WORK OF THE CABINET OFFICE 2007-08

  Thank you for your letter of 11 November 2008[1] setting out further questions concerning the work of the Cabinet Office 2007-08 as detailed in the Cabinet Office Annual Report and Accounts 2007-08. I was particularly pleased to read that the Committee found the new presentation style of our first combined Annual Report and Resource Accounts useful and the opportunity for cross-referencing that this has provided.

  My response deals with the questions in the same order as the letter. A number of the questions raised will be answered in the Cabinet Office Autumn Performance Report (APR) 2008 publication of which I have, for the convenience of the Public Administration Select Committee, accelerated by a week. As a result it is planned for our APR to be laid in Parliament next week which is a week ahead of HM Treasury deadline. I have noted below which questions will be answered or further supported by the APR.

EXPENDITURE IN 2007-08

1.   In 2007-08, the Annual Report notes that the Capital budget under-spend included a £16 million under-spend "due to the rescheduling of a number of new projects, reflecting new government priorities, to future financial years" (p108, bottom-right). What are the projects involved, and by how much have they slipped?

  The Capital budget under-spend relates to programmes initiated by the Office of the Third Sector (OTS) as part of the third sector review (final report published in July 2007). This includes capital expenditure on the Community Assets Fund and the risk capital fund for social enterprise, which have both been through a rigorous process of consultation and development before start-up. The Community Assets Fund is now well underway with 38 projects given in-principle funding commitments by the delivery partner. The risk capital fund for social enterprise is in the process of assessing proposals for a national fund management partner and co-investor.

2.   How much funding will you have to provide, in 2008-09 onwards, for phase two of the Futurebuilders programmes? Did your CSR settlement negotiations with the Treasury explicitly recognise a possible need to provide funds for phase two of the Futurebuilders programme?

  As set out in the final report of the third sector review, the Government is committed to providing a further £65 million to the Futurebuilders fund over the 2007 CSR period. The CSR settlement provided to the Cabinet Office includes funding to implement the commitments in the third sector review.

3.   In winding up the Futurebuilders Fund, the Resource Accounts show that £77m in the account was transferred back to the Cabinet Office, for onward surrender to the Consolidated Fund. To what extent did this treatment of this income, rather than treating it as Appropriations-in-Aid, diminish the Cabinet Office budget available for phase two?

  In March 2008, the cash balance of £77.235 million held on the Futurebuilders Trust Account (a commercial bank account) was transferred to the Cabinet Office's Office of HM Paymaster General Bank account, and the Trust Account closed, prior to the expiry of the tri-partite agreement. Futurebuilders Funds totalling £77.235 million were reported as "other amounts collectable on behalf of the Consolidated Fund" in the 2007-08 Annual Report and Accounts—See Notes 5 and 19 to the Accounts.

  HM Treasury were consulted as to the correct treatment of the funds. Their advice was to treat the funds as a Consolidated Fund Extra Receipt (CFER). In 2008-09 Cabinet Office will make settlement of the CFER and will draw down an equally large amount of supply to afford this payment.

  The treatment of the £77.235 million Futurebuilders Funding as a CFER has no impact on the future budget.

4.   You provided £33 million in grants to Capacitybuilders in 2007-08, whose accounts were qualified because £434,000 of grants paid by the NDPB were made to incorrect recipients (Cabinet Office Annual report pp119 and 161). To what extent has this disrupted your distribution of grants to Capacitybuilders, or changed the sum disbursed?

  The process of distribution of grants from the Cabinet Office to Capacitybuilders and sums disbursed has not changed. Cabinet Office has worked with them to ensure that this now incorporates more direct oversight from us in Cabinet Office and Capacitybuilders has implemented a more robust grants payment system (see response to Question 5 for more details).

5.   What assurance do you now have that grants to Capacitybuilders support wholly appropriate grant-making by that NDPB?

