PRIZING THE PUBLIC POUND - THE PROGRESSIVE CASE FOR RIGOROUS STEWARDSHIP OF PUBLIC MONEY - Fabian Society
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PRIZING
THE PUBLIC
POUND
THE PROGRESSIVE CASE FOR RIGOROUS
STEWARDSHIP OF PUBLIC MONEY
JOHN TIZARD AND DAVID WALKER
FOREWORD BY DAME MEG HILLIER MP
FA B I A N I D E A S N O. 6 54Fabian Society 61 Petty France London SW1H 9EU www.fabians.org.uk Fabian Ideas 654 First published July 2021 ISBN 978-0-7163-0654-2 Editorial director: Kate Murray Assistant editor: Vanesha Singh This pamphlet, like all publications of the Fabian Society, represents not the collective views of the society but only the views of the authors. The responsibility of the society is limited to approving its publications as worthy of consideration within the Labour movement. This publication may not be reproduced without express permission of the Fabian Society. © The Fabian Society 2021 The moral rights of the authors have been asserted. British Library Cataloguing in Publication data. A catalogue record for this book is available from the British Library. designbysoapbox.com Printed and bound by DG3, London, UK To find out more about the Fabian Society, the Young Fabians, the Fabian Women’s Network and our local societies, please visit our website at www.fabians.org.uk
FABIAN IDEAS NO. 654 PRIZING THE PUBLIC POUND THE PROGRESSIVE CASE FOR RIGOROUS STEWARDSHIP OF PUBLIC MONEY JOHN TIZARD AND DAVID WALKER FOREWORD 2 Dame Meg Hillier MP EXECUTIVE SUMMARY 4 INTRODUCTION 6 Effective stewardship of public money is essential CHAPTER 1 13 What’s the problem? CHAPTER 2 20 Auditing and assessing for outcomes in central government CHAPTER 3 29 Place CHAPTER 4 38 An opportunity and necessity for Labour CONCLUSION 44 RECOMMENDATIONS 45 ACKNOWLEDGEMENTS 48
FOREWORD
BY DAME MEG HILLIER MP
It may seem hard to get the average Tony Redmond made some clear and
person excited about audit but David well-placed recommendations but the
Walker and John Tizard are spot on that government has been reluctant to agree
part of the legitimacy of government is his recommendation for a system leader,
being clear and transparent about how instead giving this function to the body
taxpayers’ money is spent. As they say, that oversees private audit standards.
every pound saved is a pound to spend The government is an antipathy to
on a priority. anything seen as returning to this
And yet the ramifications of the 2011 regime. The key is how to ensure that
Public Audit Act have been immense. there is overview of the sector, skills
The abolition of the Audit Commission, to deliver and a greater urgency about
the public body which oversaw and ensuring the situation is tackled.
undertook all council audits and sector It is not surprising that Walker
wide studies, has led to a situation and Tizard, as two of the key figures
today where there are only three main in thinking about this subject go
auditors left in the market. Add to the beyond the current crisis and highlight
fragility of the private market the real that value should take account of their
risk that as public auditors retire we suggested ‘five Es’ – adding equality
will not have people with the necessary and environment to economy, efficiency
skills to replace them and there is a lot and effectiveness. And much of this is
at stake. Already we have seen delays vital in central government too, as the
in audits increasing, leaving councillors Public Accounts Committee, which
and citizens without information I chair, has highlighted.
about councils’ finances as they make Crucially, this report also highlights
decisions about the next year’s budget. the need for auditors to see beyond just
The government’s response to the bean counting and to assess the
the crisis in local public audit was to risks ahead and the wider public value
establish the Redmond review. In it, of investment. This would require a shift
2PRIZING THE PUBLIC POUND
in the public audit appetite of the private warnings that auditors can flag, there
companies that now deliver this – when is the perennial risk that good money
there is a choice between private work will follow bad.
and council audits the bigger companies We need a greater maturity of
go for the former. And for smaller, thinking about how and what to
potential new entrants the risks and audit and deeper recognition of its
costs are high. importance. This pamphlet supplies
Not every aspect of the authors’ a readable and accessible guide to
suggestions are easy to deliver – training the discussion. Whether you agree
public auditors to look at wider issues with the proposals or not, this
for example, on top of filling the gaps document is an important starting
already in the market, is a decade-long point for the discussion about why
task. But Prizing the Public Pound right- audit really matters for delivery of
ly pushes the debate. Every minister improved public services that will
and councillor should read this report. make a measurable difference.
Audit which supports local politicians
and citizens to focus on the issues Dame Meg Hillier is the Labour
and risks that matter is much needed. and Cooperative MP for Hackney
And any right-thinking government South and Shoreditch and chair of
minister should see that without the the Public Accounts Committee
3EXECUTIVE SUMMARY
During the pandemic, the way in money delivers maximum social
which spending decisions are made value. The audit of NHS foundation
and checked – and contracts are let and trusts, multi-academy trusts and local
monitored – has come under anxious enterprise partnerships is no longer
scrutiny. We need to turn that concern ‘public’. The audit of councils is in crisis,
into practical reform proposals. Labour after the near bankruptcy of several
should recover and celebrate its strong local authorities and central government
tradition of innovation in the mechanics intervention in Northamptonshire
of effective spending. and Liverpool.
