Corporate report

Status and governance

Published 27 February 2020

Status - form and functions

In line with the Cabinet Office guidance this review has considered if the function provided by the Valuation Office Agency (VOA) is still required, and whether the existing model of delivery is still appropriate.

The ‘3 tests’ regarding the form of the public body have been considered. These are:

• is this a technical function, which needs external expertise to deliver?
• is this a function which needs to be, and be seen to be, delivered with absolute political impartiality?
• is this a function that needs to be delivered independently of ministers to establish facts and/or figures with integrity?

The review team encountered no representations from any stakeholder to see the VOA dissolved or moved to another sponsor department but for completeness, the review team considered all the options.

The VOA functions

As part of the government’s consultation on delivering more frequent business rate revaluations in England the external consultation specifically covered the VOA’s role in revaluations. A summary of responses was published in March 2018 alongside the announcement on more frequent business rate revaluations made by the Chancellor in his 2018 Spring Statement.

The responses to the consultation favoured the VOA continuing in its role. The summary of responses notes that there is strong support for the VOA to continue in its role in revaluations. This view was expressed particularly by business groups and rating agents, as well as by the public bodies that responded to the consultation.

Following this consultation, within the 2018 Spring Statement, the Chancellor announced a move to more frequent revaluations for business rates and that the VOA would continue in its current role producing the valuations.

In addition to the VOA’s role providing valuations for business rates (non-domestic rating), the function of banding property for council tax purposes will remain necessary for as long as we have taxation of property based on expert valuation in England and Wales. The Ministry of Housing, Communities and Local Government (MHCLG) and Welsh Government (WG) have confirmed that this should continue to be the working assumption.

In line with the consultation already referenced, there is similar support from clients and stakeholders regarding the VOA’s role in its other valuation functions. They also value this function being carried out by a public sector organisation.

We received no representations to suggest that these functions could be carried out more effectively or more cheaply if they were privatised. Privatisation of the VOA’s functions is therefore not recommended.

The previous tailored review of the VOA considered the question of whether to split the agency by means of the different tax regimes it supports. The VOA has started work to move to a functional operating model which gives it more flexibly in using its skilled staff across the different types of valuations undertaken.

Splitting the agency would therefore be a backwards step and this review has found no evidence to support this course of action. Remaining as a single entity gives more scope for opportunities to work flexibly.

Sponsor department

We also considered whether the agency should move to a different sponsor department. The agency works to 2 main clients – MHCLG and WG – in respect of business rates and council tax. The sponsor department, HMRC, contracts for work with respect to valuation of property for taxation purposes (the largest part of which being valuation of estates for Inheritance Tax purposes and valuations for Capital Gains Tax and other tax enquiries).

While this is a fairly small percentage of the agency’s business and therefore might make it appear odd that HMRC is the sponsor department, this arrangement has been proven to work over time and the review found no evidence and heard no arguments to change this arrangement.

HMRC is a large operational department with significant non-devolved functions in relation to taxation and there are synergies with the VOA. MHCLG does not have an operational function and, while WG has certain operational functions in relation to taxation, neither body has powers to operate in relation to the functions of the other.

The VOA provides the operational valuation functions as part of the end to end business rates and council tax systems. The operational nature of both the VOA and HMRC enables the sharing of best practice and experience. The VOA benefits from being part of a much broader operational organisation rather than being a small operational team within a policy focused department.

This arrangement can though add a layer of complexity to discussions about policy, performance and priorities with multiple stakeholders. In particular, the separation of sponsorship and policy responsibilities makes it critical that any key operational or funding decisions are underpinned by a clear collective understanding of the impacts on priorities across policy departments. It also means that the VOA needs to maintain a strong focus on the relationships and transparency with the main client departments it works for.

The agency’s main funding was incorporated into the HMRC Vote from April 2017 and the agency is increasingly sharing more services with HMRC, for example on HR and Finance transactional functions, and facilities management for the office estate. In addition, in April 2019, the VOA’s digital teams integrated with HMRC’s.

Making machinery of government changes incur actual and opportunity costs and these must be weighed against potential benefits were a new structure to be proposed. During the review, no one has suggested any delivery benefits would accrue from a change to the current sponsorship.

