data. They will need to be able to compare.

Dame Helen Ghosh: Indeed, and say, "Against this family of police forces-PCCs-Avon and Somerset is better or worse than Essex." Then we will continue-not at the extreme end but the detailed end-as I imagine Una will continue, to lay down rules about the published data in terms of the accounts, formal reports, proper financial management and all those sorts of things, so we will be doing all the things. Back to Bob’s point, it will be a continuum of data, but it will be consistent.

Q28 Chair: So it is not just systems and not just that everybody has to have a scrutiny system in each police authority or each local authority, but, on the data that they scrutinise, we here can then do comparisons across police authorities or across local government. Is that a yes or a no?

Dame Helen Ghosh: In the case of police-

Chair: Yes.

Sir Bob Kerslake: I do not think it is quite as simple as that. I am taking a different view on that. There will be data that should be specified and should be available and will be used if it is comparable at principal accounting officer level and individual authority level. I think there will also be data that the sector itself in the case of local government chooses to do.

Q29 Chair: We are seeking assurance that there will be data on which we can do the comparative studies.

Sir Nicholas Macpherson: I think an accounting officer has to be able to satisfy themselves and this Committee that they know whether the system is performing. That means you have to have data from across the sector.

Q30 Austin Mitchell: All the audits for these hundreds of bodies across the country doling out the dosh-they will be done by private auditors, won’t they?

Sir Bob Kerslake: In the case of local government, what we-or the Audit Commission-are currently doing is looking to move what is currently roughly two thirds done through the Audit Commission to a model where the auditing is done through private bodies or mutuals.

Q31 Austin Mitchell: So it will be a bonanza for them. I can see why the audit houses were helping Conservatives at the last election. They have got a very good deal-lots of money flowing in. How are we going to ensure value for money in these hundreds of organisations? The Audit Commission achieved a cost-effective use of resources and identified what was value for money in picking out failing councils such as Doncaster. All that work was done by the Audit Commission, which is getting the boot, so who will do it now?

Sir Bob Kerslake: There are two bits to that. First, the scope of the individual audits will be laid out in the audit framework. In other words, what auditors are required to do with each authority will be specified through the audit framework that is set out nationally, and that will include value for money as part of that assessment. So there will be a requirement of what they do in each authority.

Secondly, in terms of getting value for money, the procurement of auditors-certainly in the current round-is being organised by the Audit Commission, and it will be a contested process. When it moves on current plans to individual authorities, they will also be required to appoint auditors following a competition. Indeed, they will have to have an independent audit panel. In relation to the individual authority, it will come from the scope of the audit, specified by the audit framework, and by the competitive process to appoint an auditor.

As well as that, there will be the scope for work to be done at national level, either through the NAO or indeed it could be commissioned by the Department on VFM issues. So you do not lose the capacity to do that sort of work.

How do you pick out failing authorities, which was the third thing you raised? That will be, as it is now, through a combination of things. It will be through the auditors and the public interest letter. It will be through specialist inspectors and local knowledge of the authority. In reality, how we pick up authorities that then require intervention often comes from a range of these sources. In fact, in the case of Doncaster, up until 2007 it had got a three-star rating through the Audit Commission inspection process, so we cannot assume that any one of these is sufficient. You need all of them.

Q32 Austin Mitchell: Well, there are lots of good intentions there, and a lot of good intentions in the report. I can see that. Although you were full of good intentions when you wrote that report, it is a bit like wading through a treacle of good intentions finding out whether it will work. When it comes to core accountability systems, annex A says responsibility for value for money will be "democratic elections and scrutiny by councillors and public". That gives me great hope. Millions of people are going to be scrutinising value for money and all these councillors are going to be assessing whether it is value for money.

Then there will be a "best value duty". We are not going to be told how that will be enforced or how the auditors will be required to live up to the good intentions that they are forced to sign on for by the deal. Then there is "transparent data", which needs to shower down on to the public. I am not sure the public is qualified to use it, or if the councillors are qualified to use it. Finally, at the bottom it says "no inspection". These are pious hopes that we will achieve value for money.

Sir Bob Kerslake: No, I don’t think so. In fact, much of what you just described is already part of the current system. The ways in which we try to secure value for money have all those features. We have contested politics, if you like, at the local level. Public scrutiny exists now. They play a part in delivering value for money. What we are saying is that not one of those alone is sufficient. It has to be a combination of contested openness about the data, proper audit regimes, duties within organisations and section 151 officer responsibilities within a local authority to promote value for money. In other words, there is a whole series of things that will drive value for money, and most of those mechanisms are already in place and carrying out that responsibility.

Q33 Mrs McGuire: I think that there is an inherent contradiction in our discussion today, and the conversation over the past half hour or so has captured it. May I ask whether you are in danger of confusing quality with value for money? I thought it was quite interesting that one of the examples that was highlighted was the Baby P case. That for me was not a value for money issue; that was a quality of service issue, which is frankly quite different from the issues that this Committee is interested in, important though they are. Do you think you are confusing value for money with quality?

