Today’s report from the National Audit Office (the NAO) finds that the way in which sponsor departments (departments) set up and monitor arm’s-length bodies (ALBs) is not consistent, and the Cabinet Office does not have the right information to support its own oversight of how ALBs are managed.

The government can deliver policies and public services directly through departments or can decide to set up an ALB, particularly where it is appropriate for the body to be distanced from government, or to draw on external technical expertise. The Cabinet Office provides support to departments on the creation and oversight of their ALBs. In 2018-2019, ALBs spent £265 billion annually and employed nearly 300,000 people.

The NAO finds that departments have not always considered alternatives to setting up an ALB. More than a third (9 out of 24) of business cases reviewed by the NAO failed to consider a longlist of alternatives. There were also examples where the decision to set up a new ALB had been made before a full business case was considered.

There are various delivery models that ALBs can follow, but departments do not apply them consistently and there is no central guidance on which should be used.1 There is also inconsistency in how Cabinet Office classifies ALBs. ALBs are split into three types – non-departmental public bodies, executive agencies, and non-ministerial departments – but similar ALBs can have different classifications. While variation is sometimes needed, inconsistency reduces opportunities for both sponsor departments and the ALBs to benchmark performance or identify efficiencies.

The Cabinet Office has developed a Code of Good Practice for working relationships between departments and ALBs, but it is not consistently followed. The guidance states that Framework Agreements, which set out the role of ALBs, should be formally reviewed “at least once every three years”. However, out of the 10 Framework Agreement documents the NAO reviewed, only six had been updated within this time period.

The Cabinet Office does not have the right data to support its oversight of departments’ management of their ALBs. The Cabinet Office does not require departments to provide information about the risk profile of the ALBs they oversee, making it difficult to carry out a risk-based review of how ALBs are managed. This could impact the Cabinet Office’s ability to support the delivery of government programmes, and drive efficiency and reform.

The Cabinet Office has not yet published its post-2020 strategy for the oversight and management of ALBs, because of delays caused by EU Exit and COVID-19. In 2016, the Cabinet Office set an objective to carry out “tailored” reviews of all ALBs by the end of 2020. It has acknowledged that this goal was overly ambitious, resulting in only one-third of the intended reviews being completed by December 2020.

Most of the departments and ALBs the NAO consulted (15 out of 20) said they would welcome increased guidance and support from the Cabinet Office. They were keen to see the Cabinet Office facilitate more good practice sharing and networking with similar organisations across government.

The NAO recommends that departments and ALBs should review Framework Agreements regularly, supported by HM Treasury and the Cabinet Office. The Cabinet Office should also work with departments to ensure teams responsible for oversight of ALBs have the right capability and capacity.

“Government relies on arm’s-length bodies to deliver essential polices and public services, but the inconsistency in the way they are set up and overseen by departments limits the opportunity for lessons to be shared across organisations. The centre of government needs to make considerably more progress in understanding the risks carried by ALBs, and work with departments and ALBs to ensure that guidance and good practice are followed.”

Gareth Davies, head of the NAO

Read the full report

Central oversight of arm’s-length bodies

Notes for editors

  1. There are 10 main types of delivery models which are commonly used by government. These are outlined in Figure 1 in the report and include: a government department; an ALB; an unclassified public body; through local government; through other local bodies such as NHS trusts or local civil society bodies; a government company; other commercial structures; innovative structures; or, the private sector.
  2. The Government Finance Function is one of a number of functions operating across the civil service. Functions aim to develop and deploy specialist expertise across government. Typically, functions set cross-government strategies, set and assure standards, develop capability, give expert advice and develop and deliver commonly required services. The GFF describes itself as a function that brings ‘together a range of disciplines and expertise, from strategic business partners, to accountants, to planning and performance leads, to risk managers, internal auditors and public spending teams.’
  3. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

About the NAO

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it uses its insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and report on the value for money of how public money has been spent.

In 2019, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £1.1 billion.


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