UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 961-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

(I) IMMIGRATION (II) TREASURY MINUTE PROCESS

WEDNESDAY 13 FEBRUARY 2013

STEPHEN RIMMER, MARK SEDWILL and ROB WHITEMAN

PAULA DIGGLE and SIR NICHOLAS MACPHERSON

Evidence heard in Public

Questions 1 - 124

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Oral Evidence

Taken before the Public Accounts Committee

on Wednesday 13 February 2013

Members present:

Margaret Hodge (Chair)

Stephen Barclay

Jackie Doyle-Price

Chris Heaton-Harris

Meg Hillier

Fiona Mactaggart

Austin Mitchell

Ian Swales

Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Ashley McDougal, Director and Aileen Murphie, Director, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

Examination of Witnesses

Witnesses: Stephen Rimmer, Director General, Crime and Policing, Home Office, Mark Sedwill, Permanent Secretary, Home Office, and Rob Whiteman, Chief Executive, UK Border Agency, gave evidence.

Q1Chair: May I start with two things? First, I welcome Mark Sedwill to his first appearance in front of us. Secondly, I apologise to you all for keeping you waiting. We had to agree a Report, and I thought it would go more quickly than it did. My sincere apologies. I don’t like to do that and we normally try not to.

We are calling you back from the Home Office on two Reports. One is the on the immigration points-based system for students and the other mobile technology in policing. This is an innovation for the Committee, introduced by Stephen Barclay. If we are going to spend a lot of time on something, we want to ensure that we have an effect.

I am trying to think of the best way to handle this. Let’s go to the Rob Whiteman one first-the immigration points system. It is almost recommendation by recommendation, because we probably have queries around all of them. I will start on the first one and everybody else can come in as and when they want.

This was a shambolic implementation of tier 4 first time round, but I think you accepted that, Rob, when you gave evidence to us last time. You have accepted our recommendation. Our feeling here is that you give us no evidence or assurance that you have changed your system, so that if you get another big change in controls, you will not let it happen again. In fact, as we go along, we will perhaps find evidence to the contrary. What are you doing that can demonstrate to us as a Committee that you have a handle on this and it will not be so shambolic next time round?

Rob Whiteman: Thank you, Chair. On the issue of big change happening, we acknowledge the importance of change control as shown by your Report. I would say three things, if I may, Chair. First, we do not have any large-scale policy change taking place at the moment. However, remember that we have now separated out policy from the agency. I think there is a much healthier system in place, where if policy change is going to take place UKBA operationally has the ability to say what it thinks the risks are, how it meets those and how it gears up in order to implement it. I think not having policy making and operational delivery in one place, as it was at the time those events took place, is in itself a healthier system that should give some assurance.

However, on top of that, and I am sorry if this has not come through in our response to you, we have created a very robust system of risk and rules: we have a directorate which deals with operational policy across the agency as a whole; we have a risk and rules committee which is chaired by my director of strategy and insurance; and we have also created more analytical capability to model what would be the effect of the changes that we are being asked to make. So I am sorry if that does not come through in our response to you.

I want to give all Committee members an assurance that we accept the recommendation that change control is important and, when policy is implemented, the consequences of that-and any unintended consequences-would be modelled and understood by the processes put that we have put in place of assessing risk, having a risk and rules committee, separation of policy from operations and the analytical capability that we are building in order to do that.

Q2 Chair: I come back to you on two things: I hear what you say about the advantage of spitting the two functions, but there is also a danger that the policy function is then removed from the implementation and, by being removed, you do not understand the practicalities of the implementation. That is the first thing. The second thing is in your response to PAC recommendation 2, you talk about a "comprehensive" review of guidance which is being undertaken by you, the agency. The Home Office is undertaking a comprehensive review of all the immigration rules, so it may be that in the short time between your last appearance and this one that nothing has happened, but it looks to us as if quite a lot is in the pipeline. You have got a risky bit-you have got someone who manages risk-but have you got in place proper project management capabilities that will ensure that next time we do not have a chaotic implementation?

Mark Sedwill: The split between policy and operations is important, and you are absolutely right to point to the risks that arise from that: policy could be made essentially in a vacuum, with operations just left to get on with it. But, in a sense, what we saw in this case was the problem the other way around, in that because the operational risks came through a policy filter, they were not properly exposed. In the new structural arrangements, we have a policy director general who sits on the Home Office board and we have Rob, as chief executive, who sits on the Home Office board and any decision, therefore, is made with Rob explicitly being required to expose the operational impact of any policy changes that we make.

On your second point, essentially, this is actually implementing some of your other recommendations. It is really about streamlining and clarifying the immigration rules, not about major policy changes. Rob can talk more about that, but that is fundamentally the aim of the current effort.

Q3 Chair: So the "comprehensive review of the immigration rules", which you put in your response to us, is only streamlining.

Mark Sedwill: Yes.

Rob Whiteman: There is a comprehensive review, but, on students, I think we can say that there is real progress since I was last here. You will remember that we spoke to you about wanting to work with the university sector. We recognise that the guidance is long. It is already shorter by about nine pages, but, in fact, in terms of the guidance to universities on how to operate the sponsorship arrangements, we have now worked with Universities UK and the next draft, which will be published in a couple of weeks, will be a joint effort. So on the commitments that we gave to you that we would work with the university sector in order to make sure that our regulation was not overly burdensome and that we would be clear where we did want notifications and where we did not, actually, I can give you real evidence that we have done that in relation to tier 4.

Q4 Chair: The only thing that I would say to you is that we are told that there have been seven changes in the immigration rules since our hearing.

Rob Whiteman: The Home Office would like to be in a position where rule changes happen twice a year only and we fix on those two. There are, of course, sometimes occasions when something urgent comes up and we have to respond quickly. You and Committee members will know, for example, that we responded to possible tier 1 abuse recently with a rule change to tighten the way in which that tier would operate, so it is necessary at times to break the cycle that we want to create, but it is very much our intention that we limit rule changes to twice a year so that people understand when the window for that takes place. I hope, over the next year, that that will happen.

Q5 Chair: How many rules changes on tier 4 since July?

Rob Whiteman: I am sorry; I do not have a figure to hand for July.

Q6 Chair: But there will be some.

Rob Whiteman: Since July?

Chair: Since July. I took that date because I thought it was the date of our Report.

Rob Whiteman: I am sorry, Chair, I will have to-

Q7 Chair: Is it your feeling that you have had some changes?

Rob Whiteman: I go back to what I said before. On rule changes themselves, we want a window twice a year, and we have worked with people on that. On the next set of guidance, we have worked with Universities UK on that in the way that we said we would when we last spoke.

Q8 Fiona Mactaggart: My problem here is that I have been working in this field for more than 30 years, so I have heard, "We want to make these rules twice a year," before. I have heard it for a very long time, and I do not believe that you are going to deliver it. I actually know how many changes there have been since July 2012, because I got someone to look it up for me. Command 8423 of 19 July 2012 was 296 pages long. It came into force from 20 July 2012, mostly incorporating existing statutory guidance-I get that-but nevertheless it was a long, complicated document. HC 565 of 5 September came into force on 6 September with 56 pages. There are the new rules listed in the last appendix to the PAC document: HC 820 of 12 December, in force from 13 November 2012-now, that’s interesting, isn’t it? It did change the rules. I will not read everything out, but these are many pages of documents, and the problem is that advisers and people who are helping students have to incorporate all those detailed pages. Some of them are integrating existing things, but because they are formatted differently and called things like "statements of changes" and so on, you need to check where differences are.

I do not understand why these things happen so fast with so little consultation. You say, Mr Whiteman, that you are consulting the universities. I am glad you are doing that, but are you consulting the people who represent and advise individual students? Are you consulting bodies such as UKCOSA, the NUS, the law centres and so on? What consultation are you having with them, particularly in your comprehensive review of the rules? Unless you do that, we will end up with rules that are inefficiently delivered, and not just by officers. What will happen is that people who are representing students and advocating on their behalf will get it wrong, too, so your "let’s get it right first time" mantra, which I love, will not be delivered.

Rob Whiteman: There are two things that you should reflect on, Ms Mactaggart. First, sometimes the rule changes we make are because people have asked us to change the rules-

Fiona Mactaggart: They do not need to be done in two days.

Rob Whiteman: Some people absolutely do not want us to change the rules for the sake it, and I appreciate that. At times, advisers and other people ask us to change the rules, and some of our rule changes are in response to consultation. The other thing I would say is that, whenever possible, of course we wish to consult. The reason why rules change at times is because people swap from one application to another. We see switching taking place. We see abuse taking place, in effect, where-

Q9 Fiona Mactaggart: But you would accept that not all switching is an abuse.

Rob Whiteman: But some switching is abuse. Actually, we cannot announce those rule changes in advance, because it will lead to what sometimes in the media is called a closing down sale where people will apply for that route before it changes and the rules tighten it up. Indeed, you will know that that has happened over the years. Of course, we wish to consult whenever possible. Of course we wish to limit rule changes to twice a year, but people do change and sometimes find new ways of abusing the system, which we have to reflect in the rules. We sometimes change the rules because we are asked to by advisers who think it will make life easier. We cannot always give draft rules in advance because it leads to a spike in applications because people try to apply through the old rules that we feel we need to tighten up and change.

To be fair to the Home Office and UKBA, we operate in an environment in which we have to act carefully. We have to make sure that we consult where we can, but we cannot always consult in advance of a rule change that is designed to end abuse, which does occur in the system.

Q10 Fiona Mactaggart: I accept that, so perhaps you can tell us how many of the changes that have happened since last July have been of the kind you described.

Rob Whiteman: I am not in a position to give you figures on that; I’m sorry. If it helps, I will gladly write to the Committee with a breakdown of the rules that we consider to be in relation to abuse.

Q11 Fiona Mactaggart: That would be helpful, because I think that what I have described are a lot of changes that are not of that kind. I am prepared to accept that that might be an appropriate thing to do sometimes, but I do not think that is an excuse for all you have done. You say you are going to have a consolidated, comprehensive review of the rules by this summer. Have you sent out a draft to the people who are advising students?

Rob Whiteman: As I said earlier, we have consulted on the new guidance to universities on sponsorship. Remember, some of these policy changes are not in my domain; some are Home Office issues, so I would not wish to comment on this completely and the permanent secretary may have some comments. But yes, the Home Office consults on individual rule changes where possible.

Q12 Fiona Mactaggart: I am very concerned that the consultation does not just happen with universities. We know that universities will look at these rules with their "I don’t want to be got like London Met" hat on, to put it brutally. That will be priority No. 1, and priority No. 2 will be to get their student admissions right.

What will be necessary is to carry this out with the people who advise students day to day and inform their responses-there are people inside universities who do that-because the revision you are talking about is not just about student rules; it is comprehensive. Those people give advice every day to the people who are affected by the administration of immigration. If what you are doing is consolidating previously announced rules-I accept that there might be one or two rules that you want to whip in late-have you distributed draft rules and guidance for those people to comment on? If you do, the rules will end up better than they are at present.

