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our changing state:
mergers and demergers of
Non-Departmental Public Bodies
From left to right
Sir Paul Jenkins, Former Treasury Solicitor and
Head of the Government Legal Service (Chair)
Dr David Clarke, Consultant, Welsh Government
Julie Lunt, Head of Legal, Natural England
Craig Parkin, Assistant Chief Fire Officer,
Nottinghamshire Fire and Rescue Service
Dr Russell Richardson, General Counsel and Company
Secretary, UK Oil & Gas Authority
Harry Cayton OBE, Chief Executive,
Professional Standards Authority
Rt Hon Peter Riddell CBE,
Commissioner for Public Appointments
Peter Unwin, Chief Executive, The Whitehall &
Industry Group
Khalid Ghazi, Senior Commercial Lawyer,
Government Legal Department
Benjamin Taylor, Founder and Managing Partner,
RedQuadrant
Rebecca Lloyd-Jones, Director for Governance and
Legal Services, Care Quality Commission
Robert Hann, Consultant
Helen John, Head of Stewardship, DWP
Richard Barlow, Partner, Browne Jacobson
Sarah Hooton, Partner, Browne Jacobson
Richard Medd, Partner, Browne Jacobson
Our changing state: mergers and demergers of Non-Departmental Public Bodies | Contents page | 3
contents
About the roundtable........................................................................	.....
Introduction........................................................................................
Executive summary...........................................................................	.....
Where are we now?..........................................................................	.....
The truths of reform.........................................................................	.....
What does accountability look like?......................................................	......
A delicate balancing act..........................................................................
Looking ahead......................................................................................
Conclusion..........................................................................................
About Browne Jacobson....................................................................	......
4
6
8
10
12
14
16
18
21
22
Our changing state: mergers and demergers of Non-Departmental Public Bodies | About the roundtable page | 4
The meeting was chaired by Sir Paul Jenkins and we are
particularly grateful for his continued involvement and
his support of our work in this area.
This report reflects the nature of the discussions held
at the roundtable, however it, and the views expressed
within it, do not necessarily represent the views either
of the individuals or the organisations they represent.
The information and opinions expressed in this report
are no substitute for full legal advice, it is for guidance
only and, where applicable, illustrates the law as at the
published date.
Browne Jacobson would like to thank the past and present leaders of Non-Departmental Public
Bodies (NDPBs), policy influencers and other stakeholders who joined us for our roundtable
discussion on the topical issues surrounding mergers and demergers of NDPBs at our London office.
about the roundtable
Our changing state: mergers and demergers of Non-Departmental Public Bodies | About the roundtable page | 5
introduction
page | 6
Since the 1970s, many governments have engaged in the reform of the public sector. Since 2010,
the public sector landscape has withstood considerable reform of its public bodies and reform will
continue until at least 2020 under the Public Bodies Reform Programme.
“identify the realities of merging
and demerging public bodies”
“best practice in such
structural reforms”
We want to help the public sector develop awareness of
the challenges ahead, and to explore possible solutions
to those challenges.
The roundtable meeting brought together a diverse and
knowledgeable group of stakeholders, to identify the
realities of merging or demerging public bodies and to
look at practical ways in which the potential challenges
can be overcome, including:
•	 the mechanisms and best practice in such structural
reforms
•	 improving the accountability, transparency and
independence of the remaining NDPBs
•	 the future and Brexit.
This paper addresses these questions and themes in
more detail and makes recommendations for decision
makers who are involved at various stages of the Public
Bodies Reform Programme.
Richard Barlow
Partner and Head of Public Sector
Browne Jacobson
Our changing state: mergers and demergers of Non-Departmental Public Bodies | Introduction
page | 7Our changing state: mergers and demergers of non-departmental public bodies | Introduction
page | 8
The roundtable meeting, and our research and experience in this area, leads Browne Jacobson to make the
following observations and recommendations:
executive summary
Each re-organisation of a public body varies in size, budget and remit, with some mergers being
more complex than others. The public bodies involved in these mergers and transfers had their own
specific challenges, but there are a number of generic issues which all bodies facing re-organisation
will need to have high on their radar if they are to learn from lessons of the past.
Our changing state: mergers and demergers of Non-Departmental Public Bodies | Executive summary
Governance and leadership
•	 Public body restructuring is complex. The process of undergoing a merger or demerger requires strong,
strategic leadership from the outset. Board level governance, with clear roles and responsibilities, should
be established early on to ensure its effectiveness. The absence of permanent leaders early in the planning
and implementation stages may mean that important decisions are deferred and that the long-term vision,
objectives and structure are not well identified and developed when the new body begins to operate.
Strategy
•	 Specific strategic objectives and improvements should be identified when planning the merger, along with
effective performance measurements and reporting systems to consistently monitor the progression of the
anticipated improvements.
•	 Ensure that there is a robust means of conflict resolution. Not all eventualities can be accounted or planned for,
but NDPBs can alleviate the impacts of these situations by having a pragmatic plan in place to deal with and
manage issues so that they do not become serious or protracted.
•	 Develop a realistic timetable and ensure that enough time is allowed for the development of appropriate
legislation. A shared concern of the roundtable was lack of preparation time in the days leading up to the
changes with little time left for the essential but longer-term issues around corporate planning, integration of
staff and human resources, operations and finance.
Culture and workforce planning
•	 Breaking down barriers between predecessor organisations, bringing the two cultures together and identifying
early on any differences between conditions of service will help towards a seamless transition into the new
NDPB.
•	 Clearly communicating with staff and stakeholders will enable them to understand the rationale and benefits
for the merger of the reorganisation. It is important to allow key stakeholders to express views on values
and objectives and this will go towards achieving continued engagement and motivation of staff. If this open
environment for communication is not created, NDPBs may experience significant resistance to change within
their new organisations. Such resistance can result in larger disruption costs and an increased delivery risk
during the transition period.
•	 Efficient workforce planning is essential. NDPBs facing mergers or reorganisation must identify the estimated
costs of changes to staffing structures and have established a method of scrutiny and challenge.
page | 9Our changing state: mergers and demergers of Non-Departmental Public Bodies | Executive summary
Financial considerations
•	 Match the objectives of the merging bodies with available financial resources to secure value for money.
