Public Accounts Commission
Oral evidence: Appointment and reappointments to NAO Board
Tuesday 28 November 2023
Watch the meeting
Members present: Mr Richard Bacon (Chair); Jack Brereton; Clive Efford; Peter Grant; Dame Meg Hillier; Mrs Sharon Hodgson.
Questions 1-38
Witnesses
I: Dame Fiona Reynolds, Chair, National Audit Office; Hetan Shah, candidate for appointment; Gaenor Bagley, candidate for re-appointment; and Sir Martin Donnelly.
Witnesses: Dame Fiona Reynolds, Hetan Shah, Gaenor Bagley and Sir Martin Donnelly.
Q1 Chair: Welcome to this meeting of the Public Accounts Commission on Tuesday 28 November 2023. We are meeting today to consider Mr Hetan Shah’s candidacy for appointment to the National Audit Office Board, and the reappointment of Gaenor Bagley and Sir Martin Donnelly to the board for a second term as non-executive directors. Mr Shah has been recommended for appointment by Dame Fiona Reynolds; he would replace Dame Clare Tickell, whose term as a board member is due to end in January. On behalf of the whole commission, I would like to put on record our thanks to Dame Clare for her six years of service at the NAO. Before we go any further, Mr Grant would like to make a declaration for the record.
Peter Grant:I am a member of the Chartered Institute of Public Finance and Accountancy and, along with Dame Meg, I am a member of the Public Accounts Committee, which works closely with the NAO.
Q2 Chair: Thank you. Dame Fiona, may I ask you to introduce yourself and your colleagues?
Dame Fiona Reynolds: Good morning, everybody. I am Dame Fiona Reynolds. I am chair of the NAO. I will ask the others to introduce themselves.
Gaenor Bagley: I am Gaenor Bagley. I have been on the NAO board for three years. I chair the audit and risk assurance committee, and I am a member of the audit quality board at the NAO.
Hetan Shah: I am Hetan Shah, prospective candidate for the board.
Sir Martin Donnelly: I am Martin Donnelly. I have been a non-exec director for three years, and I am on several of the committees.
Q3 Chair: Thank you very much. Dame Fiona, you chaired the panel that considered the candidacy of Mr Shah. Can you talk us briefly through the process you went through?
Dame Fiona Reynolds: Yes. We began with a skills analysis, to determine what we were looking for. If you recall, when we appointed the last member of the board, we had particularly looked for digital skills. This time, we felt clear that what we wanted was a generally good board member—somebody who would bring high-level strategic experience, who had been involved in the leadership of organisations at both board and executive level, and who would contribute generally to our strategy discussions.
We appointed Perrett Laver to conduct the search for us. We went through a tender process, as we always do. The role was advertised in The Sunday Times and The Guardian and online, and a search was also conducted. At the end of the day, we had more than 80 applicants, of whom 11 were longlisted, and five were shortlisted—three male and two female candidates, and four from an ethnic minority background. The quality of candidates was terrific, so it was a very good process, in our view.
Q4 Chair: On what basis did you find Hetan Shah to be the most suitable candidate? What will he bring to the board?
Dame Fiona Reynolds: He did a stunning interview, in which he convinced us of his strategic capability and gave us several examples of how he perceives the world we operate in and the role that the NAO plays. He raised really interesting questions and offered a range of interesting ideas, which I know the board will enjoy hearing more of. He has both executive and non-executive experience. In an executive role, he led the Royal Statistical Society from 2011 to 2020, and since 2020 he has been chief executive of the British Academy. In a non-executive role, he has been a board member for the Friends Provident Foundation and the Ada Lovelace Institute, and is chair of Our World in Data.
Q5 Dame Meg Hillier: Dame Fiona, apart from you, who else was on the panel, doing the interviews?
Dame Fiona Reynolds: Alistair Conner was on the panel, and we have an independent member called Cindy Butts, who is involved professionally in a number of appointment processes, but she is independent of the NAO. She is a very experienced recruiter.
Q6 Dame Meg Hillier: She was formerly at the predecessor to the IOPC.
Dame Fiona Reynolds: Indeed. We followed the normal processes for public appointments, even though we are not technically required to.
