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29 Jan 2003 : Column 967—continued

6.10 pm

Mr. Howard Flight (Arundel and South Downs): I, too, wish to pay tribute to the enormous amount of useful work that the Public Accounts Committee and its Chairman, my hon. Friend the Member for Gainsborough (Mr. Leigh), have carried out in the past 12 months as they followed the money and investigated the efficiency and quality of those in the public sector responsible for how taxpayers' money is spent. I also pay tribute to Sir John Bourn, the Comptroller and Auditor General, and his colleagues whose reports do so much to inform the Committee's work.

I have spent many hours reading the Committee's conclusions in the nearly 70 reports that have been produced over the year. They are a veritable gold mine of information. I regret to say, however, that most of them constitute a depressing litany of the failings, wastes and inefficiencies of the public sector. I hope that all those hon. Members who seriously care about the effectiveness of public expenditure will read through the reports, even if they have been unable to attend the debate.

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It is a great shame that, except in limited subjects, the media have not and do not, give much coverage to the reports, because they represent the only independent, unbiased investigation of what goes on in the public sector. Some hon. Members may have read what Professor Minford said in December about the national statistics for 2001. According to him, although 8 per cent. more money was spent on public services, the public received only 3.1 per cent. in extra volume in terms of more or better services. After adjusting for 1.9 per cent. inflation, that constituted 6.1 per cent. of real extra spending and 3.1 per cent. of extra volume, so there was an overall shortfall to the taxpayer of 50 per cent. Given that spending on public services is rising at close to 10 per cent. per annum, that implies that about 1 per cent. of gross domestic product has been transferred from the private to the public sector by additional taxes, 50 per cent. of which has been poured into a black hole. The effectiveness of the public sector is crucial if we are to achieve what both sides of the House want to achieve.

I have no doubt that the overwhelming majority of the 7 million people who work in the public sector are conscientious and do their best, but the PAC reports tell a story of money being dissipated ineffectively, of bureaucratic incompetence and of waste, mismanagement and inefficiency—all, dare I say it, the diseases of monolithic state provision and production, which lack customer power. I think my hon. Friend the Member for Buckingham (Mr. Bercow) asked about quantifying waste. I added up what I found and it came to at least £18 billion. I recollect other colleagues placing the figure as high as £24 billion.

The Cabinet Office reports focus on value for money, but find that there is a lack of adequate consultation with customers to identify barriers to effective policies. There is inadequate consideration of the effects of policies by one Department on another, inadequate involvement with those who have to implement policies, and insufficient flexibility to adopt new methods of delivery. They find that Departments lack the confidence and data to terminate policies that are not working or are no longer cost-effective. None the less, £400 million per annum is being spent on policy-related research. On joint working and cross-cutting, the PAC, I am afraid, damningly comments that the civil service does not really know what makes sense.

The Government implicitly recognised the need to seek to achieve value for taxpayers when they set up the system of regulatory impact assessments in 1999. As Members will know, their effectiveness has been criticised in both Whitehall and the business community. In its review of RIAs, the Committee found no adequate Whitehall proposals for improvement, substantial variation in the quality of assessments, insufficient use of RIAs to support the Government's arguments against European Union regulations, and the need for external evaluation of RIAs by, for example, the National Audit Office to improve their effectiveness.

Geraint Davies: The hon. Gentleman said that a significant amount of money was going in, but there was insufficient output in his view. Does he accept that any organisation with a history of massive underfunding that then receives money should first return to normal

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working practices? After more investment, its output or the rate of return increases. The hon. Gentleman's recipe for slashing public investment by 20 per cent. is therefore counter productive.

Mr. Flight: I am surprised that the hon. Gentleman should fall for his party's Goebbels-like misrepresentations. Had he read my article, he would know that I was talking about the scope for cutting waste in certain areas—in central administration, for example, by up to 20 per cent. Similar conclusions fall from the reports of the PAC, of which the hon. Gentleman is a member. He is missing the wood for the trees—the history of the Committee's reports shows that, for a number of years, it has sought to deal with public sector inefficiencies and the reduction of waste. It is strange that some Members should sit back and say that the Committee is doing an excellent job—indeed, it is—while waste and inefficiency continue.

