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Mrs. Taylor: As my hon. Friend is in such a helpful mood, I guarantee that I shall pass his comments to the Chancellor who, I am sure, will deal with those matters on Tuesday.
Mr. Nick Hawkins (Surrey Heath): On a point of order, Madam Speaker. Following from what my hon. Friend the Member for North Shropshire (Mr. Paterson) said, we now have a point of order for your consideration. The Leader of the House has repeatedly refused to answer the questions put by my right hon. Friend the Member for South-West Norfolk (Mrs. Shephard) and by other Conservative Members. Should we not be given proper answers, especially to questions about the role of the Minister without Portfolio, the Secretary of State for Health and the Prime Minister? There has been no statement on the many unanswered questions arising from the Bernie affair and we have simply had refusals to answer at Prime Minister's Question Time. Is it not clear that the Government have entirely ignored their role, which is to answer questions and not to meet them with other questions or to be dismissive?
Madam Speaker: The hon. Gentleman is trying to extend business questions. I do not think that he tried to catch my eye to put a question to the Leader of the House. As he and the House know, Ministers answer questions. They are responsible for their comments, which are nothing to do with the Chair. They are responsible for what they say in the House.
Public Accounts
4.42 pm
Mr. David Davis (Haltemprice and Howden): I beg to move,
- That this House takes note of the First to Twenty-fifth Reports of the Committee of Public Accounts of Session 1996-97 and of the relevant Treasury Minutes (Cm 3559, 3577 and 3714), with particular reference to the following Reports:
Second, Progress in Completing the New British Library (HC 38);
Fifth, Highways Agency: The Bridge Programme (HC 83);
Eighth, Information Technology Services Agency: Outsourcing the Service Delivery Operations (HC 98);
Thirteenth, HM Treasury: The Second Sale of Shares in National Power and PowerGen (HC 151);
Sixteenth, The Work of the Directors General of Telecommunications, Gas Supply, Water Services and Electricity Supply (HC 89);
Twenty-second, British Rail Maintenance Ltd.: The Sale of Maintenance Depots (HC 168).
This is a unique occasion in that it is the first time in the history of the modern Public Accounts Committee that the motion has been moved by anybody other than my predecessor, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). It will become apparent that I hold the right hon. Gentleman in great esteem, admiration and affection. He held the post of Chairman of the Public Accounts Committee for a record 14 years, during which he presided over the publication of almost 600 reports, all of them unanimous.
The right hon. Gentleman developed a formidable reputation based on hard work, good judgment and fearless tenacity in pursuing public officials who wasted or mis-spent taxpayers' money. All his reports made a significant contribution to better government and better service for the taxpayer. If I have to pick out one report, it is the seminal eighth report of 1994. It investigated the standards of conduct in public life and set out the measures needed to uphold integrity and competence. I look to that report as a benchmark for the future.
As the only Chairman since the National Audit Act 1983, my predecessor has been the man most responsible for the power and effectiveness of the Public Accounts Committee in its modern form and for the respect in which the Committee is held today. I shall consider myself successful if I can even approach the standard the right hon. Member for Ashton-under-Lyne has set. All in the House will join me in thanking him for his sterling work over many years.
I am fortunate in several other regards. First, the Committee has the formidable asset of the National Audit Office under the capable command of the Comptroller and Auditor General. The NAO does an extremely effective if somewhat unsung task in scrutinising the Government's accounts. The Comptroller and Auditor General, Sir John Bourn, has done a first-class job in enhancing the professionalism and the professional recognition of the NAO in recent years. The Northern Ireland Comptroller and Auditor-General, John Dowdall, and his staff in the Northern Ireland Audit Office have also done a very good job in the uniquely difficult conditions in Northern Ireland today.
The Committee is very fortunate in its excellent Clerk, Mr. Ken Brown, who has steered the neophytes of the Committee, including me, through the ocean of documents that the Committee receives. We are all very grateful for his skill and patience.
Judging by the first few meetings, I am also fortunate to have an outstandingly capable Committee--terrifyingly so, sometimes. My only concern is that the members are so good that I shall lose rather a lot of them to Front-Bench posts before long. I must tell the hon. Member for Leeds, East (Mr. Mudie), who is the Whip today, that given their interrogation skills some of them may end up in the Government Whips Office.
