Perm secs need better incentives to stand up to ministers, says the National Audit Office

New report by the public spending watchdog finds "major concerns about how accountability of taxpayers' money is exercised"

By matt.foster

23 Feb 2016

Permanent secretaries "lack confidence" and do not have the right incentives to challenge ministers when they are concerned about the value for money of government schemes, according to a report by the public spending watchdog.

In a wide-ranging new study, the National Audit Office (NAO) looked into the role of perm secs who, as departmental accounting officers (AOs), are personally responsible to parliament for the management of their organisation and its use of public money.

As well as their AO duties, perm secs are required to serve their minister, and the NAO notes that this split requires them to juggle the "priorities, risks and pressures associated with their dual accountabilities" – a system the watchdog says can only work with the "right incentives and support to allow them to perform it effectively".

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However, the watchdog's report – which draws on around 300 detailed studies of government projects since 2012 – flags up "major concerns about how accountability of taxpayers' money is exercised", with the incentives for perm secs to prioritise good stewardship of public money "weak compared with those associated with the day-to-day job of satisfying ministers".

"In terms of the balance of priorities AOs have to strike, the emphasis has shifted over a number of years towards political drivers – sometimes at the expense of safeguarding public value," the NAO says.

It adds: "AOs appear to lack confidence to challenge ministers where they have concerns about the feasibility or value for money of new policies or decisions, not least because standing up to ministers is seen as damaging to a civil servant’s career prospects."

"Risks creating a climate where AOs lack the confidence or incentive to challenge ministers"

The NAO says that ministers have increasingly taken on an "executive" role, setting out the detail and timing of key policies, something the watchdog says has led to perm secs "being held responsible for implementation decisions not directly under their control".

Ministers have also sought to exert greater influence over senior Whitehall appointments in recent years, the NAO notes, highlighting the 2014 move to allow the prime minister to choose departmental perm secs from a shortlist of candidates as one such example.

"Increased ministerial control over policy implementation, and over top civil service appointments, risks creating a climate where AOs lack the confidence or incentive to challenge ministers on the feasibility and value for money of their policies," it says.

As AOs, permanent secretaries have a duty to ensure that spending decisions meet four key tests set out by the Treasury – "regularity", "propriety", "value for money", and "feasibility".

If a perm sec believes a policy decision may go against one of those aims, they must write to a minister asking for a "direction to proceed" – formally noting their concern and seeking permission to continue regardless. In one high-profile recent example, then-Cabinet Office perm sec Richard Heaton raised objections to the granting of further public funds to the beleaguered Kids Company charity. 

However, the NAO raises concern about the operation of that system, saying that while it is "difficult to know the 'right' number of directions" that would indicate sufficient challenge by perm secs, around half of the directions issued have been on matters involving values well below the average cost of a major government project.

At the same time, it says, there were "major reforms or projects which raised serious value-for-money or feasibility concerns, but where no directions were requested", including the £11.4bn botched rollout of the National Programme for IT in the NHS and a £635m scrapped attempt to replace fire and rescue local control rooms with regional centres.

"Treasury needs to provide stronger leadership"

While the NAO welcomes recent Treasury guidance designed to help departments prepare systematic "AO assessments" when perm secs have concerns about the four principles, it says the this process is "neither well known nor well used", with no requirement for those concerns to be made public.

"Overall, a robust, accountable system of decision-making would feature much more transparent and visible activity than we see happening," the watchdog says.

Among its recommendations, the NAO calls on the Treasury to do more to emphasise the importance of the accounting officer side of a perm secs' job.

Central to this, the NAO says, should be a new requirement for perm secs to provide positive assurance ahead of key decisions, requiring "more explicit sign-off by AOs at certain implementation stages, such as at business case approval and when major changes to project specifications are agreed".

AO assessments should also be made available to parliament, and the Treasury should publicly disclose the number it has received. 

"HM Treasury needs to provide stronger leadership to AOs across government, to fulfil its lead role as the guardian of overall government accountability," the watchdog says.

Perm secs themselves are also urged to take "firmer ownership" of the accountability systems in place across their departments, "particularly where responsibilities are delegated, devolved or shared with others".

And the NAO calls on the Cabinet Office to introduce "specific measures to change incentives for permanent secretaries" to better emphasise their duty to safeguard public money alongside their dutuy to serve ministers. 

"For example, it should ensure that AO responsibilities are given more weight in the formal appraisal of each permanent secretary’s performance," the watchdog says. "It should also give more emphasis to AO duties in each permanent secretary’s performance objectives. This should go beyond mere general statements about the AO’s role; for example, objectives should make explicit how specific programmes and priorities will be pursued in accordance with value for money."

"Trust in the system has all but broken down"

Launching the report, NAO head Amyas Morse (pictured) said that while perm secs had "always" had to balance the two sides of their role, he believed that "ministerial and policy goals have come to weigh more and more heavily" in recent years.

 "The ever-increasing influence of special advisers, and ministers’ greater involvement in policy implementation and civil service appointments, is pressing down on the ‘ministerial’ end of the see-saw further and further, while considerations of value for money and public value rise steadily into the air," he said.

That view was echoed by Meg Hillier, the chair of parliament's public accounts committee, who said the NAO's report had raised "real concerns about where value for money ranks when top civil servants press ahead with a government project".

She added: "The public accounts committee is primarily concerned about how effectively taxpayers' money is spent by government. We are also politicians so understand the sense of drive by ministers to deliver their policies.

"The two aims are not contradictory but the NAO raises real concerns about the balance of political pressure and value for money when top civil servants deliver. There needs to be a wider debate about the constitutional position, to ensure that politicians can set policy but that value for money is also at the heart of Whitehall decision making. The public accounts committee looks forward to developing thinking on this." 

Meanwhile, Julian McCrae, deputy director of the Institute for Government think tank which focuses on effective government, said the issue of accountability had "dogged successive administrations".

"While this government has overseen some positive developments, such as making senior civil servants more clearly accountable to parliament on major projects, more needs to be done. Ministers, special advisors and permanent secretaries must work together to understand each other’s roles and work together more effectively.

He added: “The question of who is responsible for what in government has been fudged so many times, and in so many high-profile cases, that trust in the system has all but broken down. When things go right or wrong, it must be made clearer who is responsible and what are the consequences for that failure or success.”

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