The Executive Agency Revolution in Whitehall: Public Interest Versus Bureau-Shaping Perspectives (Transforming Government)

The Executive Agency Revolution in Whitehall Public Interest Versus Bureau-Shaping Perspectives

Oliver James

Transforming Government General Editor: R. A. W. Rhodes, Professor of Politics, University of Newcastle This important and authoritative new series arises out of the seminal ESRC Whitehall Programme and seeks to fill the enormous gaps in our knowledge of the key actors and institutions of British government. It examines the many large changes during the postwar period and puts these into comparative context by analysing the experience of the advanced industrial democracies of Europe and the nations of the Commonwealth. The series reports the results of the Whitehall Programme, a four-year project into change in British government in the postwar period, mounted by the Economic and Social Research Council. Titles include: Simon Bulmer, Martin Burch, Caitríona Carter, Patricia Hogwood and Andrew Scott BRITISH DEVOLUTION AND EUROPEAN POLICY-MAKING Transforming Britain to Multi-Level Governance Nicholas Deakin and Richard Parry THE TREASURY AND SOCIAL POLICY The Contest for Control of Welfare Strategy Oliver James THE EXECUTIVE AGENCY REVOLUTION IN WHITEHALL Public Interest Versus Bureau-Shaping Perspectives David Marsh, David Richards and Martin J. Smith CHANGING PATTERNS OF GOVERNANCE IN THE UNITED KINGDOM Reinventing Whitehall? B. Guy Peters, R. A. W. Rhodes and Vincent Wright (editors) ADMINISTERING THE SUMMIT Administration of the Core Executive in Developed Countries R. A. W. Rhodes (editor) TRANSFORMING BRITISH GOVERNMENT Volume One: Changing Institutions Volume Two: Changing Roles and Relationships Martin J. Smith THE CORE EXECUTIVE IN BRITAIN

Kevin Theakston LEADERSHIP IN WHITEHALL Kevin Theakston (editor) BUREAUCRATS AND LEADERSHIP Patrick Weller, Herman Bakvis and R. A. W. Rhodes (editors) THE HOLLOW CROWN

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The Executive Agency Revolution in Whitehall Public Interest Versus Bureau-Shaping Perspectives

Oliver James Lecturer in Politics University of Exeter

© Oliver James 2003 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2003 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 0–333–99838–3 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data James, Oliver, 1971– The executive agency revolution in Whitehall : public interest versus bureau-shaping perspectives / Oliver James. p. cm. – (Transforming government) Includes bibliographical references and index. ISBN 0–333–99838–3 1. Organizational change – Great Britain. 2. Administrative agencies – Great Britain. 3. Contracting out – Great Britain. 4. Privatization – Great Britain. I. Title. II. Transforming government (Palgrave Macmillan (Firm)) JN329.073J36 2003 352.3⬘67⬘0941—dc21 10 9 8 7 6 5 4 3 2 1 12 11 10 09 08 07 06 05 04 03 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne

2003045688

Contents List of Tables List of Figures Acknowledgements List of Abbreviations 1

Introducing Executive Agencies

Part I 2

15

The Public Interest and Bureau-Shaping Perspectives

17

Executive Agencies in Practice

The Process of Executive Agency Creation The Practice of Executive Agency Working The Performance of Individual Executive Agencies Executive Agencies and Central Government Systemic Performance

Part III 7

1

Perspectives on Executive Agencies

Part II 3 4 5 6

vi vii viii ix

Conclusions

39 41 70 88 108

125

The Perspectives, Findings about Practice and the Future Use of Executive Agencies

127

Appendices

151

Appendix 1: The Bureau-Shaping Model Appendix 2: The Formal Bureau-Shaping Perspective on Executive Agency Reform Appendix 3: Interviews Conducted for the Study Appendix 4: Census of 173 Executive Agencies Created between 1988 and 2001 Appendix 5: Central Government Accounts Audited

153

158 166

Bibliography

167

Index

181 v

154 156

List of Tables

2.1 2.2

The public interest perspective on executive agencies Characteristics of a bureau which are either positively or negatively valued by officials in Dunleavy’s (1991) bureau-shaping model 2.3 The bureau-shaping perspective on executive agencies 3.1 Hypotheses about executive agency reform 3.2 Growth in executive agencies and civil servants working in these bodies 1988 to 2001 3.3 Type of executive agency creation in non-trading and trading agencies 3.4 Executive agencies in the DSS, date of establishment, former location of activity and type of creation 3.5 Senior staff (Grades 1–5) in parent departments in 1995 5.1 Hypotheses about the performance of individual executive agencies 5.2 Non-trading and trading agencies with real terms administrative cost rises and falls between 1995/96 and 1997/98 5.3 Ministerial satisfaction with executive agencies 5.4 Benefits Agency: Secretary of State’s targets achieved/targets set between 1991/92 and 2000/01 5.5 Percentage of fraud and error in payments before and after the establishment of the Benefits Agency 6.1 Hypotheses about central government systemic performance 7.1 Privatisation of executive agencies A4.1 Percentage of departments’ staff in executive agencies and staffing figures A5.1 Central government accounts audited 1993/94 to 1998/99 vi

23

25 36 42 57 60 62 65 88

90 94 96

98 108 136 165 166

List of Figures 1.1 2.1 2.2 2.3 2.4 3.1 4.1 4.2 5.1

5.2 6.1 6.2 7.1 7.2

A parent department and non-trading and trading agencies A senior official’s preferences for the organisation of the department A senior official’s preferences for organisation under politicians’ constraint Shift in politicians’ constraint and change in a senior official’s preferred form of organisation Niskanen’s budget/output maximising model Institutions and actors involved in bringing about Next Steps 1986–92 Appointment of chief executives in post in 1998 Benefits Agency and DSS Headquarters’ organisational chart Box-plot of percentage change in real terms administrative costs of seventy-two non-trading and trading agencies 1995/96 to 1997/98 Economy of Benefits Agency 1992–2001 Economy of central government 1989–2002 The Benefits Agency and public sector externalities in the social security system Structures for co-ordinating and steering executive agencies Department for Work and Pensions

vii

4 27 28 29 33 44 73 74

89 91 109 115 137 145

Acknowledgements I’d like to thank Keith Dowding, Patrick Dunleavy, Rod Rhodes and Wayne Parsons and colleagues at the University of Exeter, particularly Andrew Hindmoor, Stephen Wilks and Bruce Doern, for their comments on this work. Many other people have influenced my thinking on these issues, particularly Christopher Hood, George Jones, Colin Scott and Tony Travers – as part of the group exploring ‘regulation inside government’ under the ESRC Whitehall Programme. I’ve also discussed this topic with, and would like to thank, Ian Bartle, Arjen Boin, Andrew Chadwick, Chris Clifford, Francesca Gains, Carsten Greve, Adrian Haddock, Richard Heffernan, Derek James, Onder Kutlu, Martin Lodge, Nick Manning, Andrew Massey, Richard Parry, Christopher Pollitt, Nigel Pleasants, Dave Richards, Martin Smith, Morwena Stephens, Jim Stanyer, Colin Talbot, Rebecca Tunstall, Byeong-soo Yoon and several public officials (but, by convention, I do not name them here).

viii

List of Abbreviations BEM BFI CADW DSS DSS HQ DWP EA (WW) ESRC FMI HMSO IAI ICI IT ITSA LCD MAB MAFF NAO NPM NPR NI OECD PAC PBO PCA PIU PSA PSX UK US

Business Excellence Model Benefit Fraud Inspectorate Welsh Historic Monuments Agency Department of Social Security Headquarters section of the Department of Social Security Department for Work and Pensions Economic Affairs (Welfare to Work) Committee Economic and Social Research Council Financial Management Initiative Her Majesty’s Stationery Office Independent Administrative Institution (in Japan) Imperial Chemical Industries Information Technology Information Technology Services Agency Lord Chancellor’s Department Ministerial Advisory Board Ministry of Agriculture, Fisheries and Food National Audit Office New Public Management National Performance Review Northern Ireland Organisation for Economic Co-operation and Development Public Accounts Committee Performance Based Organisation (in the US) Parliamentary Commissioner for Administration Performance and Innovation Unit Public Service Agreement Public Expenditure Committee United Kingdom of Great Britain and Northern Ireland United States of America

ix

1 Introducing Executive Agencies

The increased use of executive agencies as a way of delivering goods and services that are under the control of central government politicians is a key part of ‘New Public Management’ (NPM) reform to public services. There is now a large, international, literature using the term ‘NPM’ in a range of different ways (Barzelay, 2000). However, an influential definition of NPM identifies a pattern of reform away from ‘traditional’ forms of public organisation that was evident in a set of OECD countries, including the UK, during the 1980s and 1990s (Hood, 1991; Hoggett, 1991; Dunleavy, 1994; Pollitt and Bouckaert, 2000). In the context of central government, NPM characterises change especially away from the use of departments to deliver public services. Traditional departments are headed by ministers who are elected politicians and represent the interests of the public. They develop policy based on their view of the public’s demand for services and levy general taxation to fund these services, controlling the implementation of policy and provision of services through their departments. Civil servants staff departments and pursue long careers in the public service. They are organised in a hierarchical manner beneath ministers who monitor and command action on a day to day basis as they see fit. Traditional central government, as a whole, is subject to distinctive sets of rules and styles of management, set and enforced by central units, that emphasise input controls on activities, especially detailed budget and staffing controls. NPM reform involves radical change to these ‘traditional’ structures. First, splitting up departments into corporate units with 1

2

The Executive Agency Revolution in Whitehall

distinct tasks and resources. The units are free from many central government-wide rules and day to day interference by ministers and operate with generic, rather than specifically central government, management styles. Second, changing accountability and control systems. Instead of primarily controlling detailed inputs including budget sections or staffing, the systems use contractual frameworks specifying an overall budget level and a set of desired outputs against which the performance of the unit is monitored. Third, more use of competitive and market-like structures for provision of goods and services. These structures include competition with private firms, splitting purchasers of services from providers and charging users individually for the goods and services they receive rather than funding from general taxation. Fourth, reducing the reliance on a distinct group of civil service employees to deliver services by opening competition for appointments to candidates from other parts of government and the private sector. Associated with this change is a strengthening of incentives for civil servants to produce outputs, including pay and promotion linked to performance (Hood, 1991, pp. 4–5; Dunleavy, 1994; Pollitt and Bouckaert, 2000, p. 10; Christensen and Laegreid, 2001). The analysis of NPM changes has developed at a high level of abstraction, noting the international pattern of change and the spread of similar forms rather than systematically exploring elements within the package of reforms. The attention of government and most academic commentators has tended to focus on the newest initiative rather than exploring the outcomes of reforms. Pollitt and Bouckaert (2000, p. 132) note that ‘the international reform movement has not needed results to fuel its onward march’, in the sense of support for further changes based on evidence of the consequences of reform. This book analyses executive agencies and executive agency reform, a key part of NPM that, since the late 1980s, has been an important development in UK central government. Although the use of similar forms predates the current wave of reform and is far from exclusively a phenomenon found in the UK, the UK experience provides a good starting point for accumulating knowledge that is of relevance to central government both in the UK and in other countries.

Section 1: The executive agency model The executive agency model is defined from the recommendations of a report by the Prime Minister’s Efficiency Unit, titled Improving

Introducing Executive Agencies 3

Management in Government: the Next Steps and the Government’s statement accepting these recommendations (Hansard, 1988, col. 1149). The Next Steps report proposed that ‘agencies should be established to carry out the executive functions of government within a policy and resources framework set by a department’ (Efficiency Unit, 1988, p. 9). The executive agency model has two main features: (1) An executive agency organisation, semi-detached from its parent department, with its own budget, freedom from some departmental regulations, freedom from ad hoc, day to day, intervention by the department, freedom from some central government-wide regulation, with the organisation under the direction of a chief executive recruited through open competition. (2) Executive agency accountability for the performance of specific operational tasks as a corporate unit, including output focused performance targets set by the parent department, and personal accountability of the chief executive for performance. The partial organisational separation and accountability arrangements are opposite sides of the same coin. The accountability structures set out the bodies to which the executive agency is accountable in terms of authorisation for undertaking tasks, methods of reporting performance and praising or blaming those responsible. Each executive agency is held directly to account for ‘operational’ matters and outputs as specified in its operating framework whilst ministers in departments are held to account for deciding the overall aims of the executive agency and the broader policy framework in which the body operates (Efficiency Unit, 1988, pp. 17–19). Chief executives have personal accountability for operational performance and report results, with individual responsibility for the consequences of their actions and a portion of their pay, and in extreme cases continued tenure of their post, linked to individual performance. Ministers retain the right to alter the system and reorganise the status of executive agencies, for example, to fold it back into the department and to intervene in cases of extreme need. The freedoms accorded to executive agencies differ between those that predominantly receive their budget through an allocation by the parent department and those that have freedom to trade by charging customers ‘fees’ for services (Efficiency Unit, 1988, p. 28). Trading agencies have freedom to raise revenue from their customers

4

The Executive Agency Revolution in Whitehall

and to alter services in response to customer demand, forming an additional form of accountability to customers. Trading agencies provide information about services and may be sanctioned by customers who may choose not to purchase from the body. All executive agencies are subject to systems of central government-wide regulation, although some freedoms are granted from general rules on the use of resources and there is little regular reporting of performance to, or direction by, central units. Executive agencies are incorporated in the system of ministerial accountability to Parliament with chief executives reporting operational performance and being held responsible for their individual contribution to operational performance whilst ministers report strategic performance and remain responsible for strategic issues. The relationships between non-trading and trading executive agencies, a parent department, central units, Parliament, customers and users of services are set out in Figure 1.1. The executive agency model embodies four aspects of the NPM forms. The executive agency organisational structure is semi-detached from the parent department and is a corporate unit with distinct tasks and resources. The accountability system reflects the NPM focus on outputs, rather than detailed inputs, and the use of a contractual framework. The divide between the parent department and the executive agency is a form of split between purchaser and provider in the case of non-trading agencies, with trading agencies having a market mechanism through payments for services by customers. Finally, recruiting chief executives through open competition involves

Treasury and other central units

Budget control

Parent Department contains ministers, sets the strategic framework Performance targets

Chief Executive Agency 1 (Non-trading) Users

Parliament (executive agencies account for operational matters)

Chief Executive Agency 2 (Trading) Revenue from customers

Figure 1.1 A parent department and non-trading and trading agencies

Introducing Executive Agencies 5

recruitment across the public and private sectors rather than relying on a group of career officials to run central government services. However, despite common elements, executive agencies are a distinctive combination of NPM forms requiring specific research on their development and operation. The ‘contract’ between a department and an executive agency is different from a contract between a department and a private firm delivering public services. The executive agency ‘contract’ is between two bodies that are part of central government. Contracts with a private sector body are enforceable in a court in the case of a dispute (Domberger, 1998, pp. 160–2; Pollitt and Bouckaert, 2000, p. 94). Formally at least, the ultimate right to change the status of the executive agency rests with the minister in the department rather than involving exchange and agreement between equal parties. Trading agencies have additional contracts between the body and private customers which have stronger similarities with private sector contracts in this aspect of these bodies’ arrangements. However, trading and non-trading agencies are not private bodies in the sense of ownership of resources being in private hands. Whilst the Next Steps report originally noted that executive agencies ‘could be part of government and the public service’ or might be better ‘outside government’ (Efficiency Unit, 1988, p. 9) the official announcement of the reform de-emphasised the use of this alternative, noting that ‘agencies will generally be within the civil service, and their staff will continue to be civil servants’ (Hansard, 1987–88, col. 1157). The framework in which an executive agency operates is different from the ‘contract’ in NPM ‘internal’ or ‘quasi-markets’ between publicly funded and owned purchasers and providers (Domberger, 1998, pp. 157–80; Pollitt et al., 1998, pp. 5–13). In these arrangements, the purchaser–provider contract sets out funding levels and the services expected in return and there is competition between providers, sometimes including competition with private providers. In contrast, the executive agency model does not, in itself, suggest competition between bodies to provide services, with the possibility of budget being switched to or from executive agencies depending on their performance. Despite the strong association with NPM, the executive agency model has historical precedents in the UK and elsewhere. As with other aspects of NPM, it was not completely ‘new’ and the NPM

6

The Executive Agency Revolution in Whitehall

characterisation of ‘traditional’ central government was a simplified representation. The authors of the Next Steps report noted similarities between their proposals and the ‘arm’s-length’ relationships between central government and local government, nationalised industries and other non-departmental forms. These relationships consisted of frameworks setting out ‘policies, objectives, the results required, and the resources available’ with ‘monitoring’ of performance (Efficiency Unit, 1988, pp. 11, 17–18). However, the executive agency model embodies this framework in a distinctive way and the Next Steps reform was supposed to mark a step change in the use of this form, further suggesting the need for specific research on executive agencies. There were substantial differences between local authorities delivering central government funded services and the proposed executive agency model. Local authorities had a statutory framework underpinning their separation from central government and more substantial areas of autonomy in setting their own objectives. Although this autonomy was in decline during the 1980s it was still substantial in many areas of activities (Wilson and Game, 1994, pp. 105–15). Nationalised industries typically had more formal independence from ministerial intervention and freedom from central government-wide rules than executive agencies, as well as sharing the characteristic of freedom to raise revenue with trading agencies. The industries had a statutory base rather than the framework in which they operated being open to direct revision by ministers (Prosser, 1986, pp. 17–36). Non-Departmental Public Bodies were the closest ‘arm’s-length’ form to the executive agency model and this similarity was noted in the Next Steps report. Non-Departmental Public Bodies had a role in the processes of national government but were not government departments or part of one and operated, to a greater or lesser extent, at ‘arm’s length’ from ministers (Pliatzky, 1980). Such bodies were established over a long period, including bodies set up in response to the Fulton Report’s recommendation of ‘hiving off’ routine operational tasks to ‘autonomous public boards’ (Fulton Committee, 1968, pp. 61–2). However, they typically had greater formal autonomy from departments and ministers in setting their priorities, and had greater freedom from central government-wide regulations than the executive agency model. For example, the Next Steps report mentioned the Health and Safety Executive as having

Introducing Executive Agencies 7

some similarities with the proposed form of organisation (Efficiency Unit, 1988, p. 18). However, unlike the executive agency model, this body’s constitution was set out in statute and it reported to a Commission of members appointed by ministers who proposed priorities for action. These structures involved a more indirect and constrained mechanism of ministerial control over the body than that contained in the executive agency model. Specific research on executive agencies is particularly important because they have come to dominate the structure of UK central government. The Next Steps reform was formally launched in 1988 and, in 2001, 126 executive agencies employed almost 60 per cent of all civil servants. The change appears to be revolution for ‘Whitehall’, the colloquial term for UK central government after the region of London in which many senior ministerial and official staff are located, although the bulk of officials in executive agencies work outside of this geographical area. Executive agency working is the context in which more recent central government reform initiatives were introduced. The prospects for the use of information technology to provide ‘e-government’ and to promote ‘responsive’ government that ‘efficiently’ produces the goods and services that citizens want (Minister for the Cabinet Office, 1999, pp. 6–7) will be strongly influenced by these structures. The UK experience is of further importance because the executive agency model has been influential internationally. Several countries have emulated the UK reform to varying degrees or embarked on their own similar programmes (Pollitt and Bouckaert, 2000; Pollitt et al., 2000; James, 2001; Talbot, 2002).

Section 2: The scope of the study This book addresses three key questions about executive agencies as they have been used in the UK since 1988. First, why did the executive agency reform occur? At the start of the reform, a Parliamentary Committee described the Next Steps report’s proposals as ‘the most ambitious attempt at Civil Service reform in the twentieth century’ (Treasury and Civil Service Committee, 1990, p. v). However, the reform of UK central government is conventionally seen as very difficult to achieve, in part because of resistance from those operating the Whitehall machine (Hennessy, 1989, pp. 622, 627). The initial scepticism about the

8

The Executive Agency Revolution in Whitehall

prospects for change and the eventual, apparently radical, outcome of the Next Steps reform presents the puzzle of identifying the causes of the reform. Second, how has the use of executive agencies developed in central government? Commentators noted the outcome ‘… that Next Steps might constitute a substantively new and stable formula for public management into the next century seems to be the least probable medium term fate for the programme’ (Hood and Jones, 1990, p. 82). However, the government declared victory as early as 1994, stating ‘The success of Next Steps has been in its effective implementation’ and claiming that ‘… Next Steps has had a major impact on the shape and culture of the Civil Service’ (Prime Minister, the Chancellor of the Exchequer, and the Chancellor of the Duchy of Lancaster, 1994, pp. 12–13). Despite this self-congratulation, there has been little systematic assessment of whether the reform transformed the formal structures and working practices of central government. The executive agency model offers a benchmark against which developments can be assessed. Third, have executive agencies improved the performance of central government? The principal assessment by government concluded ‘The agency model has been a success [bold in the original]. Since 1988 agencies have transformed the landscape of government and the responsiveness and effectiveness of services delivered by government’ (Office of Public Service Reform and HM Treasury, 2002, p. 10). This emphatic and sweeping judgement was principally qualified by the view that executive agencies and departments had, in some cases, become too ‘disconnected’. However, the report did not support its bold conclusion by providing systematic information about the performance of executive agencies. Performance is significant at two levels, the level of individual bodies and the level of central government systemic performance. Individual performance relates to distinct executive agencies and systemic performance consists of the consequences of individual executive agencies’ actions for the performance of other bodies, including departments, and the interaction effects between executive agencies. Performance at both levels can be assessed using conventional criteria of economy, efficiency and effectiveness. Economy is the input used in the activity, including the budget and staffing of individual executive agencies and other parts of central government.

Introducing Executive Agencies 9

Effectiveness is evaluated in terms of the achievement of central government’s objectives for individual executive agencies and for other bodies in government. There are several ways of assessing efficiency and a distinction is often made between allocative efficiency, which assesses the extent to which people get what they want, and productive efficiency, which is the ratio between inputs and valued outputs or outcomes (Dowding, 1995, pp. 35–41; Pollitt and Bouckaert, 2000, pp. 97–133). Productive efficiency is the main focus of inquiry in this study, partly for the practical reason that evidence about economy and effectiveness can be combined to produce evidence about this form of efficiency and partly because many of the benefits from the reform suggested by the Next Steps reformers related to this aspect of performance. As well as addressing these three questions, two perspectives on executive agencies are evaluated. The public interest and bureaushaping perspectives are each set out in Part I to provide hypotheses about the reasons for the executive agency reform, the outcomes of reform and consequences for performance. To the extent that the perspectives’ hypotheses receive support from practice in the UK they offer the potential to build cumulative knowledge about executive agencies though evaluating them in other contexts. There are many approaches to public sector organisation and reform that offer the potential to generate such perspectives (for general surveys of approaches see Caiden, 1991; Lane, 1993; Howlett and Ramesh, 1995). However, the public interest and bureau perspectives offer contrasting and influential views. The public interest perspective was presented by the Next Steps report and the Government’s statement formally accepting its recommendations in 1988. To explain the reform, the perspective suggests that politicians in the Government interpreted the public interest as being furthered by executive agencies. Politicians saw this form of organisation as offering a substantial improvement on traditional departments’ treatment of executive activity. Civil servants then neutrally implemented their plan. The perspective views the reform as a fundamental change, with the outcomes improving the economy, productive efficiency and effectiveness of public services handled by individual executive agencies with beneficial effects on the systemic performance of central government. There has been little attempt by government or academics systematically to assess

10 The Executive Agency Revolution in Whitehall

this official view and whether the expectations of the Next Steps reformers were met in practice. A radical alternative to the public interest perspective is offered by the bureau-shaping perspective, developed from the bureaushaping (Dunleavy, 1985, 1986, 1989a,b, 1991) and budget maximising (Niskanen, 1971) rational choice models of the public sector. Rational choice models focus on the instrumental action of individuals, and their interaction, within institutional structures that set the opportunities available to them. Whilst other alternatives to the ‘official’ public interest perspective are possible, a rational choice perspective is particularly worthwhile because of the relative scarcity of such work on the UK public sector. Rhodes notes that although rational choice offers a ‘challenge to the orthodoxy’ there have been ‘few such studies’ and any potential that the approach might have ‘has not yet been realised’ in a ‘major way’ (Rhodes, 1997, p. 175). In particular, the potential of Dunleavy’s bureau-shaping model has been noted (Parsons, 1995, pp. 317–20; John, 1998, pp. 129–36). The bureau-shaping perspective seeks to release some of the potential of the rational choice approach for exploring executive agencies. To explain administrative reform, Dunleavy suggested that officials embark on ‘bureau-shaping strategies’ to shape their bureaus so that they undertake favourably valued policy work and offload undesirable activity to other bodies (Dunleavy, 1991, pp. 200–5). The bureau-shaping perspective on executive agencies develops this insight to suggest that senior officials are concerned to organise their departments to maximise their policy work and, at the same time, to have as large as possible a budget associated with routine operational activity. However, ministers, who are also located in the departments, constrain the organisational options available to senior officials. The perspective suggests that, during the 1980s, ministers became increasingly dissatisfied with the lack of attention senior officials paid to the management of operational activity because of their preoccupation with policy work. Politicians demanded that senior officials pay more attention to managing the activity that their departments were responsible for handling. However, instead of giving up policy work to concentrate on management, senior officials passed on operational activity to executive agencies as a ‘bureaushaping’ strategy to concentrate on policy work. Unlike the public interest perspective, Government politicians did not have a specific

Introducing Executive Agencies 11

plan for an executive agency reform which was then implemented by civil servants. Instead, politicians triggered a change and senior officials were central to shaping its form as an executive agency reform. The bureau-shaping perspective is more pessimistic about the consequences of executive agency reform for performance than the public interest perspective. Instead of being the result of a search for an organisational form that would bring about a significant improvement over existing structures, reform was the result of a bureau-shaping strategy. According to the perspective, the incentives facing officials in individual executive agencies lead them to budget maximise, improving effectiveness but worsening economy and leaving productive efficiency unchanged. At the systemic level, as well as a deterioration of economy, executive agencies do not take into account the consequences of their activities on other executive agencies and departments that are not part of their own narrow performance regimes, setting up public sector externalities that damage central government systemic productive efficiency and effectiveness.

Section 3: The methodological approach Part II of this book addresses the three questions about executive agencies and assesses hypotheses drawn from the two perspectives by exploring the practice of UK central government since 1988. Not all aspects of the perspectives are reflected in the narrower hypotheses but they encapsulate key elements of each perspective. It is not possible to use experimental studies or to fully control the context in which cases are explored, for example to evaluate the performance of activities identical to those handled by executive agencies undertaken by a traditional departmental form. Instead, the empirical assessment uses a range of methods to evaluate the hypotheses including surveys of executive agencies and case studies. Obtaining the sort of evidence necessary for such an empirical assessment is notoriously difficult because sources are fragmented and incomplete (Pollitt and Bouckaert, 2000, p. 131). However, reform is characterised by the number and type of executive agencies, nature of executive agency creation and location of staff after the changes. The operation of the executive agency model and performance of these bodies is assessed in terms of changes in budget, staffing and

12 The Executive Agency Revolution in Whitehall

performance against targets. The survey is supplemented by more fine-grained case studies, in particular focusing on the social security sector and the largest executive agency, the Benefits Agency. The case-study approach uses a range of sources of evidence including material from the survey, interviews and analysis of internal and published documents. Whilst conclusions from case studies must not be over-generalised, the approach facilitates the gathering of evidence about relationships that are important for identifying the interaction of actors and institutions that brought about the changes to evaluate the explanations of reform. The approach provides an insight into the relationship between the executive agency model’s structure and consequences for economy, productive efficiency and effectiveness at the individual and systemic levels. Assessing the performance consequences of reform is particularly difficult because the objectives of government are difficult to identify where these are not written down, and written objectives do not always reflect the full range of desired outcomes. Reasonable starting points are the ‘objectives’, ‘aims’ and ‘targets’ contained in executive agency, departmental and programme reports. An assessment of the systemic consequences is hampered by the lack of a document with an authoritative statement of the relation between objectives across government that could be used to rank their importance where they conflict. However, by using other measures of priorities including statements by ministers and officials, a judgement about tensions between objectives can be made. This approach is used to explore the effect of the Benefits Agency on systemic performance in the social security sector. Official statements and interview material are not sufficient for uncovering what happened during the period, particularly for establishing actors’ motivations and interests when they had an interest in conveying a particular version of events. For example, comments by senior officials in the Cabinet Office that Next Steps was a success (Kemp, 1990; Butler, 1991, 1994) need to be viewed in the light of their responsibility for undertaking the reform and career and other reasons for wanting to portray the changes as successful. Official statements and interview material is useful when it is cross-checked with other sources of evidence. Important alternative sources of evidence are the actions of individuals which usually, although not always, have a higher cost for actors than making statements

Introducing Executive Agencies 13

because they imply that alternative actions must be forgone. Actions may be more likely to reflect underlying motivations and interests than ‘talk’ which may be relatively ‘cheap’ in these terms. Actions include choices about organisational arrangements and career choices by officials. For example, whether officials who were involved in bringing about the reform eventually ended up working in executive agencies is an indicator of whether they liked the type of work undertaken in these organisations, although not, by itself, enough to establish this connection. Actions, by themselves, may not always be a reliable guide to motivations and interests. The structure of a situation in which a choice of action is made may encourage strategic misrepresentation of interests to try and gain longer-term advantage. Alternatively, the structure may suggest a chosen outcome is more desired than one that is not chosen despite the fact that the one that is not chosen is more greatly desired. An example of this problem occurs in situations resembling the well-known prisoners’ dilemma game. In the two player version of this game, self-interested individuals A and B are faced with a choice between co-operation and defection with personal payoffs from the outcomes of their choices. If A co-operates and B does not, this is the worst outcome for A and best for B. If B co-operates and A does not, this is the worst outcome for B and best for A. The second worst outcome for both is if they both do not co-operate. The second best outcome for both occurs if they both co-operate. In the game, the individuals cannot co-ordinate their actions and, given the structure of the individual payoffs, they compare the outcome from co-operating or defecting under the possible outcomes of choices for the other player. This comparison leads each player separately to choose to defect. The resulting joint outcome of double defection brings a lower payoff for each individual than would have been achieved if they had chosen to co-operate. In this situation, observing the action of the individuals, by itself, is not a good guide for working out what is in the actors’ interests (Sen, 1973, pp. 249–53). Whilst the game structure is hypothetical, the point that complex interactions between choices may determine action which is not in the best interest of the actors involved in those choices appears likely to be highly relevant to complex organisations like central government. Combining different sources of evidence enables cross-checking of evidence relating to each question and hypothesis. In the light of this

14 The Executive Agency Revolution in Whitehall

evidence, answers to the three questions and conclusions about the relative merits of the public interest and bureau-shaping perspectives are set out in Part III. This Part suggests that the perspectives and findings from this study are potentially useful for exploring the likely future use of executive agencies in the UK and for exploring executive agencies in other countries.

Part I Perspectives on Executive Agencies

2 The Public Interest and Bureau-Shaping Perspectives

The two perspectives offer hypotheses about executive agency reform and the outcomes of reform including the performance of individual executive agencies and central government systemic performance. Section 1 sets out the public interest perspective which embodies the official view contained in the Next Steps report and the Government statement accepting its recommendations. Section 2 sets out the alternative, rational choice, bureau-shaping perspective.

Section 1: The public interest perspective Public interest explanations of policy are difficult to articulate because they involve a single overall assessment of benefits and costs to a collection of individuals or groups labelled ‘the public’ in terms of how the things these people want are affected by a policy (Barry, 1990, pp. 187–206). However, the public interest perspective’s explanation of reform is that offered in the Next Steps report and in the Government statement to the House of Commons accepting the report on 18 February 1988. These official statements contained specific claims about why the reform was occurring. The perspective explains the reform as the result of central government politicians, both at the centre of the administration and ministers in departments, acting on behalf of the public, defined as a broad group including service users and taxpayers. The Government maintained that it directed the Efficiency Unit to come up with a reform that would significantly improve the performance of central government. The Prime Minister commented that ‘I asked the 17

18 The Executive Agency Revolution in Whitehall

Efficiency Unit to report to me on the progress of management reforms in the Civil Service’ and to make recommendations for improvements (Hansard, 1988, col. 1149). On the basis of this advice, central government politicians made the key decision to pursue a specific executive agency reform to improve the management of the civil service. The Next Steps report reviewed the implementation of earlier reforms in central government, assessed current practices and made recommendations for improvement, principally to create executive agencies. The report suggested a process for implementing the reform, with a central management team under the direction of the Prime Minister and Head of the Civil Service to lead the change programme. A senior, Permanent Secretary level appointment was suggested as ‘Project Manager’ to lead the team combined with support from ‘the highest level’ of government (Efficiency Unit, 1988, pp. 12–13). This team would set the framework within which departments identified and established executive agencies (Efficiency Unit, 1988, pp. 4–5 and 9–13). The reformers suggested the potential for massive growth in the use of executive agencies, noting that 95 per cent of the management and staff in the Civil Service were ‘concerned with the delivery of government services’ in activities suitable for handling by ‘agencies’ (Efficiency Unit, 1988, p. 3). The report commented ‘In some instances very large blocks of work comprising virtually a whole department will be suitable to be managed in this way. In other instances, where the scale of activity is too small for an entirely separate organisation, it may be better to have one or even several smaller agencies within departments’ (Efficiency Unit, 1988, p. 9). The reformers suggested that executive agencies would produce substantial improvements over existing structures with better performance of tasks undertaken by these bodies and improvements to central government systemic performance. The benefits were to be brought about through executive agencies’ management freedoms. Managers would be able to use the freedoms given to them to apply their skills and knowledge to achieve their specific tasks. The varied activities of the civil service were seen as too diverse to have a standard approach. The report noted the ‘frustration’ of those involved in delivering services directed at unnecessary controls and the benefits from removing them (Efficiency Unit, 1988, pp. 3–4).