Develop robust cost and savings estimates for prospective mergers and regularly review and revise these as
necessary as the merger proceeds. Weaknesses in key performance measures and baseline financial information
will make it difficult for merged bodies to demonstrate the impact of changes in the way they deliver services.
•	 Look to provide solutions to problems. Many public bodies are re-organised as a result of financial savings
which are a key driver for public sector reform. If NDPBs can take an innovative approach to cost savings, such
as becoming self-funding, they may justify their existence and present a solution to any perceived problems
associated with their existence. Smaller NDPBs in particular may be able to adopt such an approach in order to
help guarantee their survival.
Accountability
•	 A clear view of what the accountability regime should be must be established. Governance mechanisms must be
clear in order to determine the correct level of accountability.
•	 Effective accountability depends as much on establishing clear roles, relationships and avenues of
communication within the NDPB, as it does on the Government displaying greater transparency, clarity and
ambition when it comes to resolving issues of accountability.
page | 10
where are we now?
The Coalition Government’s call for reform of the
public sector landscape in May 2010, and the resulting
introduction of the ‘Public Bodies Reform Programme’,
was nothing new. Demands for the reduction of the
number of bodies that operate at arm’s length from
government have been prevalent since the middle
of the 20th century, with both the 1979 and 1997
Governments promising to review and cut the size
of the public body landscape. Although the Coalition
Government’s reform programme was met with initial
scepticism, the Government was spurred into action
with the pressing need to explore every method
possible of driving down the budget deficit as part of an
unprecedented period of austerity.
The Coalition Government needed to take drastic
measures aimed at reducing overall government
costs and ensuring greater value for money in public
spending. It did so by merging and abolishing those
public bodies that it considered unnecessarily
duplicated or redundant and increasing the
accountability of those public bodies that were distant
from the accountability of government ministers.
The 2010 to 2015 Public Bodies Reform Programme
saw the abolition of more than 190 public bodies and
the merger of over 165 bodies into fewer than 70. The
second phase of the Public Bodies Reform Programme
began in 2015 and is set to continue until at least 2020.
In 2016 the Cabinet Office published guidance on the
classification of public bodies, and intends to publish
further guidance this year. The guidance suggests
that the types of central government ALBs should be
reduced to three main categories: Executive Agency,
Non-Departmental Public Body and Non-Ministerial
Department.
The aim of the guidance is to assist with the creation
of a transparent public body regime, which the
Cabinet Office hopes will enhance accountability. It is
anticipated the guidance will improve efficiency and
effectiveness, in turn encouraging best practice.
Our perspective on the successes and failures thus far
of the Public Bodies Reform Programme is significantly
informed by our relationships with clients who are
living and breathing the changes brought about by the
programme.
The public sector landscape has seen the biggest reform of arm’s length bodies (ALBs) in a
generation, with NDPBs having been particularly susceptible to reform. Before exploring the current
issues, we reflect on how we reached this point.
People want to see how money
is being spent and how public
functions are undertaken and
delivered.
“
”Robert Hann
Consultant
Our changing state: mergers and demergers of Non-Departmental Public Bodies | Where are we now?
page | 11Our changing state: mergers and demergers of Non-Departmental Public Bodies | Where are we now?
page | 12
the truths of reform
Politics and policy
Complex organisational changes are nearly always politically motivated. As a result, they can pass through the
legislative system and the mechanisms of government at an inappropriate rate which may inhibit good planning.
That is not to say that the mergers are not the right thing to do but it is questionable whether there would be
as many mergers if they were pushed through purely on a compelling business case rather than being politically
desirable. There would almost certainly be a lot more time to plan.
So far, the benefits of mergers and privatisations have fallen far short of plans, despite much effort. It will be
important for NDPBs facing re-organisation to learn from the over-optimism of such plans.
NDPBs also differ between themselves in the types of roles they have.
Arm’s length bodies have different roles. Mine for instance has specific legislation
that we are required to provide advice to the Secretary of State and we can
also provide advice if he asks for it or not. We don’t make policy but we advise
on policy in a very specialist area. When asking what kind of body an arm’s
length body is, we must remember there are a number of different types of
organisations with different relationships with government.
“
”Harry Cayton OBE
Chief Executive, Professional Standards Authority
Our changing state: mergers and demergers of Non-Departmental Public Bodies | The truths of reform
page | 13
Healthcare
Integrating the health and social care sectors
would be a significant challenge at the best of
times, let alone times when both sectors are
under such severe financial pressure. Health and
social care NDPBs do not yet have the evidence to
show that they can deliver their commitment to
integrated services by 2020, at the same time as
meeting existing pressures on the health and social
care systems. Even darker days are on the horizon
for the health and social care sectors as by all
accounts, there seems to be a deep aversion to the
further structural change likely to be needed to
move towards integrated commissioning.
People
At the centre of the reforms are the members of
staff that are living and breathing the changes
brought about by Government. It is easy to forget
that people are essential to the success of any new
entity. If these people are ignored, no matter what
efforts have been put into driving costs down and
improving accountability of the body, its efficiency
and usefulness will still falter as members of staff
struggle to grapple with change. The Government
needs to place considerable emphasis on these
human factors because they make a vital
contribution to the success of the reforms.
Our changing state: mergers and demergers of Non-Departmental Public Bodies | The truths of reform
what does accountability look like?
There remains inconsistency, overlaps and confusion in terms of accountability, with most public
bodies answering to ministers but with some being accountable to Parliament. It is not surprising
that guaranteeing the accountability of NDPBs is difficult in this changing environment.
For the Government, the ideal is influence without accountability… from the body
receiving the powers, you want maximum freedom to act and the ability to exercise power
and influence.
“
”Benjamin Taylor
Founder and Managing Partner, RedQuadrant
Has reform to date improved accountability?
Re-organisation can lead to different approaches to accountability. One of the key themes emerging is the
importance of establishing a clear view of what the accountability regime should be and, in particular, establishing
the mechanism by which public bodies are governed appropriately to determine the correct level of accountability.
