Centre for Public Scrutiny Annual Conference

Published on: 1 December 2016

This morning I spoke about the work of the Public Accounts Committee at the Centre for Public Scrutiny’s (CfPS) annual conference; Democracy, governance and the truth.

See my speech in full below.


Thank you to Lord Kerslake and the Centre for Public Scrutiny for asking me to speak today on democracy, governance and the truth. This title covers so much of the work of the Public Accounts Committee particularly the truth, which is something the committee seeks but often finds elusive.

Many of you may already know that the Public Accounts Committee was founded in 1861 by William Gladstone in order to scrutinise the ‘economy, efficiency and effectiveness’ of public expenditure.

What is perhaps less well known about the committee is that one of the driving forces behind its creation is Sir Francis Baring, an MP for Portsmouth and whose grandfather was a founder of Barings Bank.

The bank, which was Britain’s oldest merchant bank, famously collapsed in 1995 due to the £827 million losses incurred by just one of its traders – Nick Leeson.

Whilst Leeson was working for Barings in Singapore he was acting not only as a floor manager for trading but also as the unit’s head of settlement operations. These roles would normally have been done by two people but as head of unit Leeson was essentially his own boss checking and accounting for his own trading. He was reporting fake profits to his bosses in London masking the growing losses.

When the situation reached crisis point, Nick Leeson fled sending a note of confession to his bosses.

Leeson himself later blamed the bank’s lack of internal controls and poor risk management practices.

This is certainly an extreme example of what goes wrong when no one is watching the money but it draws out two of the key themes of the work of the Public Accounts Committee: accountability and transparency particularly when, as in this case, the money is being managed at ‘arm’s length’.

Sir Francis Baring not only led the charge to set up the Public Accounts Committee but was also the first chair of the committee. In 1861, Government spending was a drop in the ocean compared to now. In 1918 there were just 28 civil servants in the Home Office. Now there are nearly 33,000.

In the twentieth century, and into our own century, the central state grew, and the amount it did grew, to the point where in the post-war era the Public Accounts Committee oversaw most of public expenditure.

This expenditure was delivered from the centre and the job of scrutinising public accounts and holding officials and ministers to account would have been a relatively straight-forward job. The central state raised most of the taxes, and the central state spent the bulk of them, or gave them directly to local authorities to spend. It was clear who was in charge and who was accountable.

Today, things are not so simple.

At the last count, the public sector employed a staggering 4.43 million staff and spent £734 billion on goods, services and running costs.

Public services are increasingly moving away from traditional spending lines –service delivery is at its most fragmented, presenting us with the problem of devolved responsibility and disaggregated delivery.

We live in a complex, interconnected web of organisations, companies and layers of governance.

Things are changing so fast, it takes our breath away.

In this complex environment, the need and demand for accountability has never been greater. We demand rights as consumers, patients, passengers, parents, residents and citizens. We want to know to whom to complain, who to praise and how to seek redress.

But in the absence of clear lines of accountability, that task is harder than ever.

Government departments now have more than 460 ‘arm’s-length bodies’, through which they spend around £250 billion a year. Yet we found that departments do not have a consistent, open approach to setting out accountabilities that makes it easy to establish who is responsible for what.

Departments rely on their arm’s-length bodies to deliver services but have no consistent rationale for deciding what is best done through an arm’s-length body and what is best done directly by departments themselves. The Cabinet Office describes the resultant population of arm’s-length bodies as “an accident of history”.

When we looked at the progress Government has made in managing its contracts with providers we found slow progress to tackle poor governance or the need to recruit more commercial staff within a culture that does not place enough value on commercial expertise. Part of the wider problem is pay, the civil service cannot rival salaries in the private sector.

We also found a worrying reliance on whistleblowers to shed light on poor performance by providers.

Poor oversight and management of arm’s length bodies and contractors leads to poor service for users. Something which was only too clear when the committee challenged HMRC on its contract with Concentrix, a firm bought in to investigate cases of potential fraud and error in tax credit claims.

