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Let me give an example of things going well. The hon. Members for Tooting and for Somerton and Frome (Mr. Heath) said that we should praise and encourage. Our robust hearing on the important subject of the Office of Fair Trading has already had a remarkably salutary effect. Under the Competition Act 1998, the Office of Fair Trading acquired far-reaching new powers, including the power to compel witnesses to give evidence and to fine up to 10 per cent. of turnover. It has also had a huge increase in its staff and budget levels.
When representatives of the OFT appeared before the Committee, however, we found that it had failed to make use of those powers in almost every respect. Inquiries that were meant to take between six months and a year were taking three years to complete. Not one of the standards that the OFT had set itself, as outlined on its website, had been met. Not once had the power to compel witnesses to give evidence been used. The situation was unravelling to such an extent that it gave the impression of being what I described as a meek organisation.
The chief executive of the OFT, John Fingleton, was only six weeks into his term of office when he appeared before the Committee. To his credit, however, he did not do what he might reasonably have been expected to do, namely to claim that he had not been there at the time. That would perhaps have been understandable, but instead he took our criticisms on the chin and, since that hearing, there has been a remarkable flurry of activity at the OFT. It has launched inquiries into supermarkets, school uniform suppliers and credit services, and there has been a real increase in the pace and relevance of its inquiries. It is too early to say whether all that will be matched by a sustained focus on quality, although I obviously hope that it will be. I commend the OFT’s positive reaction to the NAO report and to the rather robust exchanges with all hon. Members on the Committee.
The third subject that I want to talk about is tax credits. Many hon. Members have mentioned this already. Like the hon. Member for Glasgow, South-West (Mr. Davidson), I believe that this is an extremely important area of public policy. I believe that to be the case for two reasons. First, as the hon. Member for Somerton and Frome mentioned, the tax credits policy has caused the report and accounts of the Inland Revenue to be qualified four times in a row. Given that that is the flagship financial Department of the Government, responsible directly to Treasury Ministers, this is a matter of profound concern that should rightly be the concern of the Committee.
Secondly, the new tax credits system cost £16 billion, which is a huge sum that requires proper scrutiny. As the hon. Member for Glasgow, South-West said, the Committee is the only forum in which this amount of Government spending can be scrutinised—dare I say professionally?—without the partisan knockabout that we get here. I should like to place on record my disappointment in the degree of scrutiny of the tax credit system that we have been able to exercise. In the pre-Budget report, the Government changed an important part of the tax credit policy—rightly, so far as one can tell on paper. They increased the disregard for people’s changes in income from £2,500 a year to £25,000 a year. That is a huge increase that will have huge financial consequences. It is therefore important that the Committee should be able properly to interrogate the reasons for that decision, to test whether the change in policy offers value for money, and that is what we tried to do.
Committee members from both sides of the House asked some very relevant questions. Perhaps I should follow the example of the hon. Member for Tooting and praise my own questions, as he did. I asked the questions that were on everyone’s mind. I asked the deputy chairman of Her Majesty’s Revenue and Customs the following question:
“Part of the assessment”—
“must have been to have an idea of what the pure fiscal effect was of increasing the disregard. That work must have been done; you will confirm that?”
“I believe it has been done.”
“Since that information is available, will you write to me through the Committee giving what the assessment is of the pure component of increasing the disregard?”
“Certainly, in liaison with our Treasury colleagues. We will write to the Committee.”
I said, “Providing that information?” and Mr. Gray said, “Yes.”
That information has not been provided. In the Committee’s report, the evidence that HMRC submitted said, in complete contrast to what was told to us in the hearing:
“It is not possible to produce reliable estimates of the cost of the individual elements on their own”.
When we
discussed our draft report as a Committee, we noticed that the
information had not been provided,
and we said that if it had been overlooked, we ought to draw attention
to it. I know that Labour Members participated in that discussion. We
therefore placed in the report recommendation 3, which
said:
“Before the Pre-Budget Report the Department estimated the cost of this element of the package. The Department should provide details of the estimate it made”.
