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22 Oct 2009 : Column 1110

Mr. Breed: I am only too aware of that. Even in my constituency, the very small firms that can be light on their feet, which are often set up by people who come out of the military to set up their business on retirement-experienced technicians with enormous experience and the qualifications to undertake some of this work-find it difficult to engage with the large firms on the contracts. One way in which procurement can be speeded up and quite a lot of money can be saved is if the small and medium-sized enterprises are much more engaged in the process, perhaps through some sort of contractual arrangement. I entirely agree with the hon. Gentleman.

The strategy may be a bit outdated, having been written more than 10 years ago. We know that there is to be a strategic defence review, but many of the earlier assumptions have been undermined by our experiences in Iraq and Afghanistan. The fact that our enemies can move around much more swiftly and expose weaknesses in our defences means that we need to review our urgent operational requirements much more often. As the PAC report pointed out, future contracts need to be much more flexible and adaptable so that we can be much lighter on our feet. The key question is how that recommendation can be taken into account, as this has always been an extremely difficult and perennial problem, going back decades if not longer.

The Committee Chairman mentioned the report into the oversight of the CDC group by the Department for International Development. The matter had been brought to hon. Members' attention somewhat before the report was begun, although I suspect that the fact that everyone had so much on their plates meant that not many got around to looking at it. I was extremely pleased with the report, and mention has been made of matters such as the chief executive's salary and so on, but what stands out for me is the fact that CDC is not doing what it was set up to do.

We need to revisit how CDC operates. Of course it is important that it makes a profit, but that is a heck of a lot easier to do if it deals only with certain markets and businesses. Enhanced performance may lead to larger bonuses-who knows?-but the assumption was that CDC would work in smaller markets, with more difficult companies and in the more difficult areas of the world, because that was where there would be a crying need for support. It appears that DFID has taken its eye off the ball, so it needs to go back and make sure that CDC does what we believe that it should. That may make the sort of profitability that CDC has achieved a heck of a lot harder, but the organisation was not set up to make easy profits in easy markets. That is not what Parliament or the country want: we want it to go into the more difficult areas of the world and help developing countries to get their indigenous businesses going. In that way, they can become more successful economically and less in need of aid and assistance as a result.

The report contains some excellent stuff. I know that it has probably been alighted upon because the media are very interested in matters such as the salaries of chief executives, but it put a spotlight on the operation of CDC and showed that it was not really doing what we wanted it to do.

I turn now to the letting of rail franchises. I use the train to and from Cornwall every week and am only too well aware of the performance of the rail franchises, especially First Great Western. The company's acronym
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is often expanded in a rather derogatory way but-I do not know whether this has anything to do with the PAC-there has been a lot of improvement even though there is still a long way to go. However, there are many matters on which it has been difficult to shine a spotlight. In my part of the world, for instance, FGW's intention to raise car parking charges did not exactly encourage people to use trains.

Another problem has to do with the massively complex and expensive fare structures. A fortnight or so ago, I bought a ticket at Paddington using my senior rail card. I was given a ticket for £40, and I said, "No, you must've got this wrong." The person in the ticket office replied, "No, this is a special deal for people over 55. We assumed that you must be over that age because you've got a senior rail card." I asked whether it was a return, and was told that it was. It is astonishing that one can get a return all the way to Cornwall for only £40. I was not aware that it was possible-although I suppose the offer had been marketed-because the normal cost is around £200. The fare structure is so extraordinarily complex and expensive that it must be beyond most people.

The problem is that the train companies are competing against internal flights. I suppose that some people might see it as unfortunate, but it is cheaper to get a flight from Plymouth to London City airport than it is to travel by train. The flight takes an hour and half, but the train takes three and a half hours, plus half an hour on all the other bits and pieces. We are trying to promote rail use, but it is cheaper to travel by air.

