Examination of Witness (Questions 19 -
25)
TUESDAY 23 JUNE 1998
RT HON
DAVID DAVIS,
MP
Chairman
19. We now welcome the Chairman of the Public
Accounts Committee, the Rt Hon David Davis. Thank you very much
for coming. I must say it is very different to see just one witness
rather than a phalanx of witnesses, even if the Chairman of Defence
did dominate the giving of evidence before but perhaps that is
appropriate. Can I start by putting the first question to you?
You will have seen the conclusions we came to about the shortcomings
of the present system of Supply during the course of our inquiry
into the introduction of resource accounting and budgeting, would
you agree that in contrast to the work done by the PAC, very much
assisted by the NAO, in scrutinising the previous year's Government
expenditure, the House and its committees have not always been
able to make the best use of the information provided to it on
future government expenditure?
(Mr Davis) Thank you for your welcome.
The answer to that is yes, Chairman, although I am not sure the
fault of that lies within the select committees themselves. The
first point to make, if you are taking the Public Accounts Committee
as a benchmark, is that of course the Public Accounts Committee
looks at value for money, the delivery of policy rather than the
setting of policy, and it is a different sort of task and one
which is in some senses more contained, in every sense less political
and therefore is, I think, more easily manageable than what the
policy committees have to deal with. The other half of the problem
in essence comes to the Estimates process itself, which the previous
witness was talking about. This procedure essentially dates back
to Gladstone, as my committee does, but in my judgment, unlike
my committee, the innovations in this century have not been sufficiently
material to take into account the changes in power of the executive,
the changes in expenditure levels. In Gladstone's era expenditure
ran at about 10 per cent of GDP, now it runs at 40 per cent plus
and a much bigger figure in absolute terms. So that is one aspect
which is a problem for other select committees. I have to say
that in my judgment the Estimates procedure we have is obsolete,
it is opaque and as a result it amounts to little more than a
rubber stamp of the executive's plans. That, I think, is the reason
why your report previously, and I told you I agreed with nearly
every word—I can tell you the differences in a moment—was
so important, because it does highlight what is the weakest part
of our parliamentary democracy at the moment, which is an amazing
paradox when you consider that the grant of Supply was our original
reason for existence.
20. So from your own experience of the Committee
of Public Accounts, how do you believe that select committees
can best handle the Estimates, best deal with the Estimates to
make it a really meaningful scrutiny rather than, as you have
just said, a rubber stamping?
(Mr Davis) That brings me right back to the Estimates
procedure rather than the select committees but I will deal with
them in a second. Forgive me Chairman, I missed the beginning
of Mr George's contribution. He and I agree on a very large number
of things in this area so forgive me if I repeat something he
has already said to you. In my judgement the Estimates procedure,
if I can pick a metaphor or an analogy, should be the management
accounts for Parliament to be able to see how the executive is
delivering the policies that it needs to deliver and whether it
is allocating its resources properly and whether it is getting
the right turnout of resources. To do that we have to have a process
whereby the department or select committee activity is not simply
that of looking at documents that come before it but that of understanding
it, of being able to criticise it and being able to influence
it and it does not manage to do any one of those three things
at the moment. It is enormously opaque. These Supply Estimates
I brought with me to amuse myself while I was sitting waiting
to come and talk tell you almost nothing. There is no link between
what is written in here, broadly, and policy delivery. There is
a link in the departmental report which of course is not a document
that is actually laid before Parliament so here you have in this
document most of the things that ought to be in this document
so that in itself is ridiculous and a previous PAC did agree to
the simplification of this in order to allow data to be put in
the departmental reports. The effect of that actually was to make
the Estimates less useful. I think they should be produced together
and dealt with together and then I think similar to what Mr George
was saying I do not think the Estimates should be laid before
Parliament for approval until each departmental select committee
has commented on the Estimate. Now comment in this case is more
than just saying we agree or disagree. The concept of having the
nuclear weapon of a refusal seems to me completely nonsensical
in this day and age. I do not know whether there are problems
with whips influencing select committees, but there certainly
would be if the select committee's proposal was to try and bring
down the Government. Mr Illsley is nodding at me. He and I have
a shared experience in this respect, Chairman. The nuclear weapon
should still be there but there must be something before that
weapon. What is the difficulty with this? The difficulty with
this is the Government is responsible for macro-economic policy.
