THURSDAY 9 NOVEMBER 2000

SIR MICHAEL PARTRIDGE KCB

  440. There is a difference between running the things from the centre and accountability.
  (Sir Michael Partridge) Yes.

  441. The Public Service Agreements do have the merit that Departments can be held accountable for the way they are using the money, efficiency in operations, and whether their policies are still working out?
  (Sir Michael Partridge) I entirely agree and I think it should be done on a strategic level and concentrated on global inputs and outputs.

  442. Who should be monitoring those if not the Treasury?
  (Sir Michael Partridge) I think those should be monitored by the head of the Department and reporting to the Treasury each year.

  443. Not the Cabinet Office? It is a central role.
  (Sir Michael Partridge) And the head of the Civil Service as well, yes.

  444. It is central to whether the Government's strategy is being worked out?
  (Sir Michael Partridge) That is right. I think you report to the Cabinet Office on some things, management and staffing, and you report to the Treasury only on the money. You should not allow the central Departments, whether it is the Treasury or the Cabinet Office, to try and run your means. They should be judging the outputs and the strategic inputs on a strategic level. I have written a report on this, on how to do this in universities, how the board of governors should be strategic and not interfere with the day to day running by the Vice Chancellor. It should not try and tell him what subjects he teaches or how he organises his university. That is the mistake, I think, one is drifting into at the moment, they are getting into means and details rather than sticking to the strategic aims.

  445. You have said before that you felt the Treasury went wrong when it got into too much detail. Can you give us some instances where you have cautionary stories about the Treasury attempting to get into too much detail?
  (Sir Michael Partridge) I have given you one about my global budget and my computer project.

  446. Yes.
  (Sir Michael Partridge) That happened on many occasions. I think they also tried to get into too much detail on the various pension schemes we devised. Rather than just saying "What is the overall economic effect", they wanted to look at the details of every single provision. This served as a delaying tactic and, in fact, they managed to stop the Crossman Scheme. They argued for six years and we never got it implemented. This is a good delaying tactic of theirs. They went into too much detail on those sorts of schemes as to exactly what the provisions were to be, rather than saying—and they did on the Child Support Agency—"Here is the overall aim. What are you going to put into it? What are you going to get out of it?" That is what they should be doing and saying "Is it efficient? Is it value for money?"

  447. If you limit the Treasury's role in relation to Departments, principally the global sum and how well that is worked out, does that not push them to be primarily concerned with cuts so that they end up knowing the price of everything and the value of nothing?
  (Sir Michael Partridge) It should not do. It used to, certainly, in the 1960s and 1970s but those were hard times economically. I think under the measures I took between 1989 and 1995, trying to work with the Treasury in teams, this changed. I seconded various people in from the Treasury to do reviews of Social Security expenditure inside the Department and report to the Treasury, partly because I thought it would carry more weight than if one of my people did it. What the incomers did was to appreciate that there are advantages and disadvantages in schemes. Some schemes are more effective than others and others want reform but maybe Ministers do not want to do that because politically it is not very popular. Now if you get a constructive attitude like that saying "We are going to spend quite a lot of money on Social Security, you cannot cut it by £20 billion in one year. Where is it not being effective? Where is it being most effective? How can we shift resources and is the country as a whole ..." and I come back to my original point that this is the kernel of every Budget "...able to afford some expansion or does it need some cutting?" So it is not always cuts. We actually had a very constructive relationship. We did introduce, not as fully as I would have hoped, some improved benefits for the disabled people. We introduced some big changes in Social Security, including putting up pension ages from 2020, but they were done in a politically sensible way. If you had tried to put up the pension age in five years it would not have worked. So you can get a constructive dialogue, I think, with the Treasury, it need not all be cuts, but I agree with you that there is that risk all the time because the Departments see themselves as wanting to spend more and the Treasury to cut more. I think that is a wrong attitude. I think all the time you should be saying "What is the right quantum in this area? How do we best achieve that with the use of resources?" I think what is lacking is what you get in business. I work on various boards now and I have for the last five years. In business what you do is you do not have this sort of clash all the time between finance and policy, what you try and do is get the board as a whole to lay down a strategy and say "Where are we going to spend money and where are we going to save money by selling businesses or whatever" and you work within that strategy. All the time you are saying "How much is this going to cost and how do we raise the money". Where I think we are going wrong in this country is the Cabinet now does not do that. It should set an overall strategic framework for policy but, as we know, it does not discuss policy at all now and it has discussed less and less in the last 20 years. Cabinet Committees do not operate as they ought to really. When I started in 1960 any ideas were tested to destruction in the Department first and with the Treasury and with outsiders. We consulted the pensions' industry on our scheme, which is not done as much as it should be now. Then we took it to Cabinet Committees and then to the Cabinet. There were huge arguments about the strategy and the shape of the scheme, not on the detail. I fear that is done better in business now and increasingly there is a lack of it in Government. I think the Treasury needs to engage with that because I think they try and retreat behind their walls in secrecy and plan something and then tell everybody, perhaps in consultation with the Department, perhaps with not much consultation with the Department. I think it would be much better if there was a business-like approach where the Cabinet set the overall strategy before you started as to where you thought expenditure ought to go up and where it ought to go down and then Departments went away and worked out the detail. The Departments should do the policies, the Treasury watch the money like a hawk and assist and then the policy should come back to the Cabinet for decision before it was announced.

