Scottish Government

Section 10 Organisational infrastructure

10.1 Our remit

"We will not shore up institutions for historical reasons or sentimental attachments"
Jack McConnell, St Andrew's Day, 2003

The Commission's remit identifies one of its two core purposes to be to:

"redefine the institutional infrastructure and governance of the Scottish cultural sector to enable it to deliver the entitlements that spring from rights" ¹.

Specifically it asked us to:

Assess the current institutional infrastructure in terms of:

• being fit for purpose

• impact on sector

• cost effectiveness and best value

Consider the relationship between the (existing cultural) institutions

Consider the relationship between the sectors - public, private and voluntary

And in light of the above to:

Suggest more effective alternatives for the institutional infrastructure

Identify the governance implications of such recommendations and present options of governance for consideration.

10.2 Our understanding

The First Minister, and our brief, could not have been clearer:

"the cultural sector needs to look at itself carefully and from a citizen-first perspective. Our organisations need to take responsibility for delivering to the people of our country in an effective and accessible way."
Jack McConnell, St Andrew's Day, 2003

The Commission was also clearly instructed to ensure that Scotland's institutional infrastructure was shaped by the policy process of rights and entitlements in order to achieve this 'citizen-first' approach. We were invited to be radical. We have been happy to do this and believe that, to accomplish fully the First Minister's aspirations, a radical change is necessary.

We respect the remit's direction to "acknowledge the full cultural ecology of Scotland" ² across the public, private and voluntary sectors. We are conscious, however, that our recommendations must be directed at the public sector, although the consequence of these recommendations will affect those other sectors.

We understand that the key reasons behind reconsidering the institutional infrastructure are to propose an operation that is the most effective way of:

• serving citizens

• supporting the cultural sector

• managing public investment in the cultural sector.

As we note elsewhere, the cultural sector comprises a broad spectrum of organisations that create or show the work of creative people. These include our arts organisations and collections as well as architects, festivals, curators, librarians and designers. One of our primary challenges has been to encourage the sector to consider itself holistically, as a distinct, albeit multi-faceted, entity - 'the cultural sector'. This does not happen at present and is evidenced by a lack of communication, and consequently coherent strategy, which has often made it difficult for audience and funders properly to address its needs.

An analogy could be made with the health sector, which comprises many disciplines and specialisms that are enhanced rather than diminished by their perception as being part of a larger sector working to a common goal. Organisational structures are a very important way of encouraging the cultural sector to work collaboratively and with understanding and respect for its component parts.

10.3 Consultation

The following sources were used to acquire information, opinion and comment, and in turn informed the Commission's discussions and recommendations:

• written submissions

• meetings, including a Thinking Group

• desk research.

10.3.1 Written submissions

The majority of written submissions chose to comment on an aspect of the current institutional infrastructure. A few offered alternatives, although almost all of these chose to focus on one area of the infrastructure, for example, local provision or a sector's representation, rather than an overview of the whole cultural sector.

'Arms length' principle

The issue raised in most written communications was that of the 'arms length principle', although submissions showed a clear division over the principle of 'arms length' operation from government. Essentially, the cultural sector strongly advocated the principle, and local government did not.

Some examples supporting the principle include:

• "The arms length principle is crucial to the independent delivery of cultural activity." ³

• "It does not seem practical or desirable for the Scottish Executive to give a detailed prescription for the content of cultural activities… In this sense the arms length principle should be observed." ⁴

• "If there is to be financial support to cultural institutions and individuals it must be at arms length thus preventing political interference." ⁵

Similarly, the views against the principle included:

• "The arms length principle is not appropriate. The Executive needs to take a proactive role in the promotion of culture and seek to ensure that existing national cultural agencies work closely together, if not merge" ⁶

• "The arms length principle is no longer appropriate given the establishment of cultural rights and entitlements." ⁷

A considered view from Falkirk Council acknowledged the benefits of both stronger government intervention and the necessity of arms length coexisting. We feel it is worth quoting from at length:

"Cultural leadership should not only be seen in a political context, the arms length principle is still a valid and important distinction. State support for culture should not result in state-led culture… [acknowledge] that the dynamic of culture does not fit into the administrative hierarchy of government. There must be a powerful lobbying voice… to articulate the concerns of a wide range of stakeholders… There cannot be one leadership… voices will continue to emerge from a variety of sectors… and the arms length bodies should provide an opportunity for these voices to be heard."
Falkirk Council submission

We are persuaded by the argument of coexistence. Working at 'arms length' is a public policy principle applied in law, politics and economics in most Western societies. The principle is implicit in the constitutional separation of powers between the judiciary, executive and legislative branches of government. It is quite common practice in funding cultural activity in Commonwealth countries, such as Canada and Australia, and European countries such as Sweden and Ireland although some countries, notably France, Germany and The Netherlands, prefer to maintain a centralised government involvement.

The arms length principle is usually adopted to encourage the following benefits:

• freedom of expression and advocacy for the creative community

• freedom from political and bureaucratic intervention

• greater pluralism and variety

• allow cultural bodies to demonstrate their independence

• allow cultural bodies greater participation in decision making

• free government from day-to-day concerns

• free government from responsibility for 'subjective, artistic' decisions

• government can focus on formulation of strategic, long-term and sustainable policy

• allow for informed independent professional advice

• financial autonomy

• funding decisions made by peer-group experts.

