The Department has plans to carry out a review of the New Homes Bonus during 2013-14, but has not decided upon its scope or methodology. The National Audit Office has called the review of the scheme essential, and for it to be carried out urgently.

The report has found some evidence that the New Homes Bonus has given authorities resources to allow them to continue activities such as identifying empty homes and bringing them back into use. But the scheme is mainly funded by redistributing central government’s core funding for local authorities. Some local authorities, particularly in areas where developers are less likely to want to build new homes, face losing large amounts of their funding from central government. These authorities face growing financial risks, including to future service delivery.

The Department estimated that the scheme would deliver around 140,000 additional new homes over its first ten years, increasing the supply of housing by between 8 per cent and 13 per cent. The new homes estimate was produced using very limited evidence. The estimate also contained an arithmetical error which significantly increased estimated construction rates. According to the NAO, the correct calculation of the increase in the housing supply would have been 6 per cent to 11 per cent, or 108,000 homes – 32,000 fewer than originally expected.

It is difficult for local authorities to persuade communities of the benefits of new housing. New housing is often unpopular with residents who may be concerned about pressure on local services, loss of amenities, traffic congestion and disruption during building. Some councillors, local authority officers and stakeholders with whom the NAO spoke suggested these views were often strongly held and difficult to change.

Firebuy Ltd, an NDPB of the Department for Communities and Local Government, closed without having prepared financial statements for the two financial years in question.

The Treasury’s Managing Public Money is clear that, when an NDPB closes, there should be procedures in place to gain independent assurance on key transactions, financial commitments, cash flows and other information needed for the Department (and, in this case, the liquidators) to handle the wind-up effectively. In this instance, Firebuy Ltd did not transfer all of its financial documentation to the Department.

As a result, there were transactions and account balances for which the Comptroller and Auditor General was unable to obtain sufficient documentary evidence. Furthermore, there were no longer any Directors or staff of Firebuy Ltd to provide explanations for transactions, adjustments and events which the Department could not explain.

The main role of Firebuy Ltd was to help deliver procurement efficiencies for fire and rescue authorities in England through nationally negotiated contracts with suppliers. In October 2010, the Government announced the closure of the body. All of its procurement functions were transferred to other organisations.

The Department has already taken steps to ensure that lessons are learned from this company closure – by communicating the problems encountered with Firebuy Ltd to key stakeholders in the Departmental group who are also preparing to face closure issues in relation to other bodies.

Previous NAO reports have highlighted significant potential for financial savings and service improvements. For example, more efficient and better coordinated use of office space could reduce central government property costs by £650 million a year by 2020. Each of the areas in the Whole-Place Community Budgets scheme has identified potential benefits from taking a more integrated approach to frontline services, focusing on outcomes like preventing avoidable hospital admissions or reducing reoffending. Greater Manchester, which covers ten local authorities, has estimated net savings of some £270 million over five years, while in West Cheshire savings of £56 million are estimated for the same period.

In general, government has only limited information for identifying opportunities for integration or making an assessment of costs and benefits, which is needed to support the case for integration. In some instances where government has identified integration opportunities, benefits have not been achieved because of implementation difficulties, for example where government has underestimated the challenges integration has posed or there has been a lack of incentives for bodies to work together.

In the 17 departmental business plans published in May 2012, 24 per cent of departments’ 444 ‘actions’ referred to joint working with other departments. NAO analysis suggests there are varying degrees of collaborative working across departments. While the centre of government has recognized the importance of integration, it does not have clearly defined responsibilities to support or encourage frontline integration initiatives across government.

While it is early days for Whole-Place Community Budgets, central government and the four local areas have worked together effectively to assess the case for local service reforms.

The true scale of potential benefits will become clear only if projects are implemented and evaluated robustly. Foundations have been laid but continuing collaboration – including sharing of data – between local and central government and delivery partners is essential to maximize the potential of Whole-Place Community Budgets. There is some room for improvement. For example, local areas recognized that in some cases they needed better information on the costs and effectiveness of current services, to mitigate the risk of over or under-estimating the benefits of change.

• The department’s responsibilities and how it spends its money
• Financial management
• Reported performance
• Issues identified in NAO reports

October 2012

Our examination of the data systems used to report performance for this department involved a detailed review of the processes and controls governing:

• the selection, collection, processing and analysis of data;
• the match between the department’s stated objectives and the indicators it has chosen; and
• the reporting of results.

Our conclusions are summarised in the form of a score between 0 and 4. The ratings are based on the extent to which departments have:

• put in place and operated internal controls over the data systems that are effective and proportionate to the risks involved; and
• explained clearly any limitations in the quality of its data systems to Parliament and the public.

Our assessment does not provide a conclusion on the accuracy of the outturn figures included in the Department’s public performance statements. This is because sound data systems reduce but do not eliminate the possibility of error in reported data.

2011-12 is the first year in a rolling programme which will present a complete picture over the next three years.

August 2012

The Regional Development Agencies are expected to be abolished shortly. Nevertheless, as in previous years, EEDA was required to agree an annual pay remit with the Department for Business, Innovation and Skills (the Department) and HM Treasury that set out the maximum level of pay increases for permanent employees. For 2011-12, this also had to comply with the Government’s two-year pay freeze instruction for public sector workforces.

Notwithstanding the environment of pay restraint, the Department wished to achieve a smooth and efficient closure of the Regional Development Agency network. Following consultation with the Treasury, in February 2011 the Department approved retention payments of up to 12 months’ salary for nominated key staff in each RDA considered essential to the delivery of this objective.

