Curious incident of the dog barking in the night-time

Students of Civil service arcania will be familiar with the procedure for an Accounting Officer's request for ministerial directions. Briefly the Permanent Secretary who heads a Department has a personal, statutory responsibility to Parliament for use of public money, independent of that of ministers, requiring that he be satisfied that it meets the four tests of regularity, propriety, value for money, and feasibility. If ministers require civil servants to act in a way that does not meet those tests, the Accounting Office must write to the minister seeking a formal Direction to proceed, and his letter and the minister’s reply must be published, and the National Audit Office and Treasury must be notified. Responsibility for the decision then rests with the minister giving the direction.

Considering how daft, ill-considered, ineffective and wasteful so much Government spending is, the procedure is surprisingly seldom used – some stats collected by the Institute for Government are here  . The National Audit Office has commented that officials lack confidence in challenging ministerial decisions, not least because it might damage their career projects. (Information from Martin Stanley’s excellent website www.civilservant.org.uk.)

Such an exchange had just been published between Sir Richard Heaton, Permanent Secretary of the MoJ and David Gauke (here and here). Gauke wanted to pay the debts of subcontractors to Working Links, whose 3 Community Rehabilitation Companies went into administration, due to loss making contracts. Heaton noted that there was no legal obligation to make good losses by subs, and rightly questioned whether using public money in this way would pass the tests of propriety and value for money. After all, if the subs had a beef it was with Working Links as main contractor. Heaton concluded that such payments would create a ‘moral hazard ‘ – i.e. a situation in which a company takes on a risky business, but knows it will in fact always be bailed out – of which there are innumerable examples in outsourcing including as indeed had previously happened the CRCs themselves.

Gauke’s response is interesting. He said the subs had asked MoJ to stump up in view of “the unique circumstances of this first-generation probation outsourcing, the comfort given by my predecessors about how the Government would steward this market, their status as ‘Permitted Subcontractors’ in our contract structure, and the extent to which these organisations were delivering frontline statutory services on behalf of Government.” He added that a partly privatised service could be hard to maintain if subs bore their own losses. So he made the Direction, again quoting ‘unique circumstances’ that meant Government has a ‘moral duty of care’ to the subs.

What was, then, ‘unique’ in these circumstances? After all, Government contracts all the time, passes risks to contractors all the time (that is a main purpose of outsourcing), contractors do the same to their subs all the time, those subs deliver ‘frontline statutory services on behalf of Government’ all the time, and contractors go belly up quite often.  Moreover, there is no shortage of other contractors waiting to take over business.

The idea that if contractors or their subs get into difficulties, Government has aa ‘moral duty of are’ always to cover their losses would of course make a total mockery of outsourcing, which would instantly become pointless and a huge waste of funds.

Was the ‘unique’ consideration that created a 'moral duty' to meet subs' losses that the then Minister who implemented probation privatisation, Grayling, acted recklessly and by so doing, mislead the subs, or made perhaps understandings and promises which he should not have done (‘comfort given by my predecessors’)? Considering Grayling’s record of dubious spending decisions and dodgy contracts, those possibilities must be considered.   We don’t know.

The only body able to probe this is the National Audit Office. It should do so.