Sir Bob Kerslake: I hope not, because for me any judgment of value for money has to take on board the quality of the service, not just its cost.

Q34 Mrs McGuire: Let me move on to an important issue for many people in local communities up and down the country, which is the dreaded issue of the bins. There might be a value for money issue about how a local authority collects its bins. That is quite different from the perception of individual taxpayers and council tax payers as to what a quality service is. How do you reconcile those two issues, given that, in paragraph 1, you have clearly said that we are shifting-not devolving-power so that it will be money spent locally and it will be held to account locally?

Sir Bob Kerslake: The question about what type of service you have at local level on bins is a matter of judgment of the individual authorities, so they will take that decision. You cannot get many services that are more visible to the electorate-

Q35 Mrs McGuire: That is why it is a good illustration of the contradiction that, frankly, we are trying to struggle with here.

Sir Bob Kerslake: Let me just finish the point, if I may. The question about what type of service you have is a political judgment, just as it is for the number of libraries you might have and the type of service those libraries provide. In a sense, this is why you elect councillors to make those choices. The question about whether, for any given service they are providing, they are doing it in the most cost-effective way is where you need comparative data, if at all possible. That is challenging, because every authority is different. That is how I would demarcate those two points.

Q36 Mrs McGuire: Let me factor in another scenario. I will hold on to bins, because it is an easy way to illustrate some of the issues. There is a national strategic objective on recycling. Local authorities are at the front end of dealing with recycling. If you and the Government are devolving or shifting power from the centre to the hands of local communities, individuals and councils, how do you deal with the enforcement of that national strategic objective, which we all buy into, on how a council delivers its recycling and refuse collection services?

I think you are trying to square a circle. I have no objection to the policy in terms of this being what the Government want to do, but you are trying to square a circle and you guys have not thought out how to square it yet.

Dame Helen Ghosh: I think there is a risk that we get confused about what we expect our local bodies to do and what power is retained nationally or regionally, and about whether, when you have decided that such services will be provided, it is good value for money. The point you raise is that-I should say this in front of a group of MPs-actually it’s politics, innit?

There is obviously a political debate about local discretion on something like bin collection, and there is evidence one way or another about what method of bin collection will be most likely to promote or to discourage recycling. Ultimately, the decision about whether there are national standards for how people collect bins is for Parliament and a Secretary of State. The policing model is very like that. The Government have decided that local crime, how you deal with it and what you give priority to is a local issue for PCCs. However, they have said that there are some things where you would expect people to operate to regional standards or national standards-for example, counter-terrorism and organised crime. That is a political decision.

I do not think we are confusing the two things. We are simply saying that in the case where Parliament has decided that it is a local service to be delivered locally, this is how we hold people accountable for value for money. If it is a national service, this is how we hold people accountable. We do get the "what" and the "how" confused.

Q37 Mrs McGuire: How do you reconcile that? You’re right: it is politics. Certainly most of us on this side of the table are pretty expert at scooting ourselves up either as Members of Parliament or as local authority councillors, which is sometimes a far more difficult challenge. How do you reconcile what you have just said with the opening paragraph in the paper in front of us, which says that this is about shifting power? If you are still saying that you are going to enact national standards-

Dame Helen Ghosh: For some things.

Q38 Mrs McGuire: For some things. How can you say that you are shifting power for local decisions such as the controversial decision about whether there should be weekly, fortnightly, monthly or annual bin collections?

Sir Bob Kerslake: Can I come back to that point because what I think Helen is saying is that ultimately the extent to which you allow a local authority to determine its own service standard and you give a choice about how it delivers that service standard is a matter that Parliament in a sense will take a view on. What we are saying in that paragraph is that, all other things being equal, we think it is better to devolve more of the decision making and choices about what people do and how they do it to a local level.

That does not mean to say that the Government will say that everything should be done in that way. Let me give you an example. I will go back to something we talked about earlier: child care. The Government are unambiguous that a local authority has to provide a proper service of child care to a given standard. They are given a choice about how they do it, but they will say in every part of the country, "You must run a service for child care that meets this standard." That is a conscious decision of the Government and you will be challenged through the inspection process if you do not provide that.

Q39 Mrs McGuire: I think we are still confusing quality and value for money. That is a quality issue to do with the delivery of a child care service across the country. I am talking about drilling down into the value for money that you are expecting local authorities, various authorities and public bodies to deliver. I am sure that you have thought through how you are doing to do that in the new context.

Sir Bob Kerslake: I think we have. What we are saying is that we think the drivers for value for money will be best and most often located locally through the debate that happens through an accountable Parliament, accountable local authorities and their arrangements.

Mrs McGuire: Ultimately, Parliament is still going to be responsible for the bins. I am not sure where the Treasury come into all of this.

