Parliament and Executive Agencies

HC Deb 01 April 2003 vol 402 cc220-37WH

2 pm

Dr. Alan Whitehead (Southampton, Test)

I am pleased to have been chosen to conduct this Adjournment debate. There are few debates in the House about Parliament and Executive agencies. My examination of the record suggests that this is the first such debate since the Labour Government came to power. I freely concede that that might be because several of my hon. Friends think that this is a tedious subject, but it is important none the less. Almost 60 per cent. of civil servants now work for Executive agencies, which are responsible for yearly expenditure amounting to £18 billion. Executive agencies therefore represent an enormously important area of government business, yet one that, paradoxically, barely rates a mention in the House.

It is interesting that two reports looking into agencies were recently published. The Cabinet Office produced a report last June entitled, "Better government services: Executive agencies in the 21st century", which provided several recommendations; and the National Audit Office issued a report last week entitled, "The Role of Executive Agencies". Among other things, those reports provide a welcome spotlight on the subject and, in the case of the Cabinet Office report, welcome recommendations. However, nowhere in either report is the word "Parliament" mentioned. Actually, that is not strictly true: there is a line, which is not followed up, on page 18 of the Cabinet Office report. Under a list of Other complaints that have been highlighted", one bullet point lists ministerial and parliamentary disquiet about the accountability regime". I will consider agencies, perhaps in the light of that bullet point, and also in the context of a helpful definition provided some time ago by Professor John Stewart, who warned us about universal use of the word "accountability" in public policy. He made the distinction between "giving an account" and "holding to account". Giving an account is the process of providing material, written or verbal, possibly under examination, for what one has done, whereas holding to account is what follows from giving an account—that is, what can be done about the account that has been given. There is no doubt that agencies give full accounts of themselves. Agencies' annual reports, key targets and accounts are published each year. The Cabinet Office report reflects that, stating that Because of its transparent structure, problems in an agency are more exposed than in parts of a conventional department. But can agencies be held to account? If so, in what way? Does it matter?

The original purpose of setting up Executive agencies was to separate steerers from rowers—that is, to ensure that policy civil servants are retained in the core civil service structure and those who carry out the policy but do not make it or help to make it are in separate organisations, with their own chief executives freed to run things and responsible for the pay and rations of their agencies. When the next steps agencies were set up in the late 1980s, it was theorised that that would lead to substantially greater savings, greater operating freedoms, better delivery of policy, and so on, because functions would not be confused.

It was suggested at that time that the creation of Executive agencies would make it easier to measure performance and judge effectiveness. It was also suggested that it would be possible to see which of the agencies might perform better in the private sector, so each was required to review its status, with a view to possible privatisation, every five years—the so-called quinquennial review.

The rowers were to be accountable to the steerers through contract arrangements. There was to be a framework document that set out the function of the agency and its remit; it would contain a set of key performance indicators to measure progress on the tasks set out in the document. The agencies would report directly to Ministers, not to policy civil servants—a logical step since they would not be making policy but carrying out policy determined by Ministers who would want to know whether they had done their work efficiently.

As a result of that structure, one of the main architects of the next steps programme, Sir Robin Ibbs, said in 1998: the presumption must be, that, provided that management is operating within the strategic direction set by ministers, it must be left as free as possible to manage within that framework. How have agencies done? In many ways they have been a great success, and the Cabinet Office report underlines that. Agency chief executives report that the arrangements within which they work are good and much better than those that prevailed before the late 1980s. Objectively, however, it is difficult to tell. The only control would have been to leave half the civil service as it was and to compare its performance against the half that was in agencies. In practice, however, we have a ubiquitous regime: it just is, and that is how things are. We look at success in the model; we do not judge the model itself.

It is difficult to judge because no yardstick was ever established to do so. Remarkably, the whole edifice came into existence without a shred of legislation. Sir Peter Kemp, another one of the architects of the Executive agency programme, recently admitted: we were making it up as we went along. There is nothing to which Parliament can refer. Nevertheless, there was and there remains a fundamental change—MPs cannot ask questions of a Minister on behalf of an agency. It is not a Minister's place to answer. Sixty per cent. of the civil service has slipped from being held to account by Executive action in the first place and not by parliamentary legislation. It is very difficult to find out how the decisions to fund agencies are made, since they are on an arm's-length contract with the Department in which they sit. Professor Colin Talbot records that: allocation of resources to agencies is completely mysterious, even to many agency managers. Public expenditure decisions do not reflect or report on how these affect agencies. That is the gloomy view; the reality is less stark. Agencies do sit in Departments and they do account to Ministers, a good Minister will pay some attention to his or her agency, and the Minister is accountable to Parliament for his or her actions. Some kind of indirect accountability is thereby restored.

How do Ministers judge and how do we judge? They might judge by looking at the key performance indicators. However, there are several remarkable aspects of key performance indicators as they relate to Executive agencies. First, the nature of the key performance indicators changes year by year, so it is difficult to see what agencies are doing on a longitudinal basis. Professor Andrew Massey analysed 10 agencies and looked at their key performance indicators between 1990 and 1995. Between those years, 54 of the original 79 key performance indicators disappeared and were replaced by 45 new ones. Even worse, Professor Massey noted at the time that targets were a similarly unreliable friend when examining performance. Between 1995 and 1996, he looked at comparative targets for those 10 agencies: remarkably, no fewer than 47 were lower than those for the year before. Last summer's Cabinet Office report highlights the persistence of that practice, which has worsened. Between 1998–99 and 1999–2000, more than 50 per cent. of targets, where they can be compared, were lower than the targets of previous years.