Conversely, the arms length principle is deemed to have limitations, mainly that it lacks democratic accountability. Perceived problems are that it:

• does little to protect cultural sector from political influence in practice

• can complicate the means of delivery of resources

• duplicates bureaucratic processes

• confuses lines of responsibility and accountability

• can leave agencies 'caught in the middle' (neither able to compel government nor to adequately fulfil their sector's needs.

On the basis of our consultation, in order to ensure a thriving cultural sector, we believe there is a compelling argument that creative individuals and organisations must have the right, and the role, to examine and develop public policy and public attitudes. Ultimately we felt that this is an essential freedom in a democratic society. In addition, we believe that issues of cultural quality and taste, which are often difficult, are more properly matters for the citizen and the creative community, not for the policy-maker.

We therefore endorse the majority view of our consultees. However, we share the concern expressed from several contributions that the theory of the principle is not always maintained in practice. For the principle to work effectively it needs both sides to honour it - the cultural sector and government - and we heard anecdotally of many instances where this has been breached.

We therefore recommend maintaining the principle of 'arms length', with clearer, more formal and auditable agreements on the extent of the influence of the Scottish Executive, or any other public funder, over any publicly funded cultural organisation.

In each of the infrastructure options outlined below, therefore, we include an arms length body.

Sectoral representation

Several submissions outlined the need for more representative bodies in their sectors:

• "We see merit in the establishment of a single new body in Scotland to develop policy and good practice in the library, museum and archive fields." ⁸

• "The Executive should set up the Institute for the languages of Scotland as soon as possible" ⁹

We were impressed by the argument presented by Argyll and Bute Council of the need for such sectoral bodies, and the proposed nature of them:

"Independent advisory boards for museums, libraries, arts and creative industries and heritage would serve as powerful advocates and policy advisors for these sectors. They could have direct links to, but be independent from, the Scottish Executive and would be free from direct responsibility for national policy and funding distribution."

We tested this view in public meetings in the second and third phases of our consultation and it drew widespread support and agreement. It coincides directly with the type of body we had envisaged as necessary to advise on standards for these sectors as part of the rights-standards-entitlements process (see above in Section 5).

We therefore endorse the need for such representative bodies and have included them in the first two of our three options outlined below as 'Sectoral Councils'.

10.3.2 Meetings

At our public meetings, many of the observations from written submissions were debated more fully and other issues were raised and discussed. These included the Ministerial portfolio, governance in the sector and membership of cultural bodies.

Minister of Culture

Several contributions suggested there should be a Minister for Culture and this was much debated at our public meetings.

"Establish a Minister of Culture where a senior politician is exclusively championing cultural rights and not carrying additional portfolios such as tourism and sport."
The Arches submission

Contributions from the private sector and local government also advocated this view:

"A Minister for Culture (which includes sport) which is not subservient to Tourism."
Malcolm Fraser Architects

"Scottish Executive with a Minister for Culture supported by a single function department."
Dumfries and Galloway Council

In discussions, the two primary reasons for this suggestion were revealed to be:

• an increased status and profile for culture at cabinet level (due to concern at high turnover of Ministers of Culture)

• the necessity of securing a Culture Ministry, in order to secure greater public investment in the sector.

We are aware of the view that the existing Minister of Culture position shares additional duties in the same way as, for example, Economic Development and Lifelong Learning are shared at Cabinet level. We are further aware that the portfolio is a particularly demanding one and there are many calls on the Minister's time.

We share the desire for the profile of culture to be kept at a high level within the Scottish Cabinet and the Scottish Executive. We are not convinced that this is more likely to be achieved by a Minister with a single function portfolio, particularly as there are obvious synergies with sport and tourism. We do, however, believe that the current Minister is disadvantaged in a practical day-to-day way by not having a deputy Minister that can share some of the workload and allow the Minister more time to focus on matters of policy and cross-cutting issues.

We therefore ask the First Minister to consider the introduction of a deputy Minister's post for the current Tourism, Culture and Sport portfolio.

Governance

Our consultation revealed the view that the disparity in styles of governance within the cultural sectors is almost as varied as the organisations that comprise it and, more importantly, does not assist cohesion or efficiency. This issue was expressed as being particularly acute in terms of national agencies and companies where the variety includes NDPBs with arms length relationship ( e.g.SAC); executive agencies of government ( e.g. Historic Scotland) and cultural agencies with a variety of trustee arrangements ( e.g. National Library, National Museums).

We believe there is merit in developing and applying a standard approach to governance of institutions, organisations or agencies that have earned the title 'national'. A sense of common purpose and direction is more likely from governors/directors who share the same status, brief and modus operandi.

Membership

There was a widely held view that bodies charged with creating public policy and disbursing public money could be demonstrably more representative of their sectors. This view was encapsulated in the quote below:

"Bodies charged with disbursing government support locally and nationally should be truly representative of the range of practitioners, curators, educators, historians and theorists and of course audiences, throughout Scotland."

Royal Scottish Academy submission

This view received popular support in our public discussions and we entirely endorse it. We propose later in this section that the bodies charged with proposing standards and developing entitlements (Sectoral Councils and Cultural Partnerships) should adopt this principle of broad representation.

We do acknowledge, however, that the diversity and depth of cultural practitioners means that in practice obtaining a truly representative voice is impossible. Organisations should rather look to achieve a more representative voice. To realise this, they should look at methods of operation and consultation as much as through membership of their governance.

10.4 Our thinking

10.4.1 Principles and assumptions

In developing options for the institutional infrastructure we have taken into account the key issues raised from:

• our remit

• the First Minister's St Andrew's Day speech

• our consultation responses

• the rights-standards-entitlements process.

