The tests used by civil servants and ministers when considering creating or closing public bodies are not fit for purpose and should be replaced, according to the Institute for Government.
Cabinet Office guidance states that “new arm’s-length bodies should only be set up as a last resort.” However, a new IfG report claims this has “contributed to government pursuing less effective means of delivering a service or abolishing useful bodies." In addition, it “has undermined the morale and reputation of those working in public bodies.”
The current guidance “is poorly calibrated to the needs and complexity of the modern state,” the report says. “It is summarised in the ‘three tests’, unchanged since 2010, of which all public bodies must meet at least one.”
These look at whether it is a technical function needing external expertise, is a function “which needs to be, and be seen to be, delivered with absolute political impartiality” or if it “needs to be delivered independently of ministers to establish facts and/or figures with integrity.”
But the tests, devised more than a decade ago, are outdated and a complete change of approach is needed, according to the IfG. In a report published today, the think tank says the rules may have contributed to "misguided or mishandled public body abolitions" which may have been informed by prejudice against quangos. It points to the closure of the Audit Commission, UK Border Agency and, Public Health England as examples of this.
The think tank proposes a radical change from the existing guidance that states that public bodies should only be created as a “last resort” when there is "no viable alternative." The report argues that public bodies should be set up when they are “best suited to the task” and the "best option available."
The existing tests should be replaced with ones that “would allow ministers to use public bodies more flexibly and would more accurately reflect the reality of why public bodies are being set up today.”
The report proposes three new tests. These would look at the potential effectiveness the public body would offer, and whether the function needs greater independence from ministers than is possible within a government department. They would also consider cost efficiency - looking at whether a public body is the least costly option over the long term or can justify its costs by the benefits it can bring.
The new tests “are designed to promote clear reasoning about the pros and cons of public bodies in real life situations and on a case-by-case basis.”
They would “enable the government to employ public bodies as a delivery mechanism when – and only when – they offer the most effective and efficient means of achieving its objectives,” the report states.
Matthew Gill, co-author of the report and the IfG’s programme director, commented: “The government's tests for when a public body should exist were hastily drafted in 2010. They are narrowly stated to support a view that public bodies should be a 'last resort' structure.”
He added: “This is unduly negative as well as being the wrong way to avoid waste, as it discourages the use of public bodies even when they are the best way to deliver functions efficiently. Our new tests would make better decisions possible."
A Cabinet Office spokesperson said: "We are committed to improving efficiency and reducing spending across government.
"Current rules, which ensure public bodies are only established when absolutely necessary, will make sure any decision regarding the establishment of public bodies delivers value for the taxpayer."