But it is not just about demonstrating We propose that public audit in
competence: old ideas about value for England be reorganised, revitalised and
money need updating too. Effective expanded. And we recommend a robust
spending should be economical and approach to assessing public expend-
efficient and should secure policy goals, iture assessment prior to committing
using the minimum amount to achieve the expenditure.
the biggest result. Spending should be Locally, we propose a new office
environmentally sustainable. Auditors for auditing spending in places
should also ask searching questions (by a Place Audit Office or PAO),
about who benefits, whose needs are which would be responsible for local
served and whether spending makes us public bodies and services including
more or less equal. The pursuit of social councils, combined authorities, NHS
justice and rigorous accounting for trusts, academies, multi-academy
social spending go hand in hand. trusts, transport authorities, and the
The time is ripe for reform. The audit police, and also for auditing the overall
profession is facing profound change. wellbeing of places. The PAO would
Confidence in company audit has been work alongside the National Audit
badly shaken and professional standards Office (NAO) and share resources. But it
have been called into question. As the would have autonomy in recognition of
public sector has been fragmented, local authorities’ democratic status and
so have arrangements for ensuring the NAO’s responsibility to parliament,
4PRIZING THE PUBLIC POUND
independent from government. We departments’ spending plans in
advocate the potential streamlining advance. Do they deploy evidence of
and better aligning of the roles of the previous policies; have departments
auditors and existing inspectorates such modelled how they will be experienced
as those in education, health and social on the doorstep, by people, in places,
care, and police, fire and rescue. There with what environmental consequences
is scope for more collaborative work and effects on equalities? This office
between the inspectorates and auditors. should be an avaricious consumer
Local public bodies should collabora- of value for money studies from the
tively assess their spending plans. independent NAO and ensure that
At the centre, government should NAO audits are responded to.
create a new function, jointly in the While this pamphlet focuses on rev-
Treasury and the Cabinet Office. enue expenditure, the same rigour and
This Office for Spending Effectively approaches for assessing and auditing
should check the deliverability of should apply to capital investment.
5INTRODUCTION
EFFECTIVE STEWARDSHIP OF
PUBLIC MONEY IS ESSENTIAL
How we account for and audit spending audit is now embracing equality and envi-
public money has never been more ronmental sustainability, not just efficiency
vital and – a word not often used and effectiveness. There are five Es rather
in this context – exciting. To make than the traditional three of efficiency,
a plausible case for more spending effectiveness and economy. If a health trust
demands evidence that money will be underserves people living in low-income
spent effectively on services and support areas or if the take-up of council services
for those in need. The notion of value for (or vaccinations) among ethnic minorities
money asks: whose needs, whose benefit is disproportionately low then those social
and do these services make a difference? facts say the organisation is failing to deliver
This requires those responsible for all-round value for money.
making spending decisions to be clear
about what they are seeking to achieve
and to assess spending proposals before The 5 Es of value for money
committing the expenditure. • Effectiveness.
It also requires penetrating audit of • Efficiency.
this spending, and for audit reports to be • Equity ensuring fair allocation
taken seriously and used to improve public of resources to meet need.
service effectiveness and accountability. • Equality – pursuing both equality
Audit in the 21st century has to try of opportunity and addressing all
to capture sustainability and account for forms of inequality.
climate change. It has to fit people into • Environmental sustainability.
assessing how a council, government
All expenditure proposals should
department or police force operates – the
be assessed against the 5 Es.
people who provide the service as well
All expenditure implementation
as those who receive it. Just as economics
and its impact should be audited
is emancipating itself from a narrow,
against the 5 Es.
distorted focus on price and efficiency,
6PRIZING THE PUBLIC POUND
In addition to assessing performance to know, better than we know now,
against the 5 Es, all public audit should whether spending delivers and to whom.
continue to sharpen its focus on Audit deserves its place in the political
financial management, the quality of spotlight for the reason that sound
governance, probity and adherence to management of public spending is vital
the seven standards of public life found if the public is to assent to increased
in the Nolan principles. spending. If the public lacks confidence
This pamphlet is aimed at progressive that public money is being spent to best
politicians especially those in the purpose, they will withdraw their consent
Labour party. The 5 Es are aligned to being taxed. Every public pound must
with the values, aims and policies of the be assessed in terms of its public benefit.
party. Labour in UK government – and That entails both a more rigorous audit
indeed in power locally and regionally of money already spent and new ways
as well as in devolved administrations – of informing spending decisions before
will always wish to deliver its policies they are made. It requires fresh thinking
to maximise impact and will want to about time (so we can model the effects
use limited funds (and they will always of spending on environmental sustaina-
be limited given the demands for their bility) and about people (so we can gauge
application) efficiently and effectively. who is left out, which places gain and the
Every pound spent ineffectively or effects spending has on the wellbeing
inefficiently is a pound not available of staff and citizens).
for spending on priorities. This pamphlet focuses on England
The Covid-19 emergency has thrown but many of the issues raised and the
up instances where public money has proposed solutions would be applicable
been misspent. Following years of across the four nations of the UK, and
austerity, auditors are asking themselves some are directly relevant to the role
whether they failed to warn of impend- and opportunities for a UK government.
ing problems with contractors or even As would be expected from a Fabian
the solvency of public bodies. Audit is Society publication, this pamphlet
not merely a technical area, best left to is written from a social democratic
dusty professionals. It is an essential perspective and whilst it seeks to
public function, and supports all those persuade the Labour party to embrace
arguing for higher spending on social radical reform as part of its ‘build back
services. Without it, we can not know fairer’ programme, most of the proposals
whether spending works. should be a platform for good govern-
The Labour party, along with all ment for all responsible political parties.
advocates of a more dynamic, interven-
tionist state, should welcome auditors’ THE NEED TO PERSUADE
work. At best they offer evidence of Labour must make the case for signif-
what the state can do. Those who want icantly increased public expenditure
to constrain government and diminish that meets the needs of communities
spending need audit too. Both have and places. It has to adopt a programme
7FABIAN IDEAS NO. 654
for investment in social and physical evidence. Better and wider auditing
infrastructure, to create a fairer and of spending would not in itself change
more equal society and address regional attitudes but the willingness to pay
and social inequalities. It may have might increase and negative perceptions
to increase taxation progressively to of the public sector might soften if we
fund some of this expenditure whilst addressed the quality of how public
also using borrowing and central bank money is used and its contribution
finance. Such an approach requires to thegoals of a more equal, fairer
public support and confidence in gov- and greener economy and society.
ernment stewardship of public money.
