House of Commons Hansard Debates for 25 Oct 1993

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about an open Government and open Departments. What are those confidentiality agreements? In private industry, of course, one can undertake all sorts of things with one's own money. What is important with public money is public accountability. Expenditure of that money must be open. If there is a price to be paid for that openness, remember that it is not just in the taxpayer's interest, as that is obvious and essential, but it is also to ensure that we have a incorrupt and fraud-free--as far as is possible--civil service and public administration. That is the task. We dispute the use of confidentiality agreements with points buried away.

We heard also that a total of 48 staff had left the agency over the past 10 years on severance packages. Some of those may have been under acceptable confidential arrangements, but we suspect that many were not.

Following the unsatisfactory appointment of Mr. Carignan, the inward investment operations manager in the United States--when he finally left the WDA, he took away £53,288 of furniture for which he was paid $15,000--the WDA decided to have a new director of marketing, a Mr. Neil Smith. This is what we said about it :

"We asked the Agency about the way Mr. Smith had been recruited. They accepted that in appointing Mr. Smith, they had been conned' ".

That is an honest assessment and nobody can dispute that. We are dealing with a genuine 24-carat crook. There was no question that it had been conned, but it should not have been. It was so basic, simple and elementary. It had not complied with its own recruitment procedures. The WDA employed, in a senior position, a person who had previous criminal convictions for deception. The agency had not checked his credentials or references. Had it done so, it would have discovered that his credentials were bogus.

We asked about a number of payments that had been made. One of the more interesting payments was that made to a model agency. I shall now deal with question 19 of 14 December. Following the National Audit Office report, I was talking about the commissioning of Mr. Smith from Shapes model agency. I asked :

"This is an astonishing tale is it not? It refers to payments made to Shapes Model Agency who had at one time had a licence under the Employment Agency Act but this had lapsed so they did not any longer have it. It seemed there was a failure to find out about the status of the Model Agency. Mr. Smith, on a Sunday, had 11 girls from the Model Agency up to his hotel to interview them to see whether they would be suitable for an advertising promotion that he had in mind. What happens in private industry does not concern us but public money can never be used in this kind of way. Did you know anything about this beforehand?"

Mr. Head, of whom more subsequently, replied :

"No, I did not."

That is unbelievable. To behave in that way with public money is an affront. I suspect that many countries that send people to discover how our system operates may handle their matters in a not dissimilar way, but for us to have such records to deal with is not just unacceptable but disgraceful.

Before becoming chairman, Dr. Gwyn Jones, who is now retired, applied to the WDA for a rural conversion grant to convert premises to workshops, and received £16,895. Following his appointment it was clear that that might not be acceptable, but nothing was done. An agency employee just happened to make a routine visit and discovered that a change in use had not been reported, as it should have been under the requirements of the grant.

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The conduct of the chairman of the WDA is a most serious matter. There should not have been any conflict of interest. We say in our conclusion :

"It is clearly important that persons in high public office should ensure that circumstances do not arise which can give cause to any allegations of abuse of position."

To be chairman of a body and receive funds from that body but not to fulfil properly the requirements of the grant is clearly wrong. In Operation Wizard, £308,000 was spent on professional fees resulting from an inquiry into the possible privatisation of certain functions of the WDA. That cost was not approved by the board in formal minutes and its existence was not publicly reviewed. Some of the options identified by the consultants involved major restructuring of the agency with changes to its objectives and the possible reduction of a specific commitment to Wales. In our conclusion, we said :

"We are concerned that not only was Parliament denied information, but that this Committee would have remained unaware of the project's existence had it not been for unofficial revelations from within the industry."

Those are serious matters, and they led us to look at some other aspects.

The Treasury has said that more than £10 billion of public money is spent each year by non-departmental public bodies. We happened to investigate one. We recognise te detail as they control their own financial affairs. The Treasury told us that it recognised that, but that did not reduce the importance of proper and clear arrangements for accountability and control.

The Welsh Office told us that it expected to be consulted by its NDPBs over unusual matters concerning irregularity of public expenditure. It should have been consulted on redundancy compensation and changes to the executive car scheme. Only as a result of current investigations have problems in the redundancy scheme been discovered. Those are not just important matters-- they are central to how we spend moneys and account for them.