It has to have overall grip on fiscal policy and its delivery.
That has implications for overall spending. I suppose it is the
reason at the moment that under Standing Orders no Member can
propose an increase in expenditure. It seems to me however perfectly
reasonable for a departmental select committee to recommend transfers
between votes within a department or between heads and subheads.
It is a spurious example but it is easy to imagine, but take international
development—it may well be that the International Development
Committee feels it is appropriate to spend more money in South
America and less money in Africa or more money in South East Asia
and so on. It may feel it is appropriate to spend more money on
the prevention of famine than crisis relief. There are all sorts
of possibilities that can arise out of the sort of judgments an
expert select committee can make and I cannot see any argument
whatsoever against a select committee being able to put down an
amendment for a debate on the floor which covers transfers within
a class that is within a department. That seems to me perfectly
sensible. It is the sort of thing it can do with great expertise.
It is the sort of thing it can do without deflating or inflating
the importance of its own subject area and problems between departments
obviously and therefore it should be possible. It also has a secondary
function because I have to tell you, Mr Winterton, after some
experience of government, seven years in government, my experience
is that ministers themselves are not very gripped of the allocation
of resources within their own departments. It is not the top-notch
issue for them to deal with. They will worry about the policy,
they will worry about aspects of policy, delivery of policy and
debating it in the Chamber but exactly how much money goes to
each department is not something that they have necessarily gripped
in all departments in the past. I think appearing before a select
committee that has the power to make that amendment would force
them to grip those issues. It would force them to say why do we
put however many million, if it is international development into
one part of the world or another and, if it is education, into
administration rather than class size reduction or whatever it
may be. I think if the minister were appearing before a select
committee, as it were, defending his case facing the prospect
of the amendment of that case and then facing the prospect of
standing on the floor of the House and defending it, I think it
would have a very salutary effect upon the seriousness with which
ministers took this issue. I think those are the two biggest elements
that could be done to do something about the committee. Now the
third one is the question of resources and I heard listening to
the questions before this issue of NAO secondment and, as you
know, we do second some NAO personnel from time to time. I have
to say I view that argument (which my predecessor tells me has
come up every year of the 14 years of his time of Chairmanship)
as something of a cop-out because the issue we are dealing with
here is proper resourcing of select committees, not robbing Peter
to pay Paul, but proper resourcing of select committees. If we
do this we will need each select committee to have in effect two
major new resources, either its own or on call. The two major
new resources are firstly the ability to evaluate detailed policy
in terms of the effect of an additional or reduced spend. That
is really a policy-driven skill and the committee will also need
the ability to understand the accounts presented before it both
in terms of the Estimates forward and the appropriation accounts
backwards which are also in the departmental information. That
is not rocket science. The one area where I had some disagreement
with your Committee's previous report, Mr Chairman, was on the
question of the complexity of resource accounting. Resource accounting
is more complex to create, to present to the accountant inside
the department. It should be easier to understand, not more difficult,
easier to understand for the committee particularly if the department
matches it up, as it should, against achievement of objectives.
Then it should be much easier to understand and much more useful
to use. It is not rocket science. It is very important, very straightforward
delivery of the meaning of numbers and these numbers will mean
more than the current ones we see in front of us. If we have all
of those things, I am not concerned as to whether they are committee
related or separate department of the select committees related,
I suspect it will be a mixture of the two and with sensible secondments
from time to time of NAO staff, that would be the most intelligent
way in my mind to do it. But it would cost I would suspect twice
as much as we are currently spending on select committees and
so it should. We have probably the least well resourced committees
in the democratic world these days. Mr George told you the sorts
of numbers we are looking at. Frankly, it is ridiculous for the
Mother of Parliaments to try and get by on a shoe string. Those
are a few thoughts, Chairman. I can elaborate on all of them.
Chairman: More than a few and very helpful.
Barry Gardiner with a brief but very important question.
Mr Gardiner
21. When the Chairman of the Social Security
Committee wrote to us he used a phrase which was the "oversight
by hindsight" which was conducted by the National Audit Office
and by your own Committee, the Public Accounts Committee and in
that letter he spoke of linking that work more closely with the
select committee procedure and the influencing of current and
future plans from select committees. Would you support that or
do you believe that it could risk politicising the National Audit
Office?
