Government needs to better understand risks carried by arm’s length bodies, says spending watchdog

The centre of government needs to make considerably more progress in understanding the risks carried by arm’s length bodies (ALBs), and work with Government departments and ALBs to ensure that guidance and good practice are followed, the head of the National Audit Office has warned.

In 2018-2019, ALBs spent £265 billion annually and employed nearly 300,000 people.

A report by the spending watchdog, Central oversight of arm’s-length bodies, found that:

• The way in which sponsor departments set up and monitor ALBs was not consistent, and the Cabinet Office did not have the right information to support its own oversight of how ALBs were managed.
• Departments had 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 were various delivery models that ALBs can follow, but departments did not apply them consistently and there was no central guidance on which should be used.
• There was also inconsistency in how Cabinet Office classified 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 NAO said.
• The Cabinet Office had developed a Code of Good Practice for working relationships between departments and ALBs, but it was not consistently followed.
• The Cabinet Office did not have the right data to support its oversight of departments’ management of their ALBs. The Cabinet Office did 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 were managed. “This could impact the Cabinet Office’s ability to support the delivery of government programmes, and drive efficiency and reform.”
• The Cabinet Office had 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," the NAO said.
• 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 recommended that departments and ALBs should review Framework Agreements regularly, supported by HM Treasury and the Cabinet Office. It also said the Cabinet Office should work with departments to ensure teams responsible for oversight of ALBs have the right capability and capacity.

Gareth Davies, head of the NAO, said: “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.”