briefing for the Business and enterprise committee october 2008 Performance of the Department for Business, Enterprise and Regulatory Reform

Transcription

1 briefing for the Business and enterprise committee october 2008 Performance of the Department for Business, Enterprise and Reguatory Reform

2 Our vision is to hep the nation spend wisey. We promote the highest standards in financia management and reporting, the proper conduct of pubic business and beneficia change in the provision of pubic services. The Nationa Audit Office scrutinises pubic spending on behaf of Pariament. The Comptroer and Auditor Genera, Tim Burr, is an Officer of the House of Commons. He is the head of the Nationa Audit Office which empoys some 850 staff. He and the Nationa Audit Office are totay independent of Government. He certifies the accounts of a Government departments and a wide range of other pubic sector bodies; and he has statutory authority to report to Pariament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. Our work eads to savings and other efficiency gains worth many miions of pounds; at east 9 for every 1 spent running the Office.

3 Performance of the Department for Business, Enterprise and Reguatory Reform briefing for the Business and enterprise committee october 2008

4 This document provides briefing for the Business and Enterprise Committee on the performance of the Department for Business, Enterprise and Reguatory Reform in the financia year and subsequent months.

5 Contents Summary 4 Part One Financia performance 9 Part Two Deivery performance in Appendix One Department performance against PSA targets in compared to reported performance in Appendix Two Future targets 36 Appendix Three The reationship between Comprehensive Spending Review 2004 and 2007 performance targets 38 Appendix Four BERR Deivery partners 40 This review was conducted by Simon Reason, Keith Osborn, Liz Fox and Jeremy Weingard under the direction of Peter Gray. For further information about the Nationa Audit Office pease contact: Nationa Audit Office Press Office Buckingham Paace Road Victoria London SW1W 9SP Te: Emai: enquiries@nao.gsi.gov.uk Nationa Audit Office 2008

6 4 Summary Performance of the Department for Business, Enterprise and Reguatory Reform Summary 1 This paper provides briefing for the Seect Committee on the performance of the Department for Business, Enterprise and Reguatory Reform (BERR) [the Department] in the financia year and subsequent months. 2 It takes as its basis the Department s main objectives and targets as set out in the Department s annua report together with reevant findings and recommendations from recent work pubished by the Nationa Audit Office and other reviews of departmenta performance that may be of reevance to the Committee. 3 The Department s annua report has been pubished at a time of significant economic uncertainty, created by increasing energy and food prices and a significant tightening in credit avaiabiity across the gobe. Major fuctuations in goba financia markets in September 2008 have underined how quicky potentiay far-reaching events can arise. In its Annua Report, the Department has emphasised its commitment to boost productivity and keep the UK economy competitive and equipped to respond to the opportunities and chaenges of the future. This briefing draws together evidence on the Department s performance in The extent to which the Department s performance in the recent past can be read into the future wi, however, depend on the Department s abiity to respond to the changing environment within which the UK economy finds itsef. This briefing shoud therefore be read in that context. 4 Additionay there has been machinery of government changes which wi significanty affect the Department s portfoio: on 3 October 2008, the Government announced the creation of the Department of Energy and Cimate Change. The new Secretary of State for Energy and Cimate Change said: The new department refects the fact that energy poicy and cimate change are directy inked. My job is to make sure our poicy on cimate change is fair for ordinary famiies and our poicy on energy is sustainabe for future generations. We wi do a we can to ensure affordabe fue bis for peope, put Britain at the forefront of creating green jobs and pay our part in ensuring every country meets the cimate change chaenge. Cimate change cannot be tacked by poiticians on their own but through poiticians and peope working together. I ook forward to paying my part. At the time of writing there is no additiona poicy information avaiabe on the structure and scope of this new department. This briefing, therefore, refects the position of the Department for Business, Enterprise and Reguatory Reform at 2 October The contents of the briefing have been shared with the Department to ensure that the evidence presented is factuay accurate.

7 Performance of the Department for Business, Enterprise and Reguatory Reform Summary 5 6 In June 2007, The Department took on most of the responsibiities of the former Department for Trade and Industry. The new Department s roe is to ensure that the business environment in the United Kingdom activey promotes business success. The Department aims to achieve these goas by: boosting productivity in the United Kingdom; keeping the United Kingdom economy competitive; ensuring free and fair markets; ensuring safe, secure energy suppies at competitive prices; and reducing the burden of reguation. 7 Many of the Department s responsibiities were deivered through its two executive agencies and 35 non-departmenta pubic bodies (incuding the Regiona Deveopment Agencies). A fu ist of these bodies is at Appendix 4. 8 This paper comprises two parts: Part One: considers the Department s financia performance; and Part Two: reviews the Department s performance against its Pubic Service Agreement (PSA) targets in The Department s financia performance (page 9) 9 The net resource outturn for was 3,767 miion, an increase of 1,079 miion on the restated outturn for driven by nucear decommissioning activities and support for Roya Mai. Compared to the fina Estimate the Department had an underspend of 529 miion. Consoidated net assets increased by 477 miion against the restated figures. (Page 9, paragraph 1.4) 10 The Department requested a Spring Suppementary to address a possibe budgetary shortfa. Subsequent discussions resoved issues arising over the accounting treatment to be appied to income from some of the Nucear Decommissioning Authority s commercia activities. As a consequence, 362 miion of the additiona 400 miion granted was not required, thereby contributing to the Department s underspend noted above. (Page 10, paragraph 1.6) 11 The Comptroer and Auditor Genera was abe to give an unquaified opinion on the Department s accounts. (Pages 12-13, paragraphs )