In the Treasury minute responding to the Committee’s recommendations, as Treasury minutes are required to do, we have yet again an answer that is waffle to the point of being gobbledegook. It says:
“The figure refers to a change in what claimants would be entitled to. This does not translate into a cost to the Exchequer”.
That flies in the face of the reasonable evidence that HMRC gave to the Committee.
Just to emphasise the point that this information exists and is not being provided to the Committee, I can tell the House that the Institute for Fiscal Studies, which no one can accuse of being politically partisan, put in a freedom of information request to obtain that information. In a letter refusing to disclose it, HMRC wrote to Mike Brewer of the IFS:
“You have requested information that HMRC holds about the likely cost in 2006/7, 2007/8 and 2008/9 of increasing the earnings disregard in tax credits from £2,500 to £25,000...In this case we have concluded that the public interest in withholding the information outweighs the public interest in disclosing it”.
I am very willing to give way to the Financial Secretary if he can give us the Treasury’s calculation of the increase in the disregard or explain just what is the public interest in withholding from the Public Accounts Committee this crucial piece of evidence that witnesses before the Committee said existed, that they promised to provide to the Committee and that they have admitted to the IFS exists but have not provided.
We work quite hard as a Committee, meeting twice a week. We take our responsibilities seriously. As the hon. Member for Glasgow, South-West mentioned, for the most part we do not have party politics before our eyes when we are scrutinising Government value for money. We all seriously want to get to grips with the question of tax credits. My view, like that of many Labour Members, is that tax credits have many virtues and it is important to get them right and solve some of the overpayments that cause such distress to many of our constituents. We can judge whether that is the right reform only if the Government provide us with the information to make that assessment.
I hope that the Financial Secretary will reflect on the contributions that have been made and, perhaps, trust the Committee and Parliament a little more to do our job in helping to scrutinise these measures. Even if it proves a little embarrassing for Ministers, the function of the Public Accounts Committee, going back into the mists of time, as the Chairman reported, is sometimes to ask difficult questions. It does not give confidence, and it is not an impressive performance by the Government, if information is withheld, impeding us in our duty.
10.53 pm
Mr.
Ian Davidson (Glasgow, South-West) (Lab/Co-op): I begin my
remarks with a tribute to the Chairman of the Committee. I am often
asked by my colleagues and, indeed, by Opposition Members what it is
like
serving under the hon. Member for Gainsborough(Mr. Leigh). They
ask with some trepidation, as though they expect him to behave in a
somewhat wild manner. I indicate that indeed he is the very essence of
a good Chairman. Despite his views, which when expressed in this
Chamber I regard as extreme in the extreme, he has chaired the
Committee with impartiality and fairness on all sides. Indeed, he has
defended the position of the Committee against assaults from outside.
For example, Nicholas Soames, the Member for Prince Charles, has on
several occasions berated him for allowing the
Committee—
Madam Deputy Speaker (Sylvia Heal): Order. I remind the hon. Gentleman of the custom of the House of referring to other hon. Members not by their names, but by the constituency that they represent.
Mr. Davidson: May I refer to the hon. Gentleman to whom I referred earlier as representing a constituency somewhere in England? I am afraid that I am not aware of his constituency. He gives the impression of seeking to represent a particular individual who, I understand, is not a voter. He regards any inquisition or discussion by the Public Accounts Committee of the financial circumstances of that individual as almost a personal affront. While I anticipate that the Chairman might have some sympathy with that point of view, he has nevertheless defended the Committee’s right to conduct those investigations over a long period, for which we are grateful. Given his encouragement, we will continue to do so.
That is a mark of the political impartiality of the Committee, which has been and continues to be one of our strengths. We meet as a group of partisan politicians in an environment that is almost entirely removed from the cockpit of partisan conflict. There are the occasional Whips’ narks from one side or the other who wish to intrude in our debates in the manner for which they have been wound up. However, the vast majority of members of the Committee spot that right away, and more sensible voices prevail.
Madam Deputy Speaker: Order. The scope of the motion is very wide, so I hope that the hon. Gentleman will now address his remarks to one of the numerous reports listed in it.