(Mr Davis) I will start with the question of the risk
of politicisation which the previous witness indicated he did
not think was very strong. Let me start by saying that of the
countries in the world who have a National Audit Office or its
equivalent ours is probably the one that is cleanest of politicisation.
It is very very difficult to get that de-politicisation achieved.
The GAO in America certainly does not do it and most of the Europeans
do not do it. I cannot think of anything that is exactly on our
model that achieves what we do. It is not just a question of what
sort of work you give to the NAO, but a question of things like
the independence of the Comptroller & Auditor General, the
fact it takes two votes of both Houses of Parliament to remove
him, the separate funding, all these sorts of things. One component
of that is that no ministry can turn round two years after the
NAO has done a report, let us say in support of a policy recommendation,
say, from the Social Security Select Committee, and say, "You
recommended this". It has to be that far distant from it
to be able to do the job. It has worked remarkably well since
1983, I have to say under a superb chairman, my predecessor really
set the gold standard in terms of chairmanship of the PAC. I would
be very, very nervous of meddling with something which works well
at the moment. What are you trying to achieve in terms of NAO
use apart from the slightly green-eyed syndrome that we have got
more resources? There are two components, it seems to me. One
is the transfer of skill that goes on, and we can do that through
secondment. I have to say there is a resource problem here because
we are looking at the NAO having a 22 per cent increase in volume
of work in the next few years because of resource accounting and
we are giving them something like, I suspect, a 7 per cent increase
in resources, so there will be a 15 per cent increase in productivity
in the course of the next few years. Mr Illsley will remember
from his days in the trade union movement, that is going to be
a tough one to deliver. It is going to be tough anyway. So you
can get some skill transfer, but the skills are not all appropriate
necessarily particularly to the resource accounting issue, even
value for money skills. Often they are statistical skills, often
they are other measurement skills which are important. The other
aspect is the question of building bedrocks for policy by having
very factual reports. If a committee chairman said to me, "We
are interested in doing X or Y exercise, would you have the NAO
look at the current state of what is happening and give us a description
of it", say, a description of the way the crown court system
works, a report on the way the Crown Prosecution Service works,
which we actually did not long ago, a report on welfare fraud
in housing benefit, then we will always look at it. That will
come to us, we will give our criticisms of the current system,
there is nothing to stop at all (a) the select committee then
picking that up and going with it (b) there is nothing to stop
the Government picking it up and going with it, and that has actually
happened in three departments which I can tell you about if it
would not embarrass them and (c) there is nothing to stop significant
briefings being given on the basis of that work being done. So
I think you can achieve all the things you need to do on this
without jeopardising that particular jewel in our crown, because
the one thing we do have is people coming here all the time—in
fact it is one of the banes of my life—to see how the PAC
and the NAO works.
Mr Davey
22. Could I pick you up on what I thought was
the most important point in your initial contribution, Mr Davis,
which was the idea that the select committee could propose an
amendment on the floor of the House which would result in switches?
You said that should be almost a zero sum gain, no additions or
subtractions, but do you not think there should be some flexibility
in the system to allow for some slight additions, slight subtractions,
because in reality switches between budgets are not one for one?
If you are going to be able to be creative in policy and make
some benefits which may achieve the objective of the policy in
a more effective way, you may want a little bit of flexibility
to recommend some additions or indeed some reductions. So I would
be interested in your answer to that. Following on from that,
do you think the change in the concept of annuality in terms of
the setting by the Government of spending totals which the Chancellor
has recently announced—
(Mr Davis) The three year totals?
23. Yes, three years. Do you think that will
improve our ability to scrutinise expenditure or make it more
difficult?
(Mr Davis) The first question first. Bearing in mind
I was talking about amendment, not recommendation, the right to
put down an amendment to be voted on, I think that is a very good
discipline, frankly, on select committees. Every select committee
in this House has got people on it who are on the select committee
because they are fascinated by defence or international development
or agriculture, whatever it is, and almost all of them are advocates
for increased expenditure in their area. That is not 100 per cent
true but there is a large extent to which it is true and it is
a natural human characteristic. So I think there is a discipline
there in terms of choosing with the resources you have what is
the best delivery. I think that is what I would like to see. I
am not saying that the select committee chairmen or even the group
of select committee chairmen collectively should not say, "This
should be more ...", whatever they want to say. It is up
to them how they recommend, it is the question of the amendment,
and I think that is an important discipline. Bear in mind, if
we are going to do this, and it is a point I will maybe come back
to at the end, you want to be able to do it in a way which does
not fill the Government with panic at the prospect of this happening.
