Finance Committee, 13 Jun 2006

Meeting date: Tuesday, June 13, 2006

Official Report 251KB pdf

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Accountability and Governance Inquiry

The next item is for the committee to take evidence as part of our accountability and governance inquiry from John Elvidge, permanent secretary to the Scottish Executive, who is accompanied by David Robb, head of the public bodies and relocation division. Thanks very much to both of you for coming along.

We invited you because we were interested in your submission, which I saw as an attempt to gather together the main governance strands and issues and to identify the models and inconsistencies that characterise where we have arrived at. The initial point is recognising that where we have arrived at on the parliamentary commissioner side and, arguably, on the regulation and inspection side in the Executive is the product of a series of ad hoc decisions rather than adherence to a coherent model. Do you see advantages in and arguments in favour of moving towards a more consistent and regulated system and undoing some of the ad hocery that we have identified and to which I think you pointed in your submission?

It is difficult to oppose the intrinsic merits of coherence and rationality, is it not? It must be sensible to tidy up from time to time and try to bring order and clear guiding principles to what we do in the field of governance and accountability.

So do you have any advice on how that might best be achieved?

Giving you advice is a tricky area. I have some general observations about guiding principles. There seem to me to be two broad issues. The first is proportionality, which is ensuring that oversight arrangements take account of the considerable variation in the scale of what is being overseen; one needs a framework that is capable of delivering reasonably light-touch oversight to relatively small bodies.

The other broad issue that seems to me particularly relevant to the issues that I know you are grappling with is the tension between oversight and independence. In the range of bodies that we are talking about, there are different kinds of independence. At one end of the spectrum, the models rest on the assumption that functions are better delivered with a degree of operational independence. One seeks to preserve that without suggesting that it is not proper to intervene at a strategic or policy level. At the other end of the spectrum, one is trying to preserve an almost complete independence of decision making, in which people act in a regulatory or quasi-judicial role. The biggest challenges perhaps arise at that end of the spectrum.

I would simply observe that, most of the time, I do not see any necessary conflict between a reasonable degree of oversight of financial, efficiency and proprietary issues and the independence of the decision making of people in their roles. I know that one can take the arguments to extremes and postulate conflicts. If one were to set up an organisation or an office-holder of the kind to which I referred and sought to give them no resources to carry out their function, clearly one would have reached the point of conflict. However, unless one is postulating actions that might fall into the territory of unreasonableness, it does not seem to me that there is a necessary conflict. The opposite proposition—that a series of office-holders should be able to demand, without any check or balance and according to their own judgment, unlimited resources to fulfil their function—presents obvious challenges of its own.

It seems to me that there are two main models of accountability that should apply. One is accountability through ministers to the Parliament and the other is accountability to the Parliament in which ministers do not necessarily have a role. The real test for the Parliament is in relation to those issues on which the accountability is not through ministers. As you said, a suitable balance is required between operational independence and financial scrutiny, but we also need accountability to Parliament that is more than a tokenistic publication of results. That issue was inadequately grappled with when many of the independent bodies were set up.

Another issue—and one that reflects your wider responsibilities—is the extent to which the operation of some of the bodies might impinge on other governance issues. I suppose that that arises particularly in relation to freedom of information. Parliament wishes to create a freedom of information culture, but the consequence might be a reduction in proper documentation and recording or reluctance on the part of business interests to disclose things that are properly confidential. Do you regard that as a problem, given the way in which the legislation has operated? Do governance issues arise there?

It is difficult for me to say that people have never, in any circumstances, reduced the extent to which there is documentation in response to the freedom of information regime. That would be a sweeping assertion that I could not possibly substantiate. My perception is that, broadly speaking, there have not been significant shifts in the way in which people work. There has not been a shift to a culture of not writing things down and, therefore, a loss of proper processes through which one can track accountability. I would certainly say that there should not be a conflict and it is my judgment that, in general, we have not seen such a conflict emerge.

In the other area that you identified, there is no doubt that commercial interests are nervous about the potential impact on their wider interests of the disclosure of their dealings with particular customers. That is a particularly acute concern for commercial interests for whom customers in the public sector form a minority of the customer base. However, I do not take it from that that there has been a general change of behaviour by commercial interests. What we have seen, from time to time, is evidence that individual commercial interests are considering their position and asking themselves whether they wish to be in a commercial relationship in which there is a risk that the commercial details of the relationship will be disclosed. However, we have not seen evidence of any significant scale of movement away from willingness to do business with the public sector.