How does that happen? Quite simply, it is because agencies set their own targets and key performance indicators and present them to Ministers. It is in effect a civil service version of the local government client-contractor relationship without the client side. In local government, there is a substantial client side, which monitors and appraises what contractors do. The purpose is to ensure identical monitoring of in-house and private contractors. In central Government, however, there is no client side. Departments have a Frazer figure—the name arose as a result of a report by the aforesaid Frazer—who is supposed to study how agencies work in the context of the Department and the policy civil service in which they reside. However, the Cabinet Office report shows that the procedure is implemented only in some cases.

Of course, Ministers could take more than a cursory interest in the agencies for which their Departments are responsible, but the reality is that most do not. That is not because of any failings on their part, but because they simply do not have the time. By virtue of their activities, most agencies fall below the policy radar screen. Select Committees could, and occasionally do, mount inquiries, but they, too, have limited time. The Ministry of Defence has 36 agencies; it would take the Select Committee on Defence most of its time to consider just some of them. Looking back over Select Committee reports from the past few years, we find that virtually no inquiries have been held.

Does that matter? It could be said that we have traded accountability for efficiency and that it has perhaps been worth making such a Faustian pact. However, I think that it does matter, because, as I have demonstrated, it is difficult to gauge how good the efficiency side of the bargain is. That concern comes over and above the perhaps rather abstract notion of Parliament's sovereignty and the need for public service to be accountable to Parliament. However, there is a further concern, which relates to the originally clear distinction between steerers and rowers. The Cabinet Office report freely concedes that several agencies undertake substantial policy work. That was always an acknowledged element of Benefits Agency activities, but according to the report it is now substantially more widespread. That may be a problem for Ministers.

Of course, one can sidestep the issue, as the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) did when he was Home Secretary in the last Conservative Government. When the Prison Service apparently blew up in his face, he said that the steering related to the policy decision that prisoners should not escape and suggested that the fact that they did escape reflected a failure of the rowing, not of the steering. The public did not buy that. In any event, as Sir Peter Kemp said in 1988, all policy work has an element of execution and all executive work has an element of policy". He said that at precisely the moment that he was setting up a structure that assumed a rigid distinction between policy and execution. Now, contrary to the original intentions—although Sir Peter might have anticipated this—agencies take policy decisions, but the machinery of accountability remains such as to suggest that they do not.

That arrangement is a potential problem not only for Parliament but for Ministers. This is not simply an academic issue, and I am sure that my hon. Friend the Minister is well aware of the difficulties that the Scottish Qualifications Authority caused the Scottish Executive's Ministry for Education and Young People a little while ago. I accept that the authority is a non-departmental public body, but the relationship between the two and the way in which the issue was reported to the Scottish Parliament are essentially the same.

If we are to have steerers and rowers, it is important that the steerers steer the ship and that the rowers do not—either because of the force that they place on the oars, or because some row and some do not—send the ship in an entirely unintended direction. The Cabinet Office report recommends that the relationship between agencies and Ministers should involve "no surprises". That is a laudable aim, but the real surprise would be if there were no surprises under the present contract arrangements for agencies.

The landscape of agencies is complex, and my brief contribution is inevitably something of a caricature. There are other issues that open other fronts—for example, the way in which the Government decide to create agencies in the first place. There is no legislation to guide us, so there are currently no constraints. An agency might be created, such as Jobcentre Plus, or a new body might be a non-departmental public body. The Government have on occasions pioneered such new creatures as the office of the e-envoy. The recent White Paper on nuclear waste proposed that a non-departmental public body be set up to deal with the nuclear legacy. Why not an agency? We shall never know, nor shall we have the means to find out. Sometimes, just to confuse us, non-departmental public bodies that call themselves agencies are set up, such as the Environment Agency and the Food Standards Agency.

I have some structural concerns about the relationship of agencies to Parliament and Ministers. Agencies have been developing through what has been described as emerging policy. In other words, we have at each stage justified the existence of those agencies and examined them on policy lines that change and emerge rather than remain true to the original intentions. If one examines the record, one sees that most of the original intentions for agencies have not been met, yet the structure to implement those intentions sails on as if they had been.

The Cabinet Office report made some valuable recommendations and good proposals on the future of agencies, which I thoroughly endorse, such as the end of quinquennial reviews. The report stated that some agencies have become disconnected from their departments. The fact that all the recommendations of that report have been or are being implemented without any brush with Parliament other than an answer to a written question illustrates my point.

However, the report does not address the issues that I have raised. There is neither the mechanism in Parliament to deal with those issues easily, nor any interest or urgency in finding such a mechanism. For what it is worth, my modest proposal is to establish parliamentary Frazer figures for agencies—small groups of Members, each group responsible for reviewing and reporting on a number of agencies, which might submit their thoughts to each departmental Select Committee. I think that that would work quite well, although I also think, for the reasons that I have outlined, that it probably will not happen.

