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Column 938country", to quote the speech of my right hon. Friend the Prime Minister at the European policy forum in July, enabling the Government to investigate how to obtain the best deal for the taxpayer's money. A responsibility goes with that freedom, and that responsibility has been accepted by the House.
We examined the impact of executive agency status on the Vehicle Inspectorate. We produced a progress report, and undoubtedly a substantial stride forward has been taken--an initial endorsement of the Government's moves to that form of decentralisation--but one swallow does not make a summer, and other matters must be examined. The Driver and Vehicle Licensing Agency, to which the right hon. Member for Swansea, West (Mr. Williams) referred, is a case in point. Its change in attitude can be seen in the conclusion to our 34th report, which states that
"although the Agency had not been wholly ignorant of customers' needs previously, the survey carried out for the Agency in 1992 was the first systematic attempt to consult the motoring public directly."
Of course, the report, like most of our reports, makes criticisms, but it acknowledges the agency's new willingness to give better service to the public.
In respect of telephone inquiries, we commented:
"We note that the Agency acknowledge their discontent with the present system".
Indeed, organisational changes already made in the agency enabled it to deal with some 1.2 million calls from members of the public between April and July this year--20 per cent. more than in the previous year.
An examination of the accuracy of the agency's records reveals that quality is already improving with the increased use of computerised packages. The Department of Transport acknowledges that it does not have a sophisticated system for targets in place, but it is working on improving the process and taking account of customers' views on service quality. All that moves us forward. I should like to believe that we shall see a continual improvement in the service and value for money that the agency process can achieve.
The introduction of competition and choice into public services brings with it the requirement of accountability. It is timely and helpful that the Committee has produced its eighth report on the proper conduct of public business--a matter that the Chairman of the Committee went into at great length, as did the hon. Member for Caithness and Sutherland (Mr. Maclennan).
It would be presumptuous to say that the report is the definitive work-- that the advice is set in tablets of stone--but it is a good working document for those who move executive agencies into the sometimes murky water of the commercial world. Indeed, the Treasury has reacted to our report by producing a code of best practice for board members, which is helpful support in charting the way forward for those who serve on such bodies.
I listened carefully to what the hon. Member for Caithness and Sutherland said about accountability. He talked about slipping standards, a Watergate environment, chronic conditions and a general and increasing malaise. His analysis was not only gloomy but faulty. I take a slightly brighter view of the future. I believe that the creation of agency status will provide something that we have not had for some time. Anyone who runs a business, or anyone who knows about operating in the real world, will know that if one can ring-fence an activity
Column 939and then examine closely what is going on inside that ring-fenced activity, one can achieve a higher standard of quality, better value for money and better accountability.
It is easier to track and report on an agency's activity than on one that is submerged in a vast Department. How often do members of the Public Accounts Committee feel that we get to the bottom of a Ministry of Defence report on what has happened and where the money has gone? Of course, standards must be maintained, and I shall be the first to insist on that. Our eighth report is a valuable guide and a valuable step towards achieving that goal.
It is perhaps appropriate to move on to one or two of the excitements that have enlivened our year. The first was the 17th report on the Pergau hydro- electric scheme, which produced much media comment--and much of it inaccurate. I will not go through the whole unhappy saga word for word, except to show how one initial small mistake can start a chain of events. Just as a dislodged pebble will start an avalanche, the initial misinterpretation by the Overseas Development Administration and the consortium of United Kingdom companies involved in the project of a firm contract proposal with indicative costs started the chain of events.
The position of the construction company is that
"an application for ATP was submitted by"--
"in November 1988, giving indicative costs. This was not a firm contract proposal' and it was only on 31 March 1989 that the consortium was in a position to provide an estimate based on detailed specification, design and costing work."
However, the National Audit Office report says that it was a firm contract proposal.