Q7 Clive Efford: Dame Fiona, you are recommending Gaenor Bagley and Sir Martin Donnelly for reappointment. Can you set out for us how Gaenor and Sir Martin contributed to the NAO board and helped shape its work?
Dame Fiona Reynolds: I can indeed. They are both excellent members of the board and excellent colleagues. As you have heard, Gaenor chairs the audit and risk assurance committee and is a member of our audit quality board. She brings extensive experience of accountancy and the audit profession, and has a number of other interests, which I am sure she would be glad to talk to you about. She is therefore able to engage with the technical aspects of our work, but she is also a very strong strategic thinker.
Martin sits on both our committees—the audit and risk assurance committee and the remuneration committee—and he has been a hard-working member of both. His experience as a public servant and former permanent secretary is invaluable to us as we develop our strategic thinking for the future, but also as we deal with the day-to-day work of the NAO.
Q8 Mrs Hodgson: Dame Fiona, you are proposing remuneration for non-executive board members of a non-pensionable fee of £20,000 per annum. Can you tell us how and when that level of remuneration was benchmarked?
Dame Fiona Reynolds: I believe it was before the time when I was appointed as chair. I am afraid I don’t know the precise details, but we can easily communicate them to you.
Mrs Hodgson: Thank you.
Q9 Jack Brereton: I have a few questions for Hetan. Could you first set out your motivation for applying for this role?
Hetan Shah: It is a privilege to be here, so thank you for your time. I really believe in the value of independent institutions in the UK, and we have seen that bodies such as the UK Statistics Authority and the Office for Budget Responsibility play a valuable role in checks and balances in the UK. The NAO is part of that ecosystem, particularly from a spending perspective.
Although audit feels like a very dry topic, what is at stake are the public services that we as a country deserve, and what really motivates me is how we support better public services. If you look at my career, it has always been focused on data, evidence and evaluation, and I think that the NAO’s evaluative work and agenda are really important. It would be a privilege to be part of that.
Q10 Jack Brereton: As you set out, you have a lot of experience, particularly on data and things like that, and also in making organisations more outward-facing. Could you say a bit more about what you bring to this role?
Hetan Shah: As was said earlier, I have a mixture of executive and non-executive experience. This is a really fertile time, with the NAO thinking about its new strategy, and there is an opportunity to communicate a vision more powerfully. The current strategy is really good but perhaps a little inward-looking, and tying it back to the vision for public services, which is really exciting, would show the importance of the NAO to a wider community.
What is the balance between the watchdog function and the improvement function? Most people know the NAO because there is a headline saying, “This Department didn’t do this very well,” and so on, but what really matters is how we improve things, and I would like to help invest in that.
I have also learned from my knowledge of the statistical world that we cannot do this alone. What other organisations we can partner with? If you look at the world of the Office for National Statistics, there are fact-checking bodies in the outside world—there is the Royal Statistical Society. I would encourage the NAO to ask, “Who are our partners who will help us think about improving evaluation in Government?” and so on.
Q11 Jack Brereton: In terms of the person specification, could you outline how you fit the criteria for this role?
Hetan Shah: I obviously do not have them in front of me right now, but I would certainly behave in keeping with the Nolan principles, and I already have to do that in my role at the British Academy. As Dame Fiona said, the panel were looking for a generalist, strategic mindset. In particular, I bring a policy and horizon-scanning aspect to this; my work at the British Academy means that I cut across a lot of departments and a lot of policy agendas. The work that I have done at the Ada Lovelace Institute means that I have been looking at AI, for example. When it comes to future casting, and thinking about what agendas the NAO will be grappling with, I bring quite a lot of intelligence to the table.
Q12 Chair: Under the National Audit Act 1983, the NAO is statutorily prohibited from questioning the merits of policy, as I am sure you are aware. You mentioned policy and horizon scanning. How do you see your skillset in this area being deployed, given the very obvious limitations on the National Audit Office’s ability to inquire into policy?
Hetan Shah: There is often an imbalance in the incentive system, in that there is a focus on announcing new policy, but not on the deliverability of that policy. That is where the NAO comes in, and that is what I really care about. In my role at the British Academy, we may horizon-scan and say, “Here are some future directions of travel,” but we do not generally say, “This policy is right and that policy is wrong.” Our focus is on helping the Government of the day to achieve their objectives by bringing evidence to the table, so there is real complementarity across my portfolio. A similar point can be made about my role chairing Our World in Data; it is about bringing the best evidence to the table, which enables decision makers to take forward their agenda.
