INTRODUCTION

  6.1  Following their meeting on 12 March 2002, the Public Accounts Commission asked the National Audit Office to consider how it could expand the scope of scrutiny amongst accountable bodies through extra studies so as to strengthen Parliamentary oversight of government programmes.

  6.2  Chapter 5 of the Plan sets out the background for a proposed annual increase of 6 per cent in the National Audit Office's net resource requirement over the period 2003-04 to 2005-06. Such an increase would ensure that the Office has resources to support Parliament by:

—  maintaining its core certification and value for money programmes;

—  taking on new statutory certification work, for example, whole of government accounts;

—  implementing the recommendations of the Lord Sharman's Report, including developing a programme of performance validation and inspection work.

  This, however, would be insufficient to expand the scope of audit coverage as postulated by the Public Accounts Commission.

  6.3  This section considers what additional support the National Audit Office could provide to Parliament and the associated resource implications.

ADDITIONAL VALUE FOR MONEY REPORTS

  6.4  National Audit Office reports to Parliament range across departments' activities so that the Public Accounts Committee can exercise effective scrutiny of how public resources are used. When new methods of service delivery have been introduced, such as e-government and the Private Finance Initiative, it has been important to provide Parliament with an early opportunity to consider whether these initiatives are likely to deliver value for money and that public funds are not put at risk.

  6.5  The pace of change is continuing and increasingly public services are being delivered through a range of different providers from the private and voluntary sectors and local government, often involving complex arrangements. While providing good potential to deliver better public services such approaches also carry risk.

  6.6  At the same time public expenditure is set to increase by an average of just under 8 per cent in 2003-04 and around 6 per cent in 2004-05 and 2005-06. Much of this increase is targeted on improving the key public services—education, health, transport and criminal justice.

  6.7  There is, therefore, scope to increase the number of reports to assess how these increases in public expenditure and other initiatives are delivering both value for money and sustainable improvements in public services.

  6.8  In addition, the National Audit Office could enhance Parliamentary scrutiny of non-departmental public bodies by producing more reports on these organisations, which are often involved with service delivery. This would not only reflect the interests of the Public Accounts Committee, but also be in keeping with the recommendations of Lord Sharman's report and with the report of the Public Administration Committee, which recommended strengthening Parliamentary accountability for non-departmental public bodies.

  6.9  The National Audit Office could also strengthen Parliamentary scrutiny by increasing the number of reports on action taken by departments in response to recommendations by the Public Accounts Committee. These reports would form the basis for the Committee to question Accounting Officers on the progress they had made.

  6.10  The number of hearings by the Public Accounts Committee has risen by around a third in the current Session of Parliament. Increasing the number of National Audit Office reports would provide the Committee with greater choice on topics for examination. Members are also increasingly asking the National Audit Office for briefing on current issues and for ad hoc pieces of work.

RESOURCE IMPLICATIONS

  6.11  The additional cost of extending the scope of the National Audit Office's value for money work would depend on the number of extra reports produced. An investment of £1.6 million in 2003-04 would enable the Office to produce up to 10 extra value for money reports a year, although there would be a time lag in achieving this level of output. The Office would, of course, expect to secure savings of at least £8 for every £1 extra spent on additional reports.

REVENUE AUDIT

  6.12  The main focus of Parliamentary scrutiny is on the Government's expenditure programmes; on a pound for pound basis there is relatively less scrutiny of revenue assessment and collection arrangements. Parliament, however, also needs assurance about the management of risk attached to the assessment and collection of revenue, which is matching the growth in public expenditure.

  6.13  Recent National Audit Office reports, such as those on income tax self assessment and hydrocarbon oils, have drawn attention to the size of the tax gap, the difference between the amount of tax that could be collected and what is actually collected. Others have highlighted areas, such as duties on alcohol, tobacco, and hydrocarbon oils, where significant amounts of tax are being lost through fraud and evasion.

  6.14  In addition, the tax system is increasingly being used to provide support to families through tax credits, replacing benefits previously paid through the social security system. The arrangements for the payment of new types of tax credit include employers, who act as paying agents on behalf of the Inland Revenue through the PAYE system. Tax credits, which are set off against revenue in the Inland Revenue's accounts, represent a growing area of expenditure on which the National Audit Office will need to provide Parliament with assurance.

  6.15  There is a case, therefore, for increasing and strengthening audit coverage and Parliamentary scrutiny of this important but increasingly complex field. An expansion of work in this area would:

—  allow the National Audit Office to focus more attention on looking into significant revenue losses arising from activities such as smuggling and evasion;

—  help Parliament scrutinise new areas of taxation and developments in tax administration, for example the electronic submission of returns; and

—  ensure that important areas of spending on new tax credit programmes, where expenditure is set off against revenue, receive the same level of scrutiny as money voted by Parliament through Supply Estimates and accounted for through departmental resource accounts.

  6.16  An increase in the National Audit Office's work in this area would enable it to provide Parliament with wider and more in-depth coverage of the whole range of taxes in the Office's annual reports on Customs and Excise and the Inland Revenue. It could also result in additional reports to Parliament on individual aspects of the tax system.

RESOURCE IMPLICATIONS

  6.17  It is estimated that expanding work in this complex field to enhance Parliamentary scrutiny would require an investment of an additional £500,000 in 2003-04.

IMPACT ON RESOURCE BID FOR 2003-04

  6.18  The table below summarises the impact of the proposals on the net resource requirement requested by the National Audit Office for 2003-04.

  6.19  The proposals would add approximately £2.1 million (4 per cent) to the National Audit Office's forecast net resource requirement for 2003-04, representing an aggregate increase of 10 per cent over 2002-03. In subsequent years, the increase would remain at 6 per cent, as proposed in Chapter 5 of the corporate plan.