BGI’s latest report – “Financing Scotland: Is there a workable financial settlement for Scottish devolution?” – points out that the airy assurances given in the heat of the referendum debate that financial devolution could go ahead while retaining the Barnett formula may not prove so easy to deliver in practice.
The formula was introduced in 1978 as a simple population-based system for allocating Scotland a share of changes in UK public expenditure. It doesn’t say what is the right level of UK resources going to Scotland (and Wales and Northern Ireland). It just says what the change should be. If £100 is added by the Treasury to spending in England on an activity that has been devolved to Scotland, then Scotland gets X% of that added to its block grant – where X is the population of Scotland relative to England, currently around 10%. So the increase in spending per head in Scotland in cash terms is roughly the same as England – but the base level of the block grant is just what spending happened to be when the formula was introduced, plus years of subsequent adjustments.
The settlement recommended by the Smith Commission and welcomed by the PM will mean that more services (employment and training provision for example) will be devolved and so will fall within the scope of Barnett. Some welfare spending will be devolved for the first time. Scotland will be given the revenue from income tax in Scotland and a share of VAT revenues, and powers to change income tax rates and thresholds.
Where does all this leave Barnett? Suddenly an obscure but very simple formula has been caught up in a welter of complicated adjustments and indexations. Can it take the strain?
The first source of tension will be the devolution of some welfare spending. This is currently outside Barnett because the numbers on benefit may move differently in Scotland to England for all sorts of economic, social and demographic reasons. Smith proposes limiting devolution to only a small slice of welfare spending which is not much influenced by economic conditions: benefits for carers and disabled people. The proposal seems to be that an amount equal to current spending on these benefits in Scotland is added to the block grant outside Barnett and then ‘indexed’ in future. It is not clear what it would be indexed to or whether there will be any provision for future adjustment
Second, the devolution of tax powers and revenues will introduce considerable complexity. The Smith plan is that an estimate should be made of Scottish income tax receipts and receipts from the first 10% of VAT. This should be paid by the Treasury to Scotland and the block grant correspondingly reduced. And ‘future growth in the reduction to the block grant should be indexed appropriately’.
This seems to mean that total Scottish revenues from the UK, which now consist of roughly £28 billion of block grant, would in future be made up of perhaps £11 billion of income tax and £5 billion of VAT, leaving only £12 billion or so of block grant driven by Barnett. It is not at all clear why the reduction in the block grant would be indexed, as proposed by Smith, or to what.
Even more complex is the handling of UK changes to income tax. Suppose the UK increases the basic rate while Scotland leaves its rate unchanged and that the proceeds of the UK increase go to fund a mix of defence (non-devolved) spending across the UK and health (devolved) spending in England. Scotland would appear to gain the benefit of stronger UK defence without paying anything towards it. And if Barnett applied to the increase in health spending the Scottish block grant would benefit from that too! Smith says ‘changes to taxes in the rest of the UK, for which responsibility in Scotland has been devolved, should only affect public spending in the rest of the UK.’ But no explanation is given and no mechanism is outlined to achieve this. And in practice of course receipts from specific taxes are almost never linked to changes in specific spending programmes.
Finally, change will inevitably focus attention on the Scottish ‘advantage’. On a simple measure of public spending per head that is widely quoted Scotland gets 19% more than England. But stripping welfare spending out of this calculation increases the advantage to 27%.
In conclusion, the Barnett formula has proved pretty robust over past decades but perhaps the key to its survival has been that it is so simple that it has been able to tick over in the background without too much challenge. But it is hard to see Barnett surviving when it comes under the spotlight. The new constitutional settlement, and the financial settlement which it rests on, must surely deserve wider debate.

