Better government servicesExecutive agencies in the 21st century

The agency policy review – report and recommendations

Cover images:

Jobcentre Plus staff support job-hunters in interactiveopportunities for jobsearch at its offices across Britain andthrough its Jobseeker Direct phone service.

The Met Office, one of the leading providers of environmentaland weather-related services to individual and businesscustomers around the world, helps local government to reducethe impact of adverse weather conditions.

HM Prison Service helped more than 16,000 prisoners achievebasic skills awards at level 2 in 2001–02, helping to transformtheir life chances on release.

Better government servicesExecutive agencies in the 21st century

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Foreword ........................................................................................................................................... 3

1. Executive summary.................................................................................................................. 5Recommendations................................................................................................................... 7

2. Overview .................................................................................................................................. 9Introduction............................................................................................................................. 9Background.............................................................................................................................. 9Conclusions ............................................................................................................................. 10

Effective strategic direction............................................................................................ 11Effective agency governance .......................................................................................... 12Innovative and responsive performance....................................................................... 13Freedom to deliver excellent services............................................................................ 13

3. Models of delivery................................................................................................................... 15The agency model ................................................................................................................... 17Have agencies been a success? ................................................................................................ 17Types of agencies ..................................................................................................................... 19Conclusion............................................................................................................................... 20

4. Achieving strategic direction................................................................................................... 21Introduction............................................................................................................................. 21Effective departmental leadership .......................................................................................... 21

Departmental boards ..................................................................................................... 22Filling skills gaps ............................................................................................................ 22Cross-cutting forums...................................................................................................... 24

Simpler agency governance..................................................................................................... 25Departmental sponsors.................................................................................................. 26Steering and advisory boards ........................................................................................ 28Non-executive directors ................................................................................................. 29Framework documents .................................................................................................. 30

5. Performance management...................................................................................................... 31Aligning departmental and agency targets............................................................................. 31Targets and business planning................................................................................................ 32Open reporting ........................................................................................................................ 34Business review........................................................................................................................ 36Incentives to improvement ..................................................................................................... 38

6. Delegations .............................................................................................................................. 39Financial delegations .............................................................................................................. 40

Financial planning ......................................................................................................... 40Funding regimes............................................................................................................. 41Pay ............................................................................................................................... 43

Human resources..................................................................................................................... 43

7. The next steps .......................................................................................................................... 47

AnnexesAnnex A – Selected facts and figures on agencies ................................................................. 50Annex B – Agencies’ background and development............................................................. 56Annex C – Agencies’ range and diversity: statistics and questionnaire results.................... 59Annex D – Summary of previous publications ..................................................................... 68Annex E – Review methodology............................................................................................. 70Annex F – Organisations and people interviewed by the review team ............................... 72

Contents

The Employment Service, since April 2002 part of the newJobcentre Plus service, provides services to employers,jobless people and others seeking to enter or return to theworld of work. In 2001–02, the Employment Service helpedwell over 1 million jobless people find work.

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The Government’s top priority is the improvement of public services. People’s expectationsof publicly funded services and products are rightly high and rising. In education, in thehealth service, in the criminal justice system and for public transport we have set clearstrategies for improvement and targets and benchmarks against which to measure andreward rising performance. We have given local staff new freedoms to respond to local needswithin these frameworks. We have created a strong focus on the performance of individualschools, hospitals, police forces and transport networks.

Many other aspects of everyday life are provided by central government itself – from drivers’licences to industrial and commercial patents; from managing our prisons and courts tobuilding national roads; from social security benefits to income tax; from immigration controlsto Ordnance Survey mapping. Nearly 80 per cent of civil servants are responsible for deliveringsuch services, or for research or regulatory activities such as the veterinary laboratories andnational planning controls. Around three-quarters of these work in 127 UK ExecutiveAgencies. The way in which they do their jobs affects each of us every day in many ways.

It is difficult to believe that only 12 years ago the then 600,000-strong civil service wasmanaged centrally as one uniform body. In 1988 Sir Robin Ibbs recommended setting upExecutive Agencies to take responsibility for, and bring a new approach to, individualexecutive functions within government. This report considers how this policy works todayand its effectiveness for the 92 agencies now managed by Whitehall departments. It will alsobe of interest to the devolved administrations and in relation to non-departmental publicbodies, whose staff are not civil servants.

The delegation of responsibilities and powers to agencies has enabled staff to focus on thejob in hand and to become outward-looking and responsive to customers. Some haveachieved more than others. The report’s central finding is important – that whilst agencieshave been successful in achieving radical cultural change in central government to thebenefit of customers, in too many cases their work has become disconnected from theincreasingly well-defined aims of their Ministers.

The report sets out important recommendations to reconnect agencies with the strategicdirection of their parent departments and we strongly endorse them. The recommendationsdo not seek to impose a single blueprint, but set out a number of key principles to guidedepartments in their relationships with their agencies. How and when these principles areimplemented will vary according to the circumstances of different departments and agencies,because this is an area in which one size cannot fit all. However, it is crucial to the futureimprovement of public services – our highest priority – that this should be done in ways thatreinforce, rather than reduce, the ability of local staff to deliver effectively and responsively.

Lord Macdonald Paul BoatengMinister for the Cabinet Office Chief Secretary to the Treasury

Foreword

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Ordnance Survey data underpins £100 billion of economic activity inBritain each year. It helps businesses to reach their markets andpublic policy makers to target resources at national, regional andlocal level. In policing, for example, it helps officers to detect crimepatterns, respond to incidents and catch offenders.

1. This review is about the delivery ofservices directly by central government. It assesses the model of executive agencies,which aimed to bring professionalism andcustomer focus to the management anddelivery of central government services.

2. It coincides with a clear politicalimperative: achieving more effective publicservices. The Prime Minister has outlinedfour Principles of Public Service Reformthat place a culture of delivery at the heartof the government’s purpose.

3. Most services in the priority areas ofhealth, education, crime and transport aredelivered outside the civil service by, forexample, hospitals, schools and policeservices. Yet many services of great interestto the public, from prisons to pensions and from passports to vehicle licences, are delivered by agencies within central government.

4. The reforms introduced following the report by Sir Robin Ibbs in 1988 thatproposed the new executive agencies(outline history at Annex B) brought aboutrevolutionary changes in the culture,processes and accountabilities of thoseservices delivered directly by centralgovernment. A new revolution must nowtake place, within departments, tomaximise the effectiveness of the agencymodel for the 21st century.

5. The agency model is very flexible. The 127 UK agencies, of which 92 report toWhitehall departments, are a heterogeneousgroup of service, research and regulatory

activities managed within centralgovernment. The review’s task has been tolook at the success not of each individualorganisation but of the principlesunderlying the model itself.

6. One size – of virtually anything – does not fit all agencies, so meaningfulgeneralisations are difficult. Nevertheless,the review concludes that the agency modelhas been a success. Since 1988 agencieshave transformed the ‘landscape’ ofgovernment and the responsiveness andeffectiveness of services delivered by centralgovernment. But expectations arecontinually rising and changing.

7. The management principles thatcreated agencies continue to be highlyrelevant. Executive functions withingovernment should be carried out by awell-defined business unit with a clearfocus on delivering specified outputs withina framework of accountability to Ministers.The responsibility for performance restsclearly with the chief executive and staff ofthe agency, as should the delegations toenable them to deliver. The focus of theorganisation is downward and outward –towards their customers – rather thanupward and inward, as was the case before 1988.

8. All agencies need a clear purposeconnected to a framework of governanceand accountability. To quote the PublicServices Productivity Panel, ‘effectiveaccountability relationships are extremelyimportant to delivering high performingorganisations’. Clarity generates a

1Executive summary

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framework for trust; trust is essential toenable high and responsive performance.But such frameworks, and therefore thebasis for such trust, do not always existbetween agencies and their departments.

9. It is the review team’s view that the main problem in achieving more effective performance now is that someagencies have become disconnected fromtheir departments. This relationship is therefore at the heart of the review’s recommendations.

10. Effectively resourced, strategicengagement between department andagency should facilitate:

■ a shared understanding of overall andrelevant cross-cutting objectives;

■ the effective assessment andmanagement of risk;

■ the identification and removal ofburdens or restrictions on agencyfreedoms which constrain effectiveperformance at the frontline; and

■ the development of incentives andrewards to continuous improvementacross the department’s activities.

11. Despite clear intentions to thecontrary and good examples of workingtogether, the gulf between policy anddelivery is considered by most to havewidened. The trust needed to delegateeffectively requires mutual understandingand a ‘no surprises’ rule as well as clearframeworks. Without these, agencies cannothave the authorities they need to deliverMinisters’ objectives or excellent services totheir customers.

12. Agencies have in the past been treatedas a self-contained project somehowseparate from the more highly valuedbusiness of policy-making. But the twoshould be part of an integrated approach to supporting Ministers and serving thepublic, the whole adding up to more thanthe sum of the parts.

13. This need not – indeed must not –lead to blurred accountability, micro-management or double-guessing. Wheredetailed process controls replace effectivestrategic governance, they undermineagencies’ ability to deliver responsiveservices. They can also create perverseincentives and inefficiencies.

14. The essential – and in too manycases missing – ingredient is a strong linkto a process of intelligent businessplanning creating challenging andcustomer-focused objectives. This must beled from the top of departments andinvolve at its core the skills and experienceof those responsible for delivery. It mustprovide the frontline with the tools,authorities, incentives and encouragementto deliver excellent services.

15. This report addresses thisdisconnection through chapters considering:the implications for the role of deliveryagents in the landscape of departments;their governance; strategic performancemanagement; and delegations and powers.

16. Agencies and their departments face avariety of circumstances. This report setsout a number of key principles which, if applied effectively, should lead to:

■ structures appropriate to departmentalneeds, with use of the agency modelwhere executive functions must becarried out by central government;

■ processes across departments alignedand supported to achieve keyoutcomes;

■ cultural change, with top teams indepartments skilled in delivery andchief executives in agencies attuned toministerial objectives;

■ simpler governance connectingagencies with departmental aims andmaking better use of non-executivedirectors;

■ clear strategic direction with a line of sight from agency targets todepartments’ key targets;

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■ a strategic framework for reporting on and responding to agencyperformance – good and bad;

■ regular reviews focused on keyoutcomes rather than organisations; and

■ forward planning and delegationsproviding maximum flexibility tomanage and deliver services effectivelyand responsively.

17. None of this is radical in form but itwould bring about radical improvements instrategy and service delivery if put intopractice. It is relevant across all governmentactivities. The principles enshrined in thereview’s 12 recommendations apply equallyto all departmental activities, from thedelivery of effective policy frameworks tothe responsiveness of support functions, aswell as to the delivery of services from non-agency business units within centralgovernment and to relations with non-departmental public bodies (NDPBs).

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Recommendations1. The agency model has changed the landscape of government. Extremely flexible, it provides the most

responsive and accountable framework for delivering executive functions from within centralgovernment. As a one-off, high-level review, departmental delivery mechanisms should beevaluated as part of the Departmental Change Programme to ensure that they are appropriate tothe tasks required today and that effective governance structures are in place.

2. Delivery experience is rarely found at the heart of departments. Departments’ leadership structuresmust be built around the skills and experience of delivery as well as policy in order to plan andmanage all aspects of achieving outcomes for customers.

3. The different skills needed for excellence in policy advice and in service delivery are not yet valuedequally. Mutual support is essential and both are integral to achieving outcomes effectively.Departments and agencies must work together to bridge the gulf between policy development andimplementation and to fill high-level skills gaps in departments and agencies.

4. The maintenance of simple, clear frameworks that add value and ensure active strategic engagementwith each agency are essential to effective governance. All agencies should have:

■ at least one discussion a year with their Minister;

■ a senior sponsor within their parent department to provide strategic direction and strategicperformance management;

■ a two-way ‘no surprises’ rule;

■ external challenge and support introduced via the agency’s management board;

■ clear roles for, and induction of, non-executive directors; and

■ a framework document reviewed at least every three years or as business plans roll forward.

5. Departments and agencies must together ensure that agency targets are real, challenging andresponsive to customers. Departmental and agency target-setting must be aligned and timetabled tosupport Public Service Agreements and be supported by spending decisions. Key service deliverersshould be fully involved in setting targets in Spending Reviews.

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6. Where relevant, the balance between agency-specific and cross-cutting targets needs to beclearly specified and initiatives, such as electronic service delivery, clearly prioritised. A few keytargets should reflect measurable performance linked to departmental objectives and servicestandards.

7. Departments must integrate policy development, service delivery and support services to achieve morethan the sum of the individual parts. The central programme of quinquennial reviews of agenciesand NDPBs should be abolished and replaced by business reviews of the end-to-end processesinvolved in achieving specific outcomes. The Departmental Change Programme should develop amethodology for defining and implementing such a programme of reviews. The cycle of reviewsshould be integrated with departments’ business planning processes and specific priorities forreview agreed as part of Spending Review decisions.

8. Strategic performance monitoring lacks both focus and response. In the context of the DepartmentalChange Programme, departments should define, together with their agencies, an appropriateframework of standards and targets which would encourage excellence and continuousimprovement and address poor performance, with support from the Cabinet Office or Treasurywhere new flexibilities may be useful to agency management.

9. Agency business planning must be integrated with departmental business planning. Following the2002 Spending Review, departments should ensure that agencies have three-year fundingagreements to support three-year business plans.

10. End year flexibility (EYF) should normally be made available by all departments in line withTreasury guidance. Departments should discuss with their agencies and report on their proposedmanagement of EYF to the Treasury before the end of 2002.

11. Departments should explore with agencies, as part of the end-to-end reviews proposed inRecommendation 7, the opportunities offered by trading fund status and enable agencies to useincome generation to support capital investment in future services. Departments should alsoconsider with their agencies how to get the best out of their assets, which may mean acting morecommercially or expanding into wider markets where appropriate.

12. Effective management of staff has been at the heart of the improvements in performance achieved byagencies, providing for an outward and downward focusing of resources. Agencies should be able torecruit, structure, promote and manage staff effectively in the light of local needs and labourmarkets, including staff in the Senior Civil Service, within the requirements set out in the CivilService Management Code, and to enforce service-level agreements when these and other supportfunctions are provided by departments.

Introduction

1. This review is about the delivery ofservices directly by central government. It assesses the model of executive agenciesand concludes that it has been a success,bringing professionalism and customerfocus to the management of government services.

2. The review coincides with a highpolitical profile for wider work onachieving effectiveness in public services. The Prime Minister’s speeches on public services have outlined fourprinciples of reform:

■ high national standards and clear accountability;

■ devolution and delegation to the local level to encourage diversity and creativity;

■ flexibility and incentives to encourageexcellent performance at the frontline; and

■ expanding choice for the customer.

3. Similar principles underlay thereforms introduced following the report bySir Robin Ibbs in 1988 that proposed thenew executive agencies (outline history atAnnex B). These brought aboutrevolutionary changes in culture, processesand accountabilities. The new Principles ofPublic Service Reform set a culture ofdelivery at the heart of government’spurpose. They introduce a new emphasison customer-led service design and on the

need for a framework within which tointroduce incentives and reward foreffective frontline operations, as well asintervention if performance is poor. They require a new revolution, withindepartments, to maximise the effectivenessof the model for the 21st century.

4. The review has focused primarily on agencies that report to Whitehalldepartments but has benefited from the co-operation and involvement of staff workingfor the Scottish Executive, Welsh Assemblyand Northern Ireland Executive and theirexecutive bodies. The review teamwelcomes their undertaking to lookcarefully at the review’s recommendationsand how they might apply to those bodies.Decisions on such matters are, of course,for Ministers in the devolvedadministrations.

Background

5. The agency model is very flexible. The 127 UK agencies (as at the end of March 2002), of which 92 report toWhitehall departments, are a heterogeneous group of activities managedwithin central government.

6. In size and scale the Whitehall-reporting agencies stretch from JobcentrePlus (which was established at thebeginning of April 2002 and has around90,000 staff) and the Prison Service(42,000 staff) to the Wilton ParkConference Centre (50 staff) and the Debt

2Overview

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Management Office (40 staff). In relationto the primary functions the 127 agenciescarry out: 49 deliver services to externalcustomers; 45 (nearly all Ministry ofDefence agencies) to governmentdepartments; 12 offer mainly researchservices; and 21 are regulators.

7. Some have policy responsibility in their area (e.g. Pesticides SafetyDirectorate); others have operational/process policy (e.g. the Prison Service);others are operational only, or cover onlypart of an operation (e.g. the Army BaseRepair Organisation). Some cover criticalareas of Ministers’ objectives (e.g. theEmployment Service, now replaced byJobcentre Plus), while others bear norelationship to any of the identifiablepolicies of a department (e.g. the QEIIConference Centre). Eight are alsodepartments in their own right, accountableultimately to a Minister in anotherdepartment (e.g. HM Land Registry and theCentral Office of Information).

8. The Ibbs report suggests that 95 percent of civil servants were in executivefunctions in 1988. Since then, the civilservice has reduced staff numbers from570,000 to fewer than 480,000 – a fall of16 per cent – whilst the functions it deliversand the service standards achieved haveincreased. Agency staff now account for277,000 (57 per cent) of Home CivilServants and staff in Customs and Excise,Inland Revenue and the Immigration andNationality Directorate of the Home Officeanother 95,000 (totalling 373,000 oraround 78 per cent).

9. Whilst agencies vary hugely in size,function and significance to keydepartmental objectives, they are only onemodel of executive organisation withincentral government. Others are departments(e.g. Inland Revenue and Customs andExcise), directorates within departments(e.g. The Home Office’s Immigration andNationality Directorate), non-departmentalpublic bodies (NDPBs) (e.g. theEnvironment Agency) and public

corporations (e.g. British Nuclear FuelsLimited). Increasingly, agencies and otherpublic bodies are delivering public servicesthrough partnership or contractualrelationships with private or voluntaryorganisations.

Conclusions

10. The agency model has been asuccess. Since 1988 agencies havetransformed the landscape of governmentand the responsiveness and effectiveness ofservices delivered by government.

11. The management principles thatcreated agencies continue to be highlyrelevant. An agency should be a well-defined business unit with a clear focus ondelivering specified outputs within aframework of accountability to Ministers.The responsibility for performance restsclearly with the chief executive and agencystaff. The focus of the organisation isdownward and outward rather than upwardand inward, as was the case before 1988.

12. Since the model is very flexible andcovers a wide variety of activities, one size –of virtually anything – does not fit allagencies. Meaningful generalisations aretherefore difficult. Except in one respect. All agencies need a clear framework ofgovernance and accountability. As thePublic Services Productivity Panelemphasised, ‘effective accountabilityrelationships are extremely important todelivering high performing organisations’.