The Public Interest and Bureau-Shaping Perspectives 19

The importance of freedoms in recruitment, pay and grading were especially noted, allowing more appropriate management of staff. Executive agencies’ freedom from departmental ministers and officials’ day to day, ad hoc, intervention in the running of the bodies would allow managers to get on with directing resources. There were additional benefits for the central government system from this change. The reformers suggested that politicians were suffering from ‘ministerial overload’. Handing responsibility for day to day management to executive agencies would reduce their workload and enable them to concentrate on reporting to Parliament and developing policy (Efficiency Unit, 1988, p. 4). However, the report noted that the reform should increase the involvement of all civil servants in the delivery of services, commenting ‘It is most important that there are not two classes of people in departments – those in agencies and those in the centre. The aim must be to have senior managers who at more junior levels have had substantial experience of the skills and practical reality of management as well as effective experience of the political and policy aspects of work in a department’ (Efficiency Unit, 1988, p. 12). The accountability systems for executive agencies and their managers, especially the personal accountability of chief executives, would contribute to better performance. The report commented that executive agencies ‘need to be given a well defined framework in which to operate, which sets out the policy, the budget, specific targets and the results to be achieved’ continuing, ‘The management of the agency must be held rigorously to account by their department for the results they achieve’ (Efficiency Unit, 1988, p. 9). There would be better information about progress in the performance of tasks with ‘regular monitoring’ by the department, with ‘effective measures of performance’ including measures focused on outputs (Efficiency Unit, 1988, p. 11). The accountability systems would improve the allocation of responsibility for action and its outcomes. The executive agency would account as a unit for operational matters whilst the department would be responsible for the strategic framework, clearly identifying responsibilities for these different types of action. The ‘head of the agency’, later called the chief executive, would have ‘personal responsibility for achieving the best possible results’ within the framework set for the body with ministers remaining ‘wholly responsible

20 The Executive Agency Revolution in Whitehall

for policy’ (Efficiency Unit, 1988, p. 10). Executive agencies would be accountable as corporate units to other parts of government, users, other interested groups and Parliament. Chief executives would be held accountable to Parliament in providing information and being held responsible for their individual contribution to operational matters (Efficiency Unit, 1988, p. 17). The incentives created by these systems were not specified by the Next Steps report in great detail. However, the report noted the need to overcome the ‘lack of effective pressure to get better results’ and to create ‘real and sustained pressure on and within each department for continuous improvement in value for money obtained in the delivery of policies and services’ (Efficiency Unit, 1988, p. 7). The improved information about executive agencies’ performance could be used to allocate praise or blame and inform decisions about staffing. The report observed that promotion was traditionally linked to age rather than outcomes and cited the possibility of promoting outstanding younger officials more quickly. This sort of career incentive was seen as an important way to encourage better performance, especially for the heads of executive agencies (Efficiency Unit, 1988, pp. 29–30). In announcing the reform, the Prime Minister noted that executive agencies would help the government ‘obtain better value for money through personal responsibility’ for performance and the potential for more ‘performance related pay’ as a way of ‘rewarding excellent performance’ (Hansard, 1988, col. 1152–3). Trading agencies have additional management freedoms and accountability structures linked to raising revenues by charging customers for services, in contrast to non-trading agencies that receive grants from their department to cover most of the cost of their activities. Trading agencies’ partial dependence on revenues from customers was seen as providing an incentive for them to respond to customers’ requirements in a flexible way, for example, to expand services in response to bottlenecks in supply (Efficiency Unit, 1988, p. 28). Customers might be able to choose alternative sources of supply or not demand the bodies’ services, reducing their revenues. At the same time, their managerial freedoms would enable them to spend revenues in an appropriate manner to satisfy demand. The public interest perspective hypothesises that trading agencies should be used where such customer groups exist.

The Public Interest and Bureau-Shaping Perspectives 21

Advantages in economy, efficiency and effectiveness of individual executive agencies and central government systemic performance were suggested. The reformers did not say when the improvements should appear. However, in talking about reforms since 1979, they suggested the need for more ‘urgency in the search for better value for money and steadily improving services’ (Efficiency Unit, 1988, p. 1). From these comments, and the general tone of the report, it appears that improvements were expected within a few years of establishing executive agencies. Improvements in economy, with fewer inputs, were suggested. The report commented that ‘it is difficult to put a figure on the benefits which should become available from our recommendations but the potential is obvious. Five per cent of Civil Service running costs amounted to £630 m in 1986–87, and experience elsewhere certainly indicates that when good management has the opportunity to perform well, percentage improvements larger than this are achieved’ (Efficiency Unit, 1988, p. 16). This statement suggest that 5 per cent improvements in administrative costs were expected for individual executive agencies within a few years. Executive agencies were noted as a way of achieving ‘savings’ in government and contributing to ‘cost conscious’ working by civil servants (Efficiency Unit, 1988, pp. 16, 21). These statements suggest that a reduction in programme costs, the budget handled by the executive agency but passed on in grants or contracts rather than being spent on direct administration, would flow from the reform. The report did not explicitly consider trading agencies’ economy. Whilst the report pointed to instances of these bodies raising revenue from customer groups, and noted that this was desirable activity, it did not discuss the possibility that this structure might result in lower economy if additional customer revenues were used to expand output and budget. Instead the general tone of the report was to note the potential for improvements in economy for all executive agencies. Similarly, the report suggested reductions in central government systemic administrative and programme costs, with departments reducing ‘overload’ by strategic rather than day to day monitoring of activities in executive agencies (Efficiency Unit, 1988, p. 4). The reformers emphasised the potential benefits for effectiveness of service delivery that would flow from the reform. The report

22 The Executive Agency Revolution in Whitehall

viewed executive agencies as instruments for better achieving the objectives of individual executive agencies and the overall system than the old arrangements. The report stated ‘With total programme expenditure of £128 b (1985–86), there is an immense opportunity to go for substantial improvement in outputs, with better delivery of services and reduced delays as an alternative to savings’ (Efficiency Unit, 1988, p. 16). The report commented that the traditional system paid ‘too little attention to the results to be achieved with the resources [of government]’ and there were ‘relatively few external pressures [on parts of government] demanding improvement in performance’ (Efficiency Unit, 1988, p. 4). Executive agencies would improve effectiveness by producing management ‘eager to maximise results, no longer frustrated or absolved from responsibility by central constraints and working with a sense of urgency to improve their service’ (Efficiency Unit, 1988, p. 16). As well as improvements to economy and effectiveness, the report noted the potential for improvements in productive efficiency. Although the Efficiency Unit that produced the Next Steps report contained the term ‘efficiency’ in its title, suggesting a primary concern with this aspect of government performance, there was little discussion of the meaning of this term in the report. However, the report’s focus on reduced inputs and improvement in achieving objectives suggests improved productive efficiency. The report did not clearly state the relative contributions of economy and effectiveness to improved productive efficiency which could be improved by alterations to economy, effectiveness or both of these goals. For example, if budget rises but output rises faster than inputs then productive efficiency improves but economy worsens, and improvements in economy could lower effectiveness but increase productive efficiency. However, the report claimed that improvement in administrative costs of individual executive agencies of around 5 per cent were possible, suggesting that improvements in services as an alternative to savings would occur once this threshold reduction had been reached. Systemic productive efficiency would improve, in part through departments’ savings in administrative and programme costs through executive agency working. The main hypotheses of the public interest perspective are summarised in Table 2.1.

The Public Interest and Bureau-Shaping Perspectives 23

Table 2.1 The public interest perspective on executive agencies Aspect

Hypotheses

Reform process and outcomes

1. Government politicians control all aspects of departmental organisation and suggest the executive agency reform plan in the public interest 2. Central units co-ordinate reform which is neutrally implemented by officials as part of a hierarchy and the use of executive agencies increases to around 95 per cent of the Civil Service within a few years 3. All civil servants have experience of working in executive agencies which operate according to the model

Individual executive agencies’ performance

1. Economy improves, with at least 5 per cent savings in administrative costs and savings in programme costs 2. Effectiveness improves with better achievement of objectives 3. Productive efficiency improves including at least 5 per cent savings in administrative costs and savings in programme costs

Central government systemic performance

1. Economy improves with savings in administrative and programme costs 2. Effectiveness improves with better achievement of objectives 3. Productive efficiency improves including savings in administrative and programme costs

Section 2: The bureau-shaping perspective The bureau-shaping perspective offers a radical alternative to the public interest perspective incorporating insights from rational choice models of the public sector to generate hypotheses about executive agencies. There are many rational choice models of the public sector but very few were developed specifically for examining reorganisation, and none were developed specifically to understand executive agency reform (for a survey see Mueller, 1989; Dunleavy, 1991; Dowding, 1995; Weimer and Vining, 1996). The bureaushaping perspective draws on two influential rational choice models of bureaucracy, the bureau-shaping model developed by Dunleavy (1985, 1986, 1989a,b, 1991) and Niskanen’s (1971) budget/output maximising model.

24 The Executive Agency Revolution in Whitehall

Dunleavy developed the explanatory part of the bureau-shaping model as a general model to explain a range of administrative situations and experiences including inappropriate privatisation, administrative reform and deinstitutionalisation across central and local government (see Appendix 1). He suggested the potential of the bureau-shaping model to explain executive agency reform as a bureau-shaping strategy by officials. Writing at an early stage of the Next Steps reform he argued that ‘most senior officials in other [non Treasury] Whitehall ministries have endorsed the government’s strategy [for Next Steps]. The full implementation of the reforms would drastically reduce their departments’ personnel and core budgets … On the bureau-shaping model the hiving-off proposals provide senior bureaucrats with a unique opportunity to engage in wholesale reshaping of their bureaux to obtain the ideal form of small, elite, staff agencies. The government report which triggered the reorganisation process candidly admitted that political and policy proposals preoccupied policy-level officials and inherently were always likely to do so’ (Dunleavy, 1991, p. 226). However, the original bureau-shaping model does not offer a fully developed explanation of executive agency reform. The model does not fully specify individual officials’ preferences for the organisation of the department in which they work and the relationship between officials and other actors in the system is not set out, particularly the relationship between politicians and officials (James, 1995b, p. 616; John, 1998, pp. 133–4; Marsh et al., 2000, 2001, pp. 163–4). The bureau-shaping perspective builds on the bureau-shaping model to generate hypotheses about the circumstances under which senior officials in departments will allocate activity to executive agencies. The perspective assumes that central government is composed of separate departments staffed by officials and headed by politicians. Senior officials are given prominence in the explanation as people within central government whose rank within departments and detailed knowledge of organisation enables them to influence reform. The perspective posits that individual senior officials have preferences related to two principal features of the organisation of the department in which they work, the proportion of policy work time in total work time, and the level of budget per senior official.

The Public Interest and Bureau-Shaping Perspectives 25

Senior officials are concerned about the proportion of policy work time in their total work time, building on the insight that ‘welfare maximising officials in policy making ranks are primarily concerned to improve their welfare by providing themselves with congenial work and a valued work environment’ (Dunleavy, 1991, p. 200). Positive and negative assessments relating to the characteristics of work in an organisation suggested by Dunleavy are summarised in Table 2.2. The bureau-shaping perspective incorporates senior officials’ concerns about the nature of their work in a simplified way. Policy work is defined as involving innovation and entailing working in small staff units in close proximity to political power sources, such as ministerial private offices. The perspective assumes that a senior official will prefer a higher proportion of policy work time in total work time to a lower proportion if offered a choice between different levels. By implication, senior officials are assumed to desire as low a proportion of alternative work as possible. This alternative work is assumed to be managerial work involving the routine implementation of procedures, hands-on monitoring and direction of junior staff, and entails working in a large, extended hierarchy at the point of delivery, remote from political power sources. Having these concerns does not imply that senior officials are necessarily completely self-regarding actors. Instead, the reasons for the concerns may be quite complex, Table 2.2 Characteristics of a bureau which are either positively or negatively valued by officials in Dunleavy’s (1991) bureau-shaping model Positively valued

Negatively valued

Staff functions including innovative work, high level of discretion and broad scope of concerns Collegial atmosphere including small work units and co-operative work patterns Central location including proximity to political power sources and high status social contacts

Line functions including routine work, low discretion and narrow tasks

Corporate atmosphere including large work units and non-elite and conflict ridden work patterns Peripheral location including remoteness from political power sources and remoteness from high status social contacts

Source: Adapted from Dunleavy (1991, p. 202).

26 The Executive Agency Revolution in Whitehall

including an official feeling that this is the best way to deploy his or her skills for the good of society. However, for the purposes of this study, the concern with having as much policy work time as possible is the key assumption for generating hypotheses about reform. The second aspect of departmental organisation about which a senior official is concerned is the level of budget and associated output per senior official. The concern with the level of budget/ output draws on an insight from the budget/output maximising model of bureaucracy (Niskanen, 1971). In Niskanen’s model, individual bureaucrats seek to maximise budgets because ‘Among the several variable that may enter the bureaucrat’s utility function are the following: salary, prerequisites of the office, public reputation, power, patronage, output of the bureau, ease of making changes and ease of managing the bureau. All of these variables except the last two, I contend, are a positive monotonic function of the total budget of the bureau during the bureaucrat’s tenure in office’ (Niskanen, 1971, p. 38). However, Niskanen states that officials are able to push up budgets only through the production of more output for a sponsor of their bureau. The need to produce output for the sponsor means that the Niskanen model is really a model of budget/output maximisation rather than just budget maximisation. Orzechowski comments that ‘Niskanen assumes that the goal of the bureaucrat is to generate the largest possible budget. This is equivalent to saying that bureaucrats maximise output subject to the bureau’s budget constraint. Carrying this to its logical conclusion would imply zero fiscal residuum remaining for such utility dimensions as salary, prerequisites and security – dimensions which Niskanen assumes were the consequences of budget maximisation’ (Orzechowski, 1977, p. 230). However, if the Niskanen model is interpreted as consisting of budget/output maximising motivation, with corresponding action by officials, then this objection is overcome. In the bureau-shaping perspective, senior officials prefer as high as possible a level of budget per senior official associated with directly producing output by the department. A concern with output and budget might be for reasons of personal benefit, with higher budgets being associated with higher salaries as Niskanen suggests, or might be because a senior official perceives a government programme as worthwhile for society and wants to be in direct control of it. The key assumption is only that senior officials are concerned about the level

The Public Interest and Bureau-Shaping Perspectives 27

Y= proportion of policy work time in total work time

of budget per senior official controlled directly by their departments. A senior official will prefer a higher level of budget per senior official to a lower level in choices between different levels of budget and budget is positively related to executive activity, rather than being related to policy work time, because budgets are predominantly associated with executive programmes of service delivery rather than policy work, which primarily entails only the relatively minor salary costs of officials engaged in the policy work. The preferences of an individual senior official for the organisation of the department in which he or she works are shown in Figure 2.1. The departments undertake a set amount of policy work and executive activity, with its associated budget. Each indifference curve links equally preferred organisational configurations. The curves are ranked in order of preference, with curves furthest from the origin representing more preferred combinations (U3 is preferred to U2 which is preferred to U1). The slope of each curve represents the rate of substitution required between levels of budget per senior official and proportion of policy work time in total work time to maintain an equally preferred combination. The curves are convex to the origin because a diminishing marginal rate of substitution between proportion of policy work time and budget per senior official is assumed. At high levels of budget, an individual requires more additional budget to compensate for the loss of a unit of policy work time than at low levels of budget. The bureau-shaping perspective specifies the structure in which senior departmental officials work which affects the way in which they seek to use executive agency reform as a bureau-shaping strategy.

U3 U2 U1 X= budget per senior official

Figure 2.1 A senior official’s preferences for the organisation of the department

28 The Executive Agency Revolution in Whitehall

Y = proportion of policy work time

Senior officials’ freedom to chose any form of departmental organisation, which would tend towards departments having all the possible policy work and budget available, is limited by politicians’ views on what organisational forms offer economic, productively efficient and effective combinations of activities. In this way, the perspective assumes that politicians have some interest in trying to promote economy, productive efficiency and effectiveness, as in the public interest view. However, politicians do not develop detailed plans for the organisation of their department, they have little direct interest in, or competence about, organisational matters beyond their day to day interaction with officials in the department. Instead, their behaviour is approximated as a rule of thumb about organisation that higher levels of budget per senior official imply greater need for officials to spend time on monitoring activities within the organisation, and less time on policy work, than lower levels of budget per senior official. They surmise that it is not sufficient simply to employ more senior officials within the department as managers, instead it is necessary for those that are at the heart of the organisation to know themselves what is going on down the line. The preferences of an individual senior official operating under the constraint in a department are shown schematically in Figure 2.2. In this Figure, Department A at X1, Y1 is the preferred and stable outcome. The alternative arrangement of X2, Y2 represents a department

1 Y2

A

Y1

Y3 X2

X1 X3 X = budget per senior official

Figure 2.2 A senior official’s preferences for organisation under politicians’ constraint

The Public Interest and Bureau-Shaping Perspectives 29

Y = proportion of policy work time

predominantly involved in policy work where ministers surmise that it is detrimental simultaneously to be involved in a substantial programme of service delivery with a high budget. The alternative arrangement X3, Y3 represents a department heavily involved in a substantial programme of service delivery, where ministers surmise that it is detrimental also to be involved in a high proportion of policy work time. The bureau-shaping perspective on the organisation of a department is presented formally in Appendix 2, which shows how a senior official maximises budget per senior official and policy work time subject to politicians’ constraint. The perspective suggests several hypotheses about the causes of executive agency reform including the triggers, processes and outcomes of reform. The perspective does not suggest that individual senior officials sit down and draw figures similar to those in Figure 2.2 to work out their best strategy but instead that they are concerned with these two aspects of organisation and will pursue reforms that approximate to obtaining their most preferred arrangement. Bureau-shaping strategies to change the organisation of a department from a stable arrangement at point A in Figure 2.2 are triggered by shifts in the constraint on senior officials. In Figure 2.3, under constraint 1, senior officials prefer point A to other possible organisational arrangements. However, a shift in the

1

Y2

B A

Y1

Constraint 2 C X2

Constraint 1

X1 X = budget per senior official

Figure 2.3 Shift in politicians’ constraint and change in a senior official’s preferred form of organisation

30 The Executive Agency Revolution in Whitehall

constraint alters the favoured organisational arrangement. Whilst the constraint could shift either way, a shift from constraint 1 to constraint 2 in Figure 2.3 represents an increase in the proportion of management work time for each unit of budget per senior official. The shift makes A unobtainable and B the most preferred position within the new constraint. Senior officials embark on a bureaushaping strategy entailing changes from X1 to X2 and Y1 to Y2 in Figure 2.3 to bring about the organisational form corresponding to point B, passing on responsibility for executive activity to executive agencies and concentrating on policy work. The creation of executive agencies passes executive activity and associated budget to these bodies. At the same time, the department brings policy activity within its direct purview and concentrates on setting the policy framework in which the executive agency operates. More fundamental changes, such as outright privatisation of ownership with central government disengaging from the activity would not be supported by senior officials because they would call the department’s continued policy role into question. However, senior officials prefer an organisational form corresponding to point B to other organisational forms available to them under the shifted constraint. For example, point B is preferred to the organisational form corresponding to point C, an alternative form in which executive activities and associated budgets are kept in-house with senior officials becoming hands on managers. Bureau-shaping changes involve individual senior officials acting together to bring about the necessary alterations, suggesting that officials will discuss options for reform, formulate plans and implement them. Reforms that are not consistent with senior officials’ preferences will not be proposed or implemented. Bureau-shaping strategies incur costs for individual officials in time and effort advocating reform. The strategies produce non-rival benefits that are consumed without implying a reduction in benefits received by other senior officials. All the members of the shaped organisation benefit from the change, it being difficult to exclude non-contributors because they are members of the shaped organisation. Such public goods, in the rational choice framework, tend to lead to free riders who seek to benefit without contributing to costs, which may result in the good not being provided at all. But bureau-shaping strategies are assumed not to incur great costs for officials. Politicians set

The Public Interest and Bureau-Shaping Perspectives 31

the range of possible combinations of budget per senior official and proportion of policy work time and are indifferent between these points. Several methods could, theoretically, be used to evaluate the hypotheses in the context of Next Steps. An attempt could be made to work out the precise trade-offs in choices of different bundles of policy work time and budget, in terms of how much of one is required to compensate for a loss of a unit of the other. Alternatively, the responses in desired amounts of budget and policy work time related to shifts in politicians estimate of the time needed for budget supervision could be compared against actual responses. Assuming the total time available to senior officials is fixed, the demand curve for budget and policy work time relating quantity demanded to the ‘price’ of budget as hypothesised by the perspective could be compared to data obtained from observing officials’ actions in practice. The perspective assumes that the ‘price’ of policy work time is fixed at the unit of time needed to undertake such work, so only the ‘price’ of budget varies according to shifts in politicians’ constraint. Developing such an analysis, the expected elasticity of demand, defined as the percentage change in quantity demanded divided by the percentage change in ‘price’, could be compared to that found in the data from observations of officials. However, the evidence needed for such a detailed empirical evaluation would be very difficult to obtain, requiring a very fine grained analysis of officials’ work over a long time period, including a period before this study was conceived. In any case, a less demanding method of evaluation is sufficient to assess the main hypotheses about key aspects of reform processes and outcomes. The perspective produces the hypothesis that senior officials are concerned with the organisation of their departments in a way set out in the indifference curve mapping. A bureau-shaping strategy is triggered by a shift in politicians’ constraint on officials with the magnitude of the shift determining the scale of activity passed on to executive agencies. For the perspective to be consistent with the Next Steps reform, the choices made by senior officials during the period should be consistent with the preferences set out in the perspective rather than those preferences changing. In choices between different organisational forms in Figure 2.3, position A should be chosen over B and C under constraint 1, and B over C under constraint 2.

32 The Executive Agency Revolution in Whitehall

Senior officials should be observed both to attempt and succeed in getting the best form of departmental organisation available to them within the constraints set by politicians. Under circumstances of an inward shift in politicians’ constraint from 1 to 2, the perspective suggests that there would be a passing on of activities to executive agencies with an increase in the budget and other resources allocated to executive agencies both within individual departments and for central government in general. The magnitude of these changes would be positively related to the magnitude of the shift in politicians’ constraint. A substantial inward shift in the constraint is taken to imply that between half and three-quarters of executive activity handled by departments would be passed on. The perspective implies that working in departments is preferable to working in executive agencies, which have a lower proportion of policy work time, and that most senior officials would end up working in departments after a reform. The bureau-shaping perspective generates hypotheses about the performance of executive agencies. Instead of being a better organisational form than the traditional department, the perspective suggests detrimental effects on economy, and some aspects of productive efficiency and effectiveness. The perspective assumes that officials working in executive agencies follow the best strategy available to them which, as they cannot affect the distribution of tasks between departments and executive agencies, is to try to maximise the level of the budget and associated output from the level originally passed to the executive agency. The budget maximising strategy is suggested by Niskanen (1971) as a primary strategy for all officials and is one of the strategies open to officials as an alternative to bureau-shaping in the Dunleavy model (1991, pp. 193–4). Officials in executive agencies’ concern with maximising budget/output does not necessarily imply that they are self-regarding, they may desire higher budgets and outputs for a host of reasons including a commitment to the programme of activity they are involved in. The perspective assumes only that they seek to maximise budget and output and are likely to be able to push up these levels beyond that allocated to them at the time of setting up the executive agency. In suggesting budget maximising outcomes, Niskanen posited a bilateral monopoly between a sponsoring legislature acting as the sole buyer of the good or service on behalf of the public and a bureau

The Public Interest and Bureau-Shaping Perspectives 33

Marginal costs (C) and benefits (B1, B2)

acting as the only supplier. In market exchange, neither party to the exchange can exploit the other if they have perfect information about the product and exchange is voluntary. However, in conditions of bureaucratic supply, officials can exploit the sponsor for their own benefit. In his model, the sponsor gives a budget to the bureau based on the perceived public benefit from output of the bureau. Public benefits are assumed to increase with quantity, but at a decreasing rate, shown by the downward sloping line B1 in Figure 2.4. The bureau has costs associated with marginal output which increase with quantity, shown by the upward sloping line C in Figure 2.4. The model assumes an information asymmetry such that the cost schedule is known by staff in the bureau but is not known by the sponsor. The sponsor sees only the total output of the bureau and its total budget. This feature of the sponsor’s position means that the sponsor cannot tell whether the output is efficient, in the sense that, at the margin, the benefits of increasing output of the bureau exceed the costs of producing that extra output. Niskanen introduced the possibility that the sponsor’s demand for the bureau’s output might be so inelastic that the marginal benefit of extra output would fall to zero before all the net surplus from initial production had been exploited in inefficient over-production, shown by line B2 resulting in output Q2 in Figure 2.4. At this point the sponsor is satiated and the bureau cannot deliver additional output, giving negative marginal benefits which would be noticeably bad to the sponsor. However, for simplicity, the bureau-shaping

C S = surplus D = deficit S

D

B2 B1 Q0

Q*

Q2

Quantity of budget/output

Figure 2.4 Niskanen’s budget/output maximising model

34 The Executive Agency Revolution in Whitehall

perspective assumes the former case in which the declining marginal benefits are represented by B1. The perspective suggests that the department–executive agency relationship is analogous to the sponsor–bureau relationship when departments pass on budget to non-trading agencies. Officials in executive agencies can maximise their budget and associated output, rather than being able to affect the distribution of activities between the department and the executive agency. Each executive agency expands production and budget beyond the allocatively efficient, in terms of marginal benefit for the public equalling marginal cost, at level Q0, to the level Q*. At the level Q*, all the surplus of production where benefit exceeds cost up to level Q0 (area S) is swallowed up by the deficit of overproduction where cost exceeds benefit from level Q0 to Q* (area D). Following the Niskanen model, the executive agency can drive up the output to this level by offering this level of output to the department rather than the alternative of not producing any output at all. The department will prefer to have oversupply to the alternative of no output because the surplus from production up to level Q0 has not been completely eroded by the net deficit from oversupply beyond the level Q0 until level Q* is reached. This situation enables the executive agency to produce twice the level of output that would have been supplied had the bureau production instead been produced by a body operating in a market. In a market structure, individual consumers would only consume output if the marginal benefit were greater or equal to the marginal cost. Consumers’ demand on a unit by unit basis would result in an output of Q0. However, the change brought about by the creation of an executive agency working is not a move from a market to a bureau but from a departmental arrangement for handling the activity in-house to a department ‘contracting’ with an executive agency. With departmental provision, the minister is able directly to see the operation of activities within the organisation and has information based on day to day oversight. The creation of a semi-detached nontrading agency creates an information asymmetry which officials in the executive agency can exploit to expand budget and output. Whilst this change will worsen allocative efficiency, this form of efficiency is beyond the scope of the inquiry and it is the hypothesis that there will be a worsening of the economy of executive agencies that is the key suggestion of the perspective. Individual executive

The Public Interest and Bureau-Shaping Perspectives 35

agencies’ administrative and programme costs will increase over time. Central government systemic administrative and programme costs will rise as executive agencies’ budget maximising strategies produce more activity for departments and central units to monitor, although they will not be able to prevent economy worsening. Officials in both trading and non-trading agencies will expand budgets and output. The budget maximising behaviour of officials in trading agencies will be constrained by the need to raise revenue from individual consumers rather than from a departmental sponsor. Consumers will determine that spending is commensurate with demand for the services which may increase or decrease the economy of trading agencies depending on whether the former departmental arrangement was supplying at a level desired by consumers. However, the perspective suggests that officials in executive agencies will only push to have their body designated as a trading agency where they think that they have the opportunity to expand services to increase budgets beyond that they might get from a department. In cases where they think customers will not pay they will not have such an incentive so the trading form will only be adopted where it facilitates budget expansion. The perspective suggests that senior officials in departments will not be greatly concerned about whether an executive agency has the freedom to raise revenue, their primary concern having been achieved by passing on executive activity. The bureau-shaping perspective suggests that the effectiveness of individual executive agencies will be improved because budget and output is expanded. These benefits will accrue so long as the bureau does not overproduce to such an extent that marginal benefits from its activities are negative, beyond the point that B1 intersects the origin in Figure 2.4. However, the expectations for central government systemic effectiveness are not so positive. The bureau-shaping perspective suggests that executive agencies will be exclusively concerned with achieving their own objectives. Such a pattern of behaviour is likely to damage central government systemic performance by bringing about substantial public sector externalities. These public sector externalities arise where the positive or negative effects of an organisation’s activities on other bodies are not incorporated in the organisation’s own performance systems (James, 2000, p. 331). The perspective suggests that staff in executive agencies will not take action that would be of benefit to other parts of central government

36 The Executive Agency Revolution in Whitehall

Table 2.3 The bureau-shaping perspective on executive agencies Aspect

Hypotheses

Reform process and outcomes

1. Senior departmental officials maximise the proportion of policy work time and budget per senior official subject to government politicians’ constraint on departmental organisation with a shift in the constraint triggering reform 2. Executive agency reform is a bureau-shaping strategy by senior officials (from point A to B in Figure 2.3) in which departments pass on executive activity to executive agencies and concentrate on policy work. Senior officials oppose inconsistent reforms, including becoming hands on managers in integrated departments (from point A to C in Figure 2.3). A substantial inward shift in the constraint triggers between half and three-quarters of departments’ operational activity to be passed on. 3. Senior officials work in departments and junior officials in executive agencies

Individual executive agencies’ performance

1. Economy in administrative and programme costs is reduced through the outcome of budget maximising behaviour 2. Effectiveness is improved through expanded output 3. Productive efficiency is unchanged

Central government systemic performance

1. Economy in administrative and programme costs is reduced through the outcome of budget maximising behaviour 2. Effectiveness worsens because of public sector externalities 3. Productive efficiency worsens because of public sector externalities

if does not directly contribute to achieving the individual executive agencies’ objectives, and that negative externalities harming other bodies will be ignored. In particular, the perspective expects public sector externalities in two areas. First, in the relationship between executive agencies and departments, where executive agencies battle to increase the scale of their activities and pursue their narrow agendas, hampering departments in their efforts to make better policy and harming the communication between the bodies necessary for policy implementation. Second, in the relationship between executive agencies and other bodies with operational responsibilities, the narrow focus of each executive agency will lead to negative externalities and the possibilities for beneficial co-operation to be ignored.

The Public Interest and Bureau-Shaping Perspectives 37

The perspective suggests that the consequence of letting managers direct resources inside executive agencies will not be to improve working but to raise output at the cost of greater inputs, with an unchanged ratio of inputs to outputs. The effect of executive agency working on individual bodies’ productive efficiency will be neutral. At the level of systemic performance, productive efficiency will be harmed by negative public sector externalities brought about by the narrowly focused behaviour of executive agencies as they engage in budget/output maximising in their own activities. The main hypotheses of the bureau-shaping perspective are summarised in Table 2.3.

Conclusion The public interest and bureau-shaping perspectives offer substantially different hypotheses about executive agencies, as summarised in Tables 2.1 and 2.3. In explaining reform, the public interest perspective suggests that government politicians were in command of all aspects of departments’ organisation and suggested the Next Steps reform plan in the public interest. In contrast, the bureau-shaping perspective suggests that government politicians were limited to setting the broad constraint on senior officials. These senior officials exercised their concern with the organisation of their departments in terms of the proportion of policy work time and budget per senior official. Whilst the public interest perspective suggests that the reform was neutrally implemented by officials, the alternative perspective suggests executive agency reform as a bureau-shaping strategy by senior officials who, in response to a shifted constraint, preferred this reform to the alternative of becoming hands on managers in integrated departments. Both perspectives hypothesise that executive agency reform is a substantial change, in the case of bureau-shaping subject to politicians shifting their general attitude to the management of executive activity. However, the bureau-shaping hypothesis is broader than the public interest perspective, indicating a general band in response to a shift in the constraint rather than a precise level. Whilst the public interest perspective suggests that senior officials work in both departments and executive agencies, the outcome of bureau-shaping is that senior officials predominantly end up working in departments.

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The public interest perspective suggests improvements in economy, productive efficiency and effectiveness at the level of individual executive agencies and central government systemic performance, including administrative cost savings for individual bodies of at least 5 per cent. The perspective suggests that freedom to manage facilitates better use of resources and a clearer focus on the task at hand. The accountability systems, including performance targets for outputs, enables better information about executive agencies to be gathered. Combined with personal accountability of the chief executive, these characteristics incentivise delivery and improve performance. The bureau-shaping perspective is much more sceptical about benefits brought about by executive agency structures. Whilst it suggests the structures will be neutral for individual executive agencies’ productive efficiency it suggests that economy of administrative and programme costs will worsen because of budget maximising behaviour. Whilst extra output is likely to improve individual level effectiveness, public sector externalities between departments and executive agencies and between executive agencies and other delivery bodies will worsen systemic effectiveness and productive efficiency.

Part II Executive Agencies in Practice

3 The Process of Executive Agency Creation

The pubic interest and bureau-shaping perspectives have contrasting hypotheses about the process of executive agency reform, summarised in Table 3.1. Section 1 examines the initiation of the reform. Section 2 explores the implementation of reform, especially in the case of the Benefits Agency. Section 3 begins an assessment of the outcome of the reform by examining the location of senior civil servants in departments and executive agencies after the changes.

Section 1: Initiation of the reform Both perspectives suggest that actors within central government were the main people involved in putting organisational reform on the agenda and deciding on a course of action rather than external actors. The users of central government services and taxpayers did appear to have concerns about the performance of these activities in the mid 1980s, with 51 per cent of British feeling that the civil service was ‘not well run’. Although this figure was lower than the comparable figure of 62 per cent for local government it reflected widespread critical opinion about the competence of administration (Social and Community Planning Research, 1991). However, there was no large scale movement to lobby for reform in general or for the use of executive agencies. The issue of central government organisation and its performance had low electoral salience, limiting the potential external influence on reform through the election of members of the governing Conservative Party which was in power at the time of the Next Steps report. 41

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Table 3.1 Hypotheses about executive agency reform Public interest

Bureau-shaping

Initiation of the reform

1. Government politicians 1. Senior departmental control all aspects of officials maximise the departmental organisation proportion of policy work and suggest the executive time and budget per agency reform plan in senior official the public interest subject to politicians’ constraint on departmental organisation

Implementation of the reform

2. Central units co-ordinate 2. Executive agency reform, reform which is neutrally triggered by a shifted implemented by constraint, is a bureaudepartmental officials as shaping strategy by part of a unified machine. senior officials Use of executive (moving from point A to agencies increases B in Figure 2.3) in which increases to around departments pass on 95 per cent of the executive activity to Civil Service within a executive agencies few years, with trading and concentrate on agencies used where policy work. Senior customer groups exist officials oppose inconsistent reforms, including becoming hands on managers in integrated departments (moving from point A to C in Figure 2.3). A substantial inward shift in the constraint triggers between half and three quarters of executive activity to be passed on.