8 6 Summary Performance of the Department for Business, Enterprise and Reguatory Reform The Department has reported efficiency savings of 365 miion and headcount reduction of 1,527. It has exceeded its Gershon Report targets for both efficiency savings ( 209 miion) and reducing headcount (1,010). Comprehensive Spending Review 2007 chaenged the Department to make annua vaue for money savings of three per cent on its core programme budgets and five per cent on its administrative budget. The Department estimates that it wi need to deiver savings of some 307 miion by (Page 10, paragraph 1.5) 13 Aeged frauds of 1.57 miion reating to the Phoenix Fund which the Sma Business Service (formery an Executive Agency of the Department) administered from have emerged during the financia year. (Page 10, paragraph 1.6) 14 The Department has a new set of Pubic Service Agreements (PSA) and Departmenta Service Objectives (DSO) to cover the spending period (CSR07). The 2007 Comprehensive Spending Review defined 30 cross-government PSAs and requires departments to deveop a set of DSOs. BERR wi be ead Department for targets on raisings UK productivity, deivering the conditions for business success in the UK and improving the economic performance of the Engish regions. Appendix 3 shows which Departmenta targets wi not be roed forward into the period. (Page 16, paragraphs ) Deivery performance in (page 19) 15 The Department reports that, in ine with its shared objective with HM Treasury, productivity growth has increased compared to previous economic cyces. Productivity as measured by growth in abour output per hour in the current economic cyce averaged 2.4 per cent per year, compared with 1.9 per cent over the previous two cyces. It aso reported progress in narrowing the gap in both output per worker and per hour measures with the UK s main competitors (USA, France and Germany). (Page 19, paragraph 2.4) 16 The Department sipped against its target of increasing the number of peope considering going into business. The current economic cimate coud we infuence the propensity of peope to go into business in the near future and hence the extent to which this aim can be achieved. (Page 20, paragraph 2.6) 17 The Department reports it is on course to achieve its target of cosing the gap in growth rates between regions, but a fu assessment of progress can ony be made over a compete economic cyce. Overa, however, the Department reports sippage against PSA 7 which incudes the metric of making sustainabe improvement in a the Engish Regions. (Pages 21-22, paragraphs )

9 Performance of the Department for Business, Enterprise and Reguatory Reform Summary 7 18 UK Trade & Investment is on course to meet four of the five targets that underie its Pubic Service Agreement. The Department has suggested that as a resut of UKTI support more than 9,000 companies improved their performance. The target for supporting new-to-export firms was party met. This target has been dropped from the new set of objectives agreed as part of the 2007 spending round. (Page 22, paragraphs ) 19 In its 2006 budget the Government announced that the number of business support programmes shoud be reduced from over 3,000 to 100 or fewer by As part of its programme to simpify its business support, the Department has announced 18 high eve offers with the fu range of products to become avaiabe no ater than March It is not cear from this to what extent the origina target wi be met. (Page 21, paragraph 2.11) 20 Post Offices Ltd continues to impement its Network Change Programme. The Government has outined minimum access criteria to hep ensure that most of the UK popuation wi sti have easy access to a Post Office outet. (Page 26, paragraph 2.27) 21 The Better Reguation Executive has reported that across Government savings in annua administrative burdens of 3.5 biion have been identified. A recent NAO report found that the Administrative Burdens Reduction Programme had raised the profie of reguatory reform within departments and had created stronger incentives to deiver. The report noted that reported savings shoud be treated with caution as they were ony indicative estimates of actua savings. (Pages 23-24, paragraphs ) 22 Internationa studies quoted by the Department suggest the UK maintains a strong internationa reputation for the effectiveness of its competition regime. Over the ast year, the NAO has reported on the remova of price contros by a number of reguators. We highighted that vunerabe peope had found it harder to benefit from competition due to compex tariffs and a ack of good consumer information. (Pages 25-26, paragraphs ) 23 The Department has had mixed success with achieving the goas that underpin the Pubic Service Agreement on maximising potentia in the workpace. The sef-empoyment rate of under-represented ethnic groups rose from 5.6 per cent to 7.1 per cent between the year ending Spring 2005 and The gap in the sefempoyment of a under-represented groups and other groups fe from four per cent to 2.7 per cent over the same period. The measure of abour market fexibiity has stabiised since 2001 after rising between 1992 and (Page 27, paragraphs ) 24 The Department reports that it is on course to deiver the greenhouse gas component of the cimate change target and the security of suppy and competitiveness targets, but meeting the carbon dioxide emissions and fue poverty targets remains extremey chaenging. (Pages 28-30, paragraphs )