It also requires evidence that, unlike A NEW ARCHITECTURE FOR PUBLIC
the current Conservative government, AUDIT AND VALUE FOR MONEY
a Labour government would have the That means looking afresh at the
commitment and policies to ensure architecture of how spending is planned,
effective fiscal stewardship. delivered and its effectiveness assessed,
To what the Institute for Fiscal both inside central government in
Studies calls “substantial and mounting Whitehall and Westminster and inside
pressures on the NHS, schools and other the local bodies with which people
services” must be added the wider costs have most dealings – councils, clinics,
of ageing, of infrastructure, of reducing Environment Agency and Department
the aching gaps in productivity and life for Work and Pensions offices. Audit is
chances within England, the demands the keystone in the arch. As the NAO
of 21st century defence, and preparation says: “Independent auditors have a key
for further pandemics, among the many role in supporting effective stewardship,
pressing calls on the public purse. That governance and accountability. This role
does not immediately necessitate higher is important at any time, but especially
taxation; a great lesson of recent years so when available resources are scarce.”
has been that fiscal and public financing Without an accurate and trustworthy
policy including the role of the central record of income and expenditure –
bank can and has to be far more flexible without the beans being counted –
than traditional textbooks and many political and policy talk remains foggy
economists used to claim. But the people and rhetorical. The circuitry of cost and
of England, along with citizens of the accounts discussed in this pamphlet
rest of the UK, must engage with the exists to serve a purpose – to build and
prospect of paying more tax. As a pre- run nurseries and clinics and affordable
condition, citizens have to be supplied housing and ensure people get needed
with evidence, in the face of media and benefits. We argue here for the tradi-
political attacks on public services. The tional Es of audit to be augmented by
response to Covid-19 has bathed them the Es of environmental sustainability,
in a positive light but scepticism persists. equality and equity. It is something the
Audit is an essential strand in that Johnson government seems to accept.
8PRIZING THE PUBLIC POUND
Value for money does not therefore With that list we have moved
mean simply selecting the lowest a considerable distance from the aims
price, it means securing the best and objectives of traditional audit, and
mix of whole-life quality and perhaps also from the skill set of trained
effectiveness for the least outlay accountants. But their professional
over the period of use of the bodies are alert. ‘Audit’ should embrace
goods, works or services bought. analysis, data collection, organisational
Value for money also involves … design and what might be called soci-
assessment … to provide confidence ological imagination – to see how the
about its probity, suitability, and balance sheet impinges on individuals,
economic, social and environmental their families and their places.
value over its life cycle.
REGENERATING PUBLIC AUDIT
That commitment was made in the Public auditors check the arithmetic
Green Paper, Transforming Public and verify probity and legality on
Procurement, published in December a council’s expenditure. But we cannot
2020. It needs to extend to all public just leave it there. Trusts, departments
spending decisions. and local authorities exist within a state
Traditionally, auditors come in after system but also within an ecosystem of
budgets have been set and spending residents, service users and companies.
committed. They check whether decisions Interactions between these also need
taken are lawful; they are meant to blow to be audited. So too must interactions
the whistle if the sums do not add up with the physical ecosystem, atmos-
or if the absence of invoices may point phere and climate.
to fraud. The importance of that ‘bean A local authority might have let
counting’ must be emphasised. Public a contract for rubbish collection and
money that is lost or stolen is money that recycling to a company owned by a shell
could have been spent on children’s well- outfit based in a tax haven. The contrac-
being or economic advance. Liverpool tor might underpay its staff, leaving them
is a sad example of what happens when struggling to get by and relying on social
financial discipline goes awry. security – paid for out of another public
But audit needs to do more. Where do purse. Or the company might seek cheap
the beans came from; are the plantations ways of disposing of refuse, causing
sustainable; what environmental costs pollution. Audit should not be confined
were incurred by transporting them; to a single organisation’s balance sheet.
what does coffee production do to and Costs and benefits spill out and over.
for the fieldworkers and their families, Spending by a police force on dealing
what is their cost schedule? Last, but by with people with mental health difficul-
no means least, what about the quality ties is not cost-effective if it is inflated by
of the brew: does it justify the price an implicit transfer of cost from the NHS,
charged, does it offer in the widest which has no properly funded night-time
sense value for money? crisis services.
9FABIAN IDEAS NO. 654
The conventional balance sheet in treatment? How well do they, on the
the private sector is being reappraised. other hand, reflect the social and ethnic
The Institute of Chartered Accountants composition of the areas they serve
in England and Wales (ICAEW) has in their recruitment and promotions;
challenged its members to reflect do they pay their female staff fairly;
on an “unprecedented level of public do they make an effort to maximise
scrutiny” of what they do and pick opportunities for all, including those
up lessons from, for example, the with disadvantage and disabilities?
spectacular collapse of the public service Accounting for equality is in its early
contractor Carillion. Issues with private stages. But the modern public auditor
sector audit have consequences for the should welcome the task of putting
public sector. numbers on equalities and rolling
Auditors cannot offer assurance to them on to the balance sheet.