Whilst any reorganisation of a public body will always have the intention of improving accountability, it does not
necessarily mean that issues will be resolved. There are likely to be teething problems as new roles are established
and NDPBs adapt to their new structures. It is not surprising that guaranteeing the accountability of NDPBs is
difficult in this challenging environment. In reality, it may be too early to determine the impact of the first wave of
the Public Bodies Reform Programme. The second phase of this concept continues and is due to conclude in 2020.
How can the next phase of reform do things differently or better?
Improved accountability does not necessarily mean that a NDPB needs to be subject to increased parliamentary
scrutiny. It is important to acknowledge that accountability may not be the primary driver, it may be that for
ALBs the desire is to ensure that they behave in a more commercial and nimble way. Taking one example, the
incorporation of the Oil and Gas Authority (the Authority), is driven by delivering a more commercial approach to
interaction with the industry the Authority regulates. Whilst this is important, the Authority must ensure (as they
intend to do) that it remains appropriately accountable.
Effective accountability depends upon effective relationships, communication and learning. Greater transparency
and ambition is needed from the Government, with improved clarity as to how issues of accountability should be
approached. Inconsistencies in accountability may not always be solved by mergers, and steps should be taken to
ensure strong relationships are established with all those involved in re-organising NDPBs. This will assist in ensuring
the smooth transition of functions. Thereafter a clear set of principles should be agreed between the Government
and the new body which underpin the body’s accountability arrangements as it is developed and establishes itself.
page | 14Our changing state: mergers and demergers of Non-Departmental Public Bodies | What does accountability look like?
page | 15Our changing state: mergers and demergers of Non-Departmental Public Bodies | What does accountability look like?
The threat of reorganisation is thus a constant spur
to senior officials and ministers to do a good job and
to avoid inefficiencies which may trigger radical re-
organisations or even complete absorption into another
ministry. Equally, the ability to expand turf and to take
on new functions and extend the scale of department
operations may sometimes provide a stimulus to their
ministers and senior officials to be successful.
Changes to the public bodies landscape must be seen
as more than a simple numbers game: simply reducing
spend through fewer bodies cannot capture the extent
of the complexity of the landscape, as bodies are
established, merged, demerged or abolished.
The legal complexities in reforming public bodies
mean that most reforms constitute a significant use of
resources, at least at the very outset. Are the resources
ever proportionate to the outcome? A clear and
objective justification for a proposed reform is always
required to warrant the resulting resource commitment
and transitional effects.
NDPBs can provide specialist expertise and have a
longer-term focus than is afforded in a highly politicised
environment. They can also benefit from the heightened
authority resulting from their relative freedom from
political considerations. Where accountability for
decisions is transferred back to government, it will be
difficult to claim that the independence of NDPBs has
not been undermined.
However, in any change to a NDPB, it is vital to protect
the key public services it provides. It is highly likely
that services which are provided could be affected
by changes to the structure and functions of a NDPB.
Drastic reforms are not always necessary, and it could
be that subtle changes are more appropriate for some
bodies. Any change will be costly, so care should be
taken to ensure that the correct decision is made.
a delicate balancing act
While government departments and bodies are not, in practice, allowed to go bankrupt, they can be
exposed to being reorganised, to seeing parts of their functions merged into rival departments and
to seeing their own scope of functions changing character or being radically downsized.
page | 16Our changing state: mergers and demergers of Non-Departmental Public Bodies | A delicate balancing act
It seems there’s no consistency about how conflicts are dealt with.
“ ”Richard Medd
Partner, Browne Jacobson
It is vital to consider how such conflicts can be resolved. Given the variety in size, functions and agendas of NDPBs,
it may be that one approach cannot be used for all bodies.
NDPBs are sometimes given potentially competing objectives on purpose as policy aims aren’t
always black and white. (For example, economic growth and protecting jobs can sometimes be
in conflict with protecting pension rights or the cost to PPF levy payers). NDPBs might as well
internalise the issues.
“
”Helen John
Head of Stewardship, DWP
Novel approaches may need to be taken to limit conflicts arising, and to effectively and swiftly deal with them
when they do.
There will always be tension, but the issue is where the appeal mechanism is. The
majority of appeal mechanisms in Welsh environmental legislation are to Welsh ministers,
so they have to remain independent in earlier permitting/consent discussions.
“
”Dr David Clarke
Consultant, Welsh Government
Has independence been undermined?
The independence of NDPBs must be protected, but there is a risk that this fundamental concept is facing threats
from a variety of angles.
Consumers want to be close to the Government when it suits them, but they also want
NDPBs to be independent as they feel NDPBs are too close to the Government. Both the
business and the relationship can be really tricky to manage.
“
”Julie Lunt
Head of Legal, Natural England
Consumers of products like the fact that an economic regulator is independent.
“ ”Dr Russell Richardson
General Counsel and Company Secretary, UK Oil  Gas Authority
Future mergers and demergers of NDPBs must be carefully managed to ensure that their independence is protected.
page | 17Our changing state: mergers and demergers of Non-Departmental Public Bodies | A delicate balancing act
Conflicts and how to resolve them
NDPBs often have to balance a number of roles and functions. Various issues need to be dealt with, often in an
environment of competing pressures and demands.
Within the 2015 to 2020 Public Bodies Reform Programme, the Government is attempting to avoid piecemeal
reviews of each NDPB. It is currently undergoing functional reviews to look at how groups of bodies can be merged,
share back offices or work together better. Tailored reviews will then be conducted for those not falling into a
functional review.
The Cabinet Office’s Public Bodies Reform Programme had been limited to just one form, the NDPB, but has now
been extended to include executive agencies and non-ministerial departments which levels the playing field across
ALBs. The public sector landscape cannot be efficiently reviewed if groups of public bodies are essentially immune
from review. However, the aim is to review every ALB at least once in the lifetime of each Parliament.
looking ahead
Regular assurance and challenge about the continuing need, efficiency and good governance of
public bodies remains central to the Government’s public bodies transformation programme.
