A sense of direction

In 1991 Douglas Hurd, the then foreign secretary, was handed a formal note from Tim Lankester, the head of the Overseas Development Agency – then part of the Foreign Office. In it, Lankester alerted Hurd to the fact that the Pergau Dam programme in Malaysia no longer looked like the most cost-effective way to help local people, and that he’d need a ‘ministerial direction’ – an authorising letter from the foreign secretary – to proceed.

“I made quick enquiries and found that Margaret Thatcher as PM had in 1988 formally committed us to the project in a letter to Mahathir bin Mohammad, the prime minister of Malaysia,” wrote Hurd in his memoirs. “Quite apart from the danger of offending him, the point of principle seemed clear. The British prime minister had made a promise.” After consulting with his own prime minister, John Major, Hurd instructed Lankester to continue. It was a decision he would live to regret; and one which was to have a lasting impact.

Governance matters
The formalities and systems of government have a long history. Indeed, the processes involved in decision-making by accounting officers – the officials responsible to Parliament for the spending of departmental funds – go back nearly 150 years, when the Exchequer and Audit Departments Act 1866 endeavoured to achieve better regulation of the “receipt, custody and issue of public moneys”.

The accounting officer is responsible for ensuring that the organisation for which they work “operates effectively and to a high standard of probity”, according to the current rules laid down by the Treasury. They should support their ministers with “well-reasoned, timely and impartial advice”; make decisions in line with official strategy; and meet Treasury requirements concerning the use of public resources. Critically, there are several areas where accounting officers are expected to take personal responsibility. These include propriety; value for money; and the management of opportunity and risk. If activities are required that the accounting officer feels they can’t justify under these banners – for example, if a proposal is ‘irregular’, meaning outside the legal powers, parliamentary consents or Treasury spending rules – then a ministerial direction is required. In short, only a minister has the democratic mandate to take risks with public cash.

In such cases, “the permanent secretary will talk about their concerns to the secretary of state, after which follows a long period of vigorous argument,” explains Peter Riddell, chief executive of the Institute for Government. “The aim of the permanent secretary is to receive a formal directive from the minister which is protection for them when they appear in front of a [select] committee.”

Over the last two decades, there have been 54 ministerial directions – a significant number, given that throughout history they have been viewed as the most powerful tool the permanent secretary holds: the “nuclear option”, as former cabinet secretary Gus O’Donnell once told Civil Service Live. CSW has obtained the details of these directions, and mapping them against key moments in Britain’s economic and political life seems to reveal some correlations.

There have, for example, been directions issued in every election year, including five each in 1992 and 2010 – elections which had very uncertain outcomes (see graphic). There were also directions during every year of Tony Blair’s first term, when the new government was pressing ahead with an ambitious programme of policy changes. And recessions – including the near-recession following the bursting of the dot.com bubble in 2000 – appear to prompt a spate of directions. Most obviously, there was an avalanche of directions in the second half of 2009 and the first months of 2010, when permanent secretaries – anticipating a change of government – were both keen to protect themselves against difficult questions from an incoming administration, and being asked by Labour ministers to fund an economic stimulus that took little account of the Treasury’s traditional spending rules.

What’s more, it’s likely that the number of directions has increased dramatically since Tim Lankester requested his letter in 1991. Evidence for this is scarce, because most of those issued before that date remain secret: just half a dozen were made public in the ‘80s, and only one in the ‘70s. But Lankester holds that they were used much more rarely in those days – and, given that he was intimately involved in the events that led to their routine publication, he should know. For Tim Lankester’s Pergau direction had far greater consequences than anyone had anticipated.

Aiding and abetting
It was the matter of value for money that motivated Lankester to request a letter of direction. “I objected not on grounds of propriety or regularity but because it was wildly expensive,” he explains in an interview with CSW. “ODA economists had said there were far better ways of achieving what the Malaysians wanted to do, and it was estimated the costs were £100m more than they needed to be. It was such a large extravagance that I judged I would require an instruction from ministers. I sent a minute to Lynda Chalker, who was aid minister, and one to Douglas Hurd, who was the cabinet minister. It was he who had to take the final decision.”