I welcome the Financial Secretary to the Treasury as an ex officio member of our Committee. I do not think that I am speaking out of turn when I tell her that she has been described in many ways in the Committee already. She has been referred to as our fairy godmother at the Treasury and, on a rather more aggressive note, as someone who might give a new meaning to the phrase "dawn raid". We shall see.
The Public Accounts Committee has existed since 1861, when it was created by Gladstone who was then Chancellor of the Exchequer. Throughout its history, it has been a powerful and effective force for good in British public life. It has been no small contributor to the outstanding international reputation for integrity and competence that has, rightly, long been held by British public servants.
What the Committee stands for is still highly relevant today. First, it stands for propriety and integrity in the administration of public affairs. The importance of that barely needs restating in modern times. Secondly, it stands for keeping tight control over the expenditure of taxpayers' money. In an era in which most political parties recognise the importance of low taxes, that is a vital function. Thirdly, the Committee stands for value for money in service delivery. That has been at the centre of a huge amount of policy innovation in many countries, including the United States, New Zealand and, in recent years, the United Kingdom. The 1983 Act was ahead of its time in that it recognised the importance of the measurement of service delivery--the efficiency and effectiveness criteria. I expect the new Committee, as was true of the previous Committee, to deal with a growing proportion of cases that deal with how well the Government deliver public services.
The previous annual debate on the subject took place on 16 October 1996 when the motion encompassed 48 reports and the associated Government replies. This year's motion covers 25 reports agreed by the previous Committee before the general election and the replies are those of the previous Administration.
The sheer number and technical complexity of the reports can make drawing useful lessons difficult; it is easy to lose sight of the wood for the trees. It is a little simpler if we divide the Government's public service delivery into three stages or phases. The first is the acquisition of assets and services, the second is the operation and delivery of those public services and the third is the redeployment and/or disposal of those assets and services.
The first phase includes project management, the acquisition of buildings and major equipment, the procurement of supplies and services, the contracting out and outsourcing of public sector activities and private finance projects. The second phase involves an emphasis on service for the customer, including the timely and effective delivery of services, the regulation of service providers, management and control processes, target setting and
performance measurement. The third phase--asset redeployment and disposal--covers the effective use of assets, the disposal of surplus assets and property, and privatisation.
Those phases cover the full cycle of how Her Majesty's Government acquire assets, employ them to provide public services, and analyse, redeploy or otherwise dispose of them. Each phase can lead to a different type of problem and a different lesson to be learnt. In each phase, we in the PAC look for good practice to encourage and disseminate, bad practice to discourage and eliminate and improper practice to condemn and punish. In short, in each phase we look for the good, the bad and the ugly aspects of public service.
I shall start with the acquisition of assets and services. The best example of good practice that the Committee considered last year has not progressed to a public report, so I cannot properly debate it at length. I can however direct the House to the National Audit Office report on the management of utilities by the Ministry of Defence, which demonstrated the advantages of procuring services competitively. It demonstrated millions of pounds of savings in the procurement of electricity and the proposal to extend such competitive processes to other service acquisitions, particularly gas. The Committee's report on this subject will be published shortly.
The report in this area that has been published is that on the outsourcing of service delivery operations by the Information Technology Service Agency--the eighth report. It shows the potential financial benefits of outsourcing the activities of public bodies and the need for strong contractual provisions to allow effective monitoring and control of contractors' performance.
The service delivery operations of the Department of Social Security's Information Technology Service Agency mainly cover the operation of computers on which social security benefits are calculated and administered and which produce giro cheques and order books. The contracts are worth £577 million over 10 years and were placed in 1995 with three separate firms. The Department estimated that it would save £399 million through outsourcing those services.
The Committee was surprised at the difference of £399 million between the agency's costs over 10 years and the contractors' price and concluded that there must have been substantial inefficiencies in the agency prior to outsourcing. I suspect that many permanent secretaries around Whitehall see a PAC inquiry as a no-win game. Perhaps they think that the PAC always sees a half-full glass as half empty. I have some sympathy with them in this case, but a £399 million saving is just that: a £399 million saving. That is why I list it as a good example.
That being said, the Committee agreed with the Comptroller and Auditor General that the agency needed to monitor the contractors' performance closely and make full use of contractual provisions to control price increases. There were already potential increases in the pipeline of £74 million as a result of increases in volume of business and changes of specification. There was a need for control and monitoring and the agency accepted that.