It is still not fully clear how that has emerged, but, obviously, the two ODA officials who spent all of two days examining the firm contract proposal of only £316 million set the pebble in motion because they gave the project the green light, despite the consortium's submission of the real firm proposal of £397 million some two weeks later. That was after the meeting between the Prime Minister of Malaysia and the Prime Minister of the United Kingdom, which was too late; the rest, as they say, is history. One redeeming feature, from which I take comfort, is that exports to Malaysia were some £226 million in 1986, but £635 million in 1992. That is a small consolation for some of the difficulties that were caused. Last year, I trailed the saga of the Wessex regional health authority, which had not completed all its stages. That task is now complete. The report has the dubious honour of being the highest pile of paper on my desk for any project. I gained comfort from the fact that the Government abolished regional health authorities two weeks before the report was published.
I was most disturbed by the discovery of the confidential auditor's report alongside the public one. I must thank a certain trade periodical for finding out about the confidential report. When we asked for it, we found that there was nothing confidential in it; all it did was shade and hide the blushes of some of the people involved. It was unfair that section 30 of the Local Government Act 1992 was used in such a way, and I am grateful that the Committee was able to remove the fig leaf behind which people were trying to hide.
Column 940The Chairman of the Committee touched on the report, which makes sorry reading. Despite two previous warnings from the auditors in 1987 and 1989, the regional health authority ploughed on. The executive members of the board failed in their duty. We rightly criticised the regional health authority and the management executive for allowing the board members to be kept at arm's length for more than three and a half years over the mismanagement of the project. There was a fundamental conflict between the regional health authority and Integrated Systems Ltd. when the health authority appointed a director of that company to act as the regional information systems manager. That is one way of getting to the heart of it. The Public Accounts Committee regarded it as a matter of grave concern that at least £20 million was wasted between the start of the regional information systems plan in 1984 and its abandonment in 1990.
The Public Accounts Committee carries out a valuable task. It complements the National Audit Office, and the work that it produces is of a very high standard. I should like to think that the Committee acts on information fearlessly and freely without party bias. I shall take into account what the right hon. Member for Swansea, West (Mr. Williams) said about the difficulties that obviously arise when party politics start to rear their head. I pay tribute to the Chairman of the Committee. I appreciate that he ensures that the Committee investigates only the effectiveness of the implementation of policy and value for money.
I shall conclude, as I did last year, by offering another little trailer. This year, I shall trail the story of a development corporation's brainchild. It was only a small stone turned up by the Public Accounts Committee, but again a stone seems to have started an avalanche. I refer to Merseyside development corporation's Grand Regatta Columbus and Fanfare for a New World concert. The corporation's chairman had the bright idea of laying on an opera extravaganza in a yet-to-be-opened Merseyside dock to help to promote the area. The event was described in press releases as
"probably the greatest line-up of singers ever seen in the UK". Whether the unique culture of Liverpool was ready for it appears not to have been considered. Evaluation of the financial viability of the event took just five weeks. It was supposed to break even. From that initial mistaken calculation, the burden fell on the taxpayer. It is symptomatic of the way in which events were driven by Merseyside development corporation that the deal, under which the taxpayer picked up the £400,000 debt, was signed after midnight on the day of the concert. Undoubtedly, more details will emerge next year. I shall be fascinated to receive the response to the report and to debate it next year.
Tonight's speeches have pointed to some errors, which we must keep in perspective. Much good work is done within our civil service, but I am sure that there will be enough to occupy us again next year and another catalogue of excitement.
Column 941Accounts Committee had had an exciting year. As one excited member of the PAC, perhaps I can give a few impressions.
It is difficult to go through 49 reports, even briefly. I hope that I will not distort the facts: impressions are impressions. My first impression is that a substantial amount of public money seems to be spent on computers and computer systems by Government Departments, quangos, next steps agencies, health authorities, non-departmental public bodies and the like. I gained the impression from our work that there was little concern for value for money when Departments or quangos embarked on the installation of a computer system. I suppose that everyone has to have a computer these days. There was little analysis as far as I could see.
