This is the first time that this Committee has examined the operations of the Bank of England. Our initial engagement has, in some respects, been a glimpse into the past, with ways of working appearing years out of date.
The Bank has committed to cap its spending at 2017 levels and improving the effectiveness of how it works and communicates. It plans to deliver a series of change programmes to improve central services. The Bank expects these transformation programmes to deliver £15 million of annual savings from 2021-22.
Change needs to be delivered at pace to realise the potential efficiencies which the Bank has committed to.
The Bank plays a fundamental role in making important decisions about monetary issues and the financial stability of the country, therefore it must demonstrate that it practices what it preaches.
However, we are not yet convinced that the Bank’s new vision for central services is sufficiently clear, nor that it has fully considered the changes it could make to modernise practices and maximise efficiency savings.
We will hold the Bank accountable for delivering on its commitments to us and the Committee shall return to this subject at a future date.
“The Bank of England wants to overhaul its ways of working but it is still not clear what this will mean in practice.
“Without a coherent vision it will not be possible for the Bank to make informed decisions about the people, technology and locations it needs.
“Poor preparation has been the ruin of many projects examined by the Public Accounts Committee and, indeed, runs counter to the Bank’s own ethos.
“While we are encouraged by the Bank’s commitment to develop a clear vision, the devil is in the detail and we expect the Bank to explain how it will ensure financial savings and other benefits are realised.
“We would also like clarity on the action it will take to meet its diversity targets, rationalise its property portfolio and modernise processes that are, in many cases, needlessly complex and costly.
“It was concerning to learn that staff had faced no disciplinary action for violating the Bank’s outmoded procurement policy some 200 times in a year.
“The Bank’s credibility is at risk if it is perceived as failing to keep its own house in order. As part of this transformation project, we urge it to aim for 100 per cent compliance with all its policies.”
Conclusions and recommendations
Despite multiple projects to improve its central services, the Bank lacks a clear vision of the significant changes needed to modernise its ways of working. The Bank has committed to transforming its central services over the next three years. It is confident that it will deliver its change projects on time and that its central services will be smaller and more efficient, saving around £15 million a year from 2020-21. However, the Bank does not have an overarching strategy in place specifying what central services will look like in three years or five years. It has committed to developing a clear vision for its central services by April 2019, including a target operating model and how it will measure progress from an early stage. This vision is vital because without one the Bank cannot make sound decisions about the people, locations or technology it needs.
Recommendation: The Bank should, by June 2019, write to us with details of its overall strategy for central services, including how the services will work together. This should include how it will measure the effectiveness of changes and how people will be held to account for the delivery of the expected benefits.
The Bank is some way off its diversity targets for 2020, with little evidence the gap is closing quickly enough. The Bank's target is for 50% of its staff to be female by 2020. But the proportion of female staff has remained at between 44% to 45% of staff since 2015. In the past year 43% of new recruits have been women, well below its overall target. The Bank has been regularly pressed to improve gender diversity by our colleagues on the Treasury Select Committee. The Bank also has a target for Black, Asian and Minority Ethnic (BAME) staff to be 20% of the Bank's workforce by 2020. Currently, BAME staff make up 18% of the Bank's workforce. But 23% of staff leaving the Bank are from this group, meaning the overall proportion of BAME staff within the Bank is unlikely to improve. Representation of women in senior management roles in the Bank has improved from 17% in 2013 to 32% in January 2019. In stark contrast, just 5% of senior management roles are held by BAME staff compared to a target of 13% by 2022. The Bank told us it had invested heavily in diversity by putting in place a wellbeing strategy, work on inclusion, and other initiatives, such as supporting its staff network.
Recommendation: The Bank should, by June 2019, report back to us, setting out the additional steps it will take, beyond the work it outlined to the Committee, to ensure it meets its diversity targets.