When considering potentially moving sponsorship to MHCLG (or another department), it is important to remember that this department only covers England while the VOA covers England and Wales for business rates and council tax, and Scotland as well for taxation valuation and Property Services purposes.

Were a move of sponsorship to be considered, a separate body might need to be established for Wales, adding to cost with duplication of operational, management and supporting corporate functions.

The Commissioners of Revenue and Customs Act 2005 (the legislation which set up HMRC) also binds the agency, protecting the data held, and applying the same responsibility for confidentiality as for HMRC. If the agency were to move to a different sponsor department, new legislation would be needed to maintain the legislative principle of taxpayer confidentiality. New legislation would be a time-consuming procedure.

Executive agency

The VOA continues to work more closely with HMRC where it makes sense to do so, increasingly as shared services. The HMRC and VOA senior leadership teams work closely together, as do the Finance, HR and communications teams, amongst others. HMRC provides the internal audit function for the VOA. And, as mentioned above, the VOA digital team integrated into HMRC digital and IT team from April 2019.

With the increasing closer working and integration of some areas, and the effectiveness and efficiencies this brings, the review team received questions about whether the VOA should remain an executive agency of HMRC or become a business stream within HMRC. Given the scale of change going on in both the VOA and HMRC at the current time, the relative newness of some of the shared service relationships, and the importance attached to the operational independence of the VOA, this review does not recommend such a change.

For completeness, the EU Exit is not expected to create any significant issues for the VOA.

Status conclusion

This review concludes that no changes need to be made to either the structure of the agency or its home in government, nor should any of its functions be privatised. Therefore this review concludes that the VOA remains an executive agency of HMRC.

Governance

Governance by sponsoring department

The agency’s sponsor department is HMRC and, as we have said in the status section of the report, we believe that this sponsorship should continue.

As part of the review we met with both the Head of Governance & Risk at the VOA and the deputy head of Internal Audit in HMRC.

The agency’s Chief Executive reports to HMRC’s Chief Executive and is a member of HMRC’s senior leadership team and Executive Committee (Excom), and she is also a Commissioner of HMRC in recognition of her tax profession background.

As well as the VOA performance being reported regularly at HMRC’s governance forums (HMRC ExCom for performance and transformation and updates to the Board), HMRC’s Chief Executive has held quarterly business reviews with the agency. In addition, regular discussions take place through dotted line relationships, such as VOA Chief People Officer to HMRC Chief People Officer, and Chief Finance Officer etc.

The Financial Secretary to the Treasury (in his role as departmental Minister for HMRC) has Ministerial responsibility for the agency, and the VOA report to him.

A recommendation was made in the last review that the agency and HMRC should consider the appointment of a senior member of HMRC to act as contact and liaison point for the agency. This was implemented and there is now a sponsor team situated within the Change Assurance and Investment directorate of HMRC. The senior leadership team of the VOA also have regular interactions with relevant parties in HMRC.

The review team recognises the positive steps that have been taken to ensure that assurance mechanisms are in place to ensure that the VOA receives the correct governance and oversight, and the sponsor team should take the lead on ensuring this continues to happen. As part of this work the sponsor team should regularly check with the HMRC Accounting Officer that the assurance mechanisms are meeting his needs.

Given the importance of the VOA’s work to the delivery of policy objectives for the lead policy departments, the sponsor team should also regularly engage with them to ensure these assurance arrangements also meet their requirements.

Governance

Board

In early 2018 the VOA Chief Executive commissioned a review of the agency’s governance arrangements, to determine efficiencies and further alignment with best practice. It was felt there were too many governance meetings and that the arrangements could be more streamlined, and more aligned to the way HMRC operates.

As part of this review the VOA board’s role was refocused from a decision-making to an advisory body. A more streamlined structure was introduced with membership revised to: lead Non-executive, Non-executive board members, Chief Executive, Chief Finance Officer, Chief Strategy Officer and Chief Valuer. Other executives attend as required by the agenda items. This has brought it in line with Cabinet Office Corporate Governance Code of Best Practice.

The board is chaired by the lead Non-executive Director. The Non-executives help guide the agency strategically by drawing upon their range of public and private sector expertise. The board meets quarterly plus a meeting to review the VOA’s Annual Report and Accounts. The governance changes were implemented following the June 2018 board meeting.