Q40 Chair: I was going to ask Nick Macpherson a question. In Managing Public Money, there is the following statement: "It is not acceptable to establish ALBs"-arm’s length bodies-"or subsidiaries to ALBs, in order to avoid or weaken parliamentary scrutiny." Do you stand by that?

Sir Nicholas Macpherson: I stand by Managing Public Money because that is the Treasury’s document on this issue. As I have repeatedly said, the accounting officer is ultimately responsible for the relevant spending programme and they have to satisfy themselves that they can get sufficient assurance that the system as a whole is working.

Now, the reality is that there is a spectrum of public services. I happen to be the accounting officer for the most centralised programme there is: the Treasury at the heart of Whitehall. It is absolutely right that I should be accountable for every pound that the Treasury spends. At the other end of the spectrum are the devolved Administrations-Scotland. As far as I am aware, this Committee does not hold the Scottish Government to account for the flows that go to Scotland. In between, there is a whole spectrum: local authorities and a lot of democratic accountability. I would not expect Bob to account for every pound spent on bins in Bolton, say. Then you get to Helen’s area: police. It is a bit more centralised, a bit less democratic accountability and so on.

There is a spectrum. This is nothing new. There has been an implicit understanding about how Parliament holds Departments and accounting officers to account going way back. These accountability system statements are quite a major step forward in requiring us to explain what the hell is going on and how we account for our systems. Equally, they are not perfect. I totally support your judgment to have a look at the education and health ones before reaching a final judgment. As ultimately all of these arrangements have to be agreed between this Committee and the Treasury, reflecting the concordat going way back in time, I am very keen that we learn from any potential gaps. I would expect this Committee over time to be seeking to improve these statements further.

Q41 Chair: Good. The landscape is new. While local government is pretty straightforward and with the police there are going to be elections-

Dame Helen Ghosh: There is a recognisable structure.

Q42 Chair: Yes, there is a structure. You can see them doing scrutiny. Let me remind you of grant-maintained schools. I am so old in the tooth I can remember them. Do you remember the scandal of that school in Bromley where the head teacher-sorry, it is probably in your patch, Jo. It was St John Rigby Catholic college in Bromley. It was rechristened something else as it got into such trouble. The head teacher there spent the money that the Government gave her on holidays and things. It was £500,000 over the period.

Sir Nicholas Macpherson: I remember it well.

Chair: I have looked it up. It was 1994 to 1999. The interesting thing is that that abuse of expenditure, which was not uncovered by the auditors or anything, only led to an action in 2006 when the grant-maintained schools went back under local authority-

Stella Creasy: Control.

Chair: Yes, it was control. Then they were able to find it. My fear is that with the plethora of trusts, particularly with the trusts and schools that will emerge, such a scandal could re-emerge. What do we need to do prevent that? Bob probably wants to come in but I think Nick, if you can start on that just as a little memory.

Sir Nicholas Macpherson: I do think that with all scandals involving the abuse of public money it is important that people learn from them. There is a very active academy programme out there. I seem to remember that academies were also the policy of the previous Government-

Chair: This is not an attack. It is not a partisan attack; it is an observation that if you let go of things they go wrong.

Sir Nicholas Macpherson: I think it is a legitimate question for this Committee. When they produce their accountability system statement how can you assure yourself that this is not going to happen? The reality is that you get fraud in all parts of the public sector. The critical thing is to learn from it and ensure that there are systems in place.

Q43 Stella Creasy: Is not the critical thing to pick it up as quickly as possible? One of the challenges here is that as soon as you start devolving responsibility for that you heighten the chances of it taking a much longer time for the whistle to be blown.

Sir Nicholas Macpherson: That is certainly possible. Before we think that academies are intrinsically more likely to give rise to fraud than a local authority funded school-

Q44 Stella Creasy: I don’t think that is the argument. The argument is about how many balls you have to keep an eye on all at the same time and therefore how that process will work.

Sir Nicholas Macpherson: I am going to hand over to Bob. He is used to running schools.

Amyas Morse: That is a very good point. We did a report on the academies and we all remember that we were told about the light-touch regulation and how little information was going to be asked for, so it is not the first time we have heard it. What we actually found was that of the little information that was being asked for, a very large proportion was not being supplied on time. In other words, instead of having a light touch, you really had no touch. So the test is going to be that if you devise these models, you have to make them work rather more rigorously than you did before, otherwise what Stella is saying will be exactly right; you will not know what is happening, even by your own standards of light touch.

Q45 Stella Creasy: It is not about the particular model of delivery, it is about where accountability lies in a system-so you know that you are accountable and you are looking for the things that you are accountable for. The sheer volume of things that you are then having to manage ups the risk of things going wrong. It is not about whether it is an academy or a local authority-you want them both to have tight financial control-but if you have twice as many things that you are looking for, that is twice as much chance of it going wrong.

