When should public bodies exist?: Rewriting the 'three tests' for when government does things at arm’s length

The government’s tests for setting up new public bodies don’t meet the country’s needs, have led to flawed decisions, and need to be rewritten. 

This report says the existing tests – first set out in 2010, when they were criticised by the Public Administration Select Committee for not being “properly thought through”, and not updated since – may have contributed to misguided or mishandled public body abolitions, with the closure of the Audit Commission, the UK Border Agency and Public Health England informed by a prejudice against "quangos”.

It also warns that Cabinet Office guidance stating that “new arm’s-length bodies should only be set up as a last resort” is at best distracting to decision makers and at worst counterproductive. It has contributed to government pursuing less effective means of delivering a service (outsourcing probation), or abolishing useful bodies (the Audit Commission), and has undermined the morale and reputation of those working in public bodies.

The report proposes replacing the current narrow tests that focus on impartiality, independence and technical expertise with three new tests that would allow ministers to use public bodies more flexibly and would more accurately reflect the reality of why public bodies are being set up today.

The IfG’s proposed new tests are: 

1. Effectiveness: could a public body perform its function more successfully than any other structure, or would distinguishing it from the work of a department enhance the effectiveness of government as a whole? 
2. Independence: does the function require greater independence from ministers than is achievable within a government department? 
3. Cost efficiency: can it be shown that a public body is the least costly option over the long term, or that the benefits identified under the other tests are clearly sufficient to justify any incremental costs, both in transition and in steady state?   

 The proposals do not imply a lower bar but are designed to promote clear reasoning about the pros and cons of public bodies in real life situations and on a case-by-case basis.