Interview: Richard Douglas

On Saturday 2nd March 1946 Oliver Franks, permanent secretary of the Ministry of Supply, told a meeting in the Treasury that the civil service needed to change. No longer was the organisation a purely regulatory body, he said. The establishment of the welfare state had given it managerial functions that required business and operational skills.
In the decades since Franks first made his observation, there have been many attempts to boost the business skills of the civil service, often focusing on financial acumen and project management.

Some of these initiatives achieved their specific objectives, but Franks’ observation remains true: the civil service is still not good enough at managing programmes, buying goods and services, and implementing policy. Government finance profession head Richard Douglas argues that the strengthening of technical capabilities evident in recent years hasn’t led to the broader cultural change that’s required. “We haven’t fundamentally changed financial management in government,” he says. “We’ve handled the technical side, we’ve handled the finance professional side – but we haven’t changed the way that government and civil servants think about money and its use.”

This lack of financial acumen is particularly problematic in the senior civil service, Douglas says, and has manifested itself in three ways. The first is a failure to make clear, long-term financial plans – exacerbated by the “annuality of budgets” – which has led to civil servants balancing the books by pushing financial problems further into the future rather than tackling over-commitments immediately. Linked to that is the second problem: a failure to prioritise. “There is a belief that spending is the answer, so we haven’t always made the hard choices in government,” he says.

Thirdly, “there has often been so much focus on the big policy issues that we haven’t dealt with the day-to-day spending and where waste might be,” Douglas argues. “Have we really thought at all levels about how we control costs?” The £3.7bn that has emerged from the Efficiency and Reform Group’s cross-government efficiency drive is evidence that there’s plenty of slack in governmental expenditure, he adds – especially given that the savings programme has only been in operation for less than two years.

The state of the UK economy makes financial competence all the more important, Douglas says: “We’ve got the tightest spending situation that any of us have ever known in government, and we’ve got it not just for the next two or three years of the Spending Review – it’s pretty clear it’s going to go on for quite some time afterwards.”

Douglas’s response to these problems is the Finance Transformation Programme, designed to improve all departments’ financial management and ensure that they can make informed spending decisions.

Transforming finance
Douglas speaks clearly and enthusiastically about the finance programme, eschewing caveats and rhetorical flourishes in true down-to-earth Yorkshire style. It is certainly not the measured grandiloquence of a stereotypical policymaker.

“Any fool can cut spending – you just cut the budget and people spend less,” Douglas says. “What we’re really trying to do is cut in a way that drives out waste and low-priority spending. The only way you can do that is by understanding the relationship between the money you spend and the outcomes you get”.

To foster a better understanding of finance at all levels of government, the programme is split into four key strands. The first relates to the leaders of organisations: permanent secretaries, ministers and non-executive directors. Permanent secretaries are, the programme says, to take charge of improving financial management within their organisations and put financial considerations at the centre of all decision-making.

In the past, some observers have noted that civil service finance directors have been marginalised in decision-making processes. For example, Adrian Pulham, a director at the Chartered Institute of Public Finance and Accountancy (CIPFA), last year told CSW that “often, the finance director in an organisation is the last person to be asked about whether a project is a good idea or not. The board will decide: ‘We want to do this,’ and then they ask the finance director: ‘How can we do this?’” (CSW 1 December 2011, p19). To tackle this problem, the transformation programme sets all departments a target of ensuring that the finance director “is a key member of the senior leadership team, positioned to influence all material business decisions.”

Douglas also wants to see departmental boards more concerned with the financial evidence underpinning decisions. Finance directors should, he says, analyse what boards are spending their time doing, and make sure that they see the evidence before making key decisions. He hopes that the National Audit Office will be monitoring this work.

Finance for all
The second part of the programme aims to implement a “cost-conscious culture” across the civil service, providing all civil servants involved in budgeting with some form of training – “from board level to shop floor, from finance functions to policy functions.” Financial expertise must be spread far beyond finance professionals, he says: “I don’t just want this to be focused on people who are called accountants. If that’s what we do, then we’ll fail.”
While he wants to increase financial proficiency, the programme isn’t intended to boost the number of qualified accountants across government. “Would I like all our senior civil servants to be financially qualified? Every senior civil servant an accountant? I think that would be a bit scary,” he says, chuckling. Finance shouldn’t be seen as only the domain of those with letters after their name, Douglas believes.

Instead of qualifications, he wants to promote a general understanding of finance across the senior civil service. At present, this part of the programme is still quite vague: responsibility has been delegated to Ann Beasley, the finance director of the Ministry of Justice, who will take it forwards. Emerging training hub Civil Service Learning has already developed an eight-hour basic training programme, called ‘Finance Skills for All’, which is available online for free.

The final two strands of the programme focus more specifically on finance professionals. One strand looks at how to build the skills of finance directors, ensuring that systems and processes work well and that decision-makers receive the right support. The other concentrates on the development of a central hub for finance skills and policies, based in both the Treasury and the Cabinet Office. Douglas is confident that these parts of the programme are already on a good footing, thanks to previous initiatives. All finance directors are now professionally qualified, he says, and the profession has been “incredibly successful” at driving up the standard of financial reporting and controlling.

Implementation
The programme was announced in January last year, and is slowly making progress. It has a ministerial sponsor – Chloe Smith MP, the economic secretary to the Treasury – who will be meeting with nominated ministers in each department to set out plans and track progress. Smith chairs a programme board that contains four finance directors and two permanent secretaries: Sir Bob Kerslake and Mark Lowcock, the only two permanent secretaries with finance qualifications.

