Spending, Performance & Departmental Plans inquiry

Government has made some progress in the way it plans and manages its business. But much more work is needed before the system can ensure long-term value for money at a cross-government level. Government has taken an important step forward in developing Single Departmental Plans, the first time it has attempted to bring together all of a department’s activities and commitments into one document. HM Treasury has increased early engagement with departments on the Spending Review, to get their input into the process and to better understand their models and forecasts. However, we have yet to see how Single Departmental Plans will integrate with existing processes such as the Spending Review to form a coherent and enduring approach which can support value for money decisions over the whole of government and into the longer term. These processes also need to develop significantly if they are to tackle the issues HM Treasury itself has identified: intelligent management of performance; linking the work of arm’s-length bodies to their sponsoring department; dealing with issues that cut across departmental responsibilities; and improving transparency.

Government makes plans with a poor understanding of current performance, of the outcomes it is seeking, and of the link between outcomes and associated funding. The Government has struggled for many years to make significant progress with joining up spending, objectives and performance. HM Treasury’s Financial Management Review in 2013 planned various initiatives for costing and understanding the value of service delivery, but these were not ready for the 2015 Spending Review, and are still under development now. While the SDPs represent an improvement in ambition, there is still a long way to go before either the Government or the taxpayer can see what money has been spent on a given objective and what value has been delivered. Information is spread across a number of different documents, including SDPs, Annual Reports, and Supply Estimates, which are all prepared on different bases and cannot usefully be combined. We accept that bringing this together is a significant challenge, but it is a crucial one for government to prioritise.

Many of government’s key objectives cut across more than one department and involve multiple organisations delivering services. But, while we recognise there are some positive examples, there is not enough joined-up planning across government. The Government has shown its commitment to working across organisational boundaries by setting up Cabinet Implementation Taskforces to monitor and drive delivery of cross-cutting priorities such as housing and digital inclusion. But these taskforces have not yet had an impact in actual planning and performance monitoring. We have seen a number of examples where expenditure in one area would lead to savings in others, for example on mental health, but in our experience the Government’s approach to planning and management does not encourage a joined up response. We heard of a number of examples of departments working together, for example the Departments for Education and for Business Innovation and Skills had set up a joint unit on apprenticeships. But these working practices rarely led to formal funding or accountability arrangements, and only two formal joint bids were received by HM Treasury as part of the 2015 Spending Review. Within departmental groups, a quarter of arm’s-length bodies surveyed 6 Managing government spending and performance by the NAO were at best only partially clear about their sponsor department’s objectives, which indicates additional weaknesses in joined-up planning through the delivery chain. We recognise that accountability structures are currently based around separate departments, rather than reflecting the evolving ways in which government is actually working, but there are some good practice examples which show this need not be a barrier to working together.

We are yet to be convinced that SDPs will be able to deal with significant changes in priorities within and beyond this Parliament (for example Brexit). We welcome the Treasury’s agreement that the centre of government should aim “to devise a system which is so useful and so valuable in planning public spending that it’s completely robust to any change of government and can accommodate changes of policy priorities within that”. However with SDPs still in their infancy we have yet to see this happen in action. Brexit will be a good test of whether the approach is fit for purpose in allowing government to assess its priorities and make changes to objectives and the related funding as needed. SDPs must be living documents that allow government as a whole to respond realistically to changes when they arise, including if necessary dropping objectives. They must also support a view of outcomes over a longer term than just this Parliament. We recognise that fully taking into account the implications of Brexit will take some time. However, it is not encouraging that SDPs have not yet been updated to show basic information such as new ministers, let alone to reflect all the recent changes in departmental responsibilities, such as the creation of the Departments for Business, Energy & Industrial Strategy and International Trade, or to set out changes in plans as a result of Brexit.