2.16 pm

Brian White (Milton Keynes, North-East)

The process by which Executive agencies were created is similar to that which had been used in private industry for some time prior to its adoption in the civil service. As my hon. Friend the Member for Southampton, Test (Dr. Whitehead) said, although each agency is subject to a quinquennial review, apart from the two documents to which he referred—the Cabinet Office report and the recent NAO report—there has been no comprehensive assessment of the success of the experiment. I therefore congratulate him on raising the issue today.

The management vogue of the late 1980s and the early 1990s was to separate strategy from tactics, and management from operation. However, the private sector has moved on since those days and developed different theories of working practices, but the civil service has not yet caught up. That is something to think about when we consider modernising government. In an organisation such as the civil service, how does one reflect changing approaches to management structures? How does one deal with issues such as hierarchy and the separation of structure in some of the Executive agencies, for example, in a fast-changing environment? I hope that the Minister will consider those structural issues today and subsequently.

I am also concerned about the way in which innovation has occurred in Executive agencies. There has been quite a bit of innovation in the civil service, but some of the agencies have been doing their own thing. For example, the Medicines Control Agency put its computer system out to tender two months before it was due to be merged with another agency. How do such decisions fit into an overall corporate strategy? My hon. Friend the Member for Southampton, Test is right to raise such matters.

My hon. Friend talked about the key issue of targets. Who sets targets, and who owns them? We need to engage in that important debate. Targets are an important means of assessing whether public services are being improved, but they are not the whole story. We sometimes risk concentrating on the targets without looking at the overall performance of an organisation. For example, among the evidence considered by the Select Committee on Public Administration was the fact that Oldham borough council's high score in every one of its performance indicators did not prevent riots from taking place there; the conclusion of the report was that it should have done better in its performance indicators. We have not got that right. Because Executive agencies are at arm's length, it is important when setting targets for them to understand the difference between target setting and performance management.

We should also consider how Executive agencies operate together when there are cross-cutting targets. We have made substantial improvements in the civil service, but we have done less well at Executive level. My hon. Friend mentioned accountability, one of the key elements of which is transparency of decision making. People should be able to see that their comments have been taken on board by the organisation and have affected its decisions, whether or not they agree with them. I hesitate to talk about the Benefits Agency, because it is too easy a target and it has struggled hard to address the issue, but it still needs to improve.

We have discussed the separation of policy and operations. It was right to do that at the time the next steps agencies were proposed, but we have now moved to a point at which implementation is considered to be the key test, so we have to measure outcomes. It is not always advantageous to separate policy and operations, because if key policy decisions are not grounded in the reality of the daily work, the policy can be bad. Conversely, if one is carrying out daily operations with no understanding of the political or operational policy, one simply carries on with existing practices and does not reflect policy. That is one of the key challenges for those who aim to modernise government.

My hon. Friend did not refer to the fact that the Executive agencies still tend to be far more hierarchical than their private sector counterparts. That, too, is due to the speed of change. When the Executive agencies were first appointed, 93 of 138 chief executives' posts were subject to open competition—more up-to-date figures might be available, but that is the figure I remember—and of the 93, only 34 were external appointments. How to encourage movement—of people in and out of Executive agencies, of policy to operation, of the private to the public sector and vice—versa is a key question, and the Minister should address it.

My hon. Friend touched on the fact that Executive agencies have started to develop their own culture, which is not necessarily the same as the departmental culture from which they have sprung. We have to consider how to encourage that while restraining it in relation to policy. We have begun to develop new models rather than doing what would once have been natural for an Executive agency. A new model such as Sure Start is a better model for a cross-cutting, delivery-focused outside-appointment organisation. It stretches targets and is grounded in the voluntary sector in communities, and it is one of the Government's major successes. In the past, it would probably have been set up in an Executive agency. It is therefore important to reconsider Executive agencies and ask whether models exist that we should apply to them. It was probably right to set up such bodies as Executive agencies 10 or 12 years ago, but is it still right to do that, or are there better models to use?

The debate is primarily about Executive agencies, but some of the comments made by my hon. Friend and some of the issues that I have raised apply also to regulators, their so-called independence, and how they can sometimes be totally cut off from Government policy because they follow a line of thought that does not necessarily fit in with it. Again, we should examine some aspects of Executive agency accountability. One of the greatest barriers to innovation and change in the civil service is fear of the Public Accounts Committee. That is much truer of Executive agencies than it is of the senior civil service. That fear is not the Committee's fault, but it prevents the creation of many new ways of delivering services, and we must challenge it.

We must also examine good old-fashioned Treasury rules, the way in which Executive agencies can access capital markets, and new ways of dealing with funding. We do not need to open that can of worms today, but we must consider the issue.

I congratulate my hon. Friend on securing the debate, which highlights several questions about accountability and key issues about how the civil service should progress. It also highlights some of the challenges described in the modernising government White Paper. There is a success story to be told about some Executive agencies and what they have done. We must not forget that they have delivered a great deal, but there are several challenges to meet and many issues to resolve if the delivery of public services is to be as successful as we all want it to be.

2.27 pm

Mr. Richard Allan (Sheffield, Hallam)

I, too, congratulate the hon. Member for Southampton, Test (Dr. Whitehead) on securing the debate. Southampton is a city not at all like Umm Qasr, according to a British serviceman, but I shall not go further down that route for fear of offending my hon. Friend the Member for Portsmouth, South (Mr. Hancock).

