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However, individuals cannot do it alone. Many permanent secretaries are the accounting officers who appear before our Committee, yet they have not a single financial qualification between them. They are not automatically held to account in the civil service for their management of resources. It cannot, therefore, be a surprise that so much remains to be done to embed in Departments a culture that money matters. A worrying lack of financial skills and awareness remains among non-finance staff. Budgetary control is hampered by inaccurate forecasting, and the quality of financial information needs significant improvement. If Departments
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cannot understand the cost of a service, the public can have little confidence that the service offers value for money.

To support better financial management, the National Audit Office has embarked on a series of reports that examine each Department’s financial management. For example, in the past two years, the Department for Environment, Food and Rural Affairs has budgeted to spend more than its Treasury funding limits. As the risk of overspending became clear, it had to make cuts, but there are also things to welcome. DEFRA has established more rigorous financial systems and this year’s accounts were delivered much earlier.

Our system of public financial management relies on transparency and clear oversight. Unfortunately, the Ministry of Defence tried to persuade us that the forecast costs of major defence equipment projects were under control by moving £1 billion to other defence budgets. Anyone with a passing familiarity with recent events understands that masking true cost is wrong and dangerous. I hope that the approach was unconnected to the fact that, despite initiative after initiative, lasting improvements in the delivery of vital equipment to our servicemen and women have yet to be achieved. Such creative reporting is the enemy of sound financial management and I do not believe that the Committee would want it repeated.

The Committee was also critical of aspects of the Ministry of Defence privatisation of QinetiQ. We recognise that the privatisation successfully protected the viability of that strategically important business and that the Ministry of Defence ran the 2006 flotation well. However, the NAO estimated that an extra £90 million could have been raised from the initial 2003 privatisation. Despite the Department’s protestations, it is clear that the sale went ahead at the worst possible time and that the Ministry of Defence weakened competition by eliminating bidders too early.

We were strong, too, in our condemnation of the conflicts of interest affecting QinetiQ’s senior management, which the Ministry of Defence failed to manage during the sale process. Public servants should not be negotiating their own incentive schemes with a preferred bidder. The result of the privatisation was a clear disparity in rewards, which the Committee found scarcely credible: while the taxpayer received £9 for every pound invested, QinetiQ’s senior management received an extraordinary £200.

Let us examine reducing internal costs. We all consider precious every additional pound that can be devoted to the front line and that does not have to come from increased taxes or raised borrowing. A year ago, the Government accompanied ambitious new efficiency targets with plans to sell £30 billion of surplus assets by 2010-11. The Committee had to express scepticism over claimed efficiency gains in the past, so I welcome the news that the NAO will audit those savings on a Department-by-Department basis. However, setting savings targets is easier than delivering results. Accounting officers should cut waste, reduce complexity and seek economies in some obvious areas.

Property should be an immediate target. That is elementary stuff. The Government are almost 40 per cent. worse than the private sector benchmark for using office space, with a potential saving of more than £320 million a year. I am pleased that the Office of Government Commerce has the ambition to seek savings
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of £1 billion a year, but it will need to do better than its performance against the two key milestones already missed. I trust that the Exchequer Secretary will look to her own house—or her own office block—given the Treasury’s parlous position at the bottom of the league for efficient use of space.

Another unrealised area for savings is using shared services. The Committee had strong doubts about the information on which the Cabinet Office’s target of £1.4 billion savings is based. Indeed, those Members present at the hearing will recall that the Cabinet Office had lost the calculations and the underlying data involved in its estimate.

Reducing complexity in processes is another requirement for an efficient public sector. Nowhere is the financial impact of complexity felt more strongly than in the Department for Work and Pensions; nowhere, that is, except for Her Majesty’s Revenue and Customs.