10 8 Summary Performance of the Department for Business, Enterprise and Reguatory Reform The Department reports that it has met its objective to maintain the reiabiity of energy suppies. An NAO review of the data system used to measure progress against the Department s target concuded that it was not fit-for-purpose. The Department has been considering how to improve its reporting on energy security. (Page 16, paragraph 1.32 and page 30, paragraphs ) 26 The Department has been sipping against its target of eiminating fue poverty in vunerabe househods in Engand by As fue prices continue to rise faster than incomes, the proportion of househods in fue poverty wi continue to increase as has been the case since (Page 31, paragraphs ) 27 The Nucear Decommissioning Authority exceeded its target to achieve two per cent net efficiency savings on the decommissioning programme over the 2004 comprehensive spending review period. (Page 32, paragraph 2.42) 28 The Department has revised the Nucear Decommissioning Authority s target to ensure successfu competitions management of at east 50 per cent of UK nucear sites by the end of 2008 in order to bring forward the competition for Seafied, which represents more than 60 per cent of the nucear egacy. The Authority expects to compete the competition for the Seafied site in autumn (Page 32, paragraph 2.43) 29 The Capabiity Review of the former Department of Trade and Industry identified Leadership as a deveopment area. In December 2006, the former Department of Trade and Industry was assessed as we paced in four of the ten eements in the Cabinet Office Review of capabiity; four were assessed as deveopment areas; and two as urgent deveopment areas. The Cabinet Office ed a One Year On stock take. It concuded that BERR has made significant progress in a four of its areas for action, and in responding to the creation of the new Department. BERR s key chaenge now wi be to demonstrate deivery on its remit as the voice for business in Government by setting cear miestones, meeting them and ensuring that its successes are recognised. (Pages 17-18, paragraphs )

11 Performance of the Department for Business, Enterprise and Reguatory Reform Part One 9 Part One Financia performance 1.1 This Part examines the Department s capacity to deiver its aims. It ooks at: (i) (ii) financia management; performance measurement; and (iii) the Capabiity Review. (i) Financia management Overview of financia performance 1.2 Chapter 4, Section 4.4 of the Annua Report provides a detaied commentary on the financia performance of the Department in the context of the Resource Accounts. The key features are noted beow. 1.3 The Department was formed from the core of the former Department of Trade and Industry during foowing the transfer of functions and responsibiities to, or from, other Government departments under machinery of government changes. The comparative figures have been restated to refect these changes. The tota impact of these changes was a reduction of 3,360 miion in expenditure and, in reation to the baance sheet, there was a reduction in net assets as at 1 Apri 2007 of 39.4 miion to 2.37 biion, primariy reated to the transfer of the science and innovation aspects of the former Department of Trade and Industry s work to the Department for Innovation, Universities and Skis (DIUS). 1.4 The net resource outturn for (as shown in the Statement of Pariamentary Suppy) was 3,767 miion. This represents an increase of 1,019 miion compared to the restated outturn for The increase was mainy a resut of net expenditure on nucear decommissioning activity increasing by 538 miion to 1,646 miion (44 per cent of net resource outturn), support for the Roya Mai Group increasing by some 400 miion, and the creation of the 194 miion onerous property ease provisions. Compared to the fina Estimate the Department had an underspend of 529 miion. Of this tota, 362 miion was accounted for by the underspend on the Nucear Decommissioning Authority as above. This iustrates the continuing extent to which the Department is vunerabe to movements in the Nucear Decommissioning Authority s budget caused by the uncertainty of the cost of decommissioning and reiance on voatie commercia income.

12 10 Part One Performance of the Department for Business, Enterprise and Reguatory Reform The Department was set an efficiency target under Comprehensive Spending Review 2004 (CSR04) of annua efficiency savings of 2.5 per cent (some 209 miion by 2007). Its annua report highights efficiency savings of 365 miion 1, exceeding its Gershon Report efficiency target. Additionay the Department was set headcount reduction targets. The core Department, incuding staff in Government Offices, has deivered 1,527 staff reductions against a target of 1,010. Its agencies have deivered 235 staff reductions against a target of 275. Comprehensive Spending Review 2007 (CSR07) roed forward the efficiency chaenge with a requirement for the Department to make annua vaue for money savings of three per cent on its core programme budgets and five per cent on its administrative budget. The Department estimates this wi resut in savings of some 307 miion by In his statement on the Department s interna contro the Accounting Officer reported the foowing issues: The Department requested a Spring Suppementary Estimate to address a possibe budgetary shortfa arising from a ikeihood that the accounting and budgeting treatment for Waste Substitution Income adopted by the Nucear Decommissioning Authority might differ to that appied in the estimate and CSR07 settement. Discussions were ongoing at the time of the request and the fina treatment adopted meant that the anticipated difference did not occur. As a consequence, 362 miion of the additiona 400 miion granted in the Spring Suppementary Estimate was not required. Whie the Department adopted a prudent position in requesting the Suppementary, the circumstances do highight continued communication difficuties between the Department and the Authority. A essons-earned exercise was subsequenty undertaken and a report and action-pan produced. In , the Department vacated two of its centra London buidings, deemed surpus to operating requirements, and subsequenty sub-et these on short term eases. The head eases on these buidings do not however expire unti 2021 and 2026 and the initia reviews faied to identify the need for a provision for the eement of costs that the Department woud not be abe to recover by either the current or future potentia subeases. This issue was identified ony in , and the Department utiised 72 miion of their non-cash End of Year fexibiity stock and requested a 122 miion Spring Suppementary estimate to provide for the 194 miion estimated shortfa in the recovery of ease costs. Aeged frauds of 1.57 miion reating to the Phoenix Fund which the Sma Business Service (formery an Executive Agency of the DTI) administered from have emerged during the financia year. The organisation invoved in the first aeged fraud is currenty being investigated by the Metropoitan Poice and the District Auditor is assessing the conduct and findings of the interna reviews by the London Deveopment Agency (LDA) to decide whether further investigation is needed. The Department is currenty investigating the second aeged fraud and are due to begin a wider audit of beneficiaries of the Phoenix Fund to identify whether there are any other potentia cases that require remedia action. 1 BERR Annua Report and Accounts , p See page43140.htm.