13. Some agencies have, however,become disconnected from theirdepartments. The relationship betweenagencies and their departments istherefore at the heart of the review.Despite clear intentions to the contrary andgood examples of working together, thegulf between policy and delivery isconsidered by most to have widened. Thetrust needed to delegate effectively requiresmutual understanding as well as clearframeworks and a ‘no surprises’ rule.

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Without these, agencies cannot deliverMinisters’ objectives or excellent services tocustomers within and outside Whitehall.

14. Many agencies feel disconnected fromthe main objectives of their parentdepartment and other areas of governmentfor whom they deliver services. Thelanguage used illustrates this – many use‘department’ to exclude ‘agencies’ andindeed, the review has found no betterwords to distinguish core policy andsponsorship functions from delivery agents.But the two should be part of an integratedgroup of functions, the whole adding up tomore than the sum of the parts. Mostagencies would strongly welcome anappropriate level of involvement instrategic issues. This need not – indeedmust not – lead to blurred accountability,micro-management or double-guessing.Effectively resourced, it should facilitate:

■ a shared understanding of overall andrelevant cross-cutting objectives;

■ the effective management of risk;

■ the identification of burdens orrestrictions on agency freedoms whichconstrain effective performance at thefrontline; and

■ the development of incentives andrewards to continuous improvementacross the department’s activities.

15. The essential – and in too many casesmissing – ingredient is a strong link to aprocess of intelligent business planningcreating challenging and customer-focusedobjectives, led from the top of departmentsand involving at its core the skills andexperience of those responsible for delivery,and providing the frontline with the tools,authorities, incentives and encouragementto deliver excellent services.

16. Agencies have in the past been treatedas a self-contained project somehowseparate from the business of policy-making. Many are, however, integral tosuccessful delivery of the government’sobjectives. They must play a central role

in all aspects of the work to achieve those objectives.

Effective strategic direction

17. The review’s recommendationsaddress this disconnection.

18. First, a one-off, high-level review ofall delivery agents should take place ineach department to consider whether thecurrent structures, which have grown upover time in an ad hoc way, are capable ofdelivering their objectives and PublicService Agreement targets in the mostefficient and effective way. This could bepiloted as a part of the DepartmentalChange Programme being developed by theOffice of Public Services Reform (OPSR) inthe Cabinet Office.

19. Second, ways should be found tobridge artificial and inhibiting distinctionsbetween policy and service delivery in orderto create integrated, unified approaches todelivering outcomes for customers. Thereview proposes that departments shouldreplace organisation-specific quinquennialreviews with end-to-end reviews of thebusiness processes needed to achievespecific outcomes: strategic policy,legislation, operational processes anddelivery. A methodology for such reviewscould be developed as part of theDepartmental Change Programme.

20. Third, the leadership of departmentsmust be capable of driving the strategicdirection and strategic management of allthe department’s activities. This meansthat the ‘top team’ must harness the mostskilled of those responsible for delivery onan equal basis with those responsible forpolicy development, both contributing tostrategic direction and to an analysis of thestrategic effectiveness of performance. Sincemany of the 127 agencies are not critical to the key objectives of their parentdepartment, only a very few chief executivescurrently or in future would sit ondepartmental management boards. But all

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would benefit from knowing that directknowledge and experience of delivery wasinfluencing the department’s agenda.

21. Fourth, if agencies are to play a fullrole in delivering Ministers’ priorities, aclear line of sight is needed to PublicService Agreements and, where relevant,Delivery Unit targets. Unless the link isclear to each delivery agent within thedepartment, including agencies, there willbe conflicting priorities and a continuingmultiplicity of objectives. Cross-cuttingobjectives must also be specified withinbusiness plans and targets, so that thebalance is clear between those wider aimsand the essential focus on delivery ofagency-specific targets.

22. This would be easier if departmentaland agency target-setting processes werealigned and, where appropriate, timetabledto fit with Public Service Agreement andspending decisions. Some departmentshave achieved more in terms of alignmentthan others but those stakeholders that aresignificantly involved in delivering targetsare not always involved in Public ServiceAgreement-setting negotiations. Theirinvolvement from the beginning wouldresult in a more effective collectiveframework agreed between all parties,including the Treasury.

23. Finally, some agencies are developingwork together on cross-cutting issuesdirected at their joint customers’ needs butdriven by their individual businessobjectives. Forums are needed to enablethose with operational skills to contributeto cross-cutting objectives at both adepartmental and cross-departmental levelin order to consider the priority of wideroutcomes which may cut across their owntargets. Electronic delivery of services andsharing of data is a key area.

Effective agency governance

24. There is currently a confused mixtureof arrangements for creating a strong and

clear link between the department’sstrategic direction of the agency and thechief executive’s responsibility for thedelivery of excellent performance on theground. Most agencies and departmentsconsider the situation to be unsatisfactory,with little clarity of roles for departmental‘Fraser Figures’, Ministerial Advisory Boardsor non-executive directors. The review team believes that what is needed is asimplification of governance models tooversee strategic direction and strategicperformance monitoring and review,relating to the extent to which an agency’sperformance is critical to departmentalobjectives.

25. All agencies require a ‘sponsor’ withintheir parent department who can facilitateMinisters’ consideration of strategicbusiness issues, can set the agency’s agendain the broader context and is capable ofadding value to strategic performancemonitoring. Many NDPBs are currentlysponsored at – and subject to controls from– junior levels in departments even wheretheir effective performance is critical to adepartment’s objectives. They too wouldbenefit from an authoritative seniorsponsor. Although some non-executivesplay a valuable role in relation to strategicbusiness issues, external experience andchallenge is most likely to add value if non-executive directors are involved inagency management boards rather thanthrough the various forms of MinisterialAdvisory Boards.

26. Agencies that are not sufficientlyrelevant to departmental or cross-cuttinggovernmental aims to justify the attentionof a senior sponsor face a vacuum ofgovernance. This leaves the chief executiveboth vulnerable and over-powerful butunder-funded. In other cases, seniordepartmental resources may be distractedand tempted to interfere without addingvalue. In the private sector McKinsey calledthese ‘orphan activities’. They need a‘parent’ within another model ofgovernance, probably outside thedepartment itself.

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Innovative and responsiveperformance

27. Agencies, like most groups oforganisations, show a broad distribution ofsuccess in achieving their targets. Strategicperformance monitoring both within andacross agencies should primarily be theresponsibility of individual departments,not the central departments. It requires aframework for defining accountability; forperformance criteria; for appropriatestrategic management information; forperformance assessment and for response.Skills and flexibilities are needed torespond appropriately to good or poorperformance, adding value by anyintervention rather than interfering. This isas true of the relationship between thecentre of large agencies and local units as itis of that between department and agency.

28. There is a strong view from bothagencies and departments that targets aretoo many, are unprioritised and havelittle link to business objectives orcustomers’ needs; and that authority,rewards, incentives, penalties oropprobrium bear no relation to performance.

29. In reviewing targets, the onus shouldbe on chief executives as well asdepartments to demonstrate that theyprovide a relevant picture of an agency’sbusiness objectives and are challenging andcustomer-responsive. The front line shouldhave as few key targets as possible –wherever possible reflecting measurableperformance against the achievement ofrelevant service standards and linked toincentives to continuous improvement.There is a long way to go to achieve this.However, agencies have much to offerdepartments in this area. Many other partsof departments are now having to use thedisciplines and techniques – for example,project management – that agenciesadopted long ago.

30. In order to identify and reward bestpractice, to provide the incentives to driveup standards more widely and to deal withpoor or stagnant performance, resultsshould be measured, reported and assessedagainst agreed targets and some response isneeded. As well as resources and skills,agencies and departments need aframework of flexibilities to encourage andreward good performance and to takeaction to deal with poor performance. Veryfew agencies are yet using such mechanismsto address performance variations acrosstheir local units and to encouragecontinuous improvement.

31. There is currently no centralinformation or comparative data collectedon agencies’ performance or on whetherfreedoms are effectively delegated and thisis very difficult to collate. Without suchinformation about comparabilities acrossagencies and departments, it will continueto be very hard to identify where agenciesare more or less successful than othersperforming similar tasks or processes.

32. Good practice does exist, as thisreport’s case studies show. However, there isno doubt that all agencies feel distractedfrom their core tasks by repeated requestsfor data with unreasonable deadlines. Datashould be collected once, efficiently and for agreed ends, with defined purposes in mind.

Freedom to deliver excellentservices

33. Many powers have been devolved todepartments in recent years, recognising theimportance of appropriate authority andflexibilities to those taking responsibilityfor delivering effective outcomes. But notall have passed these on to their agencies.Nor are there clear frameworks for relatingrewards or penalties to performance. Thedepartmental board’s business plan for thewhole department and its activities shouldbe the background to the delegated

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authorities and powers as well as the targetsof each delivery agent.

34. The current position on delegatedfreedoms and controls shows confusingand sometimes perverse results. There is astrong tendency for the headquarters ofdepartments to continue to enforcecontrols over inputs in place of systems toensure that outputs are delivering desiredoutcomes. This reduction in managementfreedoms is damaging in terms of ability todeliver and distracting resources at bothends. It may lead to diseconomies of scaleif local managers exercise the little realautonomy they have in relation to supportservices rather than focusing on innovativeand responsive services for their customers.

35. Agencies, like departments, benefitfrom the stability provided by three-yearplans and end year flexibility. Theavailability of the latter too frequently bears no relationship to the forward plansor performance of the agency. Both are essential tools to support excellent performance.

36. Effective delivery needs to be bothflexible and responsive. Agencymanagement must be able to recruit andreward all staff, including senior civil

servants, according to local needs and toplan and manage within broad financialparameters in order to deliver effectively.However, departments are concerned aboutbroader corporate issues. There will becircumstances, for example at times ofmajor restructuring, when central controlsand systems are necessary. And there arecosts in duplicating some services.Nevertheless, these concerns must be setagainst the costs and risks that result whenservices cannot be delivered and these risks managed.

37. The business planning cycle should bethe basis for departments to review the useof delegated freedoms; the availability ofincentives to high performance; and theprocesses and tools for supporting thosestruggling to improve and dealing withpoor performance. Authority and powers should be clearly related to business requirements.

38. The principles enshrined in theserecommendations apply equally to alldepartmental activities, from the delivery of effective policy frameworks to theresponsiveness of support functions, as wellas to the delivery of services from non-agency business units within centralgovernment and to relations with NDPBs.

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The Army Training and Recruitment Agency recruitsand trains all army officers and soldiers. Recruitingfrom 123 sites in towns and cities throughout thecountry and providing training through 40 centres,the agency has an average of around 12,000 officersand soldiers in training at any one time.

1. Most services financed through centralgovernment are not delivered by the corecivil service but by public servants ineducation, health, local government,criminal justice and other areas outsideWhitehall. Nevertheless, central governmentis still responsible for delivering a widerange of services, including areas such associal security benefits, passports anddriving licences. A wide variety oforganisational models deliver the variousoutcomes required by Ministers:

■ directorates within departments;

■ departments running on agency lines;

■ executive agencies;

■ public/private partnerships;

■ offices ‘independent’ of their parentdepartments (such as the Office ofGovernment Commerce and theOffice of the e-Envoy);

■ executive non-departmental publicbodies (NDPBs);

■ government-owned companies; and

■ contracted-out services.

2. Since the 2001 General Election, thePrime Minister’s speeches on public serviceshave outlined the principles of reform thatgo alongside the investment in publicservices to which the Government iscommitted. These principles stem from theoverriding commitment to customers andneed to be applied together in each servicein order for excellent public services to bedelivered. They are:

■ high national standards and clearaccountability;

■ devolution and delegation to the local level to encourage diversity and creativity;

■ flexibility and incentives to encourageexcellent performance at the frontline; and

■ expanding choice for the customer.

3. These four principles will haveimplications for the delivery of governmentservices, particularly with the need to bemore customer-driven. Departments mustbe organised to achieve outcomes for thepublic in the most efficient and effective way.

4. Before setting up a service, or inreviewing current services, departmentsneed to address a number of fundamental questions:

■ Are the proposed tasks essential to thepolicy objectives of the governmentand the department?

■ Does the benefit from them justify thecost of carrying them out?

■ What would be the costs and othereffects of not providing the service?

■ What are the public interest reasonsfor the functions to be carried out inthe public sector?

5. Evidence from quinquennial reviews,the regular reviews that are required of allexecutive agencies and NDPBs, suggests thatdepartments have not always been robustin their dismissal of arguments as to

3Models of delivery

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whether functions should be abolished ordelivered outside government. Clearlymany functions are properly carried outwithin government because of the publicinterest, but there are a number of activitiesthat may now be suitable for the privatesector to take on or for partnerships withthe private or voluntary sectors.

6. Once it is agreed that the public sectorought to be involved in providing theservice, the factor most likely to influencethe final choice of model is the need forministerial involvement or the value ofindependence (or perceived independence)from Ministers. Where independence fromministerial involvement is desirable, anNDPB, with its statutory statement of aimsand independent board, will probably bethe best option.

7. Where the functions or servicesinvolved are especially politically sensitive,Ministers will wish to be kept aware ofdaily operational decisions. In many casesthis will tip the balance towards providingthe service directly through a department.The options are:

■ a departmental directorate;

■ one of the new models developedsince 1997 such as the Office ofGovernment Commerce, or the Officeof the e-Envoy; or

■ an agency.

8. In the majority of situations, executiveservices within departments are not highlypolitically sensitive and it is neither realisticnor appropriate for Ministers to takepersonal responsibility for the day-to-dayrunning of the function. In this case anagency will be the best solution. The agencymodel is sufficiently flexible andaccountable to make it the best choice fordelivering most central governmentservices. Currently most executive functionswithin government departments are carriedout by agencies.

9. However, there are still a number ofexecutive functions delivered internallywithin departments. The Immigration andNationality Directorate (IND) is oneexample of a large executive function that is not an agency. Agency status was thoughtinappropriate for a number of reasons,including a link between policy andoperations, political sensitivity and theproblems the service encountered in thelate 1990s. However, some agencies do nowcarry policy responsibilities. The reviewsuggests that the Home Office shouldconsider whether IND would benefit fromthe disciplines and focus of agency status.

10. Since 1997, the Government hascreated alternative models such as theOffice of Government Commerce and theOffice of the e-Envoy. These organisationsare carrying out functions that arecompletely new and, alongside providingservices to government departments, theyare also involved in developing andenforcing government policy throughoutWhitehall. Run by senior civil servantsreporting directly to Ministers or PermanentSecretaries, this appears to be anappropriate mechanism for an enablingrather than a delivery function within government.

11. There has not always been a clearrationale why some services are deliveredby agencies whilst others are delivered byNDPBs with independent boards. Sinceagencies were created, there have beenfurther developments in deliveringgovernment services, such as public privatepartnerships and contracting out.

12. A one-off review of agencies and otherdelivery vehicles, carried out as part of theDepartmental Change Programme, wouldensure that appropriate structures are inplace. These reviews should cover adepartment’s entire ‘landscape’ of deliverybodies but take account of other relevantwork, such as recently completed studies ofthe organisations or functions concerned,in order to avoid duplication.

16

The agency model

13. Agencies vary hugely in size, nature ofcustomer and financial regime (see AnnexA). In addition, some are departments intheir own right. Therefore, ‘one size fits all’solutions will not work. Nevertheless,common features include:

■ a clearly defined business boundary;

■ a focus downward and outward ondelivery within an agreed frameworkof accountability;

■ financial and personnel flexibilities toget the job done;

■ a chief executive with personalresponsibility and accountability foroperational decisions; and

■ a published annual report andaccounts, including a review ofperformance against targets.

Have agencies been asuccess?

14. The 1988 Ibbs Report suggested thatthere was insufficient focus on the deliveryof services (as opposed to policy andministerial support), even though at thattime 95 per cent of civil servants worked inservice delivery or executive functions.There was a shortage of management skillsand of experience of working in servicedelivery functions among senior civilservants. Short-term political prioritiestended to squeeze out long-term planning.

There was also too much emphasis oninputs and spending money, and notenough on getting results. While theintroduction of financial management andmanagement information systems had beena start, real changes in attitudes andinstitutions were needed to get the fullbenefits of better management.

15. The creation of ‘Next Steps’ executiveagencies brought about dramaticimprovement in all of these areas.Undoubtedly there is still much to do but,over a whole host of government services,there have been genuine improvements incustomer service, and an increased focus onresults and business planning.

16. In the review team’s view, theseimprovements have indeed come aboutbecause of the characteristics of the agencymodel, including:

■ clarity and focus on specified tasks;

■ a culture of delivery;

■ empowerment of frontline staff;

■ greater accountability and openness;

■ tailor-made structures and systems;

■ innovative thinking and action;

■ structure and branding of services;

Recommendation 1The agency model has changed the landscape ofgovernment. Extremely flexible, it provides themost responsive and accountable framework fordelivering executive functions from within centralgovernment. As a one-off, high-level review,departmental delivery mechanisms should beevaluated as part of the Departmental ChangeProgramme to ensure that they are appropriateto the tasks required today and that effectivegovernance structures are in place.

17

Examples of service improvementssince agency status

Companies House has reduced the number of days takento process documents from 25 to four. Their unit costshave fallen by 18 per cent over the three years to 2001.

HM Land Registry has reduced its fees by 40 per cent andachieved a 40 per cent improvement in efficiency since itbecame an agency in 1990.

Prior to 1991, when the UK Passport and Records Agencywas established, it took on average 95 days to process apassport. The average figure now is ten days.

■ greater focus on risk management; and

■ problems exposed, not hidden.

17. Measuring success is notstraightforward in the public sector. Servicesare usually monopolistic and demand forsome can fluctuate depending on generaleconomic conditions. Measures of successthat have been used include reducingexpenditure, unit costs and turnaroundtimes. Additionally, many agencies havewidened the choice available to customers,such as providing enhanced services for asmall additional cost.

18. Until 2000 the current Governmentand the previous administration publishedan annual White Paper listing the targets ofevery agency. This factual information wasaccompanied by an analysis of the targets.By the financial year 1998/99 it showedthat over 75 per cent of targets were beingmet or exceeded and that agencies wereincreasingly focusing on ensuring that theyhad the right targets in place. However, italso highlighted a number of areas ofconcern which included:

■ too many targets set below the level ofcurrent performance;

■ too many targets reflecting internalprocesses rather than outputs andoutcomes; and

■ too few measures of real efficiency.

19. Other complaints that have beenhighlighted include:

■ agencies not always working intandem with other organisationswhere it would improve overall services;

■ a ‘silo mentality’;

■ too much focus on inputs andprocesses and not enough interest in outcomes;

■ ministerial and parliamentary disquietabout the accountability regime; and

■ the use of agency status as a routeto privatisation.