I want to contribute to the debate by making a few comments in the light of my experience as a representative working on behalf of 60,000 citizens of the UK, because that is the key relationship, which I believe the hon. Member for Southampton, Test tried to tease out, between the recipients of the services on whose behalf they are delivered and who pay for them, and the deliverers of the services—the agencies—and their representatives whom they elect to steer the delivery of those services.

I agree with the hon. Gentleman that Executive agencies are much more significant than the parliamentary time given to discuss them might imply. However, we usually become interested in them when we receive a complaint, which leads us to gain most of our understanding about the complexity of the system. As parliamentary representatives, we are necessarily required to gain an understanding of the complexity of the relationship between agencies, the public, Parliament and Ministers by virtue of the complaints that are brought to us.

The hon. Gentleman is right to raise the key question of accountability. We find out who the steerer is only after examining a complaint and having been through the complex procedure, at which point the key question becomes, "Who can change this?" The fact is that a citizen did not like what happened to them. We must find out who can change things and make them better, which returns us to the question of who the steerer is—to use the hon. Gentleman's analogy of the boat. Can we, as MPs, get at the steerers? That is the other key underlying question. Sometimes we can find out who the steerer is, but there is no direct mechanism for us to try to influence the person who can change the outcome for our constituents.

To give an example at random, we all may have experienced complaints in our surgeries about the Child Support Agency. When a complaint about the CSA comes in—that typically happens with alarming regularity—we have to try to pick through the system to find out whether the agency is implementing the regulations wrongly, or correctly implementing wrong regulations that we have made here, and can do nothing about the problem. That process can be hugely time-consuming, especially for the waiting constituent, who has a significant financial stake in the outcome of the complaint. They are often told that they must wait for several months while we pick through the system in that way. The problem is brought home to me every time one of those cases comes along. There must be a better way of cutting through the complexity. We should be clear at an earlier stage who is responsible and, as I said, where the steerers are.

Members can go on enormous paper trails. There is a learning process for us; we learn over time at whom to target letters rather than simply directing them at a Minister. When we initially come into this place, without the training that we need, we send our letters off to the Minister. When a letter hits his desk he will, quite properly, direct it to the agency responsible—and a little time-consuming loop has occurred. The agency might take the letter through its own complaints procedure, which takes some time, and finally come to the conclusion that it is carrying out Parliament's will and does not have a problem. The matter is then signed off and comes back to the Member, who is told that if they want to do anything about it, they must go through the parliamentary route. That might mean returning to the Minister and saying, "I know I wrote to you about this, and I thought I was complaining about the agency, but I wasn't. I was complaining about the stupid regulations that your Government brought in and now I want to challenge those."

The Minister of State, Cabinet Office (Mr. Douglas Alexander)

indicated dissent.

Mr. Allan

The Minister tuts at the idea of any regulation being stupid. Perhaps the regulations concerned were implemented in 1996 or 1995, when regulations were invariably stupid.

Mr. Philip Hammond (Runnymede and Weybridge)

The hon. Gentleman certainly cannot expect to get away with that provocation without an intervention. Does he at least accept that there were significantly fewer regulations then?

Mr. Allan

The hon. Gentleman will accept that my tongue was firmly in my cheek when I made that remark. I have an equal axe to grind with pre-1997 and post-1997 regulations. However, he might have a point in that for various reasons there has been a shift of responsibility from primary legislation to regulation. Any Government might make such a move, but regulations can give much more flexibility to the agencies, which returns us to the point of the debate. There has been a general shift from making a set of rules in primary legislation, examined with full parliamentary scrutiny, to doing so in secondary legislation or even at the level of the agencies themselves, where there is much latitude for interpretation. There might be sound reasons for that, because this place can act as a bottleneck for changes that need to be made, but it raises the questions of accountability that—I think—triggered this debate and that are raised quite properly as the process continues.

There is an ongoing review of the ombudsman service. The ombudsman is, in a sense, the piggy in the middle who has to referee many such matters. He ends up with many of the complaints that are generated after they have gone through other procedures unsatisfactorily. He has a critical role in the way in which the public see the agencies working. The review has identified various shortcomings, which are worth examining.

The review mentions the number and range of public bodies with which the ombudsman has to deal. The list runs to five pages of principal agencies and all sorts of other boards. That range reflects the way in which responsibility has been moved down from central Government. The review considers the large number of complaints coming through. The quantity will inevitably increase over time, as we generate more active, engaged citizens who quite properly feel that they do not have to sit and take services that they consider poor. They are quite willing to come forward. We should respond to that general social change.

Brian White

Is the hon. Gentleman aware that Executive agencies have different complaints procedures, and that one of the ombudsman's problems is ensuring that the complainants have been through those procedures before they approach him?

Mr. Allan

The hon. Gentleman makes a fair point. Indeed, that is one of the outcomes of the review. I know that he was engaged in that as a member of the Public Administration Committee, through which the ombudsman reports to Parliament. The hon. Gentleman is helpfully engaged in those issues.