Mr. Davidson: Indeed, I will do so in the remaining four hours of my contribution. [Laughter.]
Mr. Bacon: Does the hon. Gentleman recall the maxim of Fidel Castro, that any speech of less than four hours cannot be doing one any good?
Mr. Davidson: Indeed, I was reminded of that when the hon. Gentleman was speaking earlier. Perhaps he did not speak for four hours, but it certainly felt like it.
Madam Deputy Speaker: Order. The Standing Orders of the House and the occupant of the Chair will ensure just how long any hon. Member will speak.
Mr.
Davidson: I look forward to reading Hansard
tomorrow to check exactly how long the hon. Gentleman was speaking
for. It may have been for less
than four hours, although I did find myself losing the will to live
after two and a half.
May I turn to the way in which our debates are conducted? Ever the assiduous member of the Committee, I think that I am the only one who has brought the complete box of reports to the Chamber. Following the hon. Member for Tunbridge Wells(Greg Clark), I am tempted to read the edited highlights of my contributions to the Committee, but I shall refrain from doing so.
One of the values of the Committee is the way in which we are, in many ways, about the only genuine counterbalance to the permanent Government. Often, when issues such as tax credits become the subject of partisan debate, there is a knockabout involving a group of Government or Opposition Members who feel obliged to defend what is being done, eventhough it is indefensible. Only in a relatively impartial environment are we able to have a genuine interrogation of what is being done in our name by the civil service and bureaucracy.
If people are not entirely convinced that that happens in the United Kingdom, they should have a look at the reports dealing with Northern Ireland, of which I have a number here. They reveal the stultifying effects of permanent government without serious parliamentary challenge. I think we would all accept that, because of the unique circumstances in Northern Ireland, we do not have the degree of scrutiny of the civil service and bureaucracy that would be possible elsewhere.
What has happened in Northern Ireland is not that governance has been improved, but that governance has been allowed to decay and decline. Despite the excellent efforts of the Northern Ireland Audit Office, we see a quality of governance in Northern Ireland that would not be acceptable if there were reasonable scrutiny in any of the other three nations that make up the United Kingdom. We have played a particularly valuable role in that regard. I hope that that the standards that we have tried to introduce in Northern Ireland will be maintained by the Assembly once it is re-established.
I want to say something about the relationship between the Committee and the National Audit Office. Undoubtedly, many National Audit Office staff members are cleverer than all the members of the Committee put together, although there are occasions when I wish that they did not draw that to our attention so forcefully. Our role is distinct from theirs, and we must recognise that our action in championing their access, standards and criteria is valuable. We need not be experts in every subject that they investigate; in many instances, it is sufficient for us to put our weight behind their efforts.
If I have a
criticism of the National Audit Office, it is one that I have voiced
repeatedly when it has produced reports. I do not think that it pays
enough attention to the social class impact of Government policies.
Itdoes not carry out a “social class health
check” of policies and their implementation. I am continually
disappointed by the way in which it allows many Departments not to make
any assessment of the different impacts that their policies have on
people of different social classes, and the lack of take-up among
those with lower incomes and the like. I feel that we should try to
incorporate
that.
Helen Goodman: Was my hon. Friend particularly reminded of that recently when we took evidence from the Duke of Westminster, who had broken through every barrier to become the first major-general in the Territorial Army since 1945?
Mr. Davidson: That is a useful point. It proves that we are an open society. Any old jerk can become the first major-general in the Territorial Army. To be fair to him, he did very much resent any suggestion that he had got there other than on merit. The subtext was that any member of the aristocracy could have become one of the Territorial Army’s high heid yins.
It was interesting that when I asked whether any proles or plebs had reached such a level in the TA, not only was I told that the TA did not keep the figures; the witnesses resented the suggestion that anything of that sort should be monitored. I think the National Audit Office often overlooks the unconscious assumption that we live in an open society, and that there are no barriers. If I have the Chairman’s support, I want to continue to be able to impress such points on the NAO, and to raise them in Committee reports. I think it is up to us, as well as pursuing questions of value for money, to try to ensure that those citizens who are in the least fortunate positions in our society have just as much access to the resources provided by taxation as the Duke of Westminster.