In our report, we say :

"We note that the Treasury have now issued guidance on the control of staff benefits in non-departmental public bodies. We recommend that they keep under review the terms under which non-departmental public bodies operate. Finally, we recommend that the Treasury and the Welsh Office take urgent steps to ensure that problems similar to those covered by this report do not recur, and that lessons which have been learnt are notified to and applied by all non-departmental public bodies."

That is a serious matter, but it is only one of many cases that may be occurring without our knowledge. With the growth of executive agencies, there may be other, different problems.

The proper conduct of public business is a matter of concern to all of us. Although not mentioned on the Order Paper, a number of those matters concerned us. First, in the 28th report on the Ministry of Defence we found irregular expenditure under the efficiency incentive award scheme. The proper conduct of public business was not clearly set out. Under the efficiency scheme, when the Department has made considerable savings certain sums of money could be spent on generally agreed aspects such as sports facilities and improvements in health provision.

Some £682,000 was spent on a coach and 56 minibuses, and money was spent on go-karts, golf club furnishings

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and a holiday caravan, while £79,000 was spent on a party attended by 1,000 people. It must have been some party. One does not go to many parties where that amount of money is spent.

Mr. Michael Shersby (Uxbridge) : Will the right hon. Gentleman refresh the memory of those members of the Committee who are here today as to the cost of floodlighting that party? I seem to recall that it was about £28,000 for a non-night party.

Mr. Sheldon : My hon. Friend is just about right. We pay tribute to his work on the Committee, which is valuable. I thank him for that useful observation.

Public money should not be spent in such a way. We were uneasy about the way in which the spending of it had been authorised, which we thought was a most serious matter, and we dealt with it accordingly. In our conclusions, we say :

"We note the Department's view that the irregular expenditure arose as a result of an institutional failure and that it was not appropriate to take disciplinary action against individuals. We endorse the Accounting Officer's acknowledgement that he is ultimately responsible, and we regard such personal accountability as a cardinal principle of Parliament's controls over public expenditure."

That is one of the aspects that I feel that I should draw to the attention of the House.

Another aspect is the payment of £4,700 as part of the legal expenses incurred by the Chancellor, dealt with in the 25th report of the Committee. In paragraph 23, we say :

"Officials had considered that assistance towards meeting the Chancellor's expenditure in this case was justified on the grounds that :

--the scale and lurid nature of the press comments and the enormous consequential press interest derived from Mr. Lamont's position as Chancellor, and he incurred extra costs as a result ;

--it was in the public interest to make the payment because the scale of the press attention, unless effectively handled, for example to avoid libel, was having an adverse effect on the Chancellor in his ministerial role and in the effective discharge of his official duties."

We took evidence from the Treasury and those concerned and made the following recommendations :

"There must always be the clearest possible distinction between the use of public funds or resources used to meet expenses incurred by Ministers and civil servants in the direct conduct of their official duties or arising directly from their official position and the use of such funds for other expenses incurred in relation to the activities of Ministers."

We go on to point out :

"There should always be a strong presumption that where there is doubt there will be no use of public funds or resources." At the end we say :

"It is important that, in the interest of transparency and accountability, the circumstances and grounds for decisions should be made available to the Comptroller and Auditor General at the earliest occasion. We regret that they were not highlighted in this case." There may be cases for giving Ministers money for special occasions, but the Comptroller and Auditor General must be notified. It is his task to decide whether a case requires further investigation, is acceptable or should be brought forward for examination. We have established that that is how we should proceed with such matters.

The 48th report deals with irregularities in the 1991-92 accounts of Forward civil service catering. There were control failures of between £500,000 and £1 million. Although there was a question of a police prosecution, we felt that standards were not so high as they should be in the

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public service. We felt that the House should know that something went wrong and that money was made and squandered.

The 44th report, on police cell accommodation costs, deals with the cost of keeping prisoners in police cells. We point out : "the Home Office's handling of payments to police authorities was unsatisfactory. There was a serious breakdown in their authorisation and control of expenditure, in that they did not ensure that all claims were certified by police authority Treasurers in the way that they had themselves required Uncertified claims should not have been made".

That is extremely important, because the size and make-up of claims varied widely, ranging from £89 a day for a prisoner in Surrey to £561 a day for a prisoner in Hertfordshire. We thought that that was very wrong.