Douglas hopes that Kerslake will include finance skills in his forthcoming civil service reform white paper (CSW 25 January, p5). “I’m hoping and expecting that Bob Kerslake will take this forward as a key plank of civil service reform,” he says.

Currently, Douglas is consulting to build up a picture of common finance failings across departments. However, he already knows some of the problems he expects to encounter: the low status of finance directors; poor collective leadership of departments; weaknesses in the integration of finance with strategy; and a focus on annual budgets rather than longer-term financial sustainability. To tackle these issues and others, the programme will run for at least three years, “because it’s not something that’s going to change overnight, and it will build and develop as we go along.”

The programme, Douglas argues, should not fall solely into the ‘tight’ part of the government’s ‘tight-loose agenda’ – something that would imply the unification of financial systems across Whitehall. He does not, he says, want “to standardise absolutely everything across government. There are some things we need to do in common, and we need to apply the same principles; but we’ve also got to recognise that there are different types of government departments.

“I think one of the problems in the past, in terms of getting ownership of this sort of change across government, has been that if it’s a programme run very much from the Treasury or the Cabinet Office, there has been a view that it’s a one-size-fits-all policy, and you can apply exactly the same thing in the same ways across all departments,” he continues. “That’s just not the case: you wouldn’t expect to run things in a department that employs lots of people and processes lots of transactions, such as HMRC, in exactly the same way as you would in the Department of Health, where most of that business has gone out there somewhere in the NHS.”

Rather than letting the Treasury run the programme, Douglas says that finance directors are keen to take ownership of it and use it to drive through change in their departments. This enthusiasm makes him confident of success, as does “clear ministerial sponsorship and appetite for this, which I don’t think we’ve really seen before, coupled with quite a pressure from the new non-executive members of boards, who see this a priority.”

Transparency
Another useful boost to the programme is the government’s transparency agenda. In the Department of Health, where Douglas works, he’s watched as growing transparency has revealed the variations in performance between NHS service providers, fostering greater competition and improving results. In central government, transparency over spending can highlight the differences between departments in the prices paid for common goods and services, he says – and this is likely to improve value for money.

To date, central government departments have been unable to reliably compare expenditure – something which is clearly important to building competition and allowing price comparisons. “We haven’t had standardised systems across government,” Douglas says, “so there has been quite a lot of push into producing data in a standardised form that allows comparison from department to department.”

Work is underway to improve the reliability of spending data comparisons, Douglas says, with quarterly business plan annexes being published and common accounting systems being developed. Meanwhile, the Treasury is running a scheme called Project OSCAR, designed to create an IT system to hold departmental budgets, forecasts and specific information such as staff costs: this will ultimately be used to track value across departments. Replacing the existing COINS system, the Treasury predicts that OSCAR will be in place this June: what its namesake Oscar Wilde, who once warned against people who “know the price of everything, and the value of nothing”, would have thought of this is debatable.

One aspect of transparency that hasn’t materialised is the anticipated army of so-called ‘armchair auditors’ – well-meaning members of the public who some ministers expected to pore through government accounts, rooting out wasteful spending. “Have I experienced it in my department? I’m not seeing a real increase; probably not as great as I might have expected to see,” Douglas admits.

However, the availability of better information has incentivised the managers of departments to save money. “If you know that comparable information is going out into the public domain that shows how much you spend on ‘x’ compared to another organisation, it draws the board to it and makes them focus on it a lot more,” he says.

Risky business
One final change for finance directors lies in the government’s approach to risk. Speaking to CSW last year, the PM stressed that “the civil service will have to take some risks”. This is an agenda that was pushed by the former cabinet secretary, Sir Gus O’Donnell.
Asked about risk, Douglas says that “I wouldn’t want to contradict Gus, but I think civil servants need to take more thought-through risks. I think civil servants take an awful lot of risks at the moment; they just haven’t thought it through all the time.” Therefore, he says, the issue is how to quantify and understand risk. “That’s probably where we’ve not been strong in the past, and I think things have improved over the last couple of years.”

While overall risk management standards do exist, the approach to risk differs from department to department, says Douglas, and the standards are applied differently according to the circumstances. This properly reflects the work of government departments: “If you think about issues of managing risk out of the NHS, compared to managing risk on the procurement of an aircraft carrier, the basic principles and approach might be the same but it’s very, very different.”

On risk-taking then, as with financial transformation, Douglas opposes complete standardisation. However, to make sure that all civil servants are taking considered risks, he says that it’s important that departments provide proper training and that there is leadership from departmental boards to ensure that all aspects of a decision are properly considered.

Concluding comments
Last year, Cabinet Office minister Francis Maude complained that people in professional streams have a lower status than policymakers, and consequently “need to be given more clout and status.” Speaking at Civil Service Live, he said: “It remains the case that departmental permanent secretaries are overwhelmingly drawn from the ranks of policy officials… In no other big budget environment would you expect there never to be a top executive drawn from the finance or commercial stream. Nowhere else would strategy and policy consistently trump operational delivery in the competition for the top slots.”
Maude’s solution is to ensure that more people from professional streams are appointed as permanent secretaries. But by trying to boost finance skills across the civil service, Douglas hopes to eliminate the divide altogether by making every civil servant a finance professional.
Since 1946, many people have talked about the need for more professional expertise in the civil service. If the Finance Transformation Programme achieves the results that Douglas hopes, then more than half a century after Franks warned of a lack of expertise, the problem may – at least in the field of finance – finally be laid to rest.