The review heard from the Head of VOA’s Governance & Risk how the board and the governance team regularly review the board’s effectiveness as part of the arrangement for each board meeting to ensure improvement in its effectiveness and impact. The review team saw constructive use of anonymised feedback forms that each attendee now submits after a board meeting, to continuously improve the quality of these meetings.

Board sub-committees

The VOA board has one sub-committee, the Audit and Risk Assurance Committee (ARAC). The agency does not have a separate People, Nominations and Governance Committee. This is because its executives are members of HMRC’s Senior Civil Service (SCS) and HMRC determines their remuneration within SCS pay policy guidelines. Matters relating to the agency’s diversity and inclusion strategy, future organisational design, strategic workforce plans and Civil Service People Survey results, are considered by the board.

The ARAC provides independent assurance to the board and the Accounting Officer (the VOA Chief Executive) on the integrity of financial statements and comprehensiveness and reliability of assurances across the agency on governance, risk management and the control environment.

The ARAC is chaired by a Non-executive Director, with 2 further Non-executive Members forming the committee. The National Audit Office, HMRC Internal Audit, VOA Chief Finance Officer and/or Director of Finance and Planning also attend each meeting. The Chief Executive is a standing invitee.

During the year ARAC monitors the progress of issues raised in key audit outputs, and review annual reports on both counter fraud and whistleblowing. The ARAC has a rolling programme of reviews where risk areas are subject to a detailed deep dive discussion.

During the last year, these included the transformation programme governance and assurance and compliance with the General Data Protection Regulation. ARAC also considered the arrangements in place to address risks around cyber security, information technology and valuation integrity.

The ARAC review the agency’s annual report and accounts and the Governance Statement, and assess whether the Governance Statement reflects the assessment of assurance from the Head of Internal Audit.

The review heard that the ARAC was operating smoothly and the review team found no issues.

Executive Committee (ExCom)

As part of the wider review of governance arrangements noted above, it was agreed that all of the areas of business covered by ExCom, which was ExCom (Transformation) and ExCom (Performance), would be brought together and covered by a single ExCom meeting taking place twice a month. This was implemented from July 2018.

ExCom is now the agency’s key decision-making body. ExCom oversees business delivery, operational performance and transformation activities. It is chaired by the Chief Executive. Its membership comprises all of the executive directors with the Head of Communications as a standing invitee. It is the primary forum in which the executive directors make collective decisions.

Every month ExCom reviews the agency’s performance against its key performance indicators and considers opportunities for improvement. It also reviews the status of, and management actions for, agency risks and issues. ExCom also provides senior governance and oversight for the delivery of the agency’s transformation portfolio.

This includes prioritisation across the agency’s portfolio and resolving issues escalated from supporting programme boards. The first tier of the transformation portfolio is reviewed on a monthly basis.

ExCom has considered financial planning, both in-year management to optimise the use of funding and also longer term financial planning for future years to ensure the right balance between capacity, capability and risk. Other matters covered in the last year included: the Check and Challenge Programme, People Strategy, Estates Strategy, more frequent revaluations and the move of the agency’s digital function into HMRC.

The committee regularly reviews its own effectiveness as part of the arrangements for each meeting.

The review team observed a board meeting and an ExCom meeting. There was a good standard of challenge and debate to inform the decision making. The membership of each meeting was considered to be appropriate and there was a positive atmosphere of collaboration and shared responsibility. Talking to staff who had attended ExCom meetings to present papers before and after the changes established that they found the meetings were now more focused.

Performance

The VOA have designed their approach to operational performance management with the aim of ensuring that their ExCom, managers and people all know the extent to which they are meeting their customers’ needs in an efficient and effective manner. The VOA agree a series of performance measures and targets with clients that it can then be measured against throughout the year, through performance hubs that report through to the ExCom meeting each month.

A table setting out the performance against those indicators identified as being key to their customers, their delivery partners and themselves during 2017 to 2018 is at Appendix A.

In summary, the review found the changes that had already taken place were positive for the agency; our assessment of the governance and controls in place is that they are effective and sufficient for the VOA and aligned with the Cabinet Office Corporate Governance Code of Good Practice.

Read the report’s next section, Efficiency and effectiveness.