the public (or indeed to shareholders Financial audit tries to be
of private companies) if no account is comprehensive – does this statement
taken of depleted resources, or carbon of accounts include all obligations (and
released; environmental damage and credits). So what if a city council takes
contributions to climate change must no action despite evidence of mounting
also be deducted or presented from pollution? Who notates the ensuing
bottom-line earnings. This work is all costs, visited on children breathing in
the more necessary when public bodies dirty air or, according to new evidence,
have pledged themselves to reach a higher incidence of macular degen-
zero-carbon emissions and internation- eration among older residents? Some
ally agreed climate goals. of those costs are crystallised in other
Audit should go further. Public organisations’ balance sheets, those of
service depends on staff wellbeing NHS trusts for example. Auditors’ tradi-
and conditions of employment. It also tional skills need enhancement. A note
depends on the staff of contractors on the accounts, or accompanying public
and how they are treated, as well as interest report, should refer to environ-
on business suppliers, charities and mental degradation, and the costs and
voluntary organisations. Alongside harms it may generate in future years.
the direct impact of government run Those costs are not all financial. They
indirect effects. A full audit also has are social and human; they are about
to reckon with what does not happen what we value.
when public bodies fail to exercise Citizens at large may be uninterested
their powers. Mapping such unintended in the detail of governance, especially
consequences for society, culture and financial governance. But electors do
economy is no easy task. Do public sniff out incompetence. We believe that
bodies knowingly or unknowingly embracing transparent and rigorous
contribute to disparities in life chances; means of planning, then assessing
does the way they operate sharpen spending, would both enhance public
people’s sense of exclusion or unfair confidence and help to dispel the fatal-
10PRIZING THE PUBLIC POUND
ism that is both destructive of democracy spending and chaotic, last-minute
and a breeding ground for extremism. decision making”. We argue here
for a revamping of the entire public
AUDIT, SPENDING AND spending cycle. Audit findings have
PROGRESSIVE POLITICS to be fed back and become evidence
A century ago, a distinguished member justifying (or not) subsequent spending
of the Fabian Society railed against decisions. A continuum embraces
auditors. These auditors had certified pre-spending planning and a calculus
spending on hungry children by of practicality. Too often, policymakers
Labour local authorities as ‘excessive’ have assumed implementation will
and so were a menace, said William take care of itself. Ministers and senior
Robson in a 1925 pamphlet. This was officials ordain; someone else picks
a time when a Labour-led council in up the pieces. The audit continuum
Poplar had led a rates rebellion so that extends through delivery into the
the council could address poverty, assessment of value and effectiveness.
especially child poverty. Today, as then, Conventional wisdom used to say that
audit must address social outcomes audit, evidence, systematic planning
not simply costs. of spending are technical matters, best
Audit is a tool. To link it with the left to experts and we do not want to be
politics of austerity is a mistake; to ruled by them. A plethora of ineffective
leave it to those advocating cuts and policies proves how mistaken that
spending constraints is to miss a great line is.
opportunity. The case for spending One of the most dismaying findings
more is made a lot more convincingly in Deborah Mattinson’s account of what
by those who want to ensure public people in “Red Wall” constituencies
money is spent wisely and well – and think is how they wait fatalistically for
that expenditure and its impact are a policy to go wrong, anticipating how
rigorously audited. Labour should not they will then blame the politicians.1
just champion value for money, it should Polling evidence showed that,
engage with the debate about what despite the popularity of some of
constitutes value. By assuring the public Labour’s ambitious spending plans in
that spending offers value, the political the 2019 manifesto, there was a credi-
left starts addressing a fundamental bility problem, with a significant pro-
political question: how to persuade portion of the electorate concerned that
people to pay (more) tax when this the proposed levels of spending would
is necessary. neither be affordable nor deliverable,
When she was Labour’s shadow and certainly not without increases in
chancellor Anneliese Dodds MP called taxes for the majority of the population.
for, “an end to poorly targeted public Labour’s costed analysis of its spending
1
Deborah Mattinson, Beyond the Red Wall, Biteback, 2020
11FABIAN IDEAS NO. 654
plans was insufficient to overcome this As we will argue later in
lack of trust. This problem was not new: this pamphlet, this does not mean
it had been an electoral issue for Labour that Labour should lack ambition
since before the 2010 general election. for increasing public expenditure
Labour has to have clear plans and public investment. We are
and proposals to demonstrate that in concerned that Labour can win
government it would be a prudent and power and then maximise the
effective steward of the public finances, impact of such expenditure
and public expenditure in particular. for the public good.
12CHAPTER 1
WHAT’S THE PROBLEM?
Both public and private sector auditors present and future, staff, service users,
are reflecting on the relevance of their creditors included; in the public sector,
work today, amid mounting alarm over audit has to be sensitive to how citizens
inequality and climate change. A wider experience service delivery and how
definition of audit is now needed, going service delivery may, unwittingly or
beyond finance and its traditional deliberately, discriminate between
concerns with accuracy, legality and them. The balance sheet for, say,
honesty in accounting. These concerns a local authority and a health trust
remain vital tasks for professionals can no longer be audited in splendid
but need to be absorbed into a more isolation. The audit function has to
open and civic idea of assurance. Is the span public services in places and
public pound being spent to maximum address how decisions made at one
effect; is it being spent fairly? Key layer of government affect another.
concepts such as value for money and The old concept of stewardship
effectiveness have to be made fit for the must now extend to other dimensions.
21st century when organisations must In assessing risk, the accounting
also account for their carbon output trail cannot stop today, tomorrow
and for their contractors’ pay rates. or even in 10 years’ time – when the
Change is coming in private planet will be even warmer and climatic
sector work as well. Accountancy’s conditions further changed, with all its
professional rules try to assure accuracy consequences for profitability, income,
in calculating earnings, profit and loss for staff, for estates and the bottom
and viability. But as PwC’s UK head of line. Organisations, public and private,
audit puts it, financial statements must generate waste and consume irreplace-
also reflect a ‘new reality’ in which able natural resources: wider costs
‘external issues’ impact on companies. and benefits usually go unreported.