Q13 Chair: That is an interesting example. I was looking at the Our World in Data website yesterday; it says very clearly that the world has recently become less democratic, and it gives some evidence for that. These are not value judgements; they are facts based on careful analysis. It also has a section on the human development index; if you look at that index, it is very noticeable that five of the top 10 performers, and 12 of the top 20, are monarchies. That is also a set of facts. What conclusions do you draw from the fact that the world has recently become less democratic, and 12 of the top 20 performers in the human development index are monarchies?
Hetan Shah: I do not have a view right now on that, but the importance of bodies such as Our World in Data and the Office for National Statistics is that they allow us to develop a shared set of facts, so that we can then have a good argument about they mean.
Chair: Yes. There is a section in one of Karl Popper's books called “The Place of Values in a World of Facts”, but I suspect that this would be a longer conversation than we have time for this morning. One or two more colleagues have questions to ask. Mr. Grant, I think you had one.
Q14 Peter Grant: Dame Fiona, I noted you nodding vigorously in agreement with Mr. Shah’s answer. What steps did you take, in your discussion with Mr. Shah, to satisfy yourself that any potential conflicts of interest could be adequately managed, particularly in relation to the external organisations he is involved with?
Dame Fiona Reynolds: We have a process for ensuring diligence throughout the recruitment process. It begins with a political declaration form, which Hetan Shah filled in; it showed no political activity. We have explored conflicts of interest, both with Hetan and through the office. The British Academy receives a very small amount of public money from the Government, which our internal assessors say is immaterial. Of course, as for all members of the board, it is very easy to withdraw from and not take part in any particular discussion.
We have had extensive character references, which are very strong indeed, and we discussed the exact issue that the Chair raised: the boundary between policy, and analysis or evaluation of evidence—something on which we place enormous reliance. We have impact through the strength of that analysis, and the help that can be to Government Departments in better implementing policies and achieving the outcomes that they want. We have had a good discussion on those issues, and we are all very clear about where the boundaries lie. Yes, we have conducted due diligence in all those respects.
Q15 Peter Grant: I have two questions for the candidates for reappointment. Sir Martin, you seek to be appointed to the board for a further three years. What more do you want to bring to it? What do you want to achieve in your second term that you have not achieved as yet?
Sir Martin Donnelly: I want to build on what we have been doing. Fiona has a strong team, and the National Audit Office executive team are strong and developing. It is very satisfying to watch the successful move to Newcastle, and to integrate the work there to prevent us being too London-focused. The question of continuing impact is important, and I think that we all bring different supportive skills, while recognising the autonomy of the Comptroller and Auditor-General in his work. We are able to offer critical friendship and input. I feel that after three years, I have enough understanding of the organisation and how our team works to go on adding value to that.
Q16 Peter Grant: Thank you. Ms Bagley?
Gaenor Bagley: There are a couple of areas. I totally agree with what Sir Martin said: it is a very exciting time. We need to redo the strategy and ensure that we execute it to make a difference and an impact. There are two areas that are relevant to my experiences. The first is my experience in a professional services firm; the NAO has a new HRD, so it is really trying to change its—
Q17 Chair: HRD?
Gaenor Bagley: People director. Personnel director; CPO.
Chair: Right. Human resources director?
Gaenor Bagley: Well, they are all called different things, but hopefully from one of those you will know what I mean.
Chair: Yes, we try to avoid three-letter acronyms on this Commission.
Gaenor Bagley: We now have a board member who is responsible for leading on that, and there is a real opportunity to rethink the value proposition of working in the NAO and ensure that we continue to attract the best talent. We will never do that all through pay, so what does that mean? How will we develop our people? How will we adapt our people for digital or AI? It is a very exciting time, but that is a bit of a change of approach, so it is a good opportunity for the board to think about how we weave that into our agendas and our planning.
The second area is about making the most of the investments in the ATP and APACS programme to—
Q18 Chair: ATP?
Gaenor Bagley: The audit transformation programme. We have come several times for funding for this new digital approach to audit; it is now being rolled out on time and on budget, so the NAO has done a fantastic job. We are in the change programme, because it is not all about the system; it is about behaviours. That is a different approach. It is about really thinking about how to take a cross-cutting look at how we can weave quality into everything we do, and make it really clear and obvious that we are all about quality.