The problem is that the people who take the decisions are people of my generation who know nothing about computers and therefore have to bring in computer consultants or salesmen. The computer salesman is like a double glazing salesman. He obviously knows everything about the product and his client knows nothing. Newer, better and more powerful systems are added on and the cost escalates. Once the system has been installed, no one seems to ask whether it is cheaper, more efficient or more user-friendly. Many computer systems are inflexible, as we have seen with the Child Support Agency and other agencies. No one asks whether the body has obtained value for money. The whole business just goes on and on.
When the Chief Secretary takes his knife to public expenditure, as all Chief Secretaries must, he should have a look at the vast sums of money channelled into computing systems and into the firms that instal them.
My second impression is that a substantial amount of public money has been paid to senior managers and administrators in what are called termination payments. This matter has been referred to already in the debate and it is perhaps more serious than the computing problems. It does not seem to matter whether the individual involved has done his job badly or should have been discharged or disciplined or whether there has been a breach of contract. Once it has been determined by other senior managers that one or more senior manager or administrator is to leave, an army of accountants, auditors and pension consultants descend and work out vast figures to pay to the unfortunate person who has to leave.
The payments are described variously as compensation payments, ex gratia payments, termination payments, redundancy packages, accelerated pension payments or enhanced pension payments. I never know quite where the money comes from, but it comes from all directions. Some of it certainly comes from the pensions industry. On top of those payments, people are offered the opportunity to purchase at a low price the accoutrements of power such as the motor car, the visual display unit, the computer or whatever else they used in their office. In many cases, the lucky people leaving with enhanced payments are then offered a consultancy. So they do exactly the same work for the organisation that in effect dismissed them and paid them a lot of money. That is the impression that I received from listening to many of the exchanges in the Committee.
Leaving aside the cost of making payments to members of the public salariat, it is my impression that the law of contract has been turned on its head. I spent some time
Column 942years ago learning the basic principles of the law of contract, which are fairly simple. If one party to a contract breaks that contract and the other party suffers damage, the party who breaks the contract has to pay damages to the party who suffers from the breach of contract. It is a simple elementary proposition. However, the law of contract in many of the cases to which I listened was different. The person who broke the contract received money from the person who was damaged as a result of the breach of contract.
I do not know where the law of contract has gone wrong in employment within the public salariat and, indeed, private industry. I shall give a few examples to highlight the point. First, as we have been told, the regional general manager of Wessex regional health authority, sadly, was responsible in the main for losing at least £20 million of public money. In consequence of that, it seems, he received £111,000 in his pocket. On top of that, he had to pay only £750 for a desk and a pedestal, two bookshelves, a VDU table, a fax machine, an answering machine, a word processor which was apparently obsolete, a pocket organiser and a lamp. He received all that for £750 on top of the £111,000 even though he was responsible for losing £20 million of taxpayers' money.
The second instance from Wessex regional health authority was the case of Ms Storrs. She was a good employee; we made no criticism of her. She did her work well--so well that there was no work left for her to do under her contract. Her contract could be terminated by either side with three months' notice. Her work came to an end. She could have been given three months' notice, but Wessex health authority paid her £78,000. It was described as an ex gratia payment. It is nice to be paid that amount of money. The health authority was probably a good employer, but I find it extraordinary that a public body dealing with health, facing all the pressures on public expenditure and the need to channel as much money as possible to the care of patients, should pay such a sum when the person had been paid fully under her contract of employment.
Mr. Stern: Does the right hon. Gentleman agree that perhaps one of the most sinister aspects--I use that word advisedly--of the overpayment, as it turned out to be, to Ms Storrs was that it seemed to be intended to buy her non-participation in any future activity of the health service, when she was dismissed for having done her job so well that she had worked herself out of a job?
Mr. Davies: That seems to have been the case. If it had been the intention to debar her from competing with the health service, perhaps that should have been written into her contract. Such business arrangements can be made. The £78,000 was described as that very strange animal, the ex gratia payment.