20. None of the above issues areinsurmountable and the flexibility of theagency model demonstrates that they canbe overcome. A number of agencies areworking across boundaries to offercustomers a seamless service in areas suchas parts of the criminal justice system or inrelation to buying a house. An agency’s keytargets are published annually, as are itsannual report and accounts. Because of itstransparent structure, problems in anagency are more exposed than in parts of a conventional department.

21. Far from being a route to the privatesector, no agency has been privatised since1997 and the total number of privatisationsis very small in proportion to the totalnumber of agencies. However, like otherorganisations, agencies are identifyingfunctions for outsourcing or contractualrelationships with the private sector.

22. Whilst some improvements thatagencies have made could have happenedanyway, particularly as a result oftechnological developments, the evidencefrom those executive functions left withindepartments suggests that agencies areahead in terms of developing technologyand of focusing on users and the need todeliver efficient and effective services.

18

Adapting to changing demands

National Savings, which is in a competitive market,decided that if it was to be able to compete and growthe business, then it had to outsource its corefunctions to bring in much needed capital investment.The Agency now employs directly just over 100 staff,who manage the contract and give the businessstrategic direction, whilst around 2,000 staffpreviously employed directly are now employed bySiemens Business Systems.

Types of agencies

23. Agencies are a diverse group oforganisations (see Annex C). Some arecentral to key departmental objectives,whilst others are very marginal to suchoutcomes. Some are responsible fordelivering one specific service, othershave a mixture of policy and deliveryresponsibilities, whilst others provide partof a supply chain in the delivery of otherservices. With this in mind, is there anyevidence to suggest that a particular agencymodel has performed better than others?

24. Like many other aspects of agencyperformance, there is a scarcity of data.However, through the evidence gatheredfrom interviews and looking at the variouschanges made to a number of agencies overthe last ten years, it is possible to drawsome general conclusions as to whichvariants of the agency model have beenmore successful in delivering consistentlybetter services.

25. It was probably no accident that thefirst tranche of agencies to be created wereresponsible for delivering straightforwardservices such as MOTs, driving licences andthe registration of land ownership. Thesewere about focusing on a specific job to bedone within a clear boundary. However, asthe number of agencies and variants in themodel grew, this clarity of purpose becameless apparent.

26. Agencies like Companies House or thePatent Office, which are discrete businesses,have a large degree of autonomy as tradingfunds and because they are removed fromthe main day-to-day business of theDepartment of Trade and Industry.At the other end of the spectrum was theBenefits Agency, which was central to theagenda of its parent department and whichdelivered a very wide range of products toalmost the entire population.

27. In the case of the Benefits Agency(which, with around 70,000 staff was largerthan any government department except forthe Ministry of Defence (MoD)), the businesswas too diverse to bring a clear focus on what was required to deliver a consistentlyhigh-class customer service. With hindsight itmight have been better if a number ofseparate agencies had been created to focuson, say, pensions or child benefit. This is thesolution that the new Department for Workand Pensions is now adopting, although only four of their seven business units willhave executive agency status.

Research Internal service delivery

Regulation External service delivery

Primary function of non-MoD agencies

12

14

21 44

Internal service deliveryResearch

Regulation External service delivery

Primary function of agencies

12

49

45

21

19

127 agencies

91 agencies

28. The MoD created a large number ofagencies. Many deliver support functions tothe Armed Forces and are usually structuredon service lines. The structure anddelegations of the majority of MoD’sagencies differ from those of other agenciesbecause they are part of the military chainof command. Whilst many of the agenciesbrought a welcome business focus to thesefunctions, the boundaries were largelybased on existing organisational structures,which in some cases resulted in artificialinterfaces within a single business process.MoD has since rationalised a number oflogistics agencies to bring together thedelivery of similar functions, and is carryingout a number of end-to-end businessprocess reviews which will look afresh atsome agency boundaries.

29. A number of departments with mainlyexecutive functions, including InlandRevenue and HM Customs & Excise, didnot become agencies but were designated as‘running on agency lines’. This was acompromise because the statutoryframeworks of these departments were

unsuitable to the classic agency model,although the executive areas of thedepartments had many of the attributes ofagencies. Both these departments are inthe process of reorganisation to focusfunctional commands on the needs ofspecific user groups.

Conclusion

30. Agencies have delivered improved andmore transparent services and created aperformance culture that did not previouslyexist in the civil service. In some cases,focus and purpose have been brought toparts of the government service previouslyinvisible to Ministers. Agencies mustcontinue to show that they can adapt tochanging markets and customer demandsand to contribute to wider corporate andcustomer objectives which go beyondorganisational boundaries. The model isflexible enough to support this so long asstrategic directions and strategicperformance management are clear.

20

The Forensic Science Service is an internationallyrecognised centre of excellence for forensic caseworkand research. Its caseload has nearly trebled in thelast ten years and in 2001–02 it supported 135,000investigations, helping to sustain and improve thecriminal justice system for the benefit of all its usersand the public as a whole.

‘The policy role is what Ministers value. The agencyshouldn’t have the lead on policy – policy and deliveryfunctions are different – but should have a hand in it.The trick is to make the policy makers and delivererswork effectively together.’Agency chief executive, autumn 2001

‘I would resign rather than become part of adepartment – the culture would stop me from doingmy job.’Agency chief executive, autumn 2001

‘Second-guessing agency management onoperational/organisational management issues willnot be productive.’Agency chief executive, autumn 2001

‘You cannot address the issues affecting agencieswithout addressing the lack of management andskills in the departments.’Ex-senior civil servant, autumn 2001

Introduction

1. The previous chapter discusses thevarious models for delivering services andconcludes that agencies will continue toplay a vital role. But the choice of modelwill ultimately depend on which will bemost effective in delivering the particularhigh-level outcomes desired, whetherexpressed in Public Service Agreements or in wider departmental objectives. The outcome sought must determine the structures put in place to support its delivery.

2. This means that departments and theiragencies will need to break down barriers,

formal or cultural, between making policyand delivering services. The different skillsinvolved in each are vital for the design anddelivery of successful strategies, and thoseinvolved in such work need to improve thecommunication and mutual understandingof their different perspectives.

3. The principles of public service reformapply to departments and agencies equally.Both should:

■ operate within a framework ofstandards and full accountability;

■ devolve decisions and power to thelocal level wherever possible toencourage diversity and creativity;

■ be flexible in their approach to howthey encourage innovation andexcellence at the front line of servicedelivery; and

■ promote greater choice andresponsiveness to the public.

4. This chapter discusses:

■ the departmental governance andleadership required to define andsupport delivery of outcomes; and

■ simplifying agency governance.

Effective departmentalleadership

5. The reforms that created agenciesinvolved the deliberate separation of policyand delivery functions so that each wouldbe better able to focus on the task at hand.

4Achieving strategicdirection

21

In order now to achieve defined outcomes,departments must reorganise themselves tofocus on the delivery of joint and integratedprogrammes of work. The skills andexperience of those involved inimplementation must be brought alongsidethose developing policy and legislativeframeworks to support effective delivery. Yet skills in implementation are not alwaysequally valued and effective dialogue is notalways present. Delivery experience canmake an important contribution to thedevelopment and implementation ofdepartments’ strategic plans.

Departmental boards

6. As a result of the new emphasis onachieving outcomes and in order to leadthe strategic direction and strategicmanagement of all the department’sactivities, the ‘top team’ needs to harnessthe entrepreneurial and managementexpertise of those responsible for delivery.Those on departmental boards, whatevertheir skills and experience, need to bring astrategic and corporate attitude to theirparticipation and not just represent theinterests of their part of the organisation.

7. Departments’ corporate andleadership structures should bring togetherkey departmental commands and agencieson an equal basis to plan and manage theachievement of outcomes sought to:

■ set corporate objectives and standards;

■ review success against deliveringcritical outcomes and manage risks;

■ ensure that performance and projectmanagement systems and disciplinesare in place; and

■ encourage success and deal with poorperformance at a strategic level.

Filling skills gaps

8. The review has found that, over time,some departments and agencies havebecome disconnected; agencies havepursued their own agendas and have grownapart in outlook and areas of interest.Leadership is needed on both sides toensure that they cohere and work towardsshared aims and objectives. Skills must be developed if communication is to be effective.

9. Agencies must ensure that theyunderstand the environment in whichMinisters operate and must take steps towork out and communicate to staff theagency’s role in delivering Public ServiceAgreement outcomes as well as widerdepartmental objectives. Departmentalmanagement must be capable of strategicplanning for outcomes sought and ofbringing added value to strategicperformance review.

Recommendation 2Delivery experience is rarely found at the heart ofdepartments. Departments’ leadership structuresmust be built around the skills and experience ofdelivery as well as policy in order to plan andmanage all aspects of achieving outcomes forcustomers.

22

Involving delivery skills in strategic planning ondepartmental boards

The Departmental Board of the Department for Work and Pensionsprovides leadership and support for the Permanent Secretary onsupervisory and strategic issues. Membership comprises bothexecutives, including the chief executives of the Department’s keybusinesses, and non-executives. Almost all executive members of theBoard have substantial experience of managing delivery functions.

The Management Board of the Department for Environment, Food andRural Affairs is built around the Department’s main areas of businessand three professional areas (science, veterinary advice and legalaffairs). It also features a new post of Director General for Operationsand Service Delivery, who is responsible for improving and joining upservice delivery across the Department, including relationships with keynon-departmental public bodies (NDPBs) and agencies. Its non-executive directors include the Chief Executive of the Countryside Agency(an executive NDPB).

10. Integrating policy and service deliveryto achieve specified outcomes requires achange in the way policy-making andservice delivery are approached. The IbbsReport highlighted the different skills thatwere needed for policy and service deliveryand made proposals to enhance theexperience of both in senior civil servants.If anything, the gulf between the two haswidened since 1988, with both areasrequiring increasingly sophisticated and farfrom interchangeable abilities. Thesuccessful delivery of outcomes will requirethat both are understood and equallyvalued and that skills gaps are filled bythose with more than a passing knowledgeof these very different areas.

11. Much has already been done, forexample as a result of the Civil ServiceReform programme, to modernise the civilservice for the new challenges it faces.Diversity has improved, as has theproportion of the Senior Civil Service withsome experience of service delivery or ofworking outside their parent department.Nevertheless there are few examples ofsuccessful managers of agencies or NDPBswho have attained the highest ranks in Whitehall.

12. Many of those interviewed during thereview suggest that cultural factors continueto prevent the full involvement in strategyand policy development of thoseresponsible for service delivery. Servicedelivery is still seen as lower in status thanpolicy work. These are perceptions that areshared by those in departments andagencies alike. A lack of a commonunderstanding continues to mean thatjoined-up and user-focused delivery is notat the centre of Ministers’ and departments’thinking and planning.

13. Consistent and reinforced messagesand strong leadership will be needed tochange this. Action to monitor and reportimprovements (for example, in the numberof service deliverers in key senior posts and in interchange at all levels) is needed.But recognition of the value of the separate

skills and experience of those with a careerin delivery is essential if they are to play afull part in future leadership teams and instrategy development.

14. Recruitment, promotion, successionpolices and training and developmentprogrammes should be designed to requirethat staff are properly equipped for theirfuture roles. Better arrangements for jointworking would help to break down barriers,merge differing cultures and introduceproject disciplines into the centre ofdepartments. Examples of such arrangementsare: co-locating staff involved in servicedelivery and policy-making; and projectteams of staff with service delivery and policy backgrounds.

15. There is much criticism by agencies of departmental sponsors (whose role isdiscussed in more detail later in thischapter). These key people require a goodunderstanding of implementation if theyare to add value in managing therelationship between the department andthe agency. No one should take on anagency sponsor role unless he or she hassignificant direct experience of deliveringservices or has support from people whodo. Equally, agency chief executives requiresome understanding of the politicalpressures on Ministers and departments. Ifthey are recruited from outside Whitehall,they may find it valuable to bring in staffwith experience of working with Ministers.

16. The centres of departments need realskills in order to add value in managingstrategic performance. Permanent Secretarieshave a full role in day-to-day support ofMinisters and leading their departments.Performance assurance, risk management andthe development of cross-cutting initiativesand programmes all need to be resourcedeffectively and perhaps led by nominatedmembers of the top team, including by keydeliverers. There may be a case for a chiefoperating officer, with personal experience ofthe challenges of implementation, beingresponsible for supervising service delivery

23

across the department as a whole, or settingup a unit to act as a focal point for all adepartment’s agencies.

17. Whilst any embarrassment within thegovernment service can cause difficulties,the overwhelming majority of agenciesnormally operate in areas that are nothighly visible to the public and arerelatively free of media and politicalattention.

127 agencies

18. Yet concern has rightly been expressedat the impact of agencies when things gowrong. It has been suggested that in thosecases where chief executives have met theirtargets and yet political embarrassment hasbeen caused by a service failure, then theremust be something wrong with the agencymodel. There is general agreement acrossWhitehall and agencies that this is tomisunderstand the role of chief executives,Permanent Secretaries, Ministers and also of targets.

19. It is not the role of targets to definecomprehensively the chief executive’sresponsibilities. They provide importantclarity over objectives, clear prioritisationand a basis for measurement ofperformance and reporting. They do not

in any way reduce the chief executive’sresponsibility to ensure that he or sheunderstands Ministerial objectives andthat significant risks to them are discussedand managed actively, both with thePermanent Secretary or sponsor and, asnecessary, with the Minister. Lessons havebeen learnt and applied in all the high-profile cases of the last decade.

20. The ‘no surprises’ rule requires chiefexecutives to have sufficient awareness ofthe realities of government to spotpotential problems and to be able toensure that Ministers are sufficiently awareof emerging issues. Evidence suggests thatthe biggest single problem for many chiefexecutives in the area of governance andaccountability is the lack of ability toinvolve the Minister in the activities of theagency unless or until a crisis blows up.This underlines the importance of aneffective departmental sponsor. (The roleof sponsors is discussed in more detail inparagraph 26 et seq.)

Cross-cutting forums

‘All our partnerships and joint initiatives are led byour business and owe nothing to any central “joining-up” initiatives.’Trading fund chief executive, autumn 2001

‘There is much more joining up on day-to-day mattersthan on strategic ones.’NDPB chief executive, autumn 2001

21. New structures below departmentalboard level are being created to facilitatethe better integration of policy and servicedelivery. These include bringing policy andservice deliverers together at senior level injoint strategy boards with or withoutMinisters. Further down the managementstructure, project teams drawn fromdifferent areas of departments and agencieswork together on designing andimplementing policy.

22. Agencies already work together onjoint services in response to businesspressures. Effective delivery of outcomes

Agencies – public visibility

Num

ber

of a

genc

ies

Low visibility High visibility

24

No surprises

‘Departments should have arrangements for them to be alerted tosignificant problems affecting service delivery and quality in theiragencies without becoming involved in day-to-day management.’

Source: PAC 24th Report 1999-00: The Passport Delays of Summer 1999(House of Commons, June 2000)

also means new arrangements for jointworking between departments and agencieswith overlapping interests, as well as actionto counter the tendency of organisations towork without reference to wider objectives.

Simpler agency governance

23. Ministers require confidence thatagencies are playing their part in meetingstrategic objectives in order to allowagencies sufficient freedom to carry outtheir functions in the most effective way fortheir customers and without undueinterference. In order that trust developsand is sustained and innovation andcreativity can flourish, there needs to beclear governance of the relationshipbetween the department and the agency to provide:

■ two-way dialogue and understanding,ensuring no surprises;

■ shared strategic direction;

■ meaningful, stretching but achievabletargets;

■ risk assessment and management; and

■ effective strategic performancemonitoring and review.

24. A framework document that is tenyears old is not likely to achieve this.Without regular care and attention,maintenance and adjustment, any system ofgovernance is at risk of becoming neglectedand irrelevant. Governance arrangementsshould be reconsidered on a regular basis

Recommendation 3The different skills needed for excellence in policyadvice and in service delivery are not yet valuedequally. Mutual support is essential and both areintegral to achieving outcomes effectively.Departments and agencies must work togetherto bridge the gulf between policy developmentand implementation and to fill high-level skillsgaps in departments and agencies.

25

Co-ordinating the work of agencies – the Driver,Vehicle and Operator (DVO) Group

The DVO Executive Board was launched in 1999 to provide a strategicframework for, and improve the services of, the four agencies of the thenDepartment for Transport, Local Government and the Regions thatprovide services to motorists – the Driving and Vehicle Licensing Agency,the Driving Standards Agency, the Vehicle Certification Agency and theVehicle Inspectorate – and the department’s Traffic Area Network. TheExecutive Board has a chairman at director level from the departmentand comprises the chief executives of the four agencies, the head of theTraffic Area Network and two non-executive directors. The ExecutiveBoard is guided by a DVO Advisory Board under the Director General ofPlanning, Roads and Local Transport. The Advisory Board’s membershipincludes representatives of the Treasury and the Office of the e-Envoy aswell as relevant policy-making directors.

The Executive Board is actively supported by the core department and asecretariat funded jointly by members. It has agreed a strategy for thenext ten years and a programme of work to achieve e-enablement of allits services by 2005. Initiatives completed to date have producedsignificant improvements for customers, including IT projects to linkwebsites and provide joint call handling, publishing joint publicationsand supporting a programme of staff exchanges across the group. An Internet-based service for booking and paying for driving theory tests was launched in January 2002.

Integrating policy and service delivery in thecriminal justice system

The Prison Service is key to delivering the high-level objectives of theHome Office. Recognising strong Ministerial interest and the need forclose integration with policy-makers and other parts of the criminaljustice system, a Joint Strategy Board for Correctional Services, chairedby the Prisons Minister, was introduced to provide a forum for discussingthe strategic direction of services. Membership comprised the directors ofthe Prison Service, the Probation Service, the Director of Criminal PolicyGroup and non-executive directors appointed by the Home Secretary.

The structure has been amended recently to provide a more effectiveresponse to the Government’s commitment to improve provision for youngadult offenders. The new structure will set the strategic direction forservices, ensuring coherence between business planning within eachservice. The new board will be chaired by the Minister for CorrectionalServices, supported by the Permanent Secretary, with membershipincluding the heads of policy and service arms and non-executive directors.

to ensure that they continue to produce thetrust and confidence needed by Ministers, the department and theagency. Chief executives and Ministersshould be expected to review theframeworks at regular intervals, if only toendorse them as of continuing value.