We have been mindful to ensure ultimate benefit to the citizen. Each model is viable, improves on the present infrastructure and is, we believe, a more efficient use of resources. All options share the capacity to improve communication and advocacy across the cultural sector and seek to develop a sense of shared identity through collegiate processes and create a higher profile for cultural matters. The options also share a common goal of enabling clear, measurable benefits to result from change in the infrastructure.

We have prepared three options and have considered these alongside the status quo to assess comparative strengths, weaknesses, and consequences for the current infrastructure. We are mindful in offering these options that cultural and behavioural change is as important as structural change.

10.5 Constituent parts and core functions

Each option comprises the same constituent parts (development agency, sectoral councils, etc), although in each option their arrangement is configured differently. Each constituent part comprises core functions that we have recommended elsewhere in the report (advocacy, mentoring, etc). These functions are allocated differently between the constituents of each option.

A full breakdown of how these functions are allocated is contained in Appendix H.

10.5.1 Constituent parts

Each of the following constituent parts is contained in each of the three options (unless indicated otherwise). Their nature is indicated below and elaborated in the following sections. New bodies are indicated in italics :

1. Scottish Executive

National elected government

Source of public funding for cultural sector in Scotland.

Set Cultural Rights and broad policy.

2. Culture Scotland

Development agency funded by Executive

Unitary body that brings all strands of the cultural sector together.

Different nature in each option - arms length; within government; federal.

3. Sector Councils (options 1 and 2)

Representative bodies for six areas of cultural activity.

Advocates for their sector.

Propose standards for their sectors.

4. Cultural Partnerships

Formal local partnership led by local authority

Representative of local cultural and public bodies.

Develop entitlements for their area

5. Local Authorities

Local elected government

Implement local entitlements (key partner)

Develop cross-cutting delivery through community planning

6. Culture Fund (option 1)

Arms length body funded by Executive

Distribute public funding

Provide financial development services to cultural sector

7. Centre for Creativity (options 2 and 3)

Arms length body funded by Executive

Advocacy for cultural sector

Development function

8. National Boards

Associations of existing national agencies and companies

Five Boards - Collections; Performance Companies; Estate; Creative Individuals; Language

9. Cultural NDPBs (option 3)

Existing bodies

Develop policy and disbursing funds

Development functions

10. Cultural Assembly

Unelected, non-representative body

Annual forum for audience/participants/citizens

10.5.2

Why these constituent parts?

Adopting the rights-standards-entitlements process requires the following:

Generating coordination and coherence of the sector as a unified whole leads to:

Assessing and evaluating delivery of rights and entitlements, plus sector performance:

Effective use of public funding:

Better advocacy for the cultural sector:

Generating new thinking and research:

Increased citizen participation:

10.6 Summary of our options

We must emphasise that there was little or no disagreement in our consultation over the core functions needing to be provided, nor the key issues needing to be addressed when configuring them. Having identified the core functions and developed them into constituent parts, we therefore focused on how best to configure those parts into effective, practical infrastructures that represented some of the differences in principle expressed to us in consultation.

Option 1 offers more distance from government and makes voluntary participation in the governance a key democratic element. In this model we are also mindful of the First Minister's expressed reluctance to add unnecessarily to public sector administration.

Advocates of the different options have put emphasis on different parts of the democratic process. COSLA- VOCAL, on whose proposal Option 2 is based, argues that removal of NDPBs in favour of a direct relationship between local and national government creates a more democratic structure. The SAC model, the basis for Option 3, maintains faith in the arms length principle that has been part of democratic practice in Britain for a very long time. We would argue that whilst NDPBs are not undemocratic, it is legitimate to ask if they serve the interest of the citizen more effectively than other models.

10.7 The options in detail

10.7.1 Background to the options

In all of the detailed options below, two relationships remain constant and therefore will not be detailed each time:

• the Cultural Assembly will be initiated and serviced by Culture Scotland (all variants)

• local authorities will liaise directly with the Scottish Executive for their annual funding.

Also, where they feature, the nature and purpose of the following are the same in each option, and are as detailed above:

• sectoral councils

• cultural partnerships

• local authorities

• Cultural Assembly.

An appraisal of each option is presented below. This is followed by an assessment of the costs of each option. These are presented separately.

10.7.2 Mapping the status quo

For comparative purposes, it is useful to present the current institutional infrastructure, prior to examining ones that may replace it. The following diagram illustrates some of the players and some of their relationships:

10.8 Option 1 - Development Agency

10.8.1 Characteristics

In this option the key constituent parts are:

• Scottish Executive

• Culture Scotland

• Culture Fund

• sectoral councils

• cultural partnerships

• National Boards.

They relate to each other as follows:

In this option the key characteristic is to reduce dependency on government while maintaining strong Ministerial ties. It ensures greater involvement of the cultural sector itself in decision making and channels more resources directly at the front-line services. It gives an independent voice to the sector by separating advocacy from the treasury function.

Two limited liability companies with charitable status are proposed. The first, Culture Scotland, is a development agency. It brings together all parts of the cultural sector: local cultural planning groups, education, business and the voluntary sector. It therefore has a strong, independent, representative voice.

It is the strategic planning hub for the unified cultural sector. It makes the case for investment in the sector and creates the high level financial plan for the sector submitted at each spending review. Its staff, advised by the sector councils, make the day-to-day funding recommendations which need to be approved by its Board.

The second, the Culture Fund, is also a company with charitable status. It has two key functions - the first is to develop the level and sources of finance available to the cultural sector; by operating a development fund, helping to develop private giving, and providing bespoke business and financial services to cultural organisations. It fosters enterprise within the sector.