Sir Bob Kerslake: I come back on that point. For me, the most fundamental shift that is happening with academies is that the funding and responsibility is shifting from something that went through local authorities to through, effectively, the Department. That is the core shift. It is quite right to ask how, through David’s academy system statement, he is going to ensure that there are early warning systems that pick up where problems are occurring before they occur and become a major catastrophe, as the Chair said. That is a perfectly reasonable question to ask-

Q46 Chair: But you are not in a position to answer it today.

Sir Bob Kerslake: Well, I can say some of the bits of it, and it would be for David to expand, but clearly inspections continue. He will have data requirements and, Amyas is absolutely right to say, if he is making requirements, he needs to make sure that the information comes in a timely manner.

Q47 Chair: Ofsted, if you take schools, does not look at value for money.

Sir Bob Kerslake: Well, the question, as I heard your example, was more about a complete failure, rather than value for money.

Q48 Mr Bacon: Imagine the circumstances in which you have a cluster of seven academies, and the central executive is charging each academy £20,000 a year for a management fee but not really giving anything for it-£140,000 in a year, and £700,000 over five years. In the context of the total budgets of the seven academies over those five years, the £700,000 would be relatively insignificant, and yet it might have been secreted out of the system for almost no return-it might be hopeless value for money-and no one would notice.

Sir Bob Kerslake: I absolutely-

Mr Bacon: And Ofsted would not even have a remit to notice, so who would?

Sir Bob Kerslake: Two separate things are going on here. The starting point for the line of conversation, Chair, was your example of a grant-maintained school, and that is why I was talking about the failure issue. But the same question is perfectly reasonable to ask about how the system identifies where issues of value for money might arise. My personal assessment is that it will be a combination of information-what information the Department specifies and requires from academies-and, where it picks up an issue, having the capacity to investigate that issue, and to test and ask questions.

Q49 Mr Bacon: "It" being the Department.

Dame Helen Ghosh: "It" being the Department. Or an agency.

Q50 Chair: But it is interesting with schools, it is very different. Ofsted does not look at VFM, it does not look at money, it looks at quality.

Sir Bob Kerslake: I am referring to Ofsted in the context of your example of a grant-maintained school that failed. That is what I was saying.

Q51 Jackie Doyle-Price: Just following what Dame Helen said in terms of splitting out the themes of cost-effectiveness, value for money, outcomes and quality-actually, I thought you articulated that very well-the system needs to establish what should be expected in terms of outcomes for each service. Locally, the freedom and the localism should determine the quality. Does that characterise what you were saying, to some extent?

Dame Helen Ghosh: I think the radical shift of power, as the Home Secretary would say, in relation to local police and crime commissioners is what they might decide. The whole point of the localism agenda there is to say-at a local level, not when it comes to regional co-operation or the national policing picture-is that it is up to them to decide, in the light of the feedback that they get from local communities, whether they want to focus on domestic burglary, domestic violence, car crime or organised crime in their area, so you might well get different outcomes. They might decide, "We will take our foot off the gas on that particular kind of crime, because what the local community really cares about is gangs or domestic violence." You won’t be able to say how shocking it is that in Warwickshire-London boroughs are not a good example-the clear-up rate on x crime is this, and in the West Midlands or, to take a family member and more comparable force, such as Essex, it is y. It may be that they have just chosen not to focus on those kinds of crimes. If they have chosen to focus on domestic violence, can people see whether they deal with domestic violence as effectively in Essex as they do in Warwickshire? That is the kind of comparative information we would expect to continue to be able to provide. The Home Secretary is extremely clear that the days of setting targets saying, "This is what we want you all to do on x or y kind of crime" have gone, but we are conscious that you need to be able to allow local people to decide whether, having decided locally that it is gangs, knife crime or whatever, they are just as good at dealing with it as they should be.

Q52 Jackie Doyle-Price: And that’s the positive angle of localism. It liberates local areas to determine for themselves what their priorities are-

Dame Helen Ghosh: Rather than national targets, set-

Q53 Jackie Doyle-Price: Exactly. That works where there is a transparent relationship between the elected officials and the service-the police. It works with bins because everyone knows that their local authority is responsible, and if they don’t get emptied-

Dame Helen Ghosh: Although they are not necessarily sure whether it is the district or the county in some places.

Q54 Jackie Doyle-Price: Yes, but it is fairly transparent. It gets really murky when you look at schools and foundation trusts in the new system. That is where the degree to which the centre intervenes becomes more important. I want to know what that kind of intervention looks like.

Dame Helen Ghosh: As I think Bob or Nick said earlier, we don’t know the detail because we are not answering for it. Turning that question on its head, I think that what is emerging in your minds is a set of criteria. The question you would ask David or Una is, "Do you have the capacity in your organisation"-DFE, health or the NHS under David Nicholson-"to ask those questions and make those challenges?" For example, in my case, not only will I continue to have local audit, but I will have Her Majesty’s inspectorate of constabulary, data and powers to intervene. The challenge is about what model you would expect to see that could answer the questions that Members have been asking. How would you intervene? My understanding is that in DFE, for example, there will be a specific agency tasked precisely with that issue of financial management and value for money. I cannot speak for David.