13 Performance of the Department for Business, Enterprise and Reguatory Reform Part One The Government continues to provide financia support to the Roya Mai Group via: a 430 miion equity injection; 500 miion Nationa Loans Fund (NLF) oan faciity which attracts 29 miion in annua interest payments; debt financing faciities; and up to 1.7 biion in subsidy payments to the end of to support the Post Office Network. The European Commission are currenty examining some aspects of the support package provided to Roya Mai, to determine whether they constitute state subsidies or whether they meet market investor conditions. The Department beieves that it has taken appropriate steps to ensure that a areas under examination represent funding on commercia terms. 1.8 The Department has commissioned an independent review of deveopments in the UK posta services market and their ikey impact on the Roya Mai business pan. The review is due to concude ater this year. 1.9 The consoidated Department s tota net assets at 31 March 2008 had increased by 477 miion, compared to the restated position at 31 March The main reasons for this change reate to an increased bank baance arising as a consequence of machinery of government changes where the Department was reimbursed for cash spent on activities transferred to other departments, and a reduction in Coa Heath provisions of 742 miion as outstanding caims under the cosed Chronic Obstructive Pumonary Disease and Vibration White Finger schemes are being setted, though these were offset by reductions in the vaue of the Coa Pension Fund investments The genera downturn in the economy is ikey to have an impact on the vauations of the Sma Firms Loans Guarantee provision ( 114 miion). The Sma Firms Loans Guarantee Scheme is the Department s main instrument for supporting debt finance for sma businesses. The provision is based on the expected vaue of defauts of a outstanding oans and this has, to date, been forecast using a mode designed primariy to predict the demand for oans. The Department is intending to deveop a new mode for forecasting the provision based on the actua performance of ive oans and informed by macro-economic conditions The deivery and management of finance interventions in support of sma and medium enterprises interventions has, since Apri 2008, been transferred to a newy created non-departmenta pubic body (NDPB) caed Capita for Enterprise Limited (CfEL). This body wi function at arm s ength from Government and on a commercia basis through an Investment Management Agreement with the Department. It has been estabished as a company imited by shares and it is whoy owned by Government (BERR). It wi take over responsibiity for a fund management activities currenty undertaken by the Department, incuding the Sma Firms Loan Guarantee Scheme and the Enterprise Funds. The Department wi retain ownership of the associated assets and iabiities.

14 12 Part One Performance of the Department for Business, Enterprise and Reguatory Reform The Government hods an indirect economic interest in British Energy Group pc via the Department s subsidiary, the Nucear Liabiities Fund, and the mechanism known as the cash sweep whereby British Energy transfer a percentage of its free cash fow into the Nucear Liabiities Fund. On 1 June 2007, at the direction of the Secretary of State for Trade and Industry, the cash sweep was converted into shares in British Energy and subsequenty sod, generating 2.34 biion for the Nucear Liabiities Fund and reducing the economic interest in British Energy from 64 per cent to 36 per cent. The Board of British Energy are currenty in discussions with interested parties in the context of its future and pans for invovement in any new nucear programme and the Department are activey monitoring deveopments The Department s accounts discose a contingent asset in reation to British Energy. This arises as a resut of the Government s undertaking to underwrite the Nucear Liabiities Fund, in respect of British Energy s uncontracted and decommissioning iabiities to the extent that the assets of the Fund fa short. On the basis of the Department s current estimate of the assets avaiabe to the Nucear Liabiities Fund of 7.8 biion, and British Energy s unaudited estimate of the reevant iabiities of 4.4 biion, a contingent asset of 3.4 biion was discosed. Production of resource accounts 1.14 The Department s resource accounts are audited by the Nationa Audit Office, in accordance with Internationa Auditing Standards, on behaf of the Comptroer and Auditor Genera who is appointed as the statutory auditor under the Government Resources and Accounts Act This year, as in , the Department produced a combined annua report and accounts. The draft accounts presented for audit were of a good standard. The good quaity of the draft account was evidenced by the ow number of significant adjustments required to produce the fina version of the accounts, and the Comptroer and Auditor Genera was abe to give unquaified audit opinions. BERR Departmenta Group Other Accounts 1.16 With regard to other accounts of the Department and its agencies and NDPBs, a met the accounts preparation and audit timetabes and were aid in Pariament before the Summer recess deadine. With one exception the Comptroer and Auditor Genera was abe to issue unquaified audit opinions. The Department s combined resource accounts for the United Kingdom Atomic Energy Authority (UKAEA) Pension Schemes were quaified by the Comptroer and Auditor Genera on reguarity grounds in Juy 2008.