But it needs to be kept under review.

Yes. One might form the view that the period of greatest challenge in that area is behind us. The need to adjust to the FOI regime probably stimulated a number of organisations to take stock of their interests in that issue. I cannot think of any factor that would cause us to assume that the risk of disruption from that is greater in the future than it has been in the past. That is not to say that one unfortunate experience by a particular company could not have an effect on the view taken by others, so you are right to say that that is something that we need to keep our eyes on.

The committee has taken evidence in which it has been suggested that budgetary constraints have impacted on the ability to deliver a service. Are you aware of any instances in which budgetary constraints have prevented bodies from carrying out their core duties?

I am not aware of any instance in which such constraints have prevented a body from carrying out its duties. I am aware of instances in which individual organisations believe that they need more resources to achieve performance standards that they would like to achieve and there has been tension about whether those resources can be made available, but I am not aware of anyone having been prevented from fulfilling their function.

What steps do you take when a body is prevented from fully carrying out its duties? Who decides what to do?

Ultimately, as we are the provider of the resources, it is our decision whether resources should be spent on that or on one of the many other things that they could be spent on. In that sense, it is no different from the judgments about competing priorities for money that people make as part of the bread and butter of their work. Who takes the decision relates perhaps to the order of magnitude of the issue. If it is a relatively finely balanced decision about a service that is relatively small in the general scheme of things, those decisions are probably taken at a relatively junior level in the organisation. If we are talking about something more substantial, the decision-making level will rise, and if it is a matter of major public concern, one would expect a degree of ministerial involvement in the decision making. There is no absolute answer about who is the decision taker.

So initially such a decision could be taken by the accountable officers looking after that particular body.

I find it improbable that many, if any, of those decisions would rise to accountable officer level. The reality is that on many occasions, those decisions will be taken by people managing a budget several steps down the chain of financial responsibility from the accountable officer.

Could you explain to us the nature of the accountability of the Office of the Scottish Charity Regulator? To judge from what you have told the committee, there is a sort of twin tracking going on. OSCR has to remain more independent than most bodies yet it has to be financially accountable.

It is early days, but OSCR is quite a good example of how the model that I was suggesting could work more widely. We believe that there can be a process whereby the regulator proposes an operating budget on an annual basis. There is a process of scrutiny and discussion of the component elements of the budget and of the underlying justification for it. A settlement is reached on the issues, according to an annual cycle. Those issues might be wholly divorced from the regulator's conduct of the organisation's core business—subject to neither side of the relationship straying into the bounds of unreasonableness. As it is not my general experience that people are unreasonable in their dealings with one another in this area, I think that the process is reasonably straightforward. It is not dissimilar to the process of annual budget discussion that happens with a lot of organisations, except that there is not the same degree of dialogue about how potential changes in the exercise of the organisation's function might impact on the budget that is necessary to run it.

So, in summary, OSCR could provide us with a role model for the future.

I would say so. I formed the impression from the regulator's own evidence that she thought so, too.

I wish to move from budget setting to budget monitoring. You mentioned that as a key area of your oversight. The former Scottish legal services ombudsman told the committee that financial guidance was issued to her only a week after the launch of the committee's inquiry; that she had not been audited for five years; that, until recently, monitoring of her overspends and underspends had been limited; that, due to her status not being comparable to that of the English corporation sole, there had been considerable risk placed on her as an individual, rather than as a legal entity, when entering into contracts for staff and buildings; and that she had raised that issue several times but had not got any helpful response from her sponsoring department. Were you aware of the difficulties that the former ombudsman experienced? Do you know whether such patterns are repeated in other situations in similar bodies?

I was not aware of that until I read Linda Costelloe Baker's account of those difficulties to the committee. Those had never come to my attention. I know a bit about them and their context now. I will not pretend to you that I have sought to carry out a thorough investigation of the matter, because I have formed the initial conclusion that there is nothing sufficiently worrying to merit that amount of energy being expended on it. Crucially, at no point has there ever been any suggestion that the financial activity of that office was giving cause for concern.

What one means by limited budget scrutiny is a matter of individual judgment and interpretation. I am aware that a quarterly process established how spend was going against budget and that at no point in the period when Linda Costelloe Baker occupied the office did there appear to be a danger of overspending. Given those fundamental facts, I do not think that I criticise my colleagues for not investing more of their time than they did in dialogue about spend against budget.