I particularly want to make another point. I have brought my box of reports along with me, but colleagues will be pleased to hear that I am not going to read out the highlights of speeches. Rather, I want to demonstrate the scale of work that we undertake. I wonder whether the time has come for us to consider splitting the Committee in some way in order to allow Members to specialise rather more. It is impossible for us all to make meaningful contributions based on personal experience on every matter that comesbefore us.
We all want to discuss issues with the witnesses in front of us, but in my experience, some of the most constructive and positive contributions to questioning have come from those who can cast some light based on their personal experience, their constituency activities, or some expertise that they have gained elsewhere. It is not possible to have that degree of specialisation across the whole range of governmental activities. If we were to split the Committee to allow a degree of specialisation, it would reduce the burden on individual Members. None of us could adequately prepare for every Committee that goes on every week. We have to pick and choose, so some are missed out. We might be able to make better contributions if we were to revise our methods of operation.
Finally, Madam
Deputy Speaker—you will be aware that when an MP says
“finally”, it usually means that he or she is only about
40 per cent. of the way through, but wants to give the audience some
hope; on this occasion, however, I mean finally—I view serving
on the Public Accounts Committee as one of the most constructive roles
that an MP can have. I am in the fortunate of
position of having spent almost all my time in the PAC under a
Conservative Chairman. I say that because it means that Conservative
Members are in opposition and we are in government, which has been a
pleasure and long may it continue. I look forward to serving,
hopefully, under several other Conservatives. I am conscious that each
member of a Select Committee can serve for only eight years. When one
of my colleagues said that change might come in 12.5 years, I thought
that it was going to be much longer than that before the Conservatives
get into power. I look forward further to serving on the Committee and
hope that, under the inspired chairmanship of the hon. Member for
Gainsborough—or perhapsthe hon. Member for Tunbridge
Wells (Greg Clark) or the hon. Member for South Norfolk (Mr. Bacon) in
due course—we will continue to hold the Government to account,
as we have up to now.
11.7 pm
Mrs. Theresa Villiers (Chipping Barnet) (Con): The hon. Member for Glasgow, South-West (Mr. Davidson) is always a tough act to follow. In winding up what has been a very interesting debate this evening, I would like to pay tribute to the work done by the Public Accounts Committee and its Chairman, my hon. Friend the Member for Gainsborough (Mr. Leigh). I would also like to congratulate and thank Sir John Bourn and his staff at the NAO on the vital work that they do.
The PAC and the National Audit Office carry out vital work in safeguarding taxpayers’ money and rooting out inefficiency, incompetence and waste in the administration of government and the public services. Their work has been, as we have heard this evening, wide ranging and uncompromising over recent months. In his wide-ranging speech, my hon. Friend the Member for Gainsborough covered the Committee’s work, going back as far as 1690. He covered military readiness, consular services, adult literacy—and I was particularly pleased that he highlighted the Committee’s important work on cancer treatment.
On cancer, we have an example of both good and bad news. The PAC took note of the work of the cancer networks and improvements in cancer care, but it also felt that better co-ordination between those networks and the primary care trusts that actually spend the money was desirable. It signalled that simpler, clearer and more easily accessible guidance on how to detect the early-stage symptoms of cancer could do much to help remedy the deeply worrying disparities between cancer outcomes in affluent and more deprived communities. I have no doubt that the Government will act on that wise advice of the PAC.
The hon. Members for Portsmouth, North (Sarah McCarthy-Fry) and for Bishop Auckland (Helen Goodman) both focused on the Committee’s excellent report on value for money in the public services and on enhancing better project management. They also mentioned the vital importance of pilot projects and of ensuring that lessons learned in one Department can be spread across other Departments as well. They both looked at tackling complexity, especially in the benefits system, and acknowledged the challenge of the difficult tasks of simplification and of reconciling and balancing the needs of flexibility and simplification.