15 Performance of the Department for Business, Enterprise and Reguatory Reform Part One The quaification occurred due to shortcomings in recording and monitoring during ; the Department faied to identify the need to pay over 7 miion of cash receipts as Excess Appropriations in Aid reating to the prior year empoyer contributions and this resuted in an understatement of the net cash requirement estimate for The error was ony identified during preparation of the Resource Accounts, and came too ate for the Department to correct through a Spring Suppementary Estimate. The net cash requirement outturn was therefore 5.78 miion (eight per cent) in excess of the authorised imits for The Department propose to ask Pariament to make good the shortfa by approving the appication of excess operating Appropriations in Aid of 5.78 miion during The Department is aso taking appropriate steps to ensure that the Suppy Estimate for the UKAEA Pensions Resource account is propery constructed in future. Looking Ahead 1.18 The March 2007 budget confirmed the Government s intention to introduce Internationa Financia Reporting Standards (IFRS) to the pubic sector. The transition from UK Accounting Standards to IFRS, and the IFRS version of the Treasury s Financia Reporting Manua, may require changes in accounting treatments in a number of areas and represents the biggest change to UK Pubic Sector financia reporting since the introduction of resource accounting. This requires eary consideration as, whist the impementation of the IFRS wi not take effect unti , the Department wi need to produce comparative figures under IFRS for incusion in their financia statements The Department is currenty assessing the impications of the move to IFRS and wi be submitting a restated 1 Apri 2008 baance sheet for audit by the NAO by 31 December In , the Department wi be overseeing further machinery of government changes. The Department wi be taking over responsibiity, for exampe, for the Defence Export Service Organisation from the Ministry of Defence. The organisation, renamed the Defence and Security Organisation, has been incorporated into UK Trade & Investment. The scae and compexity of this transfer is significant and wi require the integration of key workstreams in human resources, finance, IT and accommodation, as we as the chaenges of merging two cuturay distinct organisations.

16 14 Part One Performance of the Department for Business, Enterprise and Reguatory Reform The Department sponsored the Nationa Consumer Counci (NCC), Postwatch and Energywatch. On 30 September 2008, these three Executive NDPBs ceased to exist and were repaced by the new Consumer Focus, created as part of the Consumers, Estate Agents and Redress Act 2007 to act as a cross sector consumer representation body. The Department needs to work cosey with the outgoing NDPBs and Consumer Focus to ensure the cosure and transfer process is panned and managed effectivey to hep ensure that the Counci retains sufficient staff and infrastructure and secures the invovement of stakehoders. Risk management 1.22 The Department s arrangements for risk management are outined in its Statement on Interna Contro. The Department s Management Board reviews the strategic risks facing the Department on a monthy basis and the register of risks identified at Group eve on a quartery basis. In addition, the Board aso reviews every six months the ong term risks that may pose a significant threat to the Department in the future. The current fast-changing economic outook is ikey to pose new chaenges to the Department s abiity to identify, evauate and manage emerging risks over the coming period and to the achievement of some of its objectives. Companies House 1.23 Foowing deays reported ast year in the impementation of the Companies House Information Processing System (CHIPS) and continued write-downs in the vaue of the asset ( 7.5 miion in resuting in a tota write-down of 12.1 miion) the system was introduced in February The tota costs of the project were 50.5 miion compared with the fina budget approved by Treasury of 51 miion, with additions in the year totaing 5.4 miion. The book vaue of the system when brought into use was 27 miion net of previous write-downs. The current estimated usefu ife is 10 years, athough this wi be kept under review. The Insovency Service 1.25 In the Insovency Service decided to terminate the contract for the deveopment and procurement of the CAMEO IT banking system on the grounds that it was unikey to succeed. As a consequence of this decision, the Service wrote off a baance of 3.4 miion representing the associated assets under the course of construction. During a feasibiity project was undertaken to identify options for a new repacement system and, in October 2007, the Service reached a decision on a repacement system which is panned to be ready for depoyment in ate The actua depoyment date wi, however, be dependent on the ro out of the Agency s wider infrastructure upgrade project which we understand has suffered some sippage compared to the origina timetabe.