The Bank has not thought radically enough about its property needs or how to best use its valuable property portfolio. The Bank has an extensive property portfolio, including some sites it has held for more than a hundred years and others it has acquired as it has taken on new responsibilities such as prudential regulation. The Bank cannot demonstrate that it has assessed the options available to it to ensure it gets the best value from its sites. The Bank has not thought hard enough about establishing a more prominent regional office outside London or sub-letting parts of its headquarters. It is clear that some of its property does not have a clear link to the Bank’s overall objectives or responsibilities. The Bank acknowledges that it is not defensible for a public body to still have its own sports ground and centre which only 13% of staff are members of. The Bank has sold the leasehold of some of its portfolio in the past, indicating that better management of its property portfolio has the potential to generate income.
Recommendation: The Bank should, by June 2019, write to us setting out how it plans to rationalise its property needs and locations and optimise the value of its assets.
The Bank's failure to enforce compliance with its own policies undermines its credibility to demand compliance from others. The Bank’s role includes enforcing regulatory compliance in the financial sector. The Bank found evidence that its own staff had violated its procurement policy up to 200 times between December 2016 and December 2017 for purchases above £25,000. However, the Bank chose not to pursue any kind of disciplinary action against the people involved. The Bank accepts that its procurement policy and function were not fit for purpose. Nonetheless, this does not justify staff flouting the policy, or the Bank taking no retrospective action against individuals. It only made clear a week before our evidence session that staff must consult the central procurement team for purchases of more than £25,000. The Bank will introduce a new procurement policy from April 2019 and it has started developing a new policy on the consequence of non-compliance. It has committed that in future all instances will result in action, including a written warning, or immediate dismissal where appropriate.
Recommendation: The Bank should aim for 100% compliance with the its policies. In the event of non-compliance, the Bank should ensure that individuals account for their actions, that this is properly recorded, and that appropriate remedial action is taken.
Many of the Bank's processes are overly complicated, inefficient and very costly to administer. The Bank’s technology operations and HR cost £101.4 million and £15.8 million respectively in 2017-18. These costs are expensive compared with public sector benchmarks. For example, the comparable cost of its ICT is 33.6% more expensive than the central government benchmark. The Bank concedes that the extent of legacy systems and manual processing means that there is significant potential for it to make savings in its technology systems and support. The Bank has over 700 job titles, rather than a simple role-based system: this creates complexity and inefficiency, as well as increased potential for staff to "play" the system. Non-competed, in-role promotions are used extensively to retain staff who have developed their expertise. The Bank needs to assess the use of in-role promotions when considering its overall recruitment policy. As part of the One Bank Services Transformation project the Bank is planning to move to a roles-based structure, and it aims to replace 25 Central Services systems with a single cloud-based system.
Recommendation: The Bank should, by June 2019, write to us setting out how it will simplify its staffing structure and make sure that pay, promotions and recruitment are led by a clear understanding of the skills and capability needed by the Bank, not the skill levels and ambitions of staff currently in post.
The rate of modernisation at the Bank has lagged behind the UK public and private sectors. The leadership of the Bank in the past has not modernised the Bank in line with the rest of the public and private sector in the UK. Although basic practices such as hot desking are not yet in place, the Bank has made some progress modernising aspects of its technology and reforming its pension scheme. Many working practices in the Bank, however, still appear out of date and each area the Committee probed instead appeared to offer a glimpse into the past. The Bank's ICT systems are expensive and need updating, its procurement systems are not fit for purpose, there are too many job titles creating complexity and cost, and the estate is too large for its needs. The Bank has not routinely and systematically benchmarked the costs of its central services with the public and private sectors. The Bank recognises that culture within in an organisation is often the hardest thing to change, but it is confident that there are signs of support from across the Bank for changes to central services and it has committed to involving the wider business in any changes it makes.
Recommendation: The Bank's leadership needs to ensure that its ways of working, systems and culture are brought up to date. The Bank has already agreed to write to the Committee in mid-2019 to set out its staffing requirements. In addition to this, the Bank should, by June 2019, put in place a more systematic approach to benchmarking itself against other organisations.