Pensions, programmes, Paul Mason and public services

It is great that normal service has been resumed at the BBC. But the NUJ’s strike may be a foretaste of pensions disputes to come.

I was surprised to read Paul Mason – the Economics Editor on Newsnight – quoted in The Guardian suggesting a solution to the pension dispute would be for the BBC to sell assets, securitise them (as some local authorities are doing), or spend less on programmes. While asset disposal and securitization may be appropriate, I doubt the idea of spending less on programmes will be popular – will that be making staff redundant or opting for cardboard Crossroads-style sets?

I am sure that some people will be posing the issue of public sector pensions in terms of pensions versus pupils, pensions versus patients, etc but I was strange for a union activist to suggest that a trade-off should resolved at the expense of public services.

The significance of the benefits cuts controversy for the rest of the public sector

The kerfuffle over the changes to Child Benefit and Housing Benefit must raise doubts over how viable the path set out by the Spending Review will be. Both sets of “reforms” may not survive coming into contact with the real world. There are serious practical problems with their implementation. The numbers involved are significant – as always the losers from any change are very vocal but in this case there are no apparent winners; in the case of the Housing Benefit caps the media will be able to show emotionally charged footage of families and pensioners being evicted. (For a fascinating look at the numbers involved, the Data Blog of the Guardian has an interesting analysis.)

This is only the start. Hardly any media coverage has been devoted to the changes to Council Tax Benefit. From April 2013, CTB will be replaced with grants to councils who will be able to set their own local criteria for payments. The central government funding is being reduced by 10% - saving £0.5bn a year by 2014/15. Tom Clark on the Guardian has pointed to echoes of the Poll Tax.

In last week's Public Finance Ian Mulheirn of the Social Market Foundation set out how the difficulties of implementing reform will blunt the blade of George Osborne's axe.

In addition to the political challenges of cuts, there is the inevitable uncertainty surrounding the macro-economy.

So might the Spending Review be jettisoned? Probably not given the political priority given to deficit reduction. (Interestingly there is speculation about another Spending Review in 2012 and then a pre-election one in 2014. Nevertheless these are more likely to see only a tilt on the tiller.)

If deficit reduction is here to stay but some of the welfare savings are not tenable – what takes the strain? The Spending Review gave several spending departments more generous departmental expenditure limits than expected as a result of headroom created by “welfare reform”.

Good and bad news about the college sector and its financial health

The fog may be clearing after last week's Spending Review - or at least being displaced by new fog.

This week’s Times Education Supplement suggested that the £500 savings on Education Maintenance Allowances would be recycled into 16-18 funding. However, it raised doubts over whether this would be sufficient to fully fund the increase in the participation age aka “the school-leaving age”. The former Department for Children, Schools and Families estimated the cost would be £774 million, while the education economist Professor Alison Wolf has estimated that the figure might be £1.5 billion.

The TES article reported that George Osborne had promised that the 16-18 budget would increase in real terms although it would be spread over greater numbers of students.

Yesterday’s Financial Times had more depressing news for general FE colleges. It highlighted government estimates that deep cuts would lead to three-quarters of FE colleges becoming “financially inadequate”. The government now hopes that plans for increased fees – with more student support via loans – will ease the pain. The proposed framework parallels the Browne proposals for higher education and builds on the report by Christopher Banks which proposed greater co-payment in further education.

Deciphering the Spending Review for sixth form colleges

The Spending Review is somewhat challenging to interpret in some areas. Yesterday’s Financial Times editiorial accused George Osborne of “obfuscation” and said that “what should have been a sober presentation was cheapened by political spin”. I am not going judge on that - partly because I am more concerned and somewhat perplexed by what the SR means for sixth form colleges.

There was no mention of 16-18 funding in the SR speech. But it was in the SR report. The Department for Education (DFE) press release states:

As we move towards full participation by 2015 we will secure reduction in individual unit costs

What does that mean exactly? It clearly implies increased numbers will mean lower funding rates. But will those rates be lower in real terms or – more worryingly – in cash terms?

How big is the overall 16-18 pie? I guess it may shrink by something like the 12% real reduction for non-schools DFE spend. It may be a little less as DFE and quango administration costs are being reduced by a third and Educational Maintenance Allowances are being replaced by a scheme costing 90% less.

If the pie is shrinking in real terms by perhaps one-tenth and then it is spread over a larger number of learners, are funding rates likely to fall by about one-fifth in real terms?

There is also the issue of who gets the 16-18 pie. Will general FE colleges get more as their offer may be more attractive and appropriate to many of those currently not in education and training? These colleges will certainly be very keen for funding given the severe cuts in the FE budget.

It certainly seems like many sixth form colleges will be facing a hard times, if not as bleak as general FE colleges. It will be reminiscent – but perhaps much worse – than the efficiency gains required of colleges during the 1990s.

The Spending Review and public sector pensions

In all the media coverage of the Spending Review there has been little on the extra 3% of pension contributions implied that public sector workers will have to bear.

I did a highly unscientific piece of research. By putting the words SPENDING REVIEW PUBLIC SECTOR PENSION into Google News Search I got 834 results, whereas SPENDING REVIEW got 23051. Does that mean that less than 4% of news articles do not mention the new 3% “pensions levy”? Perhaps. I found one mention in yesterday’s 10 page Spending Review special in the Financial Times. It is perhaps inevitable that the media coverage should focus on the broad macroeconomic impact and the implications for public services and those who rely on them.

The pension levy is not a surprise. In Ireland they have had introduced one as part of the austerity programme. (Their levy rates go from 5% to 9.6%.) Lord Hutton’s interim report on public sector pensions passed the issue of employee contributions over to George Osborne rather than deferring it to his final report on structure and entitlements.

Nevertheless, the pension levy is significant. It will ease a small part of the frontline impact of the real spending cuts being applied across the public sector outside schools, overseas aid and (arguably) the NHS.

The impact will be felt by public sector workers – many of whom face a two year pay freeze.

How will the trade unions respond? The UNISON press release on “For CSR read Cuts Strange Recovery” omitted all mention of the pension levy. Maybe the public services union realises that public sector pensions is not an issue that will win hearts and minds. Perhaps UNISON did not spot the rather unclear references in the speech and report.

I think this issue will gain profile in the Spring when the government acts on the Hutton Report. By then the imminent local government pension scheme valuations may have pushed public sector pensions further up the news agenda.

Axe Wednesday – what it means

Today promises to be interesting, to say the least. The Independent has branded it as Axe Wednesday. According to Mike Smithson on Politicalbetting.com it will determine the outcome of the next election.

In today’s Financial Times, Andrew Adonis - former Labour minister and now director of the Institute of Government – warns:

The downsizing unveiled this week represents one of the biggest challenges faced by British government since the second world war. Without fundamental changes on these lines, it will simply be about cuts not improvement.

The government’s plans involve the biggest cuts since the Geddes Axe of the early 1920s.

The National Institute for Economic and Social Research believes that the government’s plans for public spending cuts are unachievable. It suggests that the government will end up raising taxes by 2% of national income – more than £30 billion a year – close to the 2015 election. This echoes earlier skepticism from the Social Market Foundation.

Prophecy and the Spending Review

I was intrigued to see a firm advertising for a “Prophet Modeler”. Apparently Prophet is a liability forecasting system. Nevertheless, at this time there is a need for foresight.

While double-dip fears seem to have receded, no one can tell what a huge fiscal retrenchment (significant public spending cuts and maybe a step change in pension contributions for public sector workers) will do to consumer confidence. The optimists promise a "choppy recovery".

These concerns plus the practical issues with cutting spending and contracts in the short-term explain speculation about some re-profiling (aka delay) in the fiscal squeeze. Likewise, Chris Huhne's suggestion of Plan B from within the Cabinet.