Rob Whiteman: There are occasions when consultation takes place, and there are occasions when it does not, for the reasons I gave earlier. If the Committee wishes me to provide more information on that, I will gladly do so. With respect, consultation does take place when it is possible and appropriate. At times, it is not possible and not appropriate.

Q13 Fiona Mactaggart: Absolutely, but in your response you say that you plan, by this summer, to produce consolidated, revised rules. I am not talking about changes in rules; I am talking about that process of producing consolidated, revised rules and guidance. I am asking you: will you consult with the people who represent the people who go through UKBA on your revised rules and guidance?

Rob Whiteman: And my answer is: we will consult wherever possible.

Q14 Chair: Before we move on to Austin, I should say that I did not know that Fiona Mactaggart was going to raise all that. What that demonstrates to me is that although you accepted the recommendations in theory, I am not sure that in practice you are implementing them. If there are that many rule changes and that much is happening, it just looks like plus ça change.

Rob Whiteman: I am sorry, Chair, but I think that we not only have accepted the recommendations, but are implementing them through some of the things that I have said to you.

Q15 Chair: But that is the evidence. With respect, the evidence is that there has been that much coming up. It may all be valid.

Rob Whiteman: And, as the evidence says, we hope that the comprehensive review, which is taking place before the summer, will enable that we can issue rule changes much less frequently in the future. I understand that Ms Mactaggart has said that you have heard that evidence given in the past, but it is the case that we are going through a comprehensive review. We will do that by the summer and we hope that that will have an effect in the way we have said. I genuinely do not think it is fair to say that we do not accept your recommendations; we do, and we are trying to work on them.

Q16 Fiona Mactaggart: If the review is to be comprehensive, you really do need to consult properly with the people-the lawyers, the citizens advice bureaux and others-who are advising people who are going through the system, because if you do, it will be better for both them and your staff, it will be much more efficient, and it will waste less public money.

Rob Whiteman: We agree that consultation is a good thing.

Q17 Austin Mitchell: We recommended that you should keep change to a minimum so that we could have a period of stability, yet you continue to make what are usually quite fiddly changes, but substantial changes as well, to the student route at very short notice. Many of them have nothing to do with flawed or fiddled entries, and many have no relationship to the academic term by which students are recruited. They just come out of the blue-bam! Why is that?

Rob Whiteman: I would say, Mr Mitchell, the answer that I gave earlier to the Chair and to Ms Mactaggart. We are working with the universities and we are really aiming to make sure that we can simplify our guidance-

Q18 Austin Mitchell: But why so many changes?

Rob Whiteman: Because at times we see that the rules or the guidance need changing in order better to reflect the system. I am sorry, but I cannot guarantee to the Committee that we will not see the need to change rules at times.

Austin Mitchell: All these changes that you fiddle about with are causing a lot of problems and confusion for the universities. I just wondered, arising from that, how keen you are to investigate abuses. I wrote to you on behalf of the Grimsby institute to say that the English language requirements were being weighted against them. It was easier for the universities to administer the English language requirement than it was for colleges of further and higher education, such as the Grimsby institute. I gave you two clear examples-

Chair: There is a vote.

Austin Mitchell: I am sorry.

Chair: We are going to take 10 minutes and we will be back at 4.21 pm.

Austin Mitchell: To be continued.

Sitting suspended for a Division in the House.

On resuming-

Q19 Chair: Mr Whiteman, did you get clarity about the question you were being asked?

Rob Whiteman: I did not answer it, Chair. Mr Mitchell, you were referring to how we allow universities to self-certify the arrangements on English-language testing B2-

Q20 Austin Mitchell: Whereas other colleges are not.

Rob Whiteman: Whereas for colleges, we do not at this stage-

Q21 Austin Mitchell: I wrote to you to say that it was imposing costs and difficulties on the institute, because they have to send the kids elsewhere for their English-language testing, which universities did not have to do. It makes it very difficult to recruit. This is a perennial problem with all the changes you keep making to the student route. You do not have the sensible policy of treating them as visitors, as other countries do, and welcoming them into the country. You give the impression that they have to be kept at bay. Anyway, that is just an emotional point; don’t answer it.

The point that I was making was that they produced evidence in this letter of two universities that were effectively cheating on the English-language requirement. You wrote back to say that you could only act on other institutions if you had evidence of cheating. They had provided it in the letter, so I am now sending it back to you. How on the ball are you? How much investigation do you do?

Rob Whiteman: Please do send it back, Mr Mitchell, and I will gladly look at it. We make regular visits to sponsors. We have a team of people that carries out re-licensing. If we have evidence of abuse or have been given information relating to that abuse, we take it up with sponsors during the process of their re-licensing application. Please do write to me again, or I will gladly refer back to your letter.

May I briefly add something, Chair? On the twice-yearly review of rules that we want in April and October, you asked me about students and what has happened since July. There were rule changes in July last year following the Government’s announcement on introducing interviewing, which we are doing overseas. The October rules change, which then took place in the regular window that we expect to happen, dealt with some maintenance issues, including those raised with us by the sector. In December, we made a rules change because we felt there was some evidence relating to the use of financial instruments and fraud, which we felt we could not wait until April to address. Therefore, we needed to issue rules in December. So, wherever possible, we do use the window of April and October. At times, if the Government make an announcement that we need to respond to or if we come across fraud, we may need to make rules.

Finally, I would add that we have a Joint Education Taskforce-it meets nearly monthly-where we consult with universities and education institutions on the rules and our operation of them. That includes, Ms Mactaggart, the UK Council for International Student Affairs, which is a member of the Joint Education Taskforce so that it can be appraised of these issues. I hope that helps.

Q22 Austin Mitchell: Does it include non-universities such as Grimsby Institute?

Rob Whiteman: Yes. It is not only university bodies: the JET-the Joint Education Taskforce-includes a wider range.

Q23 Chair: I am going to make one comment before I pass over to Amyas. What you have just said has explained why you changed the rules, and I am sure there is a really good reason behind every rule change, but this comes back to the point that, as you heard, we got very clear evidence from our witnesses to suggest that, despite your best intentions, you are still changing the rules every two or three months. Hence our recommendations and hence our bringing you back. I remind Members that what we are considering here is whether or not the Department has implemented the recommendations.

Rob Whiteman: But I hope the October window shows that we made a number of maintenance changes in October, together, rather than at different times. Although we are making rule changes, at times, because of fraud, actually we demonstrated in October that we made a number of maintenance changes that had accrued over a period of time.

Amyas Morse: I accept everything, obviously, that Mr Whiteman is saying and the good intentions that are there, but it might be helpful if you implemented the idea that the Committee put to you, which was that you should have a service level agreement-in other words, that you take some responsibility for the effect of your actions on the sector, as well as the sector having responsibility to you for what they do. I am not suggesting that that should be very constricting at first, because you have a much wider responsibility, but the more I have reflected on it, the more I think it was a good recommendation from the Committee, because it would at least begin to create a grounding for some mutual expectation, which is why I think the Committee recommended it.

Rob Whiteman: Yes.

Mark Sedwill: I think that is a very fair point and a very fair challenge. We will take it away.

Amyas Morse: That was a recommendation of the Committee. It is not a new challenge; I am just repeating what the Committee recommended.

Q24 Stephen Barclay: It should have been taken away then.

Mark Sedwill: If I can reiterate the point that Rob Whiteman has just made, the maintenance changes were made in October, which is one of the two windows. If we had an SLA, that is something we would say. We would obviously have to have in the SLA that if there are policy changes such as, for example, the decision to reintroduce interviews-

Q25 Chair: I understand all this. With the greatest respect, you do not need to reiterate it, Mr Sedwill. The point we were making is that you have to discipline yourselves, because otherwise you create a massive bureaucracy and cost for the institutions. They were perfectly clear about that: they want to gold plate it because they want to make sure that they do not get into trouble with you, as Fiona said. That is the point that we are making. You can justify every change until you are blue in the face, but you are still making changes too often. As the Comptroller and Auditor General suggested and Stephen Barclay quite rightly reminded us, a service level agreement might be one way of having a better discipline, and you said you would take it away last time. What confidence do we have when you take it away this time that anything will happen?

Rob Whiteman: I think we have demonstrated that it is happening by regular engagement with the sector. Probably, we will always be more in the territory of a memorandum of understanding, or a set of services standards on when things should occur, rather than an agreement. This is a regulatory framework, and therefore it will be more around a memorandum of understanding than an agreement. We are moving in that direction through the engagement that we are doing on a regular basis, and we are using the April and October windows. We absolutely want to act in the spirit of your recommendation that the sector should understand how often we want to make rule changes in April and October, and that we should work with them through the consultative bodies to be able to do so. I think it is a positive development, Chair, that, as I said earlier, the guidance on sponsorship will be a joint endeavour, and that we are working with the sector in that way.

Q26 Chair: We are at a sort impasse on that one, really. Can I ask you about data? Why did you reject our recommendation on data? We obsess about data here.

Mark Sedwill: On categorising students?

Q27 Chair: No, the idea there was that you have not got the appropriate data. Let us go back to the recommendation.

Mark Sedwill: Oh, this is e-Borders versus the International Passenger Survey.

Q28 Chair: It is recommendation 5.

Mark Sedwill: What it really boils down to is that we have looked at other forms of data, and there is not any other source of data that would fully meet the requirements that either you or we have set out. Therefore, the current ONS base data, in advance of e-Borders, which, as you know, will be fully implemented by the end of 2015, are essentially the best that we have available to us. We have looked at other data sources. E-Borders currently covers 100% flights from outside the EU and about two thirds of flights from within the EU.

Q29 Chair: It still covers only 55% of flights.

Mark Sedwill: Yes. As I said, it covers 100% outside the EU and two thirds within.

Q30 Fiona Mactaggart: How much of your budget is e-Borders at the moment?

Rob Whiteman: I am sorry, but it is a Border Force programme now.

Q31 Fiona Mactaggart: Can someone send us a note?

Rob Whiteman: Gladly, yes.

Q32 Chair: Well, that is disappointing. Can we move to other recommendations about the removal of people who are overstayers? Has anyone overstaying on tier 4 been removed?

Rob Whiteman: You will remember that when I was here last year, Chair, I set out that we were about to run our enforcement campaign, Operation Mayapple, and that we were working on a higher mix of students being removed. In the period of April to September 2011 compared with 2012, student removals were up by 50%.

Q33 Chair: To what?

Rob Whiteman: From about 2,000 removals to 4,000 removals in a six-month period. We have taken more removal action. You will remember, Chair, that what we set out to you was how we actioned at the time the notifications we received from universities that people may no longer be studying. We then made about 23,000 curtailments of students, based on the information that we received. Of course, the majority of people will then leave voluntarily, but in our summer enforcement campaign, from one year to the next over a six-month period we doubled the number of students being removed. I would hope to demonstrate progress to you. The actual figures were from 2,780 to 4,185, which is a 51% increase for the period April to September 2011 compared with April to September 2012. We said that we would aim to remove more students by putting in place the sorts of controls and processes that we intended to, and indeed we did so.