Q19 Chair: I was in the Newcastle office of the NAO recently, and I saw that in practice. I am sure we will be talking about this again in January, but I was reassured that it does not appear to be what in the industry is called “vapourware”; it seems actually to exist.
Dame Fiona, you mentioned that we are very clear about the boundary between policy and data. I must say, I wish I was. I have been thinking about this for 20 years, and I wish it were that simple. An example that comes to mind is the policy to have a set of benefits in this country for people who need help. That has been so complex that the accounts of the Department for Work and Pensions—as it is now called, but also in various different prior forms—have been qualified every year since 1988.
I have had this discussion with various permanent secretaries and Secretaries of State, and it seems to me that if the policy over 35 years leads to a situation in which the permanent secretary, as accounting officer, cannot sign a clean set of accounts—cannot account to Parliament for how public money is spent—year after year, decade after decade, then it is more than possible that there is something wrong with the policy, and that it is not implementable in a suitable form. Yet it continues not to change. As the chair of a supreme audit institution, do you not find that troublesome?
Dame Fiona Reynolds: The board, and I personally, do find it troublesome that in a number of Departments, either qualification is happening every year, or there are reasons for new qualifications, which concern us. We have talked about that extensively on the board. In each case, the Comptroller and Auditor General has explained to us the process through which he is working with the permanent secretary to resolve those issues.
It may be that there are issues in the Department for Work and Pensions that I am not familiar enough with, but in each case, there is a plan to remove those qualifications over time. I think that our role is to support the Comptroller and Auditor General in his analysis—the actual audit process is a delegated responsibility—and in getting Departments to a point where they can see a path out of qualification.
Q20 Chair: I would like to return briefly, Mr Shah, to this question about data, because you are on the board of the Resolution Foundation.
Hetan Shah: I am on the advisory board.
Chair: You are on the advisory board of the Resolution Foundation, which is, as your CV says, a leading economic think-tank. One hears quite routinely stories on the radio, and reads in the news, about papers that the Resolution Foundation has published. Plainly, it has political import, in the sense that it is drawing back the curtain and telling a story about data that might lead people to draw particular political conclusions.
The academic professor John Kay wrote a book some years ago called “Obliquity”, in which he said there is no science of decision making which, if done carefully enough, would lead every conscientious person to make the same decision. How can the NAO help in the way that I suppose you would say the Resolution Foundation is helping—by exposing the data and helping people to get to the decisions that they need to make, while not interfering with the political process?
Hetan Shah: Absolutely, and this is what I am passionate about. Of course, Professor John Kay is a fellow of the British Academy and very influential in our thinking. How we expose the data, in particular across Departments and across policy agendas, seems to me to be the real gap that the NAO can help to fill. When it does a Report on what has happened with the Environment Agency or the MOD, one draws conclusions about that particular area, but actually, where we can add real value is by saying, “We’ve now looked across many Departments, and we’re in a unique position to be able to say that there are legacy IT systems that are holding back all of Government. Different parts of the Government estate are not using data most effectively, but here are some examples of people who really are.” That is what is really exciting.
A few weeks ago, the NAO held the third of its annual regulatory webinars, bringing together regulators from across the system to share best practice. All of this happens below the public eye—it will not be the headlines in the newspapers—but that is where the real transformation will come from.
Q21 Chair: Could I ask all three candidates how effective you think the NAO’s audit and value for money work is in helping to improve operational delivery in Government, and what might change?
Gaenor Bagley: The short answer is that it is very effective. How do we measure that? We measure the impact. We measure the response to the recommendations that all the Reports carry, and we look at the feedback from Parliament and other Committees—how are they reading our work? Is it landing?
There is always more that can be done. There is a conversation to be had—it is what the conversation today has been about—about how we make sure we really join up the conclusions that are being given. Is there more the NAO can do to make its work more accessible, and what is the right time to do the cross-cutting work in order to be the most helpful and the most impactful? There is quite a lot about how we deliver as opposed to what we are delivering, because I think we are comfortable about what we are delivering.