There is significant variation in the maturity of planning across individual government departments, and no shared approach to encourage continuous improvement. HM Treasury was clear that it would use the quality of a department’s SDP as an indicator of that department’s competence in planning. The Cabinet Office pointed to some examples of good practice, such as HM Revenue & Customs’ work on integration of performance information systems across the department. However, the Cabinet Office itself accepts that there is more to be done across government “to understand what planning means”. We are concerned that without a concerted and co-ordinated effort, government will only be able to move forward at the pace of the slowest department. Neither the Treasury nor the Cabinet Office, when challenged, could provide a single example of where a department had dropped or changed a commitment as a result of the supposedly improved planning processes and overview provided by SDPs: suggesting that prioritisation remains a real challenge for government.

The SDPs do not enable taxpayers or Parliament to understand government’s plans and how it is performing, and therefore have not enhanced their ability to hold government to account for its spending. Good quality information on performance and spending by objective is one of the essentials of accountability, but has been a longstanding area of weakness for government and a serious concern to this Committee. The SDPs were published with a commitment that they would “bring together inputs (especially funding) with outputs” but seven out of seventeen departments do not publicly assign any budgets to their objectives. Managing government spending and performance 7 They are also supposed to “enable the public to see how government is delivering on its commitments”, but there are significant areas within some objectives where no indicators to measure progress are published. We are concerned that while the internal plans have more detail, this detail is not available to taxpayers or Parliament. HM Treasury agreed that it needed to improve public reporting. However there is a considerable way to go before the taxpayer will be able to see in detail what their money is being spent on and how well it is being spent. 8 Managing government spending and performance Recommendations

As HM Treasury and the Cabinet Office recognise, improving planning and performance across government is a key priority, but one which involves many challenges and will not be easily resolved. Our recommendations to help address these challenges are as follows: a) HM Treasury and the Cabinet Office, working together, should now set out a vision of how the overall approach to how government plans and manages its business will ensure value for money across government, and a plan for how they will get to that state at least in time for the next Spending Review. This should include: i) how individual processes, including spending reviews and SDPs, will be integrated to improve government’s ability to deliver value for money, underpinned by rapid progress with the Financial Management Review; ii) how both government and taxpayers can use all the different public information (including the Spending Review, SDPs, Annual Reports, and Estimates) as a package, to see what government is planning, how much it is spending, and what it is achieving, against a consistent set of objectives which cover both the implementation of new policies and programmes and “business as usual”; iii) how the quality of planning and management in different departments will be brought up to a consistently high standard; and iv) how the approach can accommodate both the long-term view needed for many government projects and programmes, and the flexibility needed to meet any new administration’s shorter-term commitments. b) HM Treasury and the Cabinet Office should work with departments on practical ways to improve joined-up planning across government, to bring planning and delivery out of the confines of departmental boundaries. c) HM Treasury and the Cabinet Office should regularly report on how the Cabinet Implementation Taskforces are improving delivery. d) HM Treasury and the Cabinet Office, and all departments, should make sure that SDPs are kept “live” and are central to any discussions about reprioritisation and related funding decisions. Departments should update published SDPs to reflect recent changes in responsibilities and priorities by the end of the 2016–17 financial year at the latest. e) For the benefit of both Parliament and the public, departments should publish the same up to date information about performance that they use for monitoring themselves, subject to any national security or similar essential restrictions. There should be regular public reporting of government’s performance, at least twice yearly, to adequately provide the transparency on performance that was lost when the mid-year reporting to Parliament was dropped. Managing government spending and performance 9 1 The new approach

We and the previous Committee have made repeated calls for government to develop an approach which links funding to outcomes.15 Our inquiries have shown time and again that government does not have the combined information on spending and performance to understand whether it is delivering value for taxpayers’ money. HM Treasury and the Cabinet Office were clear that they accepted joint responsibility for overall value for money across government: “Cabinet Office… take the lead on performance, and we [HM Treasury] take the lead on finance”.16 They also agreed that value for money should be an important basis for Spending Review decisions.17 8 Q 92 9 C&AG’s report on Single Departmental Plans, Figure 11. 10 Q 68 11 Qq 36, 38, 63 12 Qq 39, 91 13 Qq 44, 68 14 Qq 38, 62 15 For example, in 2011, the previous Committee noted: “The Committee’s role is to hold the government to account for the stewardship of all public funds and assets and the achievement of propriety and value for money in government spending….we expect sufficient information to enable us to hold departments to account on costs, outcomes and value for money on both the coalition agreement and across all of a department’s work” —Committee of Public Accounts, Departmental Business Planning, Thirty-seventh Report of Session 2010–2012, HC 650, May 2011, p. 4. In 2016 we noted “Accounting Officers (AOs) across government lack the cost and performance data they need for effective oversight.” —Committee of Public Accounts, Accountability to Parliament for taxpayers’ money, Thirty-ninth Report of Session 2015–16, HC 732, April 2016, p. 5. 16 Q 98 17 Q 72 Managing government spending and performance 11