Mention the ‘civil service’ and most people immediately think of the Whitehall stereotypes. Perhaps not bowler hatted Sir Humphreys but pretty close: probably something to do with working with Ministers.
The reality of course is that the overwhelming majority of the 400,000 or so civil servants are working in Jobcentres and tax offices, prisons and passport offices. They are delivering a wide range of public services and never go near Whitehall or Ministers. The proportion who work in and around Whitehall with some occasional Ministerial contact is probably less than 20,000 or 5%.
What is the best way of organising and running the services provided by these 380,000 civil servants outside Whitehall? It may be that the best answer is to put them under the control of the top Whitehall civil servants who are very good at advising Ministers, but rarely have experience of large scale delivery of services to customers. But on the face of it that is pretty implausible.
The team of efficiency advisers under Sir Robin Ibbs who advised Mrs Thatcher in the 1980s came up with a different approach. These executive functions of government they argued should be formed into sensible units or agencies which could be run more along business lines. They needed clear objectives and performance measures and managers who understood how to deliver quality services efficiently. And they needed enough day to day freedom to focus on their customers.
The ‘Next Steps’ White Paper in 1989 started a reform which within 10 years had moved over half the civil service into agencies. Familiar brands including Jobcentre Plus with around 90,000 staff, the Passport Office, the Child Support Agency, and the Pension Service all adopted this model.
Most assessments, including a 2002 Cabinet Office review that I jointly chaired, concluded that the agency model was working well. It gave these activities a clear business focus; made their activities more transparent and accountable through their own accounts and annual reports; and was generally thought to have improved efficiency. The Labour Government embraced this key reform which had been initiated under Mrs Thatcher.
It is ironic then that the current Conservative-led coalition is now dismantling this reform. Jobcentre Plus and the Pension service have gone, although the branding is still used. The Border Agency was closed in 2013 and in October 2014 the Passport Office was integrated into the Home Office which now has no agencies.
Why the change in stance? And why has a government allegedly committed to bringing more business disciplines into the public sector apparently drawn back from this business- inspired model?
This seems to be driven in some cases by a view that greater efficiency can be achieved by cutting out the overheads associated with agencies, each of which would have their own corporate functions perhaps duplicating those in the core department. There is a lot of sense in looking hard at these costs but there are ways of sharing these services without tearing up the agency concept.
In other cases it is about accountability. It’s a natural instinct for a Minister to feel “if I’m going to be blamed when something goes wrong [in issuing passports for example] then I need to bring this more under my direct control”. But a bit of reflection should convince that this is an instinct which should be resisted.
The doctrine that Ministers should be held personally responsible for every failure in a department, however distant and minor, has never made much sense in theory or practice. Departments are administrations which work within a political context and direction set by Ministers. It is reasonable to hold officials rather than Ministers accountable for failures in administration. Ministers should look for assurance that the right people and systems are in place but should not feel they need hands-on control. The more control they assert, the more they will attract blame for failures.
There are also perhaps misunderstandings about the nature of accountability for agencies. Agencies are simply units of the civil service. They remain accountable to Ministers through heads of department just like any other civil servants. They have no statutory foundation separate to that of the Department. So if Ministers are unhappy with what an agency is doing they can challenge in exactly the same way as for any other part of the department.
In these respects agencies are different to non departmental public bodies (NDPBs) which often have a statutory foundation if they have executive functions and generally do not employ civil servants.
The great advantage of the agency model is that it is clear who is in charge of this administrative activity – the Chief Executive – and hence managerial accountability is strengthened without changing the political accountability.
Sadly, Robin Ibbs died in July this year. It would be a great shame if his vision of efficient customer facing management of public services dies too.

Adam Sharples
November 2014

‘How to be a minister – a 21st century guide’ written jointly by BGI member Sir Leigh Lewis, a former Permanent Secretary, and former Cabinet Minister John Hutton was published on Thursday.

The book, which Leigh and John believe to be the first about government to be co-authored by a former minister and former mandarin, sets out a survival guide for a new Secretary of State. It can be obtained directly from the publishers, Biteback, or from booksellers.

The UK needs a high-performing Civil Service but at present the service is not in good shape. A Government with determination and imagination which values the Civil Service could return it to what it once was and can be again – a high-performing organisation that helps Governments to achieve their objectives and ensures that Britain is well governed. We believe that the Civil Service needs a Government which will both champion and challenge it.