“
”Ben Gummer MP, Minister for the Cabinet Office
(Tailored Reviews: Guidance on Reviews of Public Bodies, November 2016)
The review exercise is valuable. You look at all of your systems to see if you have
something to offer the public, and whether you can deliver that service in a sensible and
cost-effective way.
“
”Julie Lunt
Head of Legal, Natural England
If we can go with this more tailored approach, these reviews can be useful in clarifying
vision and objectives, which sometimes become confused over the years.
“
”Helen John
Head of Stewardship, DWP
It has to be independent of
government to survive and make
a valuable contribution. It doesn’t
make sense to clear them away just
to save money, that’s the danger we
are in, we’ll lose that flag of why
they’re there and why they still
need to exist.
“
”Robert Hann
Consultant
on the future of Non-Departmental Public Bodies...
page | 18Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
Is this an efficient use of resources?
The regular review process is inefficient as it creates fear and triggers defence mechanisms
that might not be necessary. If there are wider issues you want to review, methods like
audits can deliver those more effectively. If you have an agenda for change, be transparent
and have a public discussion rather than go through the review process.
“
”Dr David Clarke
Consultant, Welsh Government
Environment
NDPBs in the environmental field often have several roles to fill and conflicting pressures to manage. They have
a broad remit and responsibility for complex scientific regimes. Environmental law is heavily based upon EU
legislation and standards, and upcoming changes in this area are likely to filter through to the daily operations of
environmental NDPBs.
There are a lot of important interests that have made long-term investments in the United
Kingdom based on an existing environmental regime. If there were to be a reduction in
environmental regulation, this could result in new organisations operating with a much
lower level of environmental control. You could see a lot of established stakeholders
having their own economic viability undermined.
“
”Richard Barlow
Partner, Browne Jacobson
page | 19Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
Brexit
In the three to five years after transition, it will be working out how to retain credibility
and the willingness of people wanting to trade with us.
“
”Sir Paul Jenkins
former Treasury Solicitor and Head of the Government Legal Service
The negotiations required to determine the UK’s future relationship with Europe will result in a concentration of
resources on this complex task. We consider it likely that this work will dominate the Government’s agenda both
during the negotiations and beyond. Given this focus and the outcome of the election on 8 June 2017, the review
of public bodies may slow and fall down the priority list of areas to be addressed. The impact of this is difficult
to predict, but it could result in proposed changes to NDPBs not proceeding, given the time and cost investments
needed to realise these. Pressure on public funds is likely to be even greater than it already is, as additional
resources are needed to deal with this difficult process.
Brexit will require significant Government resources over
the next two years. Any proposals to restructure arms
length bodies, unless they are related to Brexit, will be
harder to get on the agenda than previously.
“
”Peter Unwin
Chief Executive, Whitehall  Industry Group
page | 20Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
conclusion
Periodic reorganisation of the public sector landscape remains a fact of life for most ALBs with the
reforms set to continue until at least 2020. The general ethos of the public sector reforms is the
avoidance of ‘duplication’ so that only one body should be handling any one function at a time.
Change is no bad thing; without it organisations can stagnate. Reorganisation and reviews allow a reconsideration
of what core services a body should be providing and the best way to do this. Such work will often bring new people
and fresh perspectives to a NDPB and provide a catalyst for service improvement.
Some NDPBs are too quickly re-organised before they have reached their full potential. We consider that the
constant threat of change is unhelpful and the tailored review approach is more appropriate. Nevertheless, NDPBs
need to be ready to justify their fitness for purpose. As the reforms move into their second phase, mergers and
demergers of NDPBs are likely to become more intricate as the obvious candidates for reform have already been
targeted. However, the Government needs to ensure that the review process is not an unnecessary distraction and
be clear that re-organisations are an appropriate use of resources.
We recommend that the Government motivate, educate and activate talented people in this important work, in
order to ensure that efficiency, transparency and effectiveness in these newly created NDPBs is achieved.
“we recommend that the
Government motivate, educate
and activate talented people in
this important work”
“change is no bad thing”
page | 21Our changing state: mergers and demergers of Non-Departmental Public Bodies | Conclusion
•	 adult services
•	 business transfer
agreements
(including TUPE  LGPS 	
pensions issues)
•	 children’s services 
social care
•	 collaboration agreements
•	 commercial  regeneration
•	 contracts
•	 corporate governance
•	 corporate insolvency  	
restructuring
•	 data protection
•	 employment
•	 EU competition
•	 freedom of information
•	 immigration
•	 information technology
•	 intellectual property
•	 inter-authority agreements
•	 internet  e-commerce
•	 joint venture agreements
•	 judicial review
•	 litigation  dispute 		
resolution
•	 major projects
•	 mergers  acquisitions
•	 outsourcing
•	 PFI/PPP
•	 planning, highways 
infrastructure
•	 public procurement
•	 property, construction and 	
related litigation
•	 regeneration
•	 regulatory advice
•	 shared services
•	 social housing
•	 state aid
•	 supply of goods  services
•	 tax
•	 vires.
We are a leading UK law firm offering a unique collection
of specialisms across the commercial, public, health and
insurance sectors. We have offices in Birmingham, Exeter,
London, Manchester and Nottingham and are committed to
being a quality, relationship-led business.
Established in 1832, we now have over 900 people, including
more than 400 lawyers and over 100 partners. We have a
client portfolio to be proud of - including major insurers, blue
chip corporates, NHS trusts, local authorities and other public
sector organisations.
We have a long and successful track record of working with
the public sector. Our specialist public sector practice is
ranked nationally by both Chambers  Partners and Legal 500
directories who describe us as “very experienced… excellent
and very knowledgeable… a very friendly, approachable firm.
They actually go the extra mile. Very accommodating.”
As a full service law firm, we can provide you with advice and
assistance on:
about browne jacobson...
