House of Commons Treasury Committee
Government Resources & Accounts Bill HC Committee
Inquiry into Performance Targets
Memorandum covering principles behind Public Service Agreements
(NB 2012 note: Paragraph 1 refers to my original 1999 Treasury Committee Evidence
later extended as a
Debate Article "Measuring (Accountable) Success",
Public Money&Management October-December 1999).
1. This Memorandum follows my evidence for your Committee's Inquiry into Public Service Agreements, Appendix 6, Seventh Report, Session 1998-99, HC 378, 29 June 1999. I showed how PSAs began as "Output and Performance Analyses" in the Conservative's 1994 Resource Accounting Green Paper (1) and why a systematic parliamentary process of validation was a technical and constitutional necessity. I also offered some clear principles for the successful operation and control of PSAs (2).
2. These principles recognised that there is much in PSAs that is simply not amenable to static analysis. There are inherent conceptual and measurement difficulties, and so
3. My proposals were therefore designed to both (a) engage civil society and (b) build in the skills and judgements of those delivering services at the coal face.
4. From the start it was clear that PSAs are an initiative of central constitutional importance. As the Treasury put it, they will be "the basis for the Government to report its performance to Parliament and to the public annually" (3). So from the very start it should have been accepted that PSAs needed effective Parliamentary validation. In this, and in the absence of routine feedback, PSAs are clearly deficient. Targets with little regard for actual capacity will always trigger perverse results (4).
5. The "external validation" issue surfaced at Westminster during the passage of the Government Resources and Accounts Bill (GRAB) - but Chief Secretary Andrew Smith objected to an independent audit of PSAs. In his evidence to the Public Accounts Committee he explained, "Performance evaluation is not the same thing as auditing (the) proper use of public money...One of the reasons why the auditor general and this (PAC) Committee command such high recognition for the value of their work is because it keeps out of the political arena. As you come closer to these performance and target issues there is a risk that you get drawn close to the political arena" (5) (my emphasis).
6. He was correct: PSAs are, at base, subjective political instruments. But meanwhile the Treasury itself continued as if the operation of PSA targets was merely a technical matter for ministerial edicts and management accountants. Originally there were also references to the "Peoples' Panel" and to "focus groups". But Chief Secretary Alan Milburn had even said he looked forward to a "new science" (6) and had expressed "real and tangible reservations" about whether "any systematic external process for validating performance against PSA targets (was) needed" (7).
7. During the passage of GRAB, PAC Chairman David Davis held the line (with significant senior cross party support) that "without some form of Parliamentary validation PSAs were unlikely to work at all". But they, too, had not resolved the political and technical implications of a radical departure from traditions of strict financial audit - partly due to PAC's justifiable pride in NAO ad hoc VfM studies which (argued Davis) "didn't involve the C&AG in matters of political judgement" (8).
8. It all came to a head when senior Parliamentarians tabled GRAB amendments to extend the C&AG's statutory access and, crucially, placed PSAs on a statutory basis; that is to say requiring Parliamentary validation. Total confusion reigned! But the amendments were defeated on the Treasury's promise of Lord Sharman's "Review of Audit and Accountability for Central Government". The Sharman Report (and the Government response 393 days later!) supported the "external validation" of all PSA's "key published data" (9).
9. So what does this mean ? The NAO itself was always clear; "Our role is not to advise on the setting of targets or priorities but to examine the accuracy of published data and ensure that it has been collected and presented correctly" (10) (my emphasis). In spite of this some suspected that the Treasury was finally becoming interested in buying some insurance and would therefore put pressure on the NAO and on the Office for National Statistics (ONS) to give PSAs a technical "seal of approval".
10. But, if so, NAO Directors still suggest the C&AG is unlikely to agree. Nor is the ONS about to accept a poisoned chalice. Thus while the Chief Secretary claimed (in response to Sharman) that "We are taking measures to add to the substantial external validation already carried out by the Office of National Statistics" (11), the ONS insist that their role is not to validate PSAs (pe se). They point to estimates showing that PSA data comes from many sources: 43% from departmental surveys or statistics, 18% from agency or non-departmental data, 12% from local authorities and Health Service, 13% from other organisations (including international) and only 14% from their own National Statistics (12).
11. Thus so far not so good! But my 1999 evidence for your Committee was positive. The 1994 decision to move from cash to commercial style accrual accounts involved a fundamental change in the way Government and departments report to Parliament and the public. This had to include a visible "constituency dimension". And if fashionable rhetoric about buying outputs rather than inputs was to mean anything it had to involve Parliamentary approval of PSAs within the Supply process. That hands to Parliament a rare - perhaps even historic - opportunity!
I concluded "the reputation of the present Government and a major constitutional innovation both hang on getting it right" (13).