It is self-evident that, over that period, people conducted the relationship ad hoc without the benefit of the formal framework of financial principles that is now in place and which I understand has been under discussion for rather a long time. Of course, it would be better in principle to have the statement of framework in place earlier. That must be so.

We need to consider the case in context. The origins of the office were that it would involve a single office-holder who was supported by no more than what we might call personal support staff—a secretary and an administration assistant. Under the first two holders of the office, that is what the office remained. In recent years, it has begun to develop the addition of staff who undertake other functions—one can see a change, although the number of staff is not huge. It began to move from being an individual to being something that is more recognisable as an organisation.

It would have been a good idea to put in place a financial framework for the office earlier. However, the test that I apply is whether any practical damage was done in the process. I found it difficult to identify any practical damage. I suspect that the situation might have quite a lot to do with the low priority that the people who dealt with the matter gave to the formalisation of the financial framework.

The last point that I should make is that differences of view remain between us and Linda Costelloe Baker about whether she was ever exposed to any risk as an individual in the process. Our legal advice is that she was not, but she clearly believes that she was. I would not expect us to do other than to behave in line with our understanding of the best legal advice that we can obtain. I sympathise with her, because if I were in her position and I received conflicting legal advice, I would not be particularly comforted by the fact that we were acting in line with the legal position as we understood it.

You said that in the circumstances of the Scottish legal services ombudsman, there was nothing to worry about and everything was going to plan and to budget. You said that that was the view that you formed after the event. In how many other cases does the Scottish Executive operate that auditing and accounting approach to expenditure?

I cannot think of another case in which we have seen such a transition from something that is in effect not a public body—a single office-holder—to something that is more like a public body. I cannot identify another set of circumstances that throws up the same issues. Where, from the outset—

I was not asking about that. I am asking for examples of the practice that one could charitably describe as light-touch accountability.

I was going to come to that point. Because I cannot think of another body in those circumstances, I am reasonably certain that no other body lacks the framework of formal documentation that the Scottish legal services ombudsman lacked. I did not suggest that it was desirable that the ombudsman should lack it; I simply offered the view that it was understandable that the team of people dealing with the matter gave more priority to conducting the day-to-day relationship than to putting the framework in place. I do not think that the example tells us anything about what is happening in governance arrangements generally.

Ms Costelloe Baker said that she had not been formally audited for five years. You said that there was a quarterly review. Do you agree that the lack of a proper audit was not desirable?

I am not sure that I do. My colleagues and I sit down with our internal auditors and Audit Scotland every year to address the question where audit capacity should be directed over the next 12 months. I am not sure that I think that audit capacity should have been directed to a body spending £400,000. In a perfect world, there would be enough audit capacity to audit every single budget that we have, but that is not how it is. Audit capacity has to be rationed, like everything else.

I would not ask you to draw a definite line in the sand, but at what level of spending by a non-departmental public body or similar body would you say that there was a requirement for audit?

That is not a purely financial judgment. One has to ask oneself what the risk factors are. There is not a magic number that determines whether something should be an audit priority. Over time, it would be desirable for the audit process to visit everything. I cannot give you an answer in the terms that you seek. The process that we follow is more risk led than cash led.

But without an audit, how can you be certain that you are fully identifying risk?

We cannot be absolutely certain, but in this case our routine monitoring processes were not identifying any cause for concern and, I would argue, the nature of the activity is intrinsically low risk—the financial risks that might have arisen are not particularly significant. The organisation did not spend substantial sums of public money, other than to run itself, which is a relatively easily tracked process for a small body.

I want to pursue the audit arrangements that you described. You said that you sat down with the Auditor General and decided where the audit resource should be applied. Is that an appropriate arrangement for auditing a substantial amount of money? Are there no criteria against which we carry that forward? What resources are deployed?

My answer might have been a bit unhelpfully incomplete. Most formal public bodies have an obligation to be audited annually built into the arrangements that set them up. All our programmes are audited at a general level every year. In one sense, nothing escapes the audit net, because the totality is audited every year.

The question that is discussed with Audit Scotland and internal audit is where a drilling down process should occur beyond that of the general audit. The budget out of which the costs of Linda Costelloe Baker's operation were met will have been audited at some level. The question is whether one should drill down below that to audit the individual entity.

If the entity had been set up as a public body from the outset, the answer would almost certainly have been that an annual audit process would have been built into the arrangements. Again, the situation is slightly a product of the gradual way in which we arrived at such organisations.

I suppose that two issues arise, the first of which is the spreading of good audit practice throughout. You seem to accept that, for whatever reason, that may not have been done in the case of the Scottish legal services ombudsman service.