Q34 Chair: Just against the 23,000 who had their leave curtailed, do you know how many of the rest have left?

Rob Whiteman: No, because until we have an e-Borders system, the UK does not carry out exit checks and we do not count people out.

Q35 Chair: Okay. So while I accept that there is a slightly better performance against that figure, I go back to our Report and the 40,000 to 50,000 who are probably here using the student route who should not have done, because of the chaos in the implementation. If you take your figure on that, it is 10%.

Rob Whiteman: I think we are seeing the effect of the changes that the Government have made in relation to the student route. The number of visas issued to students is now some 25% to 30% less, but the number of visas issued for universities is up by about 10%. That demonstrates that people are coming here in increasing numbers to go to universities, but where there used to be abuse, with people coming here for bogus colleges or to abuse the system, that student route has been closed down.

Bearing in mind that, with the intake into the country for the past year or two, based on those policy changes, we now see a better mix of people going to university who have the means and the finances and who will not wish to overstay, in line with the Government policy of attracting the brightest and the best. I think the number of people overstaying will reduce on the back of that. Overstaying abuse was primarily people who came here to work illegally, rather than to be a student. It was against that background that we have acted upon the notifications that we are receiving from universities. We have increased the number of students that we are removing. I think that shows progress, Chair. I acknowledge your point that we cannot formally count people in and out until e-Borders is here, but you are seeing a much more controlled intake that will be less likely to abuse the system, while at the same time we have increased the number of student overstayers being removed.

Q36 Chair: What is your evidence for the new intake being less likely? What is the evidence for that?

Rob Whiteman: The evidence would be that we don’t have bogus colleges any more. People were overstaying because they were going to institutions that did not really exist in order to provide education. People were coming here to work illegally. The evidence is that as student numbers are going up in the mix to universities, the overstaying rate will be less, because people have careers, jobs and finances, and wish to return to their countries of origin after they have attended our outstanding universities, and that is what is intended.

Q37 Chair: I accept that there are more people being removed. Is that constrained by resources? Or is that just the number you can get a hold of? Why are you at that figure? In relation to the bigger picture-when we looked at this issue of the 40,000 to 50,000 and then you are doing work on 23,000-it still looks a smallish number. Is that because you have not got the resources to do it? Because you cannot find them? What is it? I accept it has gone up. Congratulations on that, but-

Rob Whiteman: Thank you very much. I think the pattern we see is that where removals take place the message is that removals do take place. That leads to more voluntary departure. It leads to people deciding to go home and not to overstay. Those data are not necessarily captured because we do not have full e-Borders coverage. It is absolutely the case that we have put more resource in the mix to students. We have removed more students. The student intake is becoming a less likely intake for the future in order to overstay. I think we can see progress there.

Mark Sedwill: There is a range of compliance activity. There has been a new component to this that the Border Agency introduced in December, which was to use a partner, Capita, as a contact mechanism for people who overstay. I think they have a target-Rob will correct me-of contacting 150,000 overstayers. Is that right?

Rob Whiteman: Overstayers, yes.

Mark Sedwill: That is at the softer end of compliance. It is not enforcement; it does not necessarily lead straight to enforcement action with warranted officers arresting people. It essentially tries to remind people that we know they are here and encourage them to depart voluntarily. It is a new component to it.

Q38 Fiona Mactaggart: How do you know if that is good value for money? We know that a number of people have been wrongly texted by Capita. How are we going to know whether it is good value for money?

Rob Whiteman: First, the number of people wrongly texted was very small, less than 1%. Of course, we have acknowledged-

Q39 Fiona Mactaggart: A surprising number of them seem to live in Slough, then.

Meg Hillier: I had one in my surgery on Monday, with a letter from Capita.

Rob Whiteman: We have built a contract where there are stepped charges within the contract, but, in effect, after mobilisation of the contract, the majority of payment that the contractor receives is based on how many people return because of the contact that has been made. It is not wholly a payment-by-results contract, because there are some step changes in it to mobilise, but it is absolutely performance related. Therefore, if the contractor does not lead to people going home after they have been contacted then it won’t be paid the full contract value. We think in the way that we have set up the contract on a mainly performance-related basis will ensure value for money for the taxpayer.

Chair: Meg, with a last question on this, and then we can move on to mobile policing.

Q40 Meg Hillier: I have more than one question, I’m afraid. A number of my constituents were affected by the situation at London Met. What lessons have you learned on that?

Rob Whiteman: Thank you very much. First, you will remember that for London Met we have given clarity to London Met, and indeed to the whole sector, that we want this to be a light-touch regime, but the responsibilities of sponsors are to ensure that people have academic progression by meeting English language tests and are attending.

Q41 Meg Hillier: We know that. What about the lesson?

Rob Whiteman: The lesson that we draw from this-I remind you that this might still be the subject of judicial review, and therefore I will not comment wholly specifically on the London Met case-is that it is right that, where necessary, we consider suspension or revocation of a licence. We have seen, since the London Met decision, an increase in the number of notifications that we receive from the sector and, therefore, the lessons for us to learn are that it is important that we expect sponsors to comply-

Q42 Meg Hillier: May I just stop you there, Mr Whiteman? From my perspective as a constituency MP, these were constituents of mine who were very severely disadvantaged, through no fault of their own, and the systems that the Home Office and the UKBA put into place were very laid back; people were left in limbo not knowing whether they were going to have a place to study. One constituent of mine had finished her studies but was waiting for her dissertation, so it was a matter of months, and she thought that she might have to go back to her own country without finishing her degree just for the sake of a few weeks. She did not know for several weeks or months. When this happens, it happens very suddenly. If it does happen again, what is the message about the support? Have you learned lessons about the support that the Home Office should be providing?

Rob Whiteman: I think you will remember, Ms Hillier, that we said we would participate in the taskforce that the Government set up with BIS and Universities UK. You will know that during the process of the months that followed, we did look at cases, such as PhD students and sabbatical officers, and we put in place arrangements in order to give them advice and, in some of those cases, in order to allow people to stay. Of course we can see, in revoking an institution of that type and in the work that happened afterwards, that there are things that we have learned in relation to how that took place, which, should there be a need to revoke-

Q43 Meg Hillier: What would you do differently having gone through that? It was like the announcement was made and there was no strategy in place to deal with the immediate crisis of those individual students at first. It was that gap that was the particular worry. We were all being bombarded, and our constituents were very concerned. What would you now put in place? If you revoked a licence tomorrow, what would you now do and would you be better prepared? You must have known it was coming because it was your decision.

Rob Whiteman: First, we will judge any cases on their merits. At the moment, we do not have any institutions that are in that place. The more that we can work with an institution in advance, work with something like the taskforce that was set up after we revoked, say what scenarios there are, and therefore a spread of students and what can be put in place in order to deal with them, the better. I think UKBA responded well in terms of hearing the concerns around individual cases and how it may affect people at the end of their dissertation. We did act upon that. Of course, should this happen again, we would want to have those conversations with the institution and through a taskforce in advance.

Q44 Meg Hillier: Well, you should not have been unprepared because you knew what was happening. Sorry, Chair, but I want to ask this question. As a constituency MP-I know I am not the only one in the Committee who is facing this challenge-and while you are here, I feel that I should say that many of my constituents are approaching me because they have not heard anything from the UK Border Agency about their case. We then ring up and check what is happening, and although the money has been taken and the form has been received, the details have not been entered on the system, or, if they have, the date from which the six months to assess the case is being measured is from the date it is entered on the system, even if that is up to six months-I know of one that has gone over that-from when the money was taken. So there is a time lag between the fee being taken and it being put on the system. Can you tell me why that is and have you any plans to change it, because it seems grossly unfair and non-transparent?

Rob Whiteman: We did develop a backlog of cases being logged on to the system and then processing them. I will not talk about that in detail, because I know that you are short of time, Chair. I have given evidence in another place, to the Home Affairs Committee, about how we had a spike in intake on routes, and it took some time to recover. The position now, as of today, is that our aim is to be at what we call frictional level-in other words, what is a reasonable amount of work to have in order to meet our service standard? We are at frictional level and meeting our service standard now on tiers 1, 2 and 5. We will be up to date with tier 4 probably by about the third week of March or the end of March. That includes logging cases on the system and processing them.

The one area where we still have some work to get through and we are not meeting our service standard is on family cases. You will have seen, I hope, with marriage cases that we are nearly there in terms of meeting our service standard; we will be up to date on marriage cases within a matter of weeks. On non-marriage family cases, we still have a backlog of work and our intention is to be up to date with that as quickly as possible. We have taken on additional resources. We have extra staff in Sheffield working on this and the backlog is coming down. Of course, I am sorry that that has happened and we will be up to date as soon as we can be.

Q45 Chair: I will stop you on that, but I just say to the NAO that this might be an area that warrants an investigation. If could think about that, it would be a sensible way forward. Thank you very much.

Let me move on to mobile technology. Mr Sedwill, who is accountable for police expenditure?

Mark Sedwill: I am accountable for the £10 billion budget of the Home Office and the contribution that we make to police expenditure. Of course, they have other sources of income, such as the precept and other central grants, some of which are from the Home Office and others of which are from DCLG.

Q46 Chair: I am glad that you think that you are accountable, because we certainly intend to hold you to account.

Mark Sedwill: I wish that I could say I look forward to that, Madam Chairman.

Chair: I am therefore astonished that you have chosen to disagree with many of the Committee’s recommendations that would enable you to be held to account properly by us for value for money. I really do not understand-I thought this was rather shocking-why so many of the recommendations have been disagreed with on the basis of localism and police and crime commissioners. In the end, you are the guy who we are going to hold to account, and if you do not have the data and the information to convince us that there is value for money, you will be held responsible and accountable. So why on earth have you rejected all of this stuff?

Mark Sedwill: Perhaps there is less of a disagreement than you suggest, because this is largely about the systems that we put in place to ensure value for money in the new policing environment. I do not think that we should underestimate how important a change it is to have police and crime commissioners; fundamentally, as elected officials, they are accountable to the local-

Q47 Chair: We do understand that. We have thought about it a lot, which is why we are completely certain that you are accountable and you cannot pass the buck.

Mark Sedwill: I am not seeking to. As you know, across Government in this area, we have initiated the idea of issuing system statements that local authorities-and in this case police and crime commissioners-will be obliged to honour to ensure value for money in the proper expenditure of public money. It is in those system statements that essentially the chain of accountability lies. After, I think, the Committee completed its Report last July, Helen Ghosh, my predecessor, issued the first of those in September last year. In that, we said-I think the Committee has a copy-that it would be revised after the election of police and crime commissioners in November 2012. I intend to issue a new one before the beginning of the new financial year-so in the next few weeks-and it will be revised to include the financial management code of practice for police and crime commissioners, and-

Q48 Chair: Do you know, I really do not care about all that. That seems to be just documents. I am sorry to be tough on you on this one, but this is the first instance we have had where I think there has been an attempt to wriggle out of your accountability. We have got recommendation 1 and recommendation 2, but let me take recommendation 2, as it is the clearest: "The Department needs to have information on both the system-wide performance of the police service and the value for money of specific centrally-funded initiatives and programmes." And you disagree with that recommendation. Equally, the accountability system happened under the Labour Government, but it was an appallingly bad value-for-money initiative. Part of the problem is that we need clarity from you on when you are going to intervene when police forces determine some expenditure that is not value for money-it could be another initiative like this. You are accountable for that money to us, and through us to the taxpayer.