The director of finance of South Birmingham health authority, who probably should have been sacked, was paid £27,000 before he left and the chief executive--who, according to the report, clearly should have been dismissed --received £33,000. Those are relatively small sums. There is no legal basis for making such payments, yet an authority is writing the cheques and using public money in that way with no legal authority.
Column 943I shall leave aside the Welsh Development Agency, as enough has been said about Celtic institutions. I merely point out that such problems occur in other parts of the country as well.
The director of regional management services at the West Midlands regional health authority should also have been dismissed, and could have been for what he did. He was given an immediate accelerated pension of £6,462 a year and a lump sum of £81,387. That was quite unnecessary. It was a cavalier and irresponsible way of dealing with public money.
Finally, the deputy regional managing director of West Midlands regional health authority received £42,000 for resigning, which takes me back to the basic principles of contract law. I do not see how one can be paid if one walks off the job. If a builder contracts to do a job and wilfully walks off the building site, thereby breaking the contract, I would not expect the employer--as described in the contract--to pay the builder for breaking the contract. Yet, that gentleman was ostentatiously described in a press release as having resigned. Because he resigned and broke his contract, he received £42,000.
Years ago, a private steel firm moved from the west midlands to my constituency. It closed down in the early 1980s and 1,500 steelworkers lost their jobs. They never got anything like those sums in redundancy and they did nothing wrong. The most that any of them received was £3,000 for 25 to 30 years' service. They produced wealth rather than merely distributing other people's, but they received very little, yet the Public Accounts Committee finds that vast sums of money are paid to people who do not produce wealth, although they do important jobs, and who have, sadly, done something wrong. I am sure that the Financial Secretary to the Treasury reads our reports assiduously. He sits there looking very interested in our debate. If the Chief Secretary were to take up that knife, perhaps he should start with the higher echelons of the public salariat and leave the poor, the disabled and the unemployed for the time being. 7.13 pm
Mr. Michael Stern (Bristol, North-West): It is a pleasure to follow the right hon. Member for Llanelli (Mr. Davies), not least because he referred to some circumstances that we considered in the Public Accounts Committee in the past year--cases of people leaving their employment with substantial payments. I want to refer to such circumstances more obliquely, but, before doing so, I must return us to the main theme of the debate--our eighth report, on the proper conduct of public business.
Some hon. Members, especially those on the Opposition Benches, sought to draw from that report inferences of a decline in the work and standards of the public service, caused by applying the standards that apply in private enterprise. I draw the opposite conclusion. I spent most of my life advising businesses before I came to the House and I conclude from so many of the examples listed tonight that no private business could measure down to the standards that we have seen apply in the public service. In so many of the examples, it was not a case of the public sector declining to the level
Column 944of the private sector, but of the public sector failing to reach standards that would be regarded as automatic in the private sector. If some of the examples of gross mismanagement and sheer carelessness with other people's money that can be quoted from our reports had been applied in the private sector, the organisations would swiftly have gone bankrupt. It is more likely, however, that they would never have had sums of money of such a size to play with in the first place.
One of the more horrifying reports that we produced in the past year, which has not been mentioned to any great extent in the debate, was that on the Department of Employment Field system. It was an example of a computer system being installed--the right hon. Member for Llanelli mentioned that subject.
We concluded in our report that
"although the Department spent £48 million on the Field System, most TECs"
for which it was intended, were using it only in part or not at all. It was developed in some ivory tower somewhere, and bore no relation to what the potential users wanted. We formed the conclusion, and were right to do so, that the system could not be regarded as any sort of success, even a partial one.
We were given evidence that if the training and enterprise councils had been fully in existence at the time that the Department decided to press ahead with the system, after much consideration, the TECs would never have asked for it and, given its subsequent lack of success, we cannot really blame them, can we?