Looking for a silver lining, the ferocity on fiscal policy is likely to be offset on the monetary policy. (While the bankers to a college that I work with love to send me terrifying articles from the Daily Telegraph warning of 8% base rates, I suspect that base rates will say low for a couple more years. Of course they can only go in one direction but I am less worried about interest rate risk than six months ago. There are plenty of other things to worry about and highlight on the risk register.)

I will be interested to see the Office for Budget Responsibility's forecast next week - the first under its new chair, the respected former head of the Institute for Fiscal Studies, Robert Chote. It may be overshadowed by the cuts but it will give some clues to the whole economy impact.

Post-16 alphabet soup – who survives and how?

Maybe I was naive but I thought we might learn today something of the new regulatory landscape in post-16 education. However, today's quango hit list merely notes on the Young People’s Learning Agency:

Under Consideration - Subject to education structural reforms

I thought that the Skills Funding Agency and Higher Education Funding Council might merge. It was in the Liberal Democrat manifesto. But according to the Times Education Supplement this is now unlikely. Vince Cable has changed his mind. On today’s list HEFC survives as a quango.

So maybe the YPLA and the SFA may merge? The SFA was not mentioned on today’s list as it is an Executive Agency rather than a quango.

TSA (and other quangos) - fate announced

It was not a very well-kept secret after being leaked in Inside Housing. But the Cabinet Office list is out (pdf available) and it officially announces the Tenant Services Authority is being scaled back and absorbed into the Homes and Communities Agency.

The list says:

No longer an NDPB - Abolish body. Regulatory functions passed to Homes and Communities Agency. Independent economic regulation safeguarded. Consumer regulation slimmed down

While a focus on financial viability and governance is welcome, there will need to be adequate safeguards for residents.

Internal audit in a new world for local authorities

Today I attended CATs - Cipfa’s Audit Training in the Midlands – as someone who more than dabbles in internal audit and sits on an audit committee. The session started with a overview of internal audit and governance by Robin Pritchard, Professor of Internal Audit at Birmingham City University. Professor Robin stressed the importance of stakeholders in governance and hence for internal audit.

As over 90% of the audience at CATs were local authority internal auditors it struck me how they were about to face a tsunami of change. A couple of the speakers touched on cuts and “transformation” in local government. What was not mentioned was the likelihood of new models of local government.

In Lambeth there is the John Lewis Council – a Labour council seeking to become a “co-operative council” by hiving-off functions to mutual organisations and community ownership. Then there are the easyCouncil models with Conservative councils adopting the budget airlines as a template.

Recently there was Suffolk County Council which is developing a vision of an “enabling council” with many activities (and almost all staff) divested. This clearly chimes with the Big Society rhetoric of central government.

In all of this there are new models of local government with a scaled back core and a series of out-sourcing relationships going far beyond past and partial contracting out. Of course thrown into the mix are shared service centres and even shared management teams.

So where are internal audit in all this? Does it shrink? And just look at contract compliance and performance? I suspect that will not be enough.

If governance and internal audit is as much about stakeholders as Professor Robin says, internal audit has a key role. It will need new approaches and skills – probably more training and seminars too.

Free schools – numbers, expectations and reality

Today there is bad news for the free schools movement and its highest profile exponent, Michael Gove.

The Financial Times warns that the first wave of free schools might consist of only eight schools or fewer. An assessment by Department for Education officials says that the “majority” of the 16 proposals for free schools that have been approved to open in September 2011 are “likely” to miss five of the 14 deadlines that officials believe must be met.

There appear to be issues with the appointment of Principals by the December deadline and having in place fit-for-purpose buildings in time. There are also uncertainties over transport-related planning requirements.

This revolution – like so many in history – may have raised expectations that it will struggle to deliver.

The "spirit of openness" and its compliance costs

Central government has put details of its transactions worth over ₤500 on the internet for “armchair auditors”. Local government is doing likewise. This week’s Inside Housing reports that the housing minister Grant Shapps wants housing associations to follow suit in a “spirit of openness”.

If housing associations have to start opening the detail of their books, maybe other independent organisations such as academies and colleges will have to. There are levers to make this kind of thing happen. Colleges already have to publish online their governing body minutes - its enshrined in their governing instrument and articles.

While openness is desirable, such arrangements will have onerous compliance costs, especially for the smaller organisations. Maybe the publication of senior managers' and board members' expenses would be a more practical way forward.

In a Pickle: the Coalition, the Audit Commission and an article in Public Finance

There are all sorts of explanations of why the Coalition plans to axe the Audit Commission. It is clear that Eric Pickles was not keen on the Commission. If he reads CIPFA’s journal, Public Finance, he’ll be even more keen to have the watchdog put down. This week’s edition carries an incredible article by David Walker – the Guardian journalist turned Director of Communications at the Commission.

In many respects the article, Are you sitting comfortably?, is a rigorous discussion about and robust argument for evidence-based policy making and evaluation – the kind you would expect from the Commission. But David Walker goes much further in presenting “his own views” as a polemical broadside on the Coalition, its proposed abolition of the Commission and its suggestion that “armchair auditors” scrutinise public spending.

In case Eric Pickles was still sitting comfortably, David Walker needles on other topics. For example:

Two glaring examples of evidence-less policy-making stand out from the early months. Gove ploughed ahead with ­parent-run schools without pausing for breath; Health Secretary Andrew Lansley produced his GP consortiums plan fully cooked from his back pocket. Both might have been given geographically delimited trials and both appear to be examples of the hasty policy-making for which the Opposition caned Labour a few years ago.

The government also ceased funding speed cameras without a review or appraisal of costs and benefits. Culling quangos might cut independent appraisal; ministers have seemed unconcerned. The National Policing Improvement Agency – its abolition announced in the summer – has been working on the effectiveness of CCTV. Now there is a subject armchair auditors might have strong views on. What if they clashed with the objective evidence put forth by the analysts?

It’s a great read.

I doubt the Coalition was ever going to think again - in spite of the concerns about how Council performance and value for money will be scrutinised objectively after the Commission - but the article means that a highly improbable U-turn became an impossible reprieve.

Free schools – policy and September 2011 numbers

Will the Coalition's policy of free schools fly? An early measure of success – or failure – will be numbers. Later the researchers will study the effectiveness of free schools in improving attainment – but they will need some schools to put under the microscope.

September 2011 will be a key date. The government is apparently working on the assumption of 20 free schools opening in 2011. (As this number is barely whispered, it cannot really be called a target.)

Will there be 20? Maybe, perhaps not. But the numbers are affecting policy around the edges.

On Friday the website building.co.uk reported that as few as five “free” schools might open in September 2011. There was also the suggestion that the government might approach firms on the academies’ project management framework to get the schools set up, rather than allowing school groups to recruit their own project managers

Earlier in the week the Financial Times reported that “a dozen” free schools might open in 2011. It also indicated that several high-profile projects, including the proposed Bolingbroke Academy in Wandsworth and Toby Young’s West London Free School, are now facing delays.

At the weekend the FT also suggested that Michael Gove might give faith schools and independent fee-paying schools more “leeway” to join the 2011 cohort of free schools.

We will have to watch this space.

The NAO on staff costs in "a period of spending reduction"

Last week the National Audit Office published A framework for managing staff costs in a period of spending reduction. Its a timely guide - less than two months until the Spending Review on October reveals where the axe will fall in terms of Whitehall departments. The NAO suggests that the guide is relevant to the "wider public sector" beyond the central government departments who are the primary audience of the NAO.

I have only had a quick scan of the report but I noticed that the "context" warns:

In their planning assumptions, departments have been asked to produce plans of what budget reductions of up to 40 per cent would entail. We expect departments to need to explore the more radical strategic and sustainable cost reduction options ... in order to deliver savings on this scale.