Sir Martin Donnelly: I think the NAO teams do a great job, but there is more to be done. On the value for money side, a key point is going back to look at what was said months or years ago. Have we taken those remarks on board, and are they still being implemented? There is a role for going back over the previous work, because I have seen this from the other side, and the tendency to think, “Right, we’ve done that Report, and now we move on,” is understandable but not helpful.
I also think that the annual report and accounts process is critical for you—for Parliament—to give you real-time information on what is happening inside a Department. I agree with your point that if the permanent secretary does not know where the money is going, there are serious questions to be asked. I am also concerned that if we allow report and accounts regularly to become too delayed, their impact is blunted and their impact inside the Department is also blunted because everyone has moved on to the next year. Quite often, if you look at annual reports and then things happen later that cause problems, you can see that they were there and had not really been fixed. We have to encourage people to take the massive amount of work that goes into that report—the transparent window into a Department and its functions—more seriously and make sure those are timely as well as not being qualified wherever possible.
Hetan Shah: It is hard for me as someone who is external and not yet on the board to make a real judgment. I look ahead. With the state of public finances as it is and the expectations of the public for public services, we face a really difficult period ahead, and therefore the NAO will play a critical role. There will be increasing demand for innovation in public services, because if the budgets remain the same or even drop but we have to deliver the same or more, there will need to be. That is not a political point, but whoever is in charge will have to go in that direction.
One of the critical questions for me is: how do you design a value for money framework that both enables innovation and remains focused on cost-effectiveness? That is a tension the NAO will have to work through in partnership with Departments so we are not seen like, for example, the Information Commissioner was seen a few years ago, when it was a case of, “Don’t use your data; that is the only thing that will protect you.” We cannot be in the position of saying, “You must not innovate and take risks.” Of course, we want public services to develop. To do that they will have to embrace, for example, new developments in technology, artificial intelligence and so on, but they have to do that intelligently.
Q22 Chair: As Chair of this Commission, I have occasionally to answer questions in the Commons about the work of the NAO. Recently, the NAO published a Report on productivity in the national health service. To my slight surprise, because the numbers were so startling, the Report showed that despite an increase in the NHS budget in England from £124 billion to £152 billion—an increase of £28 billion and 24% since 2020—the NHS was treating 650,000 fewer people. That picture of more money and less activity is one you could replicate across large and different parts of the public service. The word for it is productivity—or rather, lack of productivity. I will get Dame Fiona to answer this because we need to move on. What can the NAO do to highlight the need for improved productivity and the ways in which it can be improved?
Dame Fiona Reynolds: That is a really interesting question and it is one of the things we are discussing as we evaluate our current strategy and plan the next one. There are both human and technical aspects of productivity. One of the concerns, and it is true across the board, is that people behave in a different way. Perhaps the withdrawal of some discretionary effort has added to falls in productivity, as well as the amount of money spent on particular tasks. We are really interested in learning the lessons from each of the reviews that we do to explore whether there are general recommendations we could make to help in that regard—for example, on issues such as procurement, where we have spent quite a large amount of time in recent years for obvious reasons, and digital transformation. We are increasingly doing these generic pieces of work that draw on analysis from different sectors of Government to try to understand what is going on in order to help civil servants and others to improve the situation.
Q23 Chair: One more question about costs. The NAO is operating in a very competitive audit market, yet there is limited political appetite for increases in public sector pay. How should the NAO handle that?
Dame Fiona Reynolds: We are in the middle of handling that at the moment, in the sense that we are conscious that competition from the private sector for recruitment and higher pay levels is a factor. In fact, the level of retention of NAO staff has improved from when we last spoke about this about a year ago, when we had seen some attrition. We have partly responded to that financially with, as you will be aware, special payments, as well as by really looking at the offer we make to our staff. This is very much along the lines that Gaenor Bagley just spoke about. How do we incentivise support and give our staff the environment to work in that will encourage them to stay with us, even if we cannot pay at the levels of the private sector? In fact, your visit to Newcastle showed how, where we have had the chance to have a new office, we have really focused on the quality of the working environment as well as the job that needs to be done.
Chair: It was very impressive indeed. I think Dame Meg Hillier has a question.
Q24 Dame Meg Hillier: We have covered a lot of wider subjects. I want to go back to where you started. Could you lay out for us more precisely the due diligence that you undertook—you touched on it—so that we can reassure ourselves that you have gone through the proper process?