It is also the treasury for the cultural sector. It disburses grants as authorised by Culture Scotland and ensures that contracts with those receiving money are agreed and maintained, and it provides financial mentoring where appropriate. It is not an NDPB and therefore has more flexibility in its accounts which are not subject to annuality.

It is the home for two strands of Lottery funding and works collaboratively and strategically with HLF Scotland and the Big Lottery.

10.8.2 Governance

The cultural sectors run both companies in partnership with government. Culture Scotland and the Culture Fund are separate companies each with its own Chief Executive Officer. The Scottish Ministers are represented on the full council of Culture Scotland and have executive membership of the Culture Fund.

Culture Scotland is owned, governed and managed by its members. That is a crucial difference from the way that an NDPB works. It has a governing council of around 25 members drawn from the key stakeholders - Cultural Partnerships, the Sectoral Councils, business, education and the voluntary sectors. This large council would also include ex officio observers representing Scottish Ministers, a European culture agency, Visit Scotland, DCMS and perhaps others.

This council would appoint a smaller board of, say, nine people to oversee the operation of the company. Membership of the board would be advertised under Nolan conditions and therefore open to council members and beyond.

The Culture Fund board is drawn primarily from the cultural, financial and business sectors. Government has a golden share and the Scottish Executive is represented on the board by the Minister with responsibility for Culture. Normal limited company responsibilities would apply to the members. The Chair and board members would be appointed by open advertisement.

10.8.3 How would Culture Scotland operate?

The composition and function of Culture Scotland is shown in the diagram below:

Advocacy

Culture Scotland speaks to government on behalf of the cultural sector and it helps strengthen individual voices within the sector. It places a high premium on communication, promoting the case for culture to the citizen and to the private, public and voluntary sectors and to the media.

Culture Scotland is the broker between the cultural sector and the Scottish Executive and it undertakes the national negotiation with the Scottish Executive during the Comprehensive Spending Review. It has a key role in developing policy, a process that involves taking advice from its membership and liaising with government.

Assessment

When organisations and individuals apply for funding it assesses their applications/business plans and provides mentoring. It then passes decisions on to the Culture Fund who agree an appropriate schedule of payments. Culture Scotland negotiates the contracts with applicants regarding the artistic/creative content of their application and determines the basis for the contract.

Mentoring

Culture Scotland fosters good practice and best value and develops quality assurance. It commissions a rolling programme of assessment and evaluation of funded organisations to ensure standards and outputs are being met.

It has a key role in policy development by co-ordinating the development of national standards and advising on the development of entitlements. It provides a mentoring service to the sector councils and planning partnerships to help this process.

Professional services

Culture Scotland promotes and develops national development strategies based on discussions with the Sector Councils and Cultural Planning Partnerships. It coordinates the national standards in each of the six sectors and it develops cross-cutting policies and advice. It also commissions research and data collection.

Development

Culture Scotland has a strong decentralised relationship with the cultural partnership areas and, with them, assists in devising development initiatives and methods of identifying and supporting creative talent, particularly creative individuals.

It has a key role in developing and stimulating new thinking in the cultural sector. It coordinates a 'think tank', commissions new research and fosters development initiatives with partners in the cultural sector and the planning partnerships.

10.8.4

How would the Culture Fund operate?

The composition and function of the Culture Fund is shown in the diagram below:

Disbursement

When Culture Scotland has agreed the application/business plan it would like to support and the figure it proposes to offer, the Culture Fund assesses the applications for financial viability. Following discussions with Culture Scotland it confirms and disburses financial support to an agreed schedule of payments.

The Fund will regularly check the financial position of organisations to ensure they are within agreed and achievable limits. It will take remedial action where this is not the case. The Fund does not re-configure business plans; it starts and stops funding. Cultural bodies themselves reconfigure their plans and Culture Scotland validates them.

Development

The Fund will provide a range of banking and financial advice services tailored specifically to the cultural sector. The Fund will broker the private sector with the cultural sector in practical ways, for example, through angel and development finance.

Investment

The Fund will explore and develop ways of increasing investment in the cultural sector, for example, bonds, endowments and foundations. The Fund will encourage philanthropy but will not impact upon an individual company's pursuit of sponsorship and donations.

Financial data

The Fund will collate and maintain financial data in a uniform style from across the cultural sector. It will monitor and report on funding and investment trends.

10.8.5 The funding process

The diagram below illustrates the process by which a cultural organisation would receive funding. Its application for funding, or costed business plan, is assessed using established criteria by Culture Scotland and a contract is agreed. The Fund assesses the financial projections, prepares a contract, and issues payment.

Both Culture Scotland and Culture Fund will assist (through mentoring) if the cultural organisation has a difficulty with either part of the process. It is intended that as Local Cultural Partnerships develop into Partnership Networks that some funding may be devolved direct to them for disbursing.

10.8.6 What are the consequences for existing bodies?

This option pre-supposes that some existing NDPBs are disaggregated. For example, SAC and Scottish Screen ( SS) would pass their funding functions to the Fund but their development skills would be assimilated into the professional services offered by Culture Scotland. Some of the functions assigned to Culture Scotland include those currently undertaken by existing bodies, notably SMC and SLIC. If Scottish Executive funding were to follow these functions to Culture Scotland from those bodies, this is likely to directly affect their current constitution.

10.8.7 Variation - Option 1b)

This variation places all funding functions into central government. This assuages some of the concerns of the national collections and national performing bodies who expressed a desire to maintain/develop respectively their direct funding link with the Scottish Executive. Option 1b) offers clarity of responsibility and perhaps creates less vulnerable exposure of annual funding levels than an agency outwith government.