The Agency agreed its pay remit with the Department on 24 May 2011. This included a clause that the EEDA would not pay any other pay increases or non-consolidated bonuses to any staff.

In July 2011, despite the pay freeze, the agreed parameters of the pay remit and the agreement with the Department for additional retention payments, the Board of the Agency decided that it would like to make ex-gratia payments to staff in recognition of the additional responsibilities they had taken on and their continued hard work as the organisation closed down.

Following discussion, the Remuneration and Selection Committee agreed to make two separate ex gratia payments of £500 each to almost all members of staff barring the Executive Directors. These payments totalled £51,000; the individual payments were made on 31 August and 30 December 2011 and were paid to a total of 66 staff, although not all staff received both payments.

Auditors identified these payments as having breached the Agency’s pay remit. Consequently, the Agency sought retrospective approval from the Department for the payments. The Department declined to give that approval.

The National Audit Office has today published a report on the government fund to support private sector jobs and growth in places that rely on the public sector. The report finds that the initial £1.4 billion investment in the Regional Growth Fund could result in some 41,000 more full-time-equivalent private sector jobs in the economy than without the Fund. However, there was scope to have generated more jobs relative to the amount of grant awarded.

Overall, in line with the Fund’s objectives, the projects selected for investment offer more jobs for taxpayers’ money than the projects that were rejected and support private sector employment in places that rely more on the public sector. If the Fund delivers the expected 41,000 extra jobs, then the average cost per job would be £33,000, which would be broadly similar to the average cost of jobs under past programmes with comparable objectives.

The Fund has not optimised value for money because a significant proportion of the £1.4 billion was allocated to projects that offer relatively few jobs for the money invested. The expected cost per job varies considerably between projects, from under £4,000 per job to over £200,000 per job. Today’s report concludes that applying tighter controls over the value for money offered by individual bids and then allocating funding across more bidding rounds could have created thousands more jobs from the same resources.

Rigorous evaluation will be required to quantify precisely the Fund’s overall employment impact. More than two thirds (28,000) of the 41,000 additional jobs are expected to be delivered indirectly, for example through knock-on effects in companies’ supply chains or the wider economy. The average project will last at least seven years. However, it is not clear how much of the Fund’s boost to the private sector will be sustained in the longer term.

It has taken longer than expected to turn conditional offers of grants for projects into final offers. Therefore, despite the government’s intention to get projects up and running quickly, only around a third have so far received final offers of funding.

The complexity of the formulae used by government departments to provide funding to local public bodies is partly down to the nature of the services being funded, and partly to the fact that the formulae attempt to achieve multiple objectives, according to a report published today by the National Audit Office. The different approaches to formula funding have evolved over time, but key choices in the design and operation of the formulae remain open to question. 

Of the three funding arrangements on which it reports, the NAO concludes that the Department for Education and the Department for Communities and Local Government have not set out clearly, or explicitly prioritised, their multiple objectives for the design and distribution of Dedicated Schools Grant and Formula Grant. This prevents analysis of the extent to which the formulae represent the best way to satisfy objectives.

Each of the formulae is grounded in an assessment of relative needs, but other aspects of their design differ. For instance, Primary Care Trust allocations include a component to address health inequalities. The Dedicated Schools Grant prioritises stability of funding, by basing allocations on those of previous years. This approach is not responsive to changes in pupil characteristics. The Department recognises this in its current consultation on school funding. Meanwhile, the Department for Communities and Local Government’s Formula Grant has become increasingly complex, hindering transparency.

All of the funding arrangements examined by the NAO include provisions to ensure funding stability. Without stability, the budgets of funded organisations would vary more greatly from year to year, making financial planning and stable service provision more problematic. But adjusting formulae to ensure stability has, in practice, led to some local bodies being funded for extended periods significantly above or below needs-assessed levels.

Population data are the biggest determinants of funding, and Departments use the most current data available, though there are significant differences between population data sets within some geographical areas. Inputs to the formula to reflect additional needs are not as influential over allocations, but because many inputs are census-based, a quarter of those used in Formula Grant and ten per cent of those used for Primary Care Trust allocations, are based on data sources that are now ten or more years old.

The project to replace the 46 Fire and Rescue Services’ local control rooms across England with nine purpose-built regional control centres linked by a new IT system has been a comprehensive failure, according to the National Audit Office. The Department for Communities and Local Government acted to cut its losses by terminating the contract in December 2010, seven years after it had begun, but at least £469 million will have been wasted, with no IT system delivered and eight of the nine new regional control centres remaining empty and costly to maintain.

The FiReControl project was flawed from the outset because it did not have the support of those essential to its success – local Fire and Rescue Services. The Department tried to impose a national control system, without having sufficient mandatory powers and without properly consulting with the Fire and Rescue Services. These local bodies prize their distinctiveness and the freedom they have to choose their own equipment.

The Department rushed the start of the project, failing to follow proper procedures. Ineffective checks and balances during initiation and early stages meant the Department committed itself to the project on the basis of broad-brush and inaccurate estimates of costs and benefits and an unrealistic delivery timetable, and agreed an inadequate contract with its IT supplier. The Department under-appreciated the project’s complexity, and then mismanaged the IT contractor’s performance and delivery. The Department failed to provide the necessary leadership to make the project successful, over-relying on poorly managed consultants and failing to sort out early problems with delivery by the contractor.

The Department took a firmer grip of the project from 2009 and terminated the contract in December 2010 to avoid even more money being wasted. The Department is now trying to minimise the future cost of the project by subsidising Fire and Rescue Services to use the Regional Control Centres.