It goes on:

however, delivering cost reduction of this nature usually demands higher implementation costs and longer timescales. This increases risk and therefore requires a clear strategy from the outset, as well as strong project management and control if expected savings are to be delivered.

The report identifies the challenges in conducting staff cost reduction activity. It also stresses the key elements required including high quality management information and robust data analysis.

Private sector interest in free schools

This weekend the BBC reported the high level of private sector interest in free schools.

Of course, for-profit companies cannot launched their own free schools. Michael Gove has stated that a not-for-profit governing body must always oversee a school even if for-profit company runs things on a day-to-day basis.

I would prefer free schools (and many other public services) to be run a mutual not-for-profit basis. Mutuals involve their customers, motivate their staff, build trust when there are conflicting interests and/information inequalities. However, I do think that the ban on for-profits is unfortunate. It will, to a greater or lesser extent, reduce the choice offered to parents.

Informed analysis on public policy: the NHS reforms and other changes

With so much change swirling around public services it’s useful to have a place to go for informed analysis. Today I stumbled on the LSE's British Politics and Policy blog which features a wide range of academics. Some of the bloggers, such as Tony Travers, are found in publications like CIPFA's Public Finance; others are more elusive (I cannot remember reading anything by Nicholas Barr since studying public sector economics at university sometime ago.)

This morning I read with interest Julian Le Grand’s thoughts on the Coalition’s plans to overhaul the NHS. Le Grand is a former advisor to Tony Blair on public service reform. He describes Andrew Lansley’s proposals as “impressive” with “their origin in policy reforms initiated by John Major’s Conservative government in the 1990s and subsequently developed by Tony Blair’s Labour government”. Similar sentiments were expressed last month by another advisor to Tony Blair – Simon Stevens wrote in the Financial Times that the Coalition’s plans take forward earlier reforms blocked by “internal opposition”.

The Big Society, charities and reserves: money too tight to mention?

Today’s Financial Times quotes research from the National Council for Voluntary Organisations which found that 36% of charities are operating hand-to-mouth without any cash reserves.

The FT suggests that this raises “profound doubts about whether [these charities] can survive the imminent cull of Whitehall budgets and help deliver David Cameron’s “big society”.

The article notes the current squeeze on contracts and grants. It also observes that some funders are wary of supporting charities with significant reserves and that funding sometimes only covers costs. Of course, some trustees may also bear some responsibility for failing to address the issue of reserves and setting a reserves policy for maintaining financial viability.

Academies, crisis management and risk management

Last week the website Children & Young People Now carried an article about changes to the academies funding agreement. Various duties have been erased – how these deletions are interpreted depends on your perspective.

One of the requirements struck out was the duty to have a crisis management plan in place before an academy opens. While I am all for reduced bureaucracy for academies (and other schools too), I do hope that academies do still have appropriate arrangements in place before opening.

Crisis management plans are is basic risk management – and it’s not too difficult either. There are plenty of templates on the internet. For example, here, here and here. Have a look; take your pick; tailor to your organisation; and be prepared for the unexpected.

There is no need for lots of consultancy from people like myself – although my rates are very reasonable!

For guidance on risk management more generally, the Academies Financial Handbook is a wealth of information. The Handbook includes templates for risk registers, although I do believe that a simpler methodology may be more user-friendly and manageable for academies. (There is a revised Handbook in the pipeline so there may be amended guidance and templates when that arrives.)

With academies - and organisations generally - it is vital that risk management becomes a continuous thread through governance, management and operations rather than a ritual that is "done" periodically.

Academies and free schools: useful resources

The whirlwind progress of the Academies Bill through Parliament and the controversy that the subject of schools reform attracts, may leave one or two heads being scratched. Thankfully, there is an excellent summary of the new legislation on the Montrose42 blog.

Another new resource is the Free Schools Resource group on LinkedIn. Its only been up and running a few days but its growing fast. It offers a forum for sharing news, views and queries as well as networking.

ROOFless after 35 years

It was disappointing to get the final issue of ROOF this month. For 35 years ROOF has been campaigning and covering housing policy.

The magazine has provided the serious analysis so often missing from the mainstream media.

The magazine will be particularly missed at a time when there are so many worrying developments - not least the cuts in Housing Benefit proposed in the Budget.

The only good news is that everyone can now access the magazine's online archive.

Qualified accountants in academies – an optional extra?

Today the magazine Education Executive reports on Michael Gove’s reassurances to prospective academies that they do not have to have a qualified accountant on their staff:

“The Academies Finance Handbook currently recommends that finance directors of academies are qualified accountants because of the additional demands compared with maintained schools, in terms of preparation of accounts," Gove wrote. "However, there is no actual rule that there must be."

Gove said it was "perfectly possible" for the bursar of the previous school, "if suitable in other ways", to become the academy finance director. "An effective member of the senior management team is much more important than technical knowledge of charity and company accounts," he said. Gove also pointed out that such technical expertise could be bought in if necessary.

I would not necessarily disagree with that. (If I did, I would have to declare an interest: I am a Chartered Accountant who works with academies.) However, I would add that what can be most dangerous are the unknown unknowns – you do not always know when you need to call in the “technical experts”.

An understanding of company law and charity accounting is essential – bursars will need that if they are to navigate risk and avoid constantly calling upon accountancy firms.

Where schools become academies, they are entering a brave new world – one of threats as well as opportunities.

What academies need to know about NHS accounting and foundation trusts

Monday’s NHS White Paper is likely to lead to NHS Foundation Trusts (FTs) being moved off the public sector balance sheet. I wonder if this may herald changes down the line in how academy schools (and free schools from 2011) are accounted for.

Academies are similar to FTs – they are independent, not-for-profit (or more precisely, not-for-dividend) entities delivering public services. Historically academies and FTs have found themselves accounted for as part of the public sector.

Google can help with most things but I have never found the Office for National Statistics’ justification for putting academies on the public sector balance sheet. I presume it is a reflection of Whitehall’s control over academies – and maybe the fact that they were originally proposed as “independent state schools”. The accounting treatment is quite different from that applied to Further Education Colleges and Sixth Form Colleges.

Does any of this matter? It’s not accounting anorakism. Sitting on the public sector balance sheet means that academies are consolidated into Whole of Government Accounts – and that requires additional information to be collected and returned by academies. Being an integral part of the public sector also reflects a mindset where the emphasis is on being state schools rather than independent schools.

If academies do follow FTs off the public sector balance sheet, maybe they will be allowed to borrow in the same manner as colleges have to improve their buildings. That may be very useful given the squeeze on capital funding in the public sector and the demise of Building Schools for the Future.

The Big Tax rise for the Big Society

I try not to spout off on this blog. But I am concerned about the impact of the VAT rise on charities. (Colleges too will be hit.) The Charity Tax Group estimates the impact to be £143m.

As well as a campaign by the third sector to protect charities, there is an online petition in support of a proposed amendment to the Finance Bill. I urge you to sign it.

Size can be bad for your (college financial) health?

The KPMG report on Delivering Value for Money through Infrastructural Change found “evidence that larger colleges may be more efficient and have the advantage of economies of scale”. The graphs certainly show administrative costs fall with overall costs. This finding was a key underlying hypothesis in the report. More perplexingly the report also found that when comparing the percentage of General FE (GFE) colleges’ surpluses against their total income: “It shows a slight negative correlation between total income and surplus as a proportion of this. This is an emerging finding which we will be exploring further.”

The report does not really explain this peculiar finding that larger GFE colleges have worse financial performance despite lower admin costs. The demise of the LSC and the squeeze on consultancy fees may have put the kibosh on a further exploration.

Was the analysis of the 2007/8 college accounts a historical anomaly? Maybe not. I cranked the numbers for GFE colleges using the 2008/9 accounts. (As I suspect that Greater London with its high costs and extra funding may distort the picture, I excluded London colleges. I also omitted Newcastle College which is so much larger than the rest of the sector.) What I found was a slight deterioration in operating surplus as a percentage of income as income increased.