One of the key problems has been the proliferation of complaints procedures, which were quite properly motivated by the great citizens charter campaigns of the 1990s. It is right that people who have a problem with public service delivery should have a means of redress. The next steps agency programme was meant to ensure that agencies were seen to be responsive to the public by having their own complaints procedures. However, that has led to huge confusion about which procedures to follow to gain satisfaction, and in which order. Indeed, the fact that some jurisdictions overlap—it can be complex and confusing to individuals—also needs to be dealt with.

I commend the ombudsman's website, at www.ombudsman.org.uk, as the clearest example of a joined-up way of explaining things to the citizen. I have given the full address because I hope that one day the online Hansard will provide a live link, so that people who follow our debates, as I am sure they will, will be able to click on the site and have a look. The ombudsman's website is the clearest example that I have seen; it certainly works better than most Government websites that I have used in order to find out who is responsible for what. It is okay if one goes to the right Department—if one is in the right silo—but if one is connected to the wrong Department, one is stuck there and the system will not say what is going on in other Departments.

The ombudsman's site has a broad overview. It has five pages listing agencies and public bodies. I suspect that bodies such as the Inland Revenue and the Child Support Agency generate most complaints, but the site also covers museums and science bodies such as those on xenotransplantation and other hot topics. If it included the wine standards board of the Vintners Company, the best complaints received by the ombudsman would be from people saying, "The wine standards board got it wrong. It said that that this wine was good, but it is lousy." I can imagine the poor ombudsman's staff having to work their way through cases of the wine in order to decide whether the complaint was justified.

The other important question raised by the hon. Member for Southampton, Test was how policy makers relate to the Departments. That rang a bell with me. The all-party archaeological group inquired into the archaeological policy of the Department for Culture, Media and Sport. That is relevant because the Department practises at the furthest end of the agency process; it has explicitly followed that route from its inception. When the all-party group asked why the Department responsible for archaeology policy had no qualified archaeologists, we were told that it would be wrong for civil servants to second-guess the work of agencies such as English Heritage, which decide such policies. We were effectively told that policy is set and directed from outside.

To follow the hon. Gentleman's analogy about rowers and steerers, who are both outside Parliament, the caterers in the Department offer pay and rations to rowers and steerers but do not take a more active role. That raises important questions about how we can influence policy if the policy makers are from an outside agency. These things affect areas such as sport, which has been quite contentious.

I suspect that some of the recent problems with sports funding have occurred because those responsible for funding were not accountable to this place but were working at a distance. As a result, bodies go off with the money and seem to set policy and, at a later date, their representatives are hauled before a Select Committee to say what went wrong. That has had an impact on many projects, including some in Sheffield. We have been involved in bringing the UK Sports Institute to Sheffield. We have found it complex working out who has responsibility. It seems that for much of the time policy is set not in the Department but outside it. It is important to find out how we get hold of those who make policy.

I close by observing that the suggestion of the hon. Member for Southampton, Test that we should have interest groups of MPs to ensure accountability is a very good one. All-party groups have an informal way of fulfilling that function when they are active and working well. They bring people from agencies and outside bodies to talk to them. There is a great deal of sense in a more open and recognised relationship between agencies and Parliament.

I agree that although Select Committees conduct a valuable function, they are full up: there is not much more business that can be got through them. The only way in which they could truly hold all the departmental bodies to account would be to have sub-committees. I doubt, however, that Select Committees would welcome that. They prefer to be smaller bodies that are focused and proactive in making their inquiries. There is therefore a parliamentary gap in which people could work more closely with agencies, and there is a demand in Parliament to do so. There are interest groups of MPs across a range of issues, and they would be pleased to take up such a role.

I again congratulate the hon. Member for Southampton, Test on raising the issue. It is an important matter, and I hope that the Minister can offer us some hope on the Cabinet Office's policy in clarifying it. Clarity and the relationship to the citizen are vital. The citizen may have a lousy experience because he cannot cut through the maze to find out who is responsible. When citizens come up against the system they are told, "What you want is somewhere in the cracks between the floorboards. It is the problem of neither the rowers nor the steerers; it has fallen off the back of the boat." It is no wonder that citizens feel alienated when encountering that response. I hope that the Minister can provide more clarity on how people will be able to work through the agency system and how we can have a clear line of accountability between the citizen and MPs.

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. John McWilliam)

Order. While we are on the question of clear lines of accountability, I understand that there is to be a Division or Divisions at 3 o'clock. There is no certainty that there will be only one. Therefore, my ruling is that we will resume 15 minutes after the beginning of the last Division.

2.42 pm

Mr. Philip Hammond (Runnymede and Weybridge)

Thank you for that ruling, Mr. Deputy Speaker. I, too, congratulate the hon. Member for Southampton, Test (Dr. Whitehead) calling today's debate and on the concise way in which he introduced it. You will know better than I that many debates in this place are opened at great length; it was therefore very reassuring to hear the hon. Gentleman make his points in 15 or 16 minutes. I do not know whether the timing of the debate was fortuitous with the report of the National Audit Office coming out last week, but it is certainly very helpful for the Chamber to have the opportunity to consider these issues today.

When I came to consider the issue, I discovered that—as the hon. Gentleman said—it has scarcely been discussed in Parliament. That lack of interest has been reciprocated in the two reports—the National Audit Office report and that of the Office of Public Services Reform—neither of which gives Parliament more than a passing reference. When it comes to this issue, we are all, I suspect, mere amateurs compared with the hon. Member for Southampton, Test. He is far too modest to mention it, but he is the author of a substantial pamphlet on the next steps agencies, which I found very illuminating if not always easily digestible. He is a great expert on the subject.