Ros Foster
ros.foster@brownejacobson.com
+44 (0)20 7337 1015
Richard Barlow
richard.barlow@brownejacobson.com
+44 (0)115 976 6208
Laura Hughes
laura.hughes@brownejacobson.com
+44 (0)115 976 6582
Peter Ware
peter.ware@brownejacobson.com
+44 (0)115 976 6242
Richard Medd
richard.medd@brownejacobson.com
+44 (0)115 976 6256
page | 22Our changing state: mergers and demergers of Non-Departmental Public Bodies | About Browne Jacobson
The information and opinions expressed in this document are no substitute for legal advice. It is guidance only, if in
doubt please telephone 0370 270 6000.
© Browne Jacobson LLP 2017. The information contained within this document is and shall remain the property of
Browne Jacobson. This document may not be reproduced without the prior consent of Browne Jacobson.
Birmingham | Exeter | London | Manchester | Nottingham
www.brownejacobson.com
0370 270 6000

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Our changing state - mergers and demergers of NDPBs

  • 1. our changing state: mergers and demergers of Non-Departmental Public Bodies
  • 2. From left to right Sir Paul Jenkins, Former Treasury Solicitor and Head of the Government Legal Service (Chair) Dr David Clarke, Consultant, Welsh Government Julie Lunt, Head of Legal, Natural England Craig Parkin, Assistant Chief Fire Officer, Nottinghamshire Fire and Rescue Service Dr Russell Richardson, General Counsel and Company Secretary, UK Oil & Gas Authority Harry Cayton OBE, Chief Executive, Professional Standards Authority Rt Hon Peter Riddell CBE, Commissioner for Public Appointments Peter Unwin, Chief Executive, The Whitehall & Industry Group Khalid Ghazi, Senior Commercial Lawyer, Government Legal Department Benjamin Taylor, Founder and Managing Partner, RedQuadrant Rebecca Lloyd-Jones, Director for Governance and Legal Services, Care Quality Commission Robert Hann, Consultant Helen John, Head of Stewardship, DWP Richard Barlow, Partner, Browne Jacobson Sarah Hooton, Partner, Browne Jacobson Richard Medd, Partner, Browne Jacobson
  • 3. Our changing state: mergers and demergers of Non-Departmental Public Bodies | Contents page | 3 contents About the roundtable........................................................................ ..... Introduction........................................................................................ Executive summary........................................................................... ..... Where are we now?.......................................................................... ..... The truths of reform......................................................................... ..... What does accountability look like?...................................................... ...... A delicate balancing act.......................................................................... Looking ahead...................................................................................... Conclusion.......................................................................................... About Browne Jacobson.................................................................... ...... 4 6 8 10 12 14 16 18 21 22
  • 4. Our changing state: mergers and demergers of Non-Departmental Public Bodies | About the roundtable page | 4 The meeting was chaired by Sir Paul Jenkins and we are particularly grateful for his continued involvement and his support of our work in this area. This report reflects the nature of the discussions held at the roundtable, however it, and the views expressed within it, do not necessarily represent the views either of the individuals or the organisations they represent. The information and opinions expressed in this report are no substitute for full legal advice, it is for guidance only and, where applicable, illustrates the law as at the published date. Browne Jacobson would like to thank the past and present leaders of Non-Departmental Public Bodies (NDPBs), policy influencers and other stakeholders who joined us for our roundtable discussion on the topical issues surrounding mergers and demergers of NDPBs at our London office. about the roundtable
  • 5. Our changing state: mergers and demergers of Non-Departmental Public Bodies | About the roundtable page | 5
  • 6. introduction page | 6 Since the 1970s, many governments have engaged in the reform of the public sector. Since 2010, the public sector landscape has withstood considerable reform of its public bodies and reform will continue until at least 2020 under the Public Bodies Reform Programme. “identify the realities of merging and demerging public bodies” “best practice in such structural reforms” We want to help the public sector develop awareness of the challenges ahead, and to explore possible solutions to those challenges. The roundtable meeting brought together a diverse and knowledgeable group of stakeholders, to identify the realities of merging or demerging public bodies and to look at practical ways in which the potential challenges can be overcome, including: • the mechanisms and best practice in such structural reforms • improving the accountability, transparency and independence of the remaining NDPBs • the future and Brexit. This paper addresses these questions and themes in more detail and makes recommendations for decision makers who are involved at various stages of the Public Bodies Reform Programme. Richard Barlow Partner and Head of Public Sector Browne Jacobson Our changing state: mergers and demergers of Non-Departmental Public Bodies | Introduction
  • 7. page | 7Our changing state: mergers and demergers of non-departmental public bodies | Introduction
  • 8. page | 8 The roundtable meeting, and our research and experience in this area, leads Browne Jacobson to make the following observations and recommendations: executive summary Each re-organisation of a public body varies in size, budget and remit, with some mergers being more complex than others. The public bodies involved in these mergers and transfers had their own specific challenges, but there are a number of generic issues which all bodies facing re-organisation will need to have high on their radar if they are to learn from lessons of the past. Our changing state: mergers and demergers of Non-Departmental Public Bodies | Executive summary Governance and leadership • Public body restructuring is complex. The process of undergoing a merger or demerger requires strong, strategic leadership from the outset. Board level governance, with clear roles and responsibilities, should be established early on to ensure its effectiveness. The absence of permanent leaders early in the planning and implementation stages may mean that important decisions are deferred and that the long-term vision, objectives and structure are not well identified and developed when the new body begins to operate. Strategy • Specific strategic objectives and improvements should be identified when planning the merger, along with effective performance measurements and reporting systems to consistently monitor the progression of the anticipated improvements. • Ensure that there is a robust means of conflict resolution. Not all eventualities can be accounted or planned for, but NDPBs can alleviate the impacts of these situations by having a pragmatic plan in place to deal with and manage issues so that they do not become serious or protracted. • Develop a realistic timetable and ensure that enough time is allowed for the development of appropriate legislation. A shared concern of the roundtable was lack of preparation time in the days leading up to the changes with little time left for the essential but longer-term issues around corporate planning, integration of staff and human resources, operations and finance. Culture and workforce planning • Breaking down barriers between predecessor organisations, bringing the two cultures together and identifying early on any differences between conditions of service will help towards a seamless transition into the new NDPB. • Clearly communicating with staff and stakeholders will enable them to understand the rationale and benefits for the merger of the reorganisation. It is important to allow key stakeholders to express views on values and objectives and this will go towards achieving continued engagement and motivation of staff. If this open environment for communication is not created, NDPBs may experience significant resistance to change within their new organisations. Such resistance can result in larger disruption costs and an increased delivery risk during the transition period. • Efficient workforce planning is essential. NDPBs facing mergers or reorganisation must identify the estimated costs of changes to staffing structures and have established a method of scrutiny and challenge.
