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3.38 pm
Mr. Christopher Leslie (Shipley): In 1799, a Tory Prime Minister, William Pitt the Younger, introduced income tax in this country, in part to fund the Napoleonic war. The Inland Revenue has commemorated that momentous innovation with an exhibition at Somerset house, although I am sorry to say that tomorrow is the last day on which it will be open to the public.
Some people may say that we should not celebrate the invention of income tax. People may call me eccentric, but I resent paying my income tax least of all the bills that come through my door because, as a Member of Parliament, I have a fairly good idea about where my income tax is spent. It is spent on schools, hospitals, social housing, transport and all the other vital public services without which we would all be a lot poorer.
After about 200 years of income tax, it is important that we recognise that the main public sector safety valve ensuring that taxpayers' money is spent efficiently and effectively and that it achieves value for money is the Public Accounts Committee, working in co-operation with the National Audit Office.
I was privileged to serve on the Public Accounts Committee until November last year, when I moved on to pastures new. The Committee certainly provided me with a great education in how government works, where money is spent and problems can occur and what solutions might be available. I join other hon. Members in paying tribute and thanks to the staff of the PAC as well as to Sir John Bourn, the Comptroller and Auditor General and the other staff of the National Audit Office for all their excellent advice and assistance in the previous Session. I also pay tribute to the chairman of the PAC, the right hon. Member for Haltemprice and Howden (Mr. Davis), for all his help and assistance and for his impressive scrutiny and his collegiate approach throughout our non-partisan hearings.
About a tonne of reports must have been produced from the many hearings. The evidence is on the Table, which is weighed down by the bulk of blue paper that the Committee approved, often paragraph by paragraph, in many of our sittings. So we have worked hard. I cannot go into all of the reports, but I will focus my attention on some of the most important findings of the past year. Unsurprisingly, most relate to privatisations, to which other hon. Members have referred.
The findings on water privatisation have not been mentioned. A year ago, the PAC heard evidence from the Office of Water Services into the regulation of the quality of services for customers. We questioned Mr. Ian Byatt, the Director General of Water Services, about his duty to secure the proper financing by water companies of quality water and sewerage functions and the fact that that depends on getting the privatised companies to give priority to reinvestment in the utility's infrastructure. Clearly, Ofwat regarded the main trade-off as finding ways to get money to the customer, by ensuring that prices were reduced, or to get companies to spend their resources on infrastructure, the drainage network and so forth.
Those are not the only options for those companies, which are making a large profit. In that hearing, we learned that massive dividends were paid out to shareholders. The profits were leaking out of the water companies. Rather than being reinvested in better-quality services, the money was going to the shareholder. Two interesting statistics came out during the hearing. More than two thirds of the total pre-tax profits of the water companies go out of the industry into dividends, so it is not reinvesting as much as it should be. That has meant that, on average, nearly a quarter of the typical customer's bill has gone straight to finance dividend payments.
The PAC's 36th report concluded that dividend payments were at an unacceptable and unsustainable level, potentially putting at risk investment and the quality of services to customers. Therefore, we recommended that Ofwat, in particular, should consider instituting further safeguards to protect customers.
Ofwat has responded fairly well, by reiterating its belief in RPI minus X as a regulatory system and saying that
The other privatisation inquiry that stands out most clearly in my mind was that into the railway rolling stock companies. I do not know whether hon. Members saw on the news yesterday that a baseball hit by Mark McGwire, which set the record-breaking 70th major league home run, was sold in New York for £1.65 million by the man in the stand who had caught it. Anyone who thinks that that was a fortuitous windfall may not have heard the story of the railway rolling stock companies and the few former British Rail managers--three in particular--who made an absolute killing during the privatisation exercise. For example, Mr. Jukes from Forward Trust, which is now called Eversholt, invested £110,000 as his initial stake and sold the company on only 12 months later for a personal profit of £15.9 million. Mr. Anderson of Porterbrook put in £120,000 and sold the company after only eight months for £33.5 million. Dr. Prideaux of Angel put in no money--he got the banks to front the company--and received £15 million.
It was enlightening to have the opportunity to question those three former British Rail managers about why they deserved that windfall. What special effort had they put in to earn that amount of money? The answer given to the PAC was that the risk that they had taken justified the massive return. When asked whether they deserved
the profit or felt a little guilty at having ripped off taxpayers so massively, it was not surprising that we did not get much of a response.
What annoys me, the public and other members of the PAC most is that the assets--the family silver--could be sold off by the previous Government at such an undervalued rate. They were almost given away. Those people made all that profit because, when they sold, the market recognised the true value. Unfortunately, the taxpayer did not get the money. That is why, in that report and subsequently, we looked into ways to reduce such windfalls. I was glad to see in the Treasury minute on that report that the Government accept that those windfall gains certainly risk discrediting privatisation and that they
Many other aspects of privatisation were raised in our hearings. Hon. Members have mentioned our over-arching report into value for money in privatisations. One aspect of that is a clawback arrangement that will ensure, particularly when high levels of uncertainty are associated with the sales, that we build into contracts ways to get the windfall right for the taxpayer and the Government. Another recommendation is that we must value companies properly in the first place, to ensure that the best price tag is put on them before privatisation so that the proper market value is gained for the taxpayer and that we do not merely give assets to the private sector because of dogma or ideology. If they are to be given away, there is a reason and there should be a gain to the public at large.
It is true that the report recommends that, if shares in privatisations have to be sold, it should be done in stages to test the market more effectively. I am glad to see signals that that is becoming a more acceptable practice for the public sector.
I do not think that any hon. Member has touched on the fact that the PAC recommended that close scrutiny should be given to pre-sale restructuring, so that the Government do not spend millions of pounds of taxpayers' money putting aspects of the public sector right and then hive them off to the private sector. If major amounts of public expenditure go on restructuring, the public should gain some reciprocal benefit.
On a number of issues, one felt that one could ask the same question of whatever witness came before the Committee. Advisers' and consultants' fees are always being raised in the PAC, and members of the Committee become exasperated. I think especially of the inquiry into design, build, finance and operate roads under the Department of Transport. We must consider advisers' and external consultants' fees throughout government to ensure that we always get value for money.
Fraud is part of the bread and butter of our inquiries. The right hon. Member for Bexhill and Battle (Mr. Wardle) reminded me of the fraud at the Amman embassy. Extrapolated downwards, the stationery budget equated to, I think, 300,000 biros. The amount of fraud on the mileage budget would have taken a car around the world 12 times--physically impossible in the time available. We must ensure that our accounting officers more rigorously monitor such day-to-day expenditure.
Many other management issues and lessons emerged. Those lessons should be internalised in the day-to-day operations of the Government.
I was pleased by the development of the new public service agreements initiative which evolved from the comprehensive spending review in the summer. Contracts between the Treasury and Departments mean that extra cash is provided to secure not only the services but modernisation and reform of the way in which Departments operate and of the services that they provide. That is a strong step towards better incentives for best practice in Departments, and places more responsibility on accounting officers and Departments.
"dividend policy should be transparent and must not put at risk the companies' ability to discharge their functions".
We must reconsider, though, how better to ensure that price cuts and infrastructure investments are achieved as a matter of priority and that profits are not put before the services that need to be provided to the customer.
"will consider carefully in future sales mechanisms to prevent any purchasers from enjoying excessive windfall gains."
Such mechanisms are sometimes known as the clawback clause and we need to use those arrangements much more frequently.
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