Then we have the overcrowding problem. Some people thought that that was a planned strategy-that if there was lots of overcrowding, the company could stick the price up and thereby both adjust its profitability and decrease the overcrowding. The whole question of rail franchising will come back again-at least I hope it will. Although there has been reasonable improvement recently, there is still a lot to be done. If we want public transport that is inexpensive and easy for people to use, so that we can meet our emissions targets and so on, we will have to look more closely at how rail franchises are operating and whether the companies are doing what they said they would do.

As a member of the Treasury Committee, it was inevitable that I would want to discuss the PAC's 31st report, on the nationalisation of Northern Rock. The Treasury Committee reported on that as well, of course, and I think our reports complemented the PAC report well. I have never taken the view that the Northern Rock affair was necessarily a forerunner of the disaster that we have seen unfold since. Northern Rock was not, in the jargon, a casino bank; unfortunately, however, it had access to the casino and it was that access that greatly assisted its downfall. Very early on, the FSA, if not the Bank of England, identified Northern Rock as one of the legendary outriders, operating way beyond the general mass of its competitors and going far out on a limb. However, had that bank undertaken some de-leveraging and sorted out some of its wholesale contracts and so on, I think it would have had a fighting chance of avoiding failure and subsequent nationalisation.

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I wish to examine the idea of success and the direction in which we are to go now. The PAC report comments that

It has been interesting to see reports of Goldman Sachs's current profitability and the bonuses it is paying-no doubt, it secured a decent fee for its work for the Treasury. It is also interesting to read that the agreement between the Treasury and Goldman Sachs, which

was not reached until some time after Goldman Sachs commenced its work, but that "success was not defined." I am not certain whether success is defined now or what Goldman Sachs is likely to receive by way of a success fee. Nationalisation is one thing, but if the public are to get some success out of Northern Rock, some hard work needs to be done. It is not just a matter of paying Goldman Sachs some sort of success fee, based, no doubt, on its view of what constitutes success.

Some work has recently been done on the potential for restoring Northern Rock as a mutual-dividing it into a good bank and a bad bank, with the bad bank being managed out by UK Financial Investments and the good bank being put back into the market as a mutual, perhaps to encourage revitalisation of the mutual sector. Some good work has been done on that, particularly by the Building Societies Association. I hope that the Treasury, the Public Accounts Committee, or both will consider the possibility that value for money for the public may be gained from more than the financial repayment of the support Northern Rock was given. If Northern Rock was returned to the market as a mutual, it could be a catalyst for the revitalisation and expansion of the marketplace for financial companies-banks and mutuals. Our aim could be not only to get Northern Rock back into the market and to get back some of our money, but to use it as a means of kick-starting a renaissance in the mutual sector. I hope that the PAC, the Treasury or both will look at that in the not-too-distant future.

Finally, I thank the members of the Committee for all their hard work. I think that it is about the oldest Committee, and it is clearly one that should be given all the support and resources that it needs. After the next election and over the next few years, saving money, as opposed to just spending less, will be an extremely important component of any Administration. Whoever serves on the Committee, they will be providing a valuable service to this country and to the enormous number of people who feel very let down in many ways. If they begin to see that Parliament is on their side in saving their money and improving their services, that will do a great deal more to restore the reputation of this House.

2.45 pm

Mr. Austin Mitchell (Great Grimsby) (Lab): We can assume that this will be the final debate about the reports and activities of the Public Accounts Committee before the election, which will probably be on 6 May next year, I understand. Before people rush from the Chamber to make a note of the date in their diaries, I should say that it is not infallible. I hope that this will not be the last debate, however, because we will continue
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to work for up to six months until the election and there will be matters to report on during that period. We need to keep up the pressure on government to improve performance which these six-monthly debates give us. This is our one voice that is heard more widely than our mere Committee hearings and reports, and we should use it to the maximum.

As befits a deferential member of the Committee, I agree absolutely with our Chairman, the hon. Member for Gainsborough (Mr. Leigh). He gave a commanding overview of what we have reported, and he pointed out the serious savings that, based on our reports, can and should be made. The Committee has identified a number of failures that if rectified would produce serious money that could be used for other things which, if implemented, as I hope they will be, would provide better government and a more efficient public service. We need to keep up the pressure, rather than say that we will abandon it now to go into the wild fields of electioneering, with all the media exaggeration of what can and cannot be saved. Today I am perfectly happy to echo the hon. Gentleman, and to take time out of my own campaign to retain Great Grimsby as a Labour seat to back him and the Committee's efforts.