In questioning Sir Clive Whitmore, I pointed out that the variation between places was surprising. I said :

"The average charge for mainly food is £1.53 per prisoner day in Northampton and £18.10 per prisoner day by the South Wales police." People can understand such matters because they know how much food costs. When they see that food costs £1.53 in one place and £18.10 in another, they will ask what sort of meals prisoners receive for £18.10. One could have a good night out in a fancy restaurant in my constituency for that price. I asked what sort of meals prisoners were receiving for that sum, but we received little information on that. Payments are being made without a proper understanding of why some people are spending so much more than others.

We conclude :

"We regard it as unsatisfactory that for many years the Home Office have not been in a position to carry out the independent check on the claims they authorised and paid. This was because these claims were not supported by a detailed breakdown of costs."

Payments are asked for and the money is received. That cannot be the right way to handle public money. I understand the problems experienced by the police, but certain rules should be followed and accepted.

As a result of many of those matters, particularly those that I have mentioned, the Committee is to produce a general report on the proper conduct of public business. It will deal with what should happen and how those matters should be handled. Most of what has happened should not have happened, because rules exist to prevent it. Those rules were set down many years ago, so we do not have to wait until now to establish them. However, so many exceptions have been made that we must see how we can highlight the problems and bring them to the attention of those concerned. We are dealing with a number of executive agencies and departmental public bodies where the proper conduct of public business is crucial. We have yet to receive the reports from the Wessex and West Midlands regional health authorities, which deal with important and serious matters, so it is right that we should look at the problem in a wider context. Finally, the 52nd report deals with fire prevention in England and Wales. We have a sorry record for looking after our property. There have been two fires at Donnington. The one that we commented on cost us between £150 million and £170 million and we said how bad it was. Astonishingly, a few years later another fire took place--after our report.

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The main problem is that Departments do not have insurance assessors. If someone's home is subject to fire risk or if someone has a factory that is storing goods, an assessor will first come round and say whether sprinklers or fire doors are needed and the insurance company will not insure the property unless those requirements are carried out. That is the strongest incentive to carrying out proper fire precautions. When that does not exist--it does not exist in Departments-- the easy way out is taken and normal requirements are not met.

In 1990 the fire brigade was called to more than 400,000 fires in England and Wales, 700 people were killed and 12,000 injured. The Home Office has overall responsibility within central Government for the fire service and spends some £15 million a year. The bulk of fire prevention expenditure is incurred by the fire service on inspections and certifying buildings.

In paragraph 3 of the report we point out :

"over the last thirty years the number of fires, fire casualties and financial losses have all increased. There were 120,000 fires in 1960 compared to 401,000 in 1990 ; and over the same period deaths rose from 430 to 740 a year The UK death rate is high compared with other developed countries. Insured losses were more than £1 billion in 1991."

We hope that the trend is downwards and some signs show that that might be so.

We have had the problems of the Windsor fire disaster and the serious backlog of certification work in Crown premises. Crown premises without an up-to-date certificate include the Palace of Westminster, where fire safety arrangements were found to be deficient in 1979. I hope that some improvements have been made since then, but the building was still without a certificate. We were told that the estimated date for completion of that work was mid-1994 and that the Home Office expected that a certificate would be issued soon after that. There have been several of those fires and the arrangements for dealing with them have been far from satisfactory. That matter greatly concerns us.

I look forward to the production of the report, on the proper conduct of public business, which will show how Departments should operate and how their responsibilities should be extended to cover the new areas in which that control seems to be weak. I look forward to a proper response by the Financial Secretary in due course. 5.38 pm

Mr. Andrew Rowe (Mid-Kent) : It has been a privilege to listen to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I find it gratifying that there is at least one group of Back Benchers to whom the Executive listen effectively--a rare phenomenon in this place. I pay tribute to the right hon. Gentleman and to all right hon. and hon. Members who work with him.

I believe that the Public Accounts Committee is a model for the other Select Committees. It is essential that Parliament pursue the business of how the Executive spends money and performs its task. It is a great pity that there is not more liaison between the other Select Committees, the better to co-ordinate the pursuit of the Executive. I understand that the Liaison Committee itself meets primarily to discuss where the Select Committees will travel abroad ; it might be useful if it met more often to discuss where they travel at home.

