Richard Heaton: sorting out Ministry of Justice finances top of our agenda

Justice permanent secretary tells MPs that “bearing down on the gap” between spending review targets and actual spending is the largest challenge for his officials, as he stands by the decision to implement spending controls that caused friction between department and prisons inspectorate

By Suzannah Brecknell

18 Oct 2016

The Ministry of Justice will not be able to set out how it will meet last year’s Spending Review savings targets until April, the justice select committee has been told.

Richard Heaton, MoJ permanent secretary, told MPs on the committee that: “The subject we talk about most at my executive committee is improving our finances, and bearing down on the gap between allocation and projected spend.

“It is not quite dominating, but it is the largest thing as officials we’re dealing with.”

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In 2015-16, the MoJ requested an additional £427 million of funding from the Treasury reserves to cover overspends.

Heaton told MPs this overspend had come about because the ministry had used overly-optimistic assumptions about things like fee income when planning how it would meet the spending allocations originally set out in mid-2013, and then reduced in late 2013 and 2015.

“To meet that final, challenging spending settlement we baked in the optimistic end of all of our assumptions," Heaton said. "Some assumptions went against us."

Heaton said fee income had been lower than expected and more serious criminal offences were detected and prosecuted during the period, resulting in more complex, expensive court cases and a greater strain on prison resources.

To avoid overspends in this parliament, Heaton explained, the department is conducting a “bottom-up” review of medium-term finances, as well as trying to improve the capability and culture to manage budgets among its senior officials.

The department’s chief finance officer Mike Driver told MPs that all senior civil servants were undergoing appropriate training before becoming budget holders, and that the overall aim of this process was to create a “situation of financial sustainability” for the department.

That would include testing assumptions about projected spend and improving budget management across the organisation, he said.

"A bit rough and a bit brutal"

Last year, the ministry imposed tight spending controls on all agencies, requiring budget holders to submit details of their discretionary spending every week for approval.

This led Nick Hardwick (pictured), then HM Chief Inspector of Prisons, to suggest that the MoJ was compromising the independence of prisons inspectors by taking over “day to day” control of his work.

When questioned about these spending controls, and the controversy they caused, Heaton said the measures were “necessarily a bit rough and a bit brutal”, but added: “I don’t make any apology for putting them in place a year ago, because we had to do something.” 

He added: “When it became clear just how far away from balancing our books we were, we reached for spending controls not because they are the state-of-the-art measure for bearing down on discretionary spend, but because had to do something very quickly and send a signal to organisation that there was no money.”

He acknowledged that the accompanying bureaucracy and monitoring meant that many arms-length bodies “didn’t like us at that particular moment", said he hoped those relationships had since been rebuilt.
The controls remain in place, but are now authorised within the arms’-length bodies.

Conservative MP Victoria Prentis asked Heaton whether budget constraints would hamper the MoJ's prison reforms, which the perm sec named as the second main challenge for his department.

Heaton noted that the 2015 Spending Review had allocated a large capital sum to invest in new prisons. But he suggested that his department could seek more money to support its prison reform agenda.

“We did take a lot of money out of the running costs of prisons over the last parliament and there is an argument that in some areas investing a bit more money in staffing levels where appropriate would be a sensible use of public resources, so that’s a conversation that we’re having with Treasury," Heaton said.

When questioned by Labour MP Marie Rimmer on the ways the department would meet its target to cut administration costs by 50%, Heaton said the savings would come though a combination of increasing fee incomes, reforming the courts, cutting the ministry’s own headcount, reducing its use of contractors, making better use of its estates, and negotiating contracts.

The department has just released 700 people through a voluntary exit scheme, and while Heaton said he did not have precise numbers for final reductions, he expected to lose “several hundreds of non-frontline posts”.

Driver, the chief finance officer, said the MoJ was currently carrying out a review of the way it classifies administration spending, to make sure that the areas it is cutting are definitely “overheads” and not programme spending. 

“This doesn’t mean we don’t have to make savings – but at least know we are reducing in the right areas,” he said.​

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