Auditors have to listen to all those Meanwhile, the interests of staff must
with an interest in the organisation’s also figure in the accounts. What about
13FABIAN IDEAS NO. 654
the ratio between lowest paid and chief wanting and urged changes in the
executive; which people comprise the law to ensure that auditors reported
board’s remuneration committee and in public, returning to the original
what are the social costs of employing intention behind the audit of corpora-
staff on zero-hours contracts, possibly tions – to give assurance to shareholders
shifting one organisation’s risk to and other users of company accounts
another – or from the company that they were a fair and true picture of
to the state? commitments present and future. Asked
to look at the FRC, Sir John Kingman –
TRUTHFULNESS a former Treasury mandarin – proposed
In recent times auditors’ reputation replacing it with a genuinely public
as truth tellers has suffered damage. body to supervise audit. The Johnson
Reform is urgent. One strand touches government appears to acknowledge
the very heart of market capitalism. the problem and hesitantly says a new
Lenders and shareholders depend organisation will be created.
on accounts of profit and loss. To be The review found the concentrated
trusted to draw them up accurately nature of the market in company audit is
and impartially, auditors have to be part of the problem. The ‘big four’ account-
independent of the company directors ing and consultancy firms, EY, Deloitte,
who appoint them because the latter KPMG and PwC, audit 98 per cent of FTSE
may have an interest in an incomplete 300 index companies. Kingman called
picture or even deliberate omissions. for an end to such ‘dominance’. The same
Confidence in company audit has been handful of firms also dominate in public
badly shaken in recent years, even audit and are big providers of consultancy
leading Grant Thornton’s Jonathan Riley and advisory services to government and
to propose that the choice of auditors the NHS. In the public sector the big four
should be nationalised: the auditors are more like the big five with one firm,
of public limited companies should be Grant Thornton, carrying out 40 per cent
chosen not by the directors but by an of audits for England’s councils and
independent state commission. police forces.
Audit reports have become
unreliable. The Financial Reporting CONTEMPORARY PROBLEMS
Council (FRC) said too many company WITH PUBLIC AUDIT
audits were sub-standard; too often Public audit has been in retreat for some
auditors were not challenging directors’ years. Over three decades the audit of
decisions. But the FRC was part of public bodies outside Whitehall has
the problem. Ostensibly a watchdog been broken up and privatised.
and supervisor of auditing, its status And of course the public sector
was ambiguous – it was an unstable landscape as a whole has changed.
amalgam of public and private interests. The 1997–2010 Labour government
The Brydon review in 2019 found created foundation trusts in the NHS
the quality and effectiveness of audit in England and empowered them
14PRIZING THE PUBLIC POUND
to arrange their own audits. The system allows. Spelthorne Council
Conservative governments since 2010 launched a foray into the property
have moved most schools out of local market, trying to secure a stream of
authorities into multi-academy trusts future revenues from buying hotels
which are responsible for their own and factories. The London Borough of
external audits. The Cameron-led Croydon, too, sought a way out of the
coalition government abolished the austerity and funding cuts imposed on
Audit Commission, allowing councils it by central government by acquiring
to escape a standardised public regime property for revenue which proved very
and arrange their own audits. The risky and led to very serious financial
NAO remains the UK’s supreme audit problems. Auditors seemed unable or
institution and the auditor of central unwilling to blow the whistle in time.
government departments; although The report from Max Caller on
it does use private firms, it retains political and financial management in
control and assures quality. The NAO Liverpool City Council has identified
now produces codes for the audit of that as much as £100m of public money
foundation trusts and (since 2015) for is believed to have been squandered
councils, but vast amounts of potentially by a ‘dysfunctional’ council and there
useful data about the 5 Es are kept are police enquiries relating to alleged
locked up within fragmented audit corruption. The story poses questions
arrangements. ‘Professional restrictions’ about audit and whether it was muscu-
inhibit data sharing, the NAO has said. lar, assertive and independent enough.
It added that many local public bodies Although there are different issues
are involved in various partnerships, involved in cases such as Northampton-
with other public bodies as well as shire (poor leadership and stewardship),
with the voluntary sector and private Liverpool (alleged corruption) and
companies. “Local auditors, however, Spelthorne – (questionable investments
are only able to report on arrangements which came adrift), all of these examples
in place at the individual body”.2 cast doubt on the effectiveness of the
Since 2010, councils, desperate to external audit.
continue providing services as their However, audit is only one element
grants were cut and they were forbidden in the system. Much depends on
from raising council tax, have resorted councillors, their powers, probity
to desperate measures. Some reduced and the overall financial condition
what they were prepared to spend on of local government during austerity.
internal and external audit and public The FRC, which had been
information. Conservative-controlled given a paradoxical role in monitoring
Northamptonshire County Council council audits despite having no role
came as near to bankruptcy as the in regulating council accounts, found
2
Auditing Local Government, March 2020
15FABIAN IDEAS NO. 654
60 per cent of them did not meet its the Treasury has created over the years,
quality standard. The Kingman report including the so-called Magenta Book
said local audit should be fundamentally with its guidance on how spending is to
rethought, to improve scrutiny, quality be evaluated, is curiously deficient. How
and leadership – a conclusion endorsed spending is being directed to secure
by the subsequent review led by stated outcomes often goes unexplained
Sir Tony Redmond. A 2019 inquiry by and the story of how previous spending
the House of Commons Public Accounts plans have fared goes untold.