How can this be that larger GFE colleges have much lower admin costs and slightly lower surpluses? Maybe these colleges are shifting resources from admin to the front line. There is some evidence for this as success rates and inspection results suggest larger colleges perform better non-financially. (Of course, larger colleges are better able to prepare for inspection which may not always mean that the outcomes are so much better.)

Another explanation might be that larger colleges suffer other diseconomies of scale which eat up much of the benefit of lower admin costs.

I do also have a nagging doubt about the data. The KPMG report shows a huge dispersion in admin costs at almost level of overall costs (their proxy for college size). Have we measurement problem? The KPMG report writers sensibly included plenty of caveats in their report – not least on the unvalidated nature of the data that they were given to analyse. In my experience of looking at benchmark data in colleges and in other sectors such as housing, accountants have difficulty in categorising costs even when there is clear guidance.

Do problems in dividing costs between admin and other categories explain why we have these much lower admin costs and slightly lower surpluses? I wonder if these problems do explain some of the peculiar findings – maybe larger colleges, as a consequence of size, have difficulty in identifying the admin costs in the remote reaches of their empires and in distinguishing admin from other support in curriculum areas.

Any other explanations?

KPMG on the college sector, financial health and “infrastructural change”

I am currently reading KPMG's report for the Learning and Skills Council, Delivering Value for Money through Infrastructural Change. The report was published recently by the LSC's successor, the Skills Funding Agency. It is more interesting than it sounds - at least to those working in the college sector. It reviews the FE sector, current delivery models and potential institutional change.

(I will forgive the report's use of the American term "organizations" and the misspelt reference to the "Robins Report" [sic] on Higher Education in the 1960s.)

While a wake-up call to colleges should not be necessary the Executive Summary warns:

The financial health of the FE sector is in general deteriorating rapidly, and requires urgent action.

The report provocatively notes:

Some Governing Body members may tolerate a more relaxed view of deficit and insolvency than in their day job in the private sector.

The report also believed that the regulatory framework was such that:

... there appears to be implicit in these statements [by the LSC about intervention], and the actions that have followed, the view that some degree of failure is to be tolerated and there are no immediately dire consequences of delivering a deficit budget; instead, a protracted period of dialogue with the LSC is envisaged. In our experience, the consequence of the time this process takes for some LSC’s and Principals and Governing bodies is that one or both may be complacent for too long, or strive to elongate the dialogue, before robust remedial action - by which time it is often too late to salvage the college. The option of closure for a failing college is not seriously contemplated by colleges as a consequence because it has happened so rarely.

The report goes on to suggest that the current regulatory arrangements also hinder new ways of working and structuring institutions in the "FE system".

Tenant Services Authority – stay of execution?

Today’s Financial Times reports that the Coalition is having second thoughts about abolishing the Tenant Services Authority.

The report indicates that practical problems are causing anxiety for the Treasury. There are worries about crystallising a £80m pension shortfall. There is also a risk that £50bn of housing association borrowing could be placed on the government balance sheet if the arms length regulator disappears.

The Coalition had already said that it recognised that independent economic regulation of social housing is essential for housing associations continuing to be considered low risk (and worthy of cheaper borrowing). Maybe the TSA will be kept as such a regulator.

The unachievable budget?

Over the last few days the Institute of Fiscal Studies has predominated in the commentary on the implications of the budget for public services. This is understandable when an independent and well-respected think tank warns of "the longest, and deepest sustained, of cuts to public service spending since (at least) WW2". The IFS also suggests that higher education, home office, justice, transport and housing could see spending cut by one-third over this parliament.

Less media profile has been given to the Social Market Foundation who have suggested the scale of cuts are unachievable:

The tax measures announced today mean cutting over £60 billion from public spending over the next five years. With universal benefits protected, the NHS needlessly ring-fenced and the unaffordable triple lock on pensions, cuts elsewhere will be swingeing which would undo their efforts today to protect the least well off.

The state's creditors want the deficit closed and they don't much care how it's done, so long as the plan is viable. The danger for the Government is that the country simply won't swallow this level of cuts to public services - hair-shirts have never flown off the shelves. It's therefore likely that the Chancellor will be back with more taxes before long.

Today’s free school revolution?

There has been a lot of discussion about the academies bill (and a few postings on this blog!) which will potentially cut loose high-performing schools. There has been less attention (until today) given to the Conservative proposals for free schools - allowing parents, teachers, charities etc to set up independent state-funded schools.

While the free schools idea builds on provisions introduced by the Labour government for parent-sponsored academies, the new Coalition is planning to clear obstacles to such schools. In particular, they promise to make it easier to secure sites for new schools by allowing a wider range of sites, including residential and commercial property, to be used as schools without the need for ‘change of use’ consent and by creating a presumption in planning guidance in favour of setting up of new schools.

There is still a lot of scepticism about free schools and whether "parents really want to run schools".(Of course, in headteachers will play the leading role in running free schools albeit with accountability to parents.) Often the most sceptical are people who would normally be keen on co-operatives.

The examples of Swedish free schools and American Charter Schools show how free schools here offer an opportunity to transform education in this country - particularly if a pupil premium for disadvantaged children is given sufficient financial weight.

The government has published information on the Department for Education website and encouraged anyone interested to link up with the New Schools Network who already have hundreds of local groups interested in setting up their own schools.

Revised Charity Commission guidance on finance, risk and black swans

Last week the Charity Commission published four updated sets of financial guidance for charities. The documents cover risk management; financial difficulties and insolvency; reserves and internal financial controls.

The Commission says that the guidance has been revised to reflect new developments and the challenging economic climate that charities now face.

The updates include guidance on controls over internet banking and safeguards against fraud and financial crime (Internal Financial Controls) and a checklist of key questions for trustees to establish their charity’s financial position (Financial Difficulties and Insolvency).

Interestingly the Commission is warning charities to beware black swans – i.e. the high-impact, hard-to-predict and rare events spotted in Nassim Nicholas Taleb’s book.

The Commission notes (Charities and Risk Management):

If an organisation is vulnerable to a risk that potentially might have an extremely high impact on its operations, it should be considered and evaluated regardless of how remote the likelihood of its happening appears to be. Charities need to find a balance and they will need to weigh the nature of the risk and its impact alongside its likelihood of occurrence. With limited resources, the risks and the benefits or rewards from the activity concerned will need to be considered. It is important to bear in mind that on rare occasions improbable events do occur with devastating effect, at other times probable events do not happen.

Of course, the trickiest aspect of black swans is knowing what they are. High-impact and low-probability risks are often off the radar. Nevertheless rigorous risk management helps: the organisation with contingency plans for staff absence arising from pandemic flu will be more resilient when coping with absences due to volcanic ash grounding Europe.

Cuts, EMAs and alumni

This week’s Public Finance has an interesting article about by Conor Ryan about the Coalition’s education policies.

I was disappointed to read that Education Maintenance Allowances face an uncertain future under the Coalition. These grants were introduced to widen participation at 16-18 as well as promote achievement through linking payment to attendance. (A nudge before behavioural change became a fashionable policy agenda.)

When the independent and respected Institute of Fiscal Studies tracked the effects of EMAs, they found improved participation and achievement in education for disadvantaged students. In the case of minority ethnic there were “strong and significant improvements”. (The pdf can be found here.)

As the Coalition is committed to social mobility, EMAs should be safe in their hands. But if EMAs are to be reduced or abolished, perhaps some colleges might be able to do something.

I have always wondered why sixth form colleges, at least, do not see alumni as an opportunity. Might some old girls and boys be interested in contributing something to ensure that others share in the opportunities that they enjoyed? Universities do it – why not sixth form colleges?