  448. How would the Cabinet know what were the strengths and weaknesses of the different programmes and the different Departments?
  (Sir Michael Partridge) That is their job. They are like a board of directors, they are supposed to be running the country's policy. It would be a poor show if the board of a business said "We do not devise the strategy or policies." My report on governance in universities, which you may like to have a copy of, spends a lot of time saying "How do boards of governors devise strategy for the university, what is its educational mission and its financial envelope, without getting into the detail of it and "interfering with the Vice Chancellor's job?". That is what business learnt to be better at but it is still not brilliant. I think the Government is actually going backwards on this.

  449. We are tending to talk about this as though it is a system that is superbly rational.
  (Sir Michael Partridge) Yes.

  450. To what extent do the strengths and weaknesses of individual Ministers affect the allocation of resources?
  (Sir Michael Partridge) A lot. We were fortunate, I think, to have some very powerful Ministers. Take Mrs Castle—Lady Castle now—she embodied most of the best things. She was a very good strategist, she was extremely good at working with the Civil Service, she liked, like Mr Lilley and others and Keith Joseph and Mr Crossman, to hear unvarnished truths in her room. As she said, "I would rather find out I am being a bloody fool in the privacy of my office than be told it by Parliament when the press publish the proposals". She was very good at negotiating with other Ministers and she was a brilliant public speaker. What more can you have? Not all Ministers have all those qualities but what they do need is a good strategic view, and most Ministers had that fortunately. They may not all have been good public speakers but that is probably less important. Strategy, I feel, is not being used enough and developed enough in Government at the moment. I blame some of it on Parliament for not holding Ministers to account on these sorts of things, some of it on the structure of Cabinet Government and a bit of it on the Treasury who likes to grab the policy and do it. If there is a vacuum they will move in. If you have a weak Minister, the Civil Service and the Treasury move in because somebody has got to run things.

  451. Do you think that it is feasible to have public expenditure allocated over a three year period rather than the one year that used to be the case?
  (Sir Michael Partridge) Yes. I am a great believer in this. I think the one year was quite hopeless. It was particularly hopeless on the administrative budgets. You cannot plan big computer schemes that last three to four years, or a sensible programme for Parliament, on one year's expenditure when you do not know where you are going. Higher education, which I am involved in now, is suffering from this at the moment, it only has a one year settlement, you cannot plan anything. I think three years is very important. What I think is equally important is you have to review that as you go along each year, obviously, but you should not just claw back all the gains. I had a lot of arguments when we first brought in the three years because at the end of the first year we in DSS had made some very substantial administrative savings and the Chief Secretary showed every sign of saying "we will take them all and draw a new base line and start again" and I said "that is not really going to work if you do that because next year we will not have any savings if that is the basis. I shall make sure we do not because we are just on a loser". This is no way to run a business. What you have got to do if you have three years is to review, I am not saying you should not look at it again. In the same way as with targets for my agency heads, if they achieved them easily I said "we are going to ratchet them up next year". You have a review but you do not just change the rules of the game as you go along. I think three years is essential. Most businesses have three years. I prefer to have a five year look as well to see where you are going, if not a ten year strategic one. We have a ten year one in our university, and a five year one. I think that is essential. In the businesses I am in we certainly have five and three year looks ahead as to where we are going because it takes that time to do big projects.