Government has been promising progress on this for some time. As part of the Financial Management Review, HM Treasury has been working since 2013 on additional tools on costing and understanding the value of service delivery which the HM Treasury Permanent Secretary described as “central to our mission”.18 The original plan was for these tools to be rolled out to all departments in 2015. However, both HM Treasury and departments acknowledge that the tools were not detailed enough and not completed consistently across departments to be of use in the 2015 Spending Review.19 HM Treasury said the tools would help provide the next Spending Review with “a much stronger base in terms of analysis and understanding”.20

The Cabinet Office agreed that the SDPs “could do better” on focusing on outcomes.21 The NAO’s analysis of performance measures included in the published SDPs found that only 28% measure outcomes.22 The Cabinet Office said that there were “certainly quite a number of the departments that have a much clearer, more detailed perspective, having done the SDP now after the spending round”.23 However, HM Treasury agreed that the ideal would be to “put together their single departmental plans…then go forward to the spending review”.24 Because the two processes were not aligned in 2015, budgets set out in Spending Review settlement letters are not aligned to SDP objectives.25

HM Treasury told us that taking together the Supply Estimates, the Annual Report and Accounts every department produces, and the SDPs, should provide all the necessary information to assess performance.26 However, at the moment, while the Estimates include departmental spending allocations against certain objectives, these are not the same as the objectives in the SDPs. Published SDPs contain some information on performance against these latter objectives, but very little on how overall departmental budgets and spend map onto those objectives.27 Moreover, owing to the delay in finalising SDPs, mid-year financial and performance reporting to Parliament has been dropped.28 HM Treasury described the end point that it wanted to reach as “At any point you would be able to look at the latest report and accounts for the financial year, and the current SDP that sets out what the Department is doing and how it is trying to do it”.29 The NAO reported that, while government has said that more information will be available, for example in annual reports, it is not yet clear how this will present a coherent set of information for accountability to taxpayers.30 18 Q 73 19 C&AG’s report on Spending Review 2015, para 12. 20 Q 45 21 Q 43 22 C&AG’s report on Single Departmental Plans, Figure 11 23 Q 91 24 Q 66 25 Q 47; C&AG’s report on Single Departmental Plans, para 2.29 26 Q 76 27 C&AG’s report on Single Departmental Plans, Figure 11 28 C&AG’s report on Single Departmental Plans, para 2.20 29 Q 76 30 C&AG’s report on Single Departmental Plans, para 17 12 Managing government spending and performance 2 Further developments required Planning across government

The Committee frequently examines issues which can only be resolved by different parts of government working together.31 Government has shown its intent to work across organisational boundaries by setting up Cabinet “Implementation Taskforces”. The taskforces involve ministers from multiple departments which are working together to drive the delivery of cross-cutting priorities, review performance and tackle obstacles to delivery. The Cabinet Office told us that there are now seven, rather than the original eleven, taskforces, and we noted that the published information on their number, remit and membership was updated to reflect this after our evidence session.32 However, while the Cabinet Office has published terms of reference for the Implementation Taskforces, no information is available on their progress and none of the published SDPs mentions them.33

The Spending Review structure is not well suited to deal with issues that span departmental boundaries.34 The Spending Review process is based around bilateral negotiations between individual departments and HM Treasury. HM Treasury’s 2015 Spending Review guidance suggested, but set no explicit requirements for, departments to commit to joint working; and, in the end, departments made only two formal joint bids for funding.35 Nine out of thirteen finance directors felt that HM Treasury did not provide support to tackle cross-cutting issues in the Spending Review.36 While it is essential that departments collaborate informally to achieve the government’s outcomes, without the structure of a formal joint bid there may be limits to the accountability of such arrangements.37 The NAO reported examples where informal working arrangements broke down because preparations in different departments developed at different times, or departments could not agree common policy objectives.38