It would greatly strengthen the cause of the European Community if we ensured that the ways in which it spends our money were methodically and effectively monitored. I

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am conscious of the fact that one of the consequences of the Maastricht treaty should be a much more effective auditing system for the EC--I very much hope that that will indeed be the outcome. But one of the reasons why the EC is much less popular than it deserves in principle to be is that there is far too little liaison between national Parliaments and EC organisations in the cause of pursuing the EC's executive. I should like much stronger Back-Bench interest in the effective pursuit of how the EC goes about its business. I welcome the general report by the PAC, and I should like to ask the right hon. Member for Ashton-under -Lyne a question about it. Is it part of its purpose to extract lessons that could be applied to similar cases in other Departments or even within the same Departments? The right hon. Gentleman told us that he was awaiting a response from the Wessex regional health authority. I understand that that is about the purchase of information technology.

One of the besetting weaknesses of both public and private sectors concerns the mechanisms for choosing information technology. I went to a seminar in the summer, where it was explained to me by a learned professor that there are usually 20 per cent. of people in an organisation who, when asked what their jobs uniquely add to the value of the organisation, find it difficult to reply. These people are to be found in disproportionate numbers among those in the organisation who work with information technology.

As the purchase of information technology by health trusts and Government agencies constitutes a huge part of their budgets, this is an area in which it is easy to make terrible financial mistakes or to set up a system that does not work at all. I hope that the general report about which the right hon. Gentleman spoke will highlight lessons for present and future undertakings.

I should like to mention the report on the disability living allowance and similar allowances. I was interested to learn that the telephone system had been so lamentably inadequate--that was also my experience when trying to get through to the agencies in question. One of the most striking features of the newly privatised utilities is that, almost without exception, their telephone answering services have been hugely improved. People who ring the electricity supply companies often get an answer before they have even heard the phone ring.

Interestingly, rapid response of this sort is an expensive operation to mount, but I am told by the chief executive of one of the electricity supply companies that complaints to the company have fallen by 78 per cent. as a direct result of the fact that the public can get through so quickly and easily. That lesson could be profitably transferred to the public sector, where telephone response rates are often still lamentable.

Dr. Kim Howells : Will the hon. Gentleman acknowledge that there is a critical difference here? That difference is one of emphasis, but it is also a political--with a small "p"--problem. When health authorities attempt to evolve towards models that they may perceive as operating in, say, a privatised electricity company, our investigations show that they tend to favour the kind of sweetheart deals--management buy-outs and so on- -that do not entail the disciplines of the private sector. Such ventures can end up disastrously, with £63 million going to waste in Wessex or £10 million in the west midlands. So it is a problem not

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merely of management discipline but of confusion of direction--about what management really wants a health authority to become.

Mr. Rowe : That is an interesting comment, although the hon. Gentleman is mistaken if he believes that that sort of confusion does not obtain in private sector companies, too. There is an element of truth in what he says, however.

One of the functions of management is to identify precisely what it is trying to achieve. Having identified that there needs to be an improvement in health service responsiveness to patients and their relatives, for instance, management must set up the sort of response service that will enormously reduce anxieties. Anyone in the health service will testify that anxiety is one of the greatest causes of the consumption of time. If anxious relatives can get through to health trusts swiftly and be put through to a person who can give them some sort of answer, those trusts will find, more often than not, that they are well regarded. Some have already achieved this ; that is commendable. I was pleased to discover that the PAC draws attention to a failure of telephone communications as an important symptom of a Department or agency not working as well as it should. Another interesting feature of the report is that self-assessment has begun to make a serious contribution to the effective working of agencies. Instead of having to go for a medical assessment, by filling in a form correctly the public can now claim the disability living allowance and have it paid simply to them--just by filling in the form well. There may be a difficulty, in that this system tends to favour those who are skilled at filling in forms. However, such a system is a promising development.

