Finance Committee,

Meeting date: Tuesday, May 24, 2005

Official Report 199KB pdf

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Budget Seminar

I welcome committee members and any members of the press and public to the 15th meeting in 2005 of the Finance Committee. I remind people to turn off their pagers and mobile phones. We have received no apologies.

The first item on our agenda is to consider a paper on the budget seminar that we held on 22 March, which contains a summary of the discussions that took place and highlights areas on which further discussion is needed. The framework for reporting outcomes, which is dealt with in paragraphs 8 and 9, is one such area. Following Michael Barber's presentation at last week's meeting, it has been suggested that staff should visit the delivery unit in the Cabinet Office; the paper asks us to agree to that.

Before I ask for comments from members, I invite Arthur Midwinter to remark on the budget seminar.

The paper is a fairly accurate summary of the seminar. Of the issues that I raised for members to discuss at the seminar, the one major continuing problem is how to deal with strategic outcome measures. Everything else proved to be fairly straightforward and there was wide agreement.

There are three options for dealing with strategic outcome measures; they can be contained in a separate document, they can continue to appear in the budget or we can ask the Executive to include in the budget a separate section on such measures. That third option would represent recognition that not only the budget but the whole range of Government activities, as well as outside factors, contribute to achievement of strategic outcome measures. Although I am quite happy for the Executive to set itself challenging targets on outcomes, we must acknowledge the context in which they are delivered. A wide range of factors is involved in delivery—not just the budget.

On the approach that Michael Barber advocated, it might be more appropriate for us to ask the Executive to give us a highly targeted set of outcomes that reflect its key priorities and that are susceptible both to measurement and to the kind of trajectory analysis that Michael Barber talked about, than to ask a general question about reporting of outcomes across the range of targets that are set. Perhaps those are the outcome measures that we should ask the Executive to specify.

In other words, on health, for example, we should ask the Executive for three or four things that it really wants to say it is doing. A key message that I took from Michael Barber's approach was that we must hold the Executive to account for how it delivers on particular outcomes rather than request an approach that extends across the whole set of outcomes that are contained in the budget, which is probably unmanageable.

Initially, my interest was in obtaining outcomes that operate at strategic level for economic growth, closing the opportunity gap and sustainable development, which cut across all portfolios, but I missed last week's meeting. Did Michael Barber say that different types of outcome measure were used south of the border?

The outcome measures for health are the easiest to examine, because they are all measures of health status. The evidence from Bob Black's paper and our own work shows that health status has been improving since the national health service was set up, so it is difficult to pin down how much is due to a change in that budget. Whether it would be possible to come up with a more measurable target that reflected solely the impact of the Executive's spend is a big question.

Last week it emerged that, with big themes such as growing the economy or reducing child poverty, all sorts of complexities are involved. Many of the factors that influence the achievement of such goals are not directly attributable to Executive inputs or to action that it might take. It seems that the Prime Minister's delivery unit measures things about which it can be argued that Government can exercise some direct control, by reorganising systems to ensure that tightly specified outcomes are delivered.

Michael Barber seemed to say that the way in which to achieve change was to have ambitious delivery targets rather than ambitious outcome targets. Perhaps we should tell the Executive that it needs to produce a relatively limited number of targets on which ministers are expected to deliver. We would then be able to measure the extent to which they were achieved.

Should we not list a number of areas on which we feel the Executive should give us definite targets?

I think that we should be involved in talking about on which areas it would be appropriate to have specific targets, but it would be dangerous for us to say, "These are the things on which the Executive should give us outcomes."

On health, for example, the Executive talks constantly about waiting lists and waiting times. From the evidence that we got last week, it appears that, in that regard, there has been significant and sustained progress in turning round the situation in England. If that is a key target for the Executive, perhaps it should be among the three or, at most, four objectives that the Executive produces for that portfolio. That is not to say that the overall health improvement outcomes are to be neglected, but they operate at a higher level. The key issue is to have targets that reflect what the Executive can deliver—in other words, delivery targets rather than outcome targets, which are a step beyond that. I suppose that delivery targets can contribute to outcome targets, but they are not necessarily quite the same.