It has to be manageable within their own macro-economic management
approach, because if they do not, again, we will have huge questions
internally within the Government to put pressures on the select
committee system, and we will then have to build in all sorts
of barriers and it will be very, very difficult to cope with,
and so that is important. On the annuality, the Chairman of your
Committee actually asked the Chancellor about this precise issue
at the statement, and if he will forgive me for saying so did
not get a very good answer, he got a rather ambiguous or vague
answer. It depends entirely upon the extent to which the Treasury
recognises that the House of Commons wants to see an annual cycle
continuing irrespective of a three year budget. When I was in
business we used to have five year plans but we still had an annual
budget and that annual budget was fought over tooth and nail every
year, even though in principle I was due to get a 2 per cent increase
in my marketing budget or a 10 per cent increase in my production
budget, or whatever, and I do not see any difference here. Secondly,
frankly, if somebody tries to set a three year budget for a £200
billion a year budget and expects to get that right for every
one of the three years, well, they are in cloud cuckoo land. What
the Chancellor is putting down is indicative. I expect he will
try and stick to it as hard as he possibly can in the relevant
X Committees and so on, but he will obviously have to alter and
shift that slightly from year to year, and I think the select
committees can play a serious part in this. Because if something
alters dramatically, if agriculture has a huge crisis, if the
Health Service is seeing dramatic increases in the waiting lists
or dramatic mortality rates, once the new information systems
come in, then the select committee can add some power to the minister's
elbow in saying, "This is something which ought to be put
right" and that is a very powerful recommendation to be made.
That demands annuality. I think the things are entirely consistent.
Nearly every other big organisation manages the two and I do not
see why we cannot. A small technical footnote—I think I
read in your report some concern that resource accounting could
have an impact on annuality, resource accounting will make annuality
easier, not more difficult.
Mr Stunell
24. Some of us are absolutely fascinated with
budgets and accounting and have written books on it and so on,
but the average Member of Parliament probably is not. To what
extent are we going to finish up being prisoners of our advisers
and officials, and not able to make any independent, political
input into the process?
(Mr Davis) They are supposed to be the servants of
the committee. On my Committee, the Committee of Public Accounts,
we have, after all, what everybody wants, this vast grouping of
technical advice. Two things. One, the direction the technical
advice goes will very quickly become one of the important decisions
the committee takes. Let's imagine, to take the argument I was
making earlier, switching resources from A to B, one of the questions
a select committee will put to its technical support is, "What
will the impact be of a 5 per cent reduction there, what will
the impact be of a £10 million increase there?" That
is what will start to happen, just as in business, or indeed in
most areas where you have technical support, you put well-guided
policy questions to your technical support and get them to evaluate
marginal changes on one side or another. Similarly, one of the
things—and I did not mention this in my original comments—that
I think is missing from the current system is any feedback on
how well the Government has actually delivered on what it has
said it was going to deliver. The appropriation accounts you will
notice do not have to get cleared. That is it, they are through,
a good year late, and nobody pays any attention to them. They
actually ought to be in the departmental report and you will be
saying to your technical advisor, "I want to know how well
they have delivered on what they said they were going to do two
years ago." This is not rocket
Chairman
25. Mr Davis, can I thank you very much indeed
for the evidence you have given to us this afternoon. It will
be very helpful to us in our inquiry. As we are running a bit
behind can I say thank you for coming and we will look for the
next witness.
(Mr Davis) Chairman, may I say one thing before I
leave and it is a factual issue we have not covered today but
it was slightly off target. You made the point in your original
report that the Committee should also look at borrowing levels.
Can I just say that I think that also should include forward commitments.
I am concerned when we start to come under resource accounting
that we do not see a lot of off-balance sheet funding. I am happy
to give you a paper on this. I have not touched on that area today
because the other area has been very interesting.
Chairman: Can I say thank you again and if you
can send us a paper on that particular area of activity we would
be very grateful.
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