We believe such an arrangement would work, although we feel it is not as strong a proposition as option 1, essentially because it presents two drawbacks:

• the significant advantages of working within a company to develop funding independently and provide financial development services are lost

• it loses parity of esteem within the cultural sector by maintaining a differential between 'national' and 'non-national', with a consequent impairment to sectoral planning.

Another suggestion, to place the funding function inside Culture Scotland, would defeat the purpose of splitting advocacy and funding, a pairing that many contributors agreed is inherently flawed.

10.9 Option 2 - Government Agency

10.9.1 Characteristics

In this option the key constituent parts are:

• Scottish Executive

• Culture Scotland (Government Agency)

• Centre for Creativity

• sectoral councils

• cultural partnerships

• National Boards.

They relate to each other as follows:

In this option the key characteristics are government taking the proactive and leading role with responsibility for funding. There is simplicity of structures and relationships, and the advisory roles of the sector are maintained. Advocacy is separated from funding and is the responsibility of a new NDPB.

Funding is retained by government, which is advised by its own agency, Culture Scotland, which has the same relationship to the Scottish Executive as other successful agencies such as Historic Scotland and Communities Scotland. It deals directly with local authorities and the portfolio of bodies called 'core-funded' agencies by the SAC and SS.

The Executive Agency model (or enlarged Executive Department, see variation below) reduces the number of people voluntarily taking part in the governance of the arts and culture by disaggregating the NDPBs. Removing intermediary agencies creates a straight-line relationship between local and central government.

Advocacy and 'blue-sky' thinking are the responsibility of a new unitary NDPB, the Centre for Creativity ( CfC) which has a key role in identifying and supporting creative individuals. It will provide external advisory functions and advocacy, although in this option a greater advocacy role also falls to the Sector Councils.

The Centre for Creativity is proposed as an NDPB at arms length from the Scottish Executive and Culture Scotland, in a similar relationship to that of the Historic Environment Advisory Council for Scotland ( HEACS) with Historic Scotland, an Executive Agency. The Centre for Creativity is intended to be more proactive.

The CfC also assumes some of the financial development services previously assumed by the Culture Fund and unable to be undertaken within Government, such as operating a development fund, helping to develop private giving, and providing bespoke business and financial services to cultural organisations. It fosters enterprise in the sector.

It is the home for two strands of Lottery funding and works collaboratively and strategically with HLF Scotland and the Big Lottery.

10.9.2 Governance

The option is based on existing civil service examples: a Management Board heads Culture Scotland with two non-executive directors from the stakeholder community; it works to a published Corporate Plan.

The Centre for Creativity has conventional NDPB governance arrangements under Nolan rules with all positions on the board advertised and the management appointed by the board in consultation with Scottish Ministers. A small board of 9-10 is envisaged.

10.9.3 How would Culture Scotland operate?

The composition and function of Culture Scotland is illustrated in the diagram below:

Policy

Culture Scotland sets policy and co-ordinates national standards proposed by the Sector Councils, evaluates performance and co-ordinates national development. Broadly, the functions it undertakes are similar to those in Option 1 although without the advocacy and with a more limited version of development and business planning.

Funding

It would disburse funding on the basis of costed business plans. There would be no preferred status for such applicants as national collections or companies, as all would apply to the same source.

Assessment

It would assess the business plans and make a funding decision on the basis of their relevance to policy, quality, and financial viability. It would commission regular assessment and evaluation of funded clients.

Development initiatives

Culture Scotland would work with the cultural planning partnerships and sector councils to identify and support development initiatives, both sectoral and geographic.

10.9.4 How would the Centre for Creativity operate?

The composition and function of the Centre for Creativity is illustrated in the diagram below:

Creative individuals

The Centre advises on grants to individuals and proposes awards. It proposes reward for high-end talent and proposes or brokers schemes for mentoring talent and it ensures career 'pathways' are in place.

Think tank

The Centre also co-ordinates, and where appropriate commissions, 'think tank' work on the cultural sector from higher education, cultural specialists and others. It co-ordinates, and commissions, research and statistics on cultural activity and policy.

Financial development

The financial services, brokerage, and investment functions from Option 1's Cultural Fund would be undertaken by CfC. It would be a flexible body that will serve the national cultural community. It could also develop into making an international contribution, similar to the Interarts Foundation in Barcelona.

Advocacy

The CfC is the advocate for the cultural sector.

10.9.5 The funding process

In this option individuals and organisations have separate routes:

10.9.6 What are the consequences for existing bodies?

As with option 1, this option pre-supposes that some existing NDPBs are disaggregated. For example, SAC and SS would pass their funding functions to the Scottish Executive but their development skills would be assimilated into the professional services offered by Culture Scotland and the Centre for Creativity.

Some of the functions assigned to Culture Scotland and the Centre for Creativity include those currently undertaken by existing bodies, notably SMC and SLIC. If Scottish Executive funding were to follow these functions to Culture Scotland and the Centre for Creativity, it is likely to directly affect the current constitution of those bodies, and perhaps others.

10.9.7 Variation - Option 2b)

This variation, proposed by COSLA- VOCAL among others, transfers the functions we have allocated to the Agency to an enhanced Tourism, Culture and Sport Department. The underlying principle remains that there should be direct relationships between the funding agency - the Scottish Executive, and the delivery agents - the local partnerships and the 'core-funded' bodies.

