Public Services Management: Whatever Next?: Privatisation of the Civil Service is causing concern as Government and agencies struggle to set priorities, reports Paul Gosling

A REVOLUTION which has swept over the Civil Service in the last few years has largely escaped the attention of the public. More than half of civil servants no longer work for government departments, employed instead by the 110 'Next Step' executive agencies, operating at arm's length from the Government.

William Waldegrave, the Minister of Public Service and Science, has repeatedly stressed in recent months what he sees as the advantages of the new relationship in improving accountability. His argument is that by creating framework agreements which spell out what is expected, the agencies become judged by results, and become more performance orientated. What he sees as a false doctrine of accountability, the myth of ministers being responsible for everything in their departments, up to the use of the last paper clip, is buried.

There have, indeed, been marked improvements in service which have been attributed to the changes. Social security benefits are now cheaper and quicker to administer. The Northern Ireland Driver and Vehicle Testing Agency has been able to bring down charges, making them 30 per cent cheaper than on the mainland. It now takes on average seven days for the Passport Agency to process an application, from a previous average of three-and-a-half weeks.

The House of Commons Public Accounts Committee is sceptical of other claimed advantages. The committee has questioned the ability of some agencies to meet their performance targets, and has, more fundamentally, doubted whether the correct targets have been set. In January the committee published a report on the Vehicle Inspectorate, the first appointed executive agency. The MPs concluded that while the Inspectorate's efficiency improved as measured by a performance index, there were 'significant weaknesses in the design of the index and its coverage'. It was pointed out that some aspects of the Inspectorate's operations were excluded from the index, while factors outside the agency's influence were included. The committee decided that there was no proof that the Inspectorate had actually improved its performance.

The committee's concerns touch one of the key elements of the relationship between the agencies and the Government. Observers argue that it is inevitable that an agency will concentrate on its defined targets, and if those targets have been wrongly set then the real performance of the agency can in practice decline. The agencies themselves have expressed unhappiness that there are too many targets, undermining attempts to improve service delivery and value for money, and set priorities.

The nature of the relationship between the agencies and the Government is controlled by three-year framework agreements. A newspaper report this week that these may be reduced to two-year agreements, as a means of speeding their move into the private sector, was denied by the Cabinet Office. Consultants also dismiss this suggestion, as some of the existing three-year agreements are late in being reviewed. John Wynn, a partner in Price Waterhouse, says: 'Many are already overdue. The pressures are for it to go the other way. Things need to be looked at again.' There would, though, be common support for reviewing what is contained in the agreements. Janet Whiting of Price Waterhouse says: 'New framework agreements may say what they can't do, instead of what they can do.'

In a recent interview with the Independent on Sunday, Dr Madsen Pirie of the Adam Smith Institute said that he expected the chief executives of the agencies to be demanding to be released fully into the private sector. Sue Richards, of the Office for Public Management, a private consultancy, believes the time has passed when this might have been implemented with the support of the agencies' chief executives. 'Two or three years ago there was a head of steam, but now the agencies are disillusioned. There is disaffection with Next Steps as the 'Brave New World'; (the chief executives) don't believe in it any more - or in market testing.'

Ms Richards says that talk of the agencies having more freedom to operate is misleading. 'I think they might have thought they were being given some freedom on strategic policy - if they did think that they were completely wrong. It actually means reducing their freedom. Before the 1980s there was a looseness in policy which has now gone. As systems have got tighter there is a reduction in space for the street-level bureaucrat.'

While policy parameters are tighter, managerial freedom over staff is greater. Ms Richards explains: 'In the last couple of years there has been more flexibility on pay-and-reward systems. They can review whether the old Civil Service grading is right for their service, or how else they can meet their objectives. Look at the (Social Services) Benefits Agency and the Inland Revenue Agency pay arrangements and there is a quantum leap from what there was before.'

A recent study by Price Waterhouse shows that the changes start at the top. Of 85 appointed chief executives, 30 came from outside the civil service. The head of the Prison Service Agency, Derek Lewis, was appointed at a pounds 125,000 salary, with a performance-related bonus of up to 35 per cent extra. He was previously chief executive with the Granada Group, and had also worked for Ford.

Sue Richards believes that for career civil servants the new arrangements will not necessarily create a new climate. 'Performance bonuses and future careers are still in the hands of the permanent secretaries, and the old cultures haven't changed,' she says. A recent speech by Sir Robin Butler, the Cabinet Secretary, raised his concern that the changes must not undermine what he referred to as the 'cohesion' of the Civil Service. He added that it was important for officials to continue to move between departments.

The permanent secretaries have failed to persuade anyone, least of all the agencies' chief executives, that they are keen to see the agencies develop independence. The premature retirement of Sir Peter Kemp, Permanent Secretary at the Office of Public Service and Science and the man who pushed through the agencies, was seen to undermine the process.

There is now a widespread nervousness about 'coming out' either for or against the agencies, and one consultant who was blunt in his views wished to remain anonymous. 'The agencies were created with a clear view in mind to lead on to privatisation. But the climate has not been created for the chief executives to believe that they can go ahead and do it. They are frightened to put their heads above the parapet. They don't come across as people confidently seeking to privatise the agencies. They half feel that if they keep their heads down the problem will go away.'

(Photograph omitted)