Committee found a fifth of local public Even statutory requirements to
bodies lacked ‘proper arrangements’ to undertake equality assessments have
secure value for money, with a dearth not been universally effective. Similarly
of relevant information. consideration of the impact of proposals
Devolution might have been an on the environment and sustainability
opportunity to compare and contrast. is patchy and there are many examples
In Wales, Northern Ireland and of such consideration being pushed
Scotland, new audit offices were aside to make way for short-term
established covering both central political objectives.
government and local services. This Here is the tie-up with audit, in the
welcome development seemed to offer wider sense. Before spending plans are
a way of following the public pound approved, they need to be examined
attentively from decisions made by in the light of what is known about
ministers all the way to how public delivery and service design in the past
services were experienced by the public. and, often, why they failed. Whitehall
But few studies have captured the departments plan their spending and
performance of these offices. At UK make allocations without enough knowl-
level, little effort has been made to edge and understanding of the (local)
evaluate the differences between the public bodies that actually provide the
countries. Audit arrangements cannot service. A vast amount of evidence about
be separated from questions of size, the implementation either goes uncollected –
relationship between centre and locality, which we discuss later – or is not used
councils’ autonomy and, critically, by the centre.
how much they have to spend. This failure fully to assess revenue
expenditure proposals can lead to:
PRE-SPENDING ASSESSMENT • Reducing the impact of proposals.
Spending totals are set periodically – the • Short-term considerations being
latest review is supposed to be starting given preference over fulfilling
in autumn 2021 – and the Treasury longer term strategic objectives.
aims rigorously to enforce the DEL, the • Unintended consequences
departmental expenditure limits. Bids to within and between
invest are supposed to fulfil the detailed departments and agencies
appraisal criteria set out in the Treas- including potential additional
ury’s Green Book. But the apparatus expenditure pressures.
16PRIZING THE PUBLIC POUND
• Non-alignment between expendi- too. The PAC picks up only a small
ture and policy goals. proportion of NAO studies; other
• Negative societal, economic Commons committees – though they
and environmental consequences can commission NAO work – make
of expenditure decisions. much less use of its capacity.
• Weaker accountability if there A glaring absence – regretted in
are no tangible impact targets. successive reports by the PAC – is
that no office, department or function
WHITEHALL AUDIT takes responsibility for the system of
Under the leadership of Margaret Hodge government as a whole. Money voted
MP, chair of the House of Commons by parliament is allocated and disbursed
Public Accounts Committee (PAC) from by the Treasury, which often seems
2010-2015, and the comptroller and to refuse responsibility for how well
auditor general, Sir Amyas Morse, the it is spent, on whom it is spent and –
public audit regime in central govern- critically – with what consequences for
ment was reinvigorated and broke new sustainability or equalities. Report after
ground in the manner of scrutinising report from both the NAO and the PAC
departmental performance and calling have identified large gaps in core skills,
senior civil servants retrospectively including procurement and contract
to account. The work has continued management. Too many drew attention
under their respective successors, to the failure to address previous
Meg Hillier MP and Gareth Davies. findings, for which neither senior civil
The NAO retains a strong reputation servants nor ministers are held account-
as a rigorous and genuinely independent able. Departmental select committees
scrutineer of value for money in central spend too little if any time on considering
government and its agencies. But its NAO reports, leaving this task to the PAC.
capacity is limited. Despite forays into This is a serious omission.
following the public pound into the There is no duty on ministers or
accounts of contractors, the activities of senior officials to respond in action
companies largely escape scrutiny even rather than simply words to NAO
when their balance sheets are heavily reports. Too often, this can lead to NAO
dependent on the state. reports referencing earlier reports which
The effectiveness of the NAO also have not been adequately addressed.
rests on the willingness and ability of There is no office in Whitehall to check
the civil service to collaborate and adopt how departments have responded and
its value for money recommendations. to hold them to account.
The Treasury is supposed to oversee The Blair-Brown Labour government
this takeup, but its interest is fitful. began moving towards trying to
Often senior civil servants still give examine, analyse and target spending
the impression of reluctance to make across the “whole of government”. The
the best of audit. The enthusiasm of Treasury now prepares accounts for
MPs to use NAO findings is variable, the entirety of the state’s income and
17FABIAN IDEAS NO. 654
expenditure, subject to audit by the probity, compliance with the Nolan
NAO. Together with the projections principles of public life, the effectiveness
regularly made by the Office for Budget of the goods and services procured,
Responsibility, Whole of Government and the competency of procurement
Accounts look forward to the state’s and contract management.
balance sheet in decades to come –
critically important when pension A TRIPLE CHALLENGE
obligations are being stoked and higher That ministers and their special advisers
education funding rests on loans that, might be tempted to rush decisions and
although repayable in principle, will take shortcuts may be regrettable but
never be redeemed. But this data has is not unprecedented. Unsupervised
not been fully exploited. contracting was how government
used to operate – in the 18th century.
LESSONS FROM COVID-19 The modern British state, at least from
During the Covid-19 pandemic, how the middle of the 19th century onwards,
public spending decisions are taken was fashioned on the principle of
and checked has come under intense merit. Applied to public procurement,
and anxious scrutiny. Something has grant-giving and civil service recruit-
gone wrong. Both in support packages ment, competition is supposed to be
for households and businesses and the fair, even-handed and open. Indeed this
procurement of services and personal was the genesis of the audit profession,
protective equipment: as merit-based government demanded
open assessment of honesty, economy
There is evidence that government and effectiveness. The word audit used
has not always spent money to mean a hearing. Audit was a way of
effectively – both by paying over informing the public of how well com-
the odds for the outcomes achieved munal powers were being used. District
and by spending money in ways that auditors and, from the mid 19th century,
achieved no clear policy objective . 3 the comptroller and auditor general were
invested with wide-ranging powers of
The Institute for Government found only investigation (recently supplemented
a small proportion of contracts were let by powers of review).
competitively and 2020 saw the highest That old sense of civic mission
number of ‘ministerial directions’ for needs to be reinvigorated. Major
decades – these are formal instructions reconstruction of audit in English local
to permanent secretaries to go on with government is overdue but, as we
a policy or spending decision despite suggest later, cannot be accomplished
their (financial or other) concerns. without a parallel restructuring of how
Major questions have emerged over central government spending decisions
3
Institute for Government, Whitehall Monitor 2021
18PRIZING THE PUBLIC POUND
are taken and followed. Recently and institutions, notably the NAO, remain
especially during the pandemic, what in place. Fresh thinking is needed about
Peter Hennessy calls the genetic code the content and structure of audit,
of British public administration has been especially on the opposition benches.
damaged. But strong traditions and We hope to offer some pointers.