The second issue is much larger. Is there an appropriate level of independence and rigour in decision making on the deployment and utilisation of audit more generally, and is it effective enough? When the Auditor General was before us, issues were raised about the governance arrangements at Audit Scotland and, in particular, the Auditor General having considerable power over the oversight committee that looks into Audit Scotland. Does the same issue not arise for the Executive? Do you have a firm enough audit mechanism that allows us to track through the financial controls and procedures as a good audit mechanism should do?

I think that there is such a mechanism. I have two observations to make. First, in relation to the Executive, there is no risk of my dictating what gets audited. Audit Scotland has the clear right of proposition as to what it wants to audit. Ultimately, it does not matter whether I think it a good idea that it should audit something, as Audit Scotland is in control of its audit programme.

Providing a balance against the possibility that Audit Scotland might miss something is a function of the Scottish Executive audit committee. It is composed entirely of non-executive directors who are put in place to exercise oversight of the risks in the budget and the soundness of the audit process, and is separate from me. The independent role of the audit committee means that, if it thought that the Auditor General was missing something of significance in his audit proposals, it could press the case for those proposals to be adjusted.

I return to the second part of your response to my initial question, which was on the status of the Scottish legal services ombudsman when entering into contracts. You said that there was a difference of opinion between your legal advice and her legal advice. In addressing the audit process and the budget process earlier, you talked about moving from ad hoc to more formal procedures. In terms of the new regulatory bodies—the new commissioners that are planned—will steps be taken to ensure that the different legal opinions on the status of commissioners when entering into contracts are clarified beyond any question of doubt? We need to ensure that the situation does not continue.

I am sure that we shall do that. One of the benefits of getting into this kind of tangle is that one learns quite a lot in the process. It is obviously desirable for such issues to be clear from the outset. As a general rule, there is much more thinking around governance arrangements now than there would have been in 1990, when the statutory office of the Scottish legal services ombudsman was originally brought into being. At the risk of sounding slightly sycophantic, one might argue that greater attention to governance arrangements is one of the consequences of the Parliament's existence.

And perhaps the reason why the Finance Committee wins so many awards.

Jacqui Roberts, from the Scottish Commission for the Regulation of Care, said in her oral evidence that she knew that, for different non-departmental public bodies,

"different decisions have been made about carry forward of expenditure from one financial year to another."

Jacqui Roberts also said that the care commission had been allowed to carry forward expenditure if it could

"make a good case for doing so."—[Official Report, Finance Committee; 26 May 2006, c 3634.]

She had discussions with officials in similar organisations, and it seemed that there was no consistent policy across NDPBs.

Are there any moves to have a consistent Executive policy on carry forward of expenditure? Do you have any idea of the basis for any differences in the ways in which sponsor departments operate in that regard?

The direction of movement has been the other way, and is likely to stay the other way. We have moved from automaticity and standard rules on carry forward of underspend towards a more discretionary approach. The broad reason for that is concern about cumulative underspending, which I know the committee has shared. Automatic carry forward of underspend can, self-evidently, encourage people to be relatively relaxed about the occurrence of that underspend. Therefore, we have moved both in our treatment of arm's-length bodies and in our treatment of the internal elements of the Executive to a much more discretionary approach, in which people have to demonstrate their continuing need for the resources before they are carried forward.

There is perhaps only one general principle that one can draw from the way in which that judgment is exercised. Where the underspend relates to identifiable capital projects that are in train and which are clearly going to spend the money—just to a different timescale—by and large, we take the view that carry forward is appropriate. In other instances, we look at the evidence that the money will be needed in the subsequent year.

You are satisfied that there is enough guidance to sponsor departments to enable them to operate that discretionary policy effectively.

I am sceptical about how far guidance would take them. People who work closely with individual public bodies make judgments that are rooted in the circumstances of those bodies. I find it difficult to imagine what general principles would assist them greatly in the exercise of that judgment. In saying that, I am assuming that people apply a reasonable amount of common sense in everything that they do.

The broad principle—perhaps this is an extension of what I said about capital projects—is that one is looking for inflexible costs as opposed to variable costs. In cases in which it is clear that costs are inflexible, one tries to make allowance for them. However, in cases in which they are not, one is inevitably more questioning of the need for resources to be carried forward, particularly as it is an important part of our general dialogue with all public bodies that we wish underspending to come down so that aggregate underspending comes down.

