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22. Section 6 of the National Audit Office Act 1983 (which enables the Comptroller and Auditor General to conduct examinations into the economy, efficiency and effectiveness with which certain departments, authorities and bodies have used their resources) shall apply to the Authority.".
The amendment's purpose is to secure the accountability of the FSA to Parliament. There are important reasons why Parliament should put in place effective accountability arrangements. First, the authority will have a significant impact on a major sector of the economy and will carry out major public policy functions. It will prescribe and exercise far-reaching controls and regulations over a wide range of businesses and in the interests of society at large, as well as the consumers who use financial services. Therefore, although constituted as a private company, the authority will have a statutory objective and will carry out public policy.
Some of those functions, such as the regulation of building societies and insurance, are currently undertaken by bodies subject to the scrutiny of Comptroller and Auditor General and hence of the Public Accounts Committee on behalf of Parliament. Without the amendment, that scrutiny will be lost. That would be a move backwards.
The authority will be funded by fees paid by registered firms, a form of compulsory levy, or directly hypothecated tax, in effect, on the financial services industry. Widespread concerns have been expressed--among others by those firms that will be required to fund the authority--that the Government's original proposals, which are reflected in the Bill, do not provide for full independent scrutiny on behalf of Parliament, for example, the Securities Institute and the London Investment Banking Association have expressed support for the idea of the CAG undertaking such scrutiny.
The CAG would be well placed to provide such independent scrutiny. He would bring the necessary authority to that role and be in a strong position to assess the authority's performance against its statutory objectives. The National Audit Office already has considerable expertise as the external auditor of the
other principal regulators--the electricity, gas, rail, telecommunications, water industries and the Office of Fair Trading--and would be able to provide valuable assistance to the authority, to the Treasury and to Parliament.
On a basis of CAG reports, the PAC has published a number of reports on those regulatory authorities. Their value has been publicly recognised by the Government. In March 1998, the President of the Board of Trade, in a report to Parliament, noted that
In Committee in July, the then Financial Secretary to the Treasury said that it would be open to the Treasury to appoint the NAO to carry out a particular review and that that option would be considered carefully. That is all very well, but there is no substitute for giving the Comptroller and Auditor General, and therefore Parliament, the right to examine the authority as a basis on which it can be satisfactorily scrutinised. In particular, it would be for the Treasury to decide if and when such a review should take place and to prescribe the terms of reference. In my judgment, that takes away rights from individual Members of Parliament, for example to ask for a review as a result of a constituent's problems.
In tabling the amendment I recognise that the option of the CAG being able to examine the authority has already been considered during the progress of the Bill. The Joint Committee on Financial Services and Markets, which examined the draft Bill, studied the issue but did not support access for the CAG on the ground that the authority will be paid for by the industry and not the taxpayer. That argument is entirely disingenuous. On that basis, we would not have access to Camelot and a series of bodies that carry out a public function. The authority will be performing a public function and, bluntly, its charges can be seen as akin to a directly hypothecated tax. Therefore, such arrangements call for fully independent scrutiny on behalf of Parliament.
It should also be noted that the CAG already has access to a number of limited companies that undertake public functions, such as the Student Loans Company and Remploy, on which he has usefully reported.
The Joint Committee also believed that parliamentary scrutiny could best be achieved by asking a parliamentary Committee to review the authority's annual report and to take regular evidence from a broad section of consumers and practitioners. The Joint Committee did not suggest which Committee should do so, or how the work would be resourced. Were the Public Accounts Committee to do it, it would expect to have evidence from the CAG. It is difficult to see how a Committee could exercise effective
scrutiny without some form of report based on access to the authority's papers. I say that as the Chairman of the Committee that carries out most of the scrutiny of such matters in the House.
In Committee, the Government rejected an amendment to clause 10 that would have required the Treasury to appoint the Comptroller and Auditor General as the independent person undertaking reviews. In doing so, the Government argued in addition that the Treasury might wish to use someone else to undertake some types of review and that the CAG ought not to conduct any review that might question policy objectives. I entirely accept the last point.
This amendment deals with both arguments and leaves the Treasury free to use clause 10 to commission other types of independent review, including those involving policy objectives. It applies the bar on the CAG questioning policy objectives--that is built into the National Audit Office Act 1983.
The House has considered amendments to clause 10 that would deal with the independence of Treasury review and make periodic reviews mandatory. Although those amendments did not refer to the CAG, my hon. Friend the Member for Chichester (Mr. Tyrie) considered in Committee that the Government had not explained why providing for the Comptroller and Auditor General to conduct the independent reviews was not a reasonable approach. We have not had an answer to that argument. My hon. Friend also referred to the benefits of the CAG reporting to the PAC. In response, the Financial Secretary referred elliptically to the burdens associated with mandatory reviews and to the Joint Committee.
The amendment has the advantage of providing the independent evidence that effective scrutiny by a parliamentary Committee, as recommended by the Joint Committee, would require. It does not specify how frequently the reviews should be undertaken. That is left to the CAG's discretion. In exercising that discretion, he would of course consult the Treasury and the authority as to the timing and the matters that he would be examining. I have discussed that matter with him.
If the authority is to get off to a good start, it needs to secure the confidence of the financial services industry. A clear line of accountability to Parliament, accompanied by independent assessment of performance by the CAG would go a long way to achieving that.
Mr. Cousins:
I do not support the amendment, or its terms. None the less, it raises an important and interesting point. I do not see why it is sensible to accept that the National Audit Office will be the agency that will carry out reviews at this stage, nor do I think--as the FSA is to be one of the most closely monitored and scrutinised public statutory bodies--that such an amendment is necessary. I am not happy with the idea that the NAO could undertake policy reviews of the authority. That would in some way usurp the responsibilities that the Government intend to give to Parliament.
Mr. Davis:
That is precisely the opposite of what I said. The use of the National Audit Office Act proscribes any investigation by the Comptroller and Auditor General into the merits of policy. He is not allowed to do that
Mr. Cousins:
I am grateful for that intervention. I had understood the right hon. Gentleman to be saying that he wanted the NAO to review the objectives of the FSA. If I have misunderstood him--
Mr. Davis:
I think I used the term, "the achievement of objectives". That is what the NAO does--it studies effectiveness in the achievement of pre-set objectives.
Mr. Cousins:
I am grateful for the clarification. However, it points to some of my anxieties and my difficulty in supporting the amendment. The important point is that the Government intend that the FSA will make an annual report to Parliament. They also intend that a parliamentary Committee will be responsible for scrutinising the authority's work. However that is to be done, and whoever is to do it--the Minister may not wish to go into detail about that at this stage--what resources are to be made available to Parliament through the mechanism of whichever Committee is to be responsible for carrying out that duty effectively? That is the important question. We should consider whether the NAO, or some agency that could be commissioned if resources were available, would be accessible to whichever Committee had the task of scrutinising and reviewing the FSA so that Parliament might be better and more fully informed. Committees often do not have the resources that they want to carry out their scrutiny functions effectively. I urge my hon. Friend the Minister to bear at least that point in mind, but I do not support the amendment.
"a recent Public Accounts Committee inquiry into regulatory methodology was instrumental in securing closer collaboration between regulatory offices",
and concluded that
"the current Parliamentary arrangement have allowed for effective scrutiny of utility regulation".
I acknowledge that the Bill provides that the authority will be required to produce an annual report to Parliament, on the basis of which it can be questioned on its activities. Clause 10 provides that the Treasury can commission independent reviews of the authority's performance and will be able to choose who undertakes such reviews.
8 pm
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