Outcome of the reform

3. All civil servants will have experience of working in executive agencies which operate according to the model

3. Senior officials work in departments and junior officials in executive agencies

The Process of Executive Agency Creation 43

There was no mention of executive agencies in the Conservative Party Manifesto for the 1987 election which noted only a general intention to improve public services, stating ‘We will press on with long-term management reforms in order to improve public services and reduce their cost’ (Conservative Party, 1987, p. 42). The Conservative Party Manifesto for the 1992 election mentioned the desire to continue setting up executive agencies only in passing as part of a wider programme ‘to raise quality and efficiency in government’ (Conservative Party, 1992, p. 15). The operation of executive agencies was not one of the main issues discussed in material issued by parties or in the media during the run-up to the two elections held in 1992 and 1997 (Butler and Kavanagh, 1992, pp. 155–210; 1997, pp. 133–85). The two perspectives have contrasting views of the role of different actors within central government. The public interest perspective suggests that executive politicians had a specific executive agency reform in mind. In contrast, the bureau-shaping perspective suggests only that these politicians became more concerned about a general lack of management effort and that senior officials were key to the choice of the specific executive agency reform. In the late 1980s, there were around 110 executive politicians in central government, located in departments and in central units, including the Cabinet Office and the Treasury (Hood and James, 1997, pp. 178–83). Defining senior officials as civil servants of Grade 5 (Assistant Secretary) and above and their equivalents in the bands introduced in 1996, there were 3613 senior officials out of a total of 492,527 non-industrial officials in 1988 (Treasury, 1988b; Cabinet Office, 1995b). The main actors involved in the Next Steps reform were located in different parts of central government as summarised in Figure 3.1. Some authors have suggested that material from the memoirs of politicians demonstrates that ministers originated and drove the Next Steps report and the changes that followed. These authors argue that ‘More broadly [than just Next Steps], it is widely accepted that the reforms which the public service underwent during the last Conservative administration were driven by politicians and not bureaucrats. The most senior ex-Conservative ministers’ memoirs do indeed pay clear testimony to this fact’ (Marsh et al., 2000, p. 470). They cite three former senior politicians’ autobiographies. The first, by Michael Heseltine, was published before the reform began. Whilst

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Parliament (especially committees)

Prime Minister and Cabinet (adopted the 1988 report as policy)

Prime Minister’s Adviser on Efficiency

HM Treasury (approved agency plans) Cabinet Secretary/ Head of Civil Service OMCS

Cabinet Office Efficiency Unit Next Steps Report Team (1986–87)

Head of Project Team and OMCS Next Steps Project Team (from 1988)

Departments containing ministers and senior officials (asked to draw up agency candidates from 1988) Agency candidates (some part of departments others free-standing)

Accountability relations

Figure 3.1 Institutions and actors involved in bringing about Next Steps 1986–92 Note: OMCS ⫽ Office of the Minister for the Civil Service.

Heseltine argued that ministers were key in initiating many policy initiatives and suggested government needed to be more businesslike, he did not present any blueprint for Next Steps (Heseltine, 1987, p. 470). The second, by Nigel Lawson, is scarcely more forthcoming: the only substantial reference to Next Steps is on two pages out of 1036 (Lawson, 1993, pp. 391–2). The third is Margaret Thatcher’s autobiography which mentions Next Steps only as a short footnote in a book of 862 pages of text, noting efforts to improve the management of government. Thatcher did not suggest that her ministers or party originated the reform or ways in which the model was supposed to bring about improvements (Thatcher, 1993, p. 49). If politicians saw their role as significant they certainly do not seem to have advertised the fact. Politicians’ behaviour suggests that they were less concerned with a specific organisational model than with the rule of thumb that civil servants with big programme responsibilities should devote more time to these activities and less time to policy work than those with small programme responsibilities. However, politicians in the Treasury and Cabinet Office seem to have been more interested in matters of organisation than departmental ministers. The limited

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material on organisational issues in ministers’ biographies is most evident for ministers who served in these central departments and studies of the activities of central units broadly support this assessment (Thain and Wright, 1995, pp. 72–5, 147; Parry et al., 1997). There is some support for the view that politicians shifted their assessment of the time that should be spent on the management of executive activity duirng the 1980s. This change in attitude has been described as the ‘rise of neo-Taylorism’ (Pollitt, 1993, p. 53), involving widespread adoption of the opinion that better monitoring of activities and employees was necessary to improve efficiency using modern technology. Politicians’ attitudes seem to have been influenced by the growing body of findings from scrutinies conducted by the Prime Minister’s Efficiency Unit that were widely reported to ministers (I1, Senior Official, Cabinet Office). A senior minister, Michael Heseltine, commented in 1987 that ‘When the literacies of the Civil Service and the generalities of intention are turned into targets which can be monitored and costed, when information is conveyed in columns instead of screeds, then objectives become clear and progress towards them becomes measurable and far more likely’ (Pollitt, 1993, p. 58). Further evidence for the shift in politicians’ general attitude towards management was their support for other reforms rather than a specific executive agency reform. In the early 1980s, central government politicians supported the idea of the Financial Management Initiative (FMI) which sought to improve management within existing integrated departmental organisations. The FMI suggested an organisational system for each department giving managers a clear view of their objectives and measures of how far they were achieving them, well defined responsibility for making the best use of resources, and better information and training, especially information about costs (Prime Minister and Chancellor of the Exchequer, 1982, p. 21). Whilst the FMI had some aspects in common with executive agency reform, including better management information systems, it differed substantially from Next Steps because it did not suggest passing on responsibility for executive tasks to separate bodies. Instead the reform involved senior civil servants taking more time directly to manage the activities for which they were responsible. In terms of the organisation of the department outlined in Figure 2.3 in Chapter 2, whilst Next Steps involved a move from A to B, FMI involved a move

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from A to C. Politicians’ support for Next Steps and FMI suggests that both reforms were on the shifted constraint curve and both were broadly consistent with their concerns. The interests of senior officials did seem to be highly significant in bringing about the executive agency reform rather than a full implementation of FMI within integrated departments. Senior officials were recruited after university and had long careers in the service, making them a cohesive group with a common set of interests (Heclo and Wildavsky, 1981). In the 1980s, Permanent Secretaries, the most senior grade with the posts usually held by individuals in their fifties, had, on average, each worked in the civil service for thirty years (Theakston, 1995, p. 37). A survey found that 82 per cent of them had been continually in the civil service since the age of twentyseven (Barberis, 1996, p. 153). There is some indication that senior officials had preferences broadly consistent with the bureau-shaping perspective. Civil servants’ attitudes to the FMI suggested that they were happy to run organisations with large budgets but at the same time reluctant to get involved in management. Sir Robert Armstrong, a former Cabinet Secretary and Head of the Civil Service, commented on senior officials’ continued interest in policy work despite the attempts of reforms to increase the profile of management tasks (Hennessy, 1989, pp. 737–8). A Deputy Secretary complained that ‘Management is a tiresome business, nobody goes into it unless they have to’ (Zifcak, 1994, p. 40). Some interviewees for this study suggested that many civil servants shared the, usually unspoken, view that their position as policy-makers for government made the best use of their skills and resulted in the best form of professional policy-making for the country (I1 and I2, Senior Officials, Cabinet Office). Officials demonstrated a concern to maximise their policy work role five years after Next Steps began. A survey of officials in the top three grades and fast-stream entrants at lower grades found that the interesting nature of strategic work was one of the aspects of their jobs which they liked the most (Efficiency Unit, 1993, pp. 105–8). A recent study appeared to find evidence conflicting with this view of senior officials’ concern with maximising policy work time. The study suggested ‘To the extent that a simple dichotomy between the policy advice and the management function is possible, some civil servants certainly appear to prefer policy work, others management

The Process of Executive Agency Creation 47

work and others a balance between the two’ (Marsh et al., 2000, p. 468). The study examined Permanent Secretaries’ work, splitting their tasks into managing the policy process, administering the department, and devising and implementing specific policies. The authors concluded ‘In our view, borne out by our interviews, PSs [Permanent Secretaries] manage in two senses. They administer the department and they manage the policy making process’ (Marsh et al., 2000, p. 480). Several of the tasks described as ‘management’ work by Marsh et al. have the characteristics of tasks described as ‘policy’ work in the bureau-shaping perspective. They state that the administration of the department involves ‘managing senior staff and resources in the department, being the department’s representative/spokesperson inside and outside the Westminster/Whitehall community and acting as department accounting officer’ (Marsh et al., 2000, p. 466). These activities involve proximity to political power sources in the ‘Whitehall village’ and beyond and seem to exclude routine management of non-senior staff and resources in the department. They further suggest officials’ role in ‘managing’ the policy process, ensuring ‘long term policy strategy is being effectively managed’, choosing officials to deal with policy issues, ensuring progress on policy issues and ‘attempting to prevent political problems resulting from ‘failures’ in the policy process’ (Marsh et al., 2000, p. 466). These tasks appear to involve innovation, working in small staff units or dealing with political power sources. The study did not find evidence of officials claiming to like working in a large extended hierarchy rather than in small staff units, and working at the point of delivery, remote from political power sources. Such a finding would constitute more of a puzzle for the bureau-shaping perspective. The Marsh et al. study relied mainly on interview material, but this form of evidence may not be sufficient to settle the issue, to the extent that there appears to be interview evidence both for and against senior officials’ concern for policy work time. However, evidence of senior officials’ career choices provides further support for the bureau-shaping hypothesis. There was a general disinclination to acquire management skills, and tendency for officials to move to jobs involving policy work. The Next Steps report team found that ‘The business of top managers in many departments is still dominated by the policy and political support tasks’ and continued ‘Many people

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commented to us that too few senior civil servants showed the qualities of leadership which would be expected from top managers in organisations outside the Civil Service’ (Efficiency Unit, 1988, p. 24). A survey of the choices made by officials in their careers conducted during the early 1990s remarked on a disinclination to acquire management skills (Efficiency Unit, 1993, pp. 105–8). Three quarters of the Permanent Secretaries in 1980 and 1993 had worked in ministers’ private offices involved in policy advice and ministerial support and such jobs were prized by potential ‘high flyers’ (Theakston, 1995, pp. 37–43). Evidence about senior officials’ concern to have as large an allocation of budget and associated activity as possible is less comprehensive than that for their liking of policy work time. Much of the research in this area focuses on the outcomes of budget change rather than distinguishing between attempts to increase budget and budget outcomes, which may or may not increase (for a survey see Blais and Dion, 1991). However, research on the outcomes of budget changes in central government during the 1970s and 1980s provides partial evidence. During times of budgetary retrenchment, departmental officials tended to cut their own budgets last, suggesting that their own budgets and programmes were of particular concern (Dunsire and Hood, 1989, pp. 98–111). Studies of departmental officials’ relationships with the Treasury in the spending round provide evidence of their attempts to push up budgets and programmes, even if these were not always successful. Officials in each department usually suggested expansion of their programmes in periods of budgetary growth and attempted to protect them against cuts in periods of retrenchment (Heclo and Wildavsky, 1981, pp. 88–103; Thain and Wright, 1995, pp. 142–98). Similarly, interviewees for this study noted that departmental officials generally proposed increases in their own programmes and associated budgets (IA3, Senior Official, Cabinet Office). Rather than the reform being developed by senior officials in the departments it was suggested by officials in the Efficiency Unit. These officials’ behaviour was not fully consistent with direct bureaushaping expectations. The authors of the Next Steps report were a mix of career civil service and outsiders, most were not working for the civil service by the mid-1990s (I1 Senior Official, Cabinet Office). At the time of the report, the Unit was supervised by the Adviser to

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the Prime Minister on Efficiency, Sir Robin Ibbs. He was not a career civil servant, having spent much of his career in private industry at Imperial Chemical Industries (ICI), and had little reason to embark on a bureau-shaping strategy. However, the reform was a form of indirect bureau-shaping because officials in the Unit had strong incentives to come up with new initiatives that would be successfully implemented because they gained individual career benefits in terms of enhanced promotion prospects. Officials in the Unit were policy entrepreneurs and the Unit was described as a ‘ginger group’ and a ‘place for strategic thinking’ by officials who worked in it (I1, Senior Official, Cabinet Office; I2, Senior Official, Cabinet Office). The civil service members of the Unit had an interest in the organisation of the departments to which they might move later in their careers, which gave them an indirect interest in departmental organisation. However, more fundamentally, the choice of reform proposals was limited by the need to take into account the wishes of senior officials in the departments. These officials’ support was needed to implement any reform successfully, because departments were the bodies that carried out plans for reform. Efficiency Unit officials undertook extensive consultation with senior civil servants in the departments about possible reform options in conducting their research for the Next Steps report. Visits were undertaken to see different parts of the system in action. Whilst the team spoke to staff at all levels, senior officials were particularly influential. Interviews were conducted with twenty-six Permanent Secretaries or equivalents and twenty-six Grade 2s. Five group discussions were held with thirty-five Grade 3 officials and seven group discussions were held with fifty officials of Grades 5–7 (Efficiency Unit, 1988, Annex C, pp. 33–4). The Grade 7s included ‘high flyers’ just starting their careers who expected to be promoted quickly in the following years. The influence of the anticipated reaction of departmental officials to reform proposals was noted by an official involved in the study (I16, Senior Official, Cabinet Office). Another official responsible for implementing the reform noted that ‘Its [the Next Steps Report] persuasiveness lay not in the presentation of detailed evidence but in its description of a state of affairs which many readers [civil servants] said that they recognised readily from their own experience; and in an analysis with which most of them instinctively agreed’ (Goldsworthy, 1991, p. 8).

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The Efficiency Unit team observed from the history of reform that changes to increase senior officials’ involvement in hands-on management were likely to be greeted with hostility and were unlikely to be successfully implemented. Full implementation of the FMI reform to make senior officials hands-on managers would have involved a move from position A to C in Figure 2.3 in Chapter 2. Such a reform would have involved officials giving up policy work time to protect budget in response to the inward shift in politicians’ constraint. Instead, executive agencies marked a step change from FMI and involved delegation to bodies responsible for managing executive activity. An investigation of FMI found that ‘the continuing devotion of senior officials to advising ministers and developing policy doomed the FMI to fail as an exercise to turn senior civil servants into resource managers and directors of executive operations… . …top management systems [in FMI] were given only passing attention in senior echelons’ (Zifcak, 1994, p. 40). The Efficiency Unit concluded ‘Our evidence suggests that Top Management Systems are seen as having more relevance in executive functions and in the regions, than in headquarters or policy functions’ (Efficiency Unit, 1988, p. 22). Officials were blinkered in the range of evidence they drew on and did not look very far into the performance consequences of the structures they proposed. The study only lasted for ninety days over the period November 1986 to March 1997, costing just £50,000 (Efficiency Unit, 1988, pp. 33–5). There was a considerable delay before publication and several drafts were produced and revised before publication. The desire to produce a reform that was acceptable to senior officials rather than weighing up all available options was reflected in the way the report’s authors interpreted the ideas and experiences examined in the study. Several sources of ideas for New Public Management (NPM) reform have been identified, especially new institutional economics and business managerialism (Hood, 1991). However, the Next Steps reformers’ had a particular notion of what making government more managerial and ‘business-like’ entailed, influenced by an AngloAmerican big business practice of multi-divisional firm organisation (James, 2001). Multi-divisional firms are conventionally interpreted as a way of running diverse activities under an overall umbrella form of organisation in the interests of shareholders. In such firms, the central headquarters delegate activities to distinct business units and

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give managers in these units considerable freedom in the use of resources. At the same time, the centre monitors the performance of the units on a few key, output focused, criteria. Individual business units and the overall firm have chief executives which locates responsibility for different parts of the firm to individuals (Charkham, 1994). The Next Steps report team examined this organisational model in a private company, ICI, and a public corporation, British Rail (Efficiency Unit, 1988, p. 35). At the time, ICI had multi-divisional structure and British Rail had just imported a similar model into the public sector by splitting its organisation into separate business units. The Cabinet Secretary and Head of the Civil Service drew explicit parallels between parts of the civil service and sections of firms like ICI when voicing his support for the Next Steps reform (Butler, 1991). The adoption of Anglo-American business practices was a highly selective view of what government becoming more business-like entailed. The Anglo-American practices were very different from those found in other systems, notably Germany or Japan which are conventionally seen as offering very different business models. Whilst all these systems made use of the multi-divisional form, there is traditionally more emphasis on collegiate responsibility and longer term measures of performance in German and Japanese firms (Charkham, 1994). Reading across the ideas to central government, the systems would suggest less strict separation of executive activity from policy work and more informal assessment of performance rather than the use of performance targets (James, 2001). However, these insights were not pursued, instead the reformers appeared to be fixated with the separation of tasks between departments and executive agencies and control of these bodies through performance targets and chief executives. Much of the language in the report was economistic, in the sense of reflecting a concern with the need to provide incentives for individuals to perform their tasks. New institutional economics, particularly public choice, transaction cost and principal agent theory are all relevant to executive agencies but their full implications were not explored. The reformers appeared to adopt some of the concerns of ‘principal–agent’ analysis. This analysis is concerned with the specification of a contract for performing a task by an agent on behalf of a principal in conditions where the agent has better information than the principal and parties are prone to opportunistic behaviour (Milgrom and Roberts, 1992, p. 214).

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Principal–agent analysis suggests possible undesirable outcomes in conditions where contracts cannot link an agent’s reward directly to the interests of the principal, especially where agents may not be willing to bear the risk of his or her reward being linked to an outcome that may not be completely under the agent’s direct control. The outcomes of the inability to set a contract that protects both parties’ interests include adverse selection, where the best agents do not end up performing tasks for principals, and moral hazard, where agents do not perform in the way desired by principals. A range of organisational solutions are suggested to this problem including forms of performance pay, different ownership structures and using competition between agents to uncover information, for example, using comparison between agents’ performance of the same task (Milgrom and Roberts, 1992, pp. 214–41). The framework between the department and agency resembles the prescriptions of principal–agent analysis in specifying a ‘contract’ with incentives for performing tasks. The post of chief executive incorporates incentives for good performance including performance related pay and continued tenure of the post related to performance. However, principal–agent analysis points to the importance of competition as a way for principals to uncover information and ensure agents act in their interests. Competition between executive agencies and between executive agencies and other bodies are not core features of the model and the authors of Next Steps did not explore the full prescriptions of the analysis. The Next Steps authors were selective in their use of evidence about the performance of structures similar to those that they proposed. A government report had previously noted some of the difficulties with ‘arms-length’ structures in central government, in particular the difficulty of clearly dividing responsibility for tasks between departments and such bodies. The author of this earlier report commented with surprise that the Next Steps reformers ‘did not even mention the 1980 report on non-departmental bodies’ or the concerns about this form of organisation (Pliatsky, 1992, pp. 557, 561). The use of nationalised industries was being markedly reduced in the period of executive agency reform, in part, because of dissatisfaction with their performance. Privatisation involving transferring ownership from the public sector to a private firm occurred in telecoms (1984), gas (1986), water supply and sewerage (1989), electricity (1990–93) and railways

The Process of Executive Agency Creation 53

(1994). Around 800,000 employees moved from the public to the private sector in the 1980s (Pollitt and Bouckaert, 2000, p. 273). Just as nationalised industries were being dismantled, structures with some similarities were being created in the executive agency initiative. The bureau-shaping perspective is not sufficient to explain why executive agency reform was preferred as bureau-shaping strategy rather than certain alternative strategies. The potential bureaushaping option of increasing the use of local authorities to deliver central government services was not acceptable because, as indicated in the Chapter 1, this form of delivery involves bodies which have, in broad terms, more autonomy than executive agencies. However, there is also evidence to suggest that, whilst ministers did not have a specific form of organisation in mind, they would have vetoed the use of local authorities because many of these bodies were controlled by opposition parties and because they lacked confidence in their competence (I16, Senior Official, Cabinet Office). A potentially more viable alternative bureau-shaping option to executive agency reform was the option of increasing the use of private firms under contract. Such a form of delivery maintains senior officials’ policy control without the responsibility for hands on management of executive activity. This shaping strategy was pursued simultaneously with executive agency reform, although to a much more limited extent. The 1988 report suggested the possibility of ‘agencies being located outside of government’ and, whilst this change did not take place, widespread contracting out of activity to private firms was evident during the period. The market testing or Competing for Quality initiative was launched in 1991; 935 market tests of central government activity were conducted resulting in £1632 m of activity being given to private firms under contract between 1992 and 1995 (Efficiency Unit, 1996, p. 93). The total value of contracts averaged just over 1 per cent of civil service administrative expenditure per year, although there were further contracts with private firms that were not part of this programme. Consistent with the bureau-shaping hypothesis, there was very little market testing or contracting out of policy work. Instead, office services and estate management accounted for over 40 per cent of all the competitions that were conducted. Other services provided under contract included engineering and maintenance, printing and photocopying (Efficiency Unit, 1996, p. 95). The lack of widespread

54 The Executive Agency Revolution in Whitehall

contracting out to private firms as an alternative to executive agencies appears to have occurred because of potential opposition from unions and concerns about the lack of firms able to take on the activities (I1, Senior Official, Cabinet Office). Unions consistently stated their opposition and the potential for industrial unrest (Council of Civil Service Unions, 1996). The best way for senior officials to be sure of passing on executive activity, and to avoid becoming hands on managers of integrated departments, was through executive agency reform. The bureau-shaping perspective is more consistent than the public interest perspective with the importance of senior officials in originating the executive agency reform. However, there was some diversity of interests within the group of senior officials which is not directly consistent with either perspective. The Treasury was a rival to the Efficiency Unit as a source of ideas about how to organise and control central government, for example, the major public expenditure survey of the 1960s drew heavily on the experience of senior Treasury officials (Thain and Wright, 1995). Officials in different central units competed to propose reforms and were committed to particular viewpoints about their desirability (I3, Senior Official, Cabinet Office). The reform also appeared to make the Treasury’s mission to control public expenditure more difficult because there was some uncertainty about how the model was to be incorporated in existing public expenditure control systems (IA1, Senior Official, Treasury). Senior officials in the Treasury were important in the early stages of the reform because of their responsibility for administering budgetary and accounting systems in central government and could have delayed the changes. There were disputes between Cabinet Office and Treasury officials about the desirability of the reform in its early stages (Zifcak, 1994, pp. 81–4; O’Toole and Jordan, 1995, pp. 3–17). Theakston emphasised clashes between ‘managerial radicals’ and so-called Treasury consolidators in the early days of the reform (Theakston, 1995, pp. 131–3). Greer concurred, describing events as a power struggle between the Cabinet Office units, especially the Office of the Minister for the Civil Service and the Treasury (Greer, 1994, pp. 45–58). The Head of the Next Steps Project Team Kemp eventually resigned because of the conflicts, prompting him to attack his former colleagues and the reforms ‘There are welcome breakthroughs but they do not add up to a revolution. At the centre,

The Process of Executive Agency Creation 55

in Whitehall, old attitudes and the old guard prevail. The only heads that have rolled have been among the revolutionaries themselves’ (O’Toole and Jordan, 1995, p. 9). Whilst some of this assessment expressed personal frustration, there were undoubtedly conflicts between parts of the service. The Efficiency Unit staff eventually won the battle and Treasury officials relaxed their initial opposition. The executive agency model was made consistent with the traditional central government systems of expenditure and accounting control. The Treasury enshrined these principles in a White Paper, The Financing and Accountability of Next Steps Agencies, published in December 1989 and used by departments in setting up executive agencies (Treasury, 1989). A similar logic was eventually accepted in a wider review of Treasury expenditure control across central government (IA1 and IA2, Senior Officials, HM Treasury). Under the Treasury’s fundamental Expenditure Review, the expenditure control system changed towards fewer, more strategic, ‘bottom line’ controls on expenditure with more freedom for departments to use expenditure as they wished within these overall limits (Parry et al., 1997).

Section 2: Implementation of the reform The public interest perspective suggests that officials in departments acted under strong central direction to implement the reform. In contrast, the bureau-shaping perspective stresses that the interests of senior officials in departments undertaking bureau-shaping strategies were key to pushing through the changes. There was some central direction to the reform, with a Next Steps Project Team in the Cabinet Office having formal responsibility for direction of the reform, as shown in Figure 3.1. These officials had a particular interest in fulfilling their mandate of implementing the reform. A former member of the Team noted that the Team wanted a rolling programme of implementation in departments (Goldsworthy, 1991, p. 20). The first Project Manager aggressively promoted the establishment of executive agencies. In evidence to a Treasury and Civil Service Committee inquiry in 1989 he set an unofficial target that at least twenty executive agencies would be established by April 1990. In June 1990 he stated that the Government expected that at least

56 The Executive Agency Revolution in Whitehall

half the Civil Service would be operating in executive agencies by the end of 1991 (Treasury and Civil Service Committee, 1990, p. 1). Whilst superficially consistent with the public interest perspective’s expectation of central direction of the reform, the Next Steps Team’s staff were concerned about the reception of the reform by departmental officials. The Team initially consisted of the Project Manager, Sir Peter Kemp (a former senior Treasury official) and three civil service assistants. These officials had an interest in the organisation of departments in which they might later work. The Team was too small to carry out the work itself, never consisting of more than twenty people. The vast bulk of the work of implementing the reform was done by officials in the departments. The Team pursued its aims by producing guidance and acting as a central point for monitoring departments’ progress and encouraging them in the reform. There were regular meetings with departmental officials, intended to ‘foster support for and a sense of purpose about Next Steps at a senior level’, during implementation of the reform and, overall, the view was that ‘effective practical proposals for reform should originate from those who have responsibility for bringing them about, i.e. those working within the services concerned. Only in this way will those who are responsible for making these changes feel that they own them and are committed to them’ (Goldsworthy, 1991, p. 22). The public interest perspective suggests a substantial growth in executive agencies from a low base to cover 95 per cent of the civil service. Given the sizeable shift in politicians’ attitudes, the bureaushaping perspective suggests a substantial shift with between half and three quarters of executive activity being passed on to executive agencies. A census of all bodies called ‘agencies’ set up under Next Steps reveals that 173 executive agencies were created in the period 1988 to 2001. A list of all executive agencies by department, with their dates of establishment and type is given in Appendix 4. All these bodies had the two core features of the executive agency model, management freedoms and an accountability framework. The non-trading type was the most numerous with 154 agencies or 89 per cent, compared to nineteen trading agencies or 11 per cent of the total. There was a similar proportionate split in staff numbers, with 90 per cent of staff in non-trading agencies and 10 per cent in trading agencies. The total number of executive agencies, number of new bodies created each year, and their relative importance in central government staffing is shown in Table 3.2.

3 10 35 59 76 92 102 109 133 134 138 136 126 126

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

3 7 25 24 17 16 14 14 30 10 4 5 3 2 (2)

(1)

(3) (1) (9) (1) (2)

Executive agencies created (including trading funds) 6 9 114 200 210 250 268 267 275 285 277 271 279 277

Civil servants in executive agencies (thousands)

580 569 562 554 565 554 540 517 495 475 463 460 475 483

All civil servants (thousands)

⬎1 1 20 36 37 45 50 52 56 60 60 59 59 57

Percentage of civil servants in executive agencies (%)

Source: Appendix 4 census of all executive agencies and Civil Service Statistics (figures for civil servants in Great Britain).

Total number of executive agencies

Year

Table 3.2 Growth in executive agencies and civil servants working in these bodies 1988 to 2001

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The growth in executive agencies was not enough to reach 95 per cent of the whole service but was broadly consistent with the bureaushaping perspective. In the first year of the reform, there were just ten executive agencies with 9000 staff. There was then a period of substantial growth, with the number rising to seventy-six executive agencies and 210,000 staff by 1992. By 1998, there were 138 bodies employing 277,000 staff, amounting to 60 per cent of all civil servants. In 2001, the total stood at 126 executive agencies with 277,000 civil servants, or 57 per cent of the total, including nineteen trading agencies employing 29,000 staff. Trading agencies employed 6 per cent of all civil servants. The total number of executive agencies created is higher than the number in existence at the end of the period because of mergers and the abolition or privatisation of some bodies. The number of executive agencies created each year initially peaked at twenty-five in 1990. The creation of trading agencies got off to a faster start than non-trading agencies; four trading agencies were created by 1989, with the number of new bodies peaking at nine in 1990. However, some of these bodies had trading status conferred on them only after being established as executive agencies. There was a second, higher, peak of newly established executive agencies in 1996, with thirty new bodies. But this figure was, for the greater part, the result of sixteen new bodies in the Ministry of Defence that were relatively small, most having fewer then 1000 staff, and included re-launches of units designated as executive agencies in previous years. The number of new bodies trailed off after the end of 1997. Whilst the reform was petering out, fourteen executive agencies were created between 1998 and 2001. The pattern of executive agency creation over time was broadly similar in different departments, with most bodies in each department set up between 1990 and 1996. However, there were two ‘innovators’, the Department of Trade and Industry, with nearly all its eleven executive agencies set up between 1988 and 1991 and the Department of the Environment, which created its five initial executive agencies from 1989 to 1992. There were no obvious laggards, although the Ministry of Defence, which eventually created the most bodies, was relatively slow to start. Beginning with two in 1990 and six in each of 1991 and 1992 the number of new agencies fell back to two in 1993 before rising, on average, to six a year between 1994

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and 1999. Similarly, in the Northern Ireland group of departments, sixteen of its twenty-four executive agencies were created in the period between 1995 and 1998. There was a territorial dimension to the creation of executive agencies. About seventy executive agencies dealt with parts of the UK rather than the whole area with these bodies covering only England, Scotland, Wales, Northern Ireland or some combination of these areas (see Appendix 4). Whilst executive agencies in England, Wales and Scotland were staffed by civil servants, those in Northern Ireland were staffed by members of the Northern Ireland Civil Service. This pattern reflected long running fragmentation of the system rather than a new departure linked to executive agency reform. Both the public interest and bureau-shaping perspectives characterise executive agency creation as a revolutionary change in the organisation of central government. A variety of organisational changes were involved in the application of the term ‘agency’ as part of Next Steps and departments were not monolithic structures before the reform (Hogwood, 1997). Categorising the creation of executive agencies based on the structures handling activities ‘before’ and ‘after’ the move to executive agency status reveals the pattern of change. The main forms of executive agency creation are defined as (1) Pure creation involving establishing an executive agency when the activity was previously substantially integrated into a department without a specific set of management freedoms and a specific accountability framework. (2) Mitigated creation consisting of establishing an executive agency when the activity previously had a partially developed specific set of management freedoms or a specific accountability framework. (3) Nominal creation consisting of establishing an executive agency when the activity had a specific set of management freedoms and a specific accountability framework. (4) New activity creation consisting of setting up an executive agency to perform an activity not previously conducted by central government. The greatest proportion of changes between 1988 and 2001 were mitigated executive agency creation, as summarised in Table 3.3; 121 cases or 70 per cent were of this type. This type of change was

60 The Executive Agency Revolution in Whitehall

Table 3.3 Type of executive agency creation in non-trading and trading agencies (with percentages) Non-trading Mitigated Pure Nominal New activity Total

109 22 20 3 156

(71%) (14%) (13%) (2%) (100%)

Trading 12 0 7 0 19

(63%) (0%) (37%) (0%) (100%)

Total 121 22 27 3 173

(70%) (13%) (16%) (2%) (100%)

Source: Appendix 4 and survey of the origins of activities handled by executive agencies.

followed by nominal creation with twenty-seven cases or 16 per cent taking this form. Pure executive agency creation was evident in twenty-two cases or 13 per cent and new activity creation was the least common form with only three cases or 2 per cent. There was no obvious pattern in the distribution of types of executive agency creation over time, except that there were no cases of ‘pure’ creation in the first two years of the reform. Instead, in 1988 and 1989, the reform involved activities that were already associated with clearly defined organisational arrangements focused on a particular set of tasks or were already separate bodies with external accountability systems. Overall, Next Steps was a substantial, revolutionary, change rather than a nominal reform because the changes were either pure or mitigated in 83 per cent of the cases. However there was a difference between non-trading agencies that were the result of nominal change in only 13 per cent of cases and trading agencies, where 37 per cent of these bodies arose from nominal change. Over a third of activities put into trading agencies had organisational arrangements closely resembling the executive agency model prior to the reform. The two perspectives focus on change rather than the initial endowment of executive activity handled by departments. Both perspectives suggest that departments pass on a substantial portion of whatever executive activity they were initially responsible for managing to executive agencies. Departments with more executive activity to start with pass on more activity than those with less executive activity. In broad terms, the pattern of executive agency creation was consistent with these expectations. The main exception

The Process of Executive Agency Creation 61

to the characterisation of the reform as a substantial change were the nominal changes that occurred in 37 per cent of trading agencies. The pressure for these changes mainly came from a combination of officials in the Next Steps team wanting to chalk up some early successes in the reform initiative, and the enthusiasm of officials in potential candidates. This latter group of officials were keen to get more freedom to raise their own revenues (I2, Senior Official, Cabinet Office). The case of the Benefits Agency illustrates the process of executive agency creation for a non-trading agency that was the result of mitigated change. Almost two-thirds of all executive agencies had these characteristics as shown in Table 3.3. The Benefits Agency was set up as part of a process to split the old Department of Social Security (DSS) between a departmental Headquarters and seven executive agencies as summarised in Table 3.4. The DSS conducted reviews of its activities in the light of the Next Steps report. Senior officials’ responsibility for choosing candidates and setting them up could have lead to delays if they had objected to the executive agency reform. The reviews included consideration of ‘prior options’ for the activities before setting up an executive agency. The options included abolishing the activity, privatisation through sale of assets and contracting out the service to a private organisation. The reviews were dominated by civil servants rather than the three different holders of the post of Secretary of State for Social Security in the main period of change between 1988 and 1992. The most senior official, the Permanent Secretary, was particularly influential in getting the process underway (I13, Senior Official, DSS). A review team led by senior officials produced the Agency Study Report, sometimes called the Hickey Report after the official who led the team. The report examined proposals for separating the activities of paying benefits and collecting social security contributions from the rest of the Department. The senior officials involved in the review made statements that were partly consistent with the public interest perspective. They noted that ‘It is government policy that the executive functions of Departments should be carried out by agencies operating within a policy and resources framework and using the resources set by the Secretary of State’ (DSS, 1993, p. 3). The change was noted as bringing ‘delegation with clear lines of responsibility and accountability, clearly defined targets and challenging performance targets,

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Table 3.4 Executive agencies in the DSS, date of establishment, former location of activity and type of creation Executive agency

Date established

Location of activity before executive agency creation

Type of creation

Resettlement Agency

May 1989

Units under control of DSS

Mitigated

Information Technology Services Agency (ITSA)

April 1990

Information Technology Services Directorate within the DSS

Mitigated

Contributions Agency

April 1991

Branches of the DSS

Pure

Benefits Agency

April 1991

Regional Directorate and Regional Offices in the Social Security Operations Group within the DSS

Pure

Child Support Agency

April 1993

New activity

New activity

War Pensions Agency

April 1994

War pensions and general benefits sections, Social Security Operations Group in the DSS (Benefits Agency from April 1991)

Pure

Appeals Service Agency

April 2000

Sections handling appeals within the DSS

Mitigated

Source: Appendix 3.

published annual reports, making the business more open to scrutiny, greater emphasis on the business and customer service’ (DSS, 1993, p. 3). The Benefits Agency commented on similar advantages, allowing the organisation to focus on the needs of customers whilst working within a framework set by ministers (Benefits Agency, 1991, p. 5). Despite these statements, the limited scope of the review was consistent with bureau-shaping motivations. The two main alternatives under consideration were the executive agency model or some form of contracting out. Contracting out would have been consistent with the bureau-shaping perspective, which suggests that

The Process of Executive Agency Creation 63

senior officials wanted to pass on executive activity to other bodies, and inconsistent with the public interest perspective which suggests that the executive agency form was the only one desired by politicians. There was an extensive discussion of options for contracting out at a senior level at the time of setting up the Benefits Agency and again in 1995 during the review of the Agency’s status (I15, Senior Official, Benefits Agency). In the end, the option of contracting out was not pursued. The rejection of this option was not because of opposition from senior officials or politicians but because of the opposition of officials in candidates for contracting out (I14, Senior Official, DSS). The possibility of managing in a ‘hands on’ way within an integrated structure was taken much less seriously than the executive agency and contracting out options. Instead, much of the discussion around the time of the review concerned how to split the tasks up between different executive agencies (I13, Senior Official, DSS). The depth of senior DSS officials’ support for the executive agency form of organisation is further demonstrated by the similarity between the Next Steps proposals and their own reform proposals which they developed before the publication of the Efficiency Unit report. An internal departmental report, produced in 1988, recommended setting up structures to handle the implementation of social security policy, separate from the policy core of the Department (Moodie et al., 1988). Both this proposal and Next Steps built on the existing regional structure of local offices delivering benefit which were already partially separate from the policy core. The Benefits Agency brought together the regions and central centres for paying out benefits, separate from a policy core of the Departmental Headquarters (DSS, 1993, pp. 26–9). Most senior officials in the Department expected to find themselves located in the DSS Headquarters after the reform and consequently carrying out favourably valued policy work tasks. The officials working in potential executive agency candidates appear to have had much less influence on the course of reform than senior staff at the centre of the Department. The first chief executive of the Benefits Agency, Michael Bichard, came from local government and was not part of the creation of the Agency. The unions were sceptical about the benefits of the reform and the consequences for junior staff’s pay and conditions, but were in a weak position. The Civil and Public Servants Association were not completely hostile to the reform, but the National Union of Civil and Public Servants

64 The Executive Agency Revolution in Whitehall

opposed the change. The unions were consulted in the process of setting up executive agencies but were not key to their design (Goldsworthy, 1991, p. 16). However, partly because of the splits between the unions, and partly because of their reduced influence in the 1980s, the unions were not able to mount a campaign against the executive agency initiative (Greer, 1994, p. 54). The junior officials in the DSS had more influence in blocking the alternative proposal of shifting the administration of welfare payments to private firms under contract, which staff were more implacably opposed to, and suggested industrial unrest might follow such a decision (I15, Senior Official, Benefits Agency). Some staff in candidates for executive agency status were able to influence the boundaries between different executive agencies. The organisational boundary created between the Benefits Agency and ITSA was heavily influenced by officials in the Information Technology Directorate of the DSS. The Directorate was staffed by IT professionals who worked in a labour market which cut across the standard civil service career structures, more frequently moving in and out of government than other officials (Greer, 1994, p. 33). These specialist staff wanted more freedom to develop their specific skills and higher pay, seeing their own executive agency as a way to achieve this (I1, Senior Official, Cabinet Office). The IT staff were part of the report team that recommended the establishment of the separate agency (DSS, 1993, pp. 30–1). ITSA took on IT systems and had a role in contracting out IT functions. The Agency was able to make use of freedoms to group staff by function and respond more flexibly in pay and conditions to recruit and keep specialist IT staff (ITSA, 1996, p. 20).