When looking at achieving better value for money from professional services, the PAC found that Departments had not responded adequately to major initiatives and that there was a lack of information on professional services expenditure, and the Comptroller and Auditor General identified a failure to save £65 million. Departments employ more than 3,000 internal economists, statisticians and lawyers, and, in recent years, have spent an estimated £1 billion on consultants. As one report comments,

Those recommendations are all wonderful—similar points have been made today—but why are they not being implemented? The PAC Chairman dwelt at length on several reports on health provision and the NHS. Several Members, particularly the hon. Members for Newbury (Mr. Rendel) and for City of Durham (Mr. Steinberg), focused on the report on clinical negligence. I find that report acutely disturbing. The problem is not new, but it is growing and it is not being tackled. In March 2000, 23,000 cases were outstanding, taking an average of five years to resolve. Provisions for expected payment of outstanding claims amounted to £4.4 billion. As was said earlier, allowing for the associated legal costs, there is a drain on health spending of £7 billion. In addition, the national health service will incur administrative costs to deal with those problems.

Legal costs exceeded the sums paid out in 65 per cent. of settlements. As of March 2000, a quarter of NHS trusts had not achieved even basic risk management standards set by the clinical negligence scheme, and two thirds had not achieved more than the basic standards. If ever there was a territory overdue for major change and reform capable of effecting substantial savings, that is it.

My hon. Friend the Member for Gainsborough and other hon. Members referred to the report on NHS waiting lists. Above all, the report describes the changes in culture and practice that are needed and that go beyond money. It cites doubts about the reliability of the figures, and suggests that they do not truly measure the time between seeing a GP and receiving treatment. As my hon. Friend pointed out, the report confirms that targeting in the NHS is resulting in clinical priorities not always being adhered to. It also states that, in some

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cases, the forced ties between GPs and local hospitals are resulting in increasing waiting lists, and undercapacity elsewhere outside the tied hospitals.

Reference has been made to the fact that staff in 10 hospitals were found to have been engaged in gerrymandering waiting-list data to hide missed targets. It was especially worrying to read that confidentiality deals were wrongly concluded, and that severance packages were paid to people who had departed under a cloud. The report also raised doubts about the ability of 189 trusts to handle complex disciplinary cases.

My hon. Friend also referred to the fraud figures in the Department for Work and Pensions. They are depressing to read. As other hon. Members have noted, not only is more than £3 billion being lost to fraud and errors, but there is no apparent probability that the targets to cut that amount—by 10 per cent. this year, 25 per cent. in 2004 and 50 per cent. in 2006—are likely to be met.

The Committee found what I can only describe as gross inefficiency and mismanagement in the medical assessment of incapacity and disability benefits. Fifty per cent. of cases are appealed; 40 per cent. of the appeals are successful, and 25 per cent. of appeals arise from decision-making failures in the Department. The report found that £40 million a year is lost in paying incapacity benefits to people who are no longer eligible. Worst of all, of 25,000 people called for examination each year, 17,000 are sent home because of over-booking.

The Committee also looked at the implementation of the national probation service information system strategy. It found that, although 49 out of 54 offices had installed the information system, only 16 were making serious use of case records available on it. There was also a lack of knowledge about how to use the system. As other hon. Members have noted, it is a disgrace that more than 40 per cent. of the fines imposed by the courts are not being collected. It is not just a matter of losing £160 million a year; it makes a mockery of our justice system.

Other hon. Members focused on higher education. I shall not repeat what they said, but I noted that it was reported that £725 million had been spent on additional courses at further education colleges. However, that report also states that some 38 per cent. of the additional lessons were rated as at best satisfactory or worse, and that many students left college without achieving qualifications.

The Committee found that losses to the Revenue from excise fraud amounted to between £6.4 billion and £7.3 billion, excluding value added tax, but that the courts had confiscated only £23 million between 1994 and 1998. The relevant report points out that, despite attempts to tighten up, the root of the problem is diagnosed as the excessive differentiation between United Kingdom and continental European duty rates, which represent an ongoing incentive to fraud. The report has found that, as Customs tighten up in one area, fraudsters tend to move to another.

The report also refers to VAT missing trader fraud, which is a major problem. It is unclear whether Customs and Excise started investigations and prosecutions without telling the Treasury, or whether the Treasury

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has been a little economical with the truth as to when it knew the extent of the problems and what Customs officials were doing.