Benefit fraud and error continue to be a major drain on taxpayers, with £2.7 billion lost last year. I recognise the progress in reducing reported benefit fraud, but for customer and official error to have nearly doubled in the past five years to almost £2 billion suggests that our benefits system is not merely complex, but risks becoming unmanageable. We have said time and again that, if we are to get a grip on fraud and error, we must reduce complexity in the benefits system.

Meanwhile, our latest look at tax credits showed the highest rates of error and fraud in central Government. The annual amount may have reduced somewhat, but £4.3 billion remained to be recovered from claimants. In our hearing, we expressed doubt about how much—if any—will be recovered. Nearly £2 billion at least is in doubt. That level of error led the Comptroller and Auditor General to qualify his opinion on the HMRC trust statement for the sixth year running. Despite some improvements to the scheme, it is still not efficiently run. Everyone—claimant and taxpayer—has been let down. Let us hope that the pressure on families to pay back money that they have already spent does not make the coming economic winter coldest for those who can least afford it.

I come now to risk management. Sound financial management and reducing unnecessary administration are bedrocks to build on, as we have said again and again. It is the failure to manage risk that causes many project costs to soar and delivery to fail. The public sector must never be afraid to innovate or to take well managed risks. We never stand in the way of Departments doing that. Constant innovation is as essential to public sector success as it is to private sector success, but the consequences of inappropriate innovation and misunderstood risk have never been so powerfully obvious.

If there has, as yet, been no public sector equivalent of the weapons of mass financial destruction that have unleashed such devastation elsewhere, there remain too many examples for comfort of inadequate risk management in public sector projects. Government borrowing is at its highest for 60 years, so a sober look is surely needed at the risks of each new private finance initiative deal racking up debts for schools and hospitals. Those vital public services must remain both financially stable and operationally flexible. Knowledge and good health are too precious to put at risk.

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Only this Tuesday, the London news programmes reported on how NHS trusts in London are now facing severe difficulties with their PFI projects for new hospitals. In conference after conference and in parliamentary questions I have queried the level of debt that the PFI is building up for our children and grandchildren. I have been constantly reassured by the Treasury and, indeed, by the National Audit Office that everything is fine. Listening to those London news reports about the increasing difficulty of London NHS trusts, however, I began to wonder whether my warnings had in fact been pertinent. Many others are worried about the level of debt building up through PFI projects.

We saw inadequacies in risk management in the Foreign Office’s approach to our liability for the 14 overseas territories; in our update report on the single payment scheme, which is still causing problems for farmers; and in the BBC. Perhaps it would help the corporation if the NAO were given full access to the books. We say that as often as the BBC repeats its programmes, so perhaps there is no point in going on saying it.

Failures to anticipate and manage risk were encapsulated in our report on the Bicester asylum accommodation project. Almost £30 million was spent without delivering any benefit to the taxpayer or in any way furthering asylum policy. It was a controversial project, yet the Home Office did not recognise the serious risk of planning delay. Nor did it give explicit recognition to its own changes to the asylum system—a classic case of the right and left hands expressing surprise at meeting each other in the same place.

Let us hope that those in charge of a considerably larger project—the 2012 Olympics, which has been in the news again this week—proceed with a greater appreciation of the risks and a higher level of competence. I am sure that all Members present would like to congratulate our sportsmen and women in Beijing on their excellent performance. They finished fourth in the Olympic medal table and second in the Paralympic table four years ago. I was particularly pleased that our sailors who practise my own sport proved more successful than me in my recent damp experience in the Solent, where I managed to overturn my dinghy in a dead calm—perhaps an allegory for some of our political careers.

Applying lessons to the Olympics from the management of risk in other public sector projects does not give one a wholehearted sense of comfort. There should be realistic assumptions about likely costs and realisable benefits. The estimate of the 2012 budget at the time of the bid—at just over £4 billion, although originally it was £2 billion—was clearly unrealistic in ignoring major factors such as contingency provision, tax obligations, policing and wider requirements.