Section 3: Outcome of the reform According to the bureau-shaping perspective, senior officials in the DSS and other departments predominantly end up working in the policy core of departments rather than in executive agencies. In contrast, the public interest perspective expects a more even split of senior officials across departments and executive agencies. The location of senior officials (Grades 1–5) immediately after the most intensive period of executive agency reform is summarised in Table 3.5. In three-quarters of departments, over 70 per cent of senior

The Process of Executive Agency Creation 65

Table 3.5 Senior staff (Grades 1–5) in parent departments in 1995 Department

Per cent in parent department

Number in parent department

Number in executive agencies

Department for Education Welsh Office Scottish Office Foreign and Commonwealth Office/ Overseas Development Administration Department of Employment National Heritage Department Department of Health Department of the Environment Ministry of Defence Ministry of Agriculture, Fisheries and Food (MAFF) Department of Trade and Industry Treasury Cabinet Office Northern Ireland departments Department of Transport

98 98 93 91

67 66 162 43

1 1 13 4

88 85 82 82 80 77

183 23 192 164 338 117

24 4 41 36 85 34

75

231

76

73 71 67 61

103 102 18 95

Lord Chancellor’s Department (LCD) Home Office

58

42

57

113

DSS

55

66

39 41 9 61 (inc. 53 at Grade 5) 30 (inc. 25 at Grade 5) 87 (inc. 69 at Grade 5) 55 (inc. 42 at Grade 5)

Source: Cabinet Office, 1995b.

staff worked in the non-agency parent section of the department. The Department for Education and the Welsh Office had 98 per cent of senior staff in the parent department, although these departments did not have many executive agencies. The four departments with percentages ranging from 55 to 61 per cent had lower percentages than the others in large part because of several Grade 5 officials working in executive agencies. This grade was the least senior of the senior grades; excluding these officials to focus on the most senior officials

66 The Executive Agency Revolution in Whitehall

raises the proportion working in parent departments to well over three quarters in each of these cases. In the DSS, 55 per cent of 121 senior officials worked in the Headquarters. In contrast, 3 per cent of the DSS’s 89,075 junior staff worked in the DSS Headquarters with the rest in executive agencies (Cabinet Office, 1995b, pp. 21–3). Of the senior DSS staff who worked in executive agencies, over three-quarters were at the lowest senior level of Grade 5. Many of these officials would have expected to move to the Headquarters or to other departments in Whitehall later in their careers, which was not the expectation of most of the less senior officials in executive agencies. The level of budget per senior official in the Headquarters was about one-tenth of that in the DSS prior to the creation of executive agencies (James, 1995b, p. 622). However, this straight comparison overstates senior officials’ involvement in management work before the reform because there was some partial organisational separation of operational activities within DSS prior to the changes. Overall, about 10 per cent of executive agencies were involved in activities with the characteristics of policy work, contrary to both the perspectives’ hypotheses. However, these bodies were overwhelmingly small research and development organisations handling specialist, often scientific, tasks which generalist civil servants did not traditionally undertake. A more important test of the perspectives’ expectations is whether or not politically sensitive tasks requiring frequent interaction with ministers were put into executive agencies. The location of this activity is particularly important for evaluating the bureau-shaping perspective because it was traditionally a key part of policy work for senior officials. A rough indication of political sensitivity is given by the number of Written Parliamentary Questions asked by Members of Parliament and directed at ministers relating to the activity. Policy work activities of political sensitivity have a higher number of Written Parliamentary Questions than routine executive activities despite MPs having some interest in routine executive activities on behalf of their constituents. The political salience of activities handled by executive agencies as a group was much lower than activities handled by departments. Taking 1995 as a census year, questions relating to activities handled by executive agencies were just 7 per cent of the total for the Government. The results for individual executive agencies reflected

The Process of Executive Agency Creation 67

low saliency. The greatest number of questions to executive agencies were for HM Prison Service with 613 questions, followed by the Child Support Agency with 231 and the Benefits Agency with 217. There were thirty-two executive agencies with fewer than this number but more than fifteen questions; the remaining sixty bodies had between zero and fifteen questions (Hogwood et al., 1997, pp. 109–12). Adjusting Written Questions to take account of expenditure emphasises the relatively low salience of activities in executive agencies. There were 0.3 questions per £ m of running costs for executive agencies as a group, in contrast to eleven questions per £ m of running costs for parent departments. No executive agency had more than eight questions per £ m and over three-quarters had fewer than two questions per £ m. Senior officials in most departments were able to maintain their policy work position in the 1980s and 1990s. Very little policy work was contracted out to outside providers. Whilst increasing use was made of special advisers and outside sources of policy advice there were usually only one or two special advisers per minister, a very small percentage of those working on policy in departments. The character of civil servants interaction with ministers may have changed from the traditional way of working, including ministers not necessarily accepting the options put to them by departmental officials (Richards and Smith, 2002, pp. 220–3). However, despite this change, policy work remained a non-routine activity and involved working close to political power sources. Senior civil servants’ interest in undertaking policy work in departments was maintained by the establishment of the Senior Civil Service consisting of officials of Grade 5 and above and by the limits placed on the scope for using executive agencies. A White Paper commented that ‘The Government does not, however, envisage extending the formal establishment of agencies into areas of the Civil Service primarily concerned with policy … For day to day support for Ministers on policy matters, policy divisions on existing lines will continue to be the preferred model, adapted by departments as necessary to deal with changing workloads’ (Prime Minister et al., 1994, p. 13). In the new Senior Civil Service, executive agency chief executives formed less than 5 per cent of the total, the vast bulk of senior officials being located in departments. In the mid 1990s, there were reductions in senior staff through delayering as part of departmental Senior Management Reviews (Cabinet Office, 1995a, p. 17). However,

68 The Executive Agency Revolution in Whitehall

there was relative stability in senior civil service numbers over the period as a whole. In 1988, before Next Steps, there were 3613 officials of the senior grades out of a total of 580,000 (Cabinet Office, 1989, 2000, p. 44). In 1999, membership of the Senior Civil Service stood at 3570 out of 460,000 officials. Over the period, whilst the total number of officials declined by 20 per cent, the number of senior officials declined by just 1 per cent.

Conclusion Both perspectives are consistent with the dominant role of actors within, rather than outside, central government in the process of the Next Steps reform. However, the process was more consistent with the bureau-shaping perspective than the public interest perspective. Senior officials responded to politicians’ pressure for management improvement through executive agency creation rather than politicians having a plan to create executive agencies with civil servants implementing it neutrally. Consistent with the bureau-shaping perspective, civil servants preferred policy work time to management work and there is more limited evidence that they preferred higher budgets to lower budgets. In terms of Figure 2.3 in Chapter 2, once the initial status quo position A was no longer possible given the new constraint, the Next Steps reform to bring about position B was chosen rather than the alternative reform of moving to point C by developing the FMI to make senior officials hands-on managers of executive activity in integrated departments. The constellation of interests that brought about the reform was more complicated than that suggested by either perspective. The initiation of the reform by officials in the central Efficiency Unit was a form of indirect bureau-shaping. These officials wanted their plans to be implemented and needed a proposal that would have the support of senior departmental officials. Contrary to the public interest perspective, the report team drew on a limited range of ideas rather than embarking on a thorough review of possible structures for central government. It had a particularly Anglo-American view of business models and did not follow many of the prescriptions of principal– agent analysis. The report team were selective in their choice of evidence about the performance of similar arms-length bodies, especially non-departmental bodies and nationalised industries, when this evidence did not provide support for their proposals.

The Process of Executive Agency Creation 69

The reform was a revolutionary change, the reform proposals were taken up and implemented by departments; there was a massive expansion in the use of executive agencies with 173 bodies created between 1988 and 2001. In 2001, 57 per cent of civil servants worked in 126 executive agencies. The change was not as great as the public interest perspective’s hypothesis that 95 per cent of central government activities would be put in executive agencies but consistent with the half to three quarters of operational activity suggested by the bureau-shaping perspective. The changes were substantial, only 16 per cent of cases of executive agency creation were nominal changes, although 37 per cent of trading agencies were the result of nominal change. Officials in the Next Steps project team had an interest in presenting the reform as a success and this partially explains nominal changes, especially in the early days of the reform. The practice of reform was generally consistent with the bureaushaping perspective’s hypotheses. Whilst the details of the reform varied between executive agencies, senior officials in departments appear to have consistently attempted to pass on executive activity rather than policy work. In the case of the Benefits Agency, the Next Steps proposals were similar to senior DSS officials’ own plans for change. Most junior staff in sections of work proposed for executive agency status were unenthusiastic about the change, and strongly opposed the alternative of contracting out work to private firms. However, a group of IT professionals supported the introduction of the separate ITSA which enabled them to pursue their specialist careers across the public/private sector boundary. Consistent with the bureau-shaping perspective, most senior officials expected to end up working in parent departments rather than executive agencies and this outcome occurred. On average, 70 per cent of senior officials were located in departmental headquarters rather than in executive agencies after the reform. Whilst some executive agencies handled non-routine work, many of these bodies were research and development organisations requiring specialist scientific skills and did not handle the policy work with high political salience that was traditionally handled by generalist senior officials. An indicator of the political salience of activities based on Written Parliamentary Questions reveals that activities in departments produced eleven questions per £ m of administrative costs and a much lower figure of 0.3 questions per £ m of administrative costs for activities in executive agencies.

4 The Practice of Executive Agency Working

A large number of bodies were set up with the two main features of the executive agency model. This chapter continues the examination of the outcome of the reform by assessing whether executive agencies’ procedures and general working practices were consistent with the model, or whether the changes were superficial. If the changes were superficial then these bodies’ performance does not reveal much about executive agencies and the performance expectations of the two perspectives are much less relevant. Section 1 assesses the semi-detached organisational arrangements between executive agencies and their parent departments. Section 2 examines the accountability framework. Section 3 explores executive agencies’ freedom from central government-wide regulations and accountability to other parts of central government, Parliament, customers and users of their services.

Section 1: Semi-detached organisation The executive agency model consists of management freedom and freedom from ad hoc intervention by departmental staff and ministers with resources under the overall direction of a chief executive recruited through open competition. Trading agencies have further freedom to raise revenue and expand activities covered by fees charged to customers. There was an initial discussion of an annual quasi-contractual arrangement between departments and executive agencies to set out the objectives and structure in which they operated (Talbot, 1996, p. 43). However, it was quickly decided instead to 70

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have three, and later five, year period ‘Framework Documents’ which ‘publicly set out the respective roles of ministers … and those of agencies’, the ‘boundaries between policy and service delivery functions’ and the ‘financial and personnel management flexibilities’ of each agency. The aim was to make reporting lines ‘transparent’, clearly setting out ‘accountabilities within government and to Parliament’ (Treasury, 1989, p. 17). Framework Documents were not legal documents but were described as containing durable elements describing the relationship between the executive agency and other bodies (Goldsworthy, 1991, p. 26). The Documents were supposed to be flexible enough to fit the different situations of each agency, following the view of the Next Steps report that ‘the detailed nature of the relationship between a department and an agency will vary with the job to be done or the service to be delivered’ (Efficiency Unit, 1988, pp. 9–10). There were disputes in drawing boundaries between strategic frameworks and day to day operations. These problems were greatest in ‘mainstream’ agencies that were key to achieving the main aims of departments including the Benefits Agency, Employment Service and Prison Service. In contrast, for trading agencies and other executive agencies more ‘peripheral’ to departments’ concerns there were fewer disputes, examples of these bodies included Her Majesty’s Stationery Office (HMSO) and the Central Office of Information (Efficiency Unit, 1991). The relationships between departments and executive agencies became more clearly defined over time as the details of the division were worked out (Trosa, 1994, pp. 11–13). The Government acknowledged that the departmental side of the relationship was still in flux during the early 1990s. ‘At the same time [as agency development], the development of a more structured relationship between those at the centres of departments and those in agencies has increasingly focused attention on the nature of headquarters tasks and how they can best be discharged, whether in policy making or the strategic management of agencies’ (Prime Minister et al., 1994, p. 13). However, despite disputes at the boundary, blocks of work were successfully parcelled out to executive agencies along with substantial management freedoms. Executive agencies’ freedoms from departmental regulations took time to develop; there was usually no big bang at the launch of the body (Efficiency Unit, 1991, pp. 6–11; Trosa, 1994, p. 29). However,

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by the end of the 1990s, 80 per cent of chief executives declared themselves broadly content with the delegations granted to them, although nearly 40 per cent proposed additional delegations beyond those that they had been given (Cabinet Office, 2001). The day to day running of some central government-wide systems was handled by departments. Executive agencies generally submitted requests for resources to their departments rather than being able directly to argue their case with the Treasury. This arrangement was a cause of some frustration amongst chief executives when they disagreed with their departments about the level of resources they required (IA1, Senior Official, Treasury; IA4, Senior Official, Treasury). The Treasury granted departments end of year flexibility to allow them to carry forward an under-spend to the following year’s budget. Chief executives expressed dissatisfaction with the way some departments operated end of year flexibility because they did not always pass on this freedom to executive agencies. In other cases, departments were unclear whether they would allow their executive agencies to have this freedom, making it difficult for these bodies to plan accordingly (Office of Public Service Reform and HM Treasury, 2002, pp. 40–1). The degree to which executive agencies were successful in developing their own patterns of working, distinct from their departments, varied. Some chief executives expressed frustration at lack of flexibility in departmental pay and grading systems and the need to seek approval for management decisions (Efficiency Unit, 1991; Trosa, 1994). Distinctive systems of working practices appeared most developed in trading agencies (Mellon, 1993, pp. 25–31). For example, HMSO developed its own procedures to be more focused on its customers including a revised staff appraisal system (Dopson, 1993, pp. 17–23). Flexible working focused on the task at hand was less extensive in many non-trading agencies but greater than under the old systems (Trosa, 1994, pp. 28–51). The post of chief executive was adopted for all executive agencies. Open competition was used in 65 per cent of appointments between 1988 and 1995, although all the appointments made in the first two years were civil servants (Horton and Jones, 1996). In 1998, around two-thirds of chief executives in post had been appointed through open competition and one-fifth of appointments had been made to outside (i.e. non-civil service or military) candidates, as summarised in Figure 4.1. Many chief executives developed more ‘managerial’

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7 39 61

31

Open: internal Open: external Closed: internal Acting

138 chief executives

Figure 4.1 Appointment of chief executives in post in 1998 Source: Cabinet Office (1998).

styles of working than traditional civil service practices, with more concern about operational practice, human resources and a focus on the organisation’s aims (Horton and Jones, 1996). A survey found that chief executives felt that they were able to devote the bulk of their attention to developing their own internal management systems rather than cross-departmental management issues (Price Waterhouse, 1993a,b). For example, the chief executive of the Employment Service argued that he had been able to develop a clearer ‘vision’ of the business and styles of working focused on these aims which would not have been possible within the old departmental arrangement (Fogden, 1993, pp. 10–11). Ministers and other staff in parent departments did not always refrain from ad hoc, day to day, intervention in executive agencies. Centres of departments were found to intervene to provide assurance ‘not just on the adequacy of control systems, but also on the activities of the Agency’ (Efficiency Unit, 1991, p. 19). Ministers did not respect the frameworks as barriers to intervention when they felt necessary and there was generally more intervention in ‘mainstream’ non-trading agencies than in trading agencies. The degree of contact between ministers and chief executives varied, from once a year discussions about the strategic plan for the executive agency to regular weekly meetings in some ‘mainstream’ bodies where ministers had particular concerns (Trosa, 1994, p. 11). The executive agency model did not set out a mechanism for ‘enforcing’ the freedoms given to these bodies. Ad hoc intervention

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by departmental staff and ministers was usually accepted by chief executives because of the difficulty of separating tasks fully. The traditional ‘Whitehall village’, noted by Heclo and Wildavsky (1981), involving informal negotiation between all the key actors involved in running central government over a prolonged period was found in executive agency working. The ways of the village encouraged Framework Documents to be seen as flexible statements of the tasks of executive agencies, subject to revision, and being overridden where necessary. Chief executives recruited from outside the civil service expressed greater frustration with intervention in the running of their organisations than traditional civil servants who were more used to informal ways of working (Mellon, 1993, pp. 26–7). The case of the Benefits Agency illustrates the operation of semidetached organisational structure. The formal organisational separation between the Headquarters and the Benefits Agency is shown in Figure 4.2. The purpose of the Agency was stated as ‘the administration of social security benefits and other services’ (Benefits Agency, 1991, p. 4) and, subsequently, as a mission to ‘support the Government in establishing a modern welfare state … by helping to create and deliver an active and modern social security service. The service will encourage independence and pay the right money to the right person at the right time, all the time’ (Benefits Agency,

Performance targets Department of Budget Social Security Headquarters – Secretary of State and ministers – Permanent Secretary Performance and senior policy staff and other information

Benefits Agency Chief Executive Central Services – Finance – Personnel – Policy and Planning – Medical Services – Change Programme

From April 1996 the number of territories in the Benefits Agency was reduced from three to two

Territorial Directorates – Scotland and North – Southern – Wales and Central England (each containing local districts)

Working with other parts of government

Services to benefit claimants

Figure 4.2 Benefits Agency and DSS Headquarters’ organisational chart Source: Benefits Agency (1992, pp. 33–5, 1997, p. 7).

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1999a, p. 5). At the end of the 1990s, the Agency administered twenty-four social security benefits, provided information and advice about benefits, handled claims, appeals and reviews, and made payments and recoveries for benefits (Benefits Agency, 1999a, p. 31). The Agency was supervised by the Department of Social Security (DSS) Headquarters which was responsible for overall social security policy and implementation, supporting ‘ministers on policy and legislation’ and providing ‘corporate management of the Department’ and supervising ‘the allocation and accounting for resources, targets and performance measurement’ (DSS, 1999a, p. 1). The Framework Document suggested that the Department should consult the Agency before making policy changes and that the chief executive could propose changes, but that the Department took the lead on policy matters. The Agency should ‘contribute to the Department’s development and evaluation activities; provide information on the operational implications of current and alternative programme characteristics and provide, to an appropriate level of quality, such data as Ministers and the Permanent Secretary may require to support the monitoring, evaluation and development of policy and the monitoring and forecasting of benefits expenditure’ (Benefits Agency, 1991, p. 5 and 7). The Framework Document emphasised that the Secretary of State, Permanent Secretary and DSS Headquarters (DSS HQ) did not ordinarily intervene in the day to day running of the agency but reserved the right to do so, stating that the Agency was ‘acting on behalf of, and in accordance with any directions, where appropriate, of the Secretary of State for Social Security’ (Benefits Agency, 1991, p. 4). The Agency was required to ‘maintain the capacity to respond quickly to Ministerial direction’ (Benefits Agency, 1991, p. 5). However, staff in the Benefits Agency complained of unjustified interference by departmental staff beyond the terms of the Framework Document. There were frequent and indepth meetings between senior Benefits Agency staff and the DSS, including meetings with ministers (I10, Senior Official, Benefits Agency). However, the vast bulk of staff in the Agency were involved in routine administration of benefit payments in the network of local offices and had little contact with the Headquarters. The chief executive post in the Benefits Agency operated in a way that was generally consistent with the model. The chief executives were recruited by open competition on the basis of suitability for

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running the Agency and were on non-permanent contracts (Benefits Agency, 1991, p. 15; 1995b, p. 7). The first chief executive came from local government, the second from the private sector, whilst the third was from the civil service. The chief executives had responsibility for setting management structure, creation and retrenchment of posts, promotion and pay arrangements and general personnel issues outside of the most senior posts. The first chief executive’s leadership style, including the use of logos for the Agency and direct communication with junior staff through newsletters, was noted as particularly important in establishing a distinctive identity for the body (I13, Senior Official, Benefits Agency).

Section 2: The accountability framework The second part of the executive agency model consists of an accountability framework including performance targets and a chief executive with personal accountability for performance. The systems of reporting performance to departments varied with annual, quarterly and other reports, regular meetings and ad hoc interaction. Each executive agency produced annual reports and corporate and business plans. Some officials were designated as contacts between departments and each executive agency, called ‘Fraser’ figures after the author of the report that suggested them (Efficiency Unit, 1991, p. 7). Such figures were broadly consistent with the thrust of the executive agency model, enhancing the quasi-contractual arrangement between two semi-detached bodies. However, the figures sometimes acted as representatives for executive agencies, potentially placing him or her ‘between’ the department and the executive agency. Occupants of the role found it difficult to carry out rigorous oversight and at the same time argue the executive agency’s case in disputes with the department (Trosa, 1994, pp. 13–16). Executive agency performance targets were used extensively to measure performance and exercise influence by specifying desired levels of performance. All executive agencies had some system of performance targets, with the number varying from just one to over twenty, with a mean of seven targets per body. Targets were usually set by ministers who formally approved targets proposed by the executive agencies. Departments often had to rely on the executive agency for ideas about suitable targets and target levels, or sometimes

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operated rules of thumb such as always asking for more than the executive agency proposed (Trosa, 1994, pp. 61–2). There were initiatives to improve the advice available to ministers in supervising executive agencies, including the use of Ministerial Advisory Boards (MABs). MABs included both executive members of agency management, civil servants from the departments and nonexecutive directors, often with a private sector background. MABs were found to be more effective than Fraser figures where a wide range of skills were needed to set targets for an executive agency (Next Steps Project Team, 1995b, pp. 16–21). A report suggested that MABs should be extended to all departments and the proportion of outsiders should be increased to one-third, partly to increase their independence from executive agency management (Trosa, 1994, pp. 19–22). In 1997, about half of executive agencies were covered by MABs. There were large gaps in the performance target regimes of many executive agencies, with outcomes affecting valued aims and objectives not having corresponding targets. In some trading agencies, overall goals were expressed as a single target. For example, the Royal Mint was tasked with making a percentage return on assets. In part, this limited target regime reflected the alternative accountability mechanism of customers paying for services. However, it was often difficult to encapsulate departmental interest in activities using targets, particularly in non-trading agencies. A survey of executive agencies in the early 1990s that few had clear targets for outputs. Most targets were for financial performance and inputs (Pendlebury et al., 1992, p. 47). Even where output targets existed for production, these did not always map on to outcomes. A study in the mid-1990s examined all executive agency targets. It found that 59 per cent related to outputs (usually units of different goods or services produced in a year), 17 per cent related to efficiency (often a measure of unit cost of output), 12 per cent referred to processes (often the achievement of an administrative task) 9 per cent related to inputs (usually budget or staff levels) and only about 1 per cent directly outcome targets (Talbot, 1996). Taking the Home Office and Department of Social Security’s executive agencies as examples, the study found that 47 per cent of these bodies’ aims and objectives were not covered by performance targets and a further 31 per cent were only partially covered (Talbot, 1996). Not only were targets limited, they changed

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from year to year, hampering a comparison of the performance over time. There was a 70 per cent turnover of executive agencies’ targets in the first half of the 1990s (Talbot, 1996, pp. 49–51). The level of targets set by departments did not seem to be consistent with attempting to challenge the organisations to improve their performance. In 2000, 16 per cent of targets were set at a lower level than in the previous year (Cabinet Office, 2001). The chief executives had higher powered incentives than those traditionally given to officials. The appointments were on the basis of personal contracts and were initially for a period of three years, then on a rolling basis. The remuneration consisted of a basic salary, which before 1996 corresponded to a Grade in the civil service and afterwards was linked to a pay band level in the Senior Civil Service, and performance related pay. The chief executives were more publicly visible than traditional officials, their pictures were printed in annual reports and in the annual reviews of executive agencies published by the Cabinet Office. They had a personal responsibility for reporting performance, explaining why performance outcomes took the course that they did. In some cases the chief executive reported regularly and directly to the minister, but in many other instances he or she reported to the Permanent Secretary or lower ranking officials in the department. Chief executives continued tenure was, at least nominally, related to acceptable performance. A report found that chief executives were ‘acutely aware of their visible personal responsibility and accountability for the success of their Agencies’ (Efficiency Unit, 1991, p. 5). However, few chief executives were publicly criticised by ministers or removed for poor performance. Chief executives’ tenure was normally considerably greater than three years. In 1996, only one-third of executive agencies had experienced a change in chief executive and changes were often associated with an alteration of the status of the organisation (Horton and Jones, 1996). Even when an executive agency performed poorly, it was difficult to separate out the contribution of chief executives’ action from other factors. There was uncertainty about whether poor executive agency performance was sufficient to invoke blame or whether the chief executive’s personal contribution had to be clearly identified. Disputes between departments and executive agencies about responsibility for outcomes were normally discussed internally.

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The main exceptions to this generalisation involved chief executives appointed from outside of the civil service. The most notable public dispute occurred over the removal of the chief executive of the Prison Service, Derek Lewis, in 1995. The case was unusual, but illustrates the difficulty of identifying responsibility for outcomes. Lewis was removed from his post by the Home Secretary after the Learmont report criticised his removal of the Governor of Parkhurst prison following the escape of some prisoners. He claimed that he had been forced to remove the governor by the Home Office and had been subject to day to day interference from ministers despite the supposed operational discretion of the Prison Service. Interventions included summoning Lewis to the Home Office to discuss operational matters on a daily basis. Lewis issued a writ for unfair dismissal that was eventually settled out of court (Lewis, 1997; Barker, 1998; Polidano, 1999). In the case of the Benefits Agency, the DSS held the Agency accountable for performance against targets set by the Secretary of State. A steering group advised the Secretary of State annually on setting targets and sought advice from both the department and the Agency (NAO, 1998b, p. 37). The targets were mainly quantitative targets for outputs with a few milestone targets related to the achievement of specific procedures. The Agency provided the Department with performance information each month which fed into three meetings each year between the Permanent Secretary and the chief executive in which the factors affecting performance outcomes were discussed (NAO, 1998b, pp. 39–40). The external targets were supplemented by internal management targets within the Agency, cascaded from the Secretary of State’s targets to cover more detailed aspects of performance. The internal targets were set by the chief executive and approved by the Secretary of State and developed the logic of the target regime throughout the organisation. The Secretary of State’s targets did not cover some important parts of the agency’s work, for example, the accuracy of the administration of Retirement Pensions (NAO, 1998a, p. 56). There were few measures of whether benefit went to the right people and the systems largely ignored the issues of productive efficiency and the quality of customer service (NAO, 1998a, p. 39). The Agency had an indicator of cost of administration per pound of benefit expenditure, which covered all spending of the agency on benefits. However, this measure left aside whether the right people were getting the benefit,

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which should have been a consideration in a fuller indicator of productive efficiency. There were frequent changes to performance targets. Some targets, for example, the Secretary of State’s targets for speed of payment, were downgraded after 1992/93. There were movements in target coverage, definitions and the introduction of new targets related to new tasks and occasional mis-reporting of performance against targets (NAO, 1998a, p. 16). The Agency and the chief executive were only held responsible for performance against targets to a limited degree. The Agency was vulnerable to changes in its environment affecting its performance, such as the level of unemployment, and it was difficult to separate out the contribution of Agency staff to performance (I10, Senior Official, Benefits Agency). The Department’s assessment of the Agency and the chief executive’s performance was much broader and more nuanced than simple performance against targets.