Getting it right
12. My proposals were influenced by New Zealand's version of resource accounting. They place performance securely in the political arena by including prioritised sets of output statements (i.e,"PSAs") as part of their Estimates (14). This shifts the cutting edge of scrutiny from "back to front audit" to where it belongs; unashamedly into the glare and heat of "the political kitchen": the Supply procedure. It gives a uniquely sharp focus to the Liaison Committee's generalised suggestion that select committees should make a more systematic effort to monitor government expenditure (15).
13. More recently the Modernisation Committee asked the House of Commons Commission to look favourably at NAO estimates of the extra resources committees should have" (inter alia) "to monitor performance targets in the public service agreements" and "to examine and report on main Estimates, annual expenditure plans and annual resource accounts" (16). The NAO seems to agree with me; "the development of PSAs and SDAs goes a long way towards the kind of arrangements you refer to in New Zealand" (17). So, if Parliament wished, the NAO could include these new scrutiny requirements in its corporate plan and in Estimates submitted for approval - not to the Treasury - but to the House of Commons Commission (18).
14. My 1999 proposals (19) united the technical and political definitions of PSAs by:
15. The practicability of such online information systems, disaggregating public programmes and showing constituency and sectoral outputs wherever practicable, has been tested on a pilot basis (19). And the proposal coincided with later suggestions in 2001 from the Cabinet Office's Policy Innovation Unit Cabinet Office for ..
16. So output data can be verified by the NAO and ONS and scrutinised by practitioners at the coal face and by their "customers", client groups and business interests. With each years round the data accumulates as an integral and visible "constituency dimension" to macro management and ideally should be hosted by the House of Commons Library! User-friendly programmes can be available for cross-departmental data, for industry and commerce but, crucially, also for Members and their constituents as each select committee considers the following year's estimates.
17. This will represent a useful and necessary follow-through to the material in Schedule 5 of the Resource Accounts and requires a clear "read-across" between PSA targets and the relevant financial data.
18. By-products already discussed with some Departments include the impact of the above for more effective public procurement policies and productivity; improving the supply base of the knowledge-driven economy; meeting FOI duties to publish and new Equality requirements; effecting systemic e-government "from the inside out" and explaining the impacts of official programmes to constituents and industry alike in a most economical and effective way.
17 July 2002
Notes and Reference
(1) HM Government (1994), Better Accounting for the Taxpayer's Money: The Government's Proposals, Cm 2626 (HMSO, London).
(2) Treasury Select Committee (1999), Public Service Agreements, Seventh Report of Session 1998-99, HC 378 (Appendix 6), The Stationery Office, London). A more complete and edited version is in Des McConaghy , Measuring (Accountable) Success: Analysis of "The Government's Measures of Success", Public Money and Management, Oct-Dec. 1999.
(3) HM Treasury (1999), The Government's Measures of Success, (HM Treasury, London).
(4) The literature covering PSA problems as top down command control devices leading to underspend and perverse outputs, is already too extensive to be listed here. A light-hearted account is given by Colin Talbot, Performing "Performance" - A Comedy in Five Acts, Public Money and Management, October-December 2000.
(5) Andrew Smith , Evidence to PAC, Official Record, 12 January 2000.
(6) Alan Milburn. Speech to the TUC (3 March 1999).
(7) HM Treasury, correspondence with the author, 10 June 1999.
(8) Davis Davis, correspondence with the author, 28 January 2000.
(9) HM Treasury, Holding to Account, Report by Lord Sharman of Redlynch, February 2001.
(10) NAO correspondence with the author, 1 August 2000
(11) Andrew Smith, Government's response to Sharman, Official Report, 13 March 2002.
(12) ONS, correspondence with author, 8 May 2002.
(13) Treasury Select Committee (1999) op cit.
(14) For example, Third Report for 1999, C&AG, The Accountability of Executive Government to Parliament, Wellington, NZ, 23 June 1999.
(15) Liaison Select Committee, (2000), Shifting the Balance: Select Committees and the Executive. First Report, Session 1999-2000, Stationery Office, London. Para. 60.
(16) Modernisation Select Committee (2002). Select Committees. First Report of Session 2001-02, HC 224-I, Stationery Office, London.
(17) NAO correspondence with the author, 1 August 2000.
(18) "It is virtually unthinkable that House would reject an Estimate presented by the Commission. It is inconceivable that the Treasury would seek to intervene unless the Commission had gone completely mad!" Letter from the Secretary to the Public Accounts Commission to the author, 5 March 2002.
(19) Des McConaghy, Measuring (Accountable) Success. Analysis of the Government's Measures of Success, Op cit.
(20) Cabinet Office Policy Innovation Unit, Better Policy Delivery and Design, Cabinet Office, March 2001.
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