This contract has been a complete failure and has now been cancelled outright by HMRC but not before many tax credit claimants were wrongly accused of fraudulent claims – including single parents being accused of being married to people who had previously lived at the same address. This shocking treatment left many families in distressed circumstances, relying on emergency handouts to get by and facing a lack of urgency or care in either HMRC or Concentrix to reinstate payments.

The changes to funding for schools has also alarmed the committee. I have a real concern about the disregard that some academies and academy chains have for their accountability for taxpayers’ money. It is as if some in the sector consider it an irritation to be asked about use of Government money.

It is clear that just because Government outsources or devolves a responsibility it cannot wash its hands of accountability. Day to day responsibility may have shifted in some of these cases but once a contract has been let, the relationship with Government does not end. There needs to be continued scrutiny, and crucially there need to be the capabilities in the civil service to monitor contracts as well as let them.

And take the devolution agenda

Local decision makers rooted in their communities should be the ones deciding how services are best delivered to their people.

But the drive for greater devolution of powers and spending to English regions whilst warmly welcomed by local authorities has been beset with problems.

The struggles to agree parameters of how these powers will work and be shared amongst neighbouring authorities has led to bitter wrangles in regions.

The lack of guidance from Government on what it means to achieve through the deals and a poor understanding of the huge geographical and social differences in the towns and cities to be merged into combined authorities has added to this.

When the committee looked into Wave 1 City Deals the lack of vision of what the Government wanted to achieve was stark. The main focus was to pass responsibilities on but without a clear emphasis on how powers would be shared, how effectively services would be delivered or what structures were needed to rigorously oversee spending.

With £2.3 billion for City Deals in Wave 1, involving 8 cities and 51 local authorities. Up to £1.5 billion for Wave 2, involving a further 18 cities and an even greater number of local authorities these are all concerns that need addressing.

Understandably Government is keen for local areas to shape their own devolution deals to meet their particular needs but they need to provide leadership and be clear that this cannot be at the expense of transparency and accountability.

Take Local Enterprise Partnerships, £2 billion has already been allocated to Growth Deals with 39 LEPs. With the advent of the Local Growth Fund, the amount of central government funding received by LEPs is projected to rise to £12 billion between 2015–16 and 2020–21.

This is a big pot of money but questions have been asked about how LEPs are governed and their capacity to manage their spending. The committee learnt of LEPs not declaring conflicts of interest, not publishing board minutes and in some cases not publishing details of how much people on LEPs were paid. This is taxpayers’ money and we must be able to account for it and justify how it is being spent.

Mayoral elections are planned for 2017, the legislation will shortly be before Parliament to allow for this, and announced in the autumn statement were additional borrowing powers for these mayors. Deals are being pushed through locally.

It is essential that the Government is clear in its strategy for devolving greater powers whilst ensuring a clear line of sight of local spending. A pound spent by an elected Mayor, clinical commissioning group or Local Enterprise Partnership must be a pound that Parliament can trace.

The experience to date is not encouraging. All too often representatives of central government departments who appear before the committee are unsure and unclear about who is responsible for what expenditure within new structures such as City Deals, or arms-length services such as the contracted-out assessments for disability payments.

Take health and social care. Pilot schemes as part of the London Health Devolution Agreement to provide joined up services to patients are already underway – my own borough of Hackney is one of these.

This is also being rolled out in other areas where devolution deals have been agreed, Greater Manchester another example.

Again these proposals are welcome – joined up services to ensure people with perhaps multiple needs can access treatment without being passed from pillar to post or that older people aren’t held up in hospitals waiting for their care package to be agreed so they can go home. If they work they put the user first.

But whilst this is welcome there are clear signs that local health services already under pressure are struggling to meet rising demand. Devolution can only work if there is also enough money.

And what of the funding for these reforms. There is no new funding but simply money repackaged and moved from one pot to another, Better Care Funds, transformation funds, commissioning budgets.

And who is accountable? This is confusingly spread across the Department for Health, provider organisations, clinical commissioning groups, NHS England. But in the case of Greater Manchester’s elected mayor they will not have any executive or budgetary control over the integration of health and social care.