There are 127 Executive agencies which represent a substantial proportion of the services delivered by central Government civil services. We need to remember the context: the largest proportion of public services consumed by the public—education and health—are delivered through devolved mechanisms that are not part of the Executive agencies or directly controlled, at least in theory, by central Government Departments.

The establishment of the next steps agencies always seemed a logical step on from the introduction of greater management freedoms and the attempt to introduce some private sector disciplines into the operation of the delivery part of the public sector. Three main interrelated issues emerge from the two reports. The first is the rationale for creating Executive agencies. The hon. Gentleman explored in his pamphlet the possibility that political dogma was one of the motives and concluded that, although a little political dogma might have been involved, there was a clear management theory rationale for giving the Executive branch of Government an arm's-length relationship with the policy formulation branch.

The hon. Gentleman referred to the five-yearly reviews that agencies are required to undertake, to determine(whether) whether they would be better off in the private sector. Perhaps we should have a regular review of the basic rationale for what we are doing in the light of changing practices in the private sector, to which the hon. Member for Milton Keynes. North-East (Brian White) referred, and the changing environment in which public services are delivered.

The second issue is the split between the delivery of services and the policy-making arm of central Government. I should like to say a little more about that in a moment. Thirdly, of course, there is the key issue of the lines of accountability of Executive agencies.

The Office of Public Services Reform review identifies the danger of a growing gulf between policy development and implementation, particularly in terms of creating what might unfortunately come to be seen as a B-stream within the civil service and the idea that the implementation is somehow a second-class activity while the high-flyer role is in policy making. We have heard from other hon. Members that perhaps that sharp demarcation between policy formation and implementation can be exaggerated Certainly, when I recently examined the Environment Agency and flooding policy I discovered, as the hon. Member for Sheffield, Hallam (Mr. Allan) did in a different context, that the Executive agencies of necessity become huge repositories of expert knowledge that are drawn on by the relatively thinly populated policy-making centre and perhaps have a larger influence on the policy agenda than the structure, coldly reduced to a piece of paper, would suggest.

The NAO report suggests that all agencies should have a senior sponsor in their controlling Department to ensure a better two-way traffic and no surprises. Perhaps the Minister can tell us something about what has been done so far to achieve that. In relation to accountability, which is obviously the most fraught area, I too would like to place on record my belief that the role of the Public Accounts Committee and the National Audit Office is crucial. They perform the central role at present in holding Executive agencies to account.

I am somewhat torn between the two models that have been proposed for increasing parliamentary scrutiny of Executive agencies. Clearly, in our everyday role as constituency MPs, we regularly deal with Executive agencies. I recognise the points made by the hon. Member for Sheffield, Hallam about having to decide first whether the agency has simply failed in delivery, which means that the issue has to be resolved at agency level, or whether there is a policy issue to be addressed. Would more direct parliamentary scrutiny of the agencies' operation risk undermining the parliamentary accountability of Ministers? That issue needs to be debated further, but I am tempted to think that Ministers may take advantage of more direct parliamentary scrutiny of Executive agencies to avoid answerability for the agencies' performance and actions, even to the extent that they are currently held accountable.

I shall try to be brief, because we are all anxious to hear from the Minister and our time is constrained by the possibility of Divisions, but I should like to say something about targets. One problem is that, in trying to bring into the management of public service delivery some private sector disciplines, we are hindered by the fact that the most influential private sector disciplines are perforce missing. There is no discipline of the capital markets, no price mechanism and, usually, no customers exercising choice. We must therefore ensure that productivity, efficiency and good management practice are delivered by setting proxies for those disciplines in the form of targets that we have to monitor. However, there is a real danger that achieving the targets becomes an end in itself, rather than just a means to deliver the real end, which is good-quality services for the public. No one has mentioned that yet, but I suggest that it can only ever really be measured in terms of public satisfaction.

I do not want to crow, Mr. Deputy Speaker, but I shall cite an example relating to the creation of the National Care Standards Commission and the Government's subsequent proposal to introduce a series of standards to measure the quality of the service delivered to older people in care homes. Throughout that process and the sittings of the Standing Committee that considered the Care Standards Bill, we argued that measuring the size of doorways and the square metres in each room with a tape measure and clipboard was not the same as measuring the quality of the care experience delivered to the member of the public who was supposed to be the beneficiary of that service. For a year the Government argued against that notion, but they have now recognised the reality of it by abandoning their prescriptive targets and moving to a more customer-focused approach in measuring the delivery of care to older people.

We must keep that issue clear in our minds. I am certainly not a "private good, public bad" man, and I would not suggest that that was a model to follow, but if we are to harness the maximum benefits of the private sector—the good bits of a private sector approach—we must be careful to ensure that we do not import targets that simply become ends in themselves, rather than means to the end.

Brian White

A key piece of evidence given to the Public Administration Committee was that, in the private sector, people are expected to meet about 80 per cent. of their targets and doing so is considered very good, whereas if someone in the public sector failed to achieve 20 per cent. of their targets, they would be slaughtered. That is the difference between the private and public sectors' use of targets. In the private sector, not every target is expected to be met; it is the performance and the quality that are relevant, as the hon. Gentleman said.