We would like to see Government seek a compact with the senior leadership of the Civil Service. It should offer a relationship built on mutual trust. The service has changed radically in recent decades and in many ways for the better – it is much more open to ideas and talent, has in many areas real expertise not found elsewhere and has tried hard to improve its project management skills. The public do not understand this because it is so rarely acknowledged by those who seem not to accept the principle of a permanent and impartial Civil Service recruited on merit. Nevertheless we readily accept that a lot more needs to be done to make the Civil Service once again fit for purpose, including:

• internal accountability needs to be strengthened and poor performance less readily tolerated;
• delivery and project management are still not as good as they should be;
• in its efforts to improve delivery the Civil Service has tended to underplay the importance of what should be its other core skill, namely policy formation;
• the high turnover of staff at all levels, in part driven by promotion incentives, militates against the development of expertise (it also undermines accountability). On average longer postings are needed;
• the distribution of talent and skills cannot simply be the result of the quasi-market in jobs that are internally advertised and subject to competition. There needs to be a better balance between departments’ ability to use their assets to meet their needs and the interests of individuals and also better succession planning;
• the Civil Service needs a workforce strategy designed to produce over the long term the range of skills that it requires. While it will always be necessary to bring in skilled people at all levels, especially at the top, all large organisations which enjoy long-term success grow much of their own talent.

We believe that a programme along these lines would help to restore the Civil Service’s effectiveness and reputation and would deserve the Government’s support. In return Ministers are entitled to expect high quality support and a Civil Service which does its very best to achieve the outcomes that the Government seeks.

Ministers should recognise that it will not be possible to build a high-performing organisation if they continue constantly to carp about it in public. In recent years that criticism has sometimes been couched, as regards Permanent Secretaries, in highly personalised terms.

Each of the political parties is beginning to consider how it will organise government to implement its policies if elected at the 2015 General Election. The Better Government Initiative believes that there is a handful of fundamental things that a Prime Minster needs to get right in the organisation and running of the Government if it is to be a success. The party leaders should be thinking about these issues now.

First, government is a joint endeavour in which success depends on team effort. The Prime Minister needs to run the Government as a team and to encourage a spirit of mutual trust and cooperation between Ministers. The Prime Minister should deal with the Cabinet on that basis and encourage Secretaries of State to manage their ministerial teams in the same spirit. Competing priorities between departments are inevitable; ‘departmentalitis’ is not.

Second, the relationship between the centre and departments needs to be right. Only the centre can develop, maintain and articulate an over-arching strategy for the Government. The Prime Minister needs around him a team capable of producing that over-arching strategy and of ensuring that departmental strategies fit into it. While that team should be capable if necessary of challenging departments on the biggest issues, it should not micro-manage them, not least because it does not have their specialist expertise
.
Third, good government acknowledges the fact that most issues are inter-connected and all the most important ones cross departmental boundaries. Major issues are often best looked at in clusters and the aim should be to achieve policy coherence in those clusters. Governments have tended to compartmentalise issues (e.g. focusing on the NHS instead of health more broadly). There are a number of things a Prime Minister can do to tackle this. He or she might consider preparation of a plan with a clear list of priorities not confined within departmental boundaries, as tried recently in New Zealand. Related groups of issues need to be considered properly through the tried and tested Cabinet Committee system, not settled bilaterally outside it. And there are other, complementary approaches, most used to some extent by recent Governments, which will help – Ministers with responsibilities in more than one department, inter-departmental objectives, shared budgets and so forth.

Fourth, effective policy-making has a number of essential elements. Departments need to be thorough in their use of evidence and research, the analysis of risks and the assessment of costs, benefits and fiscal impact. They need to publish clear statements of what they propose to do and why and what alternatives they have considered. They need to consult properly, not just go through the motions. And there must be systematic evaluation of success. Where legislation is needed Parliament should be given time to examine it fully. We support the recommendations of the Political and Constitutional Reform Select Committee for the adoption of explicit standards for the preparation of legislation and the establishment of a Legislative Standards Committee.

Fifth, machinery of government changes need to be avoided if possible. Many Prime Ministers seem not to have understood just how destabilising, disruptive and expensive constant tinkering with the structure of departments can be. If the next Government wants effective implementation of its programme the worst thing it could possibly do is to make extensive machinery of government changes.