17 Performance of the Department for Business, Enterprise and Reguatory Reform Part One 15 Management of assets 1.26 The Department incorporates the work of the Sharehoder Executive (the Executive). The Executive is responsibe for the management of sharehodings in 19 Governmentowned businesses either on behaf of, or in cooperation with, the sponsoring departmenta sharehoding team. The Executive aso pays an advisory roe to the reevant team for a further nine businesses The Committee of Pubic Accounts reported in September 2007 on the work of the Executive. The Committee found that the Executive had improved the way that Government sharehodings had been managed since the Executive s estabishment in The Executive had, for exampe, strengthened the roe of non-executive directors. It had used its sharehoder powers in a timey way to hod the management teams in these businesses to account. The Report suggested the Executive coud improve its performance by: estabishing governance arrangements to ensure that there is no confict of interest between the Executive s position within BERR (which has a poicy roe in businesses such as the Post Office and British Energy) and the Executive s roe of buiding sharehoder vaue; marketing the Executive s advisory roe more widey and creating a presumption that a Government businesses shoud come within the Executive s portfoio uness specificay exempted; impementing a systematic vauation programme for Government businesses; setting performance targets that measure increases in sharehoder vaue for individua businesses as we as at a portfoio eve; and addressing pay fexibiity so as to continue to attract high caibre staff The Government s response to the Committee 3 addressed many of these issues. The Executive has appointed a non-executive chair to head an advisory board which wi hep deveop the Government s overa mode of share ownership and management. The Executive wi agree with HM Treasury a ist of Government s businesses that shoud fa within its remit, and wi aso carry out a comprehensive marketing exercise. From , the Executive aims to introduce better performance targets and a programme of vauations. 3 Treasury Minute on Pubic Accounts Committee 42nd Report of Session , paragraphs 2,3,6 and

18 16 Part One Performance of the Department for Business, Enterprise and Reguatory Reform (ii) Performance management 1.29 During the Department was responsibe for achieving 10 Pubic Service Agreement (PSA) targets set foowing the 2004 Spending Round (shown in the box beow). These targets comprised nine PSAs inherited from the former Department of Trade and Industry and one, on better reguation, from the Cabinet Office. The individua PSAs, in many instances, comprise a number of sub-targets. The previous Department of Trade and Industry PSA reating to science and innovation was transferred to the Department for Innovation, Universities and Skis. CSR04 Pubic Service Agreements PSA 1 Productivity PSA 2 Better Reguation PSA 3 Competition and Consumers PSA 4 Energy PSA 5 Trade Barriers PSA 6 Enterprise PSA 7 Regiona Economic Performance PSA 8 UK Trade & Investment PSA 9 Nucear Decommissioning Authority PSA 10 Maximising Potentia in the Workpace 1.30 The NAO reviewed the PSA targets in 2007 and pubished the resuts of its vaidation in December We found that just over haf of the Department s PSA targets were fit for purpose compared with a quarter for the former Department of Trade and Industry in the previous spending period. The remaining data systems were assessed as foows: 16 per cent were broady appropriate ; 16 per cent were not fit for purpose ; and 13 per cent were too eary to form a view or not estabished The period covered by these PSA targets has now ended. Some PSA targets have been carried forward into the Comprehensive Spending Review 2007 which reduced the tota number of PSAs across Government from over 100 to 30, many of which are the responsibiity of more than one Department. Henceforth, we understand the Department wi report performance ony against the new PSAs. Appendix Two detais the new PSAs and Departmenta Strategic Objectives Most of the new PSAs and DSOs carry forward eements of the existing performance measurement system. Appendix Three shows how the new targets reate to existing PSA targets. Targets not taken forward from CSR04 incude the reduction of nucear iabiities by 10 per cent by 2010 and reducing the incidence of racia discrimination in the workpace. Where new targets have been set (such as DSO 7: Provide the professiona support, capabiity and infrastructure to enabe BERR s

19 Performance of the Department for Business, Enterprise and Reguatory Reform Part One 17 objectives and programmes to be successfuy deivered), the Department wi need to deveop appropriate measurement systems. Of the targets that the Department is carrying forward, the NAO s vaidation work found that ony the data systems for maintaining the reiabiity of energy suppies were not fit-for-purpose. This target, which formed part of PSA 4 for the CSR04 period, wi now contribute to Departmenta Strategic Objective 4. (iii) The Capabiity Review 1.33 Since October 2005, the Cabinet Office has carried out departmenta Capabiity Reviews. The purpose of these externa reviews is to identify the specific steps that departments must take to match their capabiity to future chaenges. In December 2006, the Cabinet Office pubished its capabiity review on the former Department of Trade and Industry. The Department s capabiity was assessed as we paced in four of the ten eements in the Cabinet Office mode of capabiity; four were assessed as deveopment areas; two as urgent deveopment areas. There were no areas of serious concerns. These findings are outined in Figure 1. Figure 1 Assessment of the DTI s capabiity for future deivery pubished by the Cabinet Office in December 2006 Leadership Set Direction Ignite passion and drive Take responsibiity for eading deivery and change Buid capabiity Strategy Focus on outcomes Base choices on evidence Buid common purpose Deivery Pan, resource and prioritise Deveop cear roes, responsibiities and business modes Manage performance Strong Deveopment area Serious concerns Urgent deveopment area We paced