  Since the end of the 2007-08 financial year, Capacitybuilders has implemented a new grants payment process which is considerably more robust and systematic than before and which integrates the grant making process with the existing accounting systems. Four of the additional controls now present are:

1. All key documentation is reviewed and any anomalies are resolved and signed off by the Capacitybuilders Director of Finance before an account is set up. Annual accounts are also reviewed prior to setup.

2. Each new recipient receives a £1 test payment into their nominated bank account—this must be confirmed before any further grant money is released.

3. The Capacitybuilders Chief Executive Officer, as Accounting Officer personally reviews and signs off each payment run.

4. The Cabinet Office Finance Director discusses and finally signs off each payment run with the CEO of Capacitybuilders.

  This process has been reviewed on several occasions by the Internal Audit Service of Communities and Local Government (IAS), which provides Internal Audit Services to Capacitybuilders. It has been endorsed by them. In addition, at the last Internal Audit visit, IAS reviewed all grant payments made in the current financial year and found that all had been correctly authorised, all documentation was in place, and there were no payment anomalies.

  Capacitybuilders has also introduced a risk based continuous monitoring framework. This requires each grant recipient to be risk assessed using a Red—Amber—Green (RAG) rating, with responses to this rating varying from continued payments (green) to suspended payments and a verification visit within 30 days (red). These RAG ratings are continuously updated throughout the life of the programme, in response to monitoring returns and intelligence gathered. Additionally, a random sample of grant recipients each year are selected for a verification visit. This framework ensures that Capacitybuilders is continuously managing, and rapidly responding, to the risk associated with inappropriate payments.

6.   In 2007-08 there was a large (24%) annual increase in the cost of Supporting the Cabinet, while there was a 9% decrease in the cost of Supporting the Prime Minister (as indicated on p133 of the Resource Accounts). What is the explanation for these divergent trends?

  The explanation for divergent trends in Supporting the Prime Minister and Supporting the Cabinet net costs between 2007-08 and 2006-07 is primarily attributable to programme near cash and non-cash costs. See page 105 and 106 of the accounts.

  The 9% decrease in net costs in 2007-08 for Supporting the Prime Minister is attributable to the decrease in programme other near cash costs for Directgov, reflecting the sliding scale annual contribution from the Department and e-Delivery relecting transition costs incurred in 2006-07; decrease in programme other non-cash costs due to significant number of Transformational Government assets in 2006-07. Many business units support the Prime Minister and it is the costs relating to Directgov and e-Delivery which have significantly decreased contributing to the decrease in the Supporting the Prime Minister net costs. See Note 11 to the Accounts.

  The 24% increase in net costs for Supporting the Cabinet is due to the increase in programme grant expenditure for Office of the Third Sector; the increase in the main tranche of development work on Phase 2 of SCOPE Programme; offset by a decrease in the grants paid out in respect of the Government Security Zone due to programme delivery rescheduling and; a decrease in income which was payable to the Consolidated Fund due to unexpected return of unspent grants by recipients and the reduction in the interest outcome from Futurebuilders Trust Account. Many business units support the Cabinet and it is the significant changes in the costs/income relating to the Office of the Third Sector, SCOPE programme and the Government Security Zone which have contributed to the increase in the Supporting the Cabinet net costs. See Note 2, 11 and 13 and pages 105 and 106 to the Accounts.

CSR TARGETS—NEW PSA'S AND DSO'S

7.   The table on pp71-74 in the Annual Report describes the Department's DSOs, including the performance measures that will be used to monitor progress. The table includes details of performance targets for the Service Transformation Agreements (DSO 4), which aim to reduce people's "avoidable contact" with departments and rationalise government websites. From what baselines will improvements over the CSR period be measured?

  Further information on the Service Transformation Agreement and related baselines will be reported in the Cabinet Office Autumn Performance Report 2008.

8.   For DSO's 2, 3b & 5: what are the baselines against which improvements will be measured, and what are the specific targets to be achieved?