25. Good governance should remove the temptation for Ministers or thedepartmental board to micro-manage.However, unless a Minister or senior officialis properly engaged in agency issues, avacuum of governance will occur. Ministersmust engage formally with each agency atleast annually to endorse targets anddiscuss risks and their management; manywill need or wish to do so more frequently.

Departmental sponsors

26. There is currently a confused mixtureof arrangements for creating a strong andclear link between a department’s strategicdirection of an agency and the chiefexecutive’s responsibility for the delivery ofexcellent performance. These includesponsoring officials, who tend to be eitherthe head of the relevant policy directorate

or of a central agency monitoring unit (andwho have become known as ‘Fraser Figures’after the report into agency governance bySir Angus Fraser that first suggested the role– see box). They sometimes chairMinisterial Advisory Boards, bringingtogether key agency executives withexternally appointed independent directors.

27. There is much variation in the rolesplayed by ‘Fraser Figures’ and someconfusion about their position. Somedepartments have no ‘Fraser Figure’, whileothers have several. Whilst over a third ofagencies now have them, a significantnumber of chief executives are unclearabout the ‘Fraser Figure’ (or equivalent)function and its relationship with anyMinisterial Advisory Board.

Based on 85 questionnaire responses

28. The review team believes that a cleardepartmental focal point at a senior level isneeded for each agency (and, for thatmatter, every NDPB). The best term thereview team has found to describe this roleis ‘sponsor’, although a number ofalternatives to it have also been considered.‘Mentor’ (in the sense of ‘senior and trustedadviser’) comes close but might suggest thatthe mentor outranked or was in some otherway senior to the chief executive, while theaim should be a partnership between thetwo. The sponsor should have the skills andexperience to take on strategic performancemonitoring, to facilitate Ministers’consideration of strategic business issues

Governance regimes

0

10

20

30

40

Tradingfund

Supply – fullyfunded

Supply – netfunded

Fraser Figure Ministerial Advisory Board

AgencyManagement

Board

Num

ber

of a

genc

ies

9

1511

812

39

24

14

7

26

‘Fraser Figures’

‘Departments have to establish arrangements for providing advice andsupport to Ministers in relation to their Agencies. It is very important thatthese arrangements match the personal responsibility and accountabilityexplicit in a direct relationship between the Chief Executive and theMinister. There needs to be a focal point within the Department both forchallenging the performance of the Chief Executive and for supportingand facilitating his work in meeting his objectives and key targets. Thosecarrying out this task must combine knowledge of the Minister’s policieswith successful management experience. They must be able to speak tothe agency for the department as a whole and advise the Minister on allareas of interest relating to the agency. We see their function as beingvery different from that of the traditional Civil Service line manager. In the private sector we found that such a role was exercised through asingle senior individual in the centre of the organisation who was able todevelop a personal relationship with the Chief Executives of the operatingunits and had a stake in their success.’

Source: Fraser Report (paragraph 2.12), 1991

and to set the agency’s agenda in thebroader context.

29. Some agencies (such as the PublicRecord Office and HM Land Registry) aredepartments in their own right, with theirown aims and objectives. The sponsorshiprole here should focus more on supportingcommunication, liaison and integrationthan on the setting of strategic direction,for which the chief executive will remaindirectly accountable to Ministers. Whilstthere should be no need to interpose asecond opinion between the chief executiveas senior adviser and the Minister, theremay be a role for a Whitehall sponsor able

to bring together cross-departmentalinterests and to provide constructivechallenge to strategic performance.

30. NDPBs also need sponsors at asuitably senior level. Because NDPBs havetheir own statutory framework for, and an independent board to oversee, theiractivities, the sponsorship role here will beless to do with the direction of the NDPBand will focus on communication, strategicperformance management and theallocation of resources. All sponsors,regardless of the type of body with whichthey deal, will need a similar set of skills,experience and competences.

31. The sponsor might be the PermanentSecretary in the case of a very few majoragencies but is more likely to be thedirector of the relevant policy area or thehead of an agency sponsorship unit.

32. The review has heard conflicting viewson whether chief executives shouldcontinue to report directly to Ministers onthe management of day-to-day operationsor whether they should in future report tothe Permanent Secretary. All agree thatMinisters must set strategic frameworks for,but cannot be personally responsible for,day-to-day operations. The PermanentSecretary is clearly responsible for thetotality of a department’s resources so as todeliver its specified outcomes, through theeffective combination of policy and servicedelivery. The chief executive, unlike mostdepartmental officials, is publicly andvisibly accountable for a defined area ofactivity. The key question is whetherchanging reporting arrangements foroperational matters would benefit orhamper the delivery of outcomes andimprove or further challenge these keypersonal relationships.

33. The current arrangements for agreeingthe strategic direction of agencies and theaccountability of chief executives foroperations are consistent with the principleof public service reform that, within

27

Sponsors – role, skills and competences

The sponsor should not attempt to double-guess the chief executive onmatters within their authority but should provide a wider perspective onthe agency’s work.

The sponsor will be a senior (i.e. not below Senior Civil Service level)official with responsibility for:

■ developing and advising Ministers on the strategic direction ofthe agency in the context of wider departmental or cross-governmental objectives;

■ agreeing a framework for strategic performance management;

■ advising Ministers on their response to strategic performanceinformation;

■ advising the chief executive on steering the agency’s activities to ensure that they most effectively support the delivery ofdepartmental objectives; and

■ ensuring the agency has the delegations and authoritiesnecessary for effective delivery and continuous improvement.

The sponsor will need the skills and competences to add value through:

■ understanding and experience of the needs of delivery andbusiness opportunities;

■ experience of dealing with Ministers;

■ knowledge and understanding of cross-governmental objectives;and

■ providing constructive challenge to the management of the agency.

suitable frameworks, authority over andresponsibility for decisions should,wherever possible, be delegated and madecloser to the front line of service delivery.

34. All recognise that in practicePermanent Secretaries’ rights in relation toall departmental activity could be invokedat any time. They also agree that any goodchief executive should seek to involve thePermanent Secretary on important issuesand before things go awry. Similarly, thePermanent Secretary should seek to ensurethat the chief executive is consulted andinvolved in key corporate decisions. Mostalso agree that if reporting arrangementswere to be changed, chief executives shouldretain a ‘right of audience’ with Ministers.

35. Those in favour of making chiefexecutives accountable to the PermanentSecretary see this as reflecting his or herresponsibility to ensure that the departmentis properly structured and organised todeliver the outcomes specified by Ministersand, to enable this, to ensure that thedepartment delegates effectively and joinsup where appropriate.

36. Those against a change point to the benefits that arise from focusingaccountability for operational matters onthe chief executive. Blurring or making morecomplex the lines of accountability, theyargue, would increase risk aversion. Second-guessing of operational decisions wouldbecome more likely, reducing the agency’soutward and customer focus, slowingdecision-making and reducing businessidentity. The change would represent abackward step and confuse accountabilities,especially in relation to ministerial andAccounting Officer responsibilities, wherethe National Audit Office and the PublicAccounts Committee have developed a clearunderstanding of the nature of the personalresponsibility of the chief executive foroperational decisions.

37. Departments are at different stages ofadapting to the new focus on deliveringoutcomes. Some (for example, the

Department for Work and Pensions(DWP)) have already reorganisedthemselves to ensure that the seniormanagers of policy development andservice delivery come together in adepartmental board with strategic oversightover all the department’s activities. Othershave yet to act. The review team believesthe priority for departments is to ensurethat their top teams have the right mix ofskills and experience to manage this workand that changing reporting lines betweenchief executives and Ministers mightconfuse this. It therefore sees no need torecommend changing the establishedarrangements that chief executives shouldreport to Ministers.

38. Agencies that are not sufficientlyrelevant to departmental or cross-governmental aims to justify the attentionof a senior sponsor face a vacuum ofgovernance. This is likely to leave the chiefexecutive both vulnerable and over-powerful but also under-funded. In othercases, senior departmental resources may bedistracted without adding value. In theprivate sector, functions no longer relatedto the parent organisation have beentermed ‘orphan’ activities. Othergovernance arrangements – including achange of status – may need to beconsidered for agencies in suchcircumstances.

39. Some such agencies might better beNDPBs, with effective direction andgovernance provided by an independentboard. Some functions might be privatisedor outsourced or, if the need for them nolonger arises, simply stopped. It will becrucial to plan for a change of status well inadvance. For example, markets for servicesmay need to be found and developed toensure the long-term survival of functionssuch as research facilities.

Steering and advisory boards

40. Supplementary arrangements foroverseeing strategic direction andperformance monitoring and review may

28

be established and are likely to relate to theextent to which an agency’s performance iscritical to departmental objectives. Thevariety of agencies means that one solutionwill not fit all and it should be fordepartments to decide on the precisestructure of governance arrangements aslong as the key principles of governance aremet: shared strategic direction; meaningful,stretching but achievable targets; riskassessment and management; and effective,high-level performance monitoring andreview. However, the current variety ofboards with no clear role or authorityconfuses rather than supports strategicdirection and accountabilities.

41. A few agencies that are politicallysensitive, very highly visible to the public orotherwise core to a department’s activitiesmay require a formal forum, such as aSteering Board chaired by a Minister, toconsider strategic issues, and perhapsparticularly to focus on those which gobeyond the agency’s own boundaries.

42. However, the more usual MinisterialAdvisory Boards, which are currently used byaround one-third of agencies to bring inexternal, strategic advice to Ministers andchief executives, cannot give direction inplace of the Minister. In this regard their roleis quite different from that of the board ofan NDPB. This review suggests that noagency needs both a Steering Board and aMinisterial Advisory Board and that in mostcases non-executive directors play a moredirect and valuable role on managementboards and on departmental stakeholderboards.

Non-executive directors

‘At the beginning we were all very unclear as to ourrole and responsibilities on the Ministerial AdvisoryBoard – were we there because of our own personalcompetencies or because we represented an interest group?’Non-executive director, autumn 2001

‘Most of the Board did not understand civil serviceculture well enough to be effective in the early days –

crucially this included the chief executive. Theycouldn’t advise the chief executive on how to dealwith cultural issues and the chief executive had noWhitehall network.’Non-executive director, autumn 2001

43. Non-executive directors orindependent members are used on manyDepartmental Boards, Ministerial AdvisoryBoards and agency management boards tobring outside expertise or a differentperspective.

44. Evidence from non-executive directorssuggests they have difficulties inunderstanding the tensions that arisethrough having to meet business concernswhilst functioning in the public sector. Thisstems from an initial lack of clarity abouttheir roles and responsibilities and what isexpected from them, often combined witha lack of knowledge of Whitehall andParliament. They also consider theirpotential strategic role is often squeezedout by lack of time in meetings, where toomuch emphasis is placed on detailedperformance management and too little onstrategic direction. While part of their roleis to provide challenge and stretch toagency targets and performance, thepotential of their wide and varied expertiseis not always put to full use.

45. Non-executive directors should besupportive, advisory and enabling. Theyshould provide advice in ways that willhelp the department and the chiefexecutive. They have a key role insuggesting challenging and customer-focused targets for the agency andinnovative approaches to their delivery.However, they have neither the powers ofdirection nor the liabilities of members of aprivate company or an NDPB board.

46. Many boards have been set up in thepast without clarifying what each of theirindependent members can expect of theiractivities and what the independentmembers are expected to contribute.Independent directors should have a clearlydefined role and responsibilities and clear

29

lines of accountability. A planned andpersonally tailored induction may behelpful in making the best use of theirexpertise, knowledge and skills.

Framework documents

47. Agencies’ framework documents setout the responsibilities of the Minister,department and chief executive andarrangements for liaison, reporting andperformance assessment. These valuabledocuments clarify accountabilities,responsibilities and activities and arerecognised by Parliament as defining arelationship that is different from that ofthe usual department official. They havehistorically been stand-alone documents –statements of the contract between agenciesand Ministers – and not set in the contextof the department.

48. Alternatives to framework documentsfor each agency – frameworks that applyacross a whole department – are beingdeveloped in two service-orienteddepartments, the DWP and the Ministry of Defence.

49. Framework documents definingdegrees of involvement and accountabilityneed care and maintenance if they are toremain relevant and of value. Manyframework documents have not beenupdated to reflect changes in ministerialdirection, customers’ needs or controlframeworks since they were first drafted.They focus on the role of the agency morethan that of the department and do nottake account of the cross-cutting issues thatmay be a priority today. Many lack detailsof how risks are to be assessed andmanaged and how conflicts are to beresolved. Most do not address theindividual business needs of the agency.

50. Framework documents need to bereviewed and brought up to date, as doesthe guidance on developing them. It isimportant that they remain an accuratestatement of responsibilities so that allthose involved are clear about what theyhave to do. However, they should also beliving documents, tailored to the businessof each agency, rolled forward as plansdevelop and endorsed by the currentministerial, departmental and agencyleadership.

Recommendation 4The maintenance of simple, clear frameworks thatadd value and ensure active strategic engagementwith each agency are essential to effectivegovernance. All agencies should have:

■ at least one discussion a year with theirMinister;

■ a senior sponsor within their parentdepartment to provide strategic directionand strategic performance management;

■ a two-way ‘no surprises’ rule;

■ external challenge and support introducedvia the agency’s management board;

■ clear roles for, and induction of, non-executive directors; and

■ a framework document reviewed at leastevery three years or as business plans roll forward.

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Departmental frameworks

The Department for Work and Pensions has produced a ‘DepartmentalFramework’ setting out the governance arrangements for the wholedepartment. The departmental framework includes its separatebusinesses, not all of which are, or will be, formally established asagencies. The department will not produce separate agency frameworkdocuments for the department and its new agencies, but will ensure allissues applying to agencies are included in the main framework andexisting agency frameworks can be subsumed within it. The objectives ofindividual agencies and business units are set out in annexes.

The Ministry of Defence is producing a ‘contract’ between its head officeand each top-level business unit. This will be a simple framework,tailored for each unit, which will set out what is to be delivered, theresources allocated, respective accountabilities and arrangements forperformance management and corporate governance. The outputs,objectives and targets will flow from the departmental and PublicService Agreement objectives and targets to provide a clear line of sightbetween departmental and business unit objectives and better defineresponsibility and accountability for delivery.

‘It is essential that all public sector organisationswhether they are Non-Departmental Public Bodies,Executive Agencies, Government Departments, theNHS or local authorities are transparent, responsiveand accountable. The public are entitled to knowwhether their money is being well spent and what isbeing achieved with it. Consistent, clear reports ofperformance and publication of results are importantto record progress and exert pressure forimprovement. Such transparency is essential to helpensure that public bodies are fully accountable.’Executive NDPB 1998 Report, Cabinet Office, 1998

‘Target setting is a game.’Agency chief executive, autumn 2001

‘We operate against targets rather than with them.’Agency chief executive, autumn 2001

Aligning departmental andagency targets

1. Being able to manage, measure andimprove performance is central to theagency concept. At the heart of agency anddepartmental performance management lietwo significant processes – high-level PublicService Agreements for departments andkey performance targets for agencies.Strategic performance management shouldreinforce the link between these twoprocesses and also be the thread throughwhich the concept of shared ownership andresponsibility (primarily betweendepartments and agencies) for the deliveryof wider departmental outcomes can bedeveloped and taken forward. In relation to

health, education, transport and crimethese must be consistent, where relevant,with the contracts agreed with the PrimeMinister’s Delivery Unit.

2. The principles and values of goodperformance management seem wellrecognised and there are examples of effectiveperformance management frameworks thatset out clear links between departmentaloutcomes, the agents responsible fordelivering those outcomes, customers andthe citizen. In general, however, a much morefragmented picture exists – with a lack oftrust in both directions and a culture ofisolationism and general dissatisfaction.Links to customers are sometimes fragile and,where customer satisfaction is tested, thereare not always the processes in place to feedcustomers’ views back into the supplier chain– much less to act on them.

Based on 85 questionnaire responses

Measuring customer satisfaction

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5Performance management

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3. Overall, few chief executives felt thatthe targets that they agree with departmentsare key to driving their business forwardand most key agency targets do notresonate with public users of the service.The link between Public Service Agreementsand agency key targets is also often unclearand there is a tension between widerdepartmental directions and delivery –targets set at the top of the department arerarely relevant to people at the front line ofdelivering services.

4. Some agencies and departments havestarted to look closely at their keyperformance targets and Public ServiceAgreements. There is a general appreciationthat work needs to be done in these areas –however, progress is slow. Many agencytargets appear to have grown old and wornand there appears to be little enthusiasm orincentive, either within agencies ordepartments, to make changes. Equally,with Public Service Agreements still at arelatively immature stage of development,it is often difficult for agencies to see anyreal link between the services they deliverand the needs of the department.

5. Without a clear line of sight todepartmental objectives, there can be noreal sense of joint ownership ofprogrammes delivering outcomes tocustomers. An alignment is needed betweenPublic Service Agreements and agencytargets which strengthens the theme of

end-to-end processes designed to achieveoutcomes by ensuring that all keystakeholders understand the links andinterdependencies.

6. Agency target-setting, Public SpendingAgreements and spending decisions shouldbe integral parts of one complete process,brought together in the Spending Reviews.This review has found that many chiefexecutives of agencies involved in deliveringthe objectives set in the last SpendingReview were not involved in theirformulation. Departments and the Treasurymust act now to ensure that servicedeliverers play their full role in shaping theoutcomes sought in the current andsubsequent Spending Reviews.

Targets and business planning

7. Existing guidance on measuringperformance and performance informationis comprehensive and useful – a great dealof good work is currently available on thesubject. However, whilst many of thesedocuments provide excellent summaries ofvarious elements of the business planningprocess, there is little evidence that they arein regular use in the relevant areas ofdepartments and agencies. A morecomprehensive and targeted distributionprogramme would help to get thisinformation in front of the people whoneed it most.

8. Target-setting needs to be a muchmore ‘intelligent’ process – involvingunderstanding and debate from allstakeholders. Consultation with agency

Recommendation 5Departments and agencies must together ensurethat agency targets are real, challenging andresponsive to customers. Departmental andagency target-setting must be aligned andtimetabled to support Public Service Agreementsand be supported by spending decisions. Keyservice deliverers should be fully involved insetting targets in Spending Reviews.

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Aligning Public Service Agreements and key targets

‘Some departments and agencies have established very clear linksbetween PSA targets and agency targets. For example, the Departmentfor Work and Pensions had a PSA target to reduce losses from fraud anderrors in Income Support and Jobseekers Allowance by at least 10 percent by March 2002. The Benefits Agency had an agency target directlybased on the Department’s target.’

Source: Good Practice in Performance Reporting in Executive Agenciesand Non-Departmental Public Bodies (NAO, March 2000)

chief executives has shown that overallthere is a perception that current targets donot measure or monitor the right things;they interfere with business objectives.