Mark Sedwill: Indeed, but we do not believe that it is appropriate for us to set out-except in broad terms-in exactly which circumstances the Home Secretary would intervene.

Q49 Chair: Why not?

Mark Sedwill: We said in the evidence session last year that there would be categories in which she would intervene. First, if, for example, they were not respecting the requirements of the strategic policing requirement and therefore delivering the systems for that. Secondly, if there was some kind of cause célèbre that had-

Q50 Chair: This is very different-that is quality of service; we are the value-for-money Committee. You need to have the data to know whether taxpayers’ money is being used effectively and then a strategy for intervention on value for money. If there is a breakdown in service, that is so bleedin’ obvious that somebody is going to have to intervene. But this is a value-for-money issue where there is a lot of public money at stake. You have been rejecting the recommendations and you give us absolutely no comfort that you take that seriously.

Mark Sedwill: I think that we do take it seriously; it is just that we do not think that the mechanism you proposed was the right way to do it.

Q51 Chair: Is data not an important mechanism?

Mark Sedwill: Data is important, Madam Chair, but the data will be provided by the independent auditors of the police and crime commissioners.

Q52 Chair: Will it be comparable?

Mark Sedwill: The independent auditors will have to follow a code of conduct that the legislation will require the NAO to help them to set out. We will be talking to the NAO about exactly what the code of conduct is for independent auditors. The police and crime commissioners are required-

Amyas Morse: I have just been told about this.

Q53 Chair: I must say that Ian, Meg and I sat on the Committee that looked at the abolition of the Audit Commission and it certainly was not clear then, when we talked about it, that there was any way in which the Home Office was going to provide even the basic data that would allow any value-for-money analysis to be taken across police services.

Mark Sedwill: There are very clear requirements of the police and crime commissioners on transparency. They have in their own budgets-

Q54 Chair: I’m sorry to interrupt you, but that is not the point. We honestly do know. If you are going to do proper value-for-money studies, you are going to have to be able to compare apples with apples, not apples with pears. To be able to do that, you need to collect comparative data. Where we say: "The Department needs to have information on both the system-wide performance of the police service and the value for money of specific centrally-funded initiatives and programmes", you say, "That’s a load of rubbish. We’re not going to implement that." I’ve had enough of this, because it is the same point. It just seems that you are not in the right space on this one.

Mark Sedwill: Let me just have one last go. There are a range of mechanisms that are designed to ensure value for money in the new policing landscape. One is that, as in other areas, with the dissolution of the Audit Commission, the NAO will have some cross-cutting authority to study value for money, and I expect that some changes will be made to the Local Audit Bill. That is essentially a matter of the dissolution of the Audit Commission.

Secondly, there is an explicit value-for-money requirement on Her Majesty’s inspectorate. It will be able to do comparative studies of value for money and it will compare apples with apples as it is looking across policing, and it will hold police services and police and crime commissioners accountable to the standards that are set.

Thirdly, the College of Policing will have an explicit mandate to identify and proselytise best practice in value for money. One of the concerns that the Committee raised about the purchase that really led to this Report-the BlackBerrys and so on for policing-was that there was a presumption that best practice would be circulated across the police, rather than any mechanism to do that. We think that the combination of the college and the inspectorate, once they mature, will enable them to achieve that.

Finally, we have the obligations on police and crime commissioners to publish a great deal of financial data-more than has been the case in the past-so that they can be held accountable by their own electorate, and the independent audits that will be conducted by independent auditors.

Chair: All I would say to you is that those statements of principle then have to be reflected in the nitty-gritty of practice, and here is the first instance that we have had where the nitty-gritty of practice does not reflect the principle. I will leave that as a comment.

Q55 Stephen Barclay: Of the £10 billion that you are accountable for, how much will be spent on IT?

Mark Sedwill: On police IT, or just-

Stephen Barclay: Out of that £10 billion.

Mark Sedwill: On total IT or police IT?

Stephen Barclay: Both.

Mark Sedwill: I do not have a number off the top of my head for total IT. On police IT, it is around about 10% of the total police budget, so it is about £1 billion.

Q56 Stephen Barclay: So of your £10 billion, for which you are accountable, about £1 billion will be spent on IT.

Mark Sedwill: It is not all on the Home Office budget, but a significant proportion of it is.

Q57 Stephen Barclay: In your response in the Treasury minute, you said that you do not plan to undertake any further police IT programmes, but you are spending £1 billion on IT. Could you just clarify that?

Mark Sedwill: The response in the Treasury minute was specifically to the kind of programme that you investigated with the mobile improvement programme. We do not intend to mandate and buy a particular IT system for 43 police services. There are various programmes, such as, for example, the Sprint ii framework contract, which is mandated to the police to buy themselves commodities such as laptops, desktops and so on. That framework contract was negotiated to give them the best price and the best value for money. We do not require them, as in that case, to buy a particular system or model, but we do at the moment require them to use that framework contract to purchase whatever they choose, because we believe that that achieves the best value for money.

In the new policing landscape, as you are aware, we have the police ICT company, which was established last year, and its purpose is to enable policing to get essentially the best value from the IT spend that it can. It is devolved to the forces and to the police and crime commissioners.

Q58 Stephen Barclay: Is every police force mandated to use that company?

Mark Sedwill: No.

Q59 Stephen Barclay: So how do you know that your money is not paying for the same software development twice?

Mark Sedwill: Well, this goes to the heart of the autonomy that police and crime commissioners will have. We expect most, but not necessarily all, to opt in to the police ICT company. We should get some saving from some or most of them being able therefore to reduce their own procurement functions. The ICT company will cover most of the large, national IT infrastructure-the required police national computer and those kinds of things-which everyone either opts in to or are mandated. You will be aware of one or two examples of that.

If, in the end, a local police and crime commissioner chooses not to opt in to the police ICT company and not to buy what we might regard as the best VFM kit-I do not think it will be software development, because that would be a much bigger project-we will, through the system statement, have to reveal to their electorate the fact that they are buying something-

Q60 Stephen Barclay: Would you reveal that to the electorate?

Mark Sedwill: No, that would be done through the other measures that I have set out.

Q61 Stephen Barclay: Would it, though? If an independent-minded police and crime commissioner purchases a system with your money that is not interoperable with other systems, do you have that data in the Home Office? Do you have an audit of all the IT systems that police forces have today? As a starting point, do you have that?

Mark Sedwill: No.

Q62 Stephen Barclay: So how do you know whether two police forces are buying similar things over the next 12 months?

Mark Sedwill: There are two parts to your question. The first part is about interoperability, which is critical, and that is the kind of example in which we would expect to have an intervention from the centre, because it is critical that police IT is interoperable if it is dealing with any kind of national system-criminal records, fingerprints and so on. That is critically important. The whole purpose of the reform, however, is to try to give police and crime commissioners more flexibility and more control over budgets.

Q63 Stephen Barclay: Sure, we understand allowing them that discretion, but there is also a challenge. We are trying to get to the element of challenge. What surprises me is that you do not even have just a simple spreadsheet at the centre containing what the legacy systems and what the older systems are in order to be able to conduct your challenge. You cannot say, "These are our older systems. These systems are very inefficient." The whole business for the NHS IT programme was predicated on actually doing that at a national level. It has now gone to the other extreme and seems to be doing the opposite. I cannot understand why you would not just have a simple audit of the existing landscape in order to be able conduct that challenge function?

Mark Sedwill: In a sense, the simple answer is that it would not be a simple audit; it would be a phenomenally complex one.

Q64 Stephen Barclay: Would it?

Mark Sedwill: Yes, it would. Under the old regime-

Q65 Stephen Barclay: With 43 police forces.

Mark Sedwill: Forty-three police forces, each of which can already buy different kit, even if they buy it off the same framework.

Q66 Stephen Barclay: Who is the key person for you in the Home Office responsible for IT?

Mark Sedwill: I have a chief information officer and a-

Q67 Stephen Barclay: Would that person not have those sort of data? They would in a multinational company-the different business units, what the systems are and what we are looking at upgrade this year. Then you could challenge an independent police and crime commissioner who is perhaps going and buying something that another force has recently bought. You can then say, "Why don’t you get a rebate? That development work has already been done for another force, so we should get a rebate on it."

Stephen Rimmer: First, if you just take the Met, which is obviously the biggest force, it has, in general terms, more than 300 different IT systems, so if you look at that across the piece, you are talking about a huge piece of work, Clearly, as the permanent secretary indicated, there is scope for specific, targeted audits at particular times, in concert with the NAO or simply though HMRC. If Ministers decide to prioritise particular things that they are concerned about at a national level, they will do that. I think that Ministers would be completely opposed to the notion that it is a constant role of the Home Office constantly to track individual spends by individual PCCs on individual items.

Q68 Stephen Barclay: With respect, Mr Rimmer, they are not replacing all 300 in one go. Something jumped out at me from the recent NAO Report, and perhaps I will ask it as a question: what percentage of your CSR savings are you delivering through fundamental transformation reform?

Mark Sedwill: Of what? Of IT?

Q69 Stephen Barclay: For the Home Office. What percentage is being delivered through fundamental transformation reform?

Mark Sedwill: It is my second week, so I do not have the numbers in my head. Let me have a look to see if I have the data for you, otherwise I will let you have them later.

Chair: Does Mr Rimmer know?

Q70 Stephen Barclay: Do you know the ballpark figure, Mr Rimmer?

Stephen Rimmer: We do not calibrate the way in which savings are being made in that way. Our responsibility, in terms of the CSR savings, is to ensure that forces, authorities-until last November-and then PCCs have the means to make sensible judgments about efficiency savings. They have done that in very different ways. As some of you will be aware, the Met, for instance, recently published its plan to make £500 million of savings over the next two years. It has done that in terms of an analysis it made, which it has had challenged by the deputy mayor and the Mayor and obviously scrutinised by the GLA and others. It is not our function to dictate: "You have to take that chunk of savings."

Q71 Stephen Barclay: It is not about dictating. To help, in the NAO Report only 5% of savings proposed in the spending review 2010 were based on fundamental transformation reforms. What I am driving at is the fact that IT is often the key driver of those reforms. IT is a way to work smarter, rather than making our savings through cuts. I am not getting much understanding of how you are driving that. What level of your savings is being delivered through working smarter and how are you using IT to challenge the police and crime commissioners to ensure that they are procuring in a way that is interoperable?

Mark Sedwill: In a sense, the Report into mobile improvement helped to set exactly that exam question, in that the procurement was designed, as you will recall-

Stephen Barclay: It did not work.

Mark Sedwill: Exactly. -against a business case that presumed that best practice would be rolled out across the whole policing landscape and that it would deliver £125 million-worth of savings, on the basis that it ought to save 18 minutes per shift-I think that was the data. That was an example of seeking to do that through a centrally driven procurement.