Section 3: Relationships between executive agencies and other bodies Beyond the parent department, the executive agency model consists of freedom from some central government-wide regulations including controls over expenditure, pay and grading. These freedoms are combined with accountability of the executive agency and its chief executive to other parts of government, Parliament, the users services and citizens. Trading agencies have additional accountability to paying customers who provide a large part of their revenues. Executive agencies were incorporated within the existing expenditure control framework with freedoms granted in some areas. Nontrading agencies’ financial flexibility varied. Some were financed by a ‘gross’ budget passed on from the department and were required to pay any surpluses into general receipts, for example, the Welsh Historic Monuments Agency (CADW). Some were supply financed but operated on a net running cost regime where they covered the costs of providing certain specified services by charging, for example, the Vehicle Certification Agency. The freedom to have net control rather than gross was widespread with about a quarter of executive agencies recovering some or all of their costs from charging (Cabinet Office, 2001). There were freedoms in use of budget, 85 per cent of a sample of executive agencies in 1991 had complete or partial

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freedom to vire money between parts of their budget; and only 25 per cent were not allowed some form of carry forward of unspent budget from one year to the next (Pendlebury et al., 1992, pp. 42–4). In the case of the Benefits Agency, the body was financed by money that was approved by Parliament under gross control. The Agency organised requests for expenditure through the Department rather than dealing directly with the Treasury (Deakin and Parry, 2000, p. 132). The Agency was able to carry over 0.5 per cent of running costs each year, could carry out capital projects up to a limit, and switch between sub-headings of running and capital costs within a limit (Benefits Agency, 1991, p. 14). The system of expenditure control was not well integrated with the systems of performance targets. There was very little development of performance budgeting, for example, to analyse how changes in expenditure affected performance against target (Talbot, 1996, p. 43). Central policies on expenditure were imposed across government which limited executive agencies’ discretion. There were blanket public sector pay settlements and periodic freezes on running costs. A survey of chief executives found dissatisfaction with the limits central policies placed on their ability to pursue their objectives (Price Waterhouse, 1993). The greatest financial freedoms were given to trading agencies, in part by extending the 1973 Trading Fund Act. Trading agencies were, by and large, able to use their authority to raise income to alter services and to plough back cash generated by providing services into developing their businesses. Trading agencies were allowed to invest from accumulated cash balances to improve their services and chief executives were generally content with the operation of these delegations (Office of Public Service Reform and HM Treasury, 2002, p. 42). Executive agencies were incorporated in the system of accounting for expenditure, which placed responsibility on officials designated as ‘accounting officers’. Accounting officers were conventionally the heads of departments, usually designated permanent secretary, and reported to the Public Accounts Committee (PAC) of the House of Commons for the money voted by Parliament to the department. Where an executive agency had the status of a department the chief executive was designated as a full accounting officer. In other cases, the chief executive was generally appointed as an additional accounting officer for the executive agency with the Permanent

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Secretary of the department remaining as the overall accounting officer. In the Benefits Agency, the Permanent Secretary of the DSS was Accounting Officer for the DSS and for administrative spending and payments from the National Insurance Fund. The Permanent Secretary appointed the chief executive as Agency Accounting Officer for this expenditure where it was handled by the Agency (Benefits Agency, 1991, p. 10; 1995b, p. 4). The Treasury appointed the chief executive Additional Accounting Officer in accounting for the Social Security Benefits Vote and the Social Fund Vote (Benefits Agency, 1991, p. 10; 1995b, p. 5). The role as Additional Accounting Officer gave the chief executive a more distinct set of responsibilities tied to the Agency than if he or she was just an agency accounting officer (I13, Senior Official, Benefits Agency). Flexibilities were granted to executive agencies in employment systems, although staff remained civil servants or military staff on transferring to these bodies. The Treasury and Cabinet Office granted delegated authority for recruitment which was revocable and depended on departmental and central bodies’ support. The development of recruitment and pay bargaining systems specific to each executive agency challenged the traditional conception of the civil service as a single employer (Clifford, 2000, pp. 18–20). A study of thirty-four executive agencies, in 1991, found that 82 per cent had partial freedom over recruitment. Specific systems of pay took several years to develop; almost three years after the initiative began, HMSO was the first executive agency to develop a separate pay system. In 1994, thirty-two executive agencies had the freedom to develop their own pay and grading policies; this freedom was extended to all the bodies in 1996. The Benefits Agency gained responsibility for pay arrangements in April 1994. The chief executive carried out negotiations with employees in pay bargaining which gave the body more flexibility. However, pay bargaining was carried out in a way consistent with the DSS Personnel Guiding Principles and the system was semi-detached rather than completely separate from that elsewhere in the department (DSS, 1995). There were several centrally directed public sector reform initiatives that limited the ability of executive agencies to develop their own systems. In procurement of goods and services, 85 per cent of twenty-six executive agencies surveyed in 1991 had partial freedom to develop their own systems, although restrictions often applied to

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items over £0.25 m of expenditure (Pendlebury et al., 1992, p. 45). However, the Treasury introduced the Competing for Quality programme in 1991. The programme required departments to propose activities to be ‘market tested’ against alternative provision by private contractors. Many small executive agencies felt driven to conduct tests for activities in which the process incurred costs that were out of proportion with potential benefits (Efficiency Unit, 1996, pp. 29–31). Even in large agencies like the Benefits Agency, managers felt under pressure to meet central targets for testing rather than undertaking the reviews to improve working within the Agency (I13, Senior Official, Benefits Agency). A second central initiative was the Citizen’s Charter programme which developed from 1991 and was led by the Cabinet Office. It included a requirement for bodies that dealt with the public to demonstrate performance against standards of service. The Cabinet Office required Framework Documents and plans to reflect Charter statements about the quality of service (Chancellor of the Duchy of Lancaster, 1994, p. ii). The Citizen’s Charter Unit was described as an important influence on standard setting in the Benefits Agency because the standards had to be approved by the Unit (I13, Senior Official, Benefits Agency). The scheme presented less conflict with the discretion afforded to executive agencies than Competing for Quality because the standards were largely integrated within existing performance targets (IA9, Senior Official, Cabinet Office). However, according to senior officials responsible for implementing Next Steps, the fact that these central initiatives were being interpreted as an unnecessary burden reflected a change in attitudes. Chief executives were questioning the relevance of central initiatives for ‘their’ distinct organisations rather than accepting them as part and parcel of running bodies that were part of central government (I2, Senior Official, Cabinet Office). In the executive agency model of accountability to Parliament, the bodies were to be held accountable for routine ‘operational’ matters, especially through performance targets, with the chief executive having personal accountability. Ministers were to be accountable for the overall strategic framework, giving information to Parliament, being open to questioning, taking responsibility for their actions and, on occasion, resigning for their contribution to poor strategic performance. However, the convention of ministers taking personal

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responsibility for the poor performance of their departments and resigning did not operate for central government in general during the period since 1988. Ministers did not resign for problems traceable to their role in setting the framework in which executive agencies were supposed to operate (Dowding, 1995, pp. 161–78). As well as the dispute between a minister and the chief executive of the Prison Service in 1995 which ended in the removal of the chief executive, the chief executive of the Child Support Agency, Ross Hepplewhite, complained that her Agency had been set an impossible task by its department, which explained its very poor performance. Despite criticism of the framework by Parliament, no minister resigned. Instead, the chief executive of the Agency was removed (Harlow, 1999). Executive agencies and their chief executives were held to account for operational matters, in the sense of providing information about their performance as a unit. There was limited sporadic monitoring of executive agencies’ ‘operational’ tasks by Parliament. Chief executives answered MPs questions relating to operational matters, referring them to ministers if they raised matters that were deemed to relate to policy. For most executive agencies, the standard practice was for the minister to see a copy of the chief executive’s answer but not to intervene (Hogwood et al., 1997, p. 20). However, MPs requests for information and demands for action generally related to particular concerns raised by constituents and occasional flurries of interest in cases of very poor performance (Evans, 1994). Executive agency officials answered questions at Select Committee hearings on the same basis as departmental officials, subject to the ‘Osmotherly Rules’ which stated that civil servants answered questions on behalf of ministers and that ministers made and interpreted policy (Natzler and Silk, 1994, p. 73; Dowding, 1995, p. 156). In cases of very poor performance, chief executives were sometimes questioned as accounting officers by the PAC. The PAC drew on the National Audit Office (NAO) ‘financial audits’ of expenditure and ‘value for money’ studies. Each executive agency’s accounts was separately checked by the NAO, reflecting the emphasis on corporate responsibility in the model. It was often difficult to separate out responsibility for tasks between the executive agency and department and chief executives often appeared alongside their departmental Permanent Secretary. Other committees touched on the work of executive agencies where there were perceived to be severe

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problems of performance (Hogwood et al., 1997, p. 15). An example was the Social Security Committee’s interest in the Child Support Agency which was the subject of several reports because of exceptionally poor performance (e.g. Social Security Committee, 1993, 1994, 1995). In the case of the Benefits Agency, MPs questions about routine matters were handled by the chief executive. Despite a few initial complaints from MPs, there was not great disquiet about the system despite the Agency having the third highest volume of questions of any executive agency (Hogwood et al., 1997, pp. 12–14). The Agency’s accounts were assessed by the NAO as a distinct unit. The NAO found problems with both financial accounting and value for money. The head of the NAO, the Comptroller and Auditor General, qualified his opinion on financial accounts of the Agency for the tenth successive year in 1997–98, because of errors (PAC, 2000, Secs 1–3). However, the difficulty of fully separating tasks between the DSS Headquarters and the Agency was reflected in accountability to Parliament, especially to parliamentary committees. The Agency was asked to present its case jointly with the Department, for example, in giving evidence to the PAC about the high level of fraud and error in the programme (PAC, 2000). Executive agencies developed relationships with the users and customers of their services. Their annual reports were usually publicly available although corporate plans were sometimes confidential for commercial reasons (Prime Minister and Minister for the Civil Service, and the Minister of State, Privy Council Office, 1990, pp. 7–8). The trading agencies were responsive to customers who purchased their services, seeking to explore their demands by various means, including surveys and attempting to respond by altering the goods and services they provided (Dopson, 1993). A further group of executive agencies had users of their services within government. These bodies increasingly made use of user surveys, written feedback and complaint monitoring in attempting to respond to user groups (Office of Public Service and HM Treasury, 2002, p. 67). An indication of orientation towards customers is provided by the extent to which executive agencies were covered by the Charter Mark scheme. Under the scheme, public bodies were encouraged to apply for external assessment and recognition of services focused on the customer. Those given the award had to demonstrate that they

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published explicit standards, were open to customers, offered choice, operated in a courteous and helpful way, redressed complaints and provided value for money. They also had to show improvement in these areas over time. Charter Mark was mostly about processes rather than outcomes and the majority of activities handled by executive agencies were not covered by awards. However, sections of fifteen executive agencies received the Charter Mark by 1994, rising to forty-nine in 1995, seventy-one in 1996 and ninety-one in 1997 (Chancellor of the Duchy of Lancaster, 1994, pp. ii–iii; Next Steps Team, 1996, p. 17; 1997, p. 12; 1998, p. 14). These figures suggest that an increasing number of bodies had a customer focus in the period. The Benefits Agency developed accountability systems focused on the users of its services. The Agency published annual reports, business and corporate plans and other documents setting out its strategies and publicly stating its aspirations for performance to clients and the general public (Benefits Agency, 1991, p. 8; 1995a, p. 5). Officials in the Agency suggested that it was keen to try and project a ‘corporate’ image as a distinct organisation to people claiming benefit including refurbishing offices in a distinctive style, giving staff name badges and producing promotional material (I4, Official, Benefits Agency; I13, Senior Official, Benefits Agency). The Agency produced an internal survey of customer satisfaction, monitored complaints and undertook mystery shopper exercises. However, the survey of satisfaction was dropped, in part, because of worries about whether it reflected performance or was being manipulated by staff to meet the target. The Chief Executive commented that ‘I felt that maybe the national survey was designed to try to get a figure of 86 per cent [the target]’ rather than reflecting actual satisfaction (Social Security Committee, 1998, Q174).

Conclusion There was considerable variety in the operation of executive agencies and the working practices within central government were far from uniform prior to the reform. However, freedom from departmental systems was established for most executive agencies and departments’ intervention contrary to the spirit of semi-detached operation was sporadic. Intervention was more significant in bodies that were

The Practice of Executive Agency Working 87

‘mainstream’ to a department’s aims than in trading agencies or other peripheral executive agencies. Freedom from central governmentwide systems were granted in expenditure, pay and grading and other areas; trading agencies’ right to raise revenues from customer groups was, by and large, respected. All executive agencies had chief executives with non-permanent contracts; about two-thirds of appointments were made subject to open competition, with 20 per cent of appointed chief executives coming from outside the civil service. Accountability systems were varied, although all executive agencies established under Next Steps had performance targets. Trading agencies typically had a few targets, often including a target for making a return on the capital they employed, whilst non-trading agencies had a greater number of more varied targets for different outputs. However, the targets were not comprehensive of the outcomes of executive agencies’ activities and they changed over time. Instead, performance against targets was one part of departments’ assessment of executive agencies. Chief executives took personal accountability, in terms of providing information about performance, but their role in taking personal responsibility for operational performance was more limited. There were high-profile disputes about responsibility, such as occurred between the head of the Prison Service and the Home Office, although such disputes were unusual. In general, chief executives were not held directly responsible for their organisation’s performance against targets, although this performance was used in assessing performance pay. Executive agencies provided more information on their performance as a distinct unit to Parliament, users of services and customers than under the old arrangements. MPs addressed questions on operational matters to chief executives, although the performance matters that were of interest to committees usually required both departmental and executive agency staff to attend. The convention of ministerial resignation for poor performance did not operate in general during the period and no ministers resigned because of failings in the strategic framework set for an executive agency. The development of accountability to users of executive agencies’ services was restricted with the greatest strides made in trading agencies.

5 The Performance of Individual Executive Agencies

The two perspectives’ hypotheses about the performance of individual executive agencies are summarised in Table 5.1. Section 1 examines the economy of executive agencies. Section 2 looks at their productive efficiency and effectiveness. Section 3 assesses the effect of executive agency structures on the performance of the Benefits Agency.

Section 1: Economy The public interest perspective suggests that savings of at least 5 per cent of individual executive agencies’ administrative costs occur Table 5.1 agencies

Hypotheses about the performance of individual executive

Public interest

Bureau-shaping

Economy

1. Economy improves with at 1. Economy in administrative least 5 per cent savings in and programme costs is administrative costs and reduced through the savings in programme costs outcome of budget maximising behaviour

Effectiveness

2. Effectiveness improves 2. Effectiveness is improved with better achievement of through expanded output objectives

Productive efficiency

3. Productive efficiency 3. Productive efficiency is improves including at least unchanged 5 per cent savings in administrative costs and savings in programme costs

88

The Performance of Individual Executive Agencies 89

within a few years of executive agencies being set up. In contrast, the bureau-shaping perspective hypothesis is for a rise in administrative costs. An analysis of executive agencies from 1995/96 to 1997/98 reveals changes in real terms (in 1996/97 prices) administrative costs. This period was in the mature phase of the reform, when most bodies had been created, and is not so long such that reorganisations obscure trends in the use of resources. There were seventy-two executive agencies that were broadly stable in their organisation in the period. In total, as a group, their costs fell 4.6 per cent from £9127 m in 1995/96 to £9079 m in 1997/98. In these terms, the executive agency initiative did improve the economy of these activities by nearly as much as the 5 per cent expected by the public interest perspective. However, the mean score was a small administrative cost rise of 1.7 per cent. This increase reflected modest rises in several bodies and a few large increases, the largest being the Forensic Science Service which increased its budget by 75.5 per cent. The largest budget fall was in the Insolvency Service which fell by 25 per cent. However, the median change in administrative budget was a fall of 4.4 per cent, almost as high as the 5 per cent expected by the public interest perspective. There was variation in the change in administrative costs between trading and non-trading agencies. As shown in the box-plot in Figure 5.1, the median score for non-trading agencies was a 5.3 per cent 100 80

Per cent

60 40 20 0 –20 –40 N=

60 Non-trading

12 Trading

Figure 5.1 Box-plot of percentage change in real terms administrative costs of seventy-two non-trading and trading agencies 1995/96 to 1997/98 (with number of cases)

90 The Executive Agency Revolution in Whitehall

Table 5.2 Non-trading and trading agencies with real terms administrative cost rises and falls between 1995/96 and 1997/98 (with percentages)

Non-trading Trading Total

Cost fall

Cost rise

Total

36 (60%) 5 (42%) 41 (57%)

24 (40%) 7 (58%) 31 (43%)

60 (100%) 12 (100%) 72 (100%)

Source: Survey of seventy-two executive agencies.

reduction. In contrast, trading agencies had a median increase of 8.2 per cent. An assessment of the direction of changes in administrative costs reveals that there were reductions in costs in 57 per cent of executive agencies. However, whilst 60 per cent of non-trading agencies experienced falls, there were falls in only 42 per cent of trading agencies, as summarised in Table 5.2. In terms of both the direction and size of the cost changes, non-trading agencies were more consistent with the public interest perspective and trading agencies were more consistent with the bureau-shaping perspective. In the Benefits Agency, real terms (in 1996/97 prices) administrative cost fell by £114.5 m or 4.4 per cent between 1995/96 and 1997/98, nearly the amount expected by the public interest perspective. However, Figure 5.2 illustrates that in the period 1991/92 to 2001/02 the picture was mixed for both real terms administrative and real terms total costs (including both administrative and programme costs). Real terms administrative costs rose from £2018 m in the first year to peak at £2608 m in 1995/96 before falling back to £2194 m in 2000/01, an increase of 9 per cent over the period as a whole. Staffing showed a similar pattern to administrative spending, as shown in Figure 5.2. Staffing rose from 68,000 in 1991/92 to peak at 77,435 in 1996/97 before falling back to 70,000 in 2000/01, a rise of 3 per cent over the period as a whole. The figures for 1996/97 and subsequent years included several thousand staff transferred from the Employment Service to the Agency to handle work associated with the Job Seekers Allowance benefit. Adjusting the figures for staffing and expenditure to remove the effect of this transfer suggests that the increases in the early 1990s were partly balanced out by improvements in economy in the latter half of the 1990s.

100,000 80,000 60,000 40,000 20,000

01

00

20

99

20

98

19

97

19

96

19

95

19

94

19

19

19

19

93

0 92

£ m at 1996/97 prices and staff numbers

The Performance of Individual Executive Agencies 91

Year total costs

admin costs

total staff

Figure 5.2 Economy of Benefits Agency 1992–2001

The process of setting up the Benefits Agency itself created administrative costs. It is difficult to put an exact figure on this expenditure because the activities were not accounted for separately and many different sections were involved in the process. However, the cost of establishing the Agency was ‘considerable’ according to interviewees, running to ‘several million pounds’ (I14, Senior Official, Department of Social Security (DSS); I15, Senior Official, Benefits Agency). However, these costs seem unlikely to have been a sizeable proportion of the total administrative costs for the period since 1991. The total expenditure of the Agency was dominated by expenditure on the programme of social security welfare payments, with administrative costs forming only around 3 per cent of the total, as shown in Figure 5.2. Real terms (in 1996/97 prices) total spending rose from £65,858 m in 1991/92 to peak at £78,246 m in 1997/98 before falling back to £74,194 m in 2000/01, a rise of 13 per cent over the period as a whole. On this indicator of economy, the Agency did not perform well, although the rate of growth fell from the mid-1990s. Comparing the costs of activities before and after the creation of the Benefits Agency indicates whether executive agency working was

92 The Executive Agency Revolution in Whitehall

associated with a different pattern of budget change to the old system. Such a comparison is hampered by difficulties in identifying separate budget figures for the relevant parts of the old Department of Social Security. However, in the three years before the creation of the Agency, the Department’s total real administrative costs, which were predominantly the costs of the activity that became the Agency, rose from £2500 m to £2684 m, an increase of £184 m or 7.4 per cent (Chancellor of the Exchequer, 1994, p. 41). There was a rise of about 15 per cent in real terms total social security payments in the same period (Chancellor of the Exchequer, 1998, p. 57). In the first three years of the post-agency system, there was a rise in real terms administrative costs of about 16 per cent and real terms total spending of 19 per cent. These figures suggest no improvement in the rate of increase. The change in costs both before and after the creation of the Agency was closely and positively related to workload linked to the economic cycle. Executive agency working, with the exception of a period in the mid to late 1990s, was not associated with a consistent improvement in economy.

Section 2: Productive efficiency and effectiveness According to the public interest perspective, executive agencies improve productive efficiency and effectiveness in their use of resources to achieve their aims as set out in their Framework Documents, annual reports, business plans and corporate plans. In particular, improvements in productive efficiency arise from reductions in administrative costs of at least 5 per cent and reductions in programme costs. In contrast, the bureau-shaping perspective suggests that productive efficiency is unchanged, although effectiveness improves because of expanded output. There is a chronic lack of governmental or academic research on productive efficiency and effectiveness in central government, including executive agencies (Trosa, 1994; Pollitt, 1995; Talbot, 1998). However, some indication is provided by bringing together information from a fragmented set of sources and through undertaking new surveys. An indicator of effectiveness is provided by the National Audit Office’s (NAO) audit of financial regularity in executive agencies. These surveys assessed whether money provided by Parliament was used for the purposes intended, with due regard for propriety and

The Performance of Individual Executive Agencies 93

whether the financial statements of executive agencies were free from material misstatement, whether caused by fraud, error or some other irregularity. Where these problems were seen as significant or ‘material’ auditors ‘qualified’ the account. If the problem was less severe, auditors produced reports referring to the problem and attached it to their ‘audit statement’ about the account. The results of audits of executive agencies and central government’s accounts from 1993–99 are given in Appendix 5. On average, 6 per cent of executive agencies’ accounts were either qualified or had a report attached to them, with between one and two executive agencies’ accounts qualified each year, and with between none and six executive agencies having reports attached to their audits. These results were not greatly different from the pre-executive agency arrangements which exhibited a similarly low level of qualification of accounts (Hood et al., 1999, pp. 87–9). However, because this information focused on financial control, it provides only a partial picture of effectiveness. A supplementary source of evidence is offered by the ‘benchmark’ scores for executive agencies collected for the ‘Business Excellence Model’ (BEM) run by the Civil Service College (Minister for the Cabinet Office, 1999, p. 9). The BEM was developed by the European Foundation for Quality as a framework for assessing the performance of public and private sector organisations across a range of activities to help them measure and improve performance. Performance was assessed on nine criteria relating to a mixture of procedures and performance outcomes. The model measured procedural performance in leadership, policy and strategy, people management, resources and processes. There were outcome focused measures of people satisfaction, customer satisfaction, impact on society and business results. The BEM process produced a profile of scores for individual executive agencies on each of the criteria. A pilot BEM scheme in 1996 involved thirty executive agencies, about a third of the total existing at that time. Data was held by the Civil Service College on a confidential basis. However, published information was available for executive agencies as a group. Comparing the aggregate score to benchmark scores for private sector performance reveals mixed results. Executive agencies lagged behind on scores for leadership, impact on society and people satisfaction. On this last criterion, executive agencies achieved just

94 The Executive Agency Revolution in Whitehall

over half the private sector score although they scored higher than the private sector on customer satisfaction (Samuels, 1997, p. 4). These findings suggest some evidence of a customer focus in executive agencies but they do not demonstrate a clear improvement associated with executive agency working. Evidence about customer satisfaction over time is complicated by the wide range of people benefiting directly or indirectly from most executive agencies’ activities. The annual reviews of executive agencies produced by the Cabinet Office discussed benefits for groups including firms, charities, other organisations and individuals, taxpayers, elected representatives, other government bodies and ministers (Minister for the Cabinet Office, 1999). However, ministers located in parent departments were a key group of beneficiaries according to the executive agency model. An indication of ministerial satisfaction is given by executive agencies’ performance against the targets set by ministers. This performance is summarised for a threeyear period between 1995/96 and 1997/98 in Table 5.3. A large majority of executive agencies were in the ‘satisfactory or above’ category, indicating achievement of most or all targets. However, six executive agencies, 8 per cent of those surveyed, were in the ‘some cause for concern’ category, reflecting achievement of just over half their targets. A further three executive agencies, 4 per cent, were in the

Table 5.3 Ministerial satisfaction with executive agencies (with percentages and examples)

Satisfactory or above

Number (with %)

Examples

63 (88)

Benefits Agency, Information Technology Services Agency (ITSA), Driver Vehicle Licensing Agency

Cause for concern

6 (8)

HM Prison Service, Training and Employment Agency, Valuation Office, Public Trust Office, Intervention Board

Serious cause for concern

3 (4)

Child Support Agency, Fire Service College, Student Awards Agency for Scotland

Total

72 (100)

Source: Survey of seventy-two executive agencies from 1995/96 to 1997/98.

The Performance of Individual Executive Agencies 95

‘serious cause for concern’ category, with half or more targets not achieved or very serious failure to hit targets. Taking an executive agency from each category illustrates some of the performance issues associated with the category. First, the satisfactory or above category included the ITSA in the DSS. The Agency had a measure of effectiveness in the level of service to customers within budget, on time and according to contract. The target was raised and met in each of the years from 1995/96 to 1997/98. A percentage efficiency improvement target was met in each year. In addition, there were several milestone targets for performance which differed from year to year but were all met (ITSA, 1996, 1997, 1998). Over the three years, real terms administrative costs fell by 17 per cent, which, when combined with the achievement of targets, suggests productive efficiency improvements. In 1997, the Secretary of State for Social Security commented that the Agency was ‘demonstrating year on year performance improvements in efficiency and quality of service delivered to its customers’ (Chancellor of the Duchy of Lancaster, 1997, p. 193). The ‘some cause for concern’ category included HM Prison Service which achieved four of eight targets in 1995/96, six of eleven targets in 1996/97 and eight of ten targets in 1997/98 (Minister for the Cabinet Office, 2000, p. 180). The Agency had a crude measure of productive efficiency in cost per prisoner place. Performance on this measure ranged between £23,940 and £24,271 over the period, below the target level of £24,615 (Prison Service, 1998, p. 7). However, the Chief Executive, Richard Tilt, was able to comment in the 1997 that ‘I am very pleased to be able to report that we achieved the majority of our targets. Those targets we missed we missed narrowly’ (Prison Service, 1997, p. 4). The ‘serious cause for concern’ category is the third and lowest level of performance and included the Child Support Agency. The Agency achieved almost three-quarters of targets over the period but performance was very uneven. Only five out of ten targets were met in 1995/96, rising to six out of eight in 1996/97 and eight out of eight in 1997/98. The Agency’s budget rose by 21 per cent over the three-year period, suggesting that improved performance was purchased at great cost and amid public criticism from the Secretary of State, who commented in 1998 that ‘many challenges still face the Agency’ (Chancellor of the Duchy of Lancaster, 1998, p. 192).

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A broader survey of performance in these three bodies shows that performance against targets gives only a partial indication of productive efficiency and effectiveness. A NAO value for money study looking at productive efficiency and effectiveness in ITSA found important parts of the Agency’s work were beyond the scope of the body’s performance measures (NAO, 1996b, pp. 1–2). The performance measures for HM Prison Service did not reflect the major dispute between the chief executive and the Home Secretary over responsibility for prisoner escapes in 1995. Broader evidence about the Child Support Agency’s poor performance was reflected in poor performance against targets in 1995/96 but later years’ performance against targets presented an overly rosy picture. There were a wide range of concerns about unfair treatment of clients, poor quality service and low levels of productive efficiency. For example, the Public Accounts Committee (PAC) was concerned that the administrative cost of £224m exceeded the £206m in payments collected by the body in the mid-1990s. The very slow rate of clearing claims, with just over half cleared within twenty-six weeks, was also noted as a major concern (Harlow, 1999, p. 169). The case study of the Benefits Agency allows a broader assessment of performance for a body that was in the ‘satisfactory or above category’ for performance against targets in Table 5.3. The Agency achieved over 70 per cent of the Secretary of State’s targets in nine out of the ten years between 1991/92 and 2000/01, as summarised in Table 5.4. The Agency achieved over 80 per cent of its internal targets linked to the Secretary of State’s targets (NAO, 1998b, p. 1). The Secretary of State for Social Security, praised the Agency’s ‘efforts to maintain continuing high standards of customer service’ in 1998 (Chancellor of the Duchy of Lancaster, 1998, p. 192). However, there was not a clear improvement over time, as might be expected by the

Table 5.4 Benefits Agency: Secretary of State’s targets achieved/targets set between 1991/92 and 2000/01 91/92

92/93 93/94

94/95

95/96 96/97 97/98 98/99 99/00 00/01

16/20

18/23

16/22

19/22

19/26

16/22

8/15

5/7

11/14 11/14

Source: Benefits Agency Annual Reports (1992a, 1993, 1994, 1995a, 1996, 1997, 1998, 1999a, 2000; Department for Work and Pension (DWP), 2001).

The Performance of Individual Executive Agencies 97

public interest perspective. Instead, there was a dip in the percentage of targets achieved in 1996/97 and 1997/98. According to officials in the Agency, this deterioration occurred because of an expansion of workload, which is consistent with figures for the volume of claims and relatively poor economic situation at the time (I10, Senior Official, Benefits Agency). Beyond the service provided to ministers, various measures of customer satisfaction give an indicator of performance as experienced by users of the Agency’s services. Surveys of customer satisfaction found that around 83 per cent of customers regarded the service as satisfactory or better in the mid-1990s (Benefits Agency, 1999a). However, this measure of customer service gave a far from comprehensive assessment of all aspects of service (NAO, 1998b, pp. 18–19). The external system of complaint handling provides another perspective on user satisfaction, based on complaints to the Parliamentary Commissioner for Administration (PCA). Whilst these cases were not typical of transactions between the Agency and welfare claimants they offer an indication of the level of major failings on individual cases. In 1998, there were 468 complaints and seventy investigations about the Agency (PCA, 1998, figure 5; 1999, figure 5). This number was small relative to the many millions of transactions carried out by the Agency each year. The performance of the Agency under the Citizen’s Charter offers an additional indication of performance for users. The Charter Standards were incorporated in a revamp of the Agency’s own customer charter in 1993 (BA, 1994, p. 7). Average performance of benefit work ran at about 80 per cent of target standards (NAO, 1998b). However, performance varied between 56 per cent of Income Support claims made within the five days standard to 97.9 per cent of the target for crisis loans the same day (NAO, 1998b, p. 44; BA, 1999a). Overall, the service for users was patchy. Another indication of effectiveness was whether programme budget was given to the people eligible to receive it, which was part of the Agency’s mission statement. This aim was compromised by the high levels of fraud and error in benefit payments. In 1997/98 fraud and error was estimated at 7 per cent of total social security payments, including expenditure of £1530 m on Income Support and income based Jobseeker’s Allowance, £184 m on child benefit and fraudulent encashment of order-books and giro-cheques amounting

98 The Executive Agency Revolution in Whitehall

to £19 m (PAC, 2000, sections 1–3). There was further ineffectiveness in the lack of take-up of benefit; a substantial number of people who should have been receiving benefit did not get the welfare payments to which they were entitled. In 1996, the DSS estimated that only 76 per cent of those entitled to receive Income Support and only 70 per cent of those entitled to Family Credit received these benefits (NAO, 1998c, p. 25). Comparing the effectiveness of the Agency with the pre-agency system gives an indication of change associated with executive agency working. Such a comparison is hampered by the different mix of benefits delivered in the 1990s compared to the 1980s. However, an indicator of relative effectiveness is the level of ‘fraud and error’ of benefit payments, summarised in Table 5.5 for Supplementary Benefit (and, from April 1988, Income Support) and Family Credit. There was significant fraud and error in payments in the 1980s; in the five-year period 1984/85 to 1988/89, error rates ranged between 9.6 and 11.6 per cent with an average of 10.2 per cent. In the 1990s, the Agency was associated with roughly double the level of fraud and error, ranging between 18.3 and 21.9 per cent with an average figure of 20.1 per cent. Similarly, figures for fraud and error on Family Credit, which was not delivered in the same form in the early 1980s, rose from 8.6 per cent in 1988/89 to 18.3 per cent on average between 1995/96 and 1997/98. However, the deterioration in performance was not nearly as great as these figures might suggest. The measurement of fraud and error in the 1980s underestimated the true level by at least 30–40 per cent, and possibly more. The measures used by the Agency in the 1990s were much more accurate. A further

Table 5.5 Percentage of fraud and error in payments before and after the establishment of the Benefits Agency Benefit

Income Support/ Supplementary Benefit Family Credit

1984/85 to 1988/89 average (%)

1988/89 (%)

1995/96 to 1997/98 average (%)

1997/98 (%)

10.2

9.1

20.1

19.3

—

8.6

18.3

17.3

Source: Carter et al., 1992, p. 93 and Benefits Agency, 1995a, 1996, 1997, 1998.

The Performance of Individual Executive Agencies 99

form of ineffectiveness was in ensuring that those entitled to claim benefit took up this entitlement. In the 1980s, 89 per cent of those entitled to receive Supplementary Benefit received it (NAO, 1988, p. 19). An even larger potential client group continued to be ignored under executive agency working with only 76 per cent of those entitled to receive Income Support in the mid-1990s claiming this benefit. However, a substantial portion of this deterioration was the result of improvements in measuring the take-up of benefit (NAO, 1998b, p. 25). On this basis, it seems best to conclude that the Agency was associated with a broadly similar, or possibly slightly worse, level of effectiveness. Senior officials argued that there was a marked improvement in the standard of service provided to claimants. There was better decoration of offices and a better ‘feel’ to the service, both of which were especially notable in the early years of the Agency (I10, Official, Benefits Agency; I13, Senior Official, Benefits Agency). A comparison of the ‘quality’ of customer service before and after setting up the Agency illustrates this change. An NAO report on the quality of services to the public at local benefit offices highlighted serious dissatisfaction in the late 1980s. A customer survey found that 25 per cent of claimants found the service poor with 75 per cent rating it fair or good (NAO, 1988, p. 1). By the mid-1990s the situation had improved with 83 per cent rating the service fair or good, although this figure may have overstated performance. There was, however, an increase in complaints made to the Parliamentary Commissioner for Administration. In the late 1980s, there were, on average, 221 complaints and eighty-two investigations each year against the whole of the DSS (PCA, 1990, p. 28). The overwhelming majority of these complaints referred to work later transferred to the Agency. By the 1990s, the number of complaints had more than doubled although there was a slight fall in investigations. This fall did not reflect a reduction in complaints worthy of investigation because the PCA introduced a system of settling cases informally without investigation in the 1990s. There were, on average, a further forty-eight complaints of this type in the late 1990s, suggesting that the Agency may have worsened rather than improved the occurrence of major failings on individual cases. The complaints were about similar problems throughout the 1980s and 1990s, including delays and inaccurate payments (PCA, 1990,

100 The Executive Agency Revolution in Whitehall

1998, 1999). In the late 1980s the Commissioner lamented that ‘For many years complaints about the administration of social security have loomed large in the Office’s investigative workload’ (PCA, 1990, p. 3). Almost a decade later, the Commissioner expressed a similar view that ‘complaints [against the Benefits Agency] accounted for the greatest number of complaints which the Ombudsman received against any single body’ (PCA, 1999, section 3.4). Given the size of the Agency, the continued salience of complaints is unsurprising. The increase in complaints must be considered in the context of rising expectations of services and much better publicity about how to make complaints (I15, Senior Official, Benefits Agency). However, the Agency was not a panacea and long-standing problems of ineffectiveness remained. The overall productive efficiency of the Agency is given, in crude terms, by the ratio of inputs to outputs. Resource inputs, including staff, increased each year, with a dip in the period 1995/96 to 1997/98. However, workload fluctuated in a similar way to inputs. On the Agency’s own measure of productive efficiency, based on work output per unit of staff, efficiency improved by 12 per cent between the start of its life in 1991/92 and 1995/96. However the index did not cover much of the work done in the central benefit directorates (NAO, 1998b, p. 32). A crude indicator of productive efficiency for part of the organisation’s activities was spending per unit of workload in Social Fund Crisis Loans. This workload figure was continuously available throughout the 1990s, at a time when most other benefits changed, and reflected changes in workload related to economic cycles. The index of real term cost per case fell throughout the 1990s, except in 1998, and ended up in the late 1990s about 20 per cent lower than in the early 1990s. There was no similar indicator of efficiency to enable a reliable comparison between performance in the 1980s and 1990s. However, the findings for the 1990s are consistent with interviewees’ claims that the increase in resources consumed by the Agency did not keep pace with increases in workloads (I4, Official, Benefits Agency; I10, Senior Official, Benefits Agency). However, the substantial areas of ineffectiveness in payment delivery, combined with a patchy quality of service, suggest that productive efficiency did not dramatically improve in the first decade of the Agency’s operation.

The Performance of Individual Executive Agencies 101

Section 3: The effect of agency structures on the performance of the Benefits Agency Tracing the effects of executive agency structures is difficult because the consequences of these structures are difficult to separate from other factors, such as the environment in which the Agency was working. It is not possible to explore the counterfactual of how the activities would have been handled if the old organisational arrangements had been maintained. However, the executive agency structures had a substantial influence on the behaviour of officials and performance outcomes in the Benefits Agency. This experience enables an evaluation of the public interest hypotheses that the structures should bring about improved performance, and the hypotheses of the bureau-shaping perspective which suggest a worsening of economy and unchanged productive efficiency. The semi-detached organisational structure permitted the Benefits Agency to develop its own corporate systems to focus on the task at hand and to develop distinctive working patterns. Executive agency working enabled a new corporate identity of which refurbished offices and name badges for staff was just the most visible part (I4, Official, Benefits Agency; I13, Senior Official, Benefits Agency). The chief executive set up a review of the Agency’s structure to explore how better to organise its resources which was easier to set up, run and implement than under the old departmental structure (I13, Senior Official, Benefits Agency). The Agency was initially set up with a central core based in Leeds, a set of specialist benefit centres and a local network structure of 159 Districts. The Districts were run through twenty Area Directorates in three territories (Benefits Agency, 1993, p. 5). As a result of the review, the Agency reduced the number of territories from three to two and rationalised the area structure from twenty to thirteen Area Directorates. These changes reduced the size of the relatively ‘unproductive’ middle management layer between the centre and the local network (I13, Senior Official, Benefits Agency). There was extensive development of Agency specific management systems. The Agency exploited pay and grading delegations to develop systems tailored to its needs, whilst discussing matters of common interest with other executive agencies in the DSS (Clifford, 2000, p. 38). The NAO found that significant cost savings had been achieved by contracting out work, for example, in

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switchboard operator systems by negotiating with telephone service providers, controlling private use of telephones by staff and checking bills using improved inventories (NAO, 1996, pp. 5–6). The accountability system had profound effects on the operation of the Agency. The budget limit was set by the Secretary of State and the Agency operated within a gross running cost system of control. If the Agency felt that changes in workload affected its ability to carry out its tasks it had to seek approval to change its business plan and funding levels. The budgetary control mechanism was effective when ministers decided to bring about reductions in administrative costs in the mid-1990s. Staff in the Agency commented on the toughness of the regime they faced. The chief executive described the request for a 25 per cent reduction in administrative costs in a four-year period as feeling like ‘somebody had three cups and a pea under one of them’, the ‘pea’ being the budget he had hoped to obtain and the budgetary game being one he was unlikely to win (Social Security Committee, 1998, question 142). This experience suggests that, whilst there may have been a desire amongst officials in the Agency for higher administrative budgets, consistent with attempted budget maximising behaviour, the outcome was not always an increase in budget. Instead, administrative costs and programme expenditure varied according to the stage of the general economic cycle and state of unemployment. Total economy was, in large part, linked to the level of demand from those claiming benefit according to the eligibility criteria set out in social security legislation and ministers were able to squeeze administrative costs when they chose to in the mid-1990s. The performance target system was deeply embedded in the operation of the Agency. Internal management targets were tied to the external reporting regimes. In 1997–98 the Agency’s management team monitored performance against all the 124 Secretary of State’s and related internal management targets. It also led to more formal and independent central checking to ensure accuracy in the agency’s own performance systems (I13, Senior Official, Benefits Agency). A proportion of pay for people in the organisation, including the chief executive, was linked to achieving targets. This system created incentives to direct considerable attention to activities that improved performance against targets (I13, Senior Official, Benefits Agency).