I followed what you said closely. Setting aside the issue of capital projects, which I think we understand, a possible interpretation of your attitude is that if different departments have evolved different ways of dealing with the non-departmental public bodies or the agencies that they control, then so be it; there is no need to do anything about that. That seems to be an extremely relaxed way of dealing with what might be considered to be historical differences in practice.

It depends what you mean by "different ways of dealing with" those bodies. All the departments will go through a recognisably consistent process at the same point in the financial cycle—their work will be governed by the same framework of dialogue and questioning. In my view, it is important that that process should be consistent. What I am saying is that people have to reach a series of judgments and that there is no mechanism in place to establish the consistency of decisions that are taken about different public bodies that operate in quite different functional areas.

You are saying that if the Scottish Executive Environment and Rural Affairs Department does something in one way and the Enterprise, Transport and Lifelong Learning Department does it in a different way, there is no problem with that.

My point is that all processes for generating consistency have a cost, particularly when they involve a large number of bodies. One cannot achieve consistency for free. I question whether the cost of going through an automatic process to judge consistency would deliver a practical benefit that justified the cost, especially as we are talking about an area in which consistency would be inherently difficult to judge because we would be considering decisions that had been taken about individual bodies in highly diverse sets of circumstances.

I am influenced in my thinking by the fact that, in my experience, the chief executives of various organisations are not slow to draw attention to any treatment that they want to complain about relative to what they understand to be the experience elsewhere. It is perhaps a better system to give people the capacity to come back for a second bite at the cherry and to argue their case than it would be to go through an automatic annual process of trying to establish consistency, which, in my judgment, would always prove elusive because of the complexity of the underlying circumstances.

We will move on. John Swinney wants to ask about remits.

Do you think that there are any overlaps in the remits that were constructed as part of the suite of proposals on ombudsman-type bodies for which the Executive has legislated?

I confess that I have not thought about that in the kind of detail that your question implies is necessary. However, I am clear in my mind that each of the office-holders is intended to occupy a core territory that can be distinguished from the core territories of the other office-holders. It is clear that it is possible for the remit of one to overlap with the remit of others.

The example that has exercised people most recently is the proposal for the human rights commissioner; they have tried to understand where human rights stop and the concerns of other commissioners start. I recognise that there is a potential overlap there, and that there can be a fine line, in principle, between treating individual instances in which someone is aggrieved as issues of maladministration for the Scottish public services ombudsman to deal with, and treating them as more specialist issues that would be appropriate for another commissioner to deal with. One has to reflect on the fact that different commissioners sometimes have different powers of remedy, and that, although there might be an overlap in principle in what they could investigate, it might be legitimate to have two different remedies available to complainants.

Your reference to the proposal for a Scottish human rights commissioner is apposite. What I am trying to get at is the degree of consideration that takes place within the Executive when it legislates to establish such bodies. What attention is paid to potential overlap issues? I am sure that you could tell me that, in some respects, that is a policy decision for ministers to determine, but I am interested in the issues that exist for you, as permanent secretary and accountable officer, in terms of value for money. Although I want every individual not to have their human rights infringed and although I want every individual to be able to complain, I do not want them to be able to do so at twice the cost because we happen to have created an architecture that is littered with overlap. Could you reflect on that point, coming at it from a value-for-money perspective?

There are two dimensions to that. First, there is the functional one. Yes, we think about it and, as far as possible, we try to ensure that legislation is proposed in terms that will minimise functional overlap, even if it cannot eliminate it.

What is the mechanism for that in the Executive?

The mechanism for that in the Executive is the way in which the teams that are responsible for individual pieces of legislation and the office of the solicitor to the Scottish Executive think about the construction of each individual piece of legislation and about the precise purpose that that legislation is trying to serve. It is the team's job to think about the relationship of the new proposition to existing propositions.

When a team identifies a potential overlap, who takes a look at it and says, "We're not having that overlap. We'll simplify it"? Alternatively—I tend to think this is what happens—do people look at the overlap, accept it and continue it?

Ultimately, and in a real practical sense, all decisions about the content of proposed legislation are ministerial decisions. No significant detail of any piece of proposed legislation escapes the ministerial team that is responsible for it. The task of taking legislation through the Parliament places a considerable burden on ministers because of the detailed engagement that they must, of necessity, have, so the decision maker on the issues that you mention will invariably be ministerial.