Hurd argues that he made what he thought was a fair and well-judged decision – and matters rested there until 1993, when a National Audit Office (NAO) report revealed the existence of the ministerial direction. Questions started being asked, which in turn revealed that the original arrangement made by Margaret Thatcher had been linked to an arms deal: something that was highly incompatible with British aid policy.

“I was deeply dismayed to hear from John Vereker, who was Tim Lankester’s successor [at the ODA], that not just the wisdom but the legality of financing the project was in question,” said Hurd in his memoirs. “It was one thing to have a political row with the Labour Party and aid agencies… It was quite another to be hauled before the courts on a point of law.

“Looking back, I can see that it was a mistake to act so quickly in 1991. If I had called an office meeting and summoned papers, no doubt the temporary link with arms sales in 1988 would have been revealed. Conceivably Foreign & Commonwealth Office lawyers might then have raised the legal doubt which [subsequently] surfaced in 1994. I would have had to think more carefully about the cost of keeping Margaret Thatcher’s word,” he added.

That ‘legal doubt’ was seized on by the World Development Movement, which took the government to court over its decision to spend millions on aid in exchange for arms. The government lost; a result that not only led to a rethink of British aid policy, but also reduced the powers wielded by ministers.

“Prior to this there had been a long convention that if ministers believed in their minds that the expenditure was in support of development, then it was accordance with the Act,” says Lankester; he’s referring to the Overseas Development and Cooperation Act 1980, which states that the secretary of state has the power to authorise financial or technical assistance if the purpose is to promote the development or economy of a country and its people. “But the court ruled against this. They felt that if experts thought [expenditure] was unsound, it could be overthrown.” What mattered, then, was “whether the development project could be judged sound,” he adds. “And on the evidence, the project was clearly economically unsound. The court therefore ruled that the aid for Pergau was unlawful.”

“In light of the court case I should have objected on propriety grounds as well [as monetary grounds],” Lankester concludes, emphasising that at the time he believed what he was doing was correct.

Crucially, the case also changed the way ministerial directions are recorded. “One of the consequences of the controversy was that it was decided that, in future, instructions should be made public and the Comptroller and Auditor General (C&AG) told,” says Lankester. Previously, directions requested on propriety grounds would have been passed to the legality auditor, with the National Audit Office chief only notified if a Ministerial Direction was an economic issue. Now the NAO was to be informed of all cases.

Questions for Labour
Some 16 years later, the impact of this public record-keeping was felt by the outgoing Labour administration, which was accused by the media and the new coalition government of squandering money in the final weeks of its rule – the frequency of ministerial directions in 2009-10 being used to add weight to that argument.

“Civil servants came under increasing pressure from ministers in the dying months of the Labour government to carry out expensive orders that they disagreed with, and responded by submitting an unprecedented number of formal protests in the run-up to the general election,” wrote the Guardian in May 2010, emphasising that the five requested that year marked “a big increase on the previous decade”.

In fact, the high number of directions in 2009 and ‘10 probably owes something to the looming election – with accounting officers keen to protect themselves from criticism from an incoming administration – and more to the very nature of an anti-recessionary economic stimulus: by definition, money spent to boost a flagging economy has a higher than average risk of showing a poor return, and is designed to produce results that are hard to quantify through traditional accounting methods. The business department’s Automotive Scrappage Scheme and the Treasury’s bank-protecting Asset Protection Scheme, for example, prompted three ministerial directions between them.

Of 2010’s five ministerial directions, two went to then-communities secretary John Denham: then-permanent secretary Peter Housden wanted a formal instruction to turn Devon, Norfolk and Suffolk into unitary councils, and to approve regional development agency funding for Blackpool Leisure Assets. In both cases, Denham says, he was right to press ahead.