The model of individual departmental accountability significantly influences how government operates, but it should not be an insurmountable barrier to cross-government working.39 Cross-cutting work is possible—the NAO report sets out the example of the Departments for Education and for Business, Innovation and Skills joint working on apprenticeships with a joint team and accountability to a joint minister.40 HM Treasury agreed that bringing a cross-cutting focus to performance monitoring was a priority.41 It said it must now look at ways to monitor and report, both internally and publicly, where 31 Qq 48–49 32 Q55. The seven taskforces cover: Childcare; Digital Infrastructure and Inclusion; Earn or Learn; Housing; Immigration, Tackling Extremism in Communities; and Tackling Modern Slavery and People Trafficking. Information on the membership and terms of reference for each of the taskforces is available online: Cabinet Office, List of Cabinet Committeess, September 2010 33 Q 59; C&AG’s Report on Single Departmental Plans, Figure 11 34 C&AG’s Report on the Spending Review 2015, para 13. 35 Q 51; C&AG’s report on the Spending Review 2015 paras 3.2–3.3 36 Q 102 37 C&AG’s report on the Spending Review 2015, para 3.7 38 C&AG’s report on the Spending Review 2015, Figure 13. 39 Q 53 40 C&AG’s report on the Spending Review 2015, Figure 11. 41 Q 50 Managing government spending and performance 13 spending in one area of government results in impacts elsewhere, such as the example of facilities for disabled people, where capital grants made by the Department for Health could reduce care costs in local government.42

HM Treasury also stated that progress was needed on the link between central government departments and their arm’s-length bodies as regards planning and performance.43 A quarter of arm’s-length bodies surveyed by the NAO were not clear (or only partially clear) about their sponsor department’s objectives, and some departments produced their SDP with little or no involvement from their arm’s-length bodies.44 We will be looking to see that SDPs are integrated with Accountability System Statements which must make clear the accountability relationships within a delivery system, and the financial and performance data Accounting Officers need to oversee that system.45 The Cabinet Office set out an ambition to move “to a highly sophisticated planning process… [with many] cross-cutting axes”, but cautioned that this would take time.46 Flexibility

HM Treasury acknowledged the “different time horizons” by which projects and programmes have an impact.47 And it also acknowledged the need to improve the degree to which stakeholders can follow through the impact of plans for more than one year.48 However, the Treasury is particularly focused on in-year expenditure performance, and nine out of thirteen Finance Directors who responded to the NAO’s survey felt that HM Treasury considers the impact of settlement funding only during the Spending Review period.49

HM Treasury told us that SDPs should be living documents that are “a way for supporting good quality conversations between departments and the centre”.50 HM Treasury confirmed that this should cover day-to-day work as well as government priorities: “Departments absolutely need to continue to provide the services that the public want.51 The decision to leave the EU represents a good test of whether the plans are fit for purpose in allowing government to re-assess its priorities in the light of events, “flushing out tensions and issues”.52

HM Treasury told us that there were two separate Brexit-related exercises that have been using the SDPs as a starting point—one led by HM Treasury “looking at spending”, and one by the Department for Exiting the EU on “the implications for them [departments] and about any issues they would have in the negotiation that is to come”.53 HM Treasury also told us that “every department needs to look at its objectives and key priorities and 42 Q 87 43 Q 38 44 Q 101 45 See recommendations made in Committee of Public Accounts, Accountability to Parliament for taxpayers’ money, Thirty-ninth Report of Session 2015–16. 46 Q 54 47 Q 100 48 Q 90 49 Qq 65; C&AG’s report on the Spending Review 2015, para 4.4 50 Q 92 51 Q 105 52 Q 61 53 Q 103 14 Managing government spending and performance at how to accommodate EU exit within that” and that it would expect to discuss with departments if “it looks likely to pose a particular challenge to the delivery of some other objective”.54