The Committee was also surprised--rightly--that the agency was not able to tell it what safeguards contractors had in place to prevent the use of benefit claimants'
records for financial gain and recommended that the agency seek specific information and assurances from contractors in that regard. Again, the agency has done that.
The bad example under the heading of acquisition of assets--the example to avoid--is in the Committee's second report, "Progress in Completing the New British Library". The report illustrates the dangers of failing to define adequately responsibilities for major procurement projects. The Committee observed that it was unacceptable that responsibility for the construction of the library was not vested in a single Department until 1992 and that the project management arrangements had been far too complicated so that responsibilities could not be clearly attributed to individuals.
The effect of those errors contributed to unacceptable delays of more than four years before the building could be opened to the public. They also led to a reduction in the scale of the completed building and a cost increase of £115 million in the first phase of the project. There is little better way to summarise that than to quote the Committee's report, where it says that the new British library
In 1991, the ODA agreed to provide £23 million in support of a contract between the Turkish higher Education Council and a United Kingdom company, TecQuipment, for the supply of facilities to engineering faculties in 28 Turkish universities. A number of conflicts of interest arose. TecQuipment was not only the project manager but the supplier of equipment and the adviser to the Turkish Higher Education Council. Fisons assisted TecQuipment to secure a bank guarantee and bid to supply equipment. Another company, Sangari International, acted for TecQuipment as well as for a number of other suppliers to supply goods.
The Committee was--not surprisingly--disturbed that so many conflicts of interest had arisen in one project. It was especially concerned that TecQuipment had significant overlapping roles in the project and was therefore potentially in a position to influence the placing of contracts in its favour. The Committee commented:
I come now to the operation and supply of public services. The first good example in this area is in the Committee's 16th report, "The Work of the Directors
General of Telecommunications, Gas Supply, Water Services and Electricity Supply" which demonstrates the importance of effective regulation of privatised industries to protect the interests of customers. The report covered four directors general responsible for regulating the telecoms, gas, water and electricity industries, which between them use assets valued at £240 billion. In 1994-95, they had a combined turnover of £51 billion. The regulators were appointed due to the limited competition in the industries.
The Committee noted that all the directors general were taking action to promote competition in their respective industries and expected competition to provide customers with greater choice, better service and increased value for money. It welcomed the reductions in prices in real terms that had occurred in the telecoms, gas and electricity industries, but noted that, in the five years immediately after privatisation, before current regulation arrangements were in place, the water companies made profits totalling £7.4 billion. The Committee also noted that average water and sewerage bills increased in real terms by 40 per cent. and 37 per cent. respectively and that the Director General of Water Services attributed increases to the need for investment to improve water quality while expressing concern over future profit levels.
The Committee recommended that the directors general impress on companies the risk that they faced through loss of public confidence and trust if they paid excessive emoluments to top executives. The directors general recognised the widespread public concern about the level of executive remuneration.
The example of bad practice in the supply of services is best seen in the fifth report, "Highways Agency: The Bridge Programme". The Committee expressed concern at the slippage in the programme for assessing and, where necessary, strengthening bridges to meet the European directive to carry 40-tonne lorries from January 1999. The slippage in the programme, which the National Audit Office brought to light, has meant that the UK will comply with the European directive only by using temporary measures to strengthen some bridges. That is likely to result in traffic restrictions on some bridges and inconvenience and congestion for road users. It may lead to extra costs in temporarily propping bridges until such time as they can be permanently strengthened.
The Committee also highlighted failures in programme management, including a shortfall in the number of bridge inspections, failure to compare the costs of doing similar work across the country and a lack of accurate national information on the condition of bridges and the progress of the programme. All contributed to the failure to keep costs and progress under closer control and, therefore, gave a serious lesson in bad management and programme control for the rest of the Government.
The ugly issue of service supply is the question of propriety that arose in the 14th report on "Financial Control of Payments Made Under the Training For Work and Youth Training Programmes". It demonstrated the importance of ensuring that strong financial controls operate in the bodies funded by Government Departments to provide public services. The training programmes are managed by 74 training and enterprise councils, which are private companies operating under contract to the Department for Education and Employment.