One of the most fruitful avenues for reducing the waste of money is to curb the attempt by agencies and others, often for good reasons or because the Treasury insists, to do more than they need to do. Those who are assessed as capable of managing their own affairs, and especially the severely disabled, could be allowed to make their own arrangements about spending money day by day and month by month. Such a devolution of detailed responsibility from the centre to the individual could make a tremendous contribution. It would also treat severely disabled people as adults who are capable of deciding how best to spend the public money that has been allocated to them. The 15th report deals encouragingly with the BBC World Service. The Committee was told that there had been an increase in editorial independence. That is entirely appropriate and reassuring, because the BBC World Service is a huge asset for this country. At a fringe meeting during the Conservative party conference, I learned that, although it is impossible for the World Service to be sure, because it cannot set up auditing arrangements, it believes that it broadcasts to no fewer than 120 million Chinese. That is a formidable audience, but, as the BBC cannot audit the figure, it does not claim it in the listening figures.

As the Department of Trade and Industry knows, such an audience provides a tremendous basis for exporting British goods and British education--a subject in which I am particularly interested. It is because so many people all over the world have learnt English by way of the World Service that they develop an interest in obtaining qualifications which, increasingly, are also obtained through the World Service because of its links to, among

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other things, the Open university. I was pleased to note that, on the whole, the Committee was impressed by the World Service. I shall conclude, because many hon. Members who are waiting to take part in the debate know far more about the work of the PAC than I do. I hope that other Select Committees will take a leaf out of the PAC book and will hound the Executive perhaps rather more consistently than some of them have done in the past.

5.53 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney) : In all the years that I have been in the House, I have not had the privilege of serving on the Public Accounts Committee. However, I had the privilege of being there at the concpetion, if not the birth, of the Welsh Development Agency when I was a Minister in the Welsh Office in 1975. I represent a community in which life without the WDA would be strange and difficult to imagine. That is because of the central role, gradually acquired, that the agency has played in the regeneration and redevelopment of many of our communities.

The WDA has not been unique in carrying out such functions, because functions such as land reclamation were previously carried out successfully by the Welsh Office, for which Ministers are accountable to the House. I was a Minister responsible for the land reclamation unit created after the Aberfan disaster in the late 1960s. The broking and general co-ordinating roles of the agency are vital. The Merthyr east scheme, one of the largest reclamation schemes in Europe--it is being carried out in my constituency-- demonstrates the agency's value and importance.

It is right to point to those factors, because the PAC and the National Audit Office have properly revealed a sorry story. Therefore, we should feel even angrier and more distressed to see exposed in the PAC reports poor behaviour, bad standards and maladministration in the agency. Since those exposures, some agency executives have paid the price by losing their jobs. The agency has a new chairman, and it is encouraging to note that he is to establish key priorities for the agency.

I have worked closely with the agency and followed its progress and should like to suggest some priorities. But before doing so, perhaps I may dwell on a general conclusion to be drawn from the experiences and revelations of the PAC. It was quite refreshing to hear the Secretary of State for Wales make a partial confession during his statement on the report. However, there were some errors, the chief of which was that he apparently sought to exonerate and absolve almost completely the board and its previous chairman and he argued that the report virtually did so as well.

In addition to the PAC report, we have also had the report of Sir John Caines, who established an internal audit on the agency's performance. That report anything but absolves the previous board or its chairman. I hope that the Financial Secretary has read that report as well as that of the PAC. Paragraphs 31, 33 and 34 of Sir John's report speak of the board, and not of the executives who have lost their jobs. There is more than a coded reference to the previous chairman when the report states :

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"Dealing effectively with conflicts of interest involves not only rules and procedures but also an attitude of mind and high personal integrity in the individuals involved."

That is not about the executives. Sir John is a former permanent secretary and was brought in to follow up revelations in the Public Accounts Committee.

His report continues :

"We do not believe that the present policy and practice as regards the handling of conflicts of interest of Agency Board Members are adequate to ensure that the Agency maintains the reputation for integrity which it needs."

Those are powerful statements, and they are made not by politicians in conflict across the Floor of the House but by a review body that was rightly praised by the Secretary of State. As I have said, those are not references to the executives, the agency's paid officials. Paragraph 71 of Sir John's report states :

"When the top leadership is not perceived to attach importance to enforcing sound management, good practices are allowed to slip. Corners are cut and bad decisions are taken."

That is not just a reference to Mr. Head and company. The expression "top leadership" cannot just be about the executives who have lost their jobs : it must be about the board and its chairman. The Secretary of State was pressed by hon. Members about Dr. Gwyn Jones's place on other boards, such as the BBC and S4C. He should think again and should consider his position in the light not only of the PAC report but by the report by Sir John Caines.