The report on the Inland Revenue appropriation account for 1999–2000 points out that the Comptroller and Auditor General does not have access to employers' records to test the accuracy of tax credit payments, which rose to £4.5 billion last year.

The report on the contract extension for NIRS 2 makes the point that the then Department of Social Security had made a major mistake in not assessing the impact on pensions and national insurance legislation, or the risks and costs involved. It also said that the Accenture arrangements, and the out-performance of its targeted productivity by an enormous margin, suggested that the prices had been far too high. However, the report noted that the Department was locked in, and expressed grave concern about the £4 billion value of the contract to be rolled over next year.

Offenders in prison have already been referred to. Given that so much is spent per prisoner, it is incredibly depressing that six out of 10 are recommitted within two years of their release. As well as the other factors that have been mentioned, breaking the cycle of crime requires, in particular, effective action on drug abuse.

The Committee is virtually the only body monitoring the efficiency of the Ministry of Defence and of defence procurement; I do not think anybody else has commented on that territory. The 2000 report found that up to £102 million had been wasted in pursuing ineffective solutions to the Bowman equipment problem, and £155 million written off in connection with medium-range TRIGAT. It found that with TRIGAT in particular, the MOD took far too long to meet the armed forces' needs: the project took 26 years, and delivery was still not expected until two years after it had been cancelled.

The 2001 report describes progress as a result of smart procurement, but says that project cost control remains weak and performance measures confused. It recommends that the UK follow a more flexible approach, along the lines followed in the United States, to contract for development work more closely with the industry. A separate report on Ministry of Defence property management found that poor practices and weak oversight had left the Department open to the risks of fraud.

The PAC found that Department for International Development targets were also deeply compromised. The Department's fundamental target was to reduce world poverty, but the EU received 55 per cent. of the budget and was doing very little to direct help to poor countries. The Committee also found that, in general, the Department's targets were not well geared to informed decisions on the ground, nor well communicated.

Others have referred to flood risks. The report found that there was too much overlapping bureaucracy, waste and inefficiency. Fortunately, in West Sussex the chief executive used emergency powers and took the necessary measures to stop Chichester flooding. He reported that had he not used those emergency powers,

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it would have taken him more than a year to deal with the bureaucratic barriers that he would have been required to negotiate to implement the necessary measures.

Others have already commented on the report on improving air quality. It says that the targets were limited by gaps in evidence on the health effects of air pollution, and it comments on the absence of contingency plans if the targets were not met. The Department's approach to assessing whether the benefits of further possible improvements in air quality justified the massive costs that would be involved, failed to assess whether reducing one pollutant might increase the levels of others. The report notes that basing financial values on the expected benefits was nonsense. It seems to be saying, in polite language, that the whole exercise was pretty much nonsense.

Another of the Committee's reports has reviewed, over the past year, the scandalous way in which the sale of Britain's gold reserves was effected in the summer and autumn of 1999. It confirms that excessive transparency as regards announcing the sales resulted in hitting the bottom of the market cycle. I also make the point, which the report does not cover, that at the time many or several leading investment banks that had borrowed gold under the Bank of England's gold window were actually short of gold.

There is a report on the landfill tax credit scheme, which it says is administratively too complex, lacks accountability and transparency and has administrative costs of some 9 per cent. per annum.

The report on shifting to resource accounting is also depressing. It says that one third of 12 Departments' accounts are qualified and that, whereas the Home Office and DEFRA made virtually no improvement, 27 Departments failed to meet statutory deadlines for rendering their accounts for audit.

Therefore, right across the board it is a story, by any normal standards, of inefficiency, waste and ineffectiveness. Others have paid special attention to the territory of the private finance initiative and public-private partnerships; I particularly agreed with the conclusions drawn by my hon. Friend the Member for Tatton (Mr. Osborne). Obviously, this area has had some media coverage. The common theme was the need for more post-implementation professional management of PFI projects. Although there was well-recorded criticism of inadequate participation in gains achieved from refinancing, I was pleased to note that 58 per cent. of authorities with performance reviews had made deductions in their payments due to failure to meet particular performance standards. In the example cited of the Treasury buildings PFI, the report stressed the need for third-party competitive funding and the inappropriateness of the 6 per cent. discount rate, which was effectively rigging fair value comparisons. I hope that in future the Committee will look into not just the major MOD building refurbishment, but the drains and urinals project, where more than £20 million has already been spent on legal expenses.

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