Sir Bob Kerslake: That’s absolutely right. The key point is that the accountability system statements give you a framework into our perfectly legitimate questions to the accounting officer.

Dame Helen Ghosh: Exactly, and you have never had them before. We have never been able to come and discuss these system statements because they have not existed, so it should be more transparent than it was before.

Q55 Jackie Doyle-Price: But it will need ministerial activism, won’t it? You will set up a nice system and you will be picking up outliers and prodding them, but we’ve seen it before and we’ve set up regulatory systems. Just look at how Monitor deals with foundation trusts. It will require Ministers to keep a good eye on it, so that failure is picked up soon enough.

Dame Helen Ghosh: Yes, absolutely. If you’ve got the systems, you have to use them, which goes back to Amyas’s point.

Q56 Jackie Doyle-Price: It’s too easy for Ministers to hide behind a system, but one of the consequences of localism is that if we really are going to take advantage of the liberation of individual organisations, that scrutiny has to be informed by judgment.

Sir Bob Kerslake: I think that’s right, and one thing we have said here is that it is not good enough just to have the system. You have to ask yourself, "Is the system working in the way I think it is?"

Q57 Ian Swales: I think there is possibly one element missing from the framework that you have developed, and that is the group of people who probably know most about what is going on in any organisation-the staff. The whole area of whistleblowing, and how the staff inside an organisation are able to report everything from fraud to lack of value for money, is extremely important. These days, if we are to free up these systems and shift power, we have to think about that and look at new technology. For example, corruption is being drastically reduced in India by simply having a website where you can anonymously report corruption.

As well as all this good top-down stuff, you need to be thinking about what you do about whistleblowers, and how you get information from the people inside organisations. I have an example in my constituency; a constituent has been fired for reporting fraud inside an arm’s length body-fraud that has been proved by the police and the agency involved-but he has lost his job. You, in the system, need to think about what you do for people like that, and how you build that into your systems.

Austin Mitchell: Who does the whistleblower go to?

Ian Swales: All of that, yes.

Sir Bob Kerslake: It is a very good question. I do not think it is covered in our system statements, and we should build it in.

Ian Swales: I think you should, because if you think about some of the examples we have been speaking about, and the ones we read about in our favourite periodical, Private Eye, people inside those organisations knew ages ago what was going on-of course they did-but they did not have a route to report it, and they probably had fear in their minds, and kept quiet. You will free up your organisations greatly if you can find a way to deal with that issue. It will involve things like career management, because financial people particularly need to know that they have another slot to go to if they blow the whistle in the organisation they work in.

Q58 Joseph Johnson: I want to ask Sir Nicholas, as permanent secretary at the Treasury, how the control freaks at the Treasury have responded to the localism agenda. Net-net, how relaxed do you feel about it? Will it be a driver for value for money, at the end of the day?

Sir Nicholas Macpherson: I suppose during my time at the Treasury I have seen several cycles: centralisation, decentralisation, centralisation, a bit of devolution. I think the Treasury as an institution is pretty convinced that trying to run every service out of Whitehall does not work, so I think that over the last decade or so it has been increasingly attracted to a localist agenda, in stark contrast to the early ’80s, when the Treasury led the charge to get a grip on local authorities, because at that time there was no way of controlling local authority expenditure.

Ultimately, public expenditure control is probably the thing that is most critical for the Treasury, because if you lose control of public spending you are finished. The question then, once you have got expenditure under control, is: what is most likely to drive up performance? The reality is that, as I was saying earlier, there is a spectrum of different approaches to delivering public services that make perfectly good sense in their own terms, but over time, reforming them may improve performance.

I think there have been a lot of ideas under successive Governments around trying to build up either the role of voice in the delivery of services, or the role of choice in terms of the user of the service. You see quite interesting experiments around putting money in the hands of people to buy long-term care, which generally does appear to result in better value for money. Public service reform is never really done; it is something that will continue.

Q59 Joseph Johnson: It seems as if you are giving a qualified yes-it will be a net driver for value for money.

Sir Nicholas Macpherson: I think seeking to reform public services to improve value for money must be the right thing to do, especially in the current environment, where money is scarce. The critical thing to do is to choose the right reforms.

Q60 Joseph Johnson: If you were to characterise it in layman’s terms, it seems to me that your command and control system is in some ways being smashed. We are moving from a system in which we have accounting officers who come before the PAC and can account for the spending of public money to a system where, frankly, accountability will be hugely fragmented. The oversight of it will be very diffuse and possibly not at all obvious to anyone, and we are just going to be relaxed about it. Is that what is going to happen?

Sir Nicholas Macpherson: I don’t think you should ever be relaxed. I think it is incumbent both on the Treasury and this Committee to keep an eye continually on whether the money is actually delivering a better service, to expose the fact if it is not, and to seek to reform the system. Before we think that things are going to change fundamentally, there are huge swathes of public services that will continue to be completely command and control. Defence is the obvious one, but it will even, to a large degree, be what organisations such as the Department for Work and Pensions do.