Q72 Stephen Barclay: With respect, no, it was not. We had a hearing on it. That programme bought a load of kit without thinking through how it was going to be used. That hearing showed that it did not change the business practice.

Mark Sedwill: That is my point. In some forces it did, so some forces did change their business practices-

Stephen Barclay: A few.

Mark Sedwill: Exactly. -and they were able to achieve the savings. The business case was predicated on that happening everywhere, and there was not a mechanism to ensure that that was the case. That is one of the reasons why-

Q73 Stephen Barclay: That goes to my point about the challenge from the centre-to challenge where that is not happening. We have had that happen once before-it did not work-and what I am therefore saying is how do you convince us that this time round it would work?

Mark Sedwill: That is partly the role of the college and partly the role of the inspectorate.

Q74 Stephen Barclay: The college is not accountable for the money.

Mark Sedwill: The purpose of the college and the inspectorate is to spread good practice generally. That includes value for money. They are the people best equipped to do so.

Chair: I think that you are not carrying out your duties, Mr Sedwill. I think that you will have to go away and we will come back. We have to keep this thing moving, because Nicholas Macpherson has been sitting there patiently.

Q75 Ian Swales: I want to build on what Mr Barclay has been saying and lead into the area of budgeting. What we are hearing from this exchange and from your response to the Treasury Minutes is probably some ducking and diving with regard to what the Home Office’s central role actually is. I have another example. We were faced with difficult choices to be made in the reductions in spending when the new Government came in. I know from talking to my own police force that the police forces were all in different positions in terms of modernisation. The central grants were a varying proportion of the budgets of the various police forces, because of the balance between the local precept and the grants, so there was quite a sophisticated landscape.

What actually happened? Somebody, presumably with a spreadsheet and a couple of hours-the student shadowing me today could have done it-came up with exactly the same percentage in every single force, which was ludicrous. So the forces that had modernised were penalised, because they had already taken steps in that direction. Forces that were inefficient and had a long way to go found the savings very easy to get.

Then there was the problem of forces, particularly in areas like mine, that had a larger proportion of grants and were actually getting a bigger cut in their budget. All that backcloth led to a very simple spread-it-out kind of approach. It makes me wonder what the level of sophistication actually is in the Home Office around budgeting, and how you are going to take that role forward. If you do not have your hands on it, as this debate is showing, how on earth will you know that this force needs a little more and that that one should take a little less? How will you do that?

Mark Sedwill: Although it came out as a very simple answer, it was, I am afraid, through a complex mechanism. As you are probably aware, there is a complex mechanism that essentially takes in a whole load of data on crime and population density and so on, which determines how we should allocate the overall grants to the police from the centre. But there is a facility within that to apply damping in order to try and essentially smooth the transition. Ministers took the decision, partly because of the amount of change that was going on in policing at the time, to apply damping so that in effect you had an even outcome across the country. It was not a lack of having a sophisticated model. It was a decision to apply damping in that way.

Stephen Rimmer: The answer to the second part of your question, Mr Swales, is that we have an annual process led by HMIC to assess the robustness of financial planning in each and every force. That assessment is published. That identifies high-risk forces. The report last year identified three: the Met, Lincolnshire, and Devon and Cornwall. Remedial action has been taken in each of those cases. In all the other 40, the view was that planning was at a robust stage in this period of the spending review.

Q76 Ian Swales: To what extent do you have the numbers on that? We keep getting an NAO Report showing that not just your Department, but many Departments, lack the central management information. Mr Barclay is pointing.

Stephen Barclay: Paragraph 7 of the Report that came out on 24 January states: "There is a vacuum in good quality management information, both financial and non-financial, which undermines good decision-making." That was in the NAO’s civil service Report.

Q77 Ian Swales: That is the general point that I am referring to. Your responses to these things seem to suggest a hands-off approach. Have you got the information to carry out the role that you appear to have?

Stephen Rimmer: In the context of financial planning, I do not pretend to have all the data that we need in all specific areas of police activity. The report that will come out shortly on procurement raises some important questions about data. On overall financial planning-based on a clear structure of HMIC interrogation of the overall financial plans of each force and, of course, of PCCs in the future as well as chiefs-Ministers have total confidence in the comprehensiveness and robustness of those analyses.

Q78 Ian Swales: To complete the circle and then I want to move on, I guess that the procurement report is going to say something about IT equipment. I would be very surprised if it didn’t. How are you going to react to that, if it says, "We are not doing very well", given all the responses you gave to Mr Barclay’s lengthy questions?

Mark Sedwill: That is part of the reason for establishing the new police ICT company as a company, because it will have more flexibility than a Government Department.

Stephen Barclay: Firebuy was set up in the fire service and the NAO Report on that is a horror. It cost more than it saved.

Ian Swales: The PCCs don’t have to use them. We had a hearing about the NHS system for buying major equipment. Most trusts don’t use it.

Stephen Barclay: It is not mandated.

Ian Swales: Because it is not mandated.

Q79 Chair: Do you know what would be helpful, because we are all in the same territory? In your response, PAC recommendation 3, you say under 3.3, "The development of business cases; the arrangements for programme management; and the measurement of progress and outcomes in individual forces are matters for the Chief Constable and local policing body. Assurance about value for money is provided by the arrangements described in the Accountability System Statement."

I would like you to do us a note to tell us how you square the circle between those two statements, because I don’t get it. I think that is at the heart of what we are about. If we can get back to that, look at 3.3 and just write to us and tell us how on earth you square those two statements. Would that help?

Mark Sedwill: I am happy to do that, Chair. If I can raise again the point I made earlier, it will be in the light of the fact that I will be issuing a new system statement. The financial management code of practice does include value for money and these obligations. I will respond in the light of that.

Q80 Ian Swales: My final question: how many people work in the Home Office in the Department that looks after policing?

Stephen Rimmer: In the police finance part of my group there are about 60.

Q81 Chair: How many?

Stephen Rimmer: 60.

Q82 Ian Swales: Just in the finance part, there are 60 people. And how many people in total in policing in the round, in terms of everything to do with policing? How many in the central Home Office?

Stephen Rimmer: In the crime and policing group there are about 400 people.

Chair: And they don’t do anything; they leave it all to the Commissioners.

Q83 Ian Swales: I would not necessarily associate myself entirely with the Chair’s comments, but she can see what I am driving at. The real question for the taxpayer is, what are these people actually doing? If this is very much hands off, we have to ask ourselves that.

Mark Sedwill: If I may, Mr Swales, there is a balance here. I think it is easy to paint this black and white. The nature of this kind of hearing is that you have made the recommendation and we have said that we don’t quite agree with that. It feels like a binary argument but I don’t think it is. It is about calibration.

We are in a new field. I won’t irritate you, Chair, by repeating the point on that, but you know better than I do that we are into new territory. We are dealing with the dissolution of the Audit Commission and we are, to some extent, going to have to find our way. We are doing our best through the mechanisms we are putting in place. We have worked very hard on that to provide you with the assurance you require.

It is not the case that we are going to leave everything to the PCCs. There are very large parts of policing, set out in the strategic policing requirements, and very large parts of the infrastructure that we will mandate centrally. But we do believe that they have to have flexibility, not only the operational flexibility chief constables have always had but the financial flexibility to make choices.

Chair: But you are accountable, Mr Sedwill. I need to move us on: Jackie then Amyas.

Q84 Jackie Doyle-Price: We have covered a lot of what I was going to raise. I just have a simple question. As accounting officer-along with your predecessors-how often, if ever, have you had an uncomfortable conversation with the chair of a police authority or a chief constable about value for money?

Mark Sedwill: I haven’t yet. I am happy to be accountable for my predecessors, because I know that is the convention, but I have been in the job only 10 days or so. I actually have talked to two chief officers. It was not an uncomfortable conversation, but we discussed almost exactly the set of topics you are discussing now about how we ensure, for example, the new ICT company is going to serve their needs. I can assure you that I am on it, but obviously I haven’t had the chance to go into detail yet.

Q85 Jackie Doyle-Price: It seems that once the money is out the door, it is the police force’s problem.

Mark Sedwill: I don’t see it that way. I think we will rely heavily on the independent audit reports. One of the things-this is speculation because it is a policy decision-we will have to reflect on is, to go to Mr Swales’s point, about the way we allocate the grant. Is it essentially demand-driven by the situation on the ground, and how much of that should have positive and reinforcing incentives in it? That is obviously going to be a complex policy question for Ministers to consider. I think in the new era, we will have to look very carefully at that.

Stephen Rimmer: Can I briefly add, to reassure the Committee, that we are at risk of stereotyping ourselves as just waving goodbye to all these things. We have regular forums with chiefs, police authorities and now with PCCs about value for money. I chair something called the value for money gold group, which looks at the national issues. Clearly on a number of areas, including IT, there will be questions, both now and in the future, about which programmes we should consider mandating and which programmes we should be supporting. There are reports that we need to consider collectively at a national level, including your forthcoming Report on private sector partnerships. There is the basic checking of the robustness of forces in delivering value for money.

Q86 Stephen Barclay: Do you have comparative data?

Stephen Rimmer: HMIC publishes regular value for money for profiles.

Q87 Stephen Barclay: I do not mean techie stuff for people to look for on the internet and try to work out. I mean things that are readily accessible for voters and consumers, so that they can start to compare. We understand the benefits of localism-no one wants to choke it off-but more comparative data would be very useful.

Mark Sedwill: We take that point, absolutely. Clearly, one of the things we have to try to do is ensure that alongside the local crime labs, which are a really user-friendly means for voters to understand what is going on in their areas and how well their PCCs are doing, we are going to have to find some accessible means of providing the value for money assurance, and the other assurances that you are seeking for the voter. One of the conversations I want to have with the NAO is about the requirements they impose on auditors so that auditors make overall judgments that we can publish and release on the internet in a way that is accessible not just to people with training.

Chair: Okay. I am going to move this on.

Q88 Jackie Doyle-Price: I want to put on the record that the 3,000 handsets that were bought for Essex under this project were all withdrawn within 18 months because they were not fit for purpose. I just want to bank that. They have all been withdrawn.

Mark Sedwill: You discussed Essex last time.

Q89 Jackie Doyle-Price: Yes, we did. I have to say that the response I got from your predecessor was less than frank. The response I got from the chief constable was very frank.

Amyas Morse: Just to say that the action that I have taken out of Mr Sedwill’s comments is that, as the revised accountability system statement comes out, we should give ourselves the chance to look at that and see how it reflects. Obviously that is the next point at which we can have a check.

Q90 Chair: I agree. Okay. Sorry if it has been a bit tough.

Mark Sedwill: It is the first of many, I suspect.

Q91 Chair: We are determined to follow the taxpayer’s plan.

Mark Sedwill: As a citizen, I welcome it.

Chair: Let’s move on.

Examination of Witnesses

Witnesses: Paula Diggle, Treasury Officer of Accounts, and Sir Nicholas Macpherson, Accounting Officer, HM Treasury, gave evidence.