  • 9. page | 9Our changing state: mergers and demergers of Non-Departmental Public Bodies | Executive summary Financial considerations • Match the objectives of the merging bodies with available financial resources to secure value for money. Develop robust cost and savings estimates for prospective mergers and regularly review and revise these as necessary as the merger proceeds. Weaknesses in key performance measures and baseline financial information will make it difficult for merged bodies to demonstrate the impact of changes in the way they deliver services. • Look to provide solutions to problems. Many public bodies are re-organised as a result of financial savings which are a key driver for public sector reform. If NDPBs can take an innovative approach to cost savings, such as becoming self-funding, they may justify their existence and present a solution to any perceived problems associated with their existence. Smaller NDPBs in particular may be able to adopt such an approach in order to help guarantee their survival. Accountability • A clear view of what the accountability regime should be must be established. Governance mechanisms must be clear in order to determine the correct level of accountability. • Effective accountability depends as much on establishing clear roles, relationships and avenues of communication within the NDPB, as it does on the Government displaying greater transparency, clarity and ambition when it comes to resolving issues of accountability.
  • 10. page | 10 where are we now? The Coalition Government’s call for reform of the public sector landscape in May 2010, and the resulting introduction of the ‘Public Bodies Reform Programme’, was nothing new. Demands for the reduction of the number of bodies that operate at arm’s length from government have been prevalent since the middle of the 20th century, with both the 1979 and 1997 Governments promising to review and cut the size of the public body landscape. Although the Coalition Government’s reform programme was met with initial scepticism, the Government was spurred into action with the pressing need to explore every method possible of driving down the budget deficit as part of an unprecedented period of austerity. The Coalition Government needed to take drastic measures aimed at reducing overall government costs and ensuring greater value for money in public spending. It did so by merging and abolishing those public bodies that it considered unnecessarily duplicated or redundant and increasing the accountability of those public bodies that were distant from the accountability of government ministers. The 2010 to 2015 Public Bodies Reform Programme saw the abolition of more than 190 public bodies and the merger of over 165 bodies into fewer than 70. The second phase of the Public Bodies Reform Programme began in 2015 and is set to continue until at least 2020. In 2016 the Cabinet Office published guidance on the classification of public bodies, and intends to publish further guidance this year. The guidance suggests that the types of central government ALBs should be reduced to three main categories: Executive Agency, Non-Departmental Public Body and Non-Ministerial Department. The aim of the guidance is to assist with the creation of a transparent public body regime, which the Cabinet Office hopes will enhance accountability. It is anticipated the guidance will improve efficiency and effectiveness, in turn encouraging best practice. Our perspective on the successes and failures thus far of the Public Bodies Reform Programme is significantly informed by our relationships with clients who are living and breathing the changes brought about by the programme. The public sector landscape has seen the biggest reform of arm’s length bodies (ALBs) in a generation, with NDPBs having been particularly susceptible to reform. Before exploring the current issues, we reflect on how we reached this point. People want to see how money is being spent and how public functions are undertaken and delivered. “ ”Robert Hann Consultant Our changing state: mergers and demergers of Non-Departmental Public Bodies | Where are we now?
  • 11. page | 11Our changing state: mergers and demergers of Non-Departmental Public Bodies | Where are we now?
  • 12. page | 12 the truths of reform Politics and policy Complex organisational changes are nearly always politically motivated. As a result, they can pass through the legislative system and the mechanisms of government at an inappropriate rate which may inhibit good planning. That is not to say that the mergers are not the right thing to do but it is questionable whether there would be as many mergers if they were pushed through purely on a compelling business case rather than being politically desirable. There would almost certainly be a lot more time to plan. So far, the benefits of mergers and privatisations have fallen far short of plans, despite much effort. It will be important for NDPBs facing re-organisation to learn from the over-optimism of such plans. NDPBs also differ between themselves in the types of roles they have. Arm’s length bodies have different roles. Mine for instance has specific legislation that we are required to provide advice to the Secretary of State and we can also provide advice if he asks for it or not. We don’t make policy but we advise on policy in a very specialist area. When asking what kind of body an arm’s length body is, we must remember there are a number of different types of organisations with different relationships with government. “ ”Harry Cayton OBE Chief Executive, Professional Standards Authority Our changing state: mergers and demergers of Non-Departmental Public Bodies | The truths of reform
  • 13. page | 13 Healthcare Integrating the health and social care sectors would be a significant challenge at the best of times, let alone times when both sectors are under such severe financial pressure. Health and social care NDPBs do not yet have the evidence to show that they can deliver their commitment to integrated services by 2020, at the same time as meeting existing pressures on the health and social care systems. Even darker days are on the horizon for the health and social care sectors as by all accounts, there seems to be a deep aversion to the further structural change likely to be needed to move towards integrated commissioning. People At the centre of the reforms are the members of staff that are living and breathing the changes brought about by Government. It is easy to forget that people are essential to the success of any new entity. If these people are ignored, no matter what efforts have been put into driving costs down and improving accountability of the body, its efficiency and usefulness will still falter as members of staff struggle to grapple with change. The Government needs to place considerable emphasis on these human factors because they make a vital contribution to the success of the reforms. Our changing state: mergers and demergers of Non-Departmental Public Bodies | The truths of reform