I suppose the contested areas are around health and education. Progressively, Parliament has sought to take control of schools away from local authorities, which have historically played quite a big role. Does the Treasury have an institutional view on that? Well, it was pretty conscious that the local authority model did not seem a great success. On the other hand, over the last 25 years, reforms to education have come and gone, and each one is always the one that is going to make the real difference and somehow liberate generations of children and result in higher productivity across the economy. It is the nature of the Treasury that it tends to be sceptical about such statements. I am quite sure that the recent announcements are focused on improving performance, and when performance is truly improved, the Treasury will be very pleased.

Q61 Chair: Nick, we are obsessed with value for money. Our obsession is also that we have to follow the pound. Our concern is whether we can do so in the new landscape. Elections are a good thing, and it may well be that there is greater accountability. Choice may be a good thing and may drive performance improvement. There are all these ideas floating around. Information is a good thing and may help, but if you are going to do value for money and ensure that the taxpayer gets maximum value, and if we are to do that here, we need to have the tools. I think what concerns us a little bit, which is why I say that this is a work in progress, is whether there are sufficient tools in the systems you are creating to enable us and you to do our jobs properly. Do you agree with that? As you read the documents as they come forward, where do you think the gaps are?

Sir Nicholas Macpherson: I think that is a good description of what we are both about. I actually think that we have made quite a lot of progress, in terms of getting better information. One of the more successful drives across Government in recent years has been towards better financial management. I think I am being invited to appear before this Committee on the whole of Government accounts. Those are very much a work in progress. I do not want to prejudice the auditor here, but I suspect that he will qualify them quite considerably. It will, however, represent a major milestone along a long and difficult road. We have to look at these statements, and we really have to probe where the gaps are.

I welcome Mr Swales’ observations about people who work in public services, because I totally agree. In my experience, they and the local governing bodies are far more likely to find out that something is going wrong-a head teacher with their fingers in the till-than any Whitehall inspector, who can always have the wool pulled over their eyes.

We have to keep looking at this. I am quite certain that the first lot of statements will not be anywhere near perfect, but they are a step forward. They will be in the Department’s accounts. The accounting officer will have to sign them off every year. When you see the system failing, one of the really important things to do is to get the accounting officer back here and say, "You said this system would provide assurance. It hasn’t. What are the lessons from that?". We are never going to arrive at the perfect system, but I hope that we can continue to learn and to improve the system.

Q62 Chair: These statements are also about your role as accounting officer. You are defusing the accounting officer responsibility, as I read it. Power and accountability go to us, whether it is a trust or whatever. What I do not get out of these are clear statements down the line of the accounting officers down the line and what their responsibilities are and to whom. I am not sure where they will emerge.

Sir Bob Kerslake: I think I can make a couple of points on that, Chair. We do not see the statements as defusing the responsibility. We are trying to give you a clear description of how we carry out our responsibilities, which you can then challenge. That is what we are trying to do with the system statements. My second point is that I absolutely share your view that a key part of driving value for money and probity is ensuring that you have people in the organisations who are charged with responsibility. In the case of local government, section 151 of the 1972 Act requires them to have proper systems. The guidance that CIPFA provides makes it clear that having proper systems includes having value for money. You would reasonably look for similar people with similar responsibilities in every one of the bits of the system. I am sure that that will be true in the case of the PCCs.

Dame Helen Ghosh: Absolutely. As Bob says, we will continue to have clearly defined roles. For example, both the chief constable and the PCC will have to have a section 151 officer. They will still have to adhere to the financial management code that was issued in the late ’90s. There will be clear financial and SRO-style instructions, as well as financial responsibilities on the people involved. We will describe, in more detail than is in the system now, the responsibilities of the different levels, for example in the policing system. I guess that is what you would want to look for in your system statements for other parts of the system.

Q63 Austin Mitchell: This is an extension of the earlier point. What happens in cases of failure? Suppose a foundation trust or an academy goes bust, or there is some gigantic fiddle involved in some way. Paragraph 41 goes back to all these proclamations of good intention. You are a marvellously well-intentioned person, Sir Bob; it is fantastic. It states: "Accounting Officers will therefore need to have a clear concept of what…failure will look like and be assured that there are robust mechanisms in place to identify and either prevent failure or mitigate its impact on the public. The form these take will depend heavily on the characteristics of the service". That will depend heavily on which part of which area it is operating in. Will these be centrally defined and supervised? What happens when a school that has opted out of the local authority goes bust?