The full horrors of the Field system and its total failure were not merely the decision to go ahead with a system that no one wanted, but concerned the management of the project. Even if it was a wrong un and no one wanted it, the system did not need to cost £48 million of taxpayers' money that would otherwise have been spent on training people to gain employment opportunities.
We concluded that a significant part of the expenditure was totally wasted. It was not even remotely referrable to the project under consideration. In addition, the haphazard way in which the Department engaged consultants to set up the system left us questioning whether the £11 million out of £48 million spent on employment consultants to develop the system was largely a complete waste of money. I have no doubt that the money was of great benefit to the consultancies, but certainly not to the public weal.
That is an example of management within the Department that could be said to have broken every rule that a junior Master of Business Administration student would have imbibed before being released into the business world.
I question whether, when we compare private and public sector standards in the management of public money, we should not start from the premise that we have seen examples in which the public sector has totally failed to measure up to standards that would be set automatically in the private sector. That has occurred not just in one Department or in the management of specific sums of money in a brand-new project. Reference has been made
Column 945to the South Birmingham health authority. In our conclusions, the Committee stated its concern at the
"Regional Chairman's finding that there had been obfuscation on the part of the South Birmingham Health Authority in the manner in which they had supplied information to the Region about their increasing deficit."
"Obfuscation" is a long word which most people would prefer to shorten to "lying". Deliberately wrong information was passed by the management of the South Birmingham health authority to the regional authority. The regional authority's management of South Birmingham was sufficiently distant that it did not notice, and the members of staff concerned were allowed to get away with it. That is not a decline in public sector standards to those of the private sector; that is the application of standards which would be applied only--if at all--in the course of a systematic fraud, whether in public or private sector management. Frankly, those standards must be wholly deplored and the Committee was rightly charged with rooting them out.
The problems of South Birmingham were not just those of appalling management, because there is another lesson which we can learn from South Birmingham and which is too infrequently applied in the public sector. Where there is inadequate accounting or communication between one department and another in a substantial private company, it is recognised that it is the job of one section of the company not to try to do down another section of the company. If one section has gained money at the expense of another, it is the job of the management to point out and rectify that inadequate distribution of resources within the company.
That is apparently not the case in the public sector as applied in South Birmingham, because its accounting system was so inadequate that it was failing to bill other sectors, health authorities and trusts for money that was legitimately due to South Birmingham. Not surprisingly, the authority was running into a huge deficit and, in the end, a number of people lost their jobs. We rightly criticised South Birmingham for that failure in accounting, but should not we look also at the other health authorities and trusts that were getting services from South Birmingham, were not getting a bill for those services and were keeping quiet about it?
Should we not expect standards within the health service management which would be applied in any substantial company? After all, the health service is the biggest business in Europe in terms of the resources that it uses and the number of people whom it employs. A similar point also came up when we were looking at the Property Services Agency.
Should it not be axiomatic that the job of the public service is not to try to do down other parts of the public service, but to achieve value for money? Value for money seems to have been furthest from the minds of the public sector management involved in the two examples to which I have referred.
Value for money is not just a matter of seeing how little can be spent to achieve a certain effect. It is also a matter of measuring the effect that is achieved by a certain level of expenditure. That point was brought home to us when we were looking at--among other things--the construction of the helicopter landing platform. I agree with the Committee's conclusion that, in terms of public expenditure, the award of the contract through competition was done to achieve the contract at the
Column 946minimum level of public expenditure appropriate to the circumstances. But we indicated in our report that we would wish to return to the matter.
The Committee also found it necessary to question whether, as a result of that competitive process, the public ended up getting value for money. It was noticeable that the definition of what the public were buying with that money was changing continually as the price went down. It was originally intended that we have a single ship which was designed to achieve a certain purpose. But, by the time the cost had been pared and, as the accounting officer concerned said, the "gold-plated taps" had been eliminated from the costing, we ended up with--I shall not hesitate to quote what I said in Committee-- "a ship which cannot defend itself, which relies on other warships for protection, which has to waddle along in pursuit of those escorts at two thirds of their speed, which has a radar signature which was originally considered dangerous."
