Volume 15: Government and Public Administration
6. Planning and resources
Changing the public sector
Reviewing Departments' functions
Executive Agencies
Fees and charges

Reviewing Departments' functions

6.23 In the early 1990s, the Government reviewed what Departments did and whether it needed to be done at all. The aim was to concentrate their activity on essentials, introduce more competition and more potential providers of services, and achieve the best combination of cost and quality. ¹ A number of options were considered, including 'abolition, privatisation, contractorisation, including market testing, and rationalisation'. ²

6.24 Three questions were asked about each executive activity or function

1. Should it be done at all? If not, the function and organisation should be abolished.
2. Should government still be responsible for it? If not, it should be privatised. Many departmental support services (eg, catering and photocopying) were handed over to private contractors.
3. If government retained responsibility, should the work itself be done by the private sector? If so, should it be 'contracted out' or should the civil servants currently responsible be asked to compete with the private sector (through 'market testing')? 'Market testing' required civil servants to prepare a business plan for the work they were doing and to submit a tender for consideration by departmental management alongside bids submitted by private sector or other public sector contractors. In many cases, the in-house bid won, but the exercise could lead to a more efficient and effective service. If an alternative bid was successful, the work was contracted out and the civil servants who had previously done it were either redeployed or made redundant.

If after considering these 'prior options' it was decided that an executive activity or function should still be carried out within government, it was to be reorganised in line with 'Next Steps' principles - ie, as described in the following section, set up as a business under a Chief Executive rather than run along traditional civil service lines. Some research and advisory facilities (eg, parts of ADAS) became Agencies, but after further review were subsequently privatised.

Executive Agencies

6.25 The concept of 'Executive Agencies' originated from the conclusions in a 1988 report by the Prime Minister's Efficiency Adviser, Sir Robin Ibbs. He observed that most civil servants were concerned with the delivery of public services, but that most senior managers had a background in policy formulation and relatively little experience of management or service delivery. His view was that insufficient attention was paid to results, and that the civil service was too large and diverse to manage as a single entity. ³ He recommended that 'agencies' should be established to carry out 'executive' (ie, service delivery) functions of government. These would have considerable internal autonomy while operating within a policy and performance framework, including specific targets and objectives, set by the appropriate Minister and Department. ⁴

6.26 Agencies were conceived as being run along business lines by a Chief Executive. Their tasks and functions were set out in a 'framework document' for each Agency, agreed with the Department and the Minister. Ministers were answerable to Parliament for the activities of their Agencies, determined the policies within which these operated, and approved their strategic and annual plans. Departments advised Ministers on the policy and performance frameworks and monitored Agencies' performance. They retained strategic control, but Agency managers were to be free to recruit staff and to develop appropriate pay, grading and organisational structures. Agency Chief Executives were to be personally accountable for the achievement of the agreed targets and objectives. ⁵

6.27 These recommendations required a radical change to traditional civil service ways of doing things. The possibilities were reviewed Department by Department. By 31 December 1996, 129 Agencies and two Departments were being run on 'Next Steps' lines, employing almost 390,000 staff (74 per cent of all civil servants). ⁶

6.28 Following the 'Next Steps' report, many casework, research and licensing functions were transferred to Executive Agencies. The impact on Departments varied. For example, the scale of the Department of Transport's licensing, regulatory and research functions meant that when these had been transferred to Agencies, the resulting core Department was relatively small. For DH, on the other hand, the impact of its four Agencies was less dramatic; the management of its main executive focus, the National Health Service (NHS), had already been reorganised along not dissimilar lines.

6.29 The MAFF and DH Agencies relevant to the BSE story were:

1. MAFF - the Veterinary Medicines Directorate and the Central Veterinary Laboratory (both becoming Agencies in April 1990), the Central Science Laboratory (April 1992), the Pesticides Safety Directorate (April 1993), the Meat Hygiene Service (April 1995) and the Veterinary Laboratories Agency (October 1995 - amalgamating the CVL and the Veterinary Investigation Centres)
2. DH - the Medicines Control Agency (April 1989) and the Medical Devices Agency (September 1994).