An unanswered question about efficiency and value for money has been left hanging. I think that everyone believes that there is scope for rationalisation in the various commissioners' administration costs. Of course, the commissioners themselves deserve credit for having taken some of the initiative in the pursuit of those efficiencies. We have an interest of a kind in that. It is not, formally speaking, my interest as accountable officer, because the costs do not come out of my budget. In formal and propriety terms, I have to recognise that that is not my business, and I do not have an accountable officer's right to intervene. Nevertheless, as it happens, I have some dialogue with the commissioners about their efforts to improve efficiency, not least because that can sometimes touch on other things that are being done to improve efficiency in the public sector more generally. For instance, there are obvious questions about whether the commissioners and ombudsmen could buy into larger services to help them in their drive for efficiency.

To move slightly back through the process, if the Parliament establishes a commissioner for a particular reason, they will have a financial memorandum, which is determined by the Parliament. I am more interested in the formulation of the proposal that creates that office and in what you just said about a discussion about value-for-money issues.

When we recently passed the Police, Public Order and Criminal Justice (Scotland) Bill, ministers made points to me about the police complaints commissioner for Scotland sharing services that were not covered in the revised financial memorandum. My concern is that an office-holder gets a financial memorandum that says that they can spend £1.5 million when, in reality, the results of parliamentary debate and ministerial discussion may have suggested that the amount that they can spend should be nearer £100,000. It strikes me as being a flaw in the process that financial memoranda can create such expectations for office-holders when those issues are introduced by the Executive as part of its proposal to the Parliament.

I will pause for thought for a moment, because you are taking me into territory that I have not thought about in advance. My first reaction is that two separate functions have to be fulfilled in the process. First, sometimes, a maximum limit is imposed on what the Parliament is prepared to see spent on a particular activity. The other is control of what happens in a particular year. In my past experience—I am delving a bit of a way back into the past—attempts to set maximum financial limits have customarily resulted in quite high limits, because revisiting them requires the use of parliamentary time. Therefore, there is a natural tendency to create some headroom in that process.

Irrespective of what the maximum figure is, the more powerful and significant part of the process of financial control involves a closer look at an organisation—the year-by-year control and the setting of annual budgets. I take your point about signals and the creation of expectations, but we ought to be capable of handling the existence of the two functions side by side.

That is where we get to the nub of part of what the committee is considering. I apologise if I quote you incorrectly—I wrote down what you said and cannot find it just now—but I think that you said that there is a tension between oversight and independence. You are absolutely right about that. The Parliament's ability to exercise oversight to deliver financial control may be construed as undermining the independence of an organisation, because a financial memorandum has been set in what I consider to be a pretty loose fashion, particularly if the maximalist approach of setting a maximum financial threshold has been taken.

As an institution, our ability to carry out the functions that our constituents sent us here to carry out is constrained, because the minute that we question why spending has been undertaken in a particular way, we get howls of protest that we are questioning the office-holder's independence. Your comment puts crisply the dilemma that we face. Bearing in mind that most of the financial propositions with which the Parliament now deals are creations of the Executive, the situation poses particular problems that must be addressed in the legislative process.

That is an interesting bringing together of various points. It is difficult to control how someone will construe certain issues in pursuit of an argument that they wish to make. In my responses, I am tending to concentrate on my belief that each of the elements can be explained in its own terms and may have its own rationality. I do not dispute that you are equally right that someone who seeks to pursue an argument may bring those facts together in a different configuration. The point is interesting. I am reasonably certain that the conjunction of points in the way in which you have put them has not normally been part of our approach of questioning the separate rationality of each point. That is a useful point for reflection.

Jacqui Roberts drew our attention to the Hampton review, extracts of which have been circulated to members. That interesting review suggests that there is significant scope to consolidate the existing set of regulators by broadening skills in some areas and gives several options. Are the Parliament and the Executive going in the opposite direction, given that we seem to be creating more commissioners rather than consolidating existing ones? When we raised concerns about the proposed Scottish civil enforcement commission, the Executive produced an options paper.

You have drawn our attention to the fact that we have proposals for a Scottish commissioner for human rights; a legal complaints commission, which admittedly will replace the Scottish legal services ombudsman; a police complaints commissioner; and a road works commissioner. That last one was new to me—it sounds a bit like a pothole tsar, although I do not know what the exact proposal is. We are creating more such posts in Scotland. When their creation is being considered, do civil servants produce an options paper so that ministers can reflect on how best to achieve what they are trying to achieve?