We have written extensively about all of these issues in our two published reports: Good Government: Reforming Parliament and the Executive (November 2010) and Good Government: Mid Term Review (November 2012).

All newly-elected Governments are keen to implement their manifesto commitments as effectively as possible. There is often a tension between the undertakings which the parties need to give in their manifestos in order to win a General Election and effective implementation of their policies once in Government. However, the Better Government Initiative believes that there is a number of things that the political parties should consider as they plan their policy programmes for the 2015 General Election which will help to ensure that they can achieve effective implementation if they form the next Government.
The key to effective implementation of a new Government’s programme lies in realism about what is achievable and thorough preparation – acknowledging that there are limits to what a party in opposition can do by way of preparation before it gets into government.
Setting aside the question whether a policy is strongly contested politically, those which require ambitious and far-reaching reform are always difficult to implement. A high degree of complexity will compound the difficulties. A department’s capacity to deliver what a new Government wants may be overstretched if it is required to implement major changes in a number of areas simultaneously, especially since most departments have been drastically reduced in size since 2010. If in order to work a new policy requires significant culture change – on the part of the public sector workforce or still more the public itself – this will greatly increase the challenge to successful implementation. If a Government wants effective implementation it must prepare the ground thoroughly.
It is entirely understandable that a new Government should want early and effective implementation of its programme in order that the benefits are apparent by the end of the Parliament and none of the above is to say that implementation of an ambitious programme is impossible. But the chances of success will be much improved if certain conditions are met.
• First, the proposals need to be kept as simple as possible. Complex proposals require more legislation, both primary and secondary, which takes longer to draft, they will involve more elaborate implementation plans and they are harder to explain to those who have to deliver them and those affected. Complexity will especially be an issue if major IT systems have to be amended or replaced. And Ministers should try to avoid repeated changes to their policy as it is implemented.
• Second, Government needs to prioritise so as to concentrate initially on what matters most and on doing it well. This is what successful private sector organisations do. Some policies, even though important, may have to wait until later in the Parliament.
• Third, proper preparation is essential. That means working out a proposal in as much detail as possible, consulting those affected and, if culture change is needed, winning their support. A start needs to be made as soon as possible. Preparation cannot be left until a few months before the election, still less until after the election. An example from 1997 – the New Deal – shows the benefits of thorough preparation and consultation in opposition which enabled the policy to be realised quickly and effectively. Another from 2010 – reform of the National Health Service – shows what difficulty a Government can encounter if it forges ahead with a policy which has not been the subject of thorough preparation before the Election.
Parties in Opposition face greater difficulty than those in Government, which can call on the Civil Service to help to prepare their programme. Opposition parties can look to their own resources to do this work and can no doubt get help from sympathetic think-tanks. But we believe that there is a strong case for the present Government to allow them early consultation with the Civil Service. The existence of the Coalition Government means that both of the other main parties will have access to Civil Service advice as they prepare their future programmes; it is reasonable that the Labour Party should also have access and on a more substantial basis than in the past. With the advent of fixed-term Parliaments, there is no reason why such assistance should not be available now.
Of course, whether such access is granted or not, the Civil Service will make plans to implement the programmes of all three parties as best it can but, without the Prime Minister’s agreement, the resources devoted to this will be limited and the Civil Service will not have the opportunity to influence the development of Labour’s thinking or fully to understand it.
Major changes to services provided by the parts of the public sector outside departments’ direct control (i.e. most public services) present special challenges. Experience suggests that effective implementation of proposals which are opposed by the relevant public sector workforce will be difficult. This is especially so in areas where the influence of professional groups is strong. Their compliance and, if possible, support is desirable. They need to be consulted early and persuaded to back change or at least not to oppose it. If successful implementation depends on culture change among workforces as big as those in the NHS or schools, this will be hard to achieve and will take time.
The task of winning hearts and minds can be shared with the Civil Service and with senior management in the organisations concerned, but is first and foremost one for politicians themselves. Whitehall very often cannot require compliance from these groups: they have if possible to be persuaded and that process needs to start well before an election.
If much of the above seems obvious, it is nevertheless surprising how rarely previous incoming Governments have taken these lessons to heart.