6.30 These, like most Agencies, were created by reorganising existing functions of central government. However, a few Agencies acquired functions previously exercised elsewhere. An example was the Meat Hygiene Service (MAFF), which took over the abattoir inspection functions previously exercised by local authorities, and also the staff who had carried these out.

6.31 Once established, Agencies were subject to periodic reviews that reappraised the 'prior options' previously considered. Also, all public sector research establishments (most of which had become Agencies) were subjected to a multi-department efficiency survey in 1994/95, and then to a wider (second) review in early 1996:

Our task was to consider whether the function carried out by these bodies was any longer needed, or whether in its absence the research would be done by the private sector. If the function was still needed we went on to consider whether privatisation was appropriate or feasible. ⁷

6.32 For example, the CVL's Framework Document specified that a prior options review should be conducted within three years of its launch as an Agency, and repeated at intervals of not more than five years. ⁸ The first review was in 1993, and concluded that the CVL should remain an Agency. Following its merger with the Veterinary Investigation Service in 1995 ⁹ to create the Veterinary Laboratories Agency (VLA), a further prior options review (part of the wider review mentioned above) was conducted in 1996. This recommended that the organisation should remain an Agency. ¹⁰

6.33 Few of the areas of work with which this Inquiry is concerned were in fact privatised between 1986 and 1996, ¹¹ but the various reviews inevitably consumed management time:

We were also under considerable pressure from the repeated and seemingly continuous 'prior options' investigations of public sector research laboratories conducted at that time. ¹²

Fees and charges

6.34 The effort to improve awareness of, and control over, administrative costs led to an increased emphasis on the principle of charging for appropriate services. Departments were expected to charge for goods and services they provided to other Departments and public and private bodies, except where the costs of doing so would outweigh the benefits, or if other exceptional circumstances applied. The view was that requiring Departments to charge for services would lead to a more accurate presentation of the costs of a policy and encourage value-for-money. ¹³

6.35 There were three kinds of government activity for which charges or fees could be levied: (a) for statutory (normally regulatory) services - eg, for certificates or licences; (b) for commercial services offered on a discretionary basis to the wider public sector or private sector - eg, printing or photocopying; and (c) for services provided by Departments to other Departments, or to the wider public or private sectors, including information and advisory services. ¹⁴ Many Departments also introduced internal charging regimes for typing, photocopying, and financial or IT consultancy services during this period.

6.36 If, following the 'prior options' review process described above, it was decided that a function should remain in the public sector, government policy was to move towards full recovery of its costs where there was an identifiable customer. In practice, therefore, consideration of fees and charges was often bound up with a move to Executive Agency status.

6.37 If this had not been done before, charging regimes were sometimes introduced to test the market. The calculation of fees and charges required assessments of their impact on take-up (the willingness or otherwise of customers to pay) and, bearing this in mind, assumptions about what standards of service would be appropriate in future. This development had considerable implications for the ways in which Departments regarded themselves and their relationship with their customers.

6.38 Two MAFF functions will serve as examples of this trend: those carried out by the Agricultural Development and Advisory Service (ADAS), and by the Meat Hygiene Service (MHS). A review of ADAS in 1984 said that its functions had a substantial public service element (including statutory and regulatory work) but that:

The possibility of charging should, however, be examined in the case of each scheme so as to reveal where recoupment of costs could be made without prejudice to the public and national interest. ¹⁵

Fees were subsequently introduced for the provision of ADAS advisory services to farmers.

6.39 The setting and level of charges for the MHS, when in 1995 it took over the abattoir inspection responsibilities previously exercised by local authorities, was a major negotiating issue. There were concerns that high charges could hasten abattoir closures. ¹⁶