My hon. Friend the Member for
South Norfolk(Mr. Bacon) expressed grave concern that the Home
Office’s accounts were published with a complete disclaimer by
the Comptroller and Auditor General. In effect, they were presented to
Parliament unaudited, which is unprecedented for a major spending
Department. My hon. Friend also outlined ways to prevent the NHS
Connecting for Health scheme from turning into the sort of IT disaster
that the PAC has all too often encountered. My hon. Friend the Member
for Tunbridge Wells (Greg Clark) again had some good news and some bad
news. He praised the impact of the PAC’s report on the Office of
Fair Trading and noted the constructive response to the PAC’s
criticisms and the increase in activity that they triggered, but
he—like the hon. Member for Somerton and
Frome(Mr. Heath) and others—expressed concern about the
crisis in the tax credits system. He noted the Committee’s
hard-hitting report on that subject, which was also mentioned by the
hon. Member for Tooting (Mr.
Khan).
As the Chief Secretary acknowledged in the debate on 7 June, there is now a consensus across the House in support of the principle of tax credits, but the PAC’s April report is just one of a succession setting outthe continuing and severe difficulties in their administration. It highlighted the fact that HMRC overpaid £2.2 billion in tax credits to 1.9 million families in 2003-04, much of it due to the design of the scheme, which bases provisional awards on income and circumstances from the previous year. The House has of course heard countless examples of the hardship overpayment causes to millions of families landed with bills for repayment that they find it hard to meet. The latest figures show that of the 6 million families who receive tax credits, around 2 million were overpaid and 1 million underpaid, meaning that nearly half the payments in the system were incorrect.
The Committee noted that by March 2005, HMRC had set aside some £1 billion to cover debts that it was not confident that it could recover. And the loss to the taxpayer does not end there. Increasing the level of income disregarded for the purposes of calculating the final award has a significant cost. It has the same effect as formally writing off overpayments that cannot be recovered. The increase in the disregard is a key part of the package in the pre-Budget report designed to tackle problems in the tax credits systems, but—as my hon. Friend the Member for Tunbridge Wells said—when officials were challenged by the PAC about the cost of that change, they were unable to provide a figure. Paul Gray of HMRC indicated that such a figure could be supplied, but, regrettably, none has yet been disclosed to the Committee or the House.
The report revealed the continuing and grave problems with the tax credit computer system which was responsible for at least £184 million in overpayments in 2003-04 and 2004-05. Amazingly, of the £71.25 million of compensation that the Government agreed with EDS, which supplied the defective computer systems, some £26.5 million depended on EDS winning further work from the Government. As my hon. Friend the Member for Tatton (Mr. Osborne) put it, in his characteristically forthright way:
“the company which ministers believe is guilty of messing up the tax credit computer system will pay full compensation only if it is given a chance to mess up another government computer system.”
The Committee concluded that HMRC did not have reliable or up-to-date information on levels of claimant error and fraud in tax credits, and that was seriously impairing its management of the scheme and its ability to safeguard taxpayers’ money. As we have heard, an organised assault on the tax credits website led to its closure in December 2004. We also know that at least £1.2 billion was lost to fraud and error in 2003-04, and possibly a great deal more. Again, the Treasury faces the acute embarrassment that the Comptroller and Auditor General has qualified his opinion of the Inland Revenue’s trust statement because of fraud and error in the tax credit system.
The significant sums lost to the Exchequer as a result of tax credit overpayments need to be viewed alongside the PAC’s reports on £3 billion lost in benefit fraud and error and nearly £13 billion lost in fuel duty and VAT fraud, the latter now so large as to undermine the accuracy of Britain’s trade figures.
A continuing challenge for the Public Accounts Committee is to ensure that the public sector acts in a commercially hard-headed manner when negotiating to buy goods and services from the private sector. That is one of the key factors highlighted in the Committee’s report on “Achieving value for money in the delivery of public services”, about which we have heard much this evening. Too often, the Committee has seen examples of where there is a manifest failure to achieve a good deal for the taxpayer.