Q92 Chair: We wanted to really have a discussion about how this process was going, and how it perhaps could be tightened up a bit, because as a Committee it is a serious process for us, and I know it is for you as well. You said to us when you came before us, I think, at some point in October ’11-quite some time ago now: 15 months ago-that you wanted to reinvigorate. Can you just tell us how you think you have done that?

Sir Nicholas Macpherson: I think we have had some success, but we rely very much on you. At the beginning of this Parliament we agreed to provide regular six-monthly reports to you, which pull together all the progress made in terms of implementing your recommendations; also being clear where there is work in progress; also being clear where the Department has chosen not to implement your recommendations.

I think we have produced, now, Paula, three of these omnibus reports. It is quite helpful putting all that information in one place, but, equally, I am very conscious that that is just really a start. The interesting thing is how we ensure departments are held to account where there is a sense that they are either falling behind or giving you flannel that doesn’t quite give you what you want. Actually, behind the scenes, Paula in particular does a very good job of discouraging departments from giving you flannel.

There is one thing I come back to-and the last session was instructive. The one thing-I know it doesn’t feel like this from your perspective-which forces accounting officers to get a bit of a grip is the interest of the PAC. So you have regular sessions and I suppose one thought which occurred to me was-I have thought about this for about the last 24 hours-whenever you have one of us before you, you should spend 15 minutes at the end choosing one of the recommendations which really matters to you, to just give them a bit of a going over.

Focusing on large numbers-you know, you’ve got 50 recommendations outstanding: actually, probably half those recommendations I’m sure are important, but there are ones, I know, that this Committee particularly cares about, and I would just encourage you to home in on those, because accountability does matter.

Q93 Chair: That is a very good idea. I think we will take that up.

I am grateful to Paula for the work she is doing to support the Committee, but it also requires, I think, tougher intervention from the Treasury. It is becoming one of the themes of this Committee, really. You saw it in the session before. One was well-intentioned, but the actions did not meet-you know, "We accept the recommendations", then actually they weren’t doing anything very different. They were just giving an excuse for it. The other was not meeting accounting officer duties. I thought the second one was probably more important than the first, in that regard.

I know you are not well resourced, and I know, in a way, you don’t see your function as doing this, but I think we do, because if it is not you I am not sure who it is. We are outside Government. We are the accountability to Parliament, and we will do our bit, but the real drive has got to come, in a way, from you insisting on it-Treasury exercising its authority, which is massive, as those of us who have been Ministers know, to effect change.

I think that partnership would work brilliantly, but we, on our own, cannot do it. We can shout and scream but it doesn’t in fact get it in the end. You flexing your muscle as a department is absolutely essential.

Sir Nicholas Macpherson: It sometimes reminds me of the much maligned, but not particularly missed, so-called tripartite system of the FSA, the Bank of England and Treasury.

Stephen Barclay: That worked well.

Sir Nicholas Macpherson: Exactly.

There is a risk for all of us that we all think, "If only the Treasury did its bit," or "If only the PAC did its bit." I think we need to work together. Actually, the Treasury is taking far more interest at the spending team level in PAC Reports, and working with Paula-whether on health, the Home Office or whatever-we try to exert more influence, and we will continue to do that.

I personally-not just as a citizen, but as the permanent secretary to the Treasury-very much support, welcome and endorse your attempt and desire to follow the pound. There are inevitably occasions where we rub up against policy decisions taken by Government. There are certain Secretaries of State who appear to have very strong views about what Whitehall should be doing and what it should not be doing.

I was pleased to hear some mention of the accountability statements in the last session. This is something that we have to continue to push on. I do not know where the National Audit Office is yet, but when we start trying to look at whether the systems are working, we really need to work together-Treasury, NAO, PAC-to ensure that when it comes to academies, which came up at the whole of Government accounts session, we have enough reassurance about how money is being spent.

We get the message. We will push this further. Sharon White, who runs the spending side, appears before this Committee fairly regularly. I know that she is committed to making further progress. I can understand your frustration, but we should not give up.

Paula Diggle: On the system statement, can I say that I will take a personal interest in having a look at the Home Office one, and that I will see what is wrong with it and whether I can improve it for you? I had seen problems, and I will look into them for you.

Q94 Chris Heaton-Harris: This is really a reiteration of what you have just heard and what we have talked about in the past. Now, because of the dynamics of this particular Government, who want to localise lots of things and give people a lot more power to spend their own money, there are new issues about how that is reported up through accounting systems and how you measure it. We saw that in the previous session. You get it in education and health, and it is really important for you, as well as for us. I wondered what thoughts you could offer us as a Committee on how we can best track down the value for money, now that we have devolved a lot of that spending to arm’s length bodies, for want of a better phrase.

Paula Diggle: You have a number of tools in front of you. The system statements are a jolly good start. You found the Home Office one not actually meeting the job properly. That is a jolly good piece of input to us-that you are not finding it right. I have taken a personal interest in trying to get the ones for health and education right, particularly in respect of academies, for example. I believe that we now have a reasonable line of sight on those. Pressure from you on what is not providing you with the information that you need gives us insight into what you want, and what is the will of Parliament to get a grip on where the pound goes. You always say you want to follow the pound, and that is what we try to do for you.

Chair: The most extraordinary session recently was when we looked at Peterborough hospital and Hinchingbrooke hospital. We had six people giving us evidence-we had the chief executives of the two bodies, Monitor, the strategic health authority, the Department and one more, which I have forgotten-and when you asked them who was accountable for a particularly stupid decision, not one of them volunteered accountability. It was gobsmacking. It was so clear where accountability in this new landscape has not yet been nailed down.

Ian Swales: Especially the chair of the SHA, who is on £200,000 a year and claimed responsibility for nothing, neither micro nor macro. It was incredible.

Paula Diggle: I am glad you have mentioned that. It may interest you know that, just this week, I have been looking at the framework documents for all the different organisations in the Department of Health organisation, and the NHS, and making sure that there is a chain of accountability.

Q95 Chair: But there was not. I remember the other one; it was the department of commissioning, the SHA, the two chief execs and Monitor-six of them.

Paula Diggle: I cannot answer for what was happening then. What I am saying to you now is that I am looking at the new framework and making sure that the chain works, up and down.

Sir Nicholas Macpherson: Whenever you say, "Who is accountable for this?"-you did it just now-that is something that we all need to ask. One of the things we are wrestling with is-not just under this Government, actually, foundation trusts were the big idea. I can remember the Treasury was deeply sceptical about them at the time, but the decision was taken. In one sense, if you can develop a system within the public sector, where somehow the market determines the outcome through choice, that can only be a good thing.

The problem that we all wrestle with-it comes up very much in the case of health-is that a foundation trust has a multiplicity of objectives. Often the people who work for them-there is a market failure, in the sense that there is asymmetry of information, with the clinicians who are in a completely different place from the so-called customer. Getting the accountability and incentives right is challenging. The temptation-no doubt, this is the Treasury’s preference-is to go back to command and control, where, theoretically, accountability is totally clear. But the system then is quite monolithic, archaic, and so on.

Public sector reform creates big challenges. For whatever reason, the popular will was that the Audit Commission was to be abolished. That leaves quite a big hole, in my view, in terms of creating the sort of analysis that compares performance across services. We need to use different tools. The issue of accounts and the National Audit Office not signing off accounts is quite powerful. I hope you all keep up the pressure on education. We will do the same. But we are in new territory.

Q96 Chris Heaton-Harris: That did not really answer my question, did it? We know we are in new territory and we know what the problems are. In a way, it is not that we want to work together, because we also like to hold you to account at certain points. But there is this new dynamic, which is that, instead of us looking at a department or a stream, there are thousands of different bodies out there that we could choose to home in on. If that is the way it is going to be, that is the way, I guess, it is going to be. But surely, between us, based on where we know-I do not think that any of these policies will be reversed by any incoming Government, because they will be quite popular and well liked and maybe even function properly. We need to mark out the new structures that we can properly look at. We just need to know one person in each of those institutions who will take some responsibility and answer for them. That is a struggle at the moment. Surely, it is in the best interests of you, the Treasury, the taxpayer, and everybody, to nail that down.

Sir Nicholas Macpherson: It is. The system statements are important, because if you are going to devolve public services-there is a perfectly reasonable case for doing that-you cannot hold a departmental accounting officer responsible for every single thing that happens in Peterborough, but the accounting officer should be responsible for the system. If there are systemic problems-design problems-that are generating failure in performance, they are responsible for that, and the Department needs to be able to explain to you how they know whether the system is working.

The NAO has a really important role in reporting on whether that system is working. When failure is identified, we need to drill down and learn how that system can work better. The Treasury has an interest in that and you have an interest in that. It is not simple, but I believe that we can make progress.

Q97 Ian Swales: Just to finish the accountability point, we have stopped asking for public executions now, but have there been any, because we never hear that there has been one? I do not think that we even ask whether anybody has been held personally accountable any more, because they never are. It is really important that we make progress on that.

I just had a couple of points. One was on the Treasury versus Whitehall idea. I think back to one of my former jobs, where I was FD for a group of businesses-the FD in charge of the FDs. I am just talking about money here, not particularly about systems, but I would like to think that the Treasury sees itself in that role, which implies that it has a very hands-on relationship with the various accounting officers-sorry, let me rephrase that. It implies that it has a very hands-on relationship with the financial people in the various departments-in other words, the FDs of the departments are very closely wired to the Treasury and there is that sense of continuity and that all those good things that you could do, such as whistleblowing, career management and advice systems, are all happening. Maybe they are all happening and I just do not know, but could you comment on that view?

Sir Nicholas Macpherson: I am very happy to comment on that. The Treasury takes a very close interest in the finance functions of departments. We do not control the appointments of finance directors, but we can have considerable influence. When we are dissatisfied, it is open to me to take the accounting officer aside and say, "Look, we can’t continue like this." I can remember occasions over the past 10 years when the Treasury has intervened in quite important Departments where, basically, we had to change the control system.

Even recently, I have copied correspondence to the Chair and Amyas in relation to the Department for Culture, where I genuinely worry that the Department is now too small to carry out responsibilities on issues such as finance-just one person being ill has pushed back beyond the normal legal date for it to publish its accounts. I remain optimistic that it will. I do not know where we are, but we gave it three weeks and those weeks are rapidly disappearing.

The other area where it can have an impact is in relation to accounting officers themselves. Although it may not be very visible, occasionally accounting officers fall by the wayside. I can remember when a former head of HMRC resigned-not over a finance issue but over the issue of lost discs. If you look at Whitehall over the past year or two, a large number of accounting officers have turned over; some might argue too many have turned over.

The Treasury also comments on finance performance. I am on the pay committee that assesses the performance of all the permanent secretaries-not that pay is an issue at the moment, because they are not going to get a pay rise anyway-and we consider who is performing best and worst.

Q98 Ian Swales: Do you run a career planning function for finance professionals across Government?

Sir Nicholas Macpherson: Much more. This has been a big change in recent years: we have put far greater emphasis on developing finance professionals. Richard Douglas, who is the chief finance director in terms of experience and so on, works closely with Sharon White in thinking through career development.