  • 14. what does accountability look like? There remains inconsistency, overlaps and confusion in terms of accountability, with most public bodies answering to ministers but with some being accountable to Parliament. It is not surprising that guaranteeing the accountability of NDPBs is difficult in this changing environment. For the Government, the ideal is influence without accountability… from the body receiving the powers, you want maximum freedom to act and the ability to exercise power and influence. “ ”Benjamin Taylor Founder and Managing Partner, RedQuadrant Has reform to date improved accountability? Re-organisation can lead to different approaches to accountability. One of the key themes emerging is the importance of establishing a clear view of what the accountability regime should be and, in particular, establishing the mechanism by which public bodies are governed appropriately to determine the correct level of accountability. Whilst any reorganisation of a public body will always have the intention of improving accountability, it does not necessarily mean that issues will be resolved. There are likely to be teething problems as new roles are established and NDPBs adapt to their new structures. It is not surprising that guaranteeing the accountability of NDPBs is difficult in this challenging environment. In reality, it may be too early to determine the impact of the first wave of the Public Bodies Reform Programme. The second phase of this concept continues and is due to conclude in 2020. How can the next phase of reform do things differently or better? Improved accountability does not necessarily mean that a NDPB needs to be subject to increased parliamentary scrutiny. It is important to acknowledge that accountability may not be the primary driver, it may be that for ALBs the desire is to ensure that they behave in a more commercial and nimble way. Taking one example, the incorporation of the Oil and Gas Authority (the Authority), is driven by delivering a more commercial approach to interaction with the industry the Authority regulates. Whilst this is important, the Authority must ensure (as they intend to do) that it remains appropriately accountable. Effective accountability depends upon effective relationships, communication and learning. Greater transparency and ambition is needed from the Government, with improved clarity as to how issues of accountability should be approached. Inconsistencies in accountability may not always be solved by mergers, and steps should be taken to ensure strong relationships are established with all those involved in re-organising NDPBs. This will assist in ensuring the smooth transition of functions. Thereafter a clear set of principles should be agreed between the Government and the new body which underpin the body’s accountability arrangements as it is developed and establishes itself. page | 14Our changing state: mergers and demergers of Non-Departmental Public Bodies | What does accountability look like?
  • 15. page | 15Our changing state: mergers and demergers of Non-Departmental Public Bodies | What does accountability look like?
  • 16. The threat of reorganisation is thus a constant spur to senior officials and ministers to do a good job and to avoid inefficiencies which may trigger radical re- organisations or even complete absorption into another ministry. Equally, the ability to expand turf and to take on new functions and extend the scale of department operations may sometimes provide a stimulus to their ministers and senior officials to be successful. Changes to the public bodies landscape must be seen as more than a simple numbers game: simply reducing spend through fewer bodies cannot capture the extent of the complexity of the landscape, as bodies are established, merged, demerged or abolished. The legal complexities in reforming public bodies mean that most reforms constitute a significant use of resources, at least at the very outset. Are the resources ever proportionate to the outcome? A clear and objective justification for a proposed reform is always required to warrant the resulting resource commitment and transitional effects. NDPBs can provide specialist expertise and have a longer-term focus than is afforded in a highly politicised environment. They can also benefit from the heightened authority resulting from their relative freedom from political considerations. Where accountability for decisions is transferred back to government, it will be difficult to claim that the independence of NDPBs has not been undermined. However, in any change to a NDPB, it is vital to protect the key public services it provides. It is highly likely that services which are provided could be affected by changes to the structure and functions of a NDPB. Drastic reforms are not always necessary, and it could be that subtle changes are more appropriate for some bodies. Any change will be costly, so care should be taken to ensure that the correct decision is made. a delicate balancing act While government departments and bodies are not, in practice, allowed to go bankrupt, they can be exposed to being reorganised, to seeing parts of their functions merged into rival departments and to seeing their own scope of functions changing character or being radically downsized. page | 16Our changing state: mergers and demergers of Non-Departmental Public Bodies | A delicate balancing act
  • 17. It seems there’s no consistency about how conflicts are dealt with. “ ”Richard Medd Partner, Browne Jacobson It is vital to consider how such conflicts can be resolved. Given the variety in size, functions and agendas of NDPBs, it may be that one approach cannot be used for all bodies. NDPBs are sometimes given potentially competing objectives on purpose as policy aims aren’t always black and white. (For example, economic growth and protecting jobs can sometimes be in conflict with protecting pension rights or the cost to PPF levy payers). NDPBs might as well internalise the issues. “ ”Helen John Head of Stewardship, DWP Novel approaches may need to be taken to limit conflicts arising, and to effectively and swiftly deal with them when they do. There will always be tension, but the issue is where the appeal mechanism is. The majority of appeal mechanisms in Welsh environmental legislation are to Welsh ministers, so they have to remain independent in earlier permitting/consent discussions. “ ”Dr David Clarke Consultant, Welsh Government Has independence been undermined? The independence of NDPBs must be protected, but there is a risk that this fundamental concept is facing threats from a variety of angles. Consumers want to be close to the Government when it suits them, but they also want NDPBs to be independent as they feel NDPBs are too close to the Government. Both the business and the relationship can be really tricky to manage. “ ”Julie Lunt Head of Legal, Natural England Consumers of products like the fact that an economic regulator is independent. “ ”Dr Russell Richardson General Counsel and Company Secretary, UK Oil Gas Authority Future mergers and demergers of NDPBs must be carefully managed to ensure that their independence is protected. page | 17Our changing state: mergers and demergers of Non-Departmental Public Bodies | A delicate balancing act Conflicts and how to resolve them NDPBs often have to balance a number of roles and functions. Various issues need to be dealt with, often in an environment of competing pressures and demands.