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Ministers and civil servants in the Department were concerned about the their inability to act as an ‘intelligent customer’ for the Agency’s services using the target system (I14, Senior Official, DSS). The system led managers to pay insufficient attention to the performance of activities that were valued by ministers but not the main focus of targets. A major problem arose because the focus on achieving the clearance time target hampered efforts to reduce fraud and error, contributing to the poor performance in this latter area. An official commented ‘We used to be under pressure to get all claims done within the clearance time [target] more than anything else’ (I4, Official, Benefits Agency). The focus on short-term performance against targets and budget limits hindered attempts to redesign systems. Area managers were responsible for the achievement of targets separately related to different benefits, so that each benefit was treated largely as a separate activity within the organisation (NAO, 1998b, p. 38). However, clients were often eligible for several benefits and the same information was collected and stored by different parts of the Agency. A junior member of staff working in the local offices commented ‘Each of the systems we have is based on a different benefit rather than allowing us to deal with an individual claimant who might be looking at several relevant benefits’ (I4, Official, Benefits Agency). This pattern of working led to productive inefficiency and a poorer quality of service for claimants than if a client focused system was adopted, but these were not encouraged by the external target system. The emphasis on achieving budget cuts hindered investment that would have led to improvements in the longer run. Expenditure on capital investment fell year on year from 6 to 9 per cent of administrative costs in the early 1990s to between 0.5 and 1 per cent in the late 1990s (Benefits Agency, 1993, 2001). Interviewees commented on the pressure to cut administrative costs in the short term, especially in the mid to late 1990s (I13, Senior Official, Benefits Agency). Attempts to change the performance outcomes by changing the Agency’s targets were only partially successful. In 1998, the Department reduced the number of targets to concentrate on five accuracy targets and two financial recovery targets. The strategy was laid down in the document Safeguarding Social Security (DSS, 1999b). A key aim was to reduce programme losses in Income Support and Jobseeker’s Allowance by 30 per cent by 2007, with at least a 10 per cent

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reduction by 2002 (DSS, 1999b, p. 4). This change meant that even more areas of benefit work were not covered by the Secretary of State’s targets. The informal interpretation of targets by staff in the Agency limited some of the undesirable side effects of the system. Officials in the Agency and Department did not think that it was possible to concentrate attention on all Secretary of State’s targets at once, but the performance target system did not rank their relative importance. Instead, senior officials in the Agency formed an impression of the importance of different targets from informal signals by ministers about political priorities, for example, in speeches and press releases (I13, Senior Official, Benefits Agency). Targets that Agency staff felt had been downgraded were put on an informal ‘care and maintenance’ basis, with staff attempting to avoid deterioration in performance but focusing more management attention on the prioritised targets (I13, Senior Official, Benefits Agency). Similarly, Agency staff felt that not all activities of importance to ministers were expressed in the targets. For this reason, they were cautious about putting all their effort into achieving targets to the detriment of broader performance, although targets undoubtedly influenced behaviour to an extent (I10, Senior Official, Benefits Agency). The second chief executive commented that staff did not believe that all of the Secretary of State’s targets were achievable. They also thought that departmental officials shared this view so that they would not be held to be at fault for failing to achieve the target. He cited a target for accuracy of payments which was set at 87 per cent in the mid-1990s, stating that ‘We have an overall target [for accuracy] for the Agency and when I came in we were so far adrift from it that people had given up [on achieving the target]’ (Social Security Committee, 1998, question 152). Instead he called the target a goal, in the sense of something to move towards rather than necessarily to achieve in a single year as part of a project to get the Agency to raise performance from below 80 per cent towards 84 per cent. The figure of 87 per cent was only achievable in the longer term (Social Security Committee, 1998, questions 188–90). The targets reflected objectives of the Agency that were of priority for ministers rather than prioritisation of objectives by other groups. In particular, during the mid-1990s, customer service of particular interest to users and schemes to improve the take-up of benefit amongst potential users were not prioritised relative to other objectives of the

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Agency. During this period, ministers were most concerned about controlling costs, especially administrative costs, and there was a tension between cost control and meeting other objectives. Whilst there were customer satisfaction surveys there was no extensive system of user consultation and potential users had virtually no voice in the targetsetting process, instead the targets were set by ministers after consultation with senior Agency staff. The objectives valued most by users and potential users lost out to ministers’ priorities. The take-up of benefit was not prioritised in the performance target system. The Agency’s chief executive, acknowledged that they did not have an active national programme to boost the take-up of benefit (Social Security Committee, 1998, pp. 157–8). An interviewee commented that, in the early and mid-1990s, ministers did not give the impression in their informal statements or internal directives that take-up of benefit was a key aim of the organisation (I13, Senior Official, Benefits Agency). Based on their experience with claimants and potential claimants through their national network of centres, the Citizen’s Advice Bureau complained that ‘At present, advice and information about benefits appears to be a reduced priority’ (Citizen’s Advice Bureau, 1998, p. 36). The Agency’s concern with meeting budgetary targets made it less responsive to problems with the quality of service than it might have been. Whilst there were notable improvements in the décor of benefit offices and speed of clearance times, the target system led to arrangements that were not focused on the needs of clients. Agency staff were highly specialised and focused on individual benefits, so clients had to be passed between several different members of staff causing them inconvenience (Civil and Public Services Association, 1997, p. 12). The Agency was very reluctant to give adequate redress to claimants when an error was made. The PCA noted that, even when the Agency had been clearly at fault, it took pressure from him to persuade the Agency to give redress because of the Agency’s preoccupation with reducing costs (IA10, Senior Official, PCA; PCA, 1999, section 3.4).

Conclusion The public interest perspective’s hypothesis that executive agencies improve the economy of administrative costs by 5 per cent was partially consistent with the practice of agency working. There was a fall

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of 4.6 per cent in real terms administrative costs for executive agencies as a group, with a median fall of 4.4 per cent, between 1995/96 and 1997/98. However, there was a striking difference between trading and non-trading executive agencies. Whilst the public interest hypothesis is consistent with non-trading agencies, where the median score was a fall of 5.3 per cent, the median increase of 8.2 per cent for trading agencies is more consistent with the bureau-shaping perspective. The changes in the Benefits Agency were only partly consistent with the public interest perspective. Whilst real terms administrative expenditure fell by 4.4 per cent between 1995/96 and 1997/98 it was still 9 per cent higher in 2000/01 than in the first year of the Agency in 1991/92. In the first decade of the Agency’s life, staff figures rose 3 per cent and real terms total spending rose 13 per cent. The assessment of productive efficiency and effectiveness, using a basket of indicators, produces results that are only partially consistent with public interest perspective. Executive agencies were broadly successful in achieving their targets, 88 per cent of the seventy-two executive agencies surveyed in the late 1990s were in the ‘satisfactory or above’ category. On average, only 6 per cent of executive agencies had accounts suggesting problems with probity or serious misuse of resources. The Benefits Agency was able to improve some aspects of customer service, including speed of clearance of some benefits, but there were serious shortcomings, particularly fraud and error amounting to, on average, 7 per cent of social security payments. Some indicators suggest that there was greater fraud and error than before the Agency was established, though any deterioration is largely offset by improvements in the accuracy of information. According to a crude measure of productive efficiency based on workload, there were improvements in the 1990s. The deterioration in economy in the early 1990s was, in large part, correlated with rising demand for welfare services. But the problems in effectiveness meant that the productive efficiency of the Agency was compromised in key areas and long-standing performance problems that pre-dated the Agency were not ameliorated. The semi-detached organisational structure of the Benefits Agency allowed a better focus on the delivery of the Agency’s objectives, facilitating restructuring and more appropriate pay and grading systems. Whilst budgets rose, ministers were able to use controls to squeeze administrative costs in the mid-1990s. Performance targets

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had some detrimental effects, especially leading officials to concentrate on speed of clearance without sufficient regard to fraud and error in payments in the early 1990s. There was a tension between achieving objectives prioritised by users and potential users of services and the objective of cost control prioritised by ministers in the mid-1990s. However, ministerial priorities dominated those of users and potential users of services in the target regime. Despite speeding up the time for processing some claims, there were deficiencies in customer service in many areas. The Agency made little effort to increase the take-up of benefits amongst those who were entitled but who did not claim.

6 Executive Agencies and Central Government Systemic Performance

The hypotheses of the public interest and bureau-shaping perspectives for the systemic performance of central government are summarised in Table 6.1. Section 1 assesses systemic economy. Section 2 assesses systemic productive efficiency and effectiveness. Section 3 assesses the contribution of executive agency structures in the Benefits Agency to the systemic performance of the social security system.

Table 6.1 Hypotheses about central government systemic performance Public interest

Bureau-shaping

Economy

1. Economy improves with savings in administrative and programme costs

1. Economy in administrative and programme costs is reduced through the outcome of budget maximising behaviour

Effectiveness

2. Effectiveness improves with better achievement of objectives

2. Effectiveness worsens because of public sector externalities

Efficiency

3. Productive efficiency improves including savings in administrative and programme costs

3. Productive efficiency worsens because of public sector externalities

108

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Section 1: Systemic economy According to the public interest perspective, executive agencies improve central government systemic administrative and programme costs, whilst the bureau-shaping perspective expects a worsening in both elements of systemic economy. Changes in real terms (in 1996/97 prices) central government administrative costs and total spending, including administrative costs, for 1988/89 to 2001/02 are summarised in Figure 6.1. Real terms administrative expenditure rose from £12,863 m in 1988/89 to a peak of £15,117 m in 1993/94 before falling back in the late 1990s then rising to £15,180 m in 2000/01, a rise of about 17 per cent over the period as a whole. These figures suggest that executive agencies were associated with periods of decreasing central government real terms administrative costs but, overall, that the level of spending was higher at the end of the period than at the beginning which is more consistent with the bureau-shaping than the public interest hypotheses. The executive agency system itself involved costs in running the performance target and monitoring systems in the parent departments

£ m 1996/97 prices

300,000

200,000

100,000

19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02

0

Total costs

Admin costs

Figure 6.1 Economy of central government 1989–2002 Source: Chancellor of the Exchequer (1994, 1998, 2002).

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and collecting the information required in executive agencies. The costs of running systems for the Benefits Agency were estimated at £7 m each year (NAO, 1998b, p. 20). If the costs were one-tenth of this figure for an ‘average’ executive agency, to reflect the large size of the Benefits Agency, then a conservative estimate of the total cost across central government was £100 m each year in the late 1990s. However, these costs were a small proportion of total central government administrative costs, forming only 0.6 per cent of this figure in 2001/02. By themselves, the systems were not a major contribution to the rise in central government administrative costs since 1988. The executive agency model was associated with improvements in economy of civil service staff inputs. The total number of civil servants fell in the ten years after the reform from 580,000 in 1988 to 463,000 in 1998, a fall of 20 per cent as shown in Table 3.2 in Chapter 3. However, there was a similar proportionate fall in staffing in the same length of time prior to the reform (Efficiency Unit, 1988, p. 23). It was perhaps more of an achievement to have continued reductions in the 1990s compared to the 1980s because the latter period reductions were from a lower base, all time civil service numbers having peaked in 1976 at 763,000 (Cabinet Office, 2000, p. 7). However, the reduction in staff was partly the result of contracting out of services to private firms in initiatives including Competing for Quality, so expenditure gives a better indication of resources used by central government. After 1998, civil service numbers began to rise, reaching 483,000 by 2001, so the period of executive agency working was not exclusively a time of declining civil service staff numbers. Total real terms (in 1996/97 prices) central government spending, including not only administrative costs but also expenditure on programmes, did not improve after the start of the executive agency reform, as shown in Figure 6.1. Instead, real terms total expenditure rose from £164,700 m in 1988/89 to £217,000 m in 2001/02, a rise of 32 per cent. The biggest increases occurred in the late 1980s/early 1990s and since 2000. In the ten years after the reform started, spending rose 19 per cent, slightly higher than in the ten years before the reform when central government spending rose in real terms by 13 per cent (Chancellor of the Exchequer, 1987, p. 34).

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Section 2: Systemic productive efficiency and effectiveness The public interest perspective’s hypotheses are for improvements to systemic effectiveness, with better achievement of central government’s objectives, and improvements in productive efficiency including improvement in administrative and programme costs. In contrast, the bureau-shaping perspective suggests public sector externalities compromise the achievement of systemic objectives and, combined with budget maximising, this worsens productive efficiency. Some of the negative consequences show up in individual executive agencies’ performance, through the undesirable side effects of executive agencies on each other, whilst other problems emerge in the performance of the rest of central government, including departments. Systemic performance problems include actions with shared benefits not being taken and negative externalities as executive agencies are not concerned with the effects of their actions on other bodies. The systemic effects of executive agencies were increasingly recognised by Government towards the end of the 1990s, along with similar problems in other New Public Management (NPM) structures in the UK public sector (James, 2002). These problems were collectively termed a lack of ‘joined-up government’ which was a key theme of the Modernising Government White Paper (Minister for the Cabinet Office, 1999), the Wiring it Up report by the Cabinet Office (Performance and Innovation Unit (PIU), 2000), the Treasury Comprehensive Spending Review of 1998 and Treasury Spending Review of 2000 (Chief Secretary to the Treasury, 2000). In its broadest sense, the ‘joined-up government’ agenda was a vague set of aspirations for performance suggesting that outcomes of value to citizens and their representatives should be delivered in a way that is not dictated by organisational boundaries. However, more specifically, ‘joined-up government’ reflected concern about the performance consequences of boundaries between different departments, executive agencies, non-departmental bodies, local government and other units. The authors of the Modernising Government White Paper commented that ‘Great gains in public sector management have come from definition of task and delegation of management and the Government is determined that these are not lost. However, this

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concentration on specific tasks has sometimes distracted attention from the wider general objectives of government and people. The Government wants to give more attention to the coherence of policy across institutional boundaries … to operate in a joined-up way’ (Minister for the Cabinet Office, 1999, p. 1). The traditional departmental division of central government, which pre-dated the executive agency system, was reinforced by executive agencies reporting primarily to their own parent department. In many cases, organisational divides within departments were created or strengthened by fragmenting departments into executive agencies, including a split between strategic policy making handled by departments with implementation of policy by executive agencies. The way executive agencies responded to new developments in information and communication technology illustrated the detrimental effect of executive agency structures on systemic performance. Changing technology allowed the possibility of more ‘e-government’ by providing services or information about services using web-based internet, intranet, email, electronic data transfer and associated systems (NAO, 1999c, p. 11). Exploiting these opportunities is a key challenge for the contemporary delivery of public services (Dunleavy and Margetts, 2000; Chadwick and May, 2003). A survey of senior officials in government, including senior executive agency officials, found that 85 per cent felt that websites were very important or important to the operation of their organisations ( NAO, 1999c, pp. 12, 17). The importance of e-government was noted in the Modernising Government White Paper which suggested targets for electronic capability in transactions between government and citizens of 25 per cent by 2002, 50 per cent by 2005 and 100 per cent by 2008 (NAO, 1999c, p. 53). The targets were subsequently tightened with a target that all services should be able to be handled electronically by 2005 (NAO, 2002b, p. 1). The development of e-government was, in part, an issue of individual executive agency performance. However, it raised significant systemic performance issues. In one sense, all progress towards use of web-based and similar technology is collaborative between organisations because they contribute to strengthening the overall network. Even more importantly for central government, the technology offered the prospect of new and improved services for citizens involving contributions from several organisations, for sharing information

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between bodies, and for the provision of common services used by several organisations in different parts of government. Executive agencies made the greatest strides towards e-government in developing their own, narrowly focused systems. Some trading agencies were able to use their commercial freedoms to develop services for their customers. A group of academics led by Patrick Dunleavy and Helen Margetts worked with the National Audit Office (NAO) to survey developments in e-government. Trading agencies, notably HM Land Registry, Companies House, Driver Standards Agency and the Patent Agency had websites that were among the most developed in the UK public sector. Progress was more modest in non-trading bodies. Although the Employment Service and Court Service were praised for having developed interactive websites, only 53 per cent of sixty-six executive agencies surveyed had websites in 1999, rising to 83 per cent in 2001 (NAO, 1999c, pp. 56–7). These figures were slightly lower than departments which had 86 per cent coverage in 1999 and 92 per cent in 2001 (NAO, 2002b, p. 59). The potential of e-government technology to deliver systemic benefits was exploited much less than benefits for individual executive agencies. Surveys revealed that users found central government sites confusing and that the sites were organised more around organisational boundaries than the services or information wanted by users (NAO, 1999c, p. 50). The shared public sector portal, open.gov.uk, was launched in 1997 but was not used by all executive agencies. In the late 1990s, only one in twenty people accessing a central government site did so via the portal (NAO, 1999c, p. 52). The site was relaunched as ukonline.gov.uk, but the progress in its development was disappointing, with useage figures for mid-2001 little higher than at the start of 1999. Another shared service, the Government Secure Intranet, intended for communicating sensitive information, was subject to limited participation by executive agencies. Of the forty bodies on the system in the Autumn of 1999, the majority were departments rather than executive agencies (NAO, 1999c, p. 53). The growth of facilities beyond email, such as document sharing, was very limited (NAO, 2002b, p. 53). The development of co-ordinated e-government was limited, in part, by the reduction of central co-ordination of IT systems in the 1980s and early 1990s alongside the move to executive agency working. Expenditure on IT was seen as primarily a matter for individual

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executive agencies and departments. By 1996, only a small Central IT Unit was left in the Cabinet Office, primarily to provide advice to the rest of government (NAO, 1999c, pp. 50–1). Executive agencies developed their own separate IT systems with their own standards, often with little thought to how they related to each other. In a survey, sixteen out of twenty government departments noted the need for partnership with other organisations as one of the top six issues that needed to be addressed if e-government was to be successfully implemented (NAO, 2002a, p. 2).

Section 3: The effect of executive agency structures on systemic performance in the social security system The Benefits Agency was one of several central and local government bodies in the social security system, in total, spending around £90,000 m each year in the late 1990s (NAO, 1999a, p. 27). The users of the system included 2.85 m sick or disabled, 1.3 m long-term unemployed, 0.75 m low paid and 0.94 m single parents on low income. Beyond these groups were around 12 m people including pensioners, people with children and others who interacted with the system less frequently. The Benefits Agency was involved in substantial joint working with the Department of Social Security Headquarters (DSS HQ) in providing information for policy making and running programmes on its behalf, the Employment Service executive agency in co-delivering the Jobseeker’s Allowance benefit, the War Pensions Agency in veterans welfare, the Information Technology Services Agency (ITSA) in IT systems and the Contributions Agency in running the National Insurance system. Other bodies relied on the Benefits Agency to do their jobs properly, especially local authorities in delivering Housing Benefit, which involved the Agency providing information about claimants’ eligibility for this benefit. There were several significant public sector externalities in the social security system associated with the Benefits Agency, these are summarised in Figure 6.2. The externalities arose from the organisational identity of the Agency as a separate unit and the performance system which encouraged it to focus on its own aims. The externalities included poor information sharing between the Agency and DSS Headquarters, negative externalities for other delivery bodies, and

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Department of Social Security

Negative informational externalities (e.g. inaccurate information)

Poor information exchange (e.g. state pensions and problems of new policies post 1997) Benefits Agency

Local Authorities’ Housing Benefit work

Unfulfilled potential collaboration (e.g. in e-government) Charities, Post Office, other bodies

Figure 6.2 The Benefits Agency and public sector externalities in the social security system

opportunities forgone for developing shared services with other organisations. Poor information exchange between the Agency and the DSS Headquarters The separation of the Benefits Agency from the Department of Social Security (DSS) solidified a long-standing divide between policy making and operational parts of the social security system. The first chief executive commented that the views of people delivering services were not taken sufficiently into account by those in policymaking positions (Bichard, 1999, pp. 7–8). The second chief executive echoed this view, noting that the Agency attempted to identify ‘weaknesses in the system which may essentially be down to some detail of the policy design’ and ‘some of the rules and regulations’ but that these were not always easy to communicate and rectify (Public Accounts Committee (PAC), 1999, question 165). An interviewee commented that executive agency working had not been able to overcome the long-standing problem of ‘Grade 5s in the Adelphi [the location of DSS Headquarters] spending their careers developing huge and complex rulebooks without much thought for the people who have to work with them’ (I13, Senior Official, Benefits Agency).

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Neither the Agency nor Department could cite many cases where changes had been made in response to comments from the Agency. One such case was the alterations made to legislation about mortgage compensation which allowed for payment of arrears. Agency staff reported that levels of arrears were difficult to assess, leading to inaccuracies. They convinced DSS Headquarters staff that the legislation needed to be changed to make the payment system easier to administer. Within 12 months, accuracy had improved by 1 per cent, saving £13 m. But the Agency noted that this case was unusual and that the mechanisms for involving delivery staff in policy making were limited (Benefits Agency, 1999b). The communication problems were evident in many areas of the social security programme. However, a large policy failure occurred in failing to make potential claimants of the State Earnings Related Pension aware of changes to the policy on eligibility. The handling of state pensions required co-ordinating Benefits Agency staff in Leeds, Newcastle and in local offices with staff in the Department Headquarters in London responsible for supporting ministers in the development, maintenance and evaluation of pensions policy. The Department originally made a change to the eligibility requirements in 1986, before the Agency’s creation. However, the organisational structure inhibited the flow of information about this change to Agency staff. There was inadequate ‘end to end’ communication from those making policy in the Headquarters to those in the local offices providing the information to users (NAO, 2000c, pp. 10, 26). The Agency failed to incorporate information about the change in information they gave to clients. Leaflets and staff briefings to claimants continued to give wrong information until 1999. On this basis, many users erroneously believed they were entitled to the pensions. In the end, it was a charity representing users of the services rather than Agency or DSS staff that brought the continued provision of wrong information to the attention of ministers. The Department is likely to have to pay a large amount in compensation to those given incorrect information (NAO, 2000c, p. 28). The problems of developing policy in a system of executive agency working became more acute after 1997 when a new administration came into office. Their ‘New Labour’ agenda involved a change in emphasis towards encouraging employability and a social security system more ‘responsive to, and providing a more direct service for

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the public’ (Chancellor of the Duchy of Lancaster, 1997, p. 192). The policy change further increased the need for inter-organisational collaboration in the social security system by requiring more intervention to improve the employability of clients rather than primarily processing their benefit claims. However, the information collected by the Agency was linked to a performance target regime focused on individual benefits. This system did not provide policymakers with the information about claimants that they wanted to develop the new strategy for social welfare. The new policy environment required a more extensive and less crudely quantitative approach to assessing performance and evaluating progress to enable fine-tuning of the policy during implementation (I15, Senior Official, Benefits Agency). Initiatives that might have improved communication between the Headquarters and the Agency to facilitate this form of policy development were under-developed. The Benefits Agency had its own intranet for communication within the organisation, separate from that in the DSS Headquarters and other parts of central government, which was less developed than the Headquarters arrangements (NAO, 1999c, p. 31). This uneven development limited the capacity of the system to pass complex information about delivery to those making policy and to notify staff in the Agency about changes to policy. Negative externalities affecting other bodies’ delivery of programmes Beyond central government, there were significant negative externalities created by the Benefits Agency for local government in the administration of Housing Benefit. This programme cost about £11,100 m per year in 1996/97, or 12 per cent of the total spending on social security (NAO, 1999a). Whilst local authorities were inefficient in their administration of Housing Benefit because of problems in their own operations, the Benefit Fraud Inspectorate (BFI) found that the Agency made a substantial contribution to poor performance (BFI, 1999d). About 66 per cent of people claiming Housing Benefit from a local authority made simultaneous claims for Income Support or Jobseeker’s Allowance with the Agency (NAO, 1997b, p. 18). If a claimant was awarded Income Support or Jobseeker’s Allowance by the Agency then the information was passed on to local authorities for their use in working out entitlement to Housing

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Benefit. In particular, local authorities relied on the Agency for an assessment of claimants’ income or capital, a key consideration in the award of Housing Benefit (BFI, 1999d, section 8.1). The Agency passed incorrect information about claimants’ eligibility resulting in fraud and error. Although the Agency had service level agreements with local authorities, which set out co-operation between the organisations, a majority of local authorities felt that the agreements were not working. Necessary improvements included better exchange of information, more cross agency working and better feedback on fraud cases (BFI, 1999d, section 1). In the mid-1990s, about 74 per cent of fraudulent claims on Housing Benefit were also fraudulent claims for Income Support (NAO, 1997b, p. 21). About 7 per cent of the Housing Benefit budget was paid out in fraud and error, nearly 1 per cent of the total social security budget (NAO, 1997b, p. 1). The Agency’s lack of concern with the incorrect information being passed on to local authorities arose, in part, because its own targets did not include this consequence of its activities. Although the Agency had a concern with its own performance in fraud and error this did not sufficiently reflect the importance of this area of work. The Agency did not take the service-level agreements seriously enough and there were internal targets for reducing fraud and error which placed Agency staff in competition with those in local authorities. The Agency scheme used the principle of ‘finders-keepers’ for detecting fraud with officials wanting to identify fraud to help achieve their own targets for detection rather than working with local authorities to share information. The Agency’s ‘Spotlight’ anti-fraud initiatives did not involve local authorities as much as they could have. In some cases there was an atmosphere of mutual suspicion between the Agency and local authorities, although the relationship varied between different parts of the country (NAO 1997b, pp. 62–71). The Agency’s limited concern with the effect of its behaviour on other bodies was evident in working with other executive agencies in the system. The Contributions Agency was responsible for protecting the rights of contributors and the interests of taxpayers in the efficient payment and recording of National Insurance contributions and partly relied on forms processed by the Benefits Agency. However, there were no high-level Benefits Agency targets for passing forms to the Contributions Agency; 54 per cent of forms took

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more than sixteen days resulting in out of date information being used to create National Insurance accounts and damage to the collection of contributions (BFI, 1999c, sections 3.11–13). Some of these performance issues were ultimately resolved through the DSS management structure, which supervised both executive agencies, and informal pressure on the Benefits Agency (I9, Senior Official, DSS). However, the separate target regimes contributed to creating the problem rather than contributing to its solution. The Benefits Agency worked with the Employment Service and other bodies in delivering Jobseeker’s Allowance from 1996. The benefit was delivered from the Employment Service’s Jobcentres which paid the benefit on behalf of the Benefits Agency. However, much of the administrative work in support of the payments was handled by the Benefits Agency. One senior official commented ‘Both agencies would have preferred Jobseeker’s Allowance to go to one or another, rather than having to share it’ (I13, Senior Official, Benefits Agency). Staff in the Benefits Agency were under pressure to use resources to promote the achievement of their own targets rather than being concerned about the effects on the Employment Service. There was a lack of information sharing, resulting in the same information being requested separately by each body, draining resources and inconveniencing claimants (BFI, 1999b, Appendix B). Attempts to smooth the delivery of the benefit were made by staff transfers between the organisations. However, transfers were made more difficult by different working conditions. Under the so-called ‘Bichard Agreement’, named after the first head of the Benefits Agency, staff were given the right not to be transferred to different working conditions when undertaking work related to Jobseeker’s Allowance. As a result, these staff continued to work behind screens to protect them from potentially hostile clients whereas the Employment Service staff operated in a more open work environment. This restriction maintained separate clusters of staff and contributed to difficulties in allocating staff to pressure points in the system (Social Security Committee, 1998, p. 176). Despite these problems, the overall delivery of Jobseeker’s Allowance was much more successful then the experience with Housing Benefit. Most of the targets relating to the benefit were met. However, the working arrangements reflected structures that were established between the Benefits Agency and the Employment

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Service that went against the grain of the executive agency model. Structures included a joint management board. The second Benefits Agency chief executive, Peter Mathison, and the chief executive of the Employment Service, Leigh Lewis, had quarterly meetings and prepared action plans to tackle difficulties. There was a Joint Operations Team, with members from both bodies, to facilitate joint working and local level meetings (Social Security Committee, 1998, question 163). In these respects, the successful joint working did not reflect successful operation of core features of the executive agency model but rather modifications to them in this area of these bodies’ activities. Unfulfilled potential shared services The Benefits Agency did not develop co-operative approaches with other bodies to implement improvements to services that would have promoted the Government’s objectives for the social security system. Officials commented that the Benefits Agency was often poor at working with voluntary organisations to improve customer services. There was limited provision of information to claimants through charities because of a concern to focus on existing targets rather than developing new ways of delivering services (I4, Official, Benefits Agency). The difficulties of developing the Single Work Focused Gateway, announced in September 1998 and later renamed ONE, illustrated systemic performance problems. The project was intended to bring together the Benefits Agency, Employment Service, Child Support Agency, local authorities and other welfare providers, including charities, to provide a more coherent service for claimants focused on their needs. This style of working initially covered only a small part of the Benefits Agency’s work, just £112 m for twelve pilots (Social Security Committee, 1999, paragraph 1). There were two principal variants of the pilots, the first using call centres and the second using partnerships between public and private sector bodies (Social Security Committee, 1999, paragraph 10). The idea was to give a claimant a personal adviser to take their details and assess employment, benefit and training options from an initial ‘start-up meeting’. The personal adviser could then call on a team of experts to provide advice to claimants, directing these organisations’ services to focus on the needs of the claimant.

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Some aspects of the project involved a modification to executive agency structures. The ONE projects were cited as examples of ‘joined-up’ government in the 1999 Modernising Government White Paper (Prime Minister and Minister for the Cabinet Office, 1999, p. 31). The pilots were co-ordinated at a strategic level by a partnership of departments with a Project Board answerable to a joint ministerial group. Below this level, the pilots were managed through Project Management Groups at regional level bringing together Benefits Agency, Employment Service and local authority staff. Each pilot was headed by a single manager who was drawn from one of these organisations (PIU, 2000, section 10.11). Despite the modifications to executive agency working, several difficulties of joint working between the Benefits Agency and other organisations emerged during the projects as a result of executive agency structures. It was difficult to develop meaningful joint targets to be shared by the different organisations that clearly allocated responsibility. The Social Security Committee expressed concern that job placement targets would be too crude to measure outcomes and that clearer assessment of the quality of advice about benefits should be undertaken (Social Security Committee, 1999, paragraphs 68 and 70). In the end, no new targets were formally set, which made evaluation of performance very difficult. Management in the field within the Benefits Agency continued to be done on executive agency lines, through the district, area and regional offices. These offices were simultaneously trying to achieve the Agency’s own targets which, when these conflicted, generally took priority over the joint projects (I15, Senior Official, Benefits Agency). The styles of working and organisational arrangements differed between the bodies involved in ONE. Differences between the Benefits Agency and other bodies’ personnel systems caused co-ordination problems. Each organisation had its own pay banding and promotion structure which restricted the interchange of staff (Social Security Committee, 1999, paragraphs 34 and 35). The separately developed computer systems hampered joint working. The Benefits Agency had its OpStrat systems (see Margetts, 1999) but operational support for ONE was provided by the Labour Market System used by the Employment Service combined with a new Gateway Enquiry System. These systems were not completely compatible with each other. Finally, the working styles of the organisations clashed. Local

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authorities were felt to be more ‘can do’ and focused on solving clients’ problems whereas the Benefits Agency style was more ‘procedural’ (I14, Senior Official, DSS). The ‘procedural’ style in the Agency was partly because staff saw this approach as the best way to meet management targets (Social Security Committee, 1999, paragraph 41). The Benefits Agency undertook an unsuccessful attempt to develop a payment card for welfare claimants jointly with Post Office Counters Limited. The project sought to replace paper based methods of paying social security benefits with a magnetic swipe payment card, and to automate the national network of post offices through which many benefits were paid. A contractor, Pathway, was employed to provide the card system in May 1996. However, Agency and Post Office faced pressure to achieve their separate aims and were not able to agree on priorities for the project or trust each other enough properly to share information about progress in its delivery (NAO, 2000c, p. 11). Their different reactions to the slow progress in rolling out the scheme illustrated these tensions. The Agency was most concerned about the impact of delays on administration costs and lost savings from reductions in fraud, in total running at £15 m per month in 1998. In contrast, Post Office Counters Limited was more concerned to achieve the indirect commercial benefits from continuing payments from their offices. The payment card was eventually discontinued in May 1999 with losses for both the Agency and the Post Office (NAO, 2000c, pp. 30, 32). Executive agency structures restricted the Benefits Agency’s involvement in collaborative e-government. The Agency launched its website in October 1997 separately from other social security bodies with a team of its own staff to run it. There was massive underinvestment in the site compared to the potential of the technology, especially given the potential for developing joint services with other bodies. Officials commented that the site was not initially seen as a key priority (I10, Senior Official, Benefits Agency). The annual spend of £35,000 per year was just £14 per £ m of the Agency’s running costs. In Spring 1999, only about a dozen of the Agency’s staff had personal computers fully suitable for internet access, so over 99 per cent of officials could not view the Agency’s own site (NAO, 1999c, pp. 28–33). There was some co-ordination of IT across the Agency and other bodies in the DSS through the ITSA. Links with bodies

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outside the DSS were more limited, only 1 per cent of user sessions for all bodies within the DSS group involved a referral from the main government website, open.gov.uk (NAO, 1999c, p. 30). The Agency’s site was organised around different benefits delivered by the body rather than a user focused approach which might, for example, have focused on different life events of service users, such as unemployment, becoming retired or becoming sick. A redesigned website would have brought the services of other social security organisations under one umbrella to provide a better service to claimants.

Conclusion The use of executive agencies was not associated with improvements in the systemic economy of central government as suggested by the public interest perspective over the period 1988 to 2001. Instead the experience was more consistent with the bureau-shaping perspective. Whilst central government real terms administrative costs fell by 5.9 per cent between 1995/96 and 1997/98, these costs rose 17 per cent, and real terms total expenditure rose 32 per cent, between 1988 and 2001. Measuring economy in terms of staff, the number of civil servants fell by 17 per cent between 1988 and 2001. However, in part, this change occurred because of contracting out of services rather than cuts in resources, as reflected in the figures for administrative expenditure. Consistent with the bureau-shaping perspective, executive agencies were associated with public sector externalities which, in some cases, detrimentally affected systemic productive efficiency and effectiveness. Executive agency working limited the development of systemic e-government services. In the social security system, the Benefits Agency’s structures contributed to substantial public sector externalities and ineffectiveness and productive inefficiency in other bodies. These problems were not new, the pre-agency system was fragmented between local and central government and between parts of the DSS and other departments. However, executive agency working increased fragmentation and strengthened incentives for staff to focus on narrow organisational goals. There was a lack of communication between policymakers in the DSS HQ and staff in the Agency. Welfare policy was designed without sufficient thought for implementation and communication

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problems led to inadequate sharing of information, contributing to the failure to pass on correct information about state pensions eligibility to claimants. This problem became more significant under the Labour Government elected in 1997 because they sought to pursue a more active and complex policy agenda and found it difficult to develop this policy by relying on information produced through the Agency’s reporting systems. The Benefits Agency created a negative externality in the poor quality information that it produced and that local authorities used in administering Housing Benefit. The Agency failed to develop joint services with other bodies. Whilst joint working with the Employment Service was relatively successful this was, in large part, because of ad hoc additions to executive agency structures including joint boards and joint local working arrangements. The Agency developed e-government focused on its narrow concerns rather than working with other bodies to exploit the potential for systemic cost savings and better services.