There is a process of considering the merits of creating a new post versus piggy-backing on something that already exists. On whether we are going in the opposite direction, I am not sure. The Hampton review seems to be largely about the impact—particularly on business—of the big, high-volume regulatory functions and whether they can be rationalised. Much of what we are talking about has more of a flavour of scrutiny and complaints resolution than of that kind of regulation. I am not sure that we are necessarily going in different directions. It may be that we are favouring one approach in one area, without prejudice to the view that might be taken of that kind of large-order regulatory function.

If we think about what is happening in that area—what I think of as the core Hampton territory—a lot of dialogue is going on about how individual regulatory bodies in Scotland can work more closely together. A different question is whether we favour, as Hampton does, the actual organisational merger of those organisations. The crucial difference in Scotland may well be to favour co-operation over organisational merger. However, I am not sure that the handling of what I characterise as the Hampton issues tells us much about the core territory that we are discussing, other than that unnecessary overlap and duplication of costs must be undesirable in either context.

Although the functions of some of the organisations that Hampton looked at might be different from those of the NDPBs and other bodies that we have set up in Scotland, some of the Hampton criticisms must still apply, irrespective of function. For example, the Hampton review says:

"Small regulators, although focussed, are less able to join up their work".

It also says that they are "more expensive" and points out:

"Regulators with fewer than 200 staff are on average more than £8,000 per staff member more expensive"

than larger regulators. Surely some of those considerations can be translated to the situation in Scotland when we set up commissions and so on. Is such financial analysis part of the options paper that ministers receive?

I suspect that I would mislead you if I suggested that a full financial analysis in those terms accompanies every choice when creating a new post. There is, I think, a scale issue here. The Hampton points—which are essentially economy-of-scale arguments—become more powerful if, when one aggregates things, one has something that demonstrably gives one economies of scale of a different order of magnitude than one has with the individual entities. Without offering you a definitive view, I have a doubt in my mind about whether, even if we aggregated the bodies that we are talking about, we would end up with a large enough critical mass to get genuine economies of scale. There are undoubtedly efficiencies to be had, but I am not sure that the Hampton numbers would carry through to the context that we are discussing. However, I am hypothesising from first principles; I am not saying that to you because I examined the points that you made in any detail before coming here.

When new bodies with particular functions are set up, are efficiencies created elsewhere? Are efficiencies created for the Executive or local government, for example, when somebody else does something? Can you point to savings elsewhere because new bodies have undertaken the work?

In relation to the bodies that we are talking about, I cannot immediately think of an example for which I would make that argument. It seems that there has been a series of decisions to augment the remedies that are available to the public rather than substitute one way of delivering remedies for another.

It could be argued that some of the work that the care commission does now used to be done by local authorities.

I was not thinking about bodies such as the care commission; I was thinking of the range of ombudsmen and commissioners. There ought to be economies of scale in a body such as the care commission because it brings together functions that would otherwise be carried out on a more disaggregated basis in the public sector. One could argue that in a range of public sector bodies efficiencies of that structural nature are being achieved.

How much cross-departmental discussion of proposals is there in the Executive? For example, someone might propose the creation of a commission when somebody in another department is doing something similar. You say that decisions are taken by ministers, but they work to their ministerial brief and do not necessarily look at what is happening in other departments or at what other ministers are doing. Who brings proposals together so that they are dealt with efficiently throughout the Executive?

There is a series of answers to that question. Broadly speaking, one could characterise the Executive either as a series of teams that are functionally focused on specific subject areas or as a variety of teams that look across the Executive to consider legal or financial issues, for example. Of course, there is also senior management oversight of the organisation. I am not sure that I could tell you which team with a cross-cutting remit would spot what you describe in any particular instance, but generally I expect each of them to be alert to those issues and to draw the attention of the functional team to the fact that they might be missing a synergy.

I want to follow up something that John Swinney said earlier when he spoke about financial memorandums versus budgets. You mentioned in your opening statement not only budget monitoring but performance monitoring. Do you see any contradictions between performance monitoring—in particular target setting—and operational independence?

Not necessarily, but I can see that there is scope for it to become difficult territory. One might expect to find quite a lot of common ground between what a commissioner, for example, seeks to achieve and the Parliament's view of what should be achieved. Where that is so, independence is not necessarily threatened by crystallising that common ground into performance targets that can be monitored. Equally, I can see that there is territory where there might be dispute about the impact that pursuing a particular target would have on other aspects of a commissioner's business. The answer is not black and white. There may well be scope to establish common ground and make some progress on target setting and performance monitoring.

But you recognise that there is potential conflict, especially in relation to target setting.