  • 18. Within the 2015 to 2020 Public Bodies Reform Programme, the Government is attempting to avoid piecemeal reviews of each NDPB. It is currently undergoing functional reviews to look at how groups of bodies can be merged, share back offices or work together better. Tailored reviews will then be conducted for those not falling into a functional review. The Cabinet Office’s Public Bodies Reform Programme had been limited to just one form, the NDPB, but has now been extended to include executive agencies and non-ministerial departments which levels the playing field across ALBs. The public sector landscape cannot be efficiently reviewed if groups of public bodies are essentially immune from review. However, the aim is to review every ALB at least once in the lifetime of each Parliament. looking ahead Regular assurance and challenge about the continuing need, efficiency and good governance of public bodies remains central to the Government’s public bodies transformation programme. “ ”Ben Gummer MP, Minister for the Cabinet Office (Tailored Reviews: Guidance on Reviews of Public Bodies, November 2016) The review exercise is valuable. You look at all of your systems to see if you have something to offer the public, and whether you can deliver that service in a sensible and cost-effective way. “ ”Julie Lunt Head of Legal, Natural England If we can go with this more tailored approach, these reviews can be useful in clarifying vision and objectives, which sometimes become confused over the years. “ ”Helen John Head of Stewardship, DWP It has to be independent of government to survive and make a valuable contribution. It doesn’t make sense to clear them away just to save money, that’s the danger we are in, we’ll lose that flag of why they’re there and why they still need to exist. “ ”Robert Hann Consultant on the future of Non-Departmental Public Bodies... page | 18Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
  • 19. Is this an efficient use of resources? The regular review process is inefficient as it creates fear and triggers defence mechanisms that might not be necessary. If there are wider issues you want to review, methods like audits can deliver those more effectively. If you have an agenda for change, be transparent and have a public discussion rather than go through the review process. “ ”Dr David Clarke Consultant, Welsh Government Environment NDPBs in the environmental field often have several roles to fill and conflicting pressures to manage. They have a broad remit and responsibility for complex scientific regimes. Environmental law is heavily based upon EU legislation and standards, and upcoming changes in this area are likely to filter through to the daily operations of environmental NDPBs. There are a lot of important interests that have made long-term investments in the United Kingdom based on an existing environmental regime. If there were to be a reduction in environmental regulation, this could result in new organisations operating with a much lower level of environmental control. You could see a lot of established stakeholders having their own economic viability undermined. “ ”Richard Barlow Partner, Browne Jacobson page | 19Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
  • 20. Brexit In the three to five years after transition, it will be working out how to retain credibility and the willingness of people wanting to trade with us. “ ”Sir Paul Jenkins former Treasury Solicitor and Head of the Government Legal Service The negotiations required to determine the UK’s future relationship with Europe will result in a concentration of resources on this complex task. We consider it likely that this work will dominate the Government’s agenda both during the negotiations and beyond. Given this focus and the outcome of the election on 8 June 2017, the review of public bodies may slow and fall down the priority list of areas to be addressed. The impact of this is difficult to predict, but it could result in proposed changes to NDPBs not proceeding, given the time and cost investments needed to realise these. Pressure on public funds is likely to be even greater than it already is, as additional resources are needed to deal with this difficult process. Brexit will require significant Government resources over the next two years. Any proposals to restructure arms length bodies, unless they are related to Brexit, will be harder to get on the agenda than previously. “ ”Peter Unwin Chief Executive, Whitehall Industry Group page | 20Our changing state: mergers and demergers of Non-Departmental Public Bodies | Looking ahead
  • 21. conclusion Periodic reorganisation of the public sector landscape remains a fact of life for most ALBs with the reforms set to continue until at least 2020. The general ethos of the public sector reforms is the avoidance of ‘duplication’ so that only one body should be handling any one function at a time. Change is no bad thing; without it organisations can stagnate. Reorganisation and reviews allow a reconsideration of what core services a body should be providing and the best way to do this. Such work will often bring new people and fresh perspectives to a NDPB and provide a catalyst for service improvement. Some NDPBs are too quickly re-organised before they have reached their full potential. We consider that the constant threat of change is unhelpful and the tailored review approach is more appropriate. Nevertheless, NDPBs need to be ready to justify their fitness for purpose. As the reforms move into their second phase, mergers and demergers of NDPBs are likely to become more intricate as the obvious candidates for reform have already been targeted. However, the Government needs to ensure that the review process is not an unnecessary distraction and be clear that re-organisations are an appropriate use of resources. We recommend that the Government motivate, educate and activate talented people in this important work, in order to ensure that efficiency, transparency and effectiveness in these newly created NDPBs is achieved. “we recommend that the Government motivate, educate and activate talented people in this important work” “change is no bad thing” page | 21Our changing state: mergers and demergers of Non-Departmental Public Bodies | Conclusion
  • 22. • adult services • business transfer agreements (including TUPE LGPS pensions issues) • children’s services social care • collaboration agreements • commercial regeneration • contracts • corporate governance • corporate insolvency restructuring • data protection • employment • EU competition • freedom of information • immigration • information technology • intellectual property • inter-authority agreements • internet e-commerce • joint venture agreements • judicial review • litigation dispute resolution • major projects • mergers acquisitions • outsourcing • PFI/PPP • planning, highways infrastructure • public procurement • property, construction and related litigation • regeneration • regulatory advice • shared services • social housing • state aid • supply of goods services • tax • vires. We are a leading UK law firm offering a unique collection of specialisms across the commercial, public, health and insurance sectors. We have offices in Birmingham, Exeter, London, Manchester and Nottingham and are committed to being a quality, relationship-led business. Established in 1832, we now have over 900 people, including more than 400 lawyers and over 100 partners. We have a client portfolio to be proud of - including major insurers, blue chip corporates, NHS trusts, local authorities and other public sector organisations. We have a long and successful track record of working with the public sector. Our specialist public sector practice is ranked nationally by both Chambers Partners and Legal 500 directories who describe us as “very experienced… excellent and very knowledgeable… a very friendly, approachable firm. They actually go the extra mile. Very accommodating.” As a full service law firm, we can provide you with advice and assistance on: about browne jacobson... Ros Foster ros.foster@brownejacobson.com +44 (0)20 7337 1015 Richard Barlow richard.barlow@brownejacobson.com +44 (0)115 976 6208 Laura Hughes laura.hughes@brownejacobson.com +44 (0)115 976 6582 Peter Ware peter.ware@brownejacobson.com +44 (0)115 976 6242 Richard Medd richard.medd@brownejacobson.com +44 (0)115 976 6256 page | 22Our changing state: mergers and demergers of Non-Departmental Public Bodies | About Browne Jacobson
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