Michael Gove and academies: an update on numbers

The Times Education Supplement reports that only 200 extra new academies are expected in September as a result of the proposed Academies Bill. The timescales did look rather challenging.

I cannot find online the impact assessment for the Academies Bill that the TES quotes but I will add a link when I do.

Academies and free schools: practical problems?

As over 1,000 schools have responded positively to Michael Gove’s suggestion that they might like to become academies, it is inevitable some thought and media attention is given to some of the problems and practicalities.

Yesterday’s Times carried an article about the “complex problems” involved including staffing, land use and administrative capacity. As there are over 200 existing academies I am sure that many of these problems are neither new or insurmountable although I am sure that some of the smaller academies will struggle to cope with independence.

The Times article was strangely silent on the biggest issue of practicality: time. Is it realistic that secondaries and primaries making a decision now will be up and running by the start of the autumn term? Michael Gove is clever man so I assume that he has thought that through.

The media focus on the morphing of existing schools into academies has overshadowed the policy agenda around new providers – “free schools”. Last week the Guardian carried an interesting article about the application of European Union procurement rules to contracts to manage free schools. (Michael Gove has spoken of for-profit businesses managing the day-to-day affairs of free schools for not-for-profit governing bodies. In Sweden many of the free schools are run by for-profits such as Kunskapsskolan who operate over 30 secondary schools.)

Revised Corporate Governance Code issued

This week the Financial Reporting Council launched governance the June 2010 revision of The UK Corporate Governance Code. While it is essentially obligatory for UK listed companies, its influence extends further as best practice or more – the previous versions have rippled through the public and third sectors informing both regulatory expectations and self-regulated codes of governance.

I will not try to summarise it prematurely. However, there do not appear to be any radical changes although some may ask why not given the recent problems at UK plc. For me a couple of issues stand out in the revised Code.

Firstly, the Code requires the boards of FTSE 350 companies to have externally facilitated evaluations at least every three years. This should, hopefully, lead to more rigorous self-reflection.

Secondly, the Code continues to promote board renewal with board members nudged to stand down after nine years. The Consultation queried the so-called “nine year rule”. (This still allows a degree of flexibility: non-executives can serve more than nine years but are subject to annual re-election.)

Academies: what the papers (and commentators) say

Following this week’s Queen Speech The Guardian usefully carried an article on “What is an academy?” For a more partisan introduction (as well as recent news about open and proposed academies) there is always the Anti Academies Alliance.

I am not aware of any media commentators saying much about the uncertainty around how many school heads will opt for academy status. It was interesting to read in the FT that Michael Gove had cautioned against what the “dartboard politics” of announcing targets. On the other hand he clearly wants academies to be the “norm” at some point.

The unions obviously think Michael Gove is serious. In yesterday's Times the leaders of NASUWT, NUT, ATL and Unison had a letter published voicing their unions’ opposition to the Coalition’s policy and academies more generally:

We believe that an essential principle for all education reform must be that it raises educational standards. All of the independent evidence confirms that academy schools do not deliver better educational outcomes for pupils, cost more money, and create widespread inequality and social segregation.

On his blog former No10 adviser Mathew Taylor described how experience overcame his doubts about academies but he also expressed some skepticism about the Coalition’s new moves:

What had reconciled me to the Academy policy was, first, the way it channelled new capital expenditure into deprived areas and second, that the extra element of diversity and innovation would be good for the system as a whole. The new policy is different in both aspects. The redistribution element has gone, indeed it must be most likely that it will be more privileged schools and sets of parents who take up the new freedoms and funding streams. Second, rather than putting grit in the oyster of the local schools system the policy is now to smash the oyster entirely.

An key issue is whether the academies push will affect the time, attention and resources given to the free schools policy. The latter policy promises (or threatens) a supply-side revolution with an influx of new providers.

We live in interesting times.

Housing and the Coalition: TSA lives on?

Before the election there was some uncertainty over whether Grant Shapps would have housing brief in a Conservative government. Last week Mr Shapps was given responsibility for housing in the Conservative-Liberal coalition. The tolling of bells for the Tenant Services Authority could almost be heard ...

Yet looking at the full coalition agreement, there is no reference to the abolition of the TSA. In fact there is not much about housing at all. A quick CTRL+F unearths a few references: abolishing Regional Spatial Strategies, converting farmyard buildings into homes, reviewing the Housing Revenue Account (again), using empty homes and promoting shared ownership.

I suspect things may get more interesting.

Setting colleges free: the full coalition agreement

The full coalition agreement published yesterday does mention colleges.

The Government believes that our universities are essential for building a strong and innovative economy. We will take action to create more college and university places, as well as help to foster stronger links between universities, colleges and industries.

We will seek ways to support the creation of apprenticeships, internships, work pairings, and college and workplace training places as part of our wider programme to get Britain working.

We will set colleges free from direct state control and abolish many of the further education quangos. Public funding should be fair and follow the choices of students.

On quangos it sounds like the Conservative manifesto:

We will set colleges free from direct state control and abolish many of the further education quangos Labour have put in place. Public funding will follow the choices of students and be delivered by a single agency, the Further Education Funding Council.

While there is no explicit reference in the coalition agreement to reviving the FEFC, a re-arrangement of the funding bodies for post-16 education (excluding universities) may only be a matter of (legislative) time.

The new coalition and education

The new coalition agreement (pdf available) has a section on education. It talks about schools and universities - but no mention of colleges. Maybe we will soon learn what is to happen to general FE colleges, sixth form colleges and the quangoes that fund them.

College accounts and principals’ salaries

The Skills Funding Agency has posted on is site, a spreadsheet of the 2008/9 college accounts for both general FE colleges and sixth form colleges. It’s sad but true that these attract most interest when it comes to principals’ salaries. These accounts do offer material for useful benchmarking.

On the subject of salaries, looking at general FE college principals and comparing like-for-like (some colleges have been merged out of existence and others have emerged), it appears that average principal has had a 4.4% pay rise in 2008/9.

Even if a few of those principals will be hit by the new 50% tax rate, I think here may be some pressure in 2009/10 for pay restraint amongst college senior post holders.

Stakeholders, politicking and elections

Next week the election will almost definitely be called. Whoever wins in May, there will be a huge influx of new MPs as so many are retiring at the general election. Alongside the political turnover and maybe change, there are major developments in the regulatory landscape: in post-16 education there are new quangoes plus changes in the role of local authorities; in social housing a nearly-new regulator is introducing a new set of standards. All this poses opportunities and threats.

With all this going on, have the leaders and managers in public services been thinking about stakeholder management? Probably not in many cases. Even if you are busy, it is helpful to identify and strengthen critical relationships.

Last month Inside Housing had a excellent article on navigating relationships with national and local politicians successfully. It has relevance well beyond social landlords.

First class expenses?

It was only a matter of time before Freedom of Information requests would reveal that college managers had – shock, horror - claimed expenses.

The Hinckley Times found that the principal of North Warwickshire and Hinckley College had claimed expenses for first class train fares and a trip to Canada when she was invited, with a student, to be part of the Calgary 2009 Premiere Experience by UK Skills.

It’s hardly a duck house. In fact, it sounds bona fide. But it is a reminder that colleges (and others working in public services) need to manage potential risks to their reputations.

Spring of discontent?

I might have been a bit too busy to blog recently but I have been reading other people’s postings. As we see outbreaks of industrial unrest, it is worth having a look at Rene Lavenchy’s blog.

Rene Lavenchy writes for Tribune and appears to have excellent sources. Last year the blog was ranked ninth in the Guide to Union Blogging (pdf available). A few weeks ago I was doubtful when I read that a deal was set to be agreed between the Royal Mail and the postal workers’ union – then a modernisation deal was announced yesterday.