Fully updating the SDPs to take into account the impact of Brexit will take some time as government is still assessing what that impact may be. In due course, the Cabinet Office agreed, it ought to be possible for Parliament to see what that impact was on a given department, but the Treasury said that it had yet to decide how the results of the various Brexit-focused reviews would be brought together and reported.55 There are currently 17 published SDPs, reflecting the departments which existed before machinery of government change set up to deal with Brexit.56 HM Treasury said it expected that “every Department needs to go through that exercise” of incorporating Brexit into their plans.57 54 Qq 105–106 55 Qq 82, 107 56 Cabinet Office, Single departmental plans for 2015 to 2020, February 2016. At the time of writing, the merging of the Departments for Energy and Climate Change, and Business, Innovation and Skills, and the creation of two other new departments were not reflected in the published SDPs and 8 departments (including the Cabinet Office) had not yet altered their published plans to reflect ministerial changes that happened in July 2016. 57 Q 103 Managing government spending and performance 15 3 Improving monitoring and reporting performance Capability

As a result of the absence in recent years of an effective planning and performance monitoring framework in government, the NAO found that there was a generally low level of capability in government.58 The Cabinet Office agreed—“this is a discipline that is in some ways new to government, so we’ve got to build that muscle a little bit”.59 HM Treasury and the Cabinet Office could point to the Department for the Environment, Farming and Rural Affair’s engagement with arm’s-length bodies on the objectives in its SDP, and HM Revenue & Custom’s integration of performance information systems at every level of the department, but these examples of good practice were limited.60 Varying levels of capability in departments hinder their ability to work together. For example, the NAO found that the Department for Transport was able to engage early with HM Treasury during the Spending Review 2015, but other government departments were less advanced and not ready to engage.61

Government is working to improve capability, for example through HM Treasury’s Financial Management Review, which aims “to improve the capability of the finance profession right across Government”.62 The Cabinet Office’s Implementation Unit is also working with teams in all departments and cross-government professional networks to share good practice on performance measures.63 The Cabinet Office’s told us that “It is much better than it looks from the centre when you go out and talk to the departments”. But the Cabinet Office said that it does not yet collect all the information coming out of departments, to create a single shared view of activity and performance, and considered it had more to do on that.64 HM Treasury agreed that it was a big task, and told us that improving the maturity of the SDPs would be a central focus over the next two years so that the approach was ready to support the next spending review.65 Transparency

The SDPs were published after a commitment from the Cabinet Office during their development that they would “bring together inputs (especially funding) with outputs”. But seven out of seventeen departments do not publicly assign any budgets to their objectives.66 The Cabinet Office’s announcement alongside the publication of SDPs stated they would “enable the public to see how government is delivering on its commitments”. But there are significant areas within some objectives where no indicators to measure progress are published.67 While the internal plans have more detail, this detail is not available to 58 C&AG’s report on Single Departmental Plans, para 2.4. 59 Q 96 60 Qq 38, 43 61 C&AG’s report on the Spending Review 2015, Figure 7. 62 Q 73 63 C&AG’s report on Single Departmental Plans, para 3.19. 64 Qq 43, 54 65 Qq 61–62 66 Q 38; C&AG’s report on Single Departmental Plans, Figure 11 67 C&AG’s report on Single Departmental Plans, Figure 11. 16 Managing government spending and performance taxpayers or Parliament.68 Mid-year performance reporting to Parliament was missed in 2015–16, and the NAO reported that SDPs did not fill this gap in terms of presenting a picture of departments’ financial and non-financial performance.69

HM Treasury agreed that it needed to improve what government publishes to explain to Parliament and the public what money is being spent on and how well it is being spent.70 It said it had taken on board the NAO’s comments on transparency and was looking at the information provided publicly to ensure that it is fit for purpose, and that a good SDP “absolutely allows people to assess performance”.71 68 Q 38 69 C&AG’s report on Single Departmental Plans, para 17. 70 Q 48 71 Qq 38,76-77 Managing government spending and performance 17