Part III Conclusions

7 The Perspectives, Findings about Practice and the Future Use of Executive Agencies

The findings from Part II suggest answers to the three questions set out in Chapter 1 and allow an overall assessment of the relative merits of the two perspectives. These answers and assessments are set out in Section 1. Section 2 draws on the perspectives and the findings to suggest ways in which the use of executive agencies may develop in the future. Section 3 assesses the potential relevance of the perspectives and the findings for understanding executive agencies in other countries.

Section 1: Answers to the three questions about executive agencies and the relative merits of the perspectives Drawing together the findings suggests that, overall, bureau-shaping hypotheses are more consistent with the practice set out in Part II than public interest hypotheses. In explaining why the executive agency reform occurred, both perspectives are consistent with the dominant role of actors within, rather than outside, central government, as set out in Chapter 3. However, consistent with bureaushaping rather than public interest hypotheses, politicians did not have a plan for executive agency reform. The Next Steps proposal was influenced by senior officials’ preferences for the organisation of their departments which limited the range of options. Pressure from politicians for more management attention to be paid to executive 127

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activity triggered bureau-shaping strategies to pass executive activity to executive agencies rather than the alternative of becoming handson managers of integrated departments (a move from A to B rather than from A to C in Figure 2.3). Senior officials did not seem to be pursuing exclusively self-regarding motivations in this context but a mixture of interest in their work and a view that this was the best way to make policy. Their actions were generally consistent with maintaining their position as the key policy workers in central government. Both perspectives underemphasise the role of officials in the Efficiency Unit with an interest in developing reforms that could be implemented, making the initiation of Next Steps indirect bureau-shaping. They also neglect the role of staff in some executive agency candidates who wanted greater autonomy, which was significant in setting up ‘pull’ pressures for change in some bodies with non-mainstream civil service staff, especially specialist research bodies. The interaction between politicians and senior officials in the institutional environment of central government departments was a key influence on the reform. In this light, Dunleavy’s original bureaushaping model places too much emphasis on the unconstrained action of officials and neglects the role of politicians. In contrast, the alternative account of Next Steps by Marsh et al. (2000, 2001, pp. 159–61) places too great an emphasis on politicians commanding the reform and pushing through change. The difference between the findings of this study and the work of Marsh et al., in part, reflects a difference in methodological approach. They gave greatest importance to interview material, noting ‘Certainly, evidence from our interviews indicated the role of politicians was crucial in the evolution and development of Next Steps. This, of course, contradicts the argument that the process was driven by bureaucrats and, more broadly, it fundamentally questions the thesis that it is civil servants who are able to shape events or issues in their, as opposed to the minister’s, favour’ (Marsh et al., 2001, p. 159). In contrast, the method adopted in this study uses interviews, other statements by actors and the choices of actors to identify misrepresentation or partial presentation of events. This approach reveals that politicians triggered the process of change through their dissatisfaction with the status quo but senior civil servants adopted the specific executive agency reform as a bureau-shaping strategy.

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The executive agency reform was a revolutionary change to the organisational structure of central government. Around 83 per cent of changes were mitigated or pure executive agency creation. The principal exception was the 37 per cent of trading agencies that arose from nominal change. In 2001, 57 per cent of civil servants worked in executive agencies, broadly consistent with the half to threequarters suggested in the bureau-shaping perspective but less than the 95 per cent suggested by the public interest perspective. Consistent with bureau-shaping, on average, 70 per cent of senior officials in each department ended up working in the parent department rather than in executive agencies. Whilst many, relatively small, executive agencies handled non-routine work, this work was often specialist, scientific research work, rather than policy work traditionally handled by senior civil servants. Executive agencies all had the two principle features of the model, semi-detached organisation with a chief executive and specific accountability framework including performance targets and an element of personal accountability by the chief executive. However, as Chapter 4 sets out, the operation of these systems was varied. In particular, trading agencies and executive agencies that were peripheral to their departments’ activities were better able to develop their own systems than non-trading bodies that were mainstream to their departments. The Benefits Agency was an example of the latter kind of body but shared the principal features of the model with other executive agencies. The chief executives personified the delegation of management and corporate accountability in executive agencies and were a distinct new group of officials in central government. They did not have the long tenure of traditional civil servants and there was some shift in responsibility, and potential praise or blame, from departments and ministers to them for operational performance. However, the more politically salient issues of interest to those in Parliament, users, citizens and the media typically involved some form of joint departmental and executive agency responsibility for performance. Although these issues were generally the exception rather than the rule, chief executives trod a fine line between using the frameworks in which they operated to focus on improving performance against targets, and, at the same time, exercising sensitivity to informal signals from ministers and officials in their parent departments about

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how to handle matters of political sensitivity. Chief executives with knowledge of the Whitehall village as ‘insiders’ or those from ‘outside’ who were able and willing to adopt this method of working were able to avoid highly public disputes. Similarly, departments did not generally use the ‘harder edged’ aspects of the accountability system, including non-renewal of contract, because they realised the difficulty of fully separating responsibility for strategic and operational performance. The highest profile dispute about chief executive responsibility occurred when both these norms were broken and the ‘outsider’ chief executive of the Prison Service clashed with a Home Secretary seeking to avoid blame for poor performance. The dispute ended in the chief executive being removed and some damage to the Home Secretary’s reputation for competence. This case demonstrated the difficulty of shifting blame for performance in areas of political saliency. However, the Home Secretary did not resign and no other Secretary of State has resigned for inadequacies in setting the strategic frameworks of executive agencies. These findings are consistent with broader work on ministerial resignations which suggest that ministers did not, in general, resign because of poor departmental performance (Dowding and Kang, 1998). In this context, executive agency working was not a way for ministers to shift blame to chief executives of to executive agency enable them to resist pressure to resign. Such a reform was, in most cases, not necessary to avoid the risk of pressure to resign because of poor administrative performance. Individual executive agencies’ economy, over the period as a whole, is more consistent with bureau-shaping than public interest hypotheses, as shown in Chapter 5. There was an improvement in economy during the late 1990s with real terms administrative costs falling by a mean score of 4.4 per cent between 1995/96 and 1997/98. However, the picture was mixed and, whilst non-trading agencies’ administrative costs fell by 5.3 per cent, trading agencies costs rose by 8.2 per cent. By 2001 in the Benefits Agency, despite falls in the late 1990s, real terms administrative costs were 9 per cent higher, and real terms programme costs were 13 per cent higher, than they were at the start of executive agency working. There were improvements in some aspects of the effectiveness of individual executive agencies, although there was substantial variation between

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bodies. According to their performance against targets, effectiveness was satisfactory or above in 88 per cent of cases in the late 1990s. However, broader measures of effectiveness provide a less positive characterisation of the Benefits Agency’s work in paying the right money to the right people at the right time. The Agency was not associated with large improvements over the full range of its activities; long-standing problems that pre-dated the Agency remained. There was fraud and error amounting to about 7 per cent of the social security programme in the mid-1990s and around a quarter of those entitled to the main benefits handled by the Agency did not receive them. There was no demonstrable step change improvement in productive efficiency, contrary to the public interest expectation. The semi-detached organisational structure enabled the Benefits Agency to develop its own pay and grading systems and working practices to make better use of some resources, improving aspects of service to users, notably the speed of processing claims. The external performance target regime affected the Agency’s method of working, with Secretary of State’s targets being reflected and developed through a system of internal management targets linked to performance pay for staff. Performance was improved by targeted effort in some areas but work that was not the principal focus of targets, including fraud and error in the early 1990s and the take-up of benefit, suffered as a result. The Department attempted to change the emphasis of the target regime to ameliorate poor performance in fraud and error but these efforts were only partly successful. Not all activities could be included in the target regime to inform management action, because such a regime would have been too broad to use as the basis for allocating effort. The tendency for ‘unbalanced’ performance focused narrowly on targets was partially reduced by civil servants in the Agency picking up on informal signals and not pursuing the logic of the target regime to its full extent. Ministers and staff in the Department co-operated in this practice, their assessment of the Agency’s performance was broader than simple performance against targets. However, throughout the period, the targets were influential and principally reflected the objectives of the Agency that were prioritised by ministers rather than users or potential users of the service. In part, this situation led to continued inadequacy of some services and a very limited programme to boost the take up of benefit.

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The consequences of executive agencies for central government systemic performance were, in general, more consistent with bureaushaping than public interest expectations, as discussed in Chapter 6. Although there was an improvement in central government real terms administrative costs between 1995/96 and 1997/98, between 1988 and 2001 overall real terms administrative expenditure rose 17 per cent and real terms total expenditure rose 32 per cent. There were substantial problems with public sector externalities, consistent with bureau-shaping hypotheses. Executive agencies’ concern with their own activities led them to concentrate on e-government solutions with a narrow focus on their own users or customers. This approach limited the development of e-government with systemic properties to exploit the potential of the technology to achieve collective benefits across government. In the social security system, the Benefits Agency’s focus on its own targets and distinctive working practices contributed to significant negative public sector externalities. These externalities included harm to policymaking and implementation because of poor information exchange between the Agency and the DSS Headquarters, which was particularly evident in the state pensions failure. Inaccurate information generated by the Agency was used by other bodies in the system and there were unfulfilled potential shared services, including the limited development of systemic e-government. The problems of systemic performance became even more salient after 1997 when the incoming New Labour Government changed the emphasis of policy towards employability which required more exchange of information in the system and a client focused delivery system rather than one based on processing individual benefits. The Benefits Agency shared the two characteristic features of organisational separation and an accountability regime with all other executive agencies. In this respect, despite different working practices and contexts, findings related to the Agency are relevant to other cases. The organisational barriers to e-government suggest that several of the systemic performance issues were common to executive agencies. However, the problems of systemic performance were less important in executive agencies which were less integrated into programmes developed or delivered in co-operation with other parts of the public sector. These executive agencies were often peripheral, specialist, or had a focus on a clear external customer group and

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formed about half the total number of bodies. Within this group, trading agencies, which were a relatively small percentage of the total number of executive agencies, had substantial interaction with distinct customer groups outside of government, charging directly for their services. The operation of these structures and their effect on performance particularly merits further research. The origin of the Next Steps reform, in part, as a ‘bureau-shaping’ strategy explains why central government overlooked its previous experience with similar arm’s-length forms which pointed to some of the performance problems that eventually emerged. The experience with nationalised, public corporations suggested difficulties of setting a framework which provided these bodies with challenging targets to improve performance and which prevented intervention by ministers and officials contrary to the management freedoms granted to these bodies (Prosser, 1986, pp. 19–21). Similarly, the systemic performance problems were suggested by the long running problem of departmentalism in Whitehall. Departmentalism involved departments focusing too much attention on their own concerns to the exclusion of the broader consequences of their activities. This feature of central government was widely recognised as a problem by senior officials in the 1980s and 1990s (Marsh et al., 2001, pp. 124–30). Executive agencies intensified departmentalism by strengthening incentives for these bodies to respond narrowly to their parent departments’ concerns and further fragmented the system by splitting up departments between policy sections and different executive agencies. However, the Next Steps report did not directly tackle the issue of the trade-off between improving individual and systemic performance. The findings about executive agencies contribute to an emerging body of knowledge about New Public Management (NPM) that suggests some common themes across different components of reform in the UK. The importance of senior officials and politicians in developing and directing reform was a characteristic shared with NPM reforms in health, education, housing and social care. The reforms to set up corporate units with more performance measures and targets involved a minimum of consultation with actors outside of central government, except a few policy advisers (Bartlett et al., 1998, pp. 1–16; Pollitt et al., 1998, pp. 48–53). As with executive agencies, centrally set performance measures and ministerial appointment of

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members to run units reflected accountability systems dominated by executive politicians rather than service users or citizens (Ferlie et al., 1998, pp. 204–10). Some of the side and perverse effects on performance were shared with other NPM structures (James, 2002). The corporate hospital and school units often appeared to have improved their own performance but created problems of co-ordination and created difficulties for each other including harming the provision of joint services (Pollitt et al., 1998, pp. 74–5, 117–19). The unintended consequences of performance targets in focusing attention on what was targeted to the detriment of other valued outcomes was an increasingly salient issue across the public sector (Smith, 1995; Benyon and Edwards, 1999). Executive agencies brought these performance issues to the centre of government in Whitehall.

Section 2: Prospects for the future use of executive agencies A complication in assessing the future use of executive agencies in the UK is the devolution of some responsibilities to Scotland and Wales in 1999 and, in an on/off manner since that time, to Northern Ireland. Of the 127 executive agencies at the start of 2002, ninetytwo bodies reported to departments in England, twenty-one to the Northern Ireland Executive, twelve to the Scottish Executive and two to the Welsh Assembly (Office of Public Services Reform and HM Treasury, 2002, p. 60). The officials in the Scottish Executive and the Welsh Assembly remained civil servants after devolution, like those in England, but it is possible that, if more substantially different political and administrative arrangements develop, bodies in these areas will follow their own trajectory in the future. Northern Ireland executive agencies were staffed by the Northern Ireland Civil Service prior to 1999 and, in this sense, were always distinctive. However, if devolution has a chance to bed down, these bodies may develop further distinctive characteristics and a separate trajectory as a group. The public interest perspective suggests that executive agencies are likely to continue to be politicians’ preferred form for delivering central government services. The bureau-shaping perspective suggests that the forms will be stable as long as politicians do not reverse their concern with the management of executive activity, which could trigger bureau-shaping in the opposite direction. For example, the constraint could shift if politicians loose interest in managerialism

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relative to other priorities for government that compete for their attention. Whilst many of the findings in Part II were consistent with the bureau-shaping hypotheses, some factors affecting the course of reform were beyond those suggested by either perspective. These factors included the career incentives of officials in central units to come up with successful reform initiatives and ‘pull’ factors from staff in some specialist executive agencies who desired greater freedom. These pressures suggest that the executive agency model may be unstable in some, limited, contexts. More broadly, the systemic performance problems offer an opportunity for officials in central units to enhance their careers by suggesting additional structures to ameliorate the situation. Two possible fundamental changes to executive agency working are to move away from the semi-detached organisational form by either rolling executive agencies back into departments or increasing their autonomy from departments. The full reintegration of executive agencies into their departments seems unlikely except in a few cases. There were a few examples of such a change in the late 1990s with the Securities and Facilities Executive and the Civil Service College being integrated into the Central Management and Policy Studies section within the Cabinet Office in 1998 and 1999 respectively. In the latter case, the reorganisation was intended to improve the links between training courses provided by the College and strategic personnel and other issues (Centre for Management and Policy Studies, 2001, pp. 2–5). The pressure for more autonomy appears strongest in trading agencies which raise much of their revenue from distinct customer groups and in specialist research facilities staffed by non-mainstream officials. Demands for more autonomy by staff to respond to client groups were important causes of passing executive agencies to private ownership during the 1990s (Gains, 1999, p. 713). The changes in bodies that were privatised nearly always involved considerable input from the staff in the executive agency rather than external pressure (I1, Senior Official, Cabinet Office). Of the sixteen cases of privatisation, twelve were sold to private companies, two cases were management buy-outs, and two bodies had their management wholly contracted out to the private sector, as shown in Table 7.1. In a central government system with a broadly stable set of executive agencies, issues of systemic performance are likely to be tackled by forms of co-ordination or central steering of activities, as outlined

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Table 7.1 Privatisation of executive agencies Executive agency (with date of change) Twelve sold to private companies

Accounts Services Agency (1995), Agricultural Development and Advisory Service (1997), Chessington Computer Centre (1996), DVOIT (1993), HMSO (1996), National Engineering Laboratory (1995), Natural Resources Institute (1996), Occupational Health and Safety Agency (1996), Paymaster (1997), Recruitment and Assessment Services (1996), Transport Research Laboratory (1996), Warren Spring Laboratory (1994) Two management Building Research Establishment (1997), Laboratory of buy-outs the Government Chemist (1996) Two contracted National Physical Laboratory (1995), Teachers’ Pension out management Agency (1996) Source: Cabinet Office (1997b, 1998a, 2002b).

in Figure 7.1. The vertical dimension is the degree of central steering of the system by central bodies, ranging from strong steering by a central regulatory authority to weak central steering leaving individual executive agencies to their own devices. The horizontal dimension relates to the strength of arrangements between individual organisations for co-ordinating their activity, ranging from strong and enduring relationships in a network to weaker, sporadic, links. The four options in Figure 7.1 are combinations of positions at opposite ends of the two dimensions: sporadic links, networks, regulated sporadic links and regulated networks. All four forms were adopted to some extent in the late 1990s, although a trend is emerging towards more use of regulated networks relative to other forms, especially in the social security sector. Sporadic links In this arrangement, co-ordination between executive agencies is a matter for voluntary agreement between bodies to exploit particular opportunities rather than being part of longer term relationships. The links rest on mutually beneficial exchange and there is no use of authority from higher level units although these units may set up incentives to encourage executive agencies to co-ordinate their activities. The Treasury established new measures to ‘join-up’ central

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Strong

Regulated sporadic links e.g. departmental Public Service Agreements, Benefit Fraud Inspectorate

Central steering

Weak

Sporadic links e.g. benchmarking, occasional co-operation between Benefits Agency and other bodies

Weak

Regulated networks e.g. cross-cutting Public Service Agreements and shared targets, Department for Work and Pensions oversight of its ‘businesses’ Networks e.g. Woking Age agency (merged Benefits Agency and Employment Service) running the Jobcentre Plus business

Horizontal links

Strong

Figure 7.1 Structures for co-ordinating and steering executive agencies

government by providing budgetary incentives to finance projects involving joint working in the late 1990s. The £230 m per year Invest to Save budget funded innovative projects involving two or more departments and the £2500 m Capital Modernisation Fund was awarded, in part, to joint projects (PIU, 2000, box 9.1). In the Benefits Agency, an Invest to Save project developed electronic kiosks to present information about a range of services in a variety of locations outside of the Agency’s premises (I13, Senior Official, Benefits Agency). The Cabinet Office encouraged executive agencies to participate in a voluntary scheme to benchmark their performance against each other and private sector organisations from 1995. Executive agencies undertook self assessment rather than formal, external, assessment but it was hoped they might learn from best practice in other organisations and that comparisons between bodies might create peer pressure to drive up performance (Samuels, 1997, p. 3). The first phase involved thirty executive agencies in 1995–96, a second phase ran from April 1997 to January 1998 and included seventy bodies. A third phase was introduced to run for three years from 1998 involving further executive agencies (Samuels, 1998, p. 12). The Benefits Agency participated from 1996 and the commitment of senior staff was reflected in the chief executive’s membership of the governing

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board of the European Quality Foundation which ran the scheme (Social Security Committee, 1998, question 153). The contribution of benchmarking to solving problems of systemic performance was, however, not as great as its role in raising performance within the organisations. An analysis of improvement plans resulting from the process (Samuels, 1997, Annex C) reveals that two-thirds of the improvements were focused on changes to internal processes with only one-third focused on external relations with customers or other parts of government. The focus on external clients was most apparent in trading agencies. The voluntary nature of scheme made it difficult to use to resolve public sector externalities between bodies if they could not agree amongst themselves on the best course of action. A possible way to facilitate voluntary co-ordination that has have not yet been tried is to encourage bargaining to remove public sector externalities (James, 2000, p. 341). This solution suggests that affected bodies could pay the producers of externalities to stop producing negative externalities as an alternative to regulation from a higher level body. The scheme is analogous to the general solution to the problem of externalities in markets when bargaining is without significant cost and there are clearly defined property rights (Coase, 1960). In this general case, those suffering the effects of an externality band together to try pay the people causing the externality to change their behaviour. For example, people living near a factory which pollutes their air offer to pay the factory to use an alternative, non-polluting, production technique. The allocation of property rights determines who compensates whom. If local residents do not have the right to clean air then they pay the factory to stop polluting. In the case of the Benefits Agency, the organisation worked towards its own targets and, as a side effect, pushed up fraud in local authorities’ administration of Housing Benefit by producing faulty information which was then used by them in their processing of cases. A hypothetical bargaining solution to this negative public sector externality would involve the department deciding whether local authorities have the right to accurate information or whether they must pay the Benefits Agency to get it. The drawing up of contracts involving exchanges of budget for information could then be left to the local Benefits Agency offices and local authorities on the ground. These bodies are likely to be in a better position to know the value of

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the accurate information to their work with, for example, the value differing depending on levels of attempted fraud in the locality. Provided the costs of arranging these contracts are not too great, they could be used to deal with the externality in a potentially less costly way than a regulatory solution entailing a higher level body having to intervene to insist on the Agency improving the provision of information. Networks Networks are an alternative to sporadic links consisting of more enduring partnerships between organisations including professional ties between individuals in different organisations, staff exchange and arrangements for managing common interests. There are a variety of perspectives on how networks and partnerships operate in the public sector (Kickert et al., 1997; Bardach, 1998). UK central government increasingly used several different forms of networks in the context of executive agency working. The strongest form of network organisation was the horizontal merger of executive agencies, at the same time maintaining the vertical separation between departments and these bodies. About twenty executive agencies were merged with other bodies since the reform began, although the picture is complicated by occasional de-mergers. The executive agencies involved in horizontal mergers were the Central Computer and Telecommunications Agency, Central Science Laboratory, Central Statistical Office, Coastguard, Food Science Laboratories, Marine Safety Agency, Property Advisers to the Civil Estate, The Buying Agency and thirteen bodies in the Ministry of Defence (Cabinet Office, 1998a; Minister for the Cabinet Office, 2000, p. 9; Cabinet Office, 2002b). The rationales for these mergers included avoiding duplication, achieving economies of scale or better co-ordination. The reasoning is illustrated by the case of the creation of the Office of Government Commerce, which brought together bodies including The Buying Agency and the Property Advisers to the Civil Estate. The main justification for the change was to create a ‘one-stop shop’ for procurement in central government and to counter ineffectiveness and inefficiency from fragmented procurement systems, especially in IT. Individual departments and executive agencies did not develop this expertise themselves because they only occasionally needed to engage in particular forms of

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procurement. The Office was further intended to ameliorate the problem of individual departments and executive agencies commissioning IT and other systems without sufficient regard of the need to have compatibility with systems in other bodies which was a barrier to the development of systemic e-government. There were attempts to improve the integration of careers across different departments and executive agencies. In general, civil servants did not think that moving to an executive agency would assist their promotion to the most senior grades (Trosa, 1994, pp. 48–9). The Senior Civil Service, set up in 1996, was intended to encourage civil servants to take a broader perspective than the body in which they worked and to promote the movement of staff across central government bodies. The Civil Service Management Committee, later renamed the Management Board, actively managed the top 600 postings. The Cabinet Secretary suggested that, to reach the upper ranks of the Service, staff needed experience in working in frontline delivery or operational management and of working in more than one organisational culture (Wilson, 1999, section 16; PIU, 2000, section 4.11). However, in most departments, there was no ‘critical mass’ of civil servants with extensive experience of working in executive agencies. The percentage of staff moving on loan outside their own department was just under 7 per cent each year in the 1990s (PIU 2000, figure 8.2). Regulated sporadic links and regulated networks In a broad definition, regulation is often used as a synonym for control. However, in this section, regulation is used to mean a body using some form of authority to steer executive agencies strategically at arms-length. Regulation of sporadic links involves steering executive agencies that occasionally co-ordinate activity amongst themselves and contrasts with the regulation of networks, where there are more extensive and enduring links between executive agencies. In the UK public sector as a whole, there was an increase in the resources devoted to the use of regulation of public bodies alongside New Public Management changes in the 1980s and 1990s (Hood et al., 1998, 1999, 2000). In central government, whilst central regulation of pay, grading and management practices were relaxed alongside the move to executive agency working, new or reformed regulatory systems emerged. Indeed, the executive agency model itself incorporates a form of regulation of sporadic links or networks

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in the relationship between a parent department and the executive agencies within its direct purview. The departmental network form of regulation was used to sort out some disputes between executive agencies in the DSS, where the executive agencies and the Headquarters were all represented on the Departmental Management Board. Matters of common interest were discussed by the Board, and Headquarters staff and ministers occasionally intervened to put pressure on executive agencies to work more co-operatively (I14, Senior Official, Department of Social Security). Departmentally led initiatives to encourage longer term co-operation and network working were also increasingly pursued in other departments. One of the most developed forms of regulated network was the Driver Vehicle Operator group established in 1999 to link the four executive agencies handling matters related to vehicle transportation in the Department for Transport, Local Government and the Regions. The group was chaired by a departmental official and included all four chief executives. According to officials involved in the initiative, executive agencies’ independence of action was curtailed by requiring them to discuss and, if at all possible, to take into account the effects of their action on other bodies (Kutlu, 2001, pp. 167–8). The group assisted the development of common services including a joint website for interacting with service users (Office of Public Services Reform and HM Tresury, 2002, p. 25). The central units of the Cabinet Office and Treasury intervened to improve co-ordination between executive agencies, but this was normally to facilitate sporadic links rather than to set up and influence networks of bodies. The Cabinet Office did not generally intervene using formal authority and, where more formal systems were used, they were predominantly focused on improving individual bodies’ performance rather than systemic performance. The Cabinet Office required executive agencies to gain accreditation under the Investors in People scheme, demonstrating that they had systems for training employees and developing skills. By 1998, thirty-two executive agencies had been fully accredited and all were expected to undergo the process by 2000 (Cabinet Office, 1998a, pp. 8–9). By April 1999, all Benefits Agency staff worked in units recognised by Investors in People (DSS, 1999a, p. 57). However, the Investors in People scheme was largely focused on individual executive agencies’ performance rather than systemic performance. Similarly, the

142 The Executive Agency Revolution in Whitehall

Citizen’s Charter scheme, later renamed Service First, required executive agencies to develop their own standards for services, monitor performance against them and raise performance if it was unacceptable. The standards were mostly focused on individual bodies rather than standards for services involving the work of several organisations (IA7, Senior Official, Cabinet Office). In the Benefits Agency, these central standards influenced the Agency’s regime and the Unit was able to block proposals by the Agency if it felt they were not setting the right standards (I13, Senior Official, Benefits Agency). For example, some targets were initially set to cover 60–70 per cent of customers. However, the Citizen’s Charter Unit recommended that the quality of service should be achievable for 100 per cent of clients. To fulfil this requirement, the Agency had to lower the standard set to have a realistic chance of achieving the higher percentage of clients covered (NAO, 1998b, p. 44). The Cabinet Office produced annual public reports collating the performance of executive agencies as a group, including performance against targets. However, reporting concentrated on individual performance rather than developing measures of performance in sectors of government involving the activities of more than one executive agency. Whilst the Cabinet Office attempted to set up comparative measures of performance these were not fully developed because of difficulties in creating measures that were fully comparable across different bodies. Instead, voluntary co-operation with the benchmarking scheme was encouraged and there was no requirement that executive agencies should participate (I3, Senior Official, Cabinet Office). The Treasury kept strategic oversight and control centred on the public expenditure system although much of the responsibility for dealing with executive agencies was handled by departments rather than involving Treasury intervention (IA1, Senior Official, HM Treasury). A more systematic approach to regulating central government as a network, including executive agencies, emerged in the late 1990s with the Public Service Agreements (PSAs) regime. PSAs arose from the Comprehensive Spending Review of 1998 and were intended to provide an overall umbrella for setting and monitoring departmental and executive agency objectives, targets, outputs and outcomes (Chief Secretary to the Treasury, 1998, pp. 1–3). PSAs are public documents and departments have to report progress against

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targets to the Ministerial Committee on Public Services and Public Expenditure (PSX) (PIU, 2000, section 7.18). Whilst most PSAs relate to individual departments, there was an attempt to improve the treatment of policies and services straddling organisational boundaries. Departmental PSAs include a small proportion of objectives and targets that are shared by more than one department and its executive agencies. There are ‘cross-cutting PSAs’ containing sets of joint objectives and targets for programmes in a few areas. There were initially twenty-eight PSAs based on departmental boundaries with three cross-cutting PSAs in criminal justice, drugs and help for young families. In total, there were fifty targets held jointly by two or more departments out of several hundred and PSAs predominantly reflected separate departmental processes (PIU, 2000, box 9.1). However, the PSA regime better integrated the Benefits Agency’s performance plans with broader systems. The Agency’s targets were incorporated in the broader Department of Social Security PSA and the body instituted a new Performance Management Regime from April 2000 to take account of this development. The shared objectives and targets resembled the arrangements already in place between the Agency and the Employment Service for delivering Jobseeker’s Allowance. But there was a limit to how far targets could capture all the elements of working with other bodies which, combined with multiple and conflicting targets, limited the extent to which this approach facilitated better co-operative working (I14, Senior Official, Department of Social Security). There were attempts to increase the regulation of executive agencies by bodies other than departments and central units. The National Audit Office (NAO) was important in highlighting some of the systemic problems of performance that affected the ‘value for money’ of government. Whilst the resources used in financial audit were largely static, the NAO directed more resources to ‘value for money’ studies in the 1990s (Hood et al., 1999, pp. 87–9). The NAO revealed the effect of inaccurate information supplied by the Benefits Agency’s on the administration of Housing Benefit (NAO, 1997b). However, it was difficult for NAO to get bodies in central government to tackle these problems because it had no direct authority to mandate action. Instead the organisation operated primarily through a mixture of informal pressure and publicity (I5, Senior Official, National Audit Office; I12, Senior Official, National Audit Office).

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The Benefits Agency was subject to more regulation than most executive agencies and had a specific regulator, the Benefit Fraud Inspectorate (BFI), set up in 1997 to monitor the Agency and bodies working with it in the social security system. The BFI had a mandate to examine individual bodies’ performance and to take a systemic perspective, in particular on the level and causes of fraud and error in the system (Secretary of State for Social Security and Chief Secretary to the Treasury, 1999, p. 22). The Inspectorate cost £6.5 m to run in 1998/99 and employed 133 staff, a substantial investment in regulation (BFI, 1999b). The organisation was successful in uncovering the negative externalities affecting local authorities and the Contributions Agency (BFI, 1999d). However, it proved more difficult for BFI staff to bring about improvements, not having a line management relationship with the Agency or other bodies in the system and being unable to impose more extensive network based forms of working on the system (I11, Senior Official, Benefit Fraud Inspectorate). A more substantial change towards the regulated network form of organisation in social security was developed from the late 1990s. The form was developed to ameliorate the problems encountered in the ONE pilot projects and better to fulfil the developing policy agenda of Welfare to Work which called for a more client focused delivery structure (I15, Senior Official, Benefits Agency). The pressure for the change came in part from entrepreneurial officials in the Treasury (I15, Senior Official, Benefits Agency). There was a crosscutting review of Welfare to Work and ONE in the 2000 Spending Review which was led by a Treasury official and reported to the Economic Affairs, Welfare to Work (EA (WW)) and Public Spending (PSX) cabinet committees, which were both chaired by the Chancellor. Following the review, there was a major reorganisation to create the structures summarised in Figure 7.2. The Department for Work and Pensions (DWP) replaced the Department for Social Security (DSS) in 2001. The Benefits Agency and the Employment Service were merged to create a ‘working age’ agency operating the Jobcentre Plus ‘business’ (Benefits Agency, 2002, pp. 5–9). Jobcentre Plus integrated the delivery structures for providing benefit payments and job services for the ‘working age’ client group whilst the Pension Service took over responsibility for these aspects of Benefits Agency work. The other businesses in the Department were the

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Department of Work and Pensions Corporate Strategy and Shared Services: human resources, IT, estates, communications, legal, analytical Performance information Client Groups: Working age and children Pensions and disability

Services and payments

Targets and budget Businesses: Jobcentre Plus The Child Support Agency The Pension Service Disability Carer Service The Appeals Service

Figure 7.2 Department for Work and Pensions

Disability Carer Service, the Child Support Agency and the Appeals Service, the latter two being formed from existing executive agencies. The changes involved reallocation of a few, relatively small, strategic tasks, from the executive agencies to the Department’s Corporate Strategy and Shared Services section but maintained a semi-detached arrangement between policy development and the implementation of programmes. This reform continued a trend established in 2000, when the relatively small strategic parts of the Information Technology Services Agency were reintegrated into the DSS Headquarters at the same time as the bulk of IT work was let to a private firm, Electronic Data Systems, under contract. The individual executive agencies’ Framework Documents were replaced with an overall management framework for the Department and its new ‘businesses’. The ‘businesses’ remained semi-detached organisations, each headed by a chief executive and separate from those primarily responsible for policy work and ministerial support located in the Corporate Strategy and Shared Services section. However, the systems were intended to improve communication between these organisations, to encourage the provision of shared services and to bring about greater staff movement between the ‘businesses’ and the centre (I14, Senior Official, Department of Social Security; Lomax, 2002). The recent changes marked a softening of the harder edges of the executive agency performance regime, with talk of ‘linked communities’ and a ‘shared agenda’ in the Department rather than a more

146 The Executive Agency Revolution in Whitehall

simple divide between setting/monitoring targets and delivery (Lomax, 2002). In the Corporate Strategy and Shared Services section, new Client Director posts were established to focus on client needs and specify service priorities and targets. As under the Benefits Agency arrangements, there was regime of targets for the different businesses set by the Secretary of State linked to the PSA for the Department. Each business chief executive continued to be responsible for achieving the targets for their own business. However, the reform recognised more explicitly that a broader consideration of performance beyond quantifiable performance against targets was required to steer the system (I9, Senior Official, Department of Social Security). It is too early to judge the effect of these structures on working practices but they involve a softening of the executive agency model rather than its replacement. The systemic performance consequences of the less ‘hard edged’ performance target regime, which further developed the informal practices operated during the time of the Benefits Agency, might reduce the incentive for staff to concentrate overly narrowly on targets to the detriment of other bodies’ performance. Similarly, shared services may be more easily developed and maintained than in the more fragmented system. However, the arrangements do not seem to alter the dominance of ministers in setting priorities. Whilst the rhetoric is of ‘client focused’ services, the system appears to leave ministers rather than clients in the position of judging what clients want.