Sir Bob Kerslake: What we are saying is that this is more than intentions. It has to be a practical reality. The test that you have to ask when you look at the systems statement is whether you think that the powers that we have to intervene in the case of complete failure of an organisation are adequate. That is not just about whether our systems are good enough to pick them up. If we have missed it, do we have the powers to intervene? Can we demonstrate practically that we have that? In the case of local government, we have the recent and practical example of Doncaster, where the Secretary of State intervened. We demonstrated that we have both the powers and the willingness to use them. You want to be satisfied, when you talk to health, education and the police, that there are similarly clear processes defined by the centre about when it will intervene.

Q64 Austin Mitchell: We need to be satisfied. Who will define how they will be defined and who will operate them?

Sir Bob Kerslake: I think the answer is that it is for the accounting officer, with Ministers, to define that system. It is your prerogative to ask whether that system does that job in the way that you think it should.

Dame Helen Ghosh: And, of course, before that stage. For example, I know that one of the subjects of debate in the passage of the Police Reform and Social Responsibility Bill was what powers the Secretary of State has to intervene. As the legislation was going through, there was a political debate about the Home Secretary continuing to have the power that she has now to intervene on, among other things, the grounds of service failure and value for money. It is not just in our system statement; it is in what Parliament has agreed. I am sure that if you talk to health and education, they will have debated their relevant legislation and have the statute behind it.

Q65 Amyas Morse: I want to draw your attention to a concern. As always, what you are describing-Nick was describing it, too-is a matrix relationship. It is a question of whether the matrix is loose or pretty saggy, and so far, I don’t get much tension. In other words, as regards value for money, we have seen a series of cases-particularly in health, but not just there-in which clear systemic efficiencies should be being obtained by co-operating, by buying in bulk, by buying machinery that is up to standards, and so on. It is evident that best value is not being accomplished. In fact, we had the health officials here last week and they are obviously having a pretty hard time getting the local hospitals to listen and co-operate. If they are having a hard time now, it will be interesting to see what the situation will be like in future.

I understand about the matter of failure regimes, but optimising value for money is not simply a matter of dealing with failure or fraud; it is a question of driving best value out of the system. In order to do that, you need a duty on those who are running things to demonstrate best value and, where there are initiatives, to use Sir David Nicholson’s words, to comply or explain. That needs to be put in very clear terms if you are to create pressure. I hope that is the intent. It is not surprising that the document is a bit general at the moment, but it would be good if it were very crisp about this as we go forward.

Dame Helen Ghosh: That will vary very much from area to area. To take your example, we have powers, and the Secretary of State will still have powers in the new world-she has them now and just used them-to say, "These particular items will be procured by the Home Office, so that you can pull together the requirement." That is something we had in our statute.

Q66 Amyas Morse: But even if you do not centralise it, there is no reason why individual bodies cannot have a general duty to co-operate to seek best value or to demonstrate why not. Centralising is a radical solution; what I am talking about is driving the way in which bodies normally do business by placing strong obligations on them to achieve best value for money.

Sir Bob Kerslake: I absolutely see the point you are making. I agree with you about the need for tensions in the system to drive value for money. The form they take will depend on the organisations, the service and so on. To contrast the two, as I said earlier, in local government the contested politics, the budget reductions-let us not forget that-and so on, provide a tension in the system to drive value for money. As an accounting officer, you then have to ask yourself, "Are those tensions in the system sufficient?" Are section 151, contested politics, reduced budgets and public data sufficient, or does something else have to be in the system, too?

Q67 Ian Swales: Is it not also about the commissioning process? It is not just throwing something over the wall and saying, "Educate these children," or "Do these operations." Given that it is all public money, surely it is perfectly valid to say, "Commission, but we expect these data, and we expect you to buy large-scale scanners through this process as part of the commissioning process." It should not be optional. That is what you must do to do business with the public sector.

Amyas Morse: It is not about reinventing the wheel all the time.

Ian Swales: That is right. We seem to have got into a mindset of thinking that localism, delegation and so on mean just throwing an activity over the wall and then leaving it to those people. I am exaggerating to make the point, obviously, but if we have concerns about data and certain practices or purchasing, it is perfectly valid to build those into how we commission.

Dame Helen Ghosh: I am fascinated by your use of the word "commissioning".

Ian Swales: "Commissioning" in its broadest sense.

Dame Helen Ghosh: Going back to paragraph 35, I do not think that the Department for Education would say that it was commissioning a free school or an academy. It would be giving the grant to a free school or an academy within that legislative freedom. We do not have that relationship of "We give you the money and you produce this service" in quite that way.

Q68 Ian Swales: I am using "commissioning" in its broadest sense to define the relationship between the public sector and either arm’s length bodies or bodies that we are loosening up to run on a localised basis. I know that commissioning does not always mean that, but what I am trying to say is that as we specify what we want organisations to do, whether they are arm’s length or not quite arm’s length, it seems to me that some of the issues we get in the Committee could be dealt with simply by making sure that that relationship is better defined.

Dame Helen Ghosh: Absolutely. Yes.