The budget has now mushroomed to £9.3 billion, while over-optimistic estimates of private sector funding have been scaled down from £738 million to £165 million today. Watch this space, as I am sure there might well be further reductions. With a revised budget, one could say that that is water under the bridge. My Committee welcomes the fact that the programme is broadly on track, but arrangements to manage the whole programme are not yet in place. We must guard against pressure to change venues and infrastructure and we must be quite clear about the costs and consequences of any such changes.

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Another lesson is that unquantifiable benefits should be made clear, yet the Government’s target for 2 million more people to participate in a sport or physical activity by 2012 is based on no conclusive proof that winning Olympic or Paralympic medals influences levels of participation in the community. We must not get too dazzled by the gold medals in Beijing. The PAC is not a tabloid; it is not bedazzled by gold medals, but works in the interest of the taxpayer. Instead, we need to see a plan for using sporting success at the games to improve levels of participation.

It is also important to have contingencies if matters take an unexpected course. To support medal goals, the Department for Culture, Media and Sport hopes to raise about £100 million from the private sector. Perhaps the Minister can confirm today that there is still a realistic chance of raising that money, as we warned back in 2006 of the risks of leaving it too late.

There must be a contingency plan for protecting the funds of the sports most likely to win medals in 2012, and the total final cost depends on proceeds arising from the disposal of assets such as the Olympic village after the games. In today’s climate, that looks increasingly uncertain. Given these uncertainties, potential demands on the £1 billion of contingency funds that have not yet been earmarked will need very careful monitoring.

Of course, no risk to any project can be effectively managed without accurate evidence. Departments are responsible for ensuring that Members of Parliament are not misled, even inadvertently, by the evidence they provide. We were therefore very concerned that the Department for Transport gave the Committee unreliable information on the rate of evasion of vehicle excise duty. We produced our report, drawing on its figure that the rate of evasion of duty by motorcyclists was 38 per cent. Yet shortly afterwards, new statistics for evasion, based on a new methodology, put the figure at 9.8 per cent. We expect Departments to be accurate; if they are not sure whether their figures are reliable, they should say so and, if necessary, apologise for any mistakes, as I did.

In conclusion, the Public Accounts Committee operates from the sound base provided by Tim Burr and the staff of the National Audit Office, who have our grateful thanks, as without them we could do nothing. I am also grateful to the Government for welcoming the Public Accounts Commission’s proposals to enhance the NAO’s governance. The commission has spent a lot of time on that and I think that it has it right. I look forward to the inclusion of the necessary legislative changes in the Constitutional Renewal Bill in the near future. In the meantime, I am pleased to say that the wheels are in motion to find a permanent successor to Mr. Burr.

As ever, we are ably assisted by Mark Etherton and the staff of the Committee office. I also pay tribute, of course, to my fellow Committee members, who continue to work hard to hold the Government to account, irrespective of party or politics. Week in and week out, the Committee gives meaning to the spirit expressed by Benjamin Disraeli that

It is a spirit that some appearing before us find disconcerting, but it has never been of greater value than in the current cold climate.

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Citizens’ interest in the earnings that they pass over to the Government does not end at the point of taxation. Those spending public money are exercising a trust on behalf of the public, and parliamentary accountability is the embodiment of that trust. The Committee provides a guarantee to the public that their interest is not left unrepresented. We do so in times of both prosperity and adversity. Our duty is unaffected by economic fortunes, and public servants’ duties to Parliament remain unaltered. Trying times may call for tough messages. The House and the public can, I believe, be assured that our Committee will not shrink from that task. I commend the motion to the House.

2.19 pm

Mr. Don Touhig (Islwyn) (Lab/Co-op): It is a great privilege and pleasure to follow the hon. Member for Gainsborough (Mr. Leigh). As Chairman of the Public Accounts Committee, he does an excellent job, and he has just given the House a powerful and in-depth appreciation of our work. We have spent many hours covering the issues that he has managed to cover in about 20-odd minutes. For that, we are in his debt.