For the most part, TECs subcontract the provision of training to training providers, including local authorities, voluntary bodies and private companies. The Committee examined the handling by the Department for Education and Employment of allegations of irregular payments, the financial control of payments to TECs and training providers and the steps taken to secure value for money from the programme. The Committee was concerned that £150,000 had been overpaid by the Department to Cumbria TEC because of irregular claims from a training provider and that overpayments of £231,000 were made to Durham TEC in respect of claims made by another provider. It found deplorable the fact that money that should have been spent on equipping people with skills for work had been siphoned out of the system in this way. It is hard to disagree. The Committee expressed concern that as many as 71 cases of suspected and alleged irregularity had been recorded by the Department for Education and Employment since 1995, of which 41 had been investigated and only one referred to the police.
On the public accountability framework in which the Department and the TECs operate, the Committee asked the Comptroller and Auditor General whether he would be prepared to be the external auditor of TECs, which derive most of their income from public funds. The Committee welcomed his positive response and I will return to that subject when I deal with the issue of access.
The third phase of Government activity is asset redeployment and disposal. The best example of that is described in the Committee's 13th report on "The Second Sale of Shares in National Power and PowerGen" and it provided an example of a well-managed sale of Government assets by the Treasury. It demonstrated the significant advantages that can be gained by selling public utilities in stages if the market is uncertain at the time of privatisation. The Committee welcomed the fact that additional proceeds of some £2.3 billion were raised by not selling all the shares in 1991. That was consistent with the Committee's long-held belief that when the market value of the shares was uncertain it could be advantageous to the public purse to conduct such sales in stages. That was what was done and it was a very good example to the Treasury for future privatisations.
The bad example in this category is described in the 22nd report on "British Rail Maintenance Ltd. The Sale of Maintenance Depots", which demonstrates the need to undertake proper valuations of assets prior to disposal and to ensure the extraction of cash before the sale to maximise the return to the taxpayer. The Committee expressed regret that the then Department of Transport did not ensure that the comprehensive valuations of maintenance depots were carried out and strongly recommended that vendors carry out valuations in advance of sales. The Committee was also concerned that cash was not extracted prior to sale, allowing £13 million to accrue to the purchasers. Both those points are straightforward and should automatically apply to every such sale throughout government.
I have described only a few of the past reports and achievements of the Public Accounts Committee. My predecessor and his team did an excellent job promoting the good, highlighting the bad and exposing the ugly. The new Committee has every intention of following in their footsteps, but I would especially like the Committee to pursue the efficiency and effectiveness criteria and seek out ways to enhance the Government's delivery of high
levels of public service at the best possible value for money to the taxpayer. There is still work to be done to enhance further our capabilities as a Committee to that end. That brings me to the question of access.
It may surprise the House to learn that the Comptroller and Auditor General does not have automatic access to all areas of Government expenditure. To achieve what we are setting out to do, we need to improve the Comptroller and Auditor General's access powers to all bodies that spend public money and deliver public services. For example, for some large and important bodies such as the Legal Aid Board--which does not have that brilliant a record and which spends more than £1.3 billion of public funds a year--the auditor is appointed by the Lord Chancellor. The Comptroller and Auditor General has to rely on inspection rights to report to Parliament.
Other bodies, such as housing associations--which spend £1.8 billion a year--appoint their own auditors and the Comptroller and Auditor General has to negotiate to obtain access on a case-by-case basis. At the worst end of the spectrum, some important public services are under contract to private firms. Camelot is the biggest and has the highest profile of such bodies, but the Comptroller and Auditor General has been refused the access he needs to confirm that its systems are operating properly and that the income to the national lottery distribution funds is complete.
We should deal with the problem of access and I shall discuss how that can be done. First, the so-called executive non-departmental public bodies--I hope that the House will forgive me for spelling that out, but they are normally known as quangos--should be dealt with by making the Comptroller and Auditor General responsible for the audit in all cases. That would include the Legal Aid Board, the Housing Corporation and 140 other bodies covering some hundreds of millions of pounds. Secondly, we should deal with so-called local spending bodies by providing independently guaranteed rights to the Comptroller and Auditor General. That would cover TECs and housing associations.
Thirdly, the functions provided by contractors should be covered by providing independently guaranteed rights in all cases to the Comptroller and Auditor General that are at least equivalent to the powers of the European Court of Auditors. Some £6 billion of public money is spent through contractors already and it is a serious anomaly that the Comptroller and Auditor General of the House is not in at least as good a position as the European Court of Auditors. The private finance initiative, for which I understand the Government have great plans, will make that issue even more important.