As public sector pay, pensions and jobs are in the line of fire, how unions are able and willing to respond will be a vital issue for all of us.

The TSA and co-regulation – reasons to be cheerful?

At one of plenary sessions at the National Housing Federation’s National Board Members’ conference at the weekend, the delegates were asked to put up their hands if they were optimistic about the future for housing associations in the brave new world of the Tenant Services Authority.

The TSA’s new approach to “co-regulation” (neatly described as self-regulation with a backbone of intervention in the Cave review of social housing regulation) is a new departure. The TSA is having a bonfire of over 50 pieces of regulatory guidance.

From now on housing associations will be regulated on the basis of “outcome” rather than “process”. It’s not a new idea – “by their fruit you shall know them” has been around almost 2000 years. It may be more tricky in practice for regulators to sit on the hands and await outcomes – especially if things go wrong elsewhere and fear of blame fosters risk aversion. Moreover, it is worth noting that a good process is not guarantee of a good outcome even with effective risk management – we live in uncertain times meaning that bad things happen to good organisations and vice versa.

All this may be academic - the TSA may well end up slung onto its own bonfire by a quango-culling Conservative government.

Nevertheless, a more targeted approach to regulation must be a good thing for housing associations – especially as it is associated with a re-orientation towards customers through resident scrutiny. As well as a welcome development, it does pose challenges – grown-up governance requires an end to clinging to regulatory guidance as a substitute for serious thinking.

So I did put my hand-up. I hope my optimism is not misplaced.

Public sector pay – political dynamite?

Last week’s hopeful news on unemployment overshadowed some interesting facts from the Office of National Statistics on pay. Over the last year public sector total weekly pay rose by 3.8% compared with a year ago but in the private sector it fell by 0.1%. On the same day local authorities proposed a 0% pay rise for their employees.

This issue (plus public sector pensions with imminent local authority fund valuations) may well see some industrial unrest and political debate in forthcoming months.

2010: which way now?

It seems like commentators don’t know where we are going. There is inevitable uncertainty as the fiscal and monetary stabilisers are likely to come off in 2010.

The uncertainty is most acute with the housing market. Last weekend the Financial Times had a couple of articles setting out predictions for house price rises – or, rather, falls.

In one of the articles the predictions varied from a optimistic 5% rise from Stuart Law, the chief executive of Assetz, to a more than 10% fall from one of the paper's own columnists.

The other article asked 70 professional economists if houses were now reasonably valued: 13 believed they were, 55 said they were not and two did not want to hazard a view. Naturally those who thought house prices were over-valued disagreed on by how much. The respected National Institute of Economic and Social Research suggested that house prices were 10-15% too much.

Of course, a double-dip recession, maybe triggered by a crisis budget or the end of quantitative easing, may have a few ramifications for the housing market.

Happy New Year.

Change on the way: accounting in education, housing and charities

Today I am heading for London. I am on CIPFA’s FE/HE Panel. One of the items on the agenda is convergence towards International Financial Reporting Standards in the accounting for the education, housing and charities sectors (so-called UK “public benefit entities”).

The week before last I was at a consultation event for these “third sector” sectors following an Accounting Standards Board discussion paper. A key issue for debate is whether there is a need for further sector guidance, possibly filling a similar role to the SORP guidance for these sectors. I think this a recognised need within the three sectors as they have together and individually particular issues. I am confident that accounting regulators are listening.

Pay day: salaries in the news

Today’s news that employers' group CBI and recruitment firm Harvey Nash have found that half of all British employers plan to freeze pay will no doubt stir the debates around pay and fairness.

I’m not a regular reader of The Times but on Friday I picked up a free copy last week and read a couple of articles about pay.

The inflammatory headline Public sector workers laughing all the way to the bank caught my eye. In fact the content was a bit more subtle than that. A typical public sector worker may now earn £74.20 a week more than their private sector equivalent. The figures are partly distorted by bankers joining the public sector. (One factor not mentioned is the fact that now a lot of the lowest paid jobs have been out-sourced by the public sector to the private sector.) Nevertheless in the run up to next spring’s election the pay and the public-private divide will be a sensitive issue.

There was also a report about criticism of “greed, bonuses and supersized pay packets” in the voluntary sector from the union Unite. I personally do not have a problem with high salaries for managers in the not-for-profit sector, including the general secretaries of my old union Unite. The key thing is transparency and payment for (good) results.

Code unknown: the third sector code of governance

In a couple of weeks the consultation ends on the revised third sector code of governance. When it was launched in 2005 the original code, Good Governance: a Code for the Voluntary and Community Sector (pdf available), was a real step forward for the voluntary and charitable sector. As there was more talk and even action on the third sector running public services, it was vital that the sector raised its game.

It was disappointing to read on the Third Sector website that more than a quarter of the respondents to the code consultation had not heard of the original code. There is still some way to go…

Going Dutch – self-regulation and the problems of housing associations in the Netherlands

The Conservatives’ plans for social housing will re-open the debate over regulation: if the TSA is abolished, many in housing associations (and certainly the National Housing Federation) will advocate self-regulation on the Dutch model. Meanwhile the housing associations in the Netherlands are having some problems.

Last week it was reported that Dutch housing associations had posted an average loss of €1.2m - the first time the sector has failed to make a profit in well over a decade. This will put under strain the sectors own arrangements to rescue troubled associations. While the financial problems may be largely outside the control of the associations, the self-rescue and the self-regulation arrangements tend to support each other.

Cuts: Labour and further education colleges

Yesterday’s Observer published confidential papers that show plans for £350m of further education cuts in 2010/11.

The paper listed options including:

- Cutting by 10% of the funding of adult apprenticeships.

- Delaying the introduction of "skills accounts".

- Reducing funding for Train to Gain scheme.

I hope FE colleges are preparing for the future whoever wins the election.

Catchup - the Conservatives and regulation of social housing

Life has been busy - mostly working with organisations in the overlap of the public, charitable and education sectors. This month I will try to reserve more time for this blog.

This weekend I have been catching up on last month's issues of Public Finance. It was disappointing to see that the Conservatives appear to be planning to re-arrange the regulatory landscape for English social housing as part of the crusade against quangos. If the Tenants Services Authority is doomed, there will have to be a new regulatory regime otherwise lenders will be wary of lending to housing associations - or, if they do, it will be at higher margins.

Can’t get no satisfaction (statistics): reporting performance

One of the most promising developments in public services in recent years has been the increasing attention to customer satisfaction - whether those customers are students, patients, residents, or whoever. Often regulators require the publication of satisfaction statistics. When the results show improvement, public sector organisations do no need much encouragement.

I was therefore interested in the latest newsletter from my local NHS hospital trust. The headline was "Survey reveals patient satisfaction is on the up":

Significant improvements since 2007 included:

- The hospital room or ward was very clean - up 12%
- Always offered a choice of food - up 12%
- Doctors always washed or cleaned their hands between touching patients - up 10%...

But where did that take the Trust? What were the new percentages? (How many doctors had dirty hands?) How do the new percentages compare with last year's? What were the old percentages? What about the average rates for other comparable hospitals?

There were no charts illustrating any of this. Just words.

Perhaps the article was not intended to report performance - only tell of how the Trust was on "on the up". But accountability is about reporting performance.

Death by Powerpoint

If you’ve ever suffered death by Powerpoint in meetings or training, this may amuse:

(I found the link on Jon Moon's website, which I have recommended before.)

10:10 vision: making a carbon commitment

Last week I was pleased to see that public and third sector organisations making the 10:10 pledge i.e. committing to cut carbon emissions by 10% in 2010. There are ten universities as well as dozens of schools.

While some carbon-reducing measures will have cashflow and budget implications which may preclude speedy implementation at the current time, other measures may save money as well as the planet.

I am actively seeking to reduce my business mileage which is significant albeit driving a low carbon car. Making the 10:10 is consistent with that. I will sign up although I am no sure whether I do that personally or as Deed Consulting.