A similar theme emerged in the first review paper that I wrote. At the seminar, we had a lengthy discussion on what to do about outcomes. Although a number of the people who were present recognised the weaknesses of including outcome measures in the budget, they still felt that they should be included—some people were keen not to have such measures taken out of the budget or put somewhere else. It seems that what Professor Barber said is similar to what I had already told the committee, which is that the targets in the budget should reflect the activities of the Executive through the budget spend, rather than reflect a wider range of influences.

I found intriguing the method by which the delivery unit monitors delivery regularly. It identifies Government priorities and assesses them monthly. The delivery unit has league tables for ministers and, if a minister finds himself near the bottom of the league for what he has managed to deliver over that month, he appears in the red column at the bottom of the league. No minister wants to be in the red column for very long, so improvements are made and no one ever stays at the bottom of the league, because ways of improving their position are quickly found. It would be wonderful if the Executive could adopt such a system.

Ministers do not find ways of improving their position; their accountants and statisticians find ways of fiddling the figures to make it look as if they are in the top six.

That is a standing problem with performance management systems.

One can design a system so as to ensure that the statistics reflect reality.

The Prime Minister's delivery unit seems to be able to make the statistics reflect reality. The methodology that it uses is objective and is very much in line with a great technique that Tom Farmer used. He would examine his daily data for Kwik-Fit stations and would invite the bottom five guys—they were usually guys—to Edinburgh to have breakfast with him the next morning, which really concentrated their minds and provided an injection of reality. The delivery unit's actions are in line with what we were told by Donald MacRae in evidence about how Lloyds TSB Scotland is managed—Lloyds TSB has 12 measurements, which each have owners who appear in a league table—and with the message that we got from IBM and Scottish Power at the budget seminar.

It strikes me that it would be interesting to share the data from the Prime Minister's delivery unit with the businesspeople who attended the budget seminar; we might get some good augmentation from that and they might bring even more to the table.

The convener's idea about asking for key priorities with trajectories and defined target outcomes is terrific because that would take us to a new level and put us on the Executive's side in terms of achieving outcomes. The exciting thing is that that would help to create a coalition of ministers and civil servants and would force them to have the same objectives. That would be terrific; we can see why Frank McAveety is excited about it, because at our previous meeting with Richard Parry and Robert Pyper he exposed his paranoia and concern about the lack of that. [Laughter.]

Watch your back.

As we have pointed out, both meetings identified that there is no specific or explicit reward system in place. How might we reward people for delivering? Is that possible? It is difficult to see how they could be rewarded.

Which people are you talking about?

I am talking about ministers who achieve targets.

Programme managers would be rewarded. I presume that that could be taken into account in people's promotion prospects within the civil service. It is a career advancement issue; if someone has been a successful programme manager, that will—I presume—be reflected in their rating.

An interesting aspect of Michael Barber's evidence was his statement that what is done in the delivery unit is separate from what is done in the Treasury. That is partly about performance, such as getting waiting lists down, and partly about reputation. If a department achieves savings, they are made available to that department and can be used to bolster its progress towards achieving its objectives. There is also an important cultural aspect. If a department creates savings but they go elsewhere, that is not an incentive for it to drive forward change, whereas if it gets the reputational benefit and the capacity to use the saved resources to invest in going further and faster, that is a good thing.

I support the idea that departments should get some of what they save, but I do not agree that they should get all of it if they have previously been inefficient. I am in favour of a focused approach with three or four targets, which will allow us to go deeper into a sector's performance. Also, people in other sectors will look on and say, "We could be next." That might improve their performance, so there is a lot of merit in the option.

There seems to be consensus. I like Jim Mather's idea of taking the issue back to the businesspeople who contributed to our budget seminar and asking them whether there are refinements that would be appropriate in the Scottish context.

Do members agree that we should visit the delivery unit to find out about performance management? That would involve Susan Duffy and a couple of her colleagues going to London.

Members indicated agreement.

We will also see whether we can set up a meeting with the businesspeople. Again, that will involve Susan Duffy; perhaps Jim Mather and I could also be involved. We will take the Barber slides and ask about the issues that arise.