Regarding the council mergers, says Denham, “Peter Housden’s concern was that what was being proposed was a more expensive option. He went through the arguments, which I took into account. It wasn’t a party political matter. There was cross-party support.”

He argues that the commitment to contribute to the revamp of Blackpool Tower with £7.9m from the North West Regional Development Fund was also justified. “From the advice and analysis, it looked like a good investment. Blackpool Tower is an important and iconic part of the tourism industry of the North-West. This secured its future for the long term,” he says.

In Denham’s view, ministerial directions are an essential mechanism in a democratic society. “There is no point having a democracy if ministers are unable to make a judgment that civil servants are wrong,” he says, adding that ministers need fair warning if a direction may be requested so that they can investigate the issues.

Although some newspapers and Conservatives made great play of the spike in directions during 2009-10, only the 2009 number of nine is truly unprecedented – and at least three of these were part of the economic stimulus or banking rescues. What’s more, Peter Riddell suggests that in future the number of directions may climb still higher, due to another factor: the growing “pressure from [Margaret] Hodge and the Public Accounts Committee.”

Somewhere to lay the blame
Riddell’s comments refer to how Margaret Hodge, Labour MP for Barking and PAC chair, has taken a more aggressive stance on civil servants’ accountability – suggesting that civil servants should be as accountable to select committees as they are to their ministers, and calling civil servants back to discuss decisions they took in previous jobs. Riddell believes that Hodge’s approach may make accounting officers more determined to keep a ministerial direction on file should they ever be summoned to defend a questionable decision. “Will the reaction of civil servants be to seek more [ministerial directions] to protect themselves?” he asks, suggesting that the PAC is blurring the lines between ministerial and civil service accountability. “We may see more [directions], as civil servants attempt to ensure a clear accountability trail in order to protect themselves from a more aggressive PAC.”

Tim Lankester agrees, but warns that a ministerial direction “doesn’t let you off”. He “always found appearing before the Public Accounts Committee pretty tough,” he says. “I got a hard time because PAC thought the department had mis-handled the issue in other ways.” However, he adds that “the more critical the PAC is, the more likely it is that civil servants are going to say: ‘Hey, this isn’t my responsibility’.”

The directions of travel
Since May 2010, the NAO has not received a single ministerial direction: with public spending falling fast, it is perhaps less likely that programmes will stretch the Treasury rules. But Cabinet Office minister Francis Maude is relaxed about the idea that accounting officers may in future ask for directions more frequently: “I was very surprised, through the last government, to see on how few occasions permanent secretaries asked ministers to give them written directions,” he tells CSW. “There will be plenty of times when civil servants may want to take a view that something doesn’t represent the best value… Ministers should be prepared to defend what they do.” Maude is also relaxed about Hodge’s moves to hold civil servants more closely to account, and may view an increase in ministerial directions as an inevitable and harmless consequence of a more active and strident Public Accounts Committee.

Ministerial directions do not, as Lankester points out, give accounting officers complete protection against criticism from select committees; but they probably do have a growing role to play in crystalising the dividing line between officials’ and ministers’ duties and responsibilities. After all, the media and select committees increasingly expect civil servants to answer publicly for their actions, no longer hiding behind ministerial accountability; and the government’s transparency agenda is dragging civil servants into the limelight through initiatives such as the publication of salaries and hospitality registers. If officials are to be held more closely to account against their own responsibilities, they will have a greater interest in being able to show that ministers have taken full responsibility for more political decisions.

When Hurd and Lankester went through the formalities of a ministerial direction over Pergau, they couldn’t have known that they were taking the first step towards formalising and making more public a new line between official and political responsibilities. Look back in another 20 years, and it could well be Hodge and the PAC who get the credit for an even bigger step change in the way government conducts its business.

See also: Betts praises changes to the NPPF