The Combined Code review – board evaluation and external facilitation

Another issue in the Financial Reporting Council’s Second Consultation on its Review of the Effectiveness of the Combined Code is the suggestion that the Code be amended to recommend that board evaluations should be externally facilitated at least every two or three years for some or all companies.

This proposal follows the Walker Review of the governance of the banks. The Walker Report recommended:

The board should undertake a formal and rigorous evaluation of its performance with external facilitation of the process every second or third year.

I certainly believe this is relevant to the public sector and third sector. (And its not just because I would happily facilitate, support or validate board evaluation.) While many organisations in these sectors have adopted board self-assessment (and in the case of housing associations board member appraisal), these processes can be lacking in rigour. Too many board members are asleep either metaphorically or literally. An outsider can more easily challenge a board member than his or her peers. Moreover, an external facilitator can bring an independent perspective and wider experience when some boards may not realise that they are not performing as well as they could or should.

No limits? Board renewal and good governance

Writing governance codes must seem like painting the Forth Bridge. It only seems like yesterday that the Combined Code was revised – now we have a new revision. In fact this summer saw the Financial Reporting Council issue a Progress Report and Second Consultation on its Review of the Effectiveness of the Combined Code.

I will not try to summarise the ideas kicked around in the Second Consultation. (KPMG’s Audit Committee Institute have published a useful guide in its Quarterly.) A couple of ideas did catch my eye.

In the section on Board Balance and Composition, one of the specific issues for further consideration is the question of:

whether the so-called “nine year rule” has resulted in a loss of continuity and valuable experience.

While the Combined Code applies to listed companies, it sets the pace for governance beyond – not least the public and third sectors.

The nine year rule is definitely an issue in the housing sector. A nine year rule has been recommended by the National Housing Federation for several years. It remains controversial. Several housing associations dodge the issue by starting the clock for the nine years when the rule was introduced rather than when the board member was appointed. Imagine the uproar if banks were so blatant in ducking best practice on board renewal! (I know that many long-standing board members bring commitment, experience and continuity but perhaps those board members could bring even more to other organisations as well as allow fresh blood.)

Sadly, there is barely an issue in the college sector where I have done work on governance since the mid-1990s. The Learning and Skills Council raise the issue in its guidance but in the absence of any code of governance for the sector, the recommendation lacks profile.

I hope that the Financial Reporting Council will keep the nine year rule although it needs to be framed appropriately and applied flexibly so that board renewal - with effective succession strategies – supports “continuity and valuable experience”.

Whatever happens, I’ll be stepping down as a board member in the not-to-distant future when my time is up.

Post-16 education changes: things can only get better?

This week’s Public Finance reports that the Learning and Skills Council’s chief executive has warned of something close to chaos as the quango is dismembered – part becoming the Young Peoples’ Learning Agency and part the Skills Funding Agency.

Geoffrey Russell writes in the LSC’s annual report: ‘As the transition progresses over the next year, there are significant risks that the LSC will not be able to meet its objectives, staff morale will be affected and systems of internal control will break down.’

Those of us who have worked with colleges for several years will remember the dislocation caused when the Further Education Funding Council and forty-plus Training and Enterprise Councils were put together less than a decade ago – pulling organisations apart is even more disruptive than putting them together.

The histories of the FEFC, TECs and LSC suggest that the SFA and YPLA will share the same fate.

If the Conservatives enter government next year, the next upheaval may come even sooner. David Cameron’s rhetoric about a bonfire of quangoes chimes with noises from his party about resurrecting the FEFC – re-creating a funding body with a narrower remit than its successors and removing from local authorities their new funding role in 16-18 education.

We’ll have to watch this space.

Regulation, governance and social housing: moving from self-assessment compliance to continuous improvement

A couple of flights across Europe offer the opportunity for catch-up. I used some time to read Governance: A discussion paper published last month by the Tenant Services Authority. The paper asks how the TSA should regulate governance on a cross-domain basis for all social housing providers – i.e. “across whole entities for not-for-profit registered providers and across the housing activities of for-profit providers”.

The discussion paper clearly sets out the issues and recognises the diversity of providers in a potentially mixed social housing economy. However, I am not convinced it faces up to the challenge of the kind of rigorous but focused regulation needed when addressing not-for-profit and for-profit providers. (I would argue that the financial turbulence buffeting social housing recently requires regulation targeted at promoting tenants interests and protecting public investment – which is not the same as more prescriptive or interventionist regulation.)

The discussion paper describes the current regulatory arrangements and notes that the self assessment compliance statement is “a key and significant part of our regulatory engagement”. The first question asked by the discussion paper is:

What elements of the existing approach to the regulation of governance should the TSA carry forward?

I would suggest that the self assessment compliance statement should be rejected or , at least, radically re-cast. I think it encourages a tick-box compliance mentality rather than fostering self-reflection. The TSA should ask where they see weaknesses and areas for action rather than requesting a “compliance statement”.

A document based on identifying scope for improvement should then be validated against an organisation’s financial and operational performance – internal and external audit reports, audited financial performance, reported operational performance indicators, etc.

The TSA says:

We are considering applying a range of assessment methodologies including:

- self-assessment by registered providers’ boards

- feedback/assessment from residents

- and stakeholders

- benchmarking and peer review

- independent validation/audit of a particular function/s

- accreditation

- the TSA’s assessment of certain key indicators of good governance

If that is focused and rigorous validation of performance about ensuring that governance is delivering for customers and protecting the public interest, I am in favour. But social housing providers do not need a paper chase.

School league tables: past performance is not necessarily a guide to future performance

Many of the opponents against choice in public services rely on weak arguments. “The middle class will benefit” – yet they already win by having the resources to choose through moving into catchment areas (or buying in the private sector); ”the poor don’t want choice” – yet surveys demonstrate otherwise; “what people want is a good local school/hospital/whatever” – yet choice (with competing providers) is a means to that end.

I was therefore interested to read an article in the latest bulletin of Bristol University’s Centre of Market and Public Organisation, Research in Public Policy. The authors of Are league tables any use for choosing schools?

George Leckie and Harvey Goldstein studied the statistical significance of value added scores and concluded:

... when taking account of this uncertainty, the comparison of schools becomes so imprecise that, at best, only a handful of schools can be separated from the average school or from one another with an acceptable degree of precision. This implies that publishing league tables to inform parental choice of school is a meaningless exercise, as parents are using a tool which is not fit for that purpose.

In particular, they noted the lag of over five years between the parents looking at league tables when choosing a school and the children sit their exams. Five years a long time in the life of a school.

Does this information problem blow a hole in the argument for empowering parents and other customers of public services? I would suggest not – there are other measures of performance other than exam league tables. (There may, of course, still be value in value added league tables if failing or coasting schools raise their game through being either “named and shamed” or spurred by fear of falling school rolls.) Nevertheless the research does pose more of a challenge than the arguments usually wheeled out against choice.

Board members, finance committees and financial monitoring – need to know basis?

I recently heard a partner of an accountancy firm (and provider of audit services to the housing sector) say that housing association board members did not need any quarterly financial reports – as long as the board had a finance committee doing the board’s financial monitoring. My immediate response was one of both disagreement and disbelief.

In case I had missed something. I thought I would consider Treading the Boards (pdf available) – the Housing Corporation’s self-assessment framework for board performance. (A guide to housing association governance published in 2001 but still relevant. It also informed the Corporation’s regulatory expectations).

Treading the Boards stated that the “key roles or functions” of a board include:

Monitor[ing] the association’s performance against agreed targets and milestones through regular critical appraisal of financial, operational and development information

It made it even clearer saying that the board should be able to demonstrate that it:

regularly and critically reviews management information on financial and operational performance against budget /targets, the previous year’s figures and external benchmarks

It interprets regularly as monthly or quarterly.