What outcome are we looking for? Should we report to the Executive to tell it that we think that it should consider what we suggest?

Under the current arrangements, the Executive will not review targets until the next spending review. The committee should get its position clear now and make a recommendation to the Executive. In the past, the Executive has changed things in response to formal recommendations. We will not get a major budget report until later this year, but the quicker the committee feeds recommendations into the Executive's thinking, the better. The Executive will report on the current targets after the spending review ends, but I suggest that it will revise the targets from January onwards.

So you are suggesting a timescale for us to proceed—

The committee should clarify its position by the autumn and make its recommendation before the new process starts.

Have we had a presentation on, or an opportunity to discuss, the approach of the Executive's change to deliver programme? It was claimed that some elements of Michael Barber's evidence are in the change to deliver programme and that there is equivalence between the two approaches, but I am not convinced about that. We could make a series of recommendations, but it would be an easy defence for the Executive to say that we had not addressed its modernisation strategy or asked for evidence and information on it.

To be fair, John Elvidge was invited to come to the committee specifically in relation to the change to deliver programme. The genesis of that, as far as the civil service side is concerned, was the committee's desire to prepare a submission to the Public Administration Select Committee at Westminster. We are probably in a position to do that, but another element has emerged, which is performance management under the existing regime.

We probably require work—again, we look to Arthur Midwinter—on the key principles of performance management and which picks up on the delivery unit aspect, but which also reflects our understanding of where we have got to in Scotland. Perhaps the best way to proceed is to prepare a paper that sets out our ideas and to invite John Elvidge back to the committee.

I suggest that we invite John Elvidge and others to read the Official Report of Michael Barber's evidence, in concert with the slides, and to give us their thoughts. It would be interesting to hear their reactions and find out their initial positions.

Before we get to that stage, I would like to clarify the extent to which differing targets are in use within the Executive. We always concentrate on the budget but I am aware that there are hundreds of targets that we never see. I am not sure how the system as a whole fits together. We never see the business plans for particular departments, which include operational targets and delivery targets that are not in the budget. I am keen to get the system slimmed down so that it is manageable.

Is it possible that the targets that we do not see outnumber the ones that we do see?

Yes—there is no doubt about that.

That demonstrates the big advantage of the delivery unit's approach. I suspect that, nowadays, people totally ignore the targets that are not top priorities. The top priorities have many subsidiary targets but, at the end of the day, being able to say, "We have dramatically reduced waiting times and delays in accident and emergency and we have cut the number of failing schools," is dramatic enough to galvanise people.

I am intrigued by the view that there are different budgets and different targets. The system seems to be like a ship with many different engines that do not work in the same direction. Surely Professor Midwinter has access to information on the budgets in the various departments—the Finance Committee should also be informed about those budgets. We are trying to ensure that there is efficient government, but we will have no idea whether there is efficient government if we do not know about the various budgets or systems.

I did not say that there are different budgets—I said that there are different targets. There is only one budget, but as far as I am aware, there are business plans, operational plans and personal targets for staff. Therefore, a host of performance management systems of which we are not aware operate beneath the budget. I am worried about people spending a lot of their time working on targets rather than doing their jobs.

I will try to draw together what has been said. We agree that there will be a visit to the delivery unit to discuss performance management. I suggest that Jim Mather and I, perhaps with Arthur Midwinter and Irvine Lapsley—who has done work on outcomes for us in the past—and the business representatives who were involved in the away day have a seminar in which the focus will be on the approach of the Prime Minister's delivery unit. We can consider that approach in a more informal setting and we will have a report to consider at our away day, which will be in late August. Issues could then be thrashed around in an informal meeting at which we could decide how to progress matters in our September agenda.

To pick up on what Jim Mather said, I suggest that in the meantime we send the Michael Barber slides and the transcript of what he said to John Elvidge. We could say that we found that what was said was particularly interesting and that, following our away day, we might want to discuss performance monitoring and target setting further with him in order to find out whether there are lessons for Scotland. Do members agree?

Members indicated agreement.

Excellent.