DSO BASELINES

DSO 2 Baseline

  The baseline position was formed through the Cabinet Office Capability Review in 2006. the Autumn Performance Report will detail progress against this objective.

DSO 3b Baseline

  DSO 3b baseline includes four measures indicating the health of the third sector overall:

—  Participation in formal volunteering, measured by the Citizenship Survey. The baseline is 27% of people formally volunteering at least once a month. The improvement that we are looking for over the 2007 CSR period is a statistically significant increase.

—  Number of full-time equivalent staff employed in the Third Sector, measured by the Labour Force Survey. The baseline is currently being agreed. The improvement that we are looking for over the 2007 CSR period is a statistically significant increase.

—  Percentage of Government funding to third sector organisations which is secured for three years or more, measured by the Departmental returns to the Office of the Third Sector. We have just completed the first formal data collection from the central Government Departments on grants to the third sector. The baseline is 65.7% which reflects the average percentage of grants that are for three years or more across central Government Departments. The improvement that we are looking for over the 2007 CSR period is an increase in the percentage of Government funding to the Third Sector which is for three years or more.

—  The quality of the local environment for the Third Sector, measured by a new National Survey of Third Sector Organisations. The fieldwork to establish the baseline and the improvement required is underway and we expect to have results in the spring of 2009.

DSO 5 Baseline

  Further information on the measures identified for this objective will be reported in the Cabinet Office Autumn Performance Report 2008.

9.   Delivery of the KPIs under DSO 2 is via a "Stakeholder survey of Ministers and Departments on the coherence, quality and timeliness of advice and support provided to the Prime Minister, Cabinet and Cabinet Committees" (p71). Could you share the results of this survey with the Committee, along with any analysis available?

  To retain the confidence of those involved, stakeholder surveys of Ministers and departments cannot be disclosed.

10.   DSO 6 includes an aim of ensuring that staff are aware of and abide by standards of propriety (Annual Report p74). How will this be measured?

  DSO 6 aim of ensuring that staff are aware of and abide by standards of propriety will be measured by, for example, responses to the Civil Service Commissioners' survey on promotion of the Civil Service Code. The Civil Service Commissioners surveyed departments in May 2008. Their Annual Report 2007-08 published on 15 July 2008 says that "the survey sample responses indicate a great deal of positive activity within departments and agencies to promote the Civil Service Code". Further detail will be reported in the Cabinet Office Autumn Performance Report 2008.

11.   The PSA 16 Delivery Agreement notes that "no national targets or minimum standards will be attached to these [PSA 16] indicators". Instead individual Local Strategic Partnerships will be encouraged to set local targets (Delivery Agreement, paras 2.2, 3.63-3.66). Why has the Government not set a national target for PSA 16? Without one, how will you assess success or failure on this PSA?

  The Government is committed to a statistically significant improvement in the performance of each of the eight PSA 16 indicators. We will work with local authorities to help them set, and deliver on, appropriately ambitious targets for their local area; but as three of the indicators are new with only proxy baseline data, and the mental health/accommodation indicator is new without a suitable proxy baseline, it was not appropriate to set additional national-level targets for this PSA. Further detail will be reported in the Cabinet Office Autumn performance report 2008.

12.   The Annual report mentions "a set of PSA reviews aimed at identifying and tackling barriers to public service delivery" (p46). What does this entail, and when will the results of those reviews be ready? Will the results be published?

  Together, the Cabinet Office and the Prime Minister's Delivery Unit (PMDU) reviewed the arrangements for nine PSAs against a common framework of key building blocks for successful delivery (such as performance and programme management). The aim of these reports was to provide a frank and confidential assessment to the Ministers of the challenges facing delivery in the first months of the spending period and produce recommendations on how to respond. Departments have responded positively to the recommendations and delivery planning for the PSAs has strengthened as a result.

