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Existing legacy systems are also known to be at risk of failing. Meanwhile, the Government's contractor, the ATLAS Consortium, has still to meet many of the original requirements. The capability to handle securely classified information and information held about personnel is in doubt. Perhaps the Minister could indicate what progress the Government have made on the continuing data security concerns. On major equipment procurement decisions, progress seems to have been ruled out. Ministers
seem to be leaving all the difficult choices to a future Government. If their intimations of the future come to pass, our priority would be to introduce a much more rigorous and commercial approach. The Department must learn from complex civil programmes if it is to have any hope of completing projects on time and to budget. We believe that greater commercial discipline is the only way to deal with the management of vital and expensive military programmes, and it is essential that industry is brought into the process at an early stage.
As my hon. Friend the Member for Gainsborough also outlined, there are more encouraging signs from the Ministry of Justice and the Office of Government Commerce in respect of regular procurement from within the Prison Service-we are very pleased by that-which achieved cash savings of £120 million in the 2007-08 period under review. The Committee claims its share in that success and with some justification, as was acknowledged by the witnesses in its evidence session. The critical 2003 PAC report was used as the starting point for the reforms, which are now being implemented across the MOJ.
The use of online catalogues and procurement teams to make better use of the purchasing power of the service as a whole holds lessons beyond that one Department. The potential savings from allowing units within and across Departments access to each other's contracts are significant, and do not appear to have been driven forward by the Office of Government Commerce to the extent that they should. Prices and service levels negotiated by one become available to all, and low-volume purchasers benefit from the advantages of high-volume supply. That is an important way in which costs can be brought down-we will all have to pay more attention to this-in some cases dramatically, while also improving quality. The Department's response indicates that it offered to participate in OGC workshops and training events. On the basis of the Committee's evidence, I hope that that has happened.
The OGC's record on contract management is the subject of another of today's PAC reports. As it records, central Government spend more than £12 billion annually on IT and other service contracts, and there are some basic concerns. Of those contracts, 56 per cent. had no associated contingency plan for supplier failure whereas 28 per cent. had no documented management plan at all. Worse, the report goes on to state:
"Of the contract managers surveyed...25 per cent. of those responsible for contracts that had been running for at least three years had undertaken no value for money testing of ongoing services. And 41 per cent. of contract managers had not tested the value for money of new services."
The OGC's responsibilities are secondary, as it is obviously the Departments that provide the management. However, it accepts a long list of areas for improvement.
The oral evidence provided by the OGC's chief executive to the PAC at least seems to demonstrate understanding of what is required. As the Committee concluded, however, until Departments' behaviour