Q99 Ian Swales: My other question was on a different tack: the perennial one of arm’s length bodies-Paula mentioned academies earlier. I think the Committee not only remains concerned but is increasingly concerned about the extent to which we have our hands on the public pound once it goes over the wall into the private sector, some arm’s length body, a pseudo-public body like Network Rail or whatever. It extends into every Department. When we had the DFID review nine months ago, so much of the money was disappearing into other agencies, like the UN or whatever-huge lump sums-and I wonder what your thoughts are on following the public pound, which the Chair has already said once today. How on earth are we going to ensure value for money when so much of the ultimate spend is no longer under public managerial control-[Interruption.] Line of sight, yes.

Sir Nicholas Macpherson: This is the consequence of decisions taken by Parliament. I am not abdicating responsibility but, actually, Parliament has chosen to set up academies in this way.

Q100 Chair: But your job, difficult though it is, is to find a way through that.

Sir Nicholas Macpherson: Absolutely. I am sorry; I am not abdicating responsibility in any way. I am accountable to you and to my Ministers. I think the Treasury, reflecting its historic relationship with Parliament and this Committee, has a responsibility to try and develop a framework that can give you reassurance. This comes up in the context of whole of Government accounts, so the first thing is to reduce the number of qualifications. What I would really like to work towards, with the Department for Education and the NAO, is an unqualified education account so that Amyas can say, "I have sufficient assurance on how money is being spent across the system to sign this off."

There are things we can do on the accounting front, but there are also things that we need to do on the accountability front, in terms of ensuring that people fully understand their responsibilities and can name in each case who is accountable. Paula has been doing a huge amount of work on this over the past two years, and this comes back to trying to develop these statements that at least give you reassurance that the system as a whole adds up. Now, there is more that we can do on that. You had me before this Committee a good 18 months ago, I think with Bob Kerslake and Helen Ghosh, and we agreed then that some areas were working better than others. So it can be done. Parliament devolved responsibilities to local authorities many years ago, and while you can criticise some aspects of the system, I get the impression that, broadly, you appreciate that there is a common understanding of the basis on which money is given to local authorities and of how they report. But there are other areas where we clearly have to make more progress.

Q101 Ian Swales: That illustrates the point. You talked earlier about responsibility for systemic issues, and I think that some of the concerns we would have around arm’s length bodies are around the system that has been put in place opposite that arm’s length body. Academies is a good example, because the initial system was not good enough and work had to be done. Then there is the whole issue of contracting, and my view is that if we are a lot of sharper about what the public should expect in terms of transparency, profit sharing or all these other things that concern the Committee, we would all be a lot happier. We seem to be so frightened, particularly with the private sector, that if we can get the private sector interested in doing something, we throw a whole load of money at it and sigh with relief. I am exaggerating to make the point, but I think that there is a whole lot in this area about what the system is, how transparent it is, how we contract and what the terms of those contracts are.

We do not let the private sector entirely determine the rules of the game. If we decide on a game and certain firms do not want to play that game, that is fine and we will deal with the ones that do. Having sat here for two years-plus listening to all these things, that is where my mind is heading, and I wondered what your response would be to that?

Paula Diggle: Can I help by explaining what I do when I am asked, as I often am, for advice about setting up new forms of arrangement within Government for innovative ways of handling public business? I would want to work out where the centre of real accountability ought to be, and I would say that if you want to contract out to get someone do to that business for you, you have got to be an intelligent customer-you have got to be sure that you get evidence that the work is being done properly, because it is your fault if your contractor is not doing it properly. I am quite clear that the public sector accounting officer-whoever that is-is fully accountable if he chooses to contract out. He may say, "Bloggs did this," but he should know whether Bloggs is doing it right and he should be able to judge whether Bloggs can actually keep on doing the job properly.

Within central Government, you also talked about arm’s length bodies. I am not sure whether you mean that in quite the same way that we tend to use it. We tend to use arm’s length bodies in the sense of NDPBs and fully owned companies and things like that. With those-

Ian Swales: We have even had problems with them, I think.

Paula Diggle: Yes. With those, we always have some sort of framework document, and that always lays out-or should lay out-exactly how the accountability should work. Again, it is clear that the arm’s length body has some sort of an accounting officer who is responsible day to day for the work of that body, but the sponsor Department has a principal accounting officer who should be confident that the systems within that arm’s length body are working adequately. That is how we like it to work.

Q102 Ian Swales: I accept that. All I would say in response to that is that you then need to test with those accounting officers what the mechanisms are: do you have rights of access; do you have rights of audit; what sort of information do you get; what are the measures that you use? I am trying to think of an example off the top of my head, but I am sure that the Committee recognises what I am talking about: every time we talk about a commercial contract or a non-departmental public body, we do not get that warm feeling that the type of relationship that you are talking about is actually in place.

Paula Diggle: It should all be laid down in a framework document. Let me give you a real life example: when we set up UKFI-you will remember this-

Sir Nicholas Macpherson: Yes.

Q103 Chair: Which one?

Paula Diggle: UKFI.

Sir Nicholas Macpherson: That is the one that looks after our investments in the banks: UK Financial Investments.

Paula Diggle: We took immense trouble to work out who could decide what, who reported to whom and how often, and all that sort of thing. And it works-we make it work.

Ian Swales: And it is great that the Treasury has done that within its own field. We want to see that happening in every Department.

Chair: There is an issue, which Ian quite rightly raises again, in relation to private sector companies and we bang on about transparency in that area. You are going to have to think about that, because we are not going to stop.

Q104 Stephen Barclay: The frustration for the Committee is the sense of groundhog day; we keep having the same debates. I suspect that it may feel like that to you as well. Why is there such a vacuum of good quality management information, both financial and non-financial, which is undermining decision making?

Sir Nicholas Macpherson: Reporting financial and general management information works best where there is a long history of common understanding about what is important within an organisation, so you have long time series information and there is a clear focus. Often that may well be because the service in question is simple and therefore it has not been reformed regularly.

Again, I am not excusing us, but there are some areas of Government, particularly in important public services-I would say aspects of the health service-where pretty much ever since I can remember the structure has been in a state of flux because, yet again, it is being reformed. In those areas, often, because you have endless changes in structures, accountabilities and in the finance arms, we have struggled. It is a classic bureaucrat’s response. What you really want is just for the system to settle down and get a nice time series that can really begin to drive activity and focus. That does not mean that we should give up or despair, but that has historically been the problem. The Government were very late in adopting modern accounting practices, which was almost certainly the fault of the Treasury. The Treasury, historically, again for understandable reasons, was obsessed with cash, to the exclusion of a more sensible approach to capital spending, revenue spending, depreciation and so on. There have been issues there.

I do think that we have made progress-I know that it may seem glacial sitting on this Committee. The fact that we have got things like whole of Government accounts is progress. The fact is that Departments, apart from DCMS, generally produce their accounts far quicker. We all aim to do it by the end of June now, or at least before the summer recess. I know that it is of no consolation when someone says, "You think it’s bad; it was a hell of a lot worse", but there has been progress over the past decade or so. There is more to do and the Treasury has an important role in that, because the one thing that does have an effect on people in areas where markets do not work is league tables. Having information on things like the cost of accommodation and the size of the HR function does concentrate minds. One of the challenges for us is to find better ways of comparing and contrasting performance, not just within particular services, but across the public sector.

Q105 Stephen Barclay: It feels like that answer could have been given at any point in the past 20 or 30 years. The pace feels pretty stagnant to me, never mind glacial. What are the things we should be supporting to better help the Treasury get this data? I do not get any sense from the evidence today of what it is that we, from a parliamentary point of view, can be doing to empower the Treasury. There is no real sense of change.

To take another area, the NAO said, "The centre of government has yet to perform effectively in its corporate role. The Cabinet Office and HM Treasury (the strategy and finance departments of government respectively) have tended to operate separately and lacked the leverage or information to manage the ‘corporate’ position." We are all tired of civil service reform and how often it has been debated and the same things looked at. It does not feel to me that the PAC is aligned with the Treasury at the moment. It feels like Whitehall sees the PAC as an inconvenience that strays into policy areas. I do not get the sense, with respect, of any real change. I am really interested, whether in private or public session, in what the recommendations are that can allow this central strategy in finance departments to be effective. I have not heard anything that changes that.

Sir Nicholas Macpherson: If I look back on the recent past-I am thinking aloud here-and what are the things I feel positive about in the Treasury, we are far better at controlling spending than we used to be. In the 1980s, it was difficult to control spending. Local authorities, the health service and so on were a law unto themselves. Month by month, Treasury now has a far better grip on public spending. We are really focused on the monthly management information around spending and forecasting it for the end of the year. A particular interest at the moment is what is happening to the deficit, and spending is critical to that. I sometimes wish that we were better at planning and forecasting revenue, because that has been the main source of our problems with the deficit.

Q106 Chair: You are saying you are better-sorry to interrupt you-but AME is going through the roof. AME will overtake DEL in a year or two. That is not controlled spending.

Sir Nicholas Macpherson: The will of Parliament is that we protect old folk and the health service. There is a lot of AME in some of these things.

Q107 Chair: But you cannot say therefore the Treasury is better.

Sir Nicholas Macpherson: We can. Annually managed expenditure is rising a lot, but that was forecast. If you keep paying an increasing number of old people big upratings through the so-called triple lock, AME will account for more and more public spending. It is one of the big challenges facing this country. It is set out in black and white, and we forecast that.

I could prove that the Treasury is reasonably good at controlling pubic spending in the short run, but we can come back to that. The thing that all of us are struggling with is the other part of the equation: what outputs are the Government are getting from that spending? I have wrestled with this for years. Under the previous Government we created elaborate systems around output measures and outcome measures. Some were sensible and good, and have inevitably been cast aside, but others were stupid, pointless and slightly embarrassing if I look back on them. I am talking about the 2000-02 period.

On the so-called strategy function, which is perhaps slightly difficult to put a finger on sometimes, and the finance function, we have a spending round coming up. The Committee once had a session when you invited Francis Maude, the Cabinet Office Minister, along and perhaps you could get the Treasury and the Cabinet Office-Ministers and senior officials-to explain how we will use the spending process to strengthen management information further. There has been some progress and a greater number of things are published, but can I say confidently that Parliament knows precisely what it is getting in exchange for these huge amounts of money that you happily-perhaps not happily, but probably unhappily-vote through? I am not as confident as I would like to be.

Q108 Stephen Barclay: I was struck by the AME’s findings in the 2010 settlement that only 5% of savings came from fundamental transformation reforms. What percentage do you expect it to be next time?

Sir Nicholas Macpherson: I think that inevitably the more you cut spending, the less fat there is and the low-hanging fruit has gone. This is a personal view, but I think that the pressure for transformational change becomes much greater. A question that the Committee often considers, as does the Treasury, is whether there are sufficiently credible transformational plans and, if there are, whether the capacity is in place to deliver them.

Q109 Stephen Barclay: And who is accountable for them.