Finally, for publicly owned companies--companies owned by public bodies or the state in large part or in total--we should allow the Comptroller and Auditor General to undertake the audit. Some 200 such companies have been set up in the past few years and the Companies Acts preclude the Comptroller and Auditor General from auditing them. We will need legislation, when we next have a Companies Bill, to correct that.
Those are general issues, but I wish to address another, perhaps more controversial, aspect of access. Our predecessors examined the estate management of the royal palaces in occupation, including Buckingham palace, Windsor castle, Kensington palace and St. James's palace, originally as a result of the public funding of the repair
of damage caused by the fire--five years ago today--at Windsor castle. The Committee received reports from the Comptroller and Auditor General on that and related matters, based on examination by the National Audit Office of the Department of National Heritage's monitoring records and related correspondence. The reports were not based on a direct examination of the books and records of the royal household because the Comptroller and Auditor General has no right of access to them. That said, to be fair to the royal household, it did assist the Comptroller's study and supplied information and statistics to staff of the NAO. In addition, the director of finance attended the Committee's meetings, but this is insufficient.
It is a principle of audit and of parliamentary Supply that Parliament's auditor, the Comptroller and Auditor General, should have direct access to papers and people, rather than have to depend on the willingness of those whom he is auditing and the papers they choose to make available. That cannot be right.
The Government often provide for access to funding bodies outside, but they do not have to and can, as in this case, decide not to. We are not talking here about the private matters of Her Majesty the Queen and, as a confirmed and committed monarchist, I would not countenance such an idea in any event. I must say, en passant, that I got as much pleasure as everyone else from the pictures in today's newspapers and, for once, I agreed with the Prime Minister's words. The royal family is making great efforts to increase transparency and openness in its affairs. Those efforts will strengthen public support for the monarchy and we can all applaud them. Our proposals go entirely with the grain of those efforts.
We are talking about a departmental grant in aid of £20.4 million of taxpayers' money in 1995-96, given to the royal household to run the functions of the monarchy, including the maintenance of properties and gardens that form part of Britain's heritage, grace and favour residences and their rents and remuneration for public servants who work for the Queen. Wherever these are financed from public money, it is in the interests of Her Majesty the Queen and Parliament that the usual principles of access for the Comptroller and Auditor General should apply.
The consideration of this matter was not concluded by our predecessors and my colleagues and I must consider it and associated issues, including the civil list, where the Comptroller and Auditor General, and hence the PAC, is excluded.
Taken together, the general increases in access would allow the Comptroller and Auditor General to follow public money wherever it goes and to report to Parliament whether that money has been used as intended and in line with the proper conduct of public business. That does not mean that there would be a greater burden of audit and regulation; indeed, it would reduce the total audit burden on quangos or executive non-departmental public bodies. Elsewhere, it would rationalise unnecessary bureaucracy.
A series of critical questions are posed by the Government's devolution measures. It is important that devolution does not diminish the PAC's oversight of the £21 billion a year that is to be granted to the Scottish Parliament and the Welsh Assembly. Effective audit and
accountability arrangements are needed to ensure robust practices for financial management and accountability. Audit arrangements should provide for independence without the mushrooming of auditors and regulators.
The Committee needs to be able to consider issues involved in the administration of the new Parliament and Assembly; for example where a breakdown in financial control occurs. The Comptroller and Auditor General will need continued access to support the Committee in considering these issues.
In recent years, there has been some concern at the proliferation of regulators, inspectors and auditors of public services. I have some sympathy with that view. Oversight bodies such as the PAC and the NAO must continually justify their existence. To that end, I shall finish with a short review of the impact of the work of the previous Committee. Over the past year, 92 per cent. of the recommendations made by the PAC have been accepted by the Government. In 1996, audited bodies made around 2,600 significant changes to their systems and procedures as a result of recommendations in the reports of the PAC and the NAO.
"could be used as a model of how not to manage a major construction project".
Now to the ugly aspects. The clearest issue of propriety was raised by the Committee's 12th report, "Overseas Development Administration Turkish Universities Equipment Project". It demonstrated the importance of proper controls and effective monitoring of bodies involved in public sector transactions to protect against potential conflicts of interest which could lead to impropriety.
"such conflict gave rise to potential dangers for the taxpayer, not only in terms of value for money but of propriety in the use of public money."
It acknowledged that the ODA had learnt a number of lessons from the project and that action had been taken to implement them, but it was disturbed that such basic lessons had to be learnt by a Department that has so much experience in administering aid projects. I agree with that conclusion.
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