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Mr. Tam Dalyell (Linlithgow): I read that report and Dame Valerie Strachan's evidence with considerable interest. Did the Committee consider at any time the problem of anonymous numbered bank accounts?

Mr. Davis: No, the Committee did not examine that particular problem. I raise the issue at this point, because I was primarily concerned about the lack of focus on the returns to the Government, to taxpayers and to society of a short-term financial saving. The Committee focused, as it often does, on a narrow issue--in this case, the red channels--but, as the hon. Gentleman's question implies, the decision had very broad consequences.

My third theme--financial irregularity and management--is a perennial one for the Committee. This year, the Committee broke new ground in our work on financial management and control in the European Union. We visited Brussels and Luxembourg, not to talk just to the European Court of Auditors, but to commissioners, Commission staff, parliamentarians and others, so as to get to grips with the scale of the problem and the actions in hand to address it. The Committee's conclusions are provided in our 29th report.

Our visit followed immediately on the refusal of the European Parliament to grant discharge to the European Community's budget and the subsequent resignation of the European Commission. We were frankly staggered by the scale of a problem that appeared almost endemic. Indeed, we were appalled by the culture of complacency that we found. We found a lack of clarity about who is accountable to whom and for what, a cultural emphasis on devising policy without regard to effective management,

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outdated staff codes that inhibit effective management, weak financial reporting and inadequate arrangements for the detection and prosecution of fraud.

Everyone we spoke to agreed that urgent action was needed, but there seemed to be a lack of any real belief that it would be possible--and, indeed, there was little will--to make that happen. We concluded that Commissioner Prodi and Commissioner Kinnock face a monumental challenge as they seek to reform the Commission.

Again, we have received a very positive response from the Government. They stressed that they would continue to press for better accountability at all levels of the Commission and welcomed the appointment of Mr. Neil Kinnock as vice-president for administrative reform. They said that they would continue to press the Commission to introduce proposals for the reform of staffing codes, that they attached higher priority to proposals to improve the presentation of the Community's financial information and that they welcomed the change in format of the 1997 Court of Auditors report.

The Government share the Committee's concern over the Commission's failure to create an anti-fraud culture and they argued that the new anti-fraud body--which is known as OLAF--would be able to take a strong lead in creating a culture that was intolerant of fraud in European institutions. I am not entirely sure that the Committee was persuaded on that final point, but no doubt other hon. Members will refer to it in the debate. I have met Commissioner Kinnock again since our visit to discuss those important issues, and he has also enlisted the supported of Sir John Bourn and the staff of the National Audit Office in his efforts.

We are concerned about the financial management of public money wherever it is spent, as demonstrated by our series of reports about the improper use of public money by higher and further education institutions, the most notable being Halton college, which was considered in our 37th report. In that case, more than £6 million was overclaimed from the Further Education Funding Council for England for students who were not eligible, for courses that were significantly shorter than was claimed and for courses that were claimed at a higher rate than was justifiable. In those cases, there were failings in the audit arrangements.

Further education colleges appoint their own private sector auditors and, perhaps, it is time for a fundamental overhaul of auditing in the further education sector. I notice that in Scotland, the new Auditor General will audit every further education college. Perhaps similar arrangements should apply in England. We have been so exercised by the repeated failure of governance in such institutions that we have commissioned a special report, pulling out the general lessons arising from our work. That will be published in the new year.

The final historic theme emerging from our work relates to the private finance initiative. Our work on that illustrates how we take an essentially retrospective view of events--with 20:20 hindsight--and try to turn that into a degree of foresight, so that we identify lessons of wider applicability. We therefore take a forward-looking approach and our benchmark 23rd report on how to get better value for money from the PFI is a good example of that. In the report, we recognised the importance of the Government finding new ways to harness private sector

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business skills to identify scope for innovation in the delivery of public services. We concluded that the PFI offers enormous benefits if managed properly.

PFI contracts have been signed that involve private sector capital of more than £13 billion and that commit Departments to payments of more than £70 billion over the next 25 years. We recognise that PFI is still new and that all parties are still learning. Mistakes are inevitable while experience and guidance are continuing to develop. However, we have been frustrated by the old mistakes that have been repeated and where lessons, such as the need to get sums right--lessons which have long been established in conventional procurement--have not been learned.