But can board members contract out their financial monitoring role to a finance committee?

Larger, more complex, associations may have established business activity sub-committees that can address the critical issues in more detail than would be possible for the main board.

I read that as giving finance committees a role of detailed scrutiny – not the rest of the board ducking out of this key function. (While I am a great believer in the value of committees in governance structures, I’ve seen governance failure arising from boards being oblivious to the concerns being raised about financial issues in committees.)

What about guides to good practice outside the world of social housing? The 2003 Review of the role and effectiveness of non-executive directors by a committee headed by the now late Sir David Higgs noted:

Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.

That report considered this to be a “key element”. Subsequent events in social housing as well as the wider world have surely proven this and reminded everyone that we live in financially hazardous times.

Anyone suggesting that board members can pass the buck of financial monitoring to a finance committee should also pause and consider the fact that housing association board members will generally have the duties of a company director and/or charity trustee. These cannot be evaded in some kind of governance pass-the-parcel.

The NAO on the LSC: Train to Gain taking the strain

The recent select committee report on the Building Colleges for the Future programme received plenty of coverage in the media. The LSC escaped similar publicity following this week’s National Audit Office report on Train to Gain: Developing the skills of the workforce.

The NAO report concluded on the scheme’s value for money:

In our view, however, over its full lifetime the programme has not provided good value for money. Unrealistically ambitious initial targets and ineffective implementation have reduced the efficiency of the programme. While the rapid changes to the design of Train to Gain to gene rate employer demand have presented a considerable challenge for the LSC, inconsistent management and communication have led to confusion among employers, training providers and skills brokers, and have increased programme risks. Some providers have achieved high learner success rates, but for a minority success rates have been poor. Half of the employers whose employees received training would have arranged similar training without public subsidy, though it is possible that some of these learners (any not already qualified at level 2) were entitled as individuals to receive full public funding for such training.

In its recommendations the report went onto make a link with the Building Colleges for the Future crisis:

It is vital that Train to Gain avoids the pitfalls of the further education capital programme which became severely over-committed.

Perhaps it’s too late as many colleges face a financially and operationally difficult year as a result of their 2009/10 employer responsive funding allocations from the LSC.

Pandemic flu, absence rates and risk management

It now appears that the number of people off work due to coughs, colds and flu is three-times higher than normal for the time of year. What will happen when pandemic peaks? What if it comes back worse in the autumn?

What we do know is that many organisations risk management will be tested in the near future.

Over the last few years many people were disinterested in preparedness and tended to humour those of us were encouraged attention to the issue. I suspect this was, in part, due to the Year 2000 risk that never materialised. Hopefully next time people will look at the facts and assess the risks objectively.

Telling Fritz: lessons for the public and third sectors?

This weekend’s FT reports on the resurrection of General Motors. I was interested to see that the GM Chief Executive Fritz Henderson is to have a Tell Fritz website where employees and consumers can voice their views and concerns.

Perhaps organisations in the public and third sectors could so something similar. Certainly one or two organisations have drifted out of touch with heir customers and other stakeholders. I would allow engagement, involvement etc for those without the time and/or inclination to attend meetings or fill in questionnaires.

I would be interested in any examples of where organisations delivering public services are imaginatively using blogs to open up communication channels.

Ethics – not expenses?

It now seems that the expenses furore has died down. Its effects will be legion. One effect will doubtless be in the audit plans that internal auditors propose and audit committees consider.

Thousands of internal audit days will be devoted to checking the processes for expenses as internal auditors and audit committees will have been unsettled by the Westminster expenses scandals. If anyone needed a reminder of the seriousness of reputational risks, they have had it. (It’s worth noting that the ripples of the expenses row have reached both the BBC and charities.)

Will those internal audit days be well-spent? Definitely, sometimes.

Where expenses policies are poorly worded, inadequately applied and widely disrespected, some lessons may be learned and culprits may be caught. However, I do wonder if elsewhere the internal audit resource might be better deployed looking more widely at the ethical environment of organisations.

How often do internal auditors look at:

1) How a culture of ethical responsibility is fostered across the organisation?

2) How well codes of ethics are agreed, communicated and bought-in to?

3) How responsibility for ethical matters, legal compliance and reputational risk is allocated?

4) How effectively are social, environmental and ethical risks integrated into risk management?

5) How does the board set itself ethical standards (along the lines of the IoD’s Standard for Directors)?

The answer is not very often and maybe not very well. There is a risk that these kind of reviews degenerate into empty tick-boxing.

I am aware that some housing associations have renamed their audit committees as audit and ethics committees. It will be interesting to see if that means more than a nod in the right direction.

Certainly audit committees do need to look at the wider ethical scene rather go searching for duck houses.

Independent advice: governor training

The Independent website is carrying an article from the Chair of the Association of Colleges announcing the setting-up of a Governors’ Council to provide support and guidance. The Council is a useful addition to the college sector landscape.

John Bingham notes both the value and the limits of institution-specific induction and training.

I would also suggest that college governors (and other board members) can get value from being briefed and challenged by an external trainer or facilitator. (I declare an interest.) Too often colleges exclusively rely on “insiders” (the college’s own managers and auditors) to provide training on how to monitor performance (of managers and auditors).

A pre-election fix for the local government pension scheme?

This weekend’s FT reports that the government is thinking about allowing the local government pension scheme to have more relaxed funding levels than private sector schemes - as local government has “constitutional permanence” ie it does not have the same risk of going bust. This resolves a thorny problem – it makes the next actuarial valuation (and coverage of the funding black hole) in spring 2010 less of an issue in the run-up to an election.

What is less clear is how this would leave entities outside local government – notably some housing associations and all FE colleges – whose support staff are members of the local government pension scheme. These entities do not have the same permanent. Perhaps they will still face increased pension costs in 2010 and into the foreseeable future with implications for both their finances and their services.

Capital mistake: halving public investment

Amidst the arguments about cuts versus investment (and the unfortunate reference to “zero per cent” public spending rises by Gordon Brown), there is the undeniable fact that the government is winding down capital investment – the government plans to halve in the four years from 2009/10.

Earlier in the month Public Finance carried a useful survey of Capital Punishment - the implications of reduced capital spending. The college sector is already feeling the pain with dozens of rebuild projects being turned down for funding.

The FT on governance and risk management

Today’s Financial Times has a Special Report on Corporate Governance (available for free pdf download on FT.com). I’ve not yet read the full suite of articles but there is a good piece on risk management in the light of recent corporate failures.

Jeremy Grant notes:

… [T]here is much work to be done to figure out what kinds of risk management systems boards should have in the wake of the financial crisis. That exposed how information flowed far too slowly up to the board level to allow early diagnosis of problems.

While boards have policies and processes for risk, the critical information is not getting though in time. (I’ve certainly seen that in the public and third sectors – the private sector has no monopoly on risk management failure.)

The article also reports he wariness of some experts about whether the issue of risk management is too big for audit committees.

Latest instalment at Glasgow Housing Association

The situation appears to be worsening at the Glasgow Housing Association (GHA). It appears as if the Scottish Housing Regulator (SHR) is about to step in triggering a loan covenant default. (This isn't a good thing when such breaches lead to increased financing costs.)

The GHA with over 100,000 customers was created through a huge stock transfer.

We'll soon now more about what is going on when the SHR issues its new report on the association. One lesson that I think we’ll learn when we look back on this stock transfer is that changing a huge local authority housing department into a housing association in a big bang poses certain problems. Big is not always beautiful.

The feeling's mutual: building societies in the news

Today FT.com is carrying good and bad news about building society mutualism. The government is looking to promote and strengthen the mutual model in finance. Meanwhile, it looks like the West Bromwich Building Society may have to give up its independence and merge.