Dame Fiona Reynolds: I have a list. The political declaration form is the first; exploration of conflicts of interest is the second. We do a social media scan. Despite looking at my telephone this morning, I have not yet seen that, but that is part of the process. The character references—
Q25 Dame Meg Hillier: So that has been done, and it was a nil return, basically.
Dame Fiona Reynolds: Yes. Well, I have not seen confirmation of the nil return, but I can convey that to you. That is the one thing that I have not seen. Of course, as with all appointments that we have all been through and once your decision has been made, there will be a conventional baseline security check and the signing of the Official Secrets Act. That constitutes the full process that we go through.
Q26 Dame Meg Hillier: So all members of the board sign the Official Secrets Act.
Dame Fiona Reynolds: Yes.
Q27 Dame Meg Hillier: Did you do a social media check on Ms Bagley and Sir Martin?
Dame Fiona Reynolds: We did. Yes.
Q28 Dame Meg Hillier: Would you do one even at renewal point?
Dame Fiona Reynolds: I have to confess that we have not at this point. We think we know them well.
Dame Meg Hillier: It is just helpful for us to know the steps.
Dame Fiona Reynolds: But certainly on appointment it is a standard practice.
Q29 Chair: Those are either comments that will go nowhere or famous last words, but time will tell. I just could not resist saying that. This is a question for each of the three candidates. Do you have any interest that could give rise to a perception of a conflict of interest? Sir Martin Donnelly first.
Sir Martin Donnelly: No. As you may be aware, I stopped working for Boeing a year ago, and we had separate arrangements in place during that period. I cannot think of anything current. If I were doing anything, including on a pro bono basis, that might raise issues, I would check in first of all with Fiona and then more formally, as necessary.
Gaenor Bagley: No, I cannot think of anything. My portfolio is pretty stable. I am not planning on changing it.
Hetan Shah: The only potential conflict of interest, which was highlighted earlier, is that I run the British Academy in my day job. It does receive some Government funding. Were there any potential conflict of interest that arose as a result of an audit that the NAO were doing, I would, in the standard way, recuse myself.
Q30 Chair: The chair has already covered that and it sounded okay. To all three candidates again—Sir Martin first—are you comfortable with the time commitment for this role, and how does that sit with any other work commitments?
Sir Martin Donnelly: For me it is a priority. Although I no longer live in London, it is relatively easy to get up from south Wales. Fiona has moved the timing of meetings back half an hour so that we can do that more easily. I personally find it fascinating and worthwhile, so it is something that I want to prioritise.
Gaenor Bagley: Likewise, I think the NAO is very well organised, as you would expect, so it is helpful if we are asked to manage our diaries, but I am not planning on taking on any other roles. I am managing the time very well at the moment.
Hetan Shah: My employer was very encouraging in my applying for this role, and they are very keen that I do it as part of my own development of the portfolio. I have been in role for four years now at the British Academy, and that is coming along nicely. My other major commitment is as the chair of Our World in Data, but that is a relatively small organisation. I have decided not to renew my term of office at the Legal Education Foundation, so something is also dropping off the portfolio as I take this on.
Chair: If you do have any further thoughts about democracy and monarchies, perhaps you will let us know. [Laughter.]
Hetan Shah: I would be very pleased to.
Dame Fiona Reynolds: May I take this opportunity to publicly state on the record our gratitude to Dame Clare Tickell, who has been a wonderful member of the board? We will all miss her greatly. She really has been a superb board member. In fact, Martin will be taking over as SID and as chair of the remuneration committee, which she has been doing for the last three years. This is a nice opportunity for me to say how much we appreciate everything that she has done.
Chair: Thank you very much indeed.
Q31 Peter Grant: Dame Fiona, for the benefit of those watching or reading the transcript, what is SID?
Dame Fiona Reynolds: I’m so sorry—senior independent director.
Q32 Peter Grant: It might not seem important during the session, but we have to remember that this is a public meeting and the public might not be as familiar with the terms.
Dame Fiona Reynolds: You are absolutely right; I apologise.
Chair: I do not think there is a private Member’s Bill before Parliament to ban three letter acronyms—yet. Thank you all very much. That concludes the public meeting of this Commission. The Commission will now deliberate in private. Thank you all for coming.