20 18 Part One Performance of the Department for Business, Enterprise and Reguatory Reform The Capabiity Review set the Department four key areas for action: Use the vision, roe and purpose to set priorities and drive the business for the future; Improve capacity for deveoping strong, confident, visibe and decisive eadership and for buiding future capabiity; Ensure that business modes are appropriate for deivering exceent joined-up services and for enabing agencies and non-departmenta pubic bodies to operate within a strategic corporate framework; and Consoidate the corporate behaviours, systems and discipine needed to drive high eve performance and prioritisation In Juy 2007 and February 2008 the Capabiity Review Team returned to the Department to review its performance against the four areas for action. It found that BERR has made significant progress in a four of its areas for action, and in responding to the creation of the new Department. BERR s key chaenge now wi be to demonstrate deivery on its remit as the voice for business in Government by setting cear miestones, meeting them and ensuring that its successes are recognised The annua report, pages 89 to 91, outines two steps the Department has taken to improve capabiity: a eadership programme; and a skis strategy. It aso undertook a staff survey took during November 2007 which aimed to inform senior management of the staff s thoughts on: what it is ike to work for the Department; and views on strategy, eadership and management. The survey resuts are not pubicy avaiabe but the Department gives the foowing summary: The resuts for 37 of the 66 attitudina questions show a statisticay significant improvement on those for the DTI in 2006 across a range of issues and the resuts exceed centra Government averages for 20 out of 34 avaiabe benchmarks. The resuts paint a cautiousy optimistic picture of the new Department, compared with the DTI in 2006, with stronger eadership capabiity, improvements in performance management, a rea commitment to career deveopment and higher eves of staff satisfaction. Less positive resuts reate to the pressures of increasing workoads, the time avaiabe for deveoping skis, remuneration and the physica working environment. In response to findings outined in the fina buet the Department observes that it has deveoped innovative approaches to earning and deveopment, such as an onine Virtua Learning Resource Centre, and introduced a major programme to improve ventiation and cooing in its main offices. 4

21 Performance of the Department for Business, Enterprise and Reguatory Reform Part Two 19 Part Two Deivery performance in This Part considers the Department s performance against its Pubic Sector Agreement (PSA) targets. 2.2 The Department has reported a mixed performance against its PSA targets. For three of the targets 2008 marks the fina assessment. The Department reports success in: meeting the promoting fair and competitive markets target; maintaining the reiabiity of energy suppies; and party meeting the target for the Nucear Decommissioning Authority, a subset of which is to ensure the successfu competitions for at east 50 per cent of nucear sites by the end of It has, however, faced particuar chaenges in meeting its targets on increasing the eve of entrepreneurship; promoting regiona growth across the United Kingdom; tacking fue poverty; and reducing carbon dioxide emissions. The Department s performance is discussed in more detai ater in this Chapter. Appendix One provides a comparison: the Department s reported performance in against the same targets in The Department has an overarching PSA target, jointy hed with HM Treasury, to raise the rate of UK productivity growth over the economic cyce. The Department s annua report, on page 26, states that productivity growth in abour output per hour in the current economic cyce averaged 2.4 per cent a year, compared with 1.9 per cent over the previous two cyces. Additionay there has aso been progress in narrowing the gap in both output per worker and per hour measures with the UK s main competitors (USA, France and Germany). The Department aims to further boost productivity through its other PSA activities, such as business support, effective competition regimes and efficient reguation. 2.5 The foowing sections examine the Department s deivery performance in under the foowing themes: (i) (ii) supporting successfu business; ensuring fair markets that are efficienty reguated; and (iii) ensuring secure, sustainabe and affordabe energy.

22 20 Part Two Performance of the Department for Business, Enterprise and Reguatory Reform (i) Supporting successfu business Sections of the Annua Report, pages PSA 6: Enterprise Buid an enterprise society in which sma firms of a kinds thrive and achieve their potentia, with: (i) an increase in the number of peope considering going into business, SLIPPAGE (ii) an improvement in the overa productivity of sma firms, and ON COURSE (iii) more enterprise in disadvantaged communities. NOT YET ASSESSED PSA 7: Regiona economic performance Make sustainabe improvements in the economic performance of a the Engish regions by 2008 and over the ong term reduce the persistent gap in growth rates between the regions, demonstrating progress by A joint target with HM Treasury and the Department for Communities and Loca Government. SLIPPAGE PSA 8: UK Trade and Investment (UKTI) By 2008 deiver a measurabe improvement in the business performance of UK Trade & Investment s internationa trade customers, with an emphasis on new to export firms; and maintain the UK as the prime ocation in the EU for foreign direct investment. A joint target with the Foreign and Commonweath Office. ON COURSE PSA 6: Enterprise 2.6 The Department sipped against its target of increasing the number of peope considering going into business. The 2005 Househod Survey of Entrepreneurship shows that 11.6 per cent of aduts in Engand were considering going into business, the same as The Department estimates that to achieve its target of a statisticay significant increase in entrepreneurship, it woud need to change the intentions of some 300,000 peope. The Department has not indicated when the next survey wi be conducted. A change in the wider economic cimate coud we infuence the propensity of peope to go into business and hence the extent to which this aim can be achieved. 2.7 The Department s annua report observes that atest avaiabe data from the Office of Nationa Statistics show that over the five years to , the tota increase in productivity of sma and medium enterprises exceeded that in a firms by two per cent. It concudes, therefore, that this measure is on course even though it has not been met in every individua year. 2.8 The eve of sef-empoyment in disadvantaged communities has been stabe at 6.4 per cent for the ast three quarters, but the Department considers that it is sti not yet possibe to assess progress in the 2004 Spending Review period; fina assessment for this target in eary 2009 wi cover the period to September 2008 and wi depend upon finding a comparabe point in the economic cyce.