Mr. Hammond

The hon. Gentleman uses the term "slaughtered". Ultimately, in the private sector a failing business will be slaughtered and we can be sure that productivity will go on increasing; ultimately, efficient businesses will survive and inefficient businesses will not. In the public sector, because there is not that predatory threat in a marketplace, we have to introduce those controls and measures. I am straying slightly, Mr. Deputy Speaker, but if we consider what is happening in the national health service, with huge spending increases translating, at present, into very small increases in output, we can see the dangers where those disciplines do not drive continual productivity increases.

The NAO report made a number of recommendations and hon. Members are anxious to hear what the Minister has to say about them. I hope that he will tell us in detail which recommendations the Government intend to respond to positively.

2.54 pm

The Minister of State, Cabinet Office (Mr. Douglas Alexander)

I pay tribute to my hon. Friend the Member for Southampton, Test (Dr. Whitehead) for opening the debate with a thoughtful and well-reasoned speech. He is to be congratulated on his contribution this afternoon and on his wider contribution, which was mentioned by the hon. Member for Runnymede and Weybridge (Mr. Hammond). My hon. Friend has published a Social Market Foundation pamphlet based on his earlier experiences as a Member of the House in the late 1990s, following his extensive experience in local government.

I will begin by responding to some of the matters raised by my hon. Friend before endeavouring to place the debate in the wider context of the Government's public services reform agenda. On my hon. Friend's general point about setting targets, which was aired in contributions from Opposition Members, targets have to be agreed by the Department and are announced to Parliament so that they are transparent. Guidance on performance management to improve target setting is considered in the recommendations of the National Audit Office report, which has been much discussed this afternoon, and is being promulgated by the Treasury, and indeed the Cabinet Office.

In that regard, my hon. Friend asked whether agencies took policy decisions and where accountability actually lay. Agencies have to take what might be termed operational policy decisions on a day-to-day basis, but they take place within a framework of public service agreements and of policy developed by Ministers. Agencies are free to manage within that overall strategic direction; the kind of rigid distinctions that were mentioned in the debate between policy and delivery can sometimes confuse more than they clarify. Ultimately, however, Ministers are accountable for their Departments' action, including the actions of the agencies, and they account for those actions directly to the House.

My hon. Friend spoke of the lack of legislation to set up some of the agencies. Executive agencies are, by definition, administrative constructs: they are only part of their parent Departments. Departments and Ministers are regularly scrutinised and held to account by Parliament. That is partly why I was not convinced, although I was intrigued, by my hon. Friend's suggestion that there should be specialist groups of MPs overseeing the work of each agency. Of course, it is for Parliament rather than the Executive to establish by which means Parliament should hold the Executive to account. However, personally I think that we must maintain clear lines of accountability, whereby Ministers are held directly to account on the Floor of the House of Commons, rather than a system of accountability that has the potential to become more confused.

My hon. Friend the Member for Milton Keynes, North-East (Brian White) made a practical contribution to the debate, which in part reflected his experience in the Public Administration Committee, on which he has served for some time. He made a specific point about the importance of targets. The performance partnerships will probably feature more largely in years to come in the work of the Public Administration Committee; they are a key driver of the sort of changes that we want to achieve in the Cabinet Office. Through those performance partnerships we are developing with Departments a means by which agency targets can be directly linked to departmental public service agreements. Moreover, we take into account the capacity of the Department and its agencies to deliver those targets; in that regard it is important to recognise that performance partnerships seek to address overall performance rather than just to focus on targets. That is relevant, given the observations that my hon. Friend made about the evidence to the Public Administration Committee.

My hon. Friend asked whether agencies had developed their own distinctive cultures, and it is certainly the case that in the agency policy review of which I spoke at the beginning of my remarks, it was recognised that distinctive cultures had developed in certain agencies, some focusing on delivery skills, others on customer response. By following the recommendations in the agency review, the Government have the opportunity to spread and strengthen some of those best-practice cultures more widely than within the individual silos in which they were originally developed.

My hon. Friend's final point was about where agencies sit within the cross-cutting agenda, which features prominently in the work being taken forward by the Government. It is a commonly expressed criticism of agencies, that in the first few years of their establishment and operation they were not capable of establishing that important joined-up approach. However, the agency policy review did not find evidence as strong as some of the initial concerns might have suggested. In any case, aligning agencies more clearly with the PSA objectives of which I spoke, and the targets for agencies, will contribute significantly to attempts to ensure that they are seen as part of the landscape of delivery that Departments are developing, rather than as being driven solely by the demands of the agency.

The hon. Member for Sheffield, Hallam (Mr. Allan) concluded his contribution with a plea for clarity. All three documents—the pamphlet written by my hon. Friend the Member for Southampton, Test, to which the hon. Member for Runnymede and Weybridge referred, the NAO report and the agency policy review—have been widely discussed today and are useful contributions to the attempt to bring clarity to this area of policy. However, I shall return to a point that I made earlier about this when I conclude my remarks. It is important to accept that the accountability that our constituents recognise most easily is that of Ministers to Parliament. As our thinking develops about how to ensure accountability and transparency, I am keen to ensure that we do not lose the clarity and rigour that the parliamentary system brings.