19CHAPTER 2
AUDITING AND ASSESSING
FOR OUTCOMES IN
CENTRAL GOVERNMENT
UK central government has been In addition to its bread-and-butter
battered by damaging allegations of work as the external auditor of depart-
cronyism in public appointments. The ments, the NAO has amassed a large
commissioner for public appointments body of value-for-money studies. For
is alarmed. The civil service has those who care to look, here is a trail
been threatened amid high-profile of evidence on how well the government
departures from its senior ranks. is working with multiple pointers to
But aspects of the state remain in how it could be improved.
good health, notably three institutions The NAO regularly reports high
responsible for the collection of vital take-up of its work. It claims substantial
data. The independence of these data savings, £1.1bn in 2019–20. The Treasury
organisations is precious and MPs who says it follows up recommendations
value good government should pay made when the Commons Public
the closest attention to whether they Accounts Committee holds hearings
are adequately financed and how they on NAO reports. During 2019–20, the
are governed. government says it accepted 275 of
The most recent, the Office of Budget the PAC’s 300 recommendations. Yet
Responsibility, provides a counterpoint successive investigations find similar
to the politics of the exchequer. The problems inside departments. Shelves
Office for National Statistics proved its groan under the weight of yesterday’s
worth during the Covid-19 pandemic audit reports; they should be read today,
and will again in delivering the 2021 before tomorrow’s spending decisions
census in England. But, of vital impor- are finalised. There is scant evidence
tance in both counting what the state that effectiveness and efficiency – let
does and in holding it to account is alone attention to environmental
the NAO. sustainability and equality – have
20PRIZING THE PUBLIC POUND
been improving over time in the In recent years, the NAO expanded
machinery of state. The problem is one thematic studies but they do not
of implementation and application. encompass the NHS and English local
And that leads to the Treasury – which government, at least not in the detail
oversees the separate ‘internal audit’ of spending by individual councils and
function within Whitehall – and the trusts. Comparing the 3 Es between
paradox of tight financial control health trusts and councils is very
and lax oversight over effectiveness difficult, let alone their record on
in public spending. environmental sustainability or
The NAO is the UK’s supreme audit equalities. In the next chapter we
institution but there is what professor look at how this gap might be filled.
Patrick Dunleavy of the London School Another grey area is the oversight of
of Economics called a ‘patchwork’ of private contractors. Audit should follow
audit bodies and legislation across both the public pound wherever it is spent,
England and the rest of the UK. A recent including the conditions of employment
review of the internal audit of govern- and the environmental and equalities
ment departments barely mentioned the profile of contracting companies.
potential utility of NAO reports. Large
sums of public money are funnelled WHOLE OF GOVERNMENT
into bodies, some of them quasi-private, The Treasury compiles financial
where the audit trail goes cold. statements for the whole of government,
Examples include housing associations. audited by the NAO. This provides
Some of the 5 Es are invigilated by the a rounded but high-level picture of the
powerful inspection bodies that oversee state and its outlays stretching into the
health, social care and education. future. The account has yet, as the NAO
Sometimes the NAO collaborates with says, to incorporate the environment
them, for example in joint studies and depletion of natural assets. Big
with Her Majesty’s Inspectorate of Con- questions have yet to be solved around
stabulary and Fire and Rescue Services accounting for spending on education
(HMICFR); sometimes Ofsted and and training. This is investment,
the Care Quality Commission (CQC) boosting the capacity of individuals
pursue their own agendas regardless. and the economy at large over lifetimes;
The need to audit and draw a map of similarly, some NHS spending helps
effectiveness (shorthand for the 5 Es) prevent ill health and enhances life
seems sometimes to be forgotten. The chances, with positive effects on future
White Paper on integrating the NHS in GDP and tax revenues.
England contained not a single mention What is often lacking is a more
of audit, despite its consequences for detailed understanding of how spending
the effectiveness of NHS trusts, for the in one part of government affects – and
role of contractors and for the account- may diminish the value – of spending
ability of the proposed integrated care in another. In recent years, the NAO has
system boards. found it hard to audit the Department
21FABIAN IDEAS NO. 654
of Work and Pensions because data goes sidelining and hollowing out local
missing in the labyrinth of pensions government in England. This amounts
and social security. But an all-round to a ‘power grab’, according to professor
audit means looking in addition at how Janice Morphet of University College,
spending by the DWP may be rendered London. Yet, paradoxically, the centre
less effective because of spending is weak. The UK government, the Public
(or lack of spending) in other areas. Accounts Committee was solemnly
For example, how much of the increased told by the former cabinet secretary,
spend on income support in universal has ‘no corporate centre’. In between
credit and other benefits is attributable the Treasury, Number 10 and the
to the pursuit by the business depart- Cabinet Office, policies founder and
ment of low-wage employment? bright intentions corrode. The removal
of a dominant personality, Dominic
REWIRING CENTRAL GOVERNMENT Cummings, exposed the structural gap.
The Transforming Public Procurement This is not new. Successive adminis-
Green Paper says: trations have struggled to shape and
reshape this triangle. It is no accident
The decision to invest public funds that, to review how to make things
into policies, services, projects and happen in government after a year in
programmes is subject to analysis power, Johnson turned to the very man
and appraisal to assess the public tasked by a Labour prime minister to
good that is expected to accrue answer the same question two decades
as a result of the expenditure. For ago, Michael Barber.
national spending this will have UK government is highly centralised
been conducted in accordance but not in the sense of having knowl-
with the HM Treasury Green Book edge of outcomes and effectiveness. The
guidance and subject to National Institute for Government concludes that:
Audit Office scrutiny.