PSA TARGETS FOR SR-2002 AND SR-2004

13.   You indicate that you will provide a final assessment for the PSA target 1 (2004 Spending Review) once 90% of all SR2004 PSA targets have been finally assessed. When do you anticipate making a final report on this target?

  It is the responsibility of the Departments to provide final assessments for their individual SR 2004 PSAs in their public reporting as soon as the necessary performance data for these assessments is available. Differences in the data time lags across the set of PSAs means that HMT/CO are not able to say when the 90% figure for final reports will be reached and, therefore, when we will be able to provide a final assessment on PSA target 1. However, in the meantime both CO and HMT continue to provide interim reporting on the performance of PSA target 1, and this will be reported in the Cabinet Office Autumn Performance Report 2008.

14.   For PSA target 2 set in the 2004 Spending Review, you report that in 2006-07, out of 607 competitions (presumably for SCS posts), 229 (38%) were open competitions, and that in the same year there were 552 new entrants into the SCS, of whom, 196 (38%) were new external entrants (p81). Please could you provide comparative data for 2004-05 and 2005-06 if available, as well as for 2007-08? For 2006-07, how many of the open competitions appointed existing civil servants, as opposed to new entrants?

  The SCS figures for the year 2004-05 were, out of 569 competitions, 245 (43%) were open competitions and there were 478 new entrants into the SCS, of whom 169 (35%) were new external entrants. For 2005-06 the figures were, out of 657 competitions, 259 (39%) were open competitions and there were 576 new entrants into the SCS, of whom 172 (30%) were new external entrants. For 2007-08 the figures are, out of 771 competitions, 305 (40%) were open competitions and there were 533 new entrants into the SCS, of whom 157 (29%) were new external entrants.

  For 2006-07, 89 open competitions appointed existing civil servants.

15.   For PSA target 2 set in the 2004 Spending Review, you report on diversity across Government in the Annual Report, but the most recent data you provide is from October 2007 (p82). If it is available, could you provide more recent Government-wide diversity data for PSA target 2? When do you anticipate being able to make a final report on this target?

  Final reporting on the diversity element SR 2004 PSA 2 target will be included in the Cabinet Office Autumn Performance Report 2008.

EFFICIENCY PROGRAMMES

16.   You indicated to us last year that you would be unable to meet your Lyons staff relocation target. The latest Annual Report notes that only 41 posts have been relocated from the South-East, the same figure as at March 2007. A joint review with the Office of Government Commerce has decided that the existing target—225 posts relocated by 2010-11—should remain, even though there has been general agreement that the Cabinet Office will not be able to meet it and has made no recent progress towards meeting it (p86). Can you explain the rationale for retaining this target?

  OGC decided, as part of the joint review with Cabinet Office, that the target should be retained. This ensured that Cabinet Office was treated in the same way as any other department.

17.   The Cabinet Office CSR `Value for Money Delivery Agreement' notes that Administration expenditure savings "will include reducing staff numbers where it is appropriate" (para 11). How does this envisaged staff reduction tally with the data presented in table 6A in the Annual Report (p102), which shows steady staff numbers over the CSR period, and an increase for business planning purposes on the actual figures for 2007-08?

  The staff numbers for 2008-09 to 2010-11 presented in table 6A (page 102) are current business planning assumptions. Whereas, the VfM Delivery Agreement refers to staff reductions, where they are appropriate and are identified, stemming from VfM administrative savings over the VfM reporting period.

18.   Finally, the Annual Report mentions a new approach to the annual staff survey based on measuring levels of employment engagement (p59). Could you share the results of this survey with the Committee, along with any analysis available?

  The results of the Annual Staff Survey can be found at http://www,civilservice.gov.uk/iam/staff_surveys.asp

  I trust that the Committee finds this information useful and that this letter answers its questions. If the Committee has any further queries about the expenditure of the Cabinet Office in 2007/08 or indeed any other issues which may have been raised in this response, then please do not hesitate to contact me.

December 2008