If it is the job of the Public Accounts Committee to consider value for money, I question whether we sometimes have sufficient resources on our own and without reference to other Committees to arrive at such a conclusion. In a case such as the helicopter landing platform, I would have hoped to have a reassurance at the end of our inquiry that the ship that we were buying with public money was still capable of fulfilling its original purpose. I did not get that reassurance, and nor did the Committee. That is why we indicated that we would wish to return to the subject.
As the work of the Committee develops--as it has developed over the years-- we may well need to look more at what the Government are trying to buy with the money they spend, as well as whether they are spending that money most efficiently.
The final report to which I wish to refer is one that the Chairman referred to and which, in a way, typifies the worst examples of public management. I refer to the report into the British Council. We found in a very small organisation--particularly compared with some of the organisations that the Committee looked at--a series of management mistakes involving basic accounting techniques. I speak as an accountant. Accountancy is not everybody's cup of tea and what to me is basic would not be regarded as such by other people.
The inability of the British Council to distinguish between what was a payment and what was a grant was so basic to the mismanagement of that body as to leave the Committee calling into question whether the organisation is capable of managing public money from within the resources that the public granted it to manage that money. In other words, should we look at organisations such as the British Council and say to them that they are not capable of reaching the standards that we expect for the management of public money? They have proved that they are not capable of reaching those standards. Therefore, should the Committee recommend to the Government that they take the responsibility for the management of public money away from the accounting officers of such bodies and give it to someone more capable of exercising that responsibility? The question asked in the eighth report was whether we, as a Public Accounts Committee, could contribute to reversing the decline in the public sector which we were noting in far too many cases. We produced our report as guidance for the head of the civil service, not just on how to avoid the
Column 947list of mistakes that we had catalogued but to tell him that we, as a Committee of Parliament, expected better of his work than we had so far seen.
I should like to add a personal note that derives from my experience outside the House. The right hon. Member for Llanelli referred to the circumstances in which a number of senior public servants had left their posts and asked whether the Committee, or the head of the civil service, as the man ultimately responsible, could do anything to stem the tide of payments to people for so-called inadequate services. I believe that there is something we can do, but it will not happen until the House and the PAC have been shown more than one example of an accounting officer, confronted by the sort of mismanagement that has been described today, being required to clear his or her desk and walk. That may already have happened; we may investigate such a case next year. But until it is seen to happen and until we are prepared to apply to public servants the sanctions that are applied routinely in the private sector, we shall not attain the standards of the management of public money that Parliament is entitled to demand.
Mr. Mike Hall (Warrington, South): The debate takes place against a backdrop of growing public concern about the conduct of public life, from which we may conclude that there must be concern about how individuals in public life conduct themselves.
"The proper conduct of public business", the important report published by the PAC on 27 January, reported to Parliament a series of failures in administrative and financial systems and controls in Government and public bodies. This is where I take issue with the hon. Member for Orpington (Mr. Horam), in whose speech I intervened, in an attempt to draw his attention to paragraph 1 of the report. I do not apologise for quoting it again:
"In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which has led to money being wasted or otherwise improperly spent. These failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years."
It is important that the Government respond positively to the criticisms in the report and that they reassure Parliament that they take it seriously and deal with its criticisms constructively. Clearly, the report deals with incompetence, with fraud and with corruption in a series of Ministries, Government agencies and quangos. It is a catastrophic catalogue of public money being wasted or improperly spent. It demonstrates the Government's failure to ensure sound financial management and probity in a large number of cases.
I firmly believe that the Government are ultimately responsible for Departments, Government agencies, next steps agencies and non-departmental public bodies: the buck stops with the Government, so if these criticisms are valid, they must take responsibility and act on them.