Sir Nicholas Macpherson: Indeed. This will be a growing issue as we get to the end of this spending review period and into the next spending review period, some of which will be in the next Parliament.

Q110 Stephen Barclay: Your estimated figure. It is only 5% this time. You and I agree that the pressure will increase.

Sir Nicholas Macpherson: Even if I subscribe to that figure, which I don’t think I would.

Q111 Stephen Barclay: No, just a forecast is what I’m after.

Sir Nicholas Macpherson: I would expect a bigger figure.

Q112 Stephen Barclay: Of course. We both accept that. I am interested. It is not writ in concrete. I am interested because there is a serious point behind this, and it is always informative to me in that a common theme of this Committee is the reluctance of witnesses ever to give make predictions that we can then measure them against. But, surely, this is a very live discussion in Whitehall. What is informative about the Nicholson challenge is that, at the halfway stage, in terms of service transformation, savings will be £875 million, but the target is £3.25 billion. So, in the final two years running up the general election, there has to be a fourfold increase, from what is hardest to deliver.

That really goes to the heart of what we are driving at. Discussing accountability will be very difficult moving forward. To what extent will it be reasonable for us, with the benefit of hindsight in two years’ time, to come back to officials who have done their best but not achieved what they set out to, quite reasonably? Rather than doing that, which is boring and which is done to death, how can we assist in the battles that there will be in Whitehall? How can we assist the Treasury, which is under-resourced and which has massive turnover? What level of service transformation might it be reasonable to expect in the next CSR? As parliamentarians, we have no idea of where that discussion is at the moment.

Sir Nicholas Macpherson: There are a number of dimensions to reducing spending. Occasionally, things are taken as transformational, but, for example, I do not think cutting or freezing wages is particularly transformational, although it might be the right thing to do.

Q113 Stephen Barclay: It is harder when the NHS is 7% of the UK work force and on the way to the general election.

Sir Nicholas Macpherson: Indeed, although they still have annual increments, which, in the Treasury, we abolished 20 years ago, but that is not the story.

Then you get things like public service pension reform. I think the Cabinet Office may have scored that as a transformational efficiency saving, and it certainly is transformational. We can debate what it is, but the plain fact is that it saves spending, especially in the long term, and it is one way of delivering consolidation.

Then there are all the transfer payments and whether you give people a benefit increase. I do not think that is efficiency: it is just a matter of social choice about how much you want to pay people who are not working or who are old.

Then you get into the area of public service. One way of looking at it-just to put the word "transformational" to one side, because I do not know how helpful it is-is to look at what sort of productivity improvement you need to maintain or improve services for what will be a decline-

Q114 Stephen Barclay: And, often, that needs an up-front spend on IT and things

Sir Nicholas Macpherson: Yes.

Q115 Stephen Barclay: Which is going to be very difficult to do.

Sir Nicholas Macpherson: It is, but Departments need a credible plan. We can all write in figures in the medium term, but Departments need to have a credible plan for how they are going to deal with a reduction.

Q116 Stephen Barclay: There is a lack of clear strategic vision in Departments: most Departments do not have that at the moment.

Sir Nicholas Macpherson: I do not think you have any choice but to have it. If they have not got it, they are going to have to acquire it pretty quickly. I am an accounting officer, and I have a plan for where the Treasury is going to be over the next three years-

Q117 Chair: It is easier; the Treasury is smaller.

Sir Nicholas Macpherson: Of course it is easier.

Q118 Chair: The NHS is actually scary, because there is huge fragility in the finances of the individual trusts. They were sitting there three weeks ago, and they just have not got a plan for all that.

Sir Nicholas Macpherson: If you are the Secretary of State for Health, and you are the accounting officer for health spending, you have to have a plan.

Q119 Chair: Really?

Sir Nicholas Macpherson: Yes, really. I am confident that they do.

Q120 Chair: The interesting thing is, who is the accounting officer? Is it Nicholson or is it Una O’Brien? It is unclear.

Stephen Barclay: David Nicholson is.

Sir Nicholas Macpherson: Well, it is both, but they are responsible for different things.

Amyas Morse: I just want to see if I can suggest a way of improving the way you work together. This is all very interesting stuff, but the this Committee produces a huge number of recommendations, and it is like boiling the ocean for you to follow them all up or get behind all of them-there are just so many, and they are adding up to a bigger and bigger population. We really need to talk about that, and not just pretend it is fine, because it is not.

It is not going to work to have a great bale of things going forward; it will become unmanageable. Despite all the best efforts-I think Paula does a brilliant job and it is just as much us as them-if there are issues in the range of recommendations that we in the Treasury think are ones which are double gold starred, we should agree on them. We are going to put out a lot of recommendations here that aren’t going to matter that much to the Treasury-let’s be honest-and it doesn’t mean that we shouldn’t push them, but we shouldn’t expect the Treasury to get as excited about them as some that really matter. If we can agree what those were we would be a lot more effective because then we would be aligned on those and we could push them.

Secondly, I was very struck by having a conversation with Margaret about what she would like to accomplish over the next two and a half years. As it happens, we are going to drive our approach to the work we are going to do in departments and groups of departments on a strategic basis. I think the reason for that is that there are some very major strategic issues in the public sector, some of them opportunities, some threatening-we have talked about some of them today. But if we were in agreement at least with the Treasury about what those were-I’m not saying you’ve got to be in cahoots with us as to how to handle them-and we knew that you were interested and we were interested in them, and we had some more alignment as we went through, the chances are that the efforts we are all making would actually take us somewhere.

I agree with you about accountability statements. Yes, that’s great, let’s do that. However I think if we all agree, for example-I’m making this up as I go along-that the effect of taking funding out of local authorities over a period of time is going to create some uneven effects, we are going to have to find some means of having a real dialogue about which authorities are rapidly running out of money and not going to be able to function properly. Not to say they are right or wrong, just that there is going to need to be some way of getting that into clear focus; or will it just happen that we’ll have failure and then we’ll get it into clear focus?

We can agree we need to explore issues like that. This Committee has found that when they run campaigns of successive deeper and deeper exploration into issues, you have really got somewhere and you actually have some deep insight. That is true with accountability and in a number of other areas. If we were actually broadly in agreement about what the areas of interest might be, although we are independent of you and all the rest of it, I think that might be quite a constructive approach. I simply put it as "a modest proposal", to quote Dean Swift, that we might try to have that conversation at some point to see if we couldn’t be a bit more lined up and prioritised on the recommendations, and even a bit more prioritised-dare I say it-on some of the subjects we choose to look at.

Sir Nicholas Macpherson: I would very much like to ensure that we can make even more progress. I would be very happy for us to sit down with the NAO and have an open conversation about what worries us. There are two dimensions to the things that worry us most. One is what the biggest areas of risk are in terms of money, which inevitably takes you back to the health service and schools. Then there is another dimension, which is identifying where the biggest risks are in terms of change. There are some really great ideas out there. Universal credit is a brilliant idea. I remember when I was working for Social Security 20 years ago, drawing nice straight lines on pages and saying if only we could have a system like that, yet I think we would all agree around this table that there are quite big risks around it. Knowing when this Committee can be most effective in terms of the point of intervention is really important. Personally-I know you will probably think I am being sycophantic-I think that the work of this Committee during this Parliament, by stepping back a bit from endlessly looking at individual projects and actually trying to think a bit more systemically around the system, has been very productive. I think equally that when you have chosen to drill down into individual issues, for example on tax, this Committee has been very effective, although I am sure lots of my colleagues have found it very uncomfortable. We have a huge interest in having a common understanding of what matters.

I would not want to conduct this debate in public because I represent the Executive and you serve the legislature. I do not want us to have endless arguments with my colleagues and with Ministers about me giving away too much, but more informal contact about what is actually on our minds would be important. If the political side of this Committee could face it, perhaps coming into the Treasury collectively one day and having a general discussion about public expenditure, planning and what is difficult and what is not without the television cameras on might be productive as well.

Chair: Let us try and fix that.

Q121 Ian Swales: May I just add a PS, which is about how we work? Sometimes I feel that there is a relative urgency about something that comes out in the hearing. I do not know whether it happens, but I would have thought that rather than waiting for us to agree a Report two months later, your representative here should probably go back and say-

Paula Daggle: We already do that.

Q122 Ian Swales: That happens, does it?

Paula Daggle: Yes.

Chair: You might let us know when you do it.

Q123 Austin Mitchell: Can we have Dire Straits’ "Brothers in Arms" playing gently in the background? My concern is actually more prosaic. Why is it that more of our recommendations are being rejected? In 2011, 95% were accepted. In 2012, it was down to 82%. In a recent crop, half were rejected by you, on payments in the civil service by Work and Pensions and by the Cabinet Office. Why is it? In The Telegraph last year, it was reported that there was a growing hostility in the civil service to the Public Accounts Committee because we were throwing our weight around and being too aggressive-that is your fault probably, Chair. Is that why there is hostility and rejection? What is the explanation?

Sir Nicholas Macpherson: There are a number of dimensions to this. Just to reassure you, Mr Mitchell, I will be going to a meeting with my permanent secretary colleagues-I am now late for it; I am a continuing advocate of the work of this Committee to my permanent secretary colleagues. Some of them do not get it, but I think some of them find it character forming. There are two reasons. First, after the election, we decided to put more emphasis on following up Treasury minutes, recommendations and so on. Paula explicitly encouraged departments to stop flannelling and to stop saying, "Yes, we agree" and then doing nothing. If you are not going to do something, it is far better to say it up front and be honest.

Q124 Austin Mitchell: Do any consequences fall on them?

Sir Nicholas Macpherson: Yes and no. If a department is rejecting something that is perfectly sensible, which the Treasury, the Cabinet Office and everyone else will support, it will not have many friends. There will be some other areas where either because a policy decision has been taken or the world has moved on, it actually makes sense to reject a proposal. Looking back on some of the Reports that you have done on us, about 95% of your recommendations on banks we have followed and implemented. As and when, and I hope it is sooner rather than later, we sell some of our banking shares, we will do it by the PAC book, let me assure you. The number of times that my role as an accounting officer comes into play now is about 50 times more than it was in 2005. That is because the Treasury itself has finally understood that there is this role of accounting officer and that you have to do things sensibly on a whole range of issues which I will not go into. I think you have had more of an effect. Where departments reject recommendations and you think that they are wrong, you should summon them back very quickly.

Chair: As we did today. Two or three good ideas have come out of this. First, we should pursue key recommendations at the end of our sessions when we have the perm sacs back. Secondly, let us have a session where we sit round the table with you. We will try to organise that shortly after the half-term week. Thirdly, let us see whether we can agree more of an agenda about where we focus our efforts. We are halfway through the Parliament, which is why we are having the thought, "What do we do in the next two and a half years?" I want to share that with my colleagues straight after the break. Let us see whether we can have a greater alignment. The one thought that I leave you with is that we want you to flex your muscle more. If you were able to do that in government-I do not know what we have to do-we would feel that better use was made of the efforts that we make here at this Committee. I would like you to take that away. Perhaps when we meet privately, we should think about how we can take that forward. Thank you very much indeed.

Prepared 15th February 2013