23 Performance of the Department for Business, Enterprise and Reguatory Reform Part Two 21 Services for sma business 2.9 In Juy 2007, the Department reorganised its services to sma businesses. The Sma Business Service reinquished its service deivery roe and its poicy function was brought back into what was named the Department s Enterprise Directorate. Most of the Sma Business Service s former service deivery functions have been devoved to regiona deivery partners The NAO ast reported on services to sma businesses in Our findings reated to the Sma Business Service but may sti be of some guidance to the Enterprise Directorate: the Sma Business Service needed to increase its infuence in and outside Government. Sixty-eight per cent of Government respondents to our 2005 survey considered the Sma Business Service was not we-paced to set a Governmentwide agenda on sma businesses, athough it was considered to be a reiabe source of information; the Sma Business Service needed to improve its strategic panning. It had a very compex system of targets and objectives that did not match ceary with the government objectives for sma business; and the Sma Business Service needed to get better at measuring its performance so as to demonstrate the vaue of its work. It had been difficut to isoate the impact of the Sma Business Service from the broader economic drivers In its 2006 budget the Government announced that the number of business support programmes shoud be reduced from over 3,000 to 100 or fewer by In December 2007 the Government pubished a response to a pubic consutation outining an initia portfoio of 18 high-eve future business support offers. This was foowed, in March 2008, by a BERR pubication Simpe Support, Better Business setting out the benefit to companies of this rationaisation of programmes which it aims to deiver by no ater than March PSA 7: Regiona economic performance 2.12 Between 2002 and 2008 a Engish regions experienced some economic growth but performance was mixed. The Gross Vaue Added (GVA) data reeased in December 2007 showed that, between 2002 and 2006 and reative to the baseine period ( ), the North East, East Midands, London and the South West had a experienced stronger growth; The South East, East of Engand, West Midands and Yorkshire and Humber regions had a experienced weaker growth; and the North West Region remains unchanged. Between 2002 and 2006, the gap in growth rates between what the Department has termed the Greater South East (London, South East and East) and ess prosperous regions decreased from 0.6 per cent over the baseine period to 0.3 per cent. 5 Simpe Support, Better Business: Business Support in 2010, BERR, March 2008.

24 22 Part Two Performance of the Department for Business, Enterprise and Reguatory Reform The Department cannot definitivey measure whether it is on course to cose the growth rate gap between regions. It considers there are indications it is on course but it aso concedes that a fu assessment can ony be made over a compete economic cyce. Our work demonstrates how difficut it is to accuratey measure success against this PSA: in our report on the measurement of PSA targets across Government, pubished in December 2007, we noted that data supporting the target was pubished with a one year ag and may aso be subject to revision as updated data are received. As the gap in the growth rates is measured by comparing the average growth rate of the three best performing regions with that of the bottom six regions based on the period , we observed that the Department woud not be abe to judge progress against the target unti 2014, once the Office for Nationa Statistics had pubished data for Our report concuded that when data for PSAs are coected with a time ag, as here, the usefuness of such data to inform management decisions and drive performance improvement is much reduced. PSA 8: UK Trade & Investment 2.14 The Department s annua report observes that UK Trade & Investment (UKTI) is on course to meet four of the five performance targets that underie its PSA target. The Department s report suggests that, as a resut of UKTI support, more than 9,000 companies improved their performance, generating around 3 biion additiona profit. The United Nations Conference on Trade and Deveopment (UNCTAD) reported that the UK was the top investment destination in Europe in The target for supporting new-to-export firms was party met. Provisiona UKTI figures for show a 13 per cent increase in trade deveopment resources focused on new-to-export firms, against a target of 30 per cent. 7 This target has been dropped from UKTI s targets for the 2007 spending period, and UKTI is no onger pursuing this objective The NAO is currenty undertaking an examination of the work of UKTI. The study is ooking at the organisation s abiity to deiver its strategy in the high growth markets. A report is due to be pubished in eary (ii) Ensuring fair markets that are efficienty reguated Sections 2.5 & 2.6 of the Annua Report, pages The Department had four PSA targets reated to its objective of ensuring fair markets that are efficienty reguated. Progress against these targets, as reported in the Department s annua report, is shown beow. 6 Word Investment Report 2007, United Nations Conference on Trade and Investment, 2007, p BERR Annua Report and Accounts , p.34.