Departments must avoid the temptation of the quick fix and the buy now, pay later option that delivers the service today, but at a significant cost to the taxpayers of tomorrow. Departments must evaluate risks and options thoroughly so that they agree only those deals that still bear examination several years down the line. We must be absolutely clear that there is sufficient information available to Parliament on the extent of the commitments. When items are moved off the public sector balance sheet, the commitment to vast on-going payments must be clearly understood. The PFI must not be used as an exercise in creative accounting.

That brings me to the need for greater openness and honesty in government use of information. One of the biggest revolutions that we have seen over the course of this century is the information explosion. New information technology and the spread of the internet have fuelled the growth in the collection and evaluation of information. Governments of all parties over the years have also played their part in making more information available and accessible.

Interest in such matters is not restricted to politicians and academics; there is widespread public interest in the performance of government. I therefore greatly welcome the recent White Paper, "Building Trust in Statistics". That is a laudable initiative, and it is imperative that the public should have total confidence in the integrity of government statistics. That might best be achieved by making the national statisticians truly independent and by ensuring proper parliamentary accountability. Perhaps the statistics commission should be placed on the same footing as the Comptroller and Auditor General. However, I know, Mr. Deputy Speaker, that I am wandering off-subject.

The key to securing proper accountability is the independence of those who provide information to Parliament on the performance of government. I have been troubled for some time about one aspect of the Comptroller and Auditor General's independence, and that is in relation to his audit of the Budget assumptions. That is a task undertaken by the NAO and the Comptroller and Auditor General in good faith, and of course it is right in principle that the NAO gives reassurance where it is appropriate.

I say honestly to the Minister that I take the view that reassuring financial markets, for example, about the validity of the Government's financial information is important and in the national interest. However, it is essential that the NAO's work is not misrepresented. It is required to audit changes in the assumptions that underpin the financial forecasts in the Budget, not to give a view on all the assumptions every year.

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A fortnight ago, the Chancellor said that his pre-Budget forecast was based on assumptions audited by the NAO. The NAO has not been asked to audit most of the assumptions since 1997. Either the Government should ask the Comptroller and Auditor General to look at all the assumptions each year, or the Comptroller and Auditor General should be able to select which assumptions he considers. I ask the Government to consider the possibility of amending the Finance Act in the coming year to make that possible. As it stands, the position is akin to a company chairman selecting which subsidiary the auditor should audit in each year. The shareholders in a company would not feel comfortable about such a procedure. I ask the Minister to consider that carefully.

I shall now raise issues that apply to the future. All are based on the fundamental parts of the 40 reports before us. The issues underpin all those reports and are fundamental to the relationship between Government and Parliament and, in particular, the Public Accounts Committee. A number of developments at the centre of government, particularly resource accounting and modernising government, will require a major cultural change in government and will impact directly on our work.

Much has been said recently about public accountability acting as a brake on the creativity of Whitehall and on innovation and risk taking in government. Senior civil servants have held up the PAC as an obstacle to action and have fretted that they cannot deliver joined-up government for fear of incurring the wrath of the PAC. We must deconstruct that argument.

I have said on numerous occasions that I will applaud well-thought-through risk taking even where it goes wrong. The key, however, is the phrase "well-thought-through". The PAC is, rightly, tough on bureaucratic incompetence; for example, major IT projects that are poorly specified and badly managed. The instances that we have seen recently are the inevitable consequences not of risk, but of plain bad management.

The real issue for the civil service is that risk taking is counter-cultural in Whitehall. That is largely because risk taking requires a willingness to countenance failure and to abort projects that go wrong. Our experience is often that there is a failure to quantify risk and a tendency to throw good money after bad in ever more brazen attempts to convince the world that things can be put right. In such cases, we will be critical, but in cases where risks are properly measured, evaluated and managed, we will consider the outcome with an open mind. The PAC must no longer be held up by Whitehall as an excuse for the failure to innovate.

The need for public accountability must not be used as an excuse for failing to deliver services in the most sensible way. That is a further red herring traditionally used by Whitehall to justify not working in a joined-up way--I use the Government's language--with other parts of government. It is for the Government to determine who will be accountable for the delivery of public programmes, not the PAC. All we ask is that there is a clear line of accountability. If that requires three accounting officers appearing before us at once, so be it.

Our approach is not set in stone, merely bedded in the notion that identifiable individuals must ultimately be accountable to Parliament for the use of taxpayers'

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money. Indeed, it was an understanding of the cross-departmental nature of the problems faced by the Government that led me to ask the Comptroller and Auditor General two years ago to carry out an examination of the criminal justice system across all Departments. That report will be coming out in a week or two.