I begin by paying tribute to the staff who assist members of the Public Accounts Committee. It is because of their hard work and professionalism in support of its members that the PAC is held in such high regard—and, of course, without the hard work and initiative of the Comptroller and Auditor General and the support of the National Audit Office, it would not be half as effective as it is. Without the National Audit Office, Parliament and our democracy would be the less, Governments would not be held to account, and public spending would lack the in-depth scrutiny that we are able to give it. Britain’s National Audit Office is, I believe, the envy of parliamentarians around the world.

The PAC is not simply an important cog in the wheel of Parliament; I consider it to be the very heart of the mechanism by which the people, through their elected representatives, hold the Government to account for public expenditure. The broad range of subjects that we investigate and the wide-ranging nature of our inquiries ensure that all Government Departments are open to examination. Echoing the words of our Chairman, the hon. Member for Gainsborough, I wish that the BBC—although it is not a Government Department—were part of that scrutiny. It is quite wrong, in my view, that a body that spends billions of pounds of public money is not open to the same scrutiny as any Government Department. It is the first to broadcast the news if anything goes wrong with any Department, while closing its own doors to detailed public scrutiny.

There can be little doubt that there is no hiding place when witnesses come before the Committee. We tend to give them a hard time. My hon. Friend the Member for Great Grimsby (Mr. Mitchell), who is present, has described the Committee’s work as a blood sport, and perhaps some of those who come before us have the same impression when they walk out of the door after a session of one and a half or two hours.

Let me take this opportunity to talk about some of the lessons that I have learned during my time as a member of the Committee. I suppose it is ironic, in one sense, that I should use the phrase “lessons learned” when it has become abundantly clear to me that many
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Departments are incapable of learning lessons as a result of projects that go wrong. The two overriding impressions with which I am left after each session of the PAC are that when a project goes wrong no one takes responsibility, and that—perhaps more important—it rarely seems to occur to Departments to conduct a “lessons learned” exercise when a project goes wrong, or indeed right.

At the time of the recent review of the accounts of Her Majesty’s Revenue and Customs, the Comptroller and Auditor General issued a qualified opinion on the regularity of tax credits because of the high levels of error and fraud. I believe that the hon. Member for Gainsborough said that this was the sixth successive year in which a qualified opinion had been issued, and there is still very little evidence that the problems with the system are coming under control. Six years on, the situation remains the same: £1 billion was overpaid in 2006-07, and £4.3 billion remains to be recovered from claimants, some of it because of error and some because of fraud.

Time and again, the complexity of applying for tax credits and the lack of clarity in the information that is provided when someone submits a claim have been cited as major causes of the difficulties with the system. Indeed, the Committee’s fifth report on tax credits states that many claimants struggle to understand them, and cannot understand why they have been overpaid either. There have been many complaints about the process for recovering overpayments, and the ombudsman continues to receive, and uphold, a large number of them; but only now is HMRC giving people support to help them to make their claims and avoid such problems. It is a little too late for families who may wish that they had never become involved in the tax credit system in the first place—which is a great pity, because it has made a huge difference and benefited a great many families in our country.

Given those problems with HMRC and tax credits, we have to ask, “Where are the lessons learned?” I am convinced that the failure to learn lessons led to the outrageous situation in 2005 involving the European Union single payment scheme for farmers. The cost of implementing the scheme was budgeted at £76 million, but in March 2006 it had reached £122 million. The Department for Environment, Food and Rural Affairs and the Rural Payments Agency had expected to reduce the agency’s staff by 1,800 and to make efficiency savings of £164 million by 2008-09, but difficulties in processing claims led to the recruitment of additional staff, and the scheme’s implementation has now cost £46 million more than the budget.

When I sit in the House or in Committee, I sometimes reflect on my time as a Defence Minister, when I struggled to find money to improve the accommodation of our servicemen and women and their families—which was often in the news—and on what I could have done with a fraction of that £46 million.

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