This option would still require a balancing advisory body within the broader cultural community and therefore the Centre for Creativity would still be appropriate as outlined above.

We believe this variation could work effectively, although it has two drawbacks that prevent us from promoting it:

• the notion of larger government runs counter to the First Minister's call for a sleeker civil service following the Gershon report and the Finance Minister's programme of savings

• the advantage of having a body with a distinct identity as opposed to a government department arguably carries a psychological as well as symbolic advantage in a sector that is famous for independence of mind.

10.10 Option 3 - Federation

10.10.1 Characteristics

In this option the key constituent parts are:

• Scottish Executive

• Culture Scotland (Federal)

• Centre for Creativity

• NDPBs

• cultural partnerships

• National Boards.

They relate to each other as follows:

This option proposes a federation of existing NDPBs to create a rationalisation of governance arrangements and operational practice, an arrangement based on an original proposal by the Scottish Arts Council.

Culture Scotland (Federation) would be a high-level partnership, or association, placing great emphasis on joint advocacy achieved by bringing the separate agencies together to form a strong 'cultural front.' The second significant function would be strategic development.

This option brings together SAC, SS, SMC, A& DS, SLIC and Bòrd na Gàidhlig. During the course of our consultative period many of these bodies have met in an informal version of the proposed association. We understand, however, that there may be a diminishing appetite in the sector for this sort of arrangement and more focus on radical ideas with new players. This is, however, a simple model that is the least disruptive of the options proposed and demonstrably workable.

One problem might be that its familiarity could be considered a handicap to introducing real change elsewhere in the infrastructure, impacting negatively on the creation of new bodies such as cultural partnerships and a variant of the Centre for Creativity. Also, there would be no need for sectoral councils, as their role would be assumed by the NDPBs.

10.10.2 Governance

Culture Scotland is an informal association of separate bodies with increased sharing of administration. This option makes savings and levers more value from the current agencies by encouraging strategic partnerships and establishing joint goals and initiatives.

Conventional governance arrangements under Nolan rules would continue to apply for existing NDPBs with all positions on the board advertised and the management appointed by the board in consultation with Scottish Ministers. Smaller boards of 9-10 may be preferable to the current arrangements.

10.10.3 How would Culture Scotland (Federation) operate?

Culture Scotland in this option would operate as in the diagram below:

Shared administration

Culture Scotland would be the representative voice of the sector. It would take on the task of proposing national standards for each of the constituent sectors. It would gradually reduce the current overlap of backroom functions between the organisations.

Development and initiatives

There would be a greater emphasis on mentoring and an extension of the drive to recognise individual creative talents, especially younger, high-end talent.

Strategy

Joint approaches to, for example, education and regional development would ensure efficiency and greater effectiveness.

Disbursements

Disbursement by individual NDPBs would continue, although there may be shared treasury functions to undertake it.

10.10.4 How would the Centre for Creativity operate?

The operation agency is conceived as more like NESTA¹⁰ with a strong development brief and some revenue funding from the Scottish Executive. Other functions remain the same.

Research and development

The Centre co-ordinates, and where appropriate commissions, 'think tank' work on the cultural sector from higher education, cultural specialists, and others. It also co-ordinates and commissions research and statistics on cultural activity and policy.

Financial investment and development

The financial services, brokerage, and investment functions from Option 1's Cultural Fund would be undertaken by CfC

10.10.5 The funding process

The current funding routes and process would apply in this option.

10.10.6 What are the consequences for existing bodies?

Existing bodies would remain as now, although their operation and governance would be reviewed and amended in the context of federal operation.

10.11 Analysis of the options

10.11.1 Summary of findings

We commissioned an independent analysis of each of the above options and the status quo against a series of twenty-five key indicators. This section summarises the main text of the report, which is contained in Appendix I. It offers a broad overview of the more detailed evaluation and a broad indication of its conclusions.

This summary draws together the performance of each option and the status quo against the evaluation criteria, grouped into three overarching criteria as identified by our remit:

• fitness for purpose

• impact on sector

• cost effectiveness and best value.

10.11.2 Criteria for assessment

The following criteria were used to assess the options:

• the essential purpose of the option and how it will enable the Executive's national cultural policy objectives is clear and coherent

• match against broad public policy objectives

• understandable, inspiring, credible and 'fit for purpose'

• support a citizen-focused approach to cultural policy and allow effective implementation of cultural rights, standards and entitlements

• each main organisational component contributes directly in ways that are deliverable and verifiable

• the positioning of each organisation in the structure and its strategic and functional relationship to others is clear

• most appropriate and credible solution for delegation of authority for decisions on regional and local priorities - and how these will be achieved

• improve opportunities for achieving a better strategic fit between cultural policy and other national strategic priorities and sectors

• the implications of change from the present state will be justified by the scale of benefits the option will realise

• dis-benefits (actual and likely to be perceived) identified will not diminish the benefits of new structure or impede the achievement of policy objectives; there will not be a significant loss of expertise or unreasonable damage to the careers of those currently working in the cultural sector

• progressively and measurably increase access to a wider range of cultural experiences by a larger proportion of Scotland's population, year-on-year

• positively influence more effective communications and practical co-operation among organisational stakeholders in the cultural sector

• will improve the level of active stakeholder engagement and generate and sustain community cultural activity

• provide the most appropriate means to promote, support and incentivise Scotland's national companies and collections

• encourage and support positive cultural and behavioural change throughout the sector

• foster and support a creative environment that attracts and supports creative individuals and creative enterprises to set-up and to work in Scotland

• improve the international profile of Scotland and Scotland's culture

• ensure clear and broadly accessible routes to funding

• ensure that the support, contribution and involvement of local authorities is maximised

• governance structure and principles are clear and will enable the overall performance of the new structure to be assessed and the contribution of each main component accurately measured

• likely to offer scope for introducing efficiencies - subject to verification of data, when available

• delivery chain is as short as it can be, with the smallest number of intermediaries between the source of policy and the main points of delivery

• provides a better framework and improved incentives for the public, private and voluntary sectors to co-operate and work together

• contains specific components and measures that will promote excellence and innovation

• provides the most appropriate, efficient, equitable and accountable means of securing and allocating funds.