9. Many agencies also have too many keyperformance targets – often because theprocess of changing or removing them isseen as too difficult. The Public ServicesProductivity Panel report Accountability andResponsibility explains that organisationsand staff can only focus on a limited

number of targets at one time – too manytargets can be as bad as having no targets atall. Organisations should focus on a smallnumber of targets, that are clearlyprioritised so that everyone in theorganisation knows what the overalldirection of the organisation is and whattargets are most important to achieve this.

10. Changing targets that are no longerrelevant, that have been overtaken byhigher priorities or have become out-of-date should not be a complicated orlengthy process. Targets must not beretained simply to provide continuity ifthey are no longer appropriate.

11. Achieving the right degree of stretch insetting achievable targets has to bebalanced with the risks – political as well as personal – associated with non-deliveryof aspirational objectives. However, 51 per cent of the agency targets set for1999/2000 were lower than outturnsalready achieved for 1998/99 and another19 per cent held steady; only 30 per centaimed at improvement.

Source: Executive Agencies 1999 Report (March 2000)

Higher Same Lower

Comparable targets for 1999/2000against outturns in 1998/99

30%

19%

51%

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Good business planning

A number of recent reports and publications from the National AuditOffice, Cabinet Office, HM Treasury, Audit Commission and Office forNational Statistics offer good advice and best practice. These include:Measuring the Performance of Public Departments (NAO, March 2001);Choosing the Right FABRIC – A Framework for Performance Information(HMT/NAO/CO/AC/ONS, March 2001); Good Practice in PerformanceReporting in Executive Agencies and Non-Departmental Public Bodies(NAO, March 2000); and Aiming to Improve – The Principles ofPerformance Measurement (Audit Commission, June 2000).

Of these, Choosing the Right FABRIC outlines a common governmentframework for performance information that is ‘Focused, Appropriate,Balanced, Robust, Integrated and Cost-effective’. Another recent jointpublication from the Cabinet Office and HM Treasury, Your DeliveryStrategy – A Practical Look at Business Planning and Risk (September2001), pulls together the various strands of the business planningprocess – including target-setting, performance review, incentives,people and the planning cycle.

Performance targets shouldreflect reasonable publicexpectations

Although over 500 people missed their travel datesas a result of delays in the issuing of passports inthe summer of 1999, and thousands more weresubject to anxiety and inconvenience, the Passport Agency was still within the Home Officetarget of meeting 99.9 per cent of travel dates.The Public Accounts Committee considered thetarget was a poor reflection of the public’sexpectation of the service.

Source: PAC 24th Report 1999-00: The PassportDelays of Summer 1999 (House of Commons, June 2000)

12. The setting of stretching targetsrequiring continuous improvement isessential to improved performance. Stretchshould not be imposed – it should bedeveloped with all those involved in the

business planning process. This shouldinclude departments, agencies, non-executive directors, sponsors and customersto provide a bridge between departmentsand agencies and encourage increasingchallenge in priority areas.

Open reporting

13. Agency annual reports providecorporate information in an accurate,accountable and timely fashion and informthe public about the range of services onoffer, the standard of service customers canexpect to receive and how they cancomplain if they do not receive it. Atpresent, annual reporting is generally seenas an expensive and resource-hungryexercise that is of little value except asconfirmation of high-level audit. However,public expectations require good-qualityand objective information aboutperformance to be made available to thepublic in a way that is understandable andrelevant. Greater use of websites to reporton service standards would improve accessand transparency and contribute towardsimproving external accountability.

14. Customers are more interested inknowing the standards of service they canexpect than in organisational targets. Workis already under way to develop morecomparable customer satisfactioninformation across government. This is avital first step. More needs to be done toprovide more comprehensive comparableinformation on agencies to inform a moremeaningful discussion about best practice,rewarding good performance andidentifying areas of concern.

Recommendation 6Where relevant, the balance between agency-specific and cross-cutting targets needs to beclearly specified and initiatives, such aselectronic service delivery, clearly prioritised. A few key targets should reflect measurableperformance linked to departmental objectivesand service standards.

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Public Services Productivity Panel –accountability for results project

The key findings of the project are that clarifying and sharpeningaccountability for results throughout an organisation will significantlyimprove performance and delivery. Good accountability betweenprincipal and agent requires investing time and effort in making therelationship work in practice.

Although many organisations understand the theory behind improvingaccountability for results, it does not always translate into practice andimplementation is often fudged. There is a need for:

■ clarity in what outputs will be delivered and how these helpensure delivery of the desired outcomes;

■ clear roles and responsibilities for all parties involved;

■ rigour and structure in relationships between principal and agent;and clarity about who will resolve any issues and how.

The Accountability for Results report (HMT, March 2002) identifies anumber of areas where a concerted effort to improve accountabilityarrangements would be valuable and recommends that principals andagents throughout the public sector use this checklist as adevelopmental and diagnostic tool.

Setting targets

Key corporate targets should focus on key outputs. The MeteorologicalOffice’s main corporate target did not focus on key outputs i.e. weatherforecasts and did not provide a firm basis on which to assess the overallquality of their work because it included purely administrative matters.

Targets must be sufficiently challenging. Given the link betweenperformance and pay bonuses and to foster a culture of continuousimprovement, targets should not remain at the same level if they havebeen beaten in previous years.

Source: PAC 7th Report 1995-96: The Meteorological Office Executive Agency (House of Commons, February 1996)

15. Established quality tools, such as theEuropean Foundation for QualityManagement (EFQM) Excellence Model,can play an important part as one elementof a performance framework; and theirwider application across agencies anddepartments would go some way towardsproviding more externally focusedinformation about relative performance, as well as introducing a mechanism forrewarding successful delivery andidentifying relatively poor performance.

16. Departments should be responsiblefor strategic performance management ofall the service providers within theirresponsibility – contractors, businesspartners and departments themselves, aswell as agencies. Links betweenperformance against departmental PublicService Agreements and agency targetsshould be able to be audited. Internalmeasurement should be built into businessplanning and reinforced by external

validation and comparison, making use ofindependent board members, peerorganisations or ‘critical friends’, as well asthrough quality tools.

17. The Cabinet Office currently has acentral support role, looking acrossdepartments to provide data, informationand best practice guidance. There are anumber of good examples of the value ofCabinet Office participation – particularlyinvolvement in sponsoring best practice

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An integrated approach to performance

The new National Probation Service for England and Wales (NPS) isfacing a challenging period of reform, bringing unprecedentedorganisational and cultural change and an associated set of demandingservice delivery targets. It is geographically widespread in 42 ProbationServices that match police force area boundaries.

To meet these challenges, the NPS is beginning a process of change thatoften goes against the grain of past history and traditions and looks todeliver a new service to specified standards of performance.

A strategic framework, the ‘New Choreography’, has been developed. It uses the idea of ‘stretch objectives’ to highlight areas of theorganisation where the greatest challenges lie. This integrated strategyis both an organisational change programme and a public declaration ofthe NPS’s intent to meet its collective aims – a key element of which isthat the NPS should: ‘By 2006, be able to demonstrate the levels oforganisational excellence that will earn it recognition as a topperforming public service’.

Two of the objectives that will contribute to meeting this aim – ‘buildingan excellent organisation’ and ‘building an effective performancemanagement framework’ make use of the European Excellence Model as aself-assessment tool, sign-posting the way to the achievements required.

QUEST

The Quality, Efficiency and Standards Team –QUEST – of the Department for Culture, Media andSport acts independently of the department toreport on ways the cultural and sporting sectorscan best achieve the Government’s social andeconomic objectives and the means by which theycan demonstrate their performance. In doing so,QUEST is tasked with identifying and promotingbest practice and working collaboratively withNDPBs and others in the cultural sector to raisestandards.

QUEST is not an audit body or an in-houseconsultancy. It acts as an external piece ofmachinery that looks at the department as well asNDPBs and provides reports and support acrossthese areas. The model is unique and QUEST hasits own funding, advisory board and chiefexecutive.

QUEST has significant freedoms to operate – aswell as being directed by the Secretary of State, ithas a remit to look at any areas it feels wouldbenefit from its help. It can bring in specialistexpertise and it tries to work with the best peoplefrom a wide range of sources within the NDPBsand the department, from other parts ofgovernment and the private sector.

Quest has produced two major reports,recommending less bureaucracy and promotinginnovation in the cultural and sporting sector. It has also carried out work on performancemanagement and benchmarking.

guides and publications. However, there wasa general view in departments and agenciesthat much of its activity created substantialbureaucracy and added little value.

18. In 2001 the Cabinet Office carried outan audit of the reporting requirementsaccompanying initiatives such asmodernising government and e-business.Among its recommendations were that the

centre should do more to simplify reportingrequirements and achieve a lighter touch.The review team strongly supports this andsuggests that the Cabinet Office shouldfollow up the audit with a detailed‘housekeeping’ review of all reporting andother requirements placed on delivery agentsby the centre, with the aim of reducing to aminimum the burden they create.

19. Whilst this review considered the needfor an external perspective to ensure a‘joined-up’ approach, for example throughan ‘agency inspectorate’, the variety ofagencies’ activities does not lend itselfeasily to such an approach. It is essentialthat departments take responsibility forstrategic performance review. This shouldcontinue to be supported both by theCabinet Office, developing best practicethat builds on information used byagencies and departments for businesspurposes, and by the Treasury’sperformance monitoring role in relation to Public Service Agreements.

Business review

20. Agencies and non-departmental publicbodies (NDPBs) are currently subject to aperiodic programme of business review andscrutiny known as quinquennial reviews(QQRs). The Cabinet Office reviewed itsguidance for conducting the reviews andlooked at the value of the quinquennialreview process in July 2001. It found that theprocess added value, but that quinquennialreviews gave rise to uncertainty that tendedto have a negative effect on staff morale andthat the reviews themselves had limitedinterest for Ministers.

21. This was supported by evidence takenfrom chief executives and others during thecourse of the review: the process wasperceived to be bureaucratic and inflexible,with a damaging impact on organisationalmorale and hugely distracting ofmanagement time and energy. Yet it is vitalthat agencies are subject to external reviewand challenge and there are obvious benefitsin the principles of the quinquennial review

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An integrated approach to performancemanagement

An integrated approach to performance management occurs at WiganMetropolitan Borough Council, which is a large, all-purpose publicservice organisation that serves 310,000 people and has an annualspend of £600 million. It operates a mixed economy of internal andexternal services (£60 million) and links high-level outcomes andcorporate planning to the actions of individuals by managing andevaluating performance through use of Best Value Reviews and theEuropean Foundation for Quality Management’s Excellence Model.

The ‘Wigan performance project’ was developed to support theseinitiatives and to improve performance management across all councilservices. The project aims to:

■ map objectives and plans across the council;

■ link activities with objectives to help understand what reallydrives performance;

■ ensure that all services manage performance using a balancedset of measures;

■ identify gaps in current systems and fill them by developing localperformance measures;

■ provide full audit trails for performance measures;

■ load performance data directly into the corporate system;

■ provide support and training across the council; and

■ deploy corporate performance management software –‘Performance Plus’.

This integrated approach closely follows the national guidance onperformance management outlined in Choosing the Right Fabric – A Framework for Performance Information (HMT/NAO/CO/AC/ONS, March2001). Wigan Metropolitan Borough Council has developed a high-performance/low-cost regime and has made service improvement a priority.

process. The weaknesses appear to lie in thepractice and in the separation of deliveryfrom other aspects of the overall picture.

22. This review concludes thatquinquennial reviews are not effective as away of ensuring external challenge and thatdepartments and agencies or NDPBs rarelygain substantial benefit from them. An estimated £5 million per annum is spenton quinquennial reviews, yet there are fewexamples of the quinquennial review processitself producing significant business change.More often, although sometimes linked toquinquennial reviews, major change is theresult of political initiatives or individualorganisations’ business re-engineering.

23. A new approach is needed, buildingon the importance of the principle ofchallenge and scrutiny and recognising thatdepartments must consider the effectivenessof all the elements in achieving outcomes,not just their agencies and NDPBs.

24. This review has proposed thatdepartments conduct a one-off review oftheir delivery structures as part of, or inparallel with, the Departmental ChangeProgramme. This baseline assessment willestablish what functions are appropriate asagencies and NDPBs. This review alsoproposes that departments should replacequinquennial reviews with end-to-endreviews of the effectiveness of businessprocesses.

25. The purpose of these end-to-end reviewsis for departments to assess the effectivenessof the business processes involved inachieving specific outcomes. By starting withoutcomes rather than organisations,departments can identify the processes andbehaviours needed and assess the capabilitiesand capacities available, in order to supportthem and to address any shortfall.

26. These reviews should address theimpact of the wider operating environment– including other parts of departmentssetting policy frameworks or providingsupport, as well as other delivery agents

and customers. The end-to-end review willfocus on the extent to which structures andprocesses are effective in contributing toachieving specific departmental outcomes.

27. The methodology for these reviewsshould be developed as part of theDepartmental Change Programme. Lessons from quinquennial reviews suggestthat the process needs to utilise and buildon existing performance monitoring,benchmark and review and to engage those involved throughout.

28. Each department should produce aprogramme of reviews as part of its businessplans. Reports of reviews and futureschedules would be agreed with the Treasuryin each Spending Review, to enable anyrecommendations for change to be effectedand supported by resource decisions.

29. As part of strategic planning,departments, agencies and NDPBs shouldaddress the effectiveness of internal businessprocesses, identify new customer needs andintroduce external comparison andchallenge to the assessment of strategicperformance. Some business process reviewsmay identify the need to look in more detailat particular activities. This work shouldbuild on existing quality regimes and publicand private sector benchmarking and takeaccount of the views of independentmembers, customers and stakeholders.

Recommendation 7Departments must integrate policy development,service delivery and support services to achievemore than the sum of the individual parts. Thecentral programme of quinquennial reviews ofagencies and NDPBs should be abolished andreplaced by business reviews of the end-to-endprocesses involved in achieving specificoutcomes. The Departmental Change Programmeshould develop a methodology for defining andimplementing such a programme of reviews. The cycle of reviews should be integrated withdepartments’ business planning processes andspecific priorities for review agreed as part ofSpending Review decisions.

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Incentives to improvement

30. The Government is currently in theprocess of setting national standards for anumber of public services, which willoutline what the users have a right toexpect. Initially they focus on health, crime,transport and education. However, alldepartments will be setting standards fortheir particular customers.

31. In assessing how organisationsperform against the national standards,four categories will be used:

■ high performing;

■ striving;

■ coasting; and

■ poorly performing.

32. The concept of ‘earned autonomy’ isthat, as government increasingly seeks todelegate delivery against national standards,high performers will be awarded extraflexibilities. However, they will not handover resources or power where the localservice is not delivering well; on thecontrary, intervention will be in inverseproportion to successful performance.

33. This is a model that is beingintroduced across the public services.It could also have relevance to improvingthe strategic performance management ofagencies. Whilst a national standardsframework or ‘league table’ would beimpossible and inappropriate to applyacross 127 agencies, each of which deliversa different service, it is important that everyagency should operate within an individualframework of standards with clearaccountability for their delivery and thatboth good and bad performance generateappropriate responses.

34. This framework of response shouldnot lead to the withdrawal of basicdelegations essential for effectivemanagement; rather, it should encouragegood performance with greater flexibilitiesand should intervene to address the needsof poorly performing organisations.

35. Departments should developarrangements for establishing a clearframework of agreed standards to be metand defined accountabilities, withcomparative performance information andagreed definitions of success. They shoulddevelop a framework of flexibilities andinterventions with which to respond todifferent levels of performance. TheDepartmental Change Programme offers anopportunity to identify what this means foran individual department and its agenciesand NDPBs, and how it might be applied.

Recommendation 8Strategic performance monitoring lacks both focusand response. In the context of the DepartmentalChange Programme, departments should define,together with their agencies, an appropriateframework of standards and targets which wouldencourage excellence and continuousimprovement and address poor performance,with support from the Cabinet Office or Treasurywhere new flexibilities may be useful to agencymanagement.

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‘As a chief executive, I’m only interested in servicedelivery – not in “big game” politics.’Agency chief executive, autumn 2001

‘Trading Fund status has reduced bureaucracy but themass of returns we have to do for the centre adds novalue to the business, is time-consuming and isunnecessary effort.’Trading Fund chief executive, autumn 2001

‘If a private sector holding company was run bypeople with no experience whatsoever of the frontline,the subsidiaries would go to the wall.’Ex-senior civil servant, autumn 2001

‘I’m constrained by daft rules.’Agency chief executive, autumn 2001

1. Agencies’ specific responsibilities toMinisters for delivering various centralgovernment services are accompanied byauthorities and delegations to enable themto deliver effectively.

2. Prior to the creation of agencies, theCivil Service was a single organisation, with human resources and finance issueshandled centrally either by HM Treasuryand the Cabinet Office or by departmentsthemselves. Terms and conditions for some700,000 staff were uniform and amonolithic grade structure took littleaccount of the variety of jobs to be done.By giving agencies specific delegations, itwas hoped that they would match humanand financial resources to the needs of thejob and thereby improve the delivery ofservices to both internal and external customers.

3. This emphasis on delegation andflexibility has been given further weight bythe Prime Minister’s four principles ofpublic service reform, with their emphasison removing unnecessary bureaucracy andfreeing successful organisations and thestaff working in them to innovate andrespond flexibly and creatively tocustomers’ requirements. A centralisedsystem is unlikely to deliver the flexibilityor responsiveness required to react to therequirements of customers.

4. The availability and effectiveness ofdelegations has been uneven, dependingon, amongst other things:

■ the nature of the funding regime;

■ the size of the agency; and, most of all,

■ the culture of the agency’s parent department.

5. On the one hand, chief executivesbelieve that their ability to shape personnelstrategies and manage resources flexibly hasbeen an essential element in helpingagencies to deliver better services. This issupported by management theories andevidence from across the public and privatesectors. On the other hand, somedepartments believe that widespread use ofdelegations leads to an inefficient use ofscarce resources and a watering-down ofcorporate identity.

6. Delegations should not rest withagency headquarters. At the heart of theGovernment’s principles of public service

6Delegations

39

reform is the wish to link empowerment oflocal deliverers with the flexibility toencourage excellent performance at thefront line. Unnecessary restrictions willultimately constrain effective delivery. Manyagencies have large centres of hundreds,sometimes thousands, of staff. Themanagers of these centres need theauthorities to run these operations to suitthe local environment, such as the labourmarket and the composition of the staff,within clear frameworks of standards andoutcomes sought.