  452. What is your view of the success of the present three year Spending Review process so far as it has gone?
  (Sir Michael Partridge) I think it is a big improvement on what went before. I am very much in favour of cash limits, which it is based on, rather than inflation limits. When I went to the Police Department, having practised various management and financial disciplines in Social Security in DHSS, my job was to introduce cash limits to the Metropolitan Police and other police forces and the Security Service, and to introduce management reforms of the types I have been talking about. That was pretty uphill work there because when I first mooted putting a cash limit on the Metropolitan Police the Commissioner threatened to resign and go and see the Home Secretary. He did me the great honour when he retired four years later of saying "it was the best thing we had ever done". He had a budget of some £28 million. The first year he came in about £1 million under—people never exceed cash limits if they can—the next year it was about £250,000 under and the last year it was about £40,000 under. So he was spending it probably, because £1 million under is not good. He said he learned more about the use of overtime, petrol, the deployment of officers, from cash limits than he had ever learned before. I am a strong believer in that. Where I think the Treasury are going too far, as I have said before, is going into too much detail and getting into means rather than aims and objectives.

  453. How should public expenditure control take account of inter-departmental projects?
  (Sir Michael Partridge) This is, of course, the big problem in Whitehall which the present Government has tried to grapple with and has set up various methods, which I think are improving it. It is a very difficult thing to do with Departmental budgets, and they have tried to bring in cross-budgets to help this, and I think that is a good idea. One of the difficulties, one has to be frank, is that the Treasury would rather deal in secret Department by Department and pick them off one by one. They are very loath to let Departments know as the round is going on how people are getting on, and particularly Social Security. The tactic they adopt with Social Security is always to start with it because you have got to find out whether they can save £3-4 billion or not and that dwarfs your budget target, which is probably only £2-3 billion. If the outlook looks good they can go for the rest of Whitehall with an easy conscience. If it does not look good they go very hard at the other Departments. They do not wind up DSS until the end, because you can always go back and say "we are £500 million short" to DSS and DSS can find £500 million somewhere out of £120 billion, as it is now—small change. That is the way to deal with it. Treasury secrecy is one factor that also tends to work against developing cross-accounting policies. I think the three year look, and the strategic look I have suggested by Ministers generally, would help enormously. As it was, it was very much left to Ministers and Permanent Secretaries in the Departments concerned to get together, like on the Housing Benefit example, and bring in the Treasury to try to bring piecemeal reforms and I do not think that is really good enough.

  454. What do they discuss at Cabinet if they do not discuss policy?
  (Sir Michael Partridge) I am not present at Cabinet but all the accounts are that you have an account of what is going on that week—

  455. A round-up of the week?
  (Sir Michael Partridge) A round-up of the week and the general line to take. What you do not do, which you did in the old days, is discuss major papers on policy. Cabinets used to last three or four hours and you would put a new pension scheme to the Cabinet and they would have a serious discussion about it. When I was a Permanent Secretary things like the Child Support scheme and Disability Benefits all went to the Cabinet and were fiercely argued over, often with the Treasury, as I said, trying to cut some things back, and succeeding on Child Support, much to the damage of the scheme. They discussed serious papers and they had been through Cabinet Committees before that. There was quite a lot of discussion and I think that is what is lacking at the moment.

  456. Are you saying that Cabinet Committees also are guilty of this short-termism?
  (Sir Michael Partridge) What has happened increasingly over the last 20 years is that top Cabinet Committees, Home, Social Affairs, all of those which used to be the driving force, have been steadily replaced by task forces and teams drawn up specially for that project. That may be right on one or two big projects but I do not think it is right as a general way of running Government that you hand pick a committee of various Ministers and set them up just to do that. It is a bit like assembling a Select Committee of your's just to do individual subjects rather than having standing committees. I think the standing committees ought to do more policy work rather than just ad hoc teams. There is a place for ad hoc teams but it should not be the only or the main road of making policy.