10.11.3 Summary of findings

The following table offers the result of such a summary of performance against the criteria in compact form: ¹¹

From this table it is clear that, with regard to fitness for purpose and cost effectiveness and best value, Option 3 and the status quo are equally very weak. Option 3 performs marginally better than the status quo in respect of the impact on sector, but it meets only three out of the 25 overall criteria against the status quo's score of two and is doubtful in meeting the criteria in three cases against the status quo's two. For both Option 3 and the status quo, the rate of success is very low.

Option 1 meets all the criteria, while Option 2 does not fail completely to meet any criterion, but performs doubtfully against two criteria in each overarching area. Both Options 1 and 2 appear to meet the criteria far more successfully than Option 3 and the status quo, and Option 1 performs in this respect significantly better than Option 2. As noted above, however, these arithmetical measurements do tend to oversimplify the complex evaluation process.

A copy of the performance matrix can be found in Annex J.

10.12 Financial appraisal of options

10.13.1 Background to the task

We commissioned an independent financial analyst to assess some of the financial issues and costs involved in the options and the appraisal that follows is based on his findings. Obtaining financial information on total public spending and on costs of operation proved difficult for several reasons:

• strategic financial information on cultural spending is not collated centrally

• much of the information is difficult to track down

• financial reporting layouts, presentation styles and cost categorisations differ between cultural bodies

• accounting requirements have changed between years.

All these factors make aggregation and interpretation of financial information difficult. It has also proved impossible for us to track grant-in-aid ( GIA) paid by the Scottish Executive from the internal 'cash' documentation of the Executive into the accounts of the cultural bodies. Different accounting treatments are used and the figures do not tie up. The main reason is that the cultural bodies often allocate GIA at the end of their financial year between their Income & Expenditure Account and various Capital, Purchase and other funds and therefore the figures differ from the cash paid by Executive for that year.

As a result of the present fragmented and inconsistent financial reporting arrangements it is virtually impossible for stakeholders to obtain a strategic 'helicopter overview' of public spending on cultural activities throughout Scotland. Such information would be invaluable in considering long-term expenditure trends, such as whether aggregate public expenditure on cultural activities is increasing, reducing or level. That information is not readily available at present. Another difficulty this presents is in making comparison with cultural spending in England, Wales and other countries.

This lack of strategic financial information hampers policy decisions and also hampers the evaluation of outcomes and continuous improvement. We strongly recommend that these issues are addressed by the Scottish Executive and the relevant agencies as a matter of urgency.

10.13.2 Compiling the financial information

A series of tables has been compiled, as follows:

• costs of options: this shows for each option (including the status quo), an estimated budget, estimated staff numbers and staff costs, together with comparative operating costs and staff costs of the existing National Institutions and NDPBs

• National Institutions: existing net expenditure pattern over the period 1999/2000 to 2006/07, plus staff numbers and average staff costs

• NDPBs: existing net expenditure pattern over the period 1999/2000 to 2006/07, plus staff numbers and average staff costs

• local authority expenditure on cultural activities: information has been obtained to show net expenditure on cultural activities by each of the 32 authorities, plus tables ranking expenditure in cash terms and also per capita expenditure.

'Cultural activities' by local authorities does not appear to have a clear and universal definition and is therefore not easy to extract from local authority accounts. We have noted this in earlier sections. Here, it has been necessary to take out some related but 'non-cultural' expenditure. This adjustment exercise may be subjective but it has been consistently applied across all authorities. The information produced shows some anomalies (such as nil expenditure by some authorities in some categories of cultural activities), which probably indicates differences in working definitions between authorities.

The information obtained is in the public domain and has been obtained from audited accounts in the case of the National Institutions and the NDPBs and from the Scottish Executive's LFR information in the case of cultural activities funded by local authorities.

10.13.3 Costing the options

A preliminary estimate has been made of the costs of each option and an outline financial framework for each developed. This will assist in assessing the financial implications of each option and should be considered alongside qualitative and non-financial information. We wish to stress, however, that at this early stage in the evolution of these options, costings should be regarded as 'best estimates', rather than firm information based on hard facts. Assumptions have had to be made on possible future costs, including staffing levels, accommodation and running costs and potential savings and economies of scale that might be achievable under each option.

Some cautionary notes on aspects of the costings are worth stressing. It is important not to place too much emphasis on input measures ( e.g. expenditure levels), as these provide only crude information and are not reliable measures of performance or effectiveness. A caveat should also be expressed about assuming a like-for-like comparison - each organisation has unique characteristics and comparisons are never simple.

The methodology used to cost the options has been to:

• estimate the staff numbers for each option, and the distribution of these staff over the activities of Culture Scotland under each option

• estimate the staff costs for each option, based on the above staff numbers and using an average cost of £26K per employee, based on the existing National Institutions & NDPBs

• estimate the annual operating costs for each option, based on the projected staff costs, plus the core operating costs of the existing bodies

• develop an operating costs analysis for the NDPBs, for comparison

• develop an operating costs analysis for the National Institutions, for comparison.