Being a member of a Select Committee is generally one of the few delights of a Back Bencher's somewhat dreary and pressured existence, but being a member of the Public Accounts Committee, which as the hon. Member for South-East Cornwall (Mr. Breed) said is the oldest-and certainly the best-Committee, is the best part of the job. It has been a sheer pleasure to be on the Committee and see so much of the inner workings and possible failures of government, so I congratulate the Chairman on his chairing of the Committee and his summary today of our performance. With that grovelling servility, I shall move on to my own remarks.

These debates are a chance to establish an overview of the Committee and the failures in government that it points up. At the Public Accounts Commission the day before yesterday, I was delighted to hear that that is also the intention of the new Comptroller and Auditor General. He wants to develop a system for bringing out the common patterns of failures and weaknesses in the public services. I hope that that will ultimately produce a manual of mistakes that have been made, which will be an invaluable practical teaching guide, particularly for the training of civil servants. It will also be valuable to us, as a Committee, in letting us know what to look for in terms of the common patterns of failure and chief weaknesses. That will put our debate on a very practical level as opposed to the emotive comment and populist onslaught from the media, who take minor failures, exaggerate them as if they were general practice and then denounce the entire machine-the civil service and Government Departments-for failing to take account of them.

That emotive level of debate is not an appropriate one for us: our job is to find the common patterns of failure and to eliminate them. That will become even more necessary as the recession increases the importance of Government intervention. From my point of view politically, the problem is not big government, as the Leader of Opposition has identified it-it is not about the scale of government but about the efficiency of government. Bigger government is inevitable as the only way of coping with a recession and economic difficulties.
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Our job, as a Committee, is not to argue about the scale of government but to make it more efficient and to see that it functions economically and effectively to serve the purposes of the public. We are not part of the populist argument, but we are an invaluable tool. The real need is not for bigger or smaller government but for efficient government and an efficient public service, which will itself be more economical, as our Chairman said, and save an enormous amount of money for the wider purposes of government, giving more satisfaction to the people.

I want to concentrate on the pattern of common failures and weaknesses in government that are responsible for a lot of the opprobrium in which Government Departments can be held. I am interested in the notion of the continuous grinding away of efficiency savings year by year whereby we can count on a certain amount for, say, this year. That is often responsible for fairly disastrous failures.

At the Rural Payments Agency, for instance, the efficiency savings led to the firing of public servants and a diminution of the role of the RPA just as it hit the crisis of rural payments and the common agricultural policy, and it had to re-employ people to do the job and provide the knowledge that the fired civil servants had provided. That is not efficiency, but gross incompetence. This is not just about relying on a grinding process of efficiency savings-we need an invigilation of the processes to ensure that they are effective instead of imposing a general restraint on them.

Let me give my view of the common problems. First, there is the propensity to spend huge sums on consultancy payments, largely to the big accountancy houses, which under this Government have grown fat on enormous contracts. Admittedly, I slightly exaggerated in our last debate when I gave the figure in billions rather than millions of pounds; I do not suppose that it is possible retrospectively, at a six-month remove, to correct Hansard. However, whether it is millions or billions, these sums are still huge and unjustifiable. It is an abdication of responsibility by Ministers, who formulate a policy and get it sanctioned by a consultancy report without giving the civil service-the senior civil service, in particular-its normal role in policy formulation, which is to encourage, to advise and to warn. It becomes a coalition of Ministers and consultants who justify the policy on the basis of consultancy reports and then use them to argue in its favour. However, those consultancy reports are often ineffective and they are all an expensive way of anointing and sanctifying particular projects.