Yes, but there must be, must there not? If one tells someone who is responsible for delivering a range of things in an organisation that, whatever else happens, they must deliver X, that will have implications for the other things that they are responsible for delivering. That is unavoidable because, over time, conflicts arise in making decisions on how to use resources. The tension must be there.

What steps do you take to avoid or reduce that tension?

With bodies that are not designed to be wholly independent, one has an iterative discussion about the performance targets and how they might be changed in the light of operational issues that challenge their delivery. That is what one would do with Scottish Enterprise, the care commission or a range of other bodies in which target setting and performance monitoring are integral parts of the oversight and accountability regime. If one is moving partly in the direction of that model, one can partly appropriate the techniques that are used to make that model workable.

We have bounced around the issue of efficiency and effectiveness quite a lot today. Earlier, we talked about the tension between oversight and independence. Do you see a tension between oversight and efficiency and effectiveness?

No. Given that it should be the case that effectiveness and efficiency can be delivered without detriment to the core purpose—the question is fundamentally about doing something better rather than what one does—I do not think that there is a necessary tension between the pursuit of efficiency and independent judgment about the core functions. Oversight that is directed at efficiency does not necessarily conflict with independence of judgment around the core function.

We could focus on the efficiency and effectiveness of a given commissioner or regulator, but should we not examine the matter in the round and consider their impact on what happens at the coalface, in terms of the effectiveness of service delivery, and the minimisation of issues that are relayed to given commissioners or regulators?

Yes. I am inclined to argue that that is clearly a proper function for the Parliament. A regulator or commissioner can do exactly the job that they were charged with doing, but there is a separate question about what impact that has on the wider systems in which they intervene. That must be a proper question for the Parliament.

In that case, would it be seemly for a commissioner or regulator to be required to step up with the agencies at the coalface to determine common worthy aims that are discussed in Parliament? Should such aims be imposed upon commissioners by Parliament or ministers?

I find it more difficult to generalise on that question. One would want to think through each individual instance to be sure that one had reached the right conclusion.

My concern is that, without that, we will not have a culture of perpetual improvement.

Yes. I start from the position that, unless there is some reason to the contrary, such dialogue is generally beneficial in any area of public business. I pause only because some commissioners or regulators might feel that the need for distance between them and various public bodies might be compromised in some way by that dialogue. However, I have no difficulty with the proposition that one should start from the idea that such dialogue is desirable, and that it should not be pursued only when there is a clear and identifiable reason for not doing so.

There is a case for each commissioner having individual objectives, but my proposition is that it might be seemly for Parliament or ministers to impose on commissioners a common-good, worthy aim about where we expect them to move towards in the longer term. That might have a beneficial effect for Scottish taxpayers.

Yes. I think that ministers and the Parliament are generally seeking to do much the same in the messages that they give to public bodies about how they expect public services to be delivered. That is, we expect public services to be delivered on an integrated basis by bodies working together rather than on a fragmented basis. An increasingly powerful message is that we expect people to look closely at the efficiency benefits of co-operation in various forms. I see no reason in principle why the bodies that are at the heart of the committee's inquiry should be exempted from those presumptions.

I have one final question. Scotland is a small jurisdiction in terms of population. Other small jurisdictions—a good example might be New Zealand—have decided to limit their institutional regulatory structures because they cannot sustain the full panoply of different regulators. Do we need to consider doing that in Scotland? It strikes me that we are in substantial part reproducing the United Kingdom pattern of regulation, which will always end up being proportionately more expensive in Scotland because of a lack of economies of scale. Taking account of the size of our jurisdiction, can we really have the full range of regulatory systems and commissioner arrangements that apply in the wider context of the UK?

You would not expect me to dissent from the proposition that we should examine the sustainable affordability of any course of action. That test should be applied to everything. The implicit question is whether the area under consideration should be a priority for such scrutiny, but that is where we reach the point at which the question would be better directed at Mr McCabe than at me.

Do we have any quantification of the background to that issue? On what basis could we assess judgments about the cost of regulation?

I cannot think of pre-existing evidence that would address the desire to have a quantified base for such judgments. It feels like that would be a reasonably complicated piece of work to carry out. That is not necessarily a reason for not carrying it out, but it is not sitting there on the shelf.

I thank John Elvidge and his colleague for coming along. I am sure that we will take up some of the issues with the minister, who gives evidence to us next week. We will also take up issues about the commissioners with the Scottish Parliamentary Corporate Body.

It was a pleasure. I hope that we have been of some help.