Sir Bob Kerslake: I entirely share that view. For an arm’s length body, the key document is the funding framework. In that funding framework you should set out your expectations of that organisation in terms of value for money, procurement and all those issues. It is different, though; we have to recognise the difference between that kind of relationship with an arm’s length body and the funding relationship we have with local government.

Q69 Chair: Will the Treasury take a view on that?

Ian Swales: How different should it be?

Chair: I think it is more interesting to ask whether the Treasury will allow each Department to determine for itself what it does locally and what it does centrally-where the value-for-money solution lies. Are you going to take a view on that?

Sir Nicholas Macpherson: The Treasury will generally take a view on it, yes.

Q70 Chair: You will tick, or otherwise, their systems.

Sir Nicholas Macpherson: You will recall that policy changes in this sort of space generally have to be agreed with the Treasury.

Q71 Chair: In my day, you would not have got away with it without the Treasury saying yes or no, but I want to be clear that in the new world-

Sir Nicholas Macpherson: The basic role of a Treasury spending team is to have a very good understanding of such issues and to advise Treasury Ministers accordingly.

Q72 Chair: So where localism militates against VFM, you will have a view.

Sir Nicholas Macpherson: Yes.

Sir Bob Kerslake: To give you an illustration of that point, some funding goes to local government. The bulk of it now goes through the formula grant, but there remains the option of money going through section 31 grants. In the case of public health, the Department of Health has said that that will be a ring-fenced grant, because it is a new transfer of functions. It clearly wants to be confident about how that plays out, and clearly the Treasury will have a view about how funding goes.

Q73 Jackie Doyle-Price: Just a quick question for Sir Bob. You mentioned Doncaster in answer to Austin’s questions, and you said that the Secretary of State retains those powers to intervene, but we are talking about a massive philosophical shift. The intention will be to stay away, rather than get hands on. Park that for a moment. We have also got a change in audit arrangements, which means that there will not necessarily be consistency in how local authorities are analysed against value for money. You will have systems in place, but in reality the same standard is not going to be applied to every organisation. Can you be satisfied that we will pick up serious problems quickly enough, and that the Secretary of State will be advised to intervene?

Sir Bob Kerslake: I think I can be satisfied, and I can be as satisfied as we have been under the previous regimes. The reason why I feel that is that although different people will do the audits, we will be clear what the scope of an audit is. We will have the same sort of information available for inspection regimes and public interest reports as we have now, and we will still have the power to intervene in the case of systemic failure, where we think that authority is incapable of resolving its problems. The question we might ask is whether we think that the loss of the comprehensive area assessment process has reduced our capacity to pick these things up. I am not convinced that it has. I cited the example of Doncaster; in 2007, despite the fact that it was absolutely obvious-I knew staff from Doncaster who said how bad it was-it got a three-star. I think we still have quite robust ways of picking up failure, and we definitely will have powers and the willingness to use them in the case of major system failure.

Q74 Jackie Doyle-Price: You are going to have up to a dozen firms doing these audits, and they will have direct relationships with their local authority.

Sir Bob Kerslake: It is worth saying that a third of audits are already carried out by private companies; indeed, the plan was to increase that. As a chief executive, I would find that strange. I had audits from both district and private auditors, and I found them equally robust in how they carried out their role.

Q75 Jackie Doyle-Price: So if there was a local authority whose accounts had been qualified for two or three years in succession, what would be the approach? Would you leave it to the electorate?

Sir Bob Kerslake: I think it depends on the nature of the qualification-sometimes a qualification can be due to a historical issue that will take some time to resolve-and on what other information you are receiving. The skill is to not have one source. If it were just a qualification on a small matter, that would not, in my view, be a reason to intervene. If, on the other hand, the inspection of children’s services was raising questions, or if the auditor found the need to make a number of public interest reports, or if, for example, there was a high level of staff complaining or whistleblowing, that adds up, and you have a picture and know what that tells you.

Q76 Chair: I remind Members that there is an agreement with the Secretary of State that we will look at the draft Bill. I am looking forward to that, but when is it coming?

Sir Bob Kerslake: We are working on it. I cannot say the precise day.

Q77 Jackie Doyle-Price: Quickly, how long did it take for you first to become worried about Doncaster and then make an intervention?

Sir Bob Kerslake: I personally was not involved at the time, so I cannot say exactly. Looking at the sequence of events, it was a successive series of things, almost from 2007 onwards. With the children’s services it would probably be over a period of a year or two years. You might ask whether some of those signs could have been spotted earlier, and I very much take Mr Swales’ point that the staff in Doncaster children’s services knew very well that there were problems.

Q78 Chair: Thank you for that session. I thought it was constructive, and we take this as work in progress. We will want to see the health and education statements which, hopefully, are about to be published.

Sir Bob Kerslake: They are well in hand, I know that.

Chair: A lot of what you have put out is necessary, but our concerns are about whether services are sufficient, whether there are gaps, whether there is , of regime but of approach, and whether the systems in place will enable us to follow the pound. Thank you very much.

Prepared 21st September 2011