The Committee's positive response to joined-up working, where it is appropriate, is illustrated also by the case of the Public Trust Office, which I mentioned earlier. Clearly it is sensible for the PTO's services to be provided by different agencies, and we welcome that. Similarly, it is important that the interests of its clients are protected by the setting of very clear targets for performance and outcome, for which the Lord Chancellor's Department will remain accountable.

Critical to effective accountability is the need for auditors to have adequate powers to do their job properly. Again, my approach is simple: auditors should have the same rights of access as Government. In that way, the ability of Parliament to scrutinise the activity of Government would be protected, whatever mechanisms are used to deliver public policy. Certainly it must be wrong that European auditors, working on behalf of the European Parliament, have greater rights of access within the United Kingdom than the Comptroller and Auditor General, who is working on our behalf. There is a raft of areas where the Comptroller and Auditor General's access rights have not kept pace with changes in Whitehall, and I referred to many in last year's debate.

I say to the Minister that I fully recognise that under this Government there have been considerable improvements in the access rights of the Comptroller and Auditor General to royal transport and palaces, the lottery operator and the audit of all the new non-departmental public bodies established since the election. Indeed, the Lord Chancellor, Lord Irvine--who is also not a pin-up of the Committee--when proposing that the National Audit Office should audit the new Legal Services Commission, said that the Comptroller and Auditor General should be the auditor of all public bodies unless there is a special reason why experience found only in the private sector is required for a particular body.

Lord Irvine also referred to the fact that audit by the Comptroller and Auditor General means scrutiny by

His sentiments have now found support in the sixth report of the Public Administration Committee, which I believe was published yesterday and which recommends that the Comptroller and Auditor General should audit all NDPBs.

To return to Gladstone, the Government now have a once-in-a-century opportunity to modernise the public audit process. The Government Resources and Accounts Bill, which will give effect to resource accounting and budgeting, will substantially amend the founding legislation of the Comptroller and Auditor General's audit, but the Treasury has not yet seized the opportunity that the change presents. I shall therefore be pressing for that to be put right. In 11 of the 40 reports before the House today, the solution offered by the Treasury involves, in one respect or another, the move to resource accounting. The points that I shall now make apply directly to those reports as well as the overall position.

The Government must provide the Comptroller and Auditor General with the statutory access to documents, information and explanations that he needs to undertake

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his work on behalf of Parliament. Even where the evidence is held by third parties--for example, those contracting with public bodies--and by organisations carrying out public functions under authorisation from Government or Parliament, it cannot be right that the Comptroller and Auditor General wastes valuable time and effort arguing for access on a case-by-case basis, subject to a Department's whim. Those frustrations extend even to the Committee.

We asked for the Comptroller and Auditor General to be given access to documents held by Oflot about the financial integrity of applicants to run the lottery. We first asked the Government to arrange that in March 1998. Subsequently, two members of the Committee had a meeting with the Secretary of State for Culture, Media and Sport, and we still await a decision. Frankly, that is not good enough.

The Government must ensure that the Comptroller and Auditor General is automatically the auditor of every non-departmental public body. The Government have conceded the principle and must take this opportunity to put it into practice. At present, more than 50 NDPBs, spending around £3 billion provided by Parliament, are not subject to his audit. The Housing Corporation, for example, spends more than £1 billion a year. Changes to the way in which government works have put large amounts of expenditure outside the departmental boundary. Managerial changes should not be allowed arbitrarily to remove expenditure from automatic parliamentary scrutiny. I hope that the forthcoming Bill will correct that.

The Government must enable the Comptroller and Auditor General to audit limited companies established by central Government bodies. Hon. Members may be surprised to learn that there are well over 200 such companies, receiving between £2 billion and £3 billion of public funding every year. The choice of vehicle through which the Government deliver an aspect of public policy and service should not determine the parliamentary scrutiny that it receives.

The Government must provide properly for the audit of any extension of resource accounts to include wider aspects of the public sector, as they have said may be their ultimate intention. The forthcoming legislation should give the Comptroller and Auditor General access along the lines of provisions in companies legislation to bodies whose accounts are consolidated into the wider whole of Government accounts that the Comptroller and Auditor General is required to examine.

The Government's proposals to change the basis for supply and the way in which Departments will be held accountable to Parliament should not be brought into force until it is clear that the new system is better than the one that it is intended to replace. I seek an undertaking from the Government that the relevant sections of resource accounting will not be implemented until the Committee has signified its satisfaction and the Government have provided us with assurances that all Departments are fully prepared for the change.

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