1. Staff Numbers For Each Option - Summary

NOTES:
Note 1: The above assumes that in Options 1 and 2 that a) the Scottish Arts Council and Scottish Screen would cease to exist; and b) the current Executive allocation to Scottish Museums Council would be transferred to Creative Scotland.
Note 2: The NDPBs existing staff numbers included in the Status Quo above are SAC (97), SS (42) and SMC (27).
Note 3: Option 3 - There may be scope for an eventual reduction in the staff numbers shown above, in due course.

2. Annual Budget For Each Option - Summary (£000)

Notes:
1. These figures should be regarded as a 'best estimate' - they cannot be precise at this stage
2. The difference between £54.316M for the Status-Quo option & £54,196M
for the aggregated budgets of the existing NDPBs (a difference of £120,000)

3. Annual Staff Costs For Each Option (£ 000)

Note : The above assumes an average staff cost of £26K per capita (based on average of the current NDPB per capita costs for 2003/4)

4. Annual Non-Staff Costs Budget For Each Option (£m)

10.13.4 One-off transitional costs

In any re-organisation, there would inevitably be numerous one-off non-recurring costs incurred in making the transition to a new structure. It is difficult to quantify these costs at this early stage without further information. Key issues are likely to be the location and distribution of premises, staff salaries and new conditions of service. Existing staff are on a variety of salary scales and conditions of service. TUPE conditions are likely to apply.

The skills mix required for a new organisation is likely to be different from the inherited staff and therefore it is not as simple as estimating the net difference in numbers. There could be a high staff turnover due to skills requirements and staff preference for location and new arrangements. This may minimise compulsory redundancies, especially if voluntary redundancy and assistance with relocation is offered.

One-off costs might include:

• redundancy payments - compulsory and voluntary

• cost of buying out or preserving the conditions of employment of existing staff (normally for a limited period of around three years)

• re-location payments to staff

• re-training costs

• recruitment costs for new staff

• temporary staff to assist with peak workloads during the transition

• accommodation costs - requirements may be different from the inherited accommodation (some existing property or leases may be able to be dispensed with, as a saving)

• new IT information systems (acquisition of computer equipment, software, installation, licences, training costs etc)

• new procurement systems and contracts

• termination costs for existing contracts for accommodation, supplies and equipment leases

• legal fees to amend existing contracts

• consultancy costs.

We recommend the Scottish Executive undertake a full costing of these one-off costs when a preferred organisational infrastructure is identified. Such one-off costs should be seen as worthwhile investment over the long term in a new fit-for-purpose structure.

10.13.5 Potential savings

In two of the options (and their variants) there is potential for cost savings, which could, in turn, be re-invested in front-line activity. Potential savings (in due course) might include:

• shared accommodation - limited scope but should be some potential savings ( e.g. storage, conservation and information and box office facilities)

• shared 'back office' and support staff and the avoidance of duplication - e.g. staff in management, finance, legal, human resources, IT, procurement and marketing etc may present possible savings and economies of scale within a larger operation; also enhanced career opportunities may lead to reduced loss of key staff and therefore reduced recruitment and training costs

• shared specialist staff and the avoidance of duplication - e.g. staff in conservation, cataloguing, display, graphic design, printing, photography etc

• outsourcing of services may offer flexibility and potential savings, for example, it may be preferable to buy in specialist staff and temporary staff to meet peak workloads, rather than staff for peak workloads

• generation of additional income streams presents potential for reductions in net costs and/or additional resources to finance new activities

• 'joined-up working' between different sectors of culture could arguably produce financial benefits and economies of scale

• better marketing activities, better market research and responsiveness to customer demand

• greater strategic selectivity is desirable in coordinating and focussing overall cultural activities.

In conclusion, we would note that resources are always likely to be outstripped by demand. Anecdotal evidence suggests a need to be more 'hard nosed' about a number of issues: withdrawing support in the event of poor performance; anticipating changing public demands; recognising that product and organisational lifecycles are limited, and generating new cultural products and services, which would attract support from the public and from business sponsorship.

10.13 Summary and recommendations

We believe the organisational infrastructure of the public funded cultural sector in Scotland is not configured in the most effective way to deliver cultural rights, standards and entitlements. Consequently, we believe a graduated change to a new infrastructure involving new organisations, partnerships, and re-focussed existing bodies should be undertaken.

We believe this reconfigured infrastructure will significantly assist the support of the cultural sector and, in turn, their ability to serve the citizens of Scotland.

We do not believe that Option 3, although included here, represents a reasonable alternative when viewed against the financial and other benefits of both Options 1 and 2. We therefore dismiss that option.

We note that the financial implications between Options 1 and 2 are not significant. However, there is a fundamental difference in approach between the two based around greater independence and empowerment of the cultural sector on the one hand and greater democratic accountability and government involvement on the other.

We have carefully considered all aspects of each option and it is the overwhelming majority view of the Commission that Option 1a most clearly meets the aspirations of the remit set us.

We recommend:

1) The First Minister considers the introduction of a Deputy Minister's post for the current Tourism, Culture and Sport portfolio.

2) The proposals outlined in Option 1a be used as the basis for reconfiguring the organisational infrastructure of the cultural sector in Scotland.

3) The Scottish Executive undertakes a full costing of the one-off costs involved in implementing this organisational infrastructure.

4) Strategic financial information on cultural spending in Scotland is collated centrally, with comparable accounting requirements, including financial reporting layouts, presentation styles and standardised costs.