For example, two years after the new Norfolk and Norwich university hospital opened, Octagon, the private finance initiative company that built it, refinanced the transaction, trebling the rate of return that it had predicted for its investors, from 19 per cent. to a staggering 60 per cent. The hospital trust received only 29 per cent. of the refinancing gains, despite taking on new risks and increasing the duration of the contract. Octagon kept £82 million. The Committee concluded that that refinancing produced, in its words,
“a balance of risks and rewards between the public and private sectors that, even for an early PFI deal, is unacceptable.”
The gross imbalance resulted from a failure to include a clause in the original contract to allow the benefits of refinancing to be shared between the public and private sectors. The Committee condemned that failing and noted that such clauses are now expected to be included in PFI contracts. The Committee famously described the deal as the
“the unacceptable face of capitalism”,
but the report highlights failings in government aswell. That is a bipartisan point, because the start ofthe negotiations took place under a Conservative Government, although the negotiations were concluded under Labour.
The evidence given to the Committee indicates that the Treasury and the Department of Health actively discouraged the trust from seeking a better deal. George Monbiot put the point with devastating clarity in The Guardian:
“The deal...was an Easter Egg hunt. In order to persuade the corporations to participate, the government left an extra £95m in the contract for them to find. This money represents the difference between the financial risk the government said they would carry and the far smaller risk...to which they were actually exposed.”
Mr. Davidson: I would be grateful if the hon. Lady told us the last time when a Conservative Finance spokesman favourably quoted George Monbiot and The Guardian in one sentence.
Mrs. Villiers: I suspect that it is unprecedented. It just demonstrates how the Conservative party is changing. George Monbiot said:
“The Department of Health told me that the government had not demanded a refinancing share in its early PFI contracts because they would not have offered ‘value for money’”.
“If the department believes that letting private companies walk off with £95m of free money represents good value, it's not surprising the NHS is in crisis.”
The PAC is, of course, presented year in year out with examples of projects that go over budget and out of control. For example, the Diana, Princess of Wales memorial fountain had to be closed for major alterations three weeks after it opened owing to design flaws which caused repeated accidents and flooding. The cost rose from £3 million to £5.2 million as a result of what the Committee described as “basic project management failures”. It wisely advocated that lessons be learned in planning the memorial for the Queen Mother and suggested that water-based features were probably best avoided.
Another project that caught the Committee’s attention was the BBC’s White City 2 development. The BBC made 300 variations to the contract and had to pay an extra £60.9 million above the price originally authorised by its governors. However, as we have heard, perhaps the key point to take away from that report is that it forms part of a voluntary agreement with the BBC governors to allow the NAO to undertake certain limited studies of BBC activity. The voluntary agreement ends in 2006 and the BBC wishes to retain the final say over what subjects the NAO can and cannot investigate in relation to the BBC’s activities. The BBC spends very significant sums of taxpayers’ money. In the coming years, as we have heard from my hon. Friend the Member for Tunbridge Wells, we will face many difficult decisions on matters such as the interrelationship of the BBC’s commercial and public sector activities, its role in new digital services and its internet presence, not to mention its significant taxi and hospitality bills. As the Chairman of the Committee said in his appeal, surely it is now time for the BBC to receive the same scrutiny as Departments that are also entrusted with taxpayers’ money. I urge the Government to give the Comptroller and Auditor General full access and scrutiny powers over the BBC.
As the time gets
ever later, I turn lastly to the PAC’s damning report on the
deportation of failed asylum applicants, to which several hon. Members
referred. In its report of March this year, the PAC concluded that the
UK’s asylum policy had been undermined by the inability of the
immigration and nationality directorate to deal promptly with asylum
applicants whose request to stay in the UK had failed. The IND admitted
that it did not know how many failed asylum applicants remained in the
UK. The Committee concluded that it would take a staggering 10 to 18
years to clear the ever-increasing backlog of removals. The IND also
admitted that more than 400 foreign criminals had
been released from prison into the community. We now know, of course,
that the numbers released were actually considerably higher and that
many of those people had committed serious
crimes.
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