The bottom line is the straightforward fact that the British taxpayer has paid dear for the failings outlined in the eighth report of the PAC. There are startling examples of failings--failures of financial control, failures in the stewardship of public money, and failures, when public
Column 948assets have been sold, to get value for money. It is indeed a staggering catalogue of mistakes and failures, affecting the Foreign and Commonwealth Office, the Department of Employment, the Ministry of Defence, the Welsh Office, the Property Services Agency, the Insolvency Service, the National Rivers Authority, Wessex regional health authority, the West Midlands regional health authority, the national health service management executive and the new town development corporations--to name but a few.
I wish to discuss two other reports by the PAC, the ninth report, published on 19 January and entitled "Grant Maintained Schools: Financial Control", and the 23rd report, published on 21 April and concerning the sale of the Scottish Bus Group. I should also like to refer to the minutes of evidence taken on the Merseyside development corporation's Grand Regatta Columbus and Fanfare for a New World concert. This matter has already been mentioned by the hon. Member for Hertfordshire, South-West (Mr. Page), and I should like later to allude to some of his remarks.
On 14 August 1992, the Fanfare for a New World concert took place in Liverpool, in conjunction with the grand regatta. Those two events cost the public and private purse £1.1 million and were, from start to finish, a financial fiasco. When we took evidence on the episode, we were told that it was the brainchild of the chairman of the Merseyside development corporation, Sir Desmond Pitcher. It turned out to be a rather expensive brainchild for the taxpayer. On 3 March 1992, the Merseyside task force gave contingent approval for the Merseyside development corporation to spend up to £400, 000--£250,000 to be spent on the regatta and up to £150,000 on the concert. The letter of approval from the Merseyside task force included the following sentence:
"My colleagues have been reassured by your estimate that the maximum possible contribution in the worst case scenario would be a £400,000 cost to the public purse."
However, as the PAC report states, before this approval was sought and given, the Merseyside development corporation had already started to spend money on the project, to the tune of £15,000. That was the start of the slippery slope which eventually led to the loss of £1.1 million.
Perhaps the event that concerns me most was the one that took place on 12 July 1992, when the draft budget was produced for the concert, showing that it would lose £187,840. The letter of approval signed on 3 March 1992 said:
"I shall be grateful if you will ensure that we are informed if it seems likely that additional funds will be required for these projects".
So we might have expected the Merseyside development corporation to tell the Department of the Environment on 12 July 1992 that the project was going to lose money, and that it would cut its losses by cancelling the concert. The corporation did neither; it went ahead. Some time in July 1992, it actually signed a binding legal agreement to pay the cost of television coverage of the concert, amounting to £50,000 out of the estimated total cost of £150,000.
When the PAC sought evidence as to why the project, with such huge losses becoming apparent, was not cancelled, the explanation given to the Committee was that, because the Department of the Environment had
Column 949sanctioned expenditure of £150,000, losses would amount not to £187,000 but to £37,000--a more manageable sum. The corporation omitted to mention the expenditure of an additional £50,000 from outside the budget estimate.
To make matters worse, on 7 August 1992, a week before the concert was due to take place, the Merseyside development corporation--I would be astonished if, by that time, with the information at its disposal, it had not realised that money was going to be lost--signed over the liability of the concert to a shelf company with a share value of £2 and no assets.
When the concert took place on 14 August--and lost money--the losses were transferred to the private company and away from the Merseyside development corporation. If that move was not bad enough, on the eve of the concert, the Merseyside development corporation was faced with the fact that if it did not put more money into the concert it would be cancelled. So it put in £90,000 of public money to sponsor the event and bought £60,000- worth of tickets to ensure that people would be there when it took place. That was additional expenditure. It was said clearly in the letter of 3 March that if there was any additional expenditure, the Department of the Environment should be informed. The Merseyside development corporation did not do that. The concert went ahead and made a loss of £223,000 to the company, Carroll Promotion Ltd. The concert made a loss of some £419,000. The Grand Regatta Columbus lost £426,000. When all that is added up, the loss comes to £1.1 million of public and private money, because of one event. That is a complete waste of taxpayers' money.