Following the recent reshuffle, the number of ministers attending Cabinet meetings has expanded yet further to 33 – 22 full members of Cabinet plus 11 others with the right to attend.

With the Cabinet Secretary, note-takers and members of the Prime Minister’s staff who attend, there are now over 40 people present. So many that not even all the ministers can get a seat at the Cabinet table.

This is plainly ridiculous. The function of the modern Cabinet should be to act as a team to provide the Government with strategic leadership and co-ordination. It is simply not possible to have a serious conversation between 33 people, with a football team of onlookers. And allowing a large number of junior ministers to be present is unlikely to add much to the discussion which Secretaries of State cannot bring.

It suggests that the Prime Minister is not using the Cabinet for its proper purpose. Granted it is no longer primarily a decision-taking body: most collective decisions are best taken in the specialist Cabinet Committees. But, if Government is to function successfully, the Cabinet needs to be a forum in which senior ministers can discuss frankly and privately the big issues of the day.

The Better Government Initiative believes that the effectiveness of the Cabinet is being undermined by this ballooning excess. While the process started with the Blair and Brown Governments, under which more junior Ministers were given the right to attend Cabinet meetings, matters have if anything got worse under the present Coalition despite all the talk of making government more businesslike.

Attendance at Cabinet meetings should be determined by the need for the most senior ministers to act as team and provide strategic leadership to the Government, not by the Prime Minister’s desire to confer patronage, by junior ministers’ wish to enhance their status or by presentational sops to ministers denied full Cabinet status.

Realistically we are probably stuck with this absurdity until the election. But the incoming Prime Minister, of whichever party, should restore Cabinet to being a significantly smaller and more manageable body. Only full members of Cabinet should attend, together with the smallest possible secretariat. Only then will there be a chance of encouraging frank and private discussion and restoring the Cabinet’s effectiveness.

The aim of this conference was to look ahead to next May’s general election and beyond. What challenges would a new Government of whatever form face? What lessons could be learned from the coalition experience?

The Conference report sets out some of the points that emerged in the discussion. I might briefly set the scene on some of the underlying issues that struck me and my BGI colleagues.

First, there was a recognition that the world around us was changing quickly whether in terms of technology or how people engaged with each other and with government. Power was being distributed. Whatever the outcome of the Scottish referendum, there would be a profound impact on our constitutional arrangements and muddling through might no longer do (although there was no appetite for a written constitution). Governing at the UK level may be about to get harder.

Secondly, while international comparisons suggested we could take pride in the integrity of our system of government, there was an uneasy feeling that in a scorecard based on the incidence of “blunders” we might have a worryingly high score in comparison with other advanced “western” nations. It would be helpful to get a better sense of whether this is the case and, if so, why? Some of the answer might lie in the pace of politically-driven change where a more considered, evidence-based approach might well yield dividends. There were also awkward questions about how we recruit, develop and move around the system both politicians and civil servants.

Thirdly, there was recognition that government is not a business or a collection of businesses but that it might have something to learn from how the best businesses align and embed objectives across the whole of their organisation and build mutual commitment to success. The separate “tribes” in government, parliament and the judiciary did not interact enough, informally as well as formally, and too much of the debate around accountability was about buck passing and blame. What would a culture of success look like (recognising the asymmetry in the world of politics, as refracted through the media, in interest in success as opposed to failure)? While the “trust” word may be in danger of overuse, there were clearly big trust issues that needed to be tackled.

Lastly, there was a suggestion that much of the discourse of government in the last 30 years had been based around rather crude versions of nostrums about public management linked to equally crude understandings of the discipline of economics. This era might be drawing to a close. We had, for example, to ensure policymaking and delivery were linked together. Markets were potentially better than monopoly, whether in terms of delivery by public, private or third sector delivery agents, but this required considerable skill in commissioning and market making and regulation.

BGI’s evidence to the PASC inquiry into civil service impartiality and referendums stresses that if civil servants are to continue to serve governments of different political complexions and retain the confidence of the public they must not be required to act in ways that appear to compromise their political impartiality.