By international standards the
Unfortunately this statement of intent Cabinet Office and Number 10 offer
is not matched by reality. The Green limited policy and implementation
Book purports to be a generic guide to support to the prime minister,
spending effectively but there are large meaning that the UK has the worst
gaps between its precepts and spending of all worlds: a highly centralised
decisions. It does not insist as it should system of government without
on informing those decisions from the capacity to organise it from
previous scrutiny, including the efforts the centre.
of the NAO.
During Brexit and Covid-19, A refrain in successive reports from
ministers have been accused of Commons committees is that there is
centralising power, undermining UK no ‘system’. No one takes responsibility
and in particular English devolution, for public services as a whole. Data is
22PRIZING THE PUBLIC POUND
still not routinely shared between tiers managed and experienced outside the
of government Citizens have to knock confines of a single department. Central
on multiple doors: the local DWP office coordination of capital spending has
is separate from that of HMRC with proved a lot easier than revenue. Ad hoc
neither willing to share premises with units have been created over the years to
the council or health trust. Contracting try to cement the bricks, for example the
out often exemplifies the absence of Infrastructure and Projects Authority.
holistic thinking. Ministers insist No mechanism connects political
companies are brought in to run welfare, intention, programme and outcome.
housing or public protection, claiming No one sits astride how policy becomes
savings will be made. The companies departmental allocations which are
bid low and pay their staff less than then delivered to people, in surgeries,
before; to survive, staff have to claim in schools, in social security receipts and
universal credit, pushing up aggregate in business support. Better assessment of
outlays. No one, including remarkably what spending accomplishes should feed
no one in the Treasury, cares to join the back into robust pre-spending planning.
dots and paint a rounded picture. There That implies not so much a more power-
has been no systematic assessment of ful centre but a cleverer, better informed
the all-round impact of outsourcing. one that does not disdain delivery but
The NAO has powers to seek data actively incorporates learning from
and information from contractors, but doing and learning from audit.
it should have unfettered access to
contractors’ financial arrangements MAKING THE STATE MORE EFFECTIVE
including relations with parent compa- Before spending decisions are finalised,
nies, executive remuneration policies, government needs, according to the
tax policies and more. procurement report, “a strong strategic
Assessments of public service case that sets: a clear objective aligned
outsourcing should include an evalu- to government priorities, a rationale for
ation of the impact of proposals and intervention, and/or robust evidence
actual contracting on employment terms and analysis for how different options
and conditions, the local economy, for delivery”. But beyond this statement,
equality and the environment as well what we need is a lasting commitment
as on other public sector budgets – for together with fresh thinking about the
example a loss of employment resulting mechanics through which evidence –
in extra costs for the DWP. especially the evidence from audit –
The Treasury says it is in is amassed and applied in advance.
control. The language in its various Successive governments have failed
manuals – the green, magenta and to map the routes taken by their own
red books – implies coordination. But policies. The austerity administrations
the UK central government remains of Cameron and May made cuts in
a thing of silos, ill-equipped and often spending without apparent regard for
oddly uninterested in how services are indirect or unintended consequences.
23FABIAN IDEAS NO. 654
In pursuit of academy status for English resulting in higher long-term costs.
schools, ministers forgot children with Meanwhile delivery failure breeds
special needs and how their education discontent and mistrust and may feed
was to be organised; they missed, extremist beliefs and politics. The history
knowingly or otherwise, the effect of of policymaking says doing something
fragmentation on nutritional standards, often leads to perverse results and may
affecting children’s ability to learn and even harm the people and groups who
benefit from schooling, and on account- are supposed to benefit. A perennial
ability. Delivery, says Lord Michael temptation is to apply Elastoplast rather
Bichard, former chair of the NAO and than find and deal with the cause of
permanent secretary at education, the wound. It is a mindset evident
has never been a strength of the civil in the Treasury, under all parties: it is
service, whose leaders have too often suspicious of arguments about spending
lacked respect for those who toil to now to save later. Yet prevention is
deliver welfare, schooling and care at more cost effective than palliation,
home. The failure of test and trace in addressing structural causes (of poverty
2020 can be attributed, says co-chair of or environmental degradation) is more
the NHS Assembly professor Sir Chris effective than transient improvement.
Ham, to lack of knowledge of local That may mean postponing action until
conditions or some ‘black box’ theory investment has been planned and longer
of government in which you hand over term effects mapped. Rhetoric does not
an entire function to a private contractor design a workable policy. What sounds
in the spirit of let them get on with it, good in a blog or article or in a speech,
let’s not bother about the detail. When even in a manifesto, does not amount
he was head of the civil service, Lord to a policy, let alone a coordinated
Kerslake once devised ‘accountability programme of action. ‘Levelling up’
system statements’ offering assurance may be an example.
on value for money and clarifying Government machinery in
lines of spending where Whitehall itself guarantees nothing. In politics,
departments were directly responsible personality and culture will always
and where delivery responsibility trump structure and procedure.
belonged locally – but only a handful Ministers, said the Commons Public
of departments bothered to write them Administration and Constitutional
and the initiative petered out. Affairs Committee, are the ‘fulcrum of
Michael Bichard notes that govern- effectiveness’. But if much depends on
ments have a bias towards a one-shot ministers’ capacity (and their desire to
approach. They rush into a policy for deliver, especially the prime minister’s),
fear their time is limited. But the result it is important also to recognise that
is often failure. Targets are missed and there is a functional gap. It is evident
the people who are supposed to be in how dialogue between departments
helped receive no benefit. Badly targeted and the Treasury and even budgetary
policies may have perverse consequences allocations often betray ignorance
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