Mr. Cynog Dafis (Ceredigion and Pembroke, North) : The hon. Gentleman might be interested in the comments of John Osmond in today's Western Mail. On the role of Peter Walker and Gwyn Jones in Operation Wizard, he says :

"There is no doubt that this"--

Operation Wizard--

"was motivated by Peter Walker, hand-in-glove with Gwyn Jones. Proof can be seen in a file of memos and letters lodged in the office of the Agency's chief executive Philip Head who resigned last week, a fall guy if ever there was one."

Mr. Rowlands : That is additional information. However, I hope that I am resting my case not on press and public comment, but on the internal audit set up by the agency and chaired by a distinguished former permanent secretary.

Paragraph 73 of the report makes a more interesting point : "We believe that the prevailing culture was not one conducive to care over compliance matters and played a powerful part in bringing about the events with which we have been concerned."

I listened with fascination to the report of the enormous diligence and investigative qualities shown by the PAC and the Comptroller and Auditor General.

In reflecting on what has happened over the past few years, the one conclusion to be drawn is about the prevailing culture of the 1980s--a curious culture in respect of public life and public bodies. The Government have often slagged off the role of certain groups of public servants and officials, such as those in the DSS offices at the point of service delivery. However, at the higher level, in the appointment of people to quangos, there has been not only an explosion in numbers, but a significant explosion in salaries and emoluments. The Government have justified that by saying that it is necessary to appoint more commercially minded people with entrepreneurial skills.

I wonder just where a balance will be struck. When will commercial ability and responsibility run alongside a public sense of duty? It is a privilege to be the chairman of, for example, the Welsh Development Agency. It is one of

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the most important agencies carrying out a very important function, so the post of chairman is one of the most important appointments that can be made. The job should not be simply about leasing cars or being paid £61,000 a year for a part-time job ; it should be about the role that has to be filled. The salary is more than the Prime Minister gets.

S4C is currently advertising for a new controller. It should be a vocation. I am a great supporter of S4C, which does an excellent job. I accept that the job needs someone who is a good media controller--but at £106,000 a year? That is much more than the Prime Minister gets, even taking into account his house, car and other perks. A balance must be struck between public service--a commitment to being the chairman of S4C or the WDA--and reward.

I remind the Financial Secretary that the people at the point of service delivery in DSS offices or the officials in the WDA are to have their pay increase pegged at zero. Why do not the Government make a fresh start and halve the salary being offered to the controller of S4C? We should then discover whether committed, first-class people still want the job, as I believe they will. We want someone who is committed to the spirit of public service broadcasting.

Why do not the Government halve the salary for the chairman of the Welsh Development Agency? They should advertise the post at the lower salary and then see whether people of great quality still come forward. They would show their sense of public duty and service and they would be paid sensibly.

The second area of concern is one that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) dealt with at some length--the relationship between quangos and Government and quangos and Parliament, and the degree of accountability. I have in my hand a secret internal Whitehall document that deals with that very issue. It suggests that some caution would be engendered by an organisation's responsibility to appear before the PAC when its accounts and the Comptroller and Auditor General's report of his audit of those accounts are before the Committee. It states : "No doubt there would be reasonable tolerance of error and the PAC would realise that it is easy to be wise after the event, but the knowledge that there would be a post mortem examination would be bound to influence the"

organisation

"and induce a spirit of caution in approaching anything hitherto untried. Of course, the wider and vaguer the"

organisation's

"powers, the less scope for C and AG's criticism."

That quotation came from a secret, internal Whitehall document. Alas, it is not in the Rhodri Morgan class. In fact, it was written in 1934--nearly 60 years ago--on the eve of the creation of the forerunner to the WDA, the first Commission for Special or Distressed Areas. Sixty years later, we are debating the same issue--the balance that must be struck between the role of an agency and its accountability to Parliament.

I am interested in the phrase

"induce a spirit of caution".

I hope that, in one key respect, the work of the PAC--the investigation, the report and the revelations--do not, in fact, induce a spirit of caution in the WDA. I am referring to the fundamental function of the agency, which is to get on with the regeneration of our industrial and manufacturing base in communities such as mine. Let us

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