Many of the reports have been inadequate-we heard of an example in our hearings just this Monday as part of our inquiry into Metronet. Tens of millions of pounds were spent with Freshfields, PricewaterhouseCoopers and other big consultancy houses for auditing the contracts, giving advice on them and ensuring that they were okay. At the end of it all, despite all the advice and what it cost, the contract with Metronet effectively bombed. It was not valid or effective. It did not provide the Department for Transport with a means of controlling output or performance, or really with any role in performance at all. It was partly responsible for the failure of the Metronet project and the fact that the Government had to pay £1.7 billion in the four years before that failure. That should have been the sum of the payments over the full life of the contract. It was a big expenditure of
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public money-more than £400 million effectively wasted -because of inadequate corporate governance and oversight, and because the contract itself was not an effective way of maintaining control.

That is the situation all too often. We get advice from consultants, who are not then held accountable for the failure that they should have anticipated. There needs to be more effective oversight, and not just by the Committee, because our oversight is posthumous. The money is gone by the time we come to deal with it. We try to close stable doors after horses have bolted at enormous expense. Oversight should perhaps be provided by the Office of Government Commerce, which needs a stronger and more effective role than that of an advice service or the toehold of accountancy houses in Government so that they can push their case for contracts. It should have an audit and control role over those contracts, and it should ensure that performance is adequate. If it is not, it should demand sanctions and penalties.

The same is true of IT contracts. All too often, Departments seem incapable of dealing with the wily stratagems and sales patter of consultancy salesmen, particularly from the big houses, who offer expertise, but over-praise the product in question and forecast that it can do more than it actually can. Departments, in turn, try to set too many objectives to be accomplished, which always leads to failure in IT contracts. When we try to do more with an IT system than it can bear, it inevitably breaks down and performs inadequately. There is failure on both sides, on the part of the Department and the salespeople.

We see that problem in various reports before us. Implementation of the defence information infrastructure programme is running 18 months late. We recommend that the Ministry of Defence should ask its contractor ATLAS to monitor and report regularly on the health of legacy systems and develop contingency plans for each system, funded by the management fee that it receives. That is an explicit criticism, but it is too late. The matter should have been overseen by the OGC and the MOD itself when the contract was agreed.

The hon. Member for South Norfolk (Mr. Bacon) will no doubt wax eloquent about the NHS national programme for IT, as he has so often in the past. Here is a contract, however, that is so curious that it is inexplicable to me. Our report showed that the care records service is at least four years behind schedule. Of the original four local service providers-the main suppliers responsible for implementing systems at local level-only two remain. The others have dropped out.

The Government have found that while they can direct NHS trusts and primary care trusts to take the systems, they have no such power over foundation trusts, even though the system would generate substantial benefits for patients. Therefore, foundation trusts have not participated, which pulls the plug, in my view, on the whole system. That is another example of a contract that was not adequately thought through or adequately audited right at the start.

The Government were trying to do too much with the systems, which were over-sold. Departments need better advice to put them on a more secure and effective platform for controlling the suppliers of the IT systems
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they deal with. As the Chairman said, no taxpayer pound should be the source of easy profit. That is an absolute maxim. However, in consultancy and IT services, the taxpayer pound has been a source of far-too-easy profits. We need to control that, exact penalties where necessary and blacklist firms that are over-selling in that fashion to see that they do not make the same profits and mistakes in future.

The third common factor that we point out and which I derived from the reports we are dealing with today is that the Government do not think through their purposes or the difficulties of achieving their objectives clearly enough. Because they are an idealistic Government, and because my party is idealistic, they are a Government of impulsive gestures-"We will do so and so!" The gestures come from the heart, which is okay-most of my gestures come from the heart; it is just that I am less competent than I assume the Government to be-but the consequences of implementation are not thought through. If projects fail, it increases public alienation and cynicism about the Government's purposes and objectives.

Our report on the letting of rail franchises by the Department for Transport includes another example. One would have thought that that was a fairly straightforward technical and financial matter, but our report shows that promises, with Government concurrence,

we should do that because of the overcrowding and pressures, particularly on London commuter services but also on the east coast main line, which I use-

which they are. We promised 1,300 new rail carriages by 2014, but, as the report continues:

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