Section 3: Relevance of the perspectives and the findings for countries emulating the UK reform The hypotheses drawn from the two perspectives offer a set of expectations about executive agencies that are of relevance to other countries’ central government systems. To the extent that the hypotheses receiving empirical support from the UK case receive further support in these other cases they provide the basis for generalisation of knowledge about executive agencies. A feature of executive agency reform, consistent with broader NPM reform, was the international influence of organisational models and experiences, with countries attempting to learn from reform ideas and practices in other jurisdictions (Pollitt et al., 2000; James, 2001). The public management

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section of the OECD devoted considerable attention to executive agency reform in briefings and study reports circulated to member countries. The UK was just one of several countries’ experiences that were noted and other countries, particularly Sweden, have a long and well known history of the widespread operation of similar structures (OECD, 1995, 1998, 2002). A good starting point for exploring the perspectives’ hypotheses in different countries would be to examine OECD countries with, in broad terms, similar levels of governmental development, that embarked on reforms directly influenced by the UK experience. The UK Cabinet Office hosted delegations of officials and politicians from several countries who expressed an interest in the Next Steps reform (Goldsworthy, 1991, pp. i–ii). The Canadian Government explicitly drew on the UK experience in creating Special Operating Agencies from 1989, with seventeen bodies up by the end of 1996 (Thomas, 1996, pp. 1–2). In US Federal Government, proposals for Performance Based Organisations (PBO) were modelled, in part, on the UK initiative (NPR, 1996) and the Netherlands set up over twenty departmental agencies between 1991 and 1998, in part drawing on the UK reform (Pollitt et al., 2000). Executive agencies were adopted in Korea from 1999 in a reform influenced by the changes in the UK, although the bodies that emerged were substantially altered to fit local circumstances (Yoon, 2001). Japan emulated the UK initiative through a major reform to create Independent Administrative Institutions (IAI) from 2000 (Kaneko, 1999; Matsuda, 1999; Hirose, 2000; Hori, 2002). The consistency of the hypotheses with developments in these countries is likely to be limited by differences in the context of reform, including the extent to which central government provides public services in a broadly similar way to the UK. Their potential relevance can be illustrated in the context of the US and Japan, although a full evaluation would require much more extensive research. The executive agency model offers a benchmark for comparing reforms in different countries. The potential for executive agency reform in US Federal Government was lower than in the UK because many services were not performed at this level of government including, for example, driver and vehicle licensing, vehicle certification and fire service training which were all handled by executive agencies in the UK. The potential for use of executive agencies was further reduced by the existence of similar structures pre-dating

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the PBO proposals. The system was already organisationally fragmented and the Government Performance and Results Act of 1993 had already required Federal bodies to develop strategic plans, performance measures, annual performance plans, and performance reporting (NPR, 1999). However, PBO were very similar to the executive agency model, involving separating service operation functions from their policy components and placing them in separate organisations reporting to departments. The organisations were given freedom to manage personnel, procurement and other services and were headed by chief executives, hired on a fixed term contract through a competitive search. Each organisation was given a three- to five-year framework with measurable goals and targets for improvement and the chief executives were held accountable for performance. Initially, seven functions were proposed for PBO status in 1997. However, the reform did not look like becoming such a significant change as the executive agency reform in the UK and only a few bodies were set up by the late 1990s (Friel, 1999). In contrast to the US, the reform to create Independent Administrative Institutions (IAIs) in Japan looks like a major change. The activities handled by central government were more similar to those in the UK than in the US and there was less use of formal performance measures, so the potential for an executive agency reform was greater. Setting up IAIs involved separating strategic ‘policy’ functions from ‘policy execution’, with better corporate financial management and more explicit systems of performance planning and evaluation. Each IAI had a degree of management freedom with an arms length relationship with ministries but, unlike UK executive agencies, they were not formally part of central government departments and in this respect they resembled NonDepartmental Public Bodies. Progress was rapid; fifty-six bodies were set up in April 2000 with functions transferred including research activities, mint and printing operations and operational activities such as motor vehicle inspection. Further IAIs were planned in higher education (Hori, 2002, p. 10). Using the executive agency model as a benchmark, a study of Japan could explore whether these changes are ‘pure’, ‘mitigated’, or ‘nominal’ to assess the significance of the reform. The public interest and bureau-shaping perspectives offer contrasting hypotheses explaining the reforms, although both perspectives

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hypothesise that actors within the administrative and political executive are important influences on the course of reform. Research could examine the hypotheses in the US and Japanese contexts. The public interest perspective’s hypothesis that politicians lead executive agency reform appears to have some support in the US where the President, Vice-president and presidential appointees had particular prominence in developing reforms to the executive in the 1990s. The National Performance Review (NPR) run by the Vice-president proposed a wide ranging reform programme on the basis of a number of studies including observation of the UK experience (NPR, 1996). However, contrary to both perspectives, legislative as well as executive politicians were influential in decision making about reform. Congress formally created all executive departments including PBOs, determined the funding of programmes and had the power to reorganise government bodies. Any bureau-shaping influences on reform seem likely to have operated differently in the US to the UK. Whilst the US Senior Executive Service was a set of officials pursuing careers in Federal Government, their influence was reduced by the role of presidential appointees who constituted about 10 per cent of 7000 senior jobs, especially the most senior posts (Fesler and Kettl, 1996, pp. 179–213). Research could examine the institutional arrangement of legislative and executive politicians, political appointees and career officials, the effect on bureau-shaping strategies and the limited adoption of PBOs. In Japan, both perspectives appear consistent with the dominance of actors within central government in initiating and developing the reform. The public interest perspective appears consistent with ministers’ contribution to the development of IAIs through the Administrative Reform Council, which reported in December 1997. The reform got strong central direction in 1998 with the establishment of the Headquarters for Central Government reform, headed by the Prime Minister and composed of all the Ministers of State. Whilst there was legislation to create the new bodies, the role of legislative politicians appeared very different from that in the US because of party based control in a Parliamentary system (Kaneko, 1999, p. 1). The potential for senior officials to embark on bureau-shaping strategies to bring about reform appeared to be high, like the UK rather than the US. There was a permanent elite civil service that was traditionally very influential in executive decision making (Muramatsu

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and Krauss, 1996, p. 241). Further research could assess how politicians and officials interacted to bring about a major reform in this context. Finally, the public interest and bureau-shaping perspectives offer contrasting hypotheses about the likely consequences of adopting executive agencies. The bureau-shaping perspective’s hypotheses receive support in the UK and, whilst the different contexts are likely to have a substantial intervening effect on performance outcomes, the findings suggest that a large majority of individual executive agencies are likely to be reasonably effective. However, a demonstrable, step change, improvement in effectiveness or productive efficiency over the old systems is unlikely and executive agencies are likely to be associated with worsening economy, except for short periods of time. Adopting executive agencies is likely to contribute to substantial systemic performance problems through public sector externalities in cases similar to the Benefits Agency involving working closely with other bodies. However, the net balances in trade-offs between changes to systemic performance and possible improvements in individual executive agencies’ performance are likely to be better in bodies that are more peripheral to broader government activity.

Appendices

Appendix 1: The Bureau-Shaping Model The bureau-shaping perspective on executive agencies draws extensively on the bureau-shaping model (Dunleavy, 1985, 1986, 1989a,b, 1991) by incorporating the insight that officials have a preference for policy work rather than routine work and the concept of bureau-shaping strategies. Dunleavy developed the bureau-shaping model in two parts. First, the bureau-shaping typology of bureaus, based on differences in the mix of budgets in a bureau. Organisations with a high proportion of ‘core budget’ spent on their own activities are ‘delivery’ bureau whilst organisations passing on budget for others to spend are ‘transfer’, ‘contracts’ or ‘control’ bureau, depending on who receives the money (Dunleavy, 1991, pp. 183–8). The typology was applied to describe the ‘architecture’ of the British state in the late 1980s (Dunleavy, 1989a,b). The second part of the bureau-shaping model is a general theory of administrative reform which suggests that rational officials value work related utility and undertake ‘bureau-shaping’ strategies in pursuit of these benefits (Dunleavy, 1985, 1986, 1991, pp. 200–9). Several bureau-shaping strategies are suggested including major internal reorganisations to promote policy work over routine activities, transformations of internal work practices, redefinition of relations with external partners to enhance policy contacts, competition with other bureaux to protect the scope of interesting work, load shedding, hiving off and contracting out functions which are seen as undesirable (Dunleavy, 1991, pp. 203–4). The bureau-shaping model has been developed as an explanation of privatisation and de-institutionalisation in the public sector (Dunleavy, 1986, 1991, pp. 236–48) to examine reform of a finance ministry (Wallis and Dollery, 2001), changes in the Australian Federal budget sector (Dollery and Hamburger, 1986), changes in local government including contracting out (Biggs and Dunleavy, 1995; Cope, 1995; Aulich, 1999) and privatisation of government owned oil industries (Hoopes, 1997).

153

Appendix 2: The Formal Bureau-Shaping Perspective on Executive Agency Reform The preferences of an individual senior official for the organisation of his or her department can be expressed formally and is analogous to the simple economic model of consumer preference subject to a budget constraint. For the sake of clarity, the figures in Chapter 2 are drawn schematically. The preferences of an individual senior official are represented by the utility function 1 –

1 –

U ⫽ X2 ⫹ Y 2

where U is level of utility, X is budget per senior official and Y is proportion of policy work time in total work time. The constraint on the official imposed by politicians is Y ⫽ 1 ⫺ aX where 1 is the limited work time available to the senior official, a is the proportion of management time in total work time which politicians insist an official must spend supervising each unit of budget per official and 0 ⬍ a ⬍ 1. The slope of each indifference curve is given by the marginal utility of X divided by the marginal utility of Y

冢

1

⫺– dY — ⫽⫺ 1– X 2 2 dX

1 2

冣/冢12– Y 冣⫽ ⫺Y ⫺–

1 – 1– 2 /X 2

The slope of the constraint is given by dY — ⫽⫺a dX At the interior optimum, the slopes of the constraint and indifference curve are equal Y1/2/X1/2 ⫽ a, or Y ⫽ a2X, which can be solved with the constraint to yield the optimum values of X and Y, 1 Y* ⫽ 1⫹(1/a) X* ⫽

1 a (1⫹a) 154

Appendix 2 155

The function used in the formal perspective assumes independence of the marginal utilities of X and Y implying that policy work time and budget per senior official affect utility only by the sum of their separate contributions and not by forming particularly desirable or undesirable combinations. The level of policy work is largely independent of the level of budget per senior official. A negligible level of budget per senior official is required to undertake policy work compared to that involved in executive activity because policy work tends to be more labour intensive in terms of senior officials and less intensive in other resources than executive activity. The perspective assumes a stable relationship between changes in executive activity and budget per senior official and between changes in the level of policy work and proportion of policy work time. Stability requires that the number of senior officials and efficiency in the use of budget and policy work time are constant. Without these assumptions budget per senior official, for example, could be reduced by increased efficiency leaving the level of executive activity unchanged. The tightening of politicians’ constraint on senior officials shown in Figure 2.3 is expressed formally by a rise in a. The equations for optimum X and Y imply that a rise in a will cause a fall in X and a rise in Y. The rise in a causes a rise in Y because the substitution effect of a rise in a outweigh the income effect which reduces the available ‘income’ for both X and Y.

Appendix 3: Interviews Conducted for the Study The interviews were conducted on a Chatham House basis such that interviewees’ comments are not attributed to them by name. The first set of interviews are coded ‘Ix’ and were conducted exclusively for this study. The second set of interviews were conducted jointly with the ESRC funded ‘Bureaucratic Gamekeeping’ project and are coded IAx. For this latter set of interviews, the interview number in brackets indicates the ‘Bureaucratic Gamekeeping’ project code (Hood et al., 1999, pp. 228–30).

Interviews I1 9/8/97 Senior Official, Cabinet Office I2 9/8/97 Senior Official, Cabinet Office I3 9/8/97 Senior Official, Cabinet Office I4 30/3/00 Official, Benefits Agency I5 30/3/00 Official, National Audit Office I6 4/4/00 Senior Official, National Audit Office I7 4/4/00 Senior Official, National Audit Office I8 4/4/00 Senior Official, National Audit Office I9 14/4/00 Senior Official, Department of Social Security I10 10/5/00 Senior Official, Benefits Agency I11 16/5/00 Senior Official, Benefit Fraud Inspectorate I12 17/5/00 Senior Official, National Audit Office I13 1/6/00 Senior Official, Benefits Agency I14 15/6/00 Senior Official, Department of Social Security I15 20/7/00 Senior Official, Benefits Agency I16 24/10/01 Senior Official, Cabinet Office

Additional interviews conducted jointly with the ESRC funded ‘Bureaucratic Gamekeeping’ project IA1 IA2 IA3 IA4 IA5 IA6 IA7 IA8

11/1/96 16/1/96 18/1/96 12/2/96 13/2/96 20/2/96 22/2/96 26/2/96

(I7) Senior Official, HM Treasury (I8) Senior Official, HM Treasury (I9) Senior Official, HM Treasury (I13) Senior Official, HM Treasury (I14) Senior Official, HM Treasury (I15) Senior Official, National Audit Office (I16) Senior Official, Cabinet Office (I17) Senior Official, HM Treasury 156

Appendix 3 157

IA9 1/3/96 (I18) Senior Official, Cabinet Office IA10 25/6/96 (I23) Senior Official, Parliamentary Commissioner for Administration IA11 27/6/96 (I24) Senior Official, Home Office IA12 1/6/96 (I25) Senior Official, National Audit Office IA13 11/10/96 (I33) Senior Official, Northern Ireland Audit Office IA14 7/4/97 (I36) Senior Official, Department of Finance and Personnel Northern Ireland IA15 8/4/97 (I37) Senior Official, Northern Ireland Ombudsman IA16 11/9/96 (IEE7) Senior Official, HM Prison Service

Appendix 4: Census of 173 Executive Agencies Created between 1988 and 2001

The executive agencies are classified by the department in which the member of the government to which they reported, generally the Secretary of State, was located at the time of their establishment. The date of establishment is given and * indicates a trading agency. The information for the classification was principally gathered from the Next Steps annual reviews from 1990 onwards (Prime Minister and Minister for the Civil Service and the Minister of State, Privy Council Office, 1990, 1991; Chancellor of the Duchy of Lancaster, 1992, 1993, 1994, 1995, 1996, 1997, 1998; Minister for the Cabinet Office, 1999, 2000; Office of Public Service Reform and HM Treasury, 2002). The departments with executive agencies are listed below, in order of the number of bodies created. There were, in addition, departments that were designated as operating on ‘agency lines’. These included Customs and Excise from 1991, Inland Revenue from 1992, the Crown Prosecution Service and Serious Fraud Office from 1997. In 2001, these bodies employed 90,440 staff making 367,000 staff working in agencies or bodies working on ‘agency lines’, or 76 per cent of all civil servants (Cabinet Office, 2002, p. 18). However, the reforms in these departments were principally alterations to internal management arrangements rather than a full application of the executive agency model and are not counted as a full use of the model.

Executive agencies

Year

Ministry of Defence (fifty-two executive agencies) Army Base Repair Organisation Armed Forces Personnel Administration Army Base Storage and Distribution Army Individual Training Organisation Army Personnel Centre Army Technical Support Chemical and Biological Defence Defence Accounts Defence Analytical Services Defence Animal Centre

1993 1997 1995 1996 1996 1995 1991 1991 1992 1993

158

Appendix 4 159

Executive agencies

Year

Defence Aviation Repair Agency* Defence Bills Agency Defence Clothing & Textile Agency Defence Codification Defence Communications Service Agency Defence Dental Agency Defence Estates Defence Evaluation and Research Agency Defence Geographic and Imagery Intelligence Agency Defence Housing Executive Defence Intelligence and Security Centre Defence Operational Analysis Defence Postal and Courier Service Defence Research Defence Science and Technology Laboratory* Defence Storage and Distribution Agency Defence Transport and Movements Defence Transport and Movements Executive Disposal Sales Duke of York’s Military School Hydrographic Office* Joint Air Reconnaissance Intelligence Logistic Information Systems Agency Maintenance Group Defence Medical Supplies Agency Military Survey Ministry of Defence Police Meteorological Office* Naval Aircraft Repair Naval Base and Supply Agency Naval Manning Agency Naval Recruitment and Training Agency Pay and Personnel Agency Queen Victoria School Royal Air Force Logistics Support Service Royal Air Force Maintenance Group Defence Agency Royal Air Force Signals Engineering Establishment Royal Air Force Training Group Defence Agency Service Children’s Education Service Children Schools Ships Support Agency Warship Support Agency

2001 1995 1994 1996 1998 1996 1997 1995 2000 1999 1996 1992 1992 1991 2001 1999 1999 1995 1994 1992 1990 1996 1994 1994 1996 1991 1996 1990 1992 1996 1996 1995 1996 1992 1996 1991 1994 1994 1996 1991 1996 2001

160 Appendix 4

Executive agencies

Year

Northern Ireland (NI) Departments (twenty-four executive agencies) Business Development Service Compensation Driver and Vehicle Licensing (NI) Driver and Vehicle Testing Agency* Environment and Heritage Service Forensic Science Agency (NI) Forest Service Government Purchasing Agency Health Estates (NI) Industrial Research and Technology Unit Land Registers of (NI) NI Child Support Agency NI Prison Service NI Statistics and Research Agency Ordnance Survey (NI) Planning Service (NI) Public Record Office (NI) Rate Collection Agency Rivers Agency (NI) Roads Service Social Security (NI) Training and Employment (NI) Valuation and Lands (NI) Water Service

1996 1996 1993 1992 1996 1995 1998 1996 1995 1995 1996 1993 1995 1996 1992 1996 1995 1991 1996 1996 1991 1990 1993 1996

Department of Trade and Industry (eleven executive agencies) Accounts Services Companies House* Laboratory of the Government Chemist National Engineering Laboratory National Physical Laboratory National Weights & Measures Laboratory Patent Office* Radiocommunications Agency Small Business Service The Insolvency Service Warren Spring Laboratory

1991 1988 1989 1990 1990 1989 1990 1990 2000 1990 1989

Scottish Office Departments and Scottish Executive (eleven executive agencies) Communities Scotland HM Inspectorate of Education Historic Scotland

2001 2001 1991

Appendix 4 161

Executive agencies

Year

Registers of Scotland* Scottish Agricultural Science Agency Scottish Court Service Scottish Fisheries Protection Scottish Office Pensions Scottish Prison Service Scottish Record Office Student Awards for Scotland

1990 1992 1995 1991 1993 1993 1993 1994

Ministry of Agriculture, Fisheries and Food (MAFF) and subsequent Department for Environment, Food and Rural Affairs (eleven executive agencies) ADAS Central Science Laboratory Central Veterinary Laboratory Forest Enterprise Forest Research Intervention Board Meat Hygiene Service Pesticides Safety Directorate Rural Payments Agency Veterinary Laboratories Agency Veterinary Medicines Directorate

1992 1994 1990 1996 1997 1990 1995 1993 2001 1990 1990

Cabinet Office (ten executive agencies) Buying Agency Central Computer and Telecommunications Agency Central Office of Information* Chessington Computer Centre Civil Service College Her Majesty’s Stationary Office Occupational Health Service Property Advisers to the Civil Estate Recruitment and Assessment Services Security Facilities Executive

1991 1996 1990 1993 1989 1988 1990 1996 1991 1993

Department of Transport (merged to form the Department of the Environment, Transport and the Regions) (ten executive agencies) Coastguard Driver and Vehicle Licensing Agency Driving Standards Agency* DVOIT

1994 1990 1990 1992

162 Appendix 4

Executive agencies

Year

Highways Agency Marine Safety Maritime and Coastguard Agency Transport Research Laboratory Vehicle Certification Agency Vehicle Inspectorate*

1994 1994 1998 1992 1990 1988

Department of Social Security and subsequent Department for Work and Pensions (eight executive agencies) Appeals Service Agency Information Technology Services Agency Jobcentre Plus Social Security Benefits Agency Social Security Child Support Agency Social Security Contributions Agency Social Security: Resettlement Agency Social Security War Pensions Agency

2000 1990 2002 1991 1993 1991 1989 1994

HM Treasury (seven executive agencies) Central Statistical Office Debt Management Office National Savings Office for National Statistics Paymaster Royal Mint* Valuation Office

1991 1998 1996 1996 1993 1990 1991

Department of the Environment (merged to form the Department of the Environment, Transport and the Regions) (six executive agencies) Building Research Establishment Historic Royal Palaces Ordnance Survey* Planning Inspectorate QEII Conference Centre* The Rent Service

1990 1989 1990 1992 1989 1999

Department of Health (five executive agencies) Medical Devices Agency Medicines Control Agency* National Health Service Estates* National Health Service Pensions National Health Service Purchasing and Supply Agency

1994 1991 1991 1992 2000

Appendix 4 163

Executive agencies

Year

Lord Chancellor’s Department (five executive agencies) Court Service Her Majesty’s Land Registry* Public Guardianship Office Public Record Office Public Trust Office

1995 1990 2001 1992 1994

Home Office (four executive agencies) Fire Service College* Forensic Science Service* Her Majesty’s Prison Service UK Passport

1992 1991 1993 1991

Treasury Solicitors Department (two executive agencies) Government Property Lawyers Treasury Solicitors Department itself became an executive agency of the Attorney General

1993 1996

Welsh Office and subsequently Welsh Assembly (two executive agencies) CADW: Welsh Historic Monuments Welsh European Funding Office

1991 2000

Department of Employment (merged to form Department for Education and Employment) (one executive agency) Employment Service

1990

Department of National Heritage (merged with Culture Media and Sport) (one executive agency) Royal Parks

1993

Department of Education (merged to form Department for Education and Employment) (one executive agency) Teachers’ Pensions Agency

1992

Foreign and Commonwealth Office (one executive agency) Wilton Park

1991

Overseas Development Administration (one executive agency) Natural Resources Institute

1990

164 Appendix 4

A few executive agencies were nominally departments in their own right, although they still reported to ministers in ‘full’ departments. These bodies were the Central Office of Information, Central Statistical Office, HM Land Registry, Intervention Board, National Savings, Ordnance Survey, Paymaster, Public Record Office, Registers of Scotland, Royal Mint, Scottish Record Office, Treasury Solicitor’s Department. A few executive agencies had multiple reporting lines, ADAS reported to MAFF and the Welsh Office, Forest Enterprise reported MAFF and the Welsh Office, the Intervention Board reported to MAFF and the Scottish, Welsh and Northern Ireland Offices, the Meat Hygiene Service reported to MAFF and Scottish and Welsh Offices, and the Planning Inspectorate reported to the Department of the Environment and Welsh Office. The proportion of staff who ended up in executive agencies, in general terms, reflected variation in the significance of executive activity handled by departments and is summarised in Table A4.1. The reform was most significant in the Department of Social Security with the first wave of reform putting 97 per cent of staff in six executive agencies. The Lord Chancellor’s Department, Home Office and the Department of Employment, before the latter Department’s merger with Education in 1995, all had 80 per cent of their staff in executive agencies (Cabinet Office, 1991, 1992). The majority of departments had between 20 and 50 per cent of staff in executive agencies. In contrast, the sole executive agency of the Foreign and Commonwealth Office contained less than 1 per cent of the Department’s total staff.

Appendix 4 165

Table A4.1 Percentage of departments’ staff in executive agencies and staffing figures

Social Security Lord Chancellor’s Department Department for Employment Home Office Department for the Environment Transport and the Regions Northern Ireland Trade and Industry Scottish Office Cabinet Office/Office of Public Service Ministry of Agriculture Fisheries and Food Overseas Development Administration Ministry of Defence (including military staff) Department for Education Wales Treasury Foreign and Commonwealth Office

Per cent of staff in agencies

All Civil Servants

Civil Servants in agencies

97 90 80 80 74

89,000 12,000 50,000 50,000 19,000

86,500 10,500 40,000 40,000 14,000

50 50 46 40

16,000 10,000 13,000 2,500

8,000 5,000 6,000 1,000

35

11,500

4,000

33

1,500

500

26

122,000

32,000

20 20 13 ⬍1

2,500 2,500 15,000 6,000

500 500 2,000 30

Source: Civil Service Statistics (Cabinet Office, 1991, 1992, 1995b).

Appendix 5: Central Government Accounts Audited Table A5.1 summarises the results of a survey of NAO financial audit of all central government accounts including executive agencies’ accounts between 1993 and 1999. Table A5.1 Central government accounts audited 1993/94 to 1998/99 Average 1993–99 Agency accounts Agency qualified Agency reported Per cent qualified/ reported Central govt accounts Central qualified/ reported Per cent qualified/ reported

1993/ 94

1994/ 95

1995/ 96

1996/ 97

1997/ 98

1998/ 99

78

66

72

78

76

81

96

2

2

2

1

1

2

2

3

4

5

4

1

6

0

6

9

10

6

3

10

2

491

446

514

516

465

473

530

36

40

37

34

46

33

26

7

9

7

7

9

7

5

Source: Compiled from NAO, 1996c, 1997, 1998d, 1999b, 2000b.

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Index accountability, see Benefit Fraud Inspectorate, Citizen’s Charter/Service First, Financial Management Initiative, Parliamentary Commissioner for Administration, Public Accounts Committee, see under Benefits Agency, executive agencies, ministers, National Audit Office, Parliament administrative reform, see bureaushaping, Next Steps reform, public interest perspective Barzelay, Michael, 1 benchmarking, 136–7, see also Business Excellence Model Benefit Fraud Inspectorate, 117–18, 144 Benefits Agency accountability, 79–82 Citizen’s Charter standards for the Benefits Agency, 83, 97, 142 creation as part of Next Steps reform, 61–4, 129 economy, 90–2, 130 effectiveness and efficiency, 96–100, 131 effect of executive agency structures on performance, 101–5, 114–23, 131 employment flexibilities, 82, 102, 121 information technology, 122–3 reform to create Working Age agency and Pension Service as part of Department of Work and Pensions, 144–6 relationship with Department for Social Security, 74–6, 115–17, 162

relationship with Parliament, 67, 85 relationship with users, 86, 115–16, 119–33 systemic performance, 114–23, 132, 138–9 Bichard, Michael, 63, 115, 119 Bouckaert, Geert, 2 budget-maximising civil servants’ behaviour and budget outcomes, 48, 88–92, 102, 109–10, 130–2 Niskanen budget-output maximising model, 10, 32–5 budget systems, see under Benefits Agency, executive agencies, Treasury (HM) bureau-shaping bureau-shaping perspective on executive agencies and hypotheses, 10–11, 23–37, 154–5; hypotheses about reform and consistency with reform, 41–68; hypotheses about performance and consistency with outcomes, 88–107, 109–24; relative merits of bureau-shaping and public interest perspectives, 127–133; relevance of the perspective for reforms in other countries, 148–9 Dunleavy bureau-shaping model, 10, 23–5, 153 Business Excellence Model, 93–4 Butler, Sir Robin, 12, 51 cabinet committees, see Economic Affairs (Welfare to Work) Committee, Public Expenditure Committee 181

182 Index

Cabinet Office, 43–5, 54–5, 83, 135, 137, 141–2, 147 central government, see departments, executive agencies, economy, effectiveness, efficiency Charter Mark, 85–6 chief executives, see under executive agencies Child Support Agency, 85, 95–6, 145 Citizen’s Charter/Service First, 83, 97, 141–2 civil servants numbers of and trends in number of over time, 7, 43, 56–8, 110, 158 traditional conceptions of, 1 see also departments, Senior Civil Service, see also under budget maximising, bureau-shaping Civil Service Management Committee, 140 Clifford, Christopher, 101 Competing for Quality Initiative, 53–4, 82–3 consumers, 34–5, see also Citizen’s Charter contracts, see Competing for Quality Initiative, see under executive agencies Contributions Agency, 118, 162 Department for Work and Pensions, 144–6 Department of Social Security and Next Steps reform, 61–4 relationship with Benefits Agency, 74–6, 115–17 departments, see Department of Social Security, Department for Work and Pensions, Treasury (HM) devolution, 134, see also Northern Ireland, Scotland, Wales Dowding, Keith, 130 Dunleavy, Patrick, 113, see also under bureau-shaping

Economic Affairs (Welfare to Work) Committee, 144 economy defined, 8–9 of individual executive agencies, 88–92 systemic economy, 109–10 effectiveness defined, 9 of individual executive agencies, 92–100 systemic effectiveness, 111–23 efficiency allocative efficiency, 9 efficiency of individual executive agencies, 92–100 productive efficiency, 9 systemic efficiency, 111–23 Efficiency Unit, 17–18, 48–50, 54–5, 128 e-government, 7, 112–14, 121–3 Employment Service, 73, 90, 114, 119–21, 143–4 employment systems, see under Benefits Agency, executive agencies executive agencies accountability, 3–5, 76–80, 83–6, 102–5, 118–19, 122–3 budget flexibilities, 3–4, 80–2 census of bodies created, 158–64 chief executives, 3–4, 19–20, 67, 72–6, 78–9, 81–2, 84, 129–30 employment flexibilities, 3–4, 82 executive agency model, 2–7; influence of new institutional economics including principal–agent models, 51–2; influence of Anglo-American private sector business models, 50–1 Framework Documents, 70–1, 74–5, 83, 145 future prospects for use in UK, 134–46 growth in number, 56–8 individual performance, 88–100

182

Index 183

executive agencies – continued international experience with similar forms of organisation, 1–2, 146–50 mainstream agencies, 71, 73, 129 management flexibilities, see budget flexibilities, employment flexibilities, semi-detached organisation mergers between agencies, 139, 144–6 Ministerial Advisory Boards, 77 non-trading agencies, 3–4, 34, 56–8, 60–1, 72–3, 87, 89–90, 113, 129–30 pattern of reform, 58–60, 129, 158–66 performance contracts, see executive agency model, Framework Documents, performance targets performance targets, 3–4, 38, 76–81, 83, 87, 129 policy/administration split, 3–4, 10, 19–20, 61, 63–4, 66–8, 71, 74–5, 112, 115–17, 129, 133, 135, 145 privatisations, 135–6 regulation of, 140–6, see also accountability reintegration with departments, 135 relationships with Treasury, 72, 81 semi-detached organisation, 3–4, 70–6, see also budget flexibilities, employment flexibilities, policy/ administration split systemic performance, 109–23, 132 trading agencies, 3–5, 20–1, 35, 56–8, 60–1, 70–3, 81, 85, 89–90, 106, 113, 129–30, 133, 135, 138, 158–64 Financial Management Initiative, 45–6, 50

Fraser Report, 76 Fulton Report, 6 Gains, Francesca, 135 governance, see departments, see under accountability, executive agencies, ministers, Parliament government expenditure, see budget systems, Public Expenditure Committee, see under economy, executive agencies Government Performance and Results Act (US), 148 Greer, Patricia, 54 Heseltine, Michael, 43–5 Hood, Christopher, 1, 140, 156–7 Housing Benefit, 114–15, 117–18, 124, 138, 143 human resources, see under Benefits Agency, civil servants, executive agencies Ibbs, Sir Robin, 48–9 implementation, see under Benefits Agency, executive agencies, Next Steps reform incentives, see under accountability, executive agencies, Next Steps reform Income Support, 97–9, 103, 117–18 Independent Administrative Institutions (in Japan), 148–50 information technology, 7, 121–2, see also e-government, Information Technology Services Agency Information Technology Services Agency, 64, 145, 162 international issues, see Organisation for Economic Cooperation and Development, see under executive agencies Investors in People, 141 Jobcentre Plus, 144–5 Jobseeker’s Allowance, 90, 103, 114, 117, 119

184 Index

joined-up government, 111–12, 121 Kemp, Sir Peter, 12, 54, 56 Lewis, Derek, 79 local government, 6, 41, 53, 63, 111, 114–15, 117–18, 120–1, 138–9, 144, 153 managerialism, 45–6, 50, 134–5 Margetts, Helen, 113 market testing, see Competing for Quality Initiative Marsh, David, 46–7, 128 Mathison, Peter, 104, 120 methodology, 11–14, 156–7 ministers ministerial resignations, 130 role in Next Steps reform, 43–6, 127–8 satisfaction with executive agencies’ performance, 94–5 Modernising Government Report, 7, 111–12, 121 National Audit Office financial audit of executive agencies, 92–3, 166 value for money studies, 84, 113, 143 National Performance Review (US), 149 networks, 139–46 new institutional economics, 50–2 New Labour, 111–12, 116–17 New Public Management, 1–2, 4–6, 50–2, 111–12, 133–4, 146–7 Next Steps implementation of reform, 55–64, see also under Benefits Agency initiation of reform, 41–55 Marsh, Richards and Smith’s study, 46–7, 128 Prime Minister’s announcement of reform, 17–18 Project Team, 54–6, 69

report of 1988; and executive agency model, 2–3; and public interest perspective, 9–10, 18–23 Niskanen, William, 10, 26, 32–4 Non-departmental public bodies, 6, 52, 111, 148 Northern Ireland, 59, 134 ONE/Single Work Focused Gateway, 120–1 organisation, see under departments, executive agencies, New Public Management Organisation for Economic Co-operation and Development, 146–7 outcome and output measures, see performance, performance targets Parliament committees and executive agencies, 44, 81–6 Parliamentary questions about executive agencies, 66–7 see also Public Accounts Committee, Social Security Committee, Parliamentary Commissioner for Administration Parliamentary Commissioner for Administration, 97, 99 pay systems, see under executive agencies, New Public Management Pensions Service, 144–5 performance, see under Benefits Agency, economy, effectiveness, efficiency, executive agencies Performance and Innovation Unit, 111 Performance Based Organisations (in US), 147–9 performance targets, see Public Service Agreements, see under executive agencies

Index 185

personnel systems, see under executive agencies, New Public Management politicians, see under ministers, Parliament, preferences Pollitt, Christopher, 1–2, 7, 11 preferences of ministers, 28 of senior officials for the organisation of their departments, 24, 27–36 Prison Service (HM), 67, 71, 79, 95–6, 130 privatisation of executive agencies, 135–6 of public utilities, 52–3 see also under New Public Management productivity, see under efficiency, executive agencies Public Accounts Committee, 81–2, 96 Public Expenditure Committee, 142–4 public interest perspective defined, 9–10, 17–23 hypotheses about performance and consistency with outcomes, 88–107, 109–24 hypotheses about reform and consistency with reform, 41–68 relative merits of bureau-shaping and public interest perspectives, 127–33 public sector externalities, 35–6, 138–9 Public Service Agreements, 142–3 quasi-markets, 5 rational choice, 10, see also Niskanen, Dunleavy, see also under budget-maximising, bureau-shaping

reform, see under bureau-shaping, Next Steps reform, public interest perspective regulation inside government, 140 systemic regulation of executive agencies in central government, 140–6 reorganisation, see bureau-shaping, Next Steps reform, public interest model Rhodes, Rod, 10 Richards, David, 46–7, 128 Scotland, 59, 134 Senior Civil Service, 67–8, 140 Smith, Martin, 46–7, 128 Social Security Committee, 119, 121–2 Special Operating Agencies (in Canada), 147 strategic planning, see Public Service Agreements, see also under executive agencies Talbot, Colin, 7 targets, see performance targets Theakston, Kevin, 54 trading funds/agencies, see under executive agencies Treasury (HM) co-ordination of government, including Public Service Agreements, 111, 136, 141–3 role in reforms including Next Steps, 44–5, 54–5, 144 unions, 54, 63–4 Wales, 59, 134 Whitehall, 7, see also under Benefits Agency, civil servants, departments, executive agencies, ministers Zifcak, Spencer, 50