The hon. Member for Runnymede and Weybridge made a very specific point about senior sponsorship in Departments in relation to the agency policy review. I can offer him some comfort by telling him that the Cabinet Office issued new guidance on governance in its guidance on framework documents circulated in January. It included the need for a senior sponsor in the parent Department to provide strategic direction and strategic performance management, which is one of the recommendations that has been adopted.

Given the need for expedition, I have endeavoured to cover some of the points raised, but, as I said at the outset, it is important to place the contributions that we have heard today in the wider context of the Government's objectives for better services generally.

In 2001, the Cabinet Office and the Treasury initiated a review of delivery policy entitled "Better government services: Executive agencies in the 21st century". That review focused mainly on the role of Executive agencies, which we have discussed today. I announced its publication on 22 July, when I explained that the Cabinet Office and the Treasury would work with Departments to put its recommendations into effect. That was part of the wider drive to improve the effectiveness of public service and—the point that I made to my hon. Friend the Member for Milton Keynes, North-East—to place a culture of delivery at the very heart of the Government's agenda.

The report concluded that the agency model had been successful, and since 1998 agencies have transformed the landscape of government and the responsiveness and effectiveness of service. The leader of the review, Pam Alexander, who, I assure hon. Members, is no relation, commented in the news release that accompanied the publication of the report, and I believe that it will assist the House if I quote from it. She says: Agencies have been a great success story. They have brought to those services delivered within government both customer focus and a real drive to improve performance and to innovate. There is, of course, a range of effectiveness amongst this wide variety of organisations. But, it is generally the case that they have drifted apart from their parent departments and are seen as separate from them. Reconnection with Ministers' aims and departmental objectives, especially those underpinning Public Service Agreemènts is esseńtial if agencies are to play a full part in delivering effectively in the future. That report was widely circulated. Copies were placed in the Libraries of both Houses, and sent to permanent secretaries, agency and NDPB chief executives, and departmental sponsoring units. The report was also announced to the media in the usual way and placed on our website. Hard-copy versions were also made freely available.

The continuing review was discussed at the agency and NDPB chief executives' conference in autumn 2001 and spring 2002, and in autumn 2002 after the report was finally published. One of the report's main recommendations was to allow departmental and agency key targets and a cycle of views to ensure that structures and processes across Departments support the achievement of key objectives. That would take the form of a one-off review of departmental delivery mechanisms as part of the departmental change known as a landscape review.

The central programme fundamentally to review agencies every five years—the quinquennial review, which was the previous system—was to be stopped, and business reviews of the end-to-end processes involved in delivering specific services were to be introduced in its place. There were recommendations on governance and leadership in Departments and agencies, performance management and financial aspects. As I said, the recommendations were intended to improve overall delivery of services and policy making by ensuring that agencies were closely aligned with Departments' policy-making roles, and by giving agencies more freedoms, which included three-year funding agreements and end-year flexibilities, opportunities for income generation and greater freedom to recruit senior staff. To reinforce their direct accountability to Ministers on operational matters, there were to be improved communications, including at least one discussion a year between chief executives and their respective Ministers.

There was a recommendation that the Cabinet Office should review reporting and other requirements placed on the delivery agents by Government, with the aim of reducing to a minimum the burden that they create. Chief executives were involved in the review of policy and the report contains the recommendations that they wanted. They continue to be involved in the review's implementation group.

The Government accepted the recommendations in the review and stated that the Cabinet Office and the Treasury would, as I have mentioned, work with Departments to put the recommendations into effect as part of the wider drive to improve the effectiveness of public services. An implementation group comprising representatives of the Cabinet Office, the Treasury, Departments and chief executives was established to ensure that the stakeholders were represented. An implementation plan has been drawn up with the aim of implementing the recommendations by the end of 2003. Landscape reviews and the first tranche of end-to-end reviews will feed into the 2004 spending review—effectively they will need to be completed by the end of 2003.

While the idea of a landscape review is new, the end-to-end approach is derived from practice and is familiar in the private sector—it is becoming more so in the public sector. It is in line with other reviews, such as the delivery unit's priority reviews. The NAO report published on 28 March 2003, which has been mentioned much this afternoon, examined agencies and their targets. It looked at the performance of 30 agencies across Government in meeting their targets, analysed eight in detail and three in depth, and made a number of recommendations on target setting and evaluation. The Treasury, in collaboration with the Cabinet Office, will provide guidance to Departments and agencies on performance management. That will take account of the findings of the important NAO report.

Members of Parliament are encouraged to deal directly with chief executives on daily matters concerning agencies, but Secretaries of State are and remain accountable to Parliament on all matters to do with their agencies. Accordingly, they retain the right to intervene in the operations of the agency if public or parliamentary concerns justify it. The chief executive and permanent secretary may be required to appear before the Public Accounts Committee—I endorse the sentiments expressed by the hon. Member for Runnymede and Weybridge when he paid tribute to its work over a number of years. At Select Committee hearings, Ministers will normally ask the chief executive to represent or accompany them if the Committee is specifically concerned with the day-to-day operations of the agency.

Policy on agencies is developing in the context of the Prime Minister's principles for public service reform and plays a major role in ensuring that services are delivered in the most effective, accountable, flexible and customer-focused way possible.

3.7 pm

Sitting suspended for a Division in the House.