So where do people turn if they need redress for complaints or where does the buck stop with local spending?

As MPs we ourselves often struggle to get answers for our constituents or know who to go to when we can see systems failing.

The committee recently looked into the collapse of the UnitingCare Partnership in Cambridgeshire and Peterborough. Two local hospital trusts successfully bid for a contract to provide joined up older people’s and adult community services. The contract collapsed after only 8 months at a cost of £16 million to the taxpayer.

At the time local MPs were trying to raise concerns about the contract and struggled to pin down those responsible to listen to them.

If elected representatives cannot alert or even get to the decision makers how much harder is this for a local citizen to do.

Government again and again laud the NHS Five Year Forward Plan, £10 billion of funding and Strategic Transformation Plans as the answer to everything. I am not convinced that this will address either the funding gap or the accountability for how funds are used.

And what is the role of local auditors in all this? It has never been more important to have robust local oversight of how local bodies are using taxpayers’ money.

With the abolition of the Audit Commission (a mistake in my view) the National Audit Office becomes the main professional body that will examine public expenditure to ensure value for money.

But while they look at sector-wide issues, they cannot assess whether individual local authorities are achieving value for money.

So who is there to speak truth to power? Who is there to speak up when money has been misspent or budgets are at breaking point?

With an average cut in revenue for local authorities of over 25% during the last five financial years and an increasing reliance of local authorities on using their capital spending in more commercially creative ways to cover this lost revenue I am concerned about the sustainability of local government.

Public value is best determined by citizens and their local representatives. So what local arrangements should we have to oversee all these devolved funds. Should each area have its own public accounts committee for example?

I am holding a series of events to look at devolution and it is clear from discussions that there is no easy answer on who will oversee local spending and what structures need to be in place to do this.

The latest event was held in Wolverhampton and looked at the West Midlands Devolution deal.

There was much discussion on the day about the need for the new combined authority to tackle local pressures such as housing, skills and further education to improve growth in the area. But questions were raised about whether the elected mayor would have the power to meet these challenges.

One hope for the deals was that combined authorities would have the power to be an equal partner to Government.

In this though I think we need to be careful that we aren’t just creating a form of local centralism, where the power and decision making sits in the dominant city heart of a combined authority. Or that an elected mayor will dominate decision making with little challenge.

This was a concern mentioned at the event that the investment for devolution is made in infrastructure not scrutiny. Particularly worrying given the view that devolution deals are put together behind closed doors with the public left at the margins without real input into the plans.

Brexit emphasised the disconnect that people feel with those in power, there is concern that devolution will not deliver local decision making into the hands of local people.

I hope this has given you a flavour of some of the wide ranging work that the committee covers.

Whilst some of our hearings hit the headlines particularly when we shed light on what seem like Government pet projects – Kids Company received at least £42hilli million in public money but collapsed amidst stories of envelopes of cash being distributed to queues of people, with little financial accountability.

Or an airport for the Atlantic island of St Helena which was built using £285.5 million of taxpayers’ money. Only after completion was it discovered that wind shear prevented aircraft from landing. Something which apparently wasn’t picked up at the planning stage although Charles Darwin had noted “the impetuous winds” on his visit to the island in 1836.

This sounds like some kind of spoof. For such an isolated community this is no laughing matter.

But behind these headlines, most of the committee’s work is about forensically examining Government spending on major projects and services to see where improvements can be made and, where necessary, to point the finger of blame when things go wrong.

What concerns me and I know the rest of my committee is that although our work is an opportunity to learn lessons, we continue to see the same problems cropping up again and again – Government IT projects always fill the committee with particular dread given the many debacles we have looked at.

As Chair of the Public Accounts Committee I am privileged to have a unique position from which to examine the impact on taxpayers of a constantly changing public sector landscape.

And in this changing landscape I hope we will continue to raise the questions the public would be most likely to ask, on the issues that matter the most.

But most importantly we must shine a light on how public money is spent and who is responsible for these decisions that affect us all, after all sunlight is the best disinfectant.