Just to make matters worse, £90,000 was spent on hospitality for the regatta. That is an abuse of public expenditure and cannot be condoned in any way. The PAC has not yet reported on that matter, so I will not draw any conclusions, but the minutes of evidence are on the record for people to see, and they beg serious questions about public accountability, public service, incompetence and waste. It is surprising to note that the chairman of the Merseyside development corporation is still in post. I find that absolutely astonishing when the Government's response to the PAC's eighth report says:
"The fundamental purpose of the Government's programme of reform is to strengthen the management of the public sector so that waste is reduced and those who manage public services are more accountable for their actions. The Government fully agrees with the Committee's view that effective programmes for economy and efficiency must be combined with a proper concern for the sensible conduct of public business and care for the honest handling of public money."
I should like to see how the Government will fit that response to the way in which the Merseyside development corporation conducted its affairs over the Fanfare for a New World.
The sale of Scottish Bus was mentioned by my right hon. Friend the Member for Swansea, West (Mr. Williams). It is another example of the PAC being concerned to get value for money. We are not concerned with the politics of the matter or the decisions taken by the Government to sell Scottish Bus; they are irrelevant in this case. The most important thing for the PAC is to gain value for money.
The decision to sell Scottish Bus was taken in 1988. Then, its value was £118.1 million. It was making, as we have heard, a profit of £9 million a year. Immediately
Column 950prior to the sale, those profits had gone down to £0.5 million, whereas, as my right hon. Friend said, the profits of the local authority passenger transport companies had gone up from £1 million to £4 million. The only change in circumstances was that the Government had decided to sell Scottish Bus. More importantly, they had decided that a management buy-out would be preferred. One could be forgiven for saying that there would be a conflict of interest in that activity. The more profitable an organisation is, the more the individuals in charge of that organisation would have to pay for it. One would assume that if the profitability of Scottish Bus went down, the sale price would also come down. It may well have been in the interest of the management of Scottish Bus to ensure that it traded to a level where they could purchase it at a more favourable rate.
The Scottish Office says that it does not see a conflict in the decision to sell Scottish Bus with a preference towards a management buy-out. If Government assets are sold anywhere else, they must put into the enterprise management who are independent of their decision to sell via a management buy-out. There should be senior managers who are independent and are not interested in the outcome of the sale, to ensure that the public get good value for money.
The acid test for that has already been referred to--the sale of Citylink. It was making a profit of more than £900,000 at the time of the decision to sell, and went into the red by £800,000. It was given an injection of cash of £1.5 million immediately prior to its sale and generated income to the Government of £265,000. It was sold three years later for £5.1 million. That was referred to by my right hon. Friend the Member for Swansea, West. But what my right hon. Friend did not say is that if the Government had included a clawback clause in the sale of Citylink, they would have benefited from the profitability of an onward sale. That omission has cost the taxpayer a great deal of money.
Eventually, the project was valued at £118.1 million. By the time the PAC report was published in April, the Treasury had received only £79.4 million of the proceeds of the sale and was expected to receive another £8.7 million, which brings the benefit to the Treasury to £88.1 million--a massive reduction from the £118 million that was foreseen in 1988. The taxpayer has not had value for money. One of the important aspects of the sale is that, out of the £88 million that the Treasury expects to receive, £56.4 million will be from a pre-sale dividend, which will not be available unless the company is to be sold. It has generated a sales income to the Treasury of £31.7 million. I feel that the Government should consider that more closely.
My hon. Friends mentioned the fact that the sale will enable the Government to get £150 million into the Treasury from the surplus pension fund. I suspect that that was the main motivating factor behind the sale. I am very critical of the way in which that pension fund is treated. The sale of Scottish Bus emphasises once again that the Government are prepared to sell public assets at knockdown prices, which cost the taxpayer and the Revenue money. That seems to characterise a whole range of privatisation issues and has been repeated in that sale.