7. Nearly 90 per cent of chief executivesresponding to the review team’squestionnaire were satisfied with existingdelegations, given the constraints theirdepartments faced. However, nearly 40 percent felt that they would be able to deliverservices more effectively with moreflexibility over the use of financial andhuman resources. Their main concerns were:

■ the insecurity or unavailability of EndYear Flexibility (EYF);

■ the need for freedom to reinvestincome raised;

■ the ability to attract and retain high-quality staff with competitive payand rewards, and to recruit themquickly; and

■ the desirability of performance-basedindividual and team rewards toencourage continuous improvement.

Financial delegations

Financial planning

8. Whilst all departments now receivetheir funding on a three-year basis, manyagencies are still allocated their funding onan annual basis by their departments.Three-year funding was introduced toenable more coherent and effectiveplanning and resource allocation. Thereview team recommends that all agenciesshould receive three-year funding based ona three-year business plan.

9. EYF is available to departments tofacilitate sensible planning where adepartment’s actual expenditure in afinancial year differs from its DepartmentalExpenditure Limit (DEL). Departmentshave the freedom to carry money over intothe next financial year and, although somedo not pass on this flexibility, mostagencies too plan on the basis of EYF.

10. However, some departments lose allEYF as a result of calls on the contingencyreserve for unexpected emergencies, such asthe Department for Environment, Food andRural Affairs in the case of the Foot andMouth epidemic. Their agencies andNDPBs also lose their EYF where thishappens. Other departments routinelyremove EYF from their agencies in order tosubsidise overspending elsewhere withinthe department; and some departments donot make it available at all.

11. In all of these circumstances, theagency’s plans are disrupted for reasonsunrelated to their own performance. Theproblem is compounded if, by spendingless than it had planned as a result ofwithdrawal of EYF, an agency’s budget isreduced in subsequent years.

12. Overall, however, the nationalaccounts are not at risk; in 2000/01 totalEYF amounted to £6.68 billion, or some 3 per cent of Departmental Expenditure of£212 billion. Very few agencies would havea significant impact on this figure, soallowing them more scope to retain EYFwould not carry substantial risk.

13. EYF is an issue that is of concern tomany chief executives. They recognise thatdepartments cannot breach their DELs andthere will be exceptional circumstanceswhen DELs will be withdrawn. When thishappens, departments should discuss withsenior managers, including chief executives and the Treasury, how to handlethe situation.

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14. In response to representations from anumber of agencies and non-departmentalpublic bodies (NDPBs), the Treasury set upa working group drawn from these bodiesand departments to look at how to improvethe system and the incentives it gives forvalue for money. The suggestions included:

■ full EYF entitlement with fines onoverspenders by reducing their budgetfor the following year;

■ partial EYF – the department couldallow EYF up to a ceiling or carryforward a proportion of anyunderspend; and

■ qualified EYF – the department couldallow 100 per cent of EYF but makeclear that this be subject to review ofspecific cases where an underspendmight be indicative of a continuingreduction in spending needs.Alternatively, the department couldask for forecast underspends beforethe end of the financial year and onlyallow carry forward of amountsdeclared at that stage.

15. A model of good practice combiningthese elements was proposed in order toguarantee 80 per cent of EYF entitlementsfollowing a review of the emerging positioneach autumn. Departments were asked toexamine with their agencies and NDPBswhich approach would best suit theircircumstances and to report back to the Treasury.

16. It would be helpful if departmentshad to account for action taken and toensure that in future years an agency’sbaseline is not lowered if its EYF is takenaway – unless, of course, this is a responseto overfunding. The Treasury should askdepartments during the current SpendingReview to report on how they have handledEYF over the last two years, clearly spellingout any reasons why EYF has not beenallowed. The Treasury should then considerhow best to provide for effective EYF infuture, revising the good practice model as necessary.

Funding regimes

Tradingfund

Supply –net funded

Supply –fully funded

MoD agencies – funding regime

29

4

3

Tradingfund

Supply –net funded

Supply –fully funded

Agencies – funding regime

62

46

19

Recommendation 10End year flexibility (EYF) should normally bemade available by all departments in line withTreasury guidance. Departments should discusswith their agencies and report on their proposedmanagement of EYF to the Treasury before theend of 2002.

Recommendation 9Agency business planning must be integrated with departmental business planning. Followingthe 2002 Spending Review, departments should ensure that agencies have three-yearfunding agreements to support three-yearbusiness plans.

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127 agencies

36 agencies

17. Agencies are either supply-financedthrough money voted by Parliament orfinanced through a trading fund. A tradingfund can more easily respond to changes inthe demand for its products or servicesbecause it has the authority to use income,for example to take on more staff oradditional facilities or plant and machinery.It can take advantage of businessopportunities without seekingSupplementary Estimates. In addition, atrading fund can retain the cash it generatesand is not subject to the rigidity of annualityor the requirement to surrender cash.

18. As trading funds are controlledthrough the achievement of financialtargets relating to return on capitalemployed, managers and staff areencouraged to think more commercially, tofind opportunities to cut costs and to seekout more efficient ways of operating.

19. Trading funds have a greater ability toinvest in capital expenditure in response todemands elsewhere. So long as there is norequirement to take on additional loans(which would affect the department’s capitalDEL), trading funds are free to invest, forexample from accumulated cash balances.The capital expenditure of a supply-financedagency counts against the DEL and hencemay be cut back if there is pressure.

20. Trading funds will also be able toutilise increased income for reinvestment asa result of the changes to capital fundingfrom 2003/04. Currently the department’sDEL includes the profit or loss of thetrading fund and any subsidies paid to it,and its capital DEL includes the totalcapital expenditure of the agency ratherthan any grants or loans given to it by thedepartment. The changes will mean thatonly the department’s transactions with the trading fund will score in its DEL,rather than the total profit or loss andcapital expenditure.

21. Currently only 19 of the 127 agenciesare trading funds. Whilst trading fundstatus will not be suitable for a number ofagencies, particularly those that do notcharge for any of their services or those thathave an inconsistent or unreliable incomestream, the review team believes thatdepartments should be encouraged toexpand this number.

22. There are a number of statutory andadministrative tests that have to be satisfiedbefore trading fund status can be given.Currently the process of setting up a tradingfund can be extremely cumbersome andtime-consuming. There are, of course, goodreasons for this, not least that the criteriafor establishing a trading fund are laiddown in law. However, it would be worthexploring how to streamline this processwithout losing its thoroughness.

23. This could be achieved if departmentswere to ensure that the basic robustbuilding blocks were in place beforeinitiating the formal approval process. A potential trading fund candidate shouldhave experience of trading, have a soundfinancial track record and show that thefreedoms associated with trading fundstatus will lead to demonstrable efficienciesand more effective management of theoperations. The Treasury should work withdepartments to identify agencies that mightbe candidates for trading fund status andsupport the process of transition to it.

24. A common difficulty that afflicts manyagencies (as with other public sectororganisations) is the lack of investmentcapital. Assets now beyond their projectedworking life can adversely affect levels ofservice. Imaginative ways must be found togenerate additional funding, with clarity asto the appropriateness of diversificationwithin agreed strategic frameworks.

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25. The Government’s policy is thatdepartments and their agencies shouldenhance the use and value of their assets. In a number of cases, this may involveexploiting their commercial potential.Selling services into wider markets givesagencies the opportunity to retain thebenefit of receipts generated by such sales.

Pay

26. Pay bargaining has been delegated to all departments by the Treasury. Many departments in turn delegate paybargaining to their agencies. Some smallagencies were not given this freedom andsome chief executives feel that having itwould be an unnecessary distraction.Others find it essential to achieve effectiverecruitment and retention.

27. Recently a number of departmentshave been reconsidering the benefits of paydelegations, believing they might haveincreased expenditure unnecessarily ordriven up their total pay bill as someagencies have raised pay levels in order tocompete for staff with other agencies.

The review team has found no evidence tosubstantiate this claim. If anything, theevidence suggests that pay levels in agenciestend to be lower than those in parentdepartments.

28. Recentralising pay bargaining atdepartmental level may lead to adverseeffects, such as staff shortages and servicereductions. Since pay delegation,departments and agencies have developedtheir performance and reward practicesindependently and total reward levels(including pay) should have been set tomeet organisations’ objectives. As theobjectives of each Civil Service organisationare different, so too are their total reward levels.

29. Concerns have been expressed thatdifferential pay structures discourage staffinterchange, yet most agency chiefexecutives feel that geography and culturalissues are far more significant indiscouraging movement between agenciesand departments.

30. Pay costs will form a large part of anyagency’s running costs and a chief executivemust have the ability to control such costsif they are to run the business effectively.Some are very concerned by, for example,the impact of unfunded increases in SeniorCivil Service (SCS) pay. These are outsidetheir control. Departments such as theDepartment for Work and Pensions, whichhas recentralised pay bargaining to provideeasier movement for similarly skilled staffacross their businesses, should monitor theimpact on services in order to manage therisks to service delivery that may result.

Human resources

31. Departments have been delegated anumber of freedoms to manage their staffeffectively, including: recruitment into allgrades below the SCS; recruitment of mostsenior staff; promotion; and pay. A department may choose whether to give the same delegations to its agencies.

Recommendation 11Departments should explore with agencies, aspart of the end-to-end reviews proposed inRecommendation 7, the opportunities offered bytrading fund status and enable agencies to useincome generation to support capital investmentin future services. Departments should alsoconsider with their agencies how to get the bestout of their assets, which may mean acting morecommercially or expanding into wider marketswhere appropriate.

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Generating additional income

As a result of successful diversification into consultancy services for theNHS and the private sector, West Yorkshire Metropolitan AmbulanceService has been able to invest in its core business with new vehiclesand state-of-the-art technology. As a result, the NHS Trust is at the top of the performance tables, whereas ten years ago it was near the bottom.

32. A common theme in interviews withchief executives and others was thatempowering agencies through delegation ofpersonnel management was key to drivingup service delivery. The core areas thatmade a difference were:

■ recruitment, including into the SCS;and

■ day-to-day career management of staff,including promotion.

33. As with pay delegation, some agencieshave service-level agreements with theirdepartments to provide these services forthem. As they are usually small, this makessense in terms of the cost involved. Manylarger agencies have been using thesefreedoms successfully to provide servicesmore cost-effectively.

34. Departments have been delegatedresponsibility for recruitment andappointment, within the guidelines issuedby the Civil Service Commissioners, into allSCS posts apart from the very seniorappointments. As with other delegations,they can pass this on to agencies but thishas not happened in some departmentsand in other cases it has only been grantedfor specialist posts. The primary reasonsdepartments give for not granting thisdelegation are that they are concernedabout corporate standards and they viewthe SCS as a corporate resource whichshould be managed centrally.

35. Whilst departments do need a cadre of senior managers who can be used as acorporate resource, it should not beessential that all of these posts are recruitedcentrally. Chief executives are usually bestplaced to know the kind of person theyrequire. It is often the case that agenciesrequire specific management skills that canbest be obtained from outside their parentdepartment or even the Civil Service. In many cases it is unlikely that seniormanagers appointed to agency posts would be interested in moving to coredepartmental posts but would want tomove on elsewhere once their appointmentfinished. In relation to corporate standards,all jobs advertised for the SCS are protectedby the requirements and processes imposedby the Civil Service Commissioners.Concerns could also be met by havingdepartmental representation on an agencyrecruitment board.

36. Centralisation of support functions ina large department can lead to a producer-led approach from the centre that isdistanced from the needs of customers andlocal labour markets, undermining thedelivery of services. Some of the localmanagers interviewed for this review areworried that centralisation will hamperimprovements in front-line delivery, aslarge central units might not be as speedyor responsive to their needs as they require.

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Shared services

A ‘shared service model’ is used for some services in the Department forWork and Pensions (DWP). Whilst this model centralises serviceprovision, both to reduce costs and to improve expertise and quality, italso operates as a common resource, serving a number of businesses totheir specification. In the private sector, where a number of largeorganisations have adopted this approach, such arrangements usuallycover areas such as facilities management but not functions such aslocal recruitment.

DWP is currently reviewing the range of its human resources, financial,estates and other support services to assess which should be manageddirectly by individual agencies and businesses themselves and whichare to be provided as a shared service, centrally managed either byheadquarters or by one business unit on behalf of all.

The changes were still bedding in when the review team visited some ofthe DWP offices affected by the centralisation of HR services.Understandably, local offices emphasised their concerns that anydiminution of local flexibility could affect service delivery.

Departments considering such changes should ensure that servicelevels do not reduce as a result and that service level agreements canbe enforced by the front line.

37. Recent business history both in theprivate sector and public services suggeststhat a locally flexible organisation is morelikely to deliver a high-quality service andhave a much more dynamic and innovativeapproach to its customers than one that ishighly centralised. Agencies believe thatwhere they have been denied personneland financial freedoms they have beenconstrained in addressing the requirementsof their customers speedily. In addition,valuable management time and scarceresources are needed to liaise with central units.

38. The review concluded that agenciesshould be able to:

■ manage all staff working in theagency, including recruitment andpromotion;

■ vary terms and conditions to respondto the local employment market.

39. However, the review recognises thatvery small agencies will prefer to continueto use departmental services to achieve thisif it is more cost-effective to do so. Itshould be open to such agencies to opt inor opt out of departmental support services.

40. Agencies for their part should avoid(and in most cases because of costpressures are bound to avoid):

■ trying to reinvent the wheel;

■ empire-building;

■ duplication within larger agencies; and

■ poor communication withdepartments as to what is happening.

41. For delegation to work effectively, two-way continuous dialogue between anagency and a department is essential and,in larger agencies, there has to be that same level of communication within the organisation.

42. Delegation is a means to an end, notan end in itself. Each department couldusefully carry out an audit, in full co-operation with its agencies, to ensure thateach agency has the freedoms required todo the job properly and to set out thebenefits and terms of any constraintsimposed on the use of resources.

43. Flexibility and management of risk arekey to good management and running asuccessful business operation which isfocused on users. Departments andagencies must work together in partnershipto ensure that operational units areproperly equipped to operate successfully.It is highly unlikely that any agency will besuccessful if they are unable to manage thebusiness effectively.

Recommendation 12Effective management of staff has been at theheart of the improvements in performanceachieved by agencies, providing for an outwardand downward focusing of resources. Agenciesshould be able to recruit, structure, promote and manage staff effectively in the light of localneeds and labour markets, including staff in theSenior Civil Service, within the requirements set out in the Civil Service Management Code,and to enforce service-level agreements whenthese and other support functions are providedby departments.

45

Centralising to delegate

In the Inland Revenue organisational restructuring has moved a numberof human resources functions in some areas of business from smallerunits to larger business streams. Evidence from interviews suggeststhat, if this process were to continue, it might affect the responsivenessof front-line units. However, as a result a number of delegations are inthe process of being passed further toward the front line than they haveever been before.

46

The Royal Parks Agency manages one of Britain’s majorcultural amenities. The Royal Parks are a living, green,historical resource that makes a vital contribution toLondon’s status as a ‘world city’, and offers unrivalledopportunities for recreation and enjoyment for everynationality and age group, for tourists and locals, forwalkers, riders and runners alike.

1. Agencies are a heterogeneous groupof organisations delivering many variedservices to external and internal customers.They have revolutionised managementwithin nearly three-fifths of the CivilService by introducing a performanceculture and bringing external focus to high-profile and hidden areas of centralgovernment activities alike. There is much more scope to build on thissuccessful model.

2. The central theme of this report is theneed for departments to change their focusto emphasise the achievement of definedoutcomes for customers and citizens. Thiswill mean harnessing the skills of deliveryagents much more effectively, alongsidethose of policy advisers, to create a strongperformance culture at the heart ofdepartments as well as to support clearstrategies and to monitor strategicperformance.

3. A new revolution is needed toaddress the current need for cross-cuttingand integrated government services and tocreate leadership teams in departments andagencies who are driven by the desire toimprove services. It has begun in theprogramme of Civil Service reform and thenew public service reform agenda and inmany of the changes being put in place bya new generation of Permanent Secretariesand agency chief executives. It needs to beled by the teams at the top of everydepartment if it is to be successful.

4. The review team believes, therefore,that departments should be responsiblefor delivering the better government

services that would result from theimplementation of the recommendationsin this report. The review has consideredthe possibility of external inspectorates todrive up performance. But, first, the tasksare hugely varied and individual responsesmust be tailored to the needs of eachdepartment and its agencies. Secondly, it isfundamental to the review’s approach thatthe policy framework is as important toeffective service delivery as theimplementation of that framework andshould not be separated further from it.

5. The review proposes that itsrecommendations should be built into thedevelopment of two key processes: the newDepartmental Change Programme; andthe business planning cycles ofdepartments and agencies, including thebiannual Spending Reviews.

6. The Departmental Change Programme(DCP), which has been developed by theOffice of Public Services Reform in theCabinet Office, will enable departments’overall performance to be measured andcompared with the model of an ‘ideal’department. The recommendations of thisreport should feed into the ‘ideal’ model tocover the skills and experience of leadershipteams; the need to fill skills gaps in eitherpolicy or delivery arms; simple, cleargovernance models, including the role ofsponsors and non-executive directors; thekey frameworks, information flows andcriteria for strategic performancemanagement and response; and theframework of delegated authorities toaccompany identified responsibilities.

7The next steps

47

7. The DCP will also developmethodologies for:

■ the one-off ‘landscape’ reviews ofwhether historical delivery structuresare still appropriate; and

■ the continuing programme of end-to-end reviews of the effectiveness ofbusiness processes in achievingspecific outcomes that will replacequinquennial reviews.

8. The results of these reviews will feedinto the business planning processes andinto the resource framework through theSpending Reviews. The Spending Reviewsare also a key mechanism for involvingdelivery agents in the alignment of targetsand for assessing the effectiveness of theuse of flexibilities, freedoms and powers ofintervention.

9. Agencies also have a vital role to playto ensure successful outcomes are achieved.Driving up performance is a two-wayprocess and agencies should get involvedright from the start. This will involveeffective communication with departmentsin order to build a high level of trust.

10. Agencies must ensure that they have arobust performance management systemand that targets are directed at measuringpriority areas that drive the business. Target-setting should be seen as a valuable tool inimproving performance. Agencies mustensure that proper management systems arein place to measure their achievements.

11. The Cabinet Office and the Treasuryshould continue to be jointly responsiblefor policy on executive agencies. Newguidance should be issued covering the coreelements of agency status, including thenew approach to reviewing frameworkdocuments. The Cabinet Office also has acontinuing and valuable role to play ingiving policy advice on setting up newagencies, framework documents, reportsand accounts and in using the material thatis gathered for agencies’ own managementpurposes to provide good practice guidanceand, where appropriate, comparable datato demonstrate good – and poor –performance.