  457. The only other question that I have arising from Mr Beard's questioning, and you may have given an answer, is macro-economic policy you would leave with the Treasury, would you?
  (Sir Michael Partridge) I would, yes, although I am very interested in what Sir Terence Burns said to me just before I retired. I used to bang on about the importance of social policy as opposed to economic policy and say it was very much underestimated and its costs were much greater, and I sent the Clerk a copy of a paper I have written on social policy in Europe and its importance. Sir Terence Burns said to me towards the end, "Of course, macro-economic policy is very boring at the moment because everybody agrees on it, there is nothing really to do, and micro-economic policy we have handed over to other people, so I think we are getting very interested in social policy". You are quite right, that is where all the interest is at the moment and the Treasury as a result has got into social and economic policy in a broader sense because macro-economic policy—

  458. It has got bored with itself.
  (Sir Michael Partridge) It will come back. These things go in cycles. It was getting very boring for the Treasury because everybody agreed.

  459. Sir Michael, Nigel Beard touched on Public Service Agreements and I would be grateful to hear your assessment of what you think of the present ones? In your time when you were in the Department, what were the attempts then to measure the performance of Departments?
  (Sir Michael Partridge) This goes back a fair way. I can be very brief. We started on this in DHSS in the 1970s when we set up a unit called the Regional Directorate to measure the performance of our regions and local offices. I was the first policy person to go across on to management, as it was seen. I was in charge of the work programme and work measurement and industrial relations. It was a new post. In those days it was called management by objectives and you actually tried to set up objectives for the regions and you had six monthly reviews with the controller. Looking back at them, they were fairly broad brush things. You set various targets. The real problem was there was not really good management information. We worked on that and there were various methods brought in in the late 1970s and 1980s much more tied to financial targets. You had various schemes in Whitehall, Minis and Maxis, that sort of thing, and you also had the Treasury driven ones of trying to account for expenditure. That I think did a lot of good. Then, when I became Permanent Secretary, I decided that the Department was really hopeless because it was a huge pyramid with me at the top and all these regions and local offices all doing a bit of everything. The only things which I saw were mistakes, and I could not possibly control 100,000 people on that sort of basis so I took the advantage of the agency initiative which my predecessor, Sir Kenneth Stowe, on his retirement had thought about, and we split the Department into six parallel functions. I put a Chief Executive in charge of each and my management board ceased to be the people at headquarters, the deputy secretaries, and became chief executives of these agencies who ranged in grade from grade 2 to grade 6, depending on their size. They all had very different targets. In the Benefits Agency, as I say, I abolished all the regions at a stroke because I thought they did not add value and they decentralised right down to local offices. The Contributions Agency I thought should all be centralised at Newcastle, because that was the most efficient way to run it. We had a small Resettlement Agency which looked after tramps, which I thought should be done by local authorities. So their job—they only had 120 staff—was to work themselves out of business. That made an enormous difference because these people had specific targets, agreed with the Secretary of State, and we had a junior Minister in charge of each agency whom they reported to regularly and I saw them on quarterly reviews and the Secretary of State saw them with me once a year, with the Minister in charge. We had financial targets and performance targets. The effect was dramatic. The Benefits Agency over three years improved its performance to the public by about 30 per cent. Whereas previously, for example, the staffing had been done with clerical officers, executive officers, higher executive officers, senior executive officers, all working on benefits, some on pensions, some on sickness benefits, some on unemployment, we had a completely different structure at the end of the three years. We had one person in charge of performance. We had a customer services manager. We had an IT manager in offices. So it was a totally different functional approach and that made a huge difference. This was what I was saying Sir Terence Burns picked up and he used the same outside adviser I had had, who was extremely good on advising and helping on how to run boards, devise and carry through this, when he reviewed the Treasury, and she was very successful there too.