12. The Cabinet Office should build on its2001 audit of the reporting requirementsaccompanying initiatives such asmodernising government and e-businessand its recommendations that the centreshould do more to simplify them andachieve a lighter touch. The Cabinet Officeshould follow this with a detailed‘housekeeping’ review of all reporting andother requirements placed on deliveryagents by the centre of government, withthe aim of reducing to a minimum theburden they create.

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49

The Highways Agency maintains, operates and improves5,750 miles of trunk roads and motorways in England. This network is the single largest Government asset,currently valued at an estimated £60 billion, and carriesone third of all road traffic and two-thirds of all freighttraffic, totalling around 100 billion miles travelled each year.

50

Annex A – Selected facts and figures on agencies(position as at the end of March 2002)

Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Attorney General

Treasury Solicitor’s Department* 1996 Internal 450 NF

Cabinet Office

Government Car and Dispatch 1997 Internal 260 NFAgency

Central Office of Information* 1990 External 400 TF

Department for Culture, Media and Sport

Royal Parks Agency 1993 External 230 FF

Department for Environment, Food and Rural Affairs

Central Science Laboratory 1994 Research 580 NF

Centre for Environment, Fisheries 1997 Research 480 NFand Aquaculture Science

Pesticides Safety Directorate 1993 Regulatory 180 NF

Rural Payments Agency 2001 External 3500 FF

Veterinary Laboratories Agency 1990 Research 1150 NF

Veterinary Medicines Directorate 1990 Regulatory 110 NF

Department of Health

Medical Devices Agency 1994 Regulatory 150 FF

Medicines Control Agency 1991 Regulatory 460 TF

NHS Estates 1991 Internal 320 TF

NHS Pensions Agency 1992 Internal 450 FF

NHS Purchasing and Supply Agency 2000 Internal 290 FF

Annexes

51

Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Department of Trade and Industry

Companies House 1988 Regulatory 940 TF

Employment Tribunals Service 1997 Regulatory 640 FF

Insolvency Service 1990 Regulatory 1230 FF

National Weights and Measures 1989 Regulatory 50 NFLaboratory

Patent Office 1990 Regulatory 890 TF

Radiocommunications Agency 1990 Regulatory 530 NF

Small Business Service 2000 External 350 FF

Department for Transport, Local Government and the Regions

Driver and Vehicle Licensing Agency 1990 External 4850 NF

Driving Standards Agency 1990 External 1660 TF

Fire Service College 1992 Internal 190 TF

Highways Agency 1994 External 1560 FF

Maritime and Coastguard Agency 1994 Regulatory 1030 NF

Planning Inspectorate 1992 Regulatory 660 FF

Queen Elizabeth II Conference 1989 External 50 TFCentre

The Rent Service 1999 Regulatory 870 FF

Vehicle Certification Agency 1990 Regulatory 90 NF

Vehicle Inspectorate 1988 External 1850 TF

Ordnance Survey* 1990 External 1855 TF

Department for Work and Pensions

Appeals Service Agency 2000 External 900 FF

Benefits Agency (closed March 2002) 1991 External 68,480 FF

Child Support Agency 1993 External 9420 FF

Employment Service 1990 External 32,300 FF(closed March 2002)

Food Standards Agency (see note 3)

Meat Hygiene Service 1995 Regulatory 1930 NF

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Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Forestry Commission

Forest Enterprise 1996 External 2250 NF

Forest Research 1997 Research 275 NF

Foreign and Commonwealth Office

Wilton Park 1991 External 50 NF

HM Treasury

Debt Management Office 1998 Internal 40 FF

Royal Mint* 1990 External 1050 TF

National Savings* 1996 External 110 FF

Office for National Statistics* 1996 Research 3030 NF

Home Office

Forensic Science Service 1991 Research 2190 TF

HM Prison Service 1993 External 41,940 FF

UK Passport Agency 1991 External 2270 NF

Inland Revenue

Valuation Office 1991 Internal 3820 NF

Lord Chancellor’s Department

Court Service 1995 External 9230 NF

Public Guardianship Office 2001 External 330 NF

HM Land Registry* 1990 Regulatory 7750 TF

Public Record Office* 1992 Regulatory 420 NF

Ministry of Defence

Armed Forces Personnel 1997 Internal 120 FFAdministration

Army Base Repair Organisation 1993 Internal 2600 FF

Army Personnel Centre 1996 Internal 1240 FF

Army Training and Recruiting 1997 Internal 4310 FFAgency

British Forces Post Office 1992 Internal 350 NF

Defence Analytical Services Agency 1992 Internal 130 FF

Defence Aviation Repair Agency 2001 Internal 4420 TF

Defence Bills Agency 1996 Internal 590 FF

53

Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Ministry of Defence (continued)

Defence Communication 1998 Internal 3000 FFServices Agency

Defence Dental Agency 1996 Internal 891 FF

Defence Estates Agency 1997 Internal 1320 FF

Defence Geographic & Imagery 2000 Internal 750 FFIntelligence Agency

Defence Housing Executive 1999 Internal 970 FF

Defence Intelligence and 1996 Internal 130 FFSecurity Centre

Defence Medical Training 1997 Internal 170 FFOrganisation

Defence Procurement Agency 1999 Internal 3760 FF

Defence Science and Technology 2001 Internal 3000 TFLaboratory

Defence Secondary Care Agency 1996 Internal 700 FF

Defence Storage and Distribution 1999 Internal 3040 FFAgency

Defence Transport and Movements 1999 Internal 310 FF

Defence Vetting Agency 1997 Internal 340 FF

Disposal Sales Agency 1994 Internal 80 NF

Duke of York’s Royal 1992 Internal 100 FFMilitary School

Medical Supplies Agency 1996 External 405 FF

Meteorological Office 1990 External 2090 TF

Ministry of Defence Police 1996 Internal 3320 FF

Naval Manning Agency 1996 Internal 110 FF

Naval Recruiting and 1995 Internal 1080 FFTraining Agency

Pay and Personnel Agency 1996 Internal 650 NF

Queen Victoria School 1992 Internal 70 FF

RAF Personnel Management 1997 Internal 240 FFAgency

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Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Ministry of Defence (continued)

RAF Training Group 1994 Internal 2030 FFDefence Agency

Service Children’s Education 1996 External 710 FF

UK Hydrographic Office 1990 External 840 TF

War Pensions Agency 1994 External 900 FF

Warship Support Agency 2001 Internal 2430 FF

Northern Ireland Office

Compensation Agency 1992 External 125 FF

Forensic Science Agency 1995 Research 115 NF

Northern Ireland Prison Service 1995 External 3030 FF

Northern Ireland Executive

Business Development Service 1996 Internal 235 NF

Construction Service 1996 Internal 550 FF

Driver and Vehicle Licensing 1993 External 260 NF

Driver and Vehicle Testing Agency 1992 External 295 TF

Environment and Heritage Service 1996 External 330 NF

Forest Service 1998 Research 380 NF

Government Purchasing Agency 1996 Internal 90 NF

Health Estates 1995 Internal 125 FF

Industrial Research and 1995 Research 150 FFTechnology Unit

Land Registers of Northern Ireland 1996 Regulatory 190 NF

Northern Ireland Child 1993 External 1110 FFSupport Agency

Northern Ireland Statistics 1996 Research 220 NFand Research

Ordnance Survey of 1992 External 175 NFNorthern Ireland

Planning Service 1996 Regulatory 405 NF

Public Record Office of 1995 Regulatory 60 NFNorthern Ireland

Rate Collection Agency (NI) 1991 External 240 FF

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Primaryfunction Funding

Year or service Number regimeDepartment and agency established (see note 1) of staff (see note 2)

Northern Ireland Executive (continued)

Rivers Agency 1996 External 415 FF

Roads Service 1996 External 1985 FF

Social Security (Northern Ireland) 1991 External 4845 FF

Valuation and Lands Agency (NI) 1993 Internal 215 NF

Water Service 1996 External 2105 NF

Scottish Executive

Communities Scotland 2001 External 600 FF

Fisheries Research Services 1997 Research 270 NF

HM Inspectorate of Education 2001 Internal 160 FF

Historic Scotland 1991 External 590 NF

National Archives of Scotland 1993 External 120 NF

Scottish Agricultural Science Agency 1992 Research 130 NF

Scottish Court Service 1995 External 850 NF

Scottish Fisheries Protection Agency 1991 Regulatory 260 NF

Scottish Prison Service 1993 External 4430 FF

Scottish Public Pensions Agency 1993 External 170 FF

Student Awards Agency for Scotland 1994 External 140 NF

Registers of Scotland* 1990 External 1260 TF

Welsh Assembly

Cadw: Welsh Historic Monuments 1991 External 200 NF

Welsh European Funding Office 2000 External 150 FF

*These agencies are also departments in their own right. They report to Ministers in the departments shown.

Note 1: Agencies classified as primarily for external customers, internal customers, research or regulation.

Note 2: Trading funds (TF), fully funded (FF) and net funded (NF) agencies are discussed in chapter 6.

Note 3: The Food Standards Agency is a non-ministerial department accountable to Parliament through HealthMinisters, and to the devolved administrations in Scotland, Wales and Northern Ireland for its activitieswithin their areas.

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Annex B – Agencies’ background and development

1. Before agencies were created, the Civil Service was a large monolith governed by abody of centrally laid down rules, even though it was too big and diverse to be managed asa single entity. This led to a culture more focused on avoiding errors than improvingresults. The then Prime Minister commissioned her Efficiency Adviser, Sir Robin Ibbs, tosuggest how to move matters on.

The Ibbs Report

2. Sir Robin’s report, Improving Management in Government, was published in February1988. Its main findings included the following:

■ there was insufficient focus on the delivery of government services (as opposed topolicy and ministerial support), even though 95 per cent of civil servants worked inservice delivery or executive functions;

■ there was a shortage of management skills and of experience of working in servicedelivery functions among senior civil servants;

■ short-term political priorities tended to squeeze out long-term planning;

■ there was too much emphasis on spending money, and not enough on getting results;

■ the Civil Service was too big and diverse to manage as a single organisation; and

■ while the introduction of systems was a start, real changes in attitudes andinstitutions were needed to get the full benefits of better management.

3. In the light of this the report made three main recommendations, that:

■ ‘agencies’ should be established to carry out the executive functions of governmentwithin a policy and resources framework set by a department. The principle was to bethat agencies must be left as free as possible to manage within this framework;

■ departments were to ensure that their staff were properly trained and experienced inthe delivery of services, whether within or outside central government; staff wouldthen be in a position to develop and interpret government policy and manage itsagencies in a way that would maximise results; and

■ a full Permanent Secretary should be designated as ‘project manager’ to ensure thatthe changes took place.

4. At the heart of the report’s approach was the need to reorientate systems and attitudesto focus on the delivery of services and, flowing from this, on the needs of the recipients ofthese services – the customers – whether outside or inside government. In addition it wasrecognised that however much systems are changed, real improvements depend onindividuals being personally responsible for results. A sense of ownership and personalidentification is essential to getting better performance.

5. The report suggested that an agency offered the most practical way of organising workto take account of these realities. An agency was defined as a discrete area of work with asingle named individual – a chief executive – in charge, with personal responsibility to theMinister for day-to-day management. The agency would be structured and focused on thejob to be done. The Minister would be responsible for allocating resources and settingannual targets for the results to be achieved. The Minister would delegate managerialresponsibilities to the chief executive and he or she would have authority to decide howbest to run the organisation and get the job done within the available resources.

57

6. The first agency, the Vehicle Inspectorate, was launched in August 1988. It was soonfollowed by a number of others, and over the following 10 years around 150 agencies werelaunched. Agencies came to be seen as the key vehicle for delivering central governmentservices, and virtually every department had at least one of them.

The Financing and Accountability of Next Steps Agencies

7. This 1989 White Paper described the financing and accountability regime for NextSteps agencies. It was published in association with the Government Trading Bill, whichproposed powers to create trading funds to finance central government activities.

8. The White Paper acknowledged that effective management of agencies would demandbetter, more timely and more comprehensive information on all aspects of performance. Itstated the aim of the Next Steps initiative: ‘to the greatest extent practicable, the executivefunctions of government, as distinct from policy advice, would be carried out by clearlydesignated units, referred to as agencies’. It set out the requirements for regular review(known as ‘prior options reviews’) and the role of framework documents. It alsoacknowledged that the nature of the Next Steps initiative meant that its financial and otherregimes would need to develop and evolve over time.

The Fraser Report

9. In 1991 the Cabinet Office commissioned Sir Angus Fraser to look at therelationships between agencies and departments. It was not intended to reopen theprinciples for the establishment of agencies or to provide detailed blueprints for theserelationships but rather to identify good practice. The report is mainly remembered for theconcept of the ‘Fraser Figure’, who was to be a senior official in a department who wouldsupport Ministers in their roles in relation to agencies.

10. Other recommendations included the need for departments and agencies to developand maintain a clear and shared vision of what an agency is there to do and of what itspriorities and objectives should be. They should also continue to give a high priority toimproving target-setting (the aim being for each agency to have ‘a handful’ of robust andmeaningful top-level output targets). Departments should develop suitable pay and rewardpackages for chief executives that offered ‘significant rewards for achieving results and clearand effective penalties for failure’. Departments should also review their changing roles inthe light of the agency initiative.

11. The report did not have a major impact in Whitehall. A number of changes were made to allow greater delegations to chief executives. However, many of the otherrecommendations gathered dust or were implemented half-heartedly. Unlike Ibbs, the Fraserreport was not seen as having strong Prime Ministerial backing. The concept of the ‘FraserFigure’, while adopted by some departments, was ignored by others and there was noconsistency in implementation.

The Trosa Report

12. The Cabinet Office commissioned a French civil servant, Sylvie Trosa, to carry out astudy on the relationship and effectiveness of current relationships between Ministers,departments and agencies. Her report, which was published in March 1994, made a numberof recommendations on Ministerial Advisory Boards, ‘Fraser Figures’, accountability, target-setting and the role of central departments.

58

13. There was a mixed reaction to the report, with reservations expressed about a numberof the recommendations, some of which were viewed as being too dirigiste. However, someof the proposals were welcomed and the Cabinet Office issued a response in October 1994taking some of Trosa’s recommendations forward.

Other reports and developments

14. Andrew Massey’s 1995 report, After Next Steps, explored the relationship betweenchief executives and Ministers and the roles of the sponsor departments and agencies inpolicy formulation and followed up a number of the Trosa report’s recommendations. Itsrecommendations included the need for chief executives (especially those from the privatesector) to be aware of the policy implications of management work in order to informMinisters of problems at an early stage. It also suggested that future changes to the civilservice should be put on a statutory footing to improve clarity and accountability.

15. During the 1990s a number of important developments had a direct impact onagencies. These included the drive to privatise and market-test public service functions andthe introduction of the Citizen’s Charter. Agencies were often used to test such initiatives.

16. By the mid-1990s, the agency was the principal organisational model for many formsof service delivery, including prison administration, welfare provision, many regulatoryfunctions and much of the logistical, procurement and administrative support to thearmed forces. By 1997, over three-quarters of civil servants in the Home Civil Service wereworking in agencies.

17. In the 1998 Next Steps Report, the new Government set out its position. It said thatwhilst agencies were not a complete answer to delivering better services, the principles theyembodied – such as looking outwards to users; focusing on the key tasks to be delivered;and increased transparency and accountability – represented important steps in the rightdirection. At the same time the Government announced that it did not see the coverage ofagencies extending substantially beyond the then 76 per cent figure. Instead of agencycreation the main focus would be on using agencies in the most effective way. There werethree key elements to this:

■ ensuring that targets were sufficiently demanding;

■ reporting achievement against targets in a clear and open fashion; and

■ encouraging agencies to compare the ways in which they do things with best practicein analogous organisations both within and outside the Civil Service.

18. The Modernising Government White Paper was published in March 1999. Althoughagencies were the main deliverers of central government services there was very littlemention of them in the White Paper. Also, the emphasis on horizontal working seemed tofire a shot across the bows of agencies, which were created to deliver discrete services.

19. A greater emphasis on performance measurement and performance management hascharacterised recent policy. Following the 2000 Spending Review, the Governmentpublished Public Service Agreements (PSAs) covering the period 2001/04, together withnew Service Delivery Agreements (SDAs) including key commitments on the managementof public services. Some agencies are directly involved with SDAs. In many other caseshigh-level performance targets are cascaded to agencies to assist their attainment. This isreflected in agencies’ key ministerial targets.

59

Annex C – Agencies’ range and diversity: statistics andquestionnaire results

1. The 127 UK agencies, of which 92 report to Whitehall departments, are aheterogeneous group of activities managed within central government.

2. The agency model is very flexible and covers a wide variety of activities across thewhole of government. In size and scale agencies stretch from the Benefits Agency (68,000staff) and Prison Service (42,000 staff) to the Wilton Park Conference Centre (50 staff) andthe Debt Management Office (40 staff). (Since the review came to an end, Jobcentre Plushas replaced the Benefits Agency and the Employment Service.)

Agencies’ size and budgets(based on a sample of 72 agencies)

1000

2000

3000

4000

5000

6000

7000

8000

9000

10,0

000

50

100

150

200

250

300

350

400

Trading fundsSupply – net funded agencies

Supply – fully funded agencies

Number of staff

Adm

inis

trat

ion

budg

et (

£m)

Entries for the Benefits Agency (68,000 staff, £2.5bn budget), Prison Service(42,000 staff, £1.5bn budget), Employment Service (32,000 staff, £1.1bnbudget) and the Court Service (9,200 staff, £666m budget) are off the scale.

60

3. Of the 127 agencies, 92 report to Ministers in Whitehall departments. The other 35report to the Scottish Executive, Northern Ireland Executive and the National Assembly for Wales.

92 agencies

Number of non-devolved agencies, by department

0

2

4

6

8

10

12

36

Cabi

net O

ffice

DCM

SDE

FRA

Hea

lth DTI

DTLR

DWP

FCO

Food

Stan

dard

s Ag

ency

Fore

stry

Com

mis

sion

HM

Tre

asur

yH

ome

Offic

eIn

land

Rev

enue

LCD

MoD NIO

Othe

rs*

36

1

6

5

7

10

4

2 2

3 3

8

1 1 1 1 1

*These eight agencies (Central Office of Information, HM Land Registry, National Savings, the Office for National Statistics, Ordnance Survey, the Public Record Office, the Royal Mint and the Treasury Solicitor’s Department) are departments in their own right.

Welsh Assembly

Scottish Executive

Northern Ireland Executive

Whitehall Departments

Devolution – to whom do agencies report?

12

21

92

2

127 agencies

61

4. In relation to the primary functions, 49 agencies deliver services to externalcustomers, 45 (mainly Ministry of Defence agencies) to internal customers, 12 offer mainlyresearch services and 21 are regulators, such as the Employment Tribunal Service.

Research Internal service delivery

Regulation External service delivery

Primary function of non-MoD agencies

12

14

21 44

Internal service deliveryResearch

Regulation External service delivery

Primary function of agencies

12

49

45

21

127 agencies

91 agencies

62

5. Agencies are either supply-financed through money voted by Parliament on a fully-funded or net-funded basis or they are financed through a trading fund. (Under a fully-funded regime, both income and expenditure are subject to control, whereas under a net-funded regime, only the net expenditure is controlled, which means that expenditure canbe increased as long as there is a corresponding increase in income.)

Trading fund Supply – net funded

Supply – fully funded

MoD agencies – funding regime

29

4

3

Trading fund Supply – net funded

Supply – fully funded

Agencies – funding regime

62

46

19

127 agencies

36 agencies

63

Target stretch

6. The Executive Agencies 1999 Report provides the latest information on performanceagainst targets for all agencies. Of the targets set for 136 agencies plus Inland Revenue andCustoms and Excise in 1998/99, 75 per cent were met or exceeded. However, where targetsare comparable year on year, only 29 per cent of those set for 1999/2000 were higher thanin 1998/99; 55 per cent were the same and 16 per cent were reduced. When comparedwith the previous year’s outturn, 30 per cent of targets for 1999/2000 were higher thanalready achieved, 19 per cent the same and 51 per cent lower.

Higher Same Lower

Comparable targets for 1999/2000against outturns in 1998/99

30%

19%

51%

Higher Same Lower

Targets set in 1999/2000 compared with targets for 1998/99

29%

55%

16%

Source:Executive Agencies

1999 Report

Source:Executive Agencies

1999 Report

64

Agency questionnaire results

7. We sent questionnaires to agency chief executives and 86 responded. Thequestionnaires sought factual information on staff numbers, expenditure, typology (public-facing, internal-facing, regulatory or research), funding regime and governance structure.We also asked about improvements in service delivery since the agency launch (and inparticular about customer focus); and freedoms and delegations.

8. The following diagrams are drawn up on the basis of the 86 responses (although notall chief executives answered every question).

Based on 85 questionnaire responses

Governance

9. The responses showed that out of 85 agencies:

■ 31 had Fraser Figures;

■ 31 had Ministerial Advisory Boards (MABs);

■ 16 had both a Fraser Figure and an MAB; and

■ of the 30 public-facing agencies, 16 had a Fraser Figure, 11 had an MAB, eight had both.

10. Surprisingly, not all agencies acknowledged that they had a management board.

Governance regimes

0

10

20

30

40

Trading fundSupply – fully funded Supply – net funded

Fraser Figure Ministerial Advisory Board

AgencyManagement

Board

Num

ber

of a

genc

ies

9

15

11

8

12

39

24

14

7

65

Freedoms and delegations

11. Out of the 84 agencies that responded to these particular questions, 89 per cent werecontent with the delegations they had and most understood why further ones weredifficult for departments to give. However, 36 per cent specified extra freedoms which theyfelt would improve their ability to deliver services effectively.

Based on 84 questionnaire responses

Based on 84 questionnaire responses

12. When we asked agencies what delegation they would prefer not to have, only one wasmentioned – pay. This was considered by a few of the smaller agencies to cause adisproportionate amount of effort compared with benefits received.

Additional delegations requested

0

2

4

6

8

10

12

14

Pay a

nd co

nditio

ns

SCS

appo

intmen

ts

Spec

ialist

appo

intmen

ts

Discipl

ine

End y

ear f

lexibi

lity

Capit

al sp

endin

g

Retenti

on of

fees

/inco

me

Contr

acts

Estat

e man

agem

ent

Num

ber

of a

genc

ies

13

9

7

4

2

1 1 1

4

Delegations

0

20

40

60

80

100

Would like extra delegationsContent Not content

%

89%

11%

36%

66

Measuring customer satisfaction

13. Responses showed that external-facing agencies are beginning to use new andimaginative ways of gaining information (e.g. Internet, mystery shopping), whereasinternal customer agencies are still more reliant on traditional methods (e.g. surveys).

Based on 85 questionnaire responses

Based on 30 questionnaire responses

Measuring customer satisfaction – public-facing agencies

0

5

10

15

20

25

30

Surve

ys

User g

roups

Written

feed

back

Compla

int m

onito

ring

Indep

ende

nt ev

aluati

on

Intern

et fee

dbac

k

Chart

er Mark

Mystery

shop

ping

Media

monito

ring

Bench

marking

Num

ber

of a

genc

ies

29

11

15

1 1

54 4 4 4

Measuring customer satisfaction

0

10

20

30

40

50

60

70

80

Surve

ys

User g

roups

Written

feed

back

Compla

int m

onito

ring

Indep

ende

nt ev

aluati

on

Intern

et fee

dbac

k

Chart

er Mark

Mystery

shop

ping

Media

monito

ring

Bench

marking

Num

ber

of a

genc

ies

75

39

2732

8 6 5 41 1

67

Based on 39 questionnaire responses

Service delivery

14. When asked what major improvements they had seen since agency status, mostagencies gave examples relating to their business rather than general success criteria.However, the public-facing agencies answered in ways which could be categorised as below.

Based on 29 questionnaire responses

Major improvements since becoming an agency –public-facing agencies

5

10

15

20

25

Effic

iency

Custo

mer foc

us

Electr

onic

servi

ces

Phon

e serv

ices

Stret

ching

targe

ts

Perso

nal s

ervice

Chart

er Mark

Commerc

ial cu

lture

Joini

ng up

Num

ber

of a

genc

ies

2221

16

9

76 6

5 5

Measuring customer satisfaction – agencies with internal customers

0

5

10

15

20

25

30

35

40

Surve

ys

User g

roups

Written

feed

back

Compla

int m

onito

ring

Indep

ende

nt ev

aluati

on

Intern

et fee

dbac

k

Chart

er Mark

Mystery

shop

ping

Media

monito

ring

Bench

marking

Num

ber

of a

genc

ies

31

21

17

13

2

68

Annex D – Summary of previous publications

1. Sir Robin Ibbs’s report Improving Management in Government (February 1988)recommended that ‘executive agencies’ should be established to carry out the executivefunctions of government within a policy and resources framework set by a department.

2. The Treasury and Civil Service Committee: 8th Report: Session 1987–88 (July 1988). On the Government’s acceptance of the main recommendations of the Ibbs Report, a sub-committee was set up to inquire into the ‘Next Steps’ initiative. The committeerecommended that agencies needed people with the right skills and experience and theability and incentive to achieve if management in government was to be better and moreefficient and the quality of service was to be improved.

3. The Government Reply To 8th Report from the Treasury and Civil Service Select Committee,Session 1987–88: Civil Service Management – The Next Steps (November 1988) was positiveand upbeat. The Government planned to do nearly everything recommended by the selectcommittee in some way or another and certainly to take account of everything it said.

4. 38th report: Committee of Public Accounts, Session 1988–89 (October 1989). One of itsmain conclusions was that the early-demonstrated commitment on the part of parent andcentral departments to the thrust of the initiative augured well for the initiative’s success,but that much would depend on how departments’ relationships with agencies evolved.

5. The Financing and Accountability of Next Steps Agencies: White Paper: HMT and PrivyCouncil Office (December 1989) set out the financing and accountability regime of NextSteps executive agencies. It was published in association with the Government Trading Bill,which proposed powers to create trading funds to finance central government activities.

6. The Treasury And Civil Service Committee: 8th Report: Session 1989–90 (July 1990)reaffirmed the committee’s commitment to regular monitoring of the initiative, particularlythe development of the largest executive agencies. The key message was that in settingtargets for agency performance, the emphasis should be on outputs: the performance of anyoperation should be measured by how well it delivered the goods and the extent to whichit met the needs of the consumers for whom its services were provided.

7. Sir Angus Fraser’s report Making the Most of Next Steps (May 1991) recognised that therelationship which developed between an agency and its sponsor department shouldreflect the particular job to be done. The report identified good practice that could beadapted by each department to its own particular circumstances. There was a strongconviction that there were areas in which more progress could be achieved: getting thecontext right; empowering the chief executive; re-appraising the role, organisation and sizeof departments (including the role of the ‘Fraser Figure’).

8. Treasury And Civil Service Committee: 7th Report (July 1991). Its mainrecommendations centred on performance management and the setting and publishing ofkey targets. It concluded that substantial progress had been made since the previous report.

9. Sylvie Trosa’s report Next Steps: Moving On (February 1994) specified the role of the‘Fraser Figure’ and Ministerial Advisory Boards, clarified accountability between chiefexecutives, departments and Ministers, suggested improvements to the target-settingprocess and reassessed the role of central departments.

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10. Andrew Massey’s report After Next Steps (January 1995) explored the relationshipbetween agency chief executives and Ministers and the respective role of the sponsordepartment and agencies in the policy process. It also touched on experience of market-testing and prior options.

11. The Strategic Management of Agencies – Models for Management: Cabinet Office/PriceWaterhouse (September 1995) examined aspects of strategic management of agencies,identifying where the relationship between departments and agencies was working welland where it could be improved.

12. Objective Setting and Monitoring in Executive Non-Departmental Public Bodies: CabinetOffice Efficiency Unit (August 1996) made recommendations on best practice in objective-setting and monitoring for executive non-departmental public bodies (NDPBs). Itidentified important features of best practice as: greater personal involvement by Ministers;greater clarity and prioritisation of targets, together with more emphasis on quantitativemeasures and increased stretch; and the need for the department–NDPB relationship to befounded on a partnership basis.

13. Draft Resolution on Ministerial Accountability from the Public Service Committee’s Report onMinisterial Accountability and Responsibility, HC (1995–96) (February 1997). Ministers had aduty to account to Parliament for the policies, decisions and actions of their departmentsand agencies. The House would regard breaches by them of the obligation described aboveas particularly serious.

14. Selling Government Services into Wider Markets: Policy and Guidance Note: Enterprise AndGrowth Unit: HMT (July 1998) set out government policy for selling services into widermarkets. Revised policy included: automatic right to retain the benefit of receipts generatedby sales into wider markets; ability to use receipts to offset running cost expenditure;activity financed from within existing cash and running cost limits; receipts subject toannuality arrangements.

15. Next Steps Agencies: Guidance on Annual Reports: Cabinet Office Guidance (October1998) provided guidance on coverage and contents of agency annual reports following theintroduction of resource accounting and other emerging policy initiatives. A mixture ofbest practice and mandatory action, it applied to all agencies, both on-vote and tradingfunds. A set format was laid down for presenting performance information against keyministerial targets and milestones.

16. Public Bodies: Proposals for change: Scottish Executive (June 2001). A detailed case-by-case review of public bodies (around 180) in Scotland. Each body was tested against a setof principles. Outcomes: 70 public bodies had a clear continuing role to play; 52 bodieswould be abolished; 61 bodies would be subject to ongoing fundamental review byScottish Executive departments.

Annex E – Review methodology

1. The terms of reference for the review, as announced by Mr Ian McCartney MP,Minister of State in the Cabinet Office, in a parliamentary reply of 7 March 2001, are as follows:

■ what versions of the agency model have been most successful and least, and in whatcontext, focusing on the output and services delivered by organisations, and takinginto account other models of service delivery;

■ how agency objectives and targets can best be aligned with PSA and SDA objectivesand targets and given the right degree of stretch;

■ what degree of control from parent departments and the centre and what degree offreedom to manage are appropriate;

■ how appropriate the current level and scope of central scrutiny is, includingquinquennial reviews, better quality services reviews and PSA/SDA monitoring;

■ how joined-up service delivery can best be promoted via the agency model;

■ how service delivery and policy can best be integrated to ensure that policy isproperly informed by practicalities;

■ how to ensure that agencies have in place appropriate corporate governance,including the roles of ministerial advisory boards and ‘Fraser Figures’;

■ how best to secure transparency and thoroughness in reporting on agency matters,including performance to the public.

2. The review was tackled in three main ways. First, through analysis of previous studiesof agencies, agencies’ annual reports and other publications that summarise plans, targetsand performance, and a questionnaire sent to all agencies and departments.

3. Second, face-to-face discussions were held with five Ministers, over 50 chief executivesfrom England, Wales, Scotland and Northern Ireland, 13 Permanent Secretaries and over 25departmental officials closely involved in agency matters. Others, for example academics andthe Council of Civil Service Unions and local trade union representatives and staff, kindlycooperated in giving their extensive knowledge of agencies. In total some 125 meetings,interviews and visits to frontline offices were conducted by the team (see Annex F). Inaddition, a small seminar was led by Lord Butler of Brockwell at the University of Oxford.

4. Third, through a series of case studies designed to throw light onto the eight keyissues identified for the review in the terms of reference.

5. In addition to face-to-face meetings and correspondence, chief executives of agenciesand NDPBs contributed to the review at their conference in Manchester on 30 October2001. Two seminars, designed to contribute to the emerging findings of the review, wereheld in January 2002. These were attended by Permanent Secretaries, departmentalrepresentatives, ‘Fraser Figures’ and agency chief executives and senior staff. The draftreport was discussed by the Civil Service Management Board strategy sub-group inFebruary 2002 and at the chief executives’ conference on 14 March 2002.

70

6. An advisory committee chaired by Pam Alexander and drawn from agencies,departments, an NDPB, the National Audit Office, the Public Services Productivity Paneland a local authority supported the review, and we are most grateful for the valuablecontributions of the individuals listed below.

Advisory Committee

Dr Catherine Bell Department of Trade and Industry

Keith Burgess QA plc and the Public Services Productivity Panel

Peter Collis HM Land Registry

Dr Stephen Hickey Department for Work and Pensions

Dr David Jefferys Medical Devices Agency

Steve Jones Wigan Metropolitan Borough Council

Vanessa Lawrence Ordnance Survey

Ian Magee Court Service

Oona Muirhead CBE Ministry of Defence

Michael Whitehouse National Audit Office

Baroness Young of Scone Environment Agency (NDPB)

7. The Agency Policy Review was jointly sponsored by and reports to Ministers in theCabinet Office and the Treasury. Its Steering Group comprised:

Steering Group

Pam Alexander Agency Policy Review Team

Sally Hinkley Cabinet Office (Civil Service CorporateManagement and Reform)

Adam Sharples HM Treasury

Wendy Thomson Cabinet Office (Office of Public Services Reform)

8. The Agency Policy Review Team was led by Pam Alexander, and was jointly sponsoredby the Cabinet Office and the Treasury.

Review Team

Pam Alexander Review Leader

Jack Charteris Ministry of Defence

Steve Gillespie HM Prison Service

Peter Hawthorne Cabinet Office

Phillip Jones Cabinet Office

Ilynn Masson Cabinet Office

Ian Spurr Cabinet Office

Maureen Parnell, followed by Secretarial supportJenny Kumah

71

72

Annex F – Organisations and people interviewed by the review team

1. The review team during the course of the review interviewed senior managers andstaff from the following organisations and others. We would like to express our gratitudeto those who made time to contribute in this way at our consultation meetings and also tothose who responded to the questionnaire.

2. We conducted over 125 individual interviews with Ministers and officials including:

■ five Ministers;

■ 13 Permanent Secretaries;

■ 49 agency chief executives;

■ four executive NDPB chief executives; and

■ 25 senior managers in departments.

3. In addition the review was the main focus of discussions at the chief executives’autumn conference in Manchester in October 2001 and at the chief executives’ annualconference in Edinburgh in March 2002.

4. We also held:

■ a seminar in Northern Ireland for a group of agency chief executives and seniordepartmental officials;

■ a seminar at the University of Oxford with interested academics and formerPermanent Secretaries;

■ a seminar for a group of Treasury officials responsible for spending departments; and

■ two seminars for mixed groups of agency chief executives and senior departmentalofficials.

Our findings were also discussed at the strategy sub-committee of the Civil ServiceManagement Board.

5. In addition to interviewing agency chief executives and senior officials, members ofthe team visited nine agencies and three departments and talked to a wide range of staff atall levels:

■ Benefits Agency – Tees District

■ Child Support Agency, Birkenhead

■ Department for Work and Pensions, Human Resource Centre, Blackpool

■ Driving and Vehicle Licensing Agency, Swansea

■ Driver and Vehicle Licensing Northern Ireland, Coleraine

■ Employment Service, Blackpool North

73

■ Pilot Jobcentre, Clapham Junction

■ Immigration and Nationality, Liverpool

■ Inland Revenue, Accounts Office, Shipley

■ Inland Revenue, Contributions Office, Newcastle

■ Inland Revenue, Taxpayers Service Office, Leeds

■ NHS Pensions Agency, Fleetwood

■ National Savings, London

■ National Savings, Durham

■ Service Children’s Education, Germany

6. We also interviewed the following individuals and groups.

Former senior civil servants closely involved in setting up agencies:

■ Lord Butler of Brockwell

■ Sir Robin Ibbs

■ Sir Peter Kemp

■ Sir Robin Mountfield

■ Sir Michael Bichard

Other public sector organisations:

■ Audit Commission

■ National Audit Office

■ West Yorkshire Metropolitan Ambulance Service

■ Wigan Metropolitan Borough Council

Private companies:

■ Unilever plc

■ John Lewis plc

■ John Lewis, Cheadle Branch

■ Sainsbury’s, Muswell Hill store

Trades unions:

■ Council of Civil Service Unions

■ Unions representing staff in the Department of Health

■ Local representatives from Civil Service unions in the North-East

Academics and consultants:

■ Professor Vernon Bogdanor

■ Professor Peter Hennessey

■ Professor Christopher Pollit

■ Professor Alan Suggett

■ Professor Colin Talbot

■ Andrew Jackson (Stanton Marris)

■ Stephen Taylor (Stanton Marris)

■ Lynn McGregor (Convivium)

Others:

■ Anna Bradley (National Consumer Council)

■ Teresa Perchard (National Association of Citizens Advice Bureaux)

74

Agency Service Delivery TeamCabinet OfficeAdmiralty ArchThe MallLondon SW1A 2WHTelephone: 020 7276 1710Fax: 020 7276 1774E-mail: asdt@cabinet-office.x.gsi.gov.ukWeb address: www.civilservice.gov.uk/agencies

Publication date July 2002

© Crown copyright 2002

The text in this document may be reproduced free of charge in any format or media without requiring specific permission.This is subject to the material not being used in a derogatory manner or in a misleading context. The source of the materialmust be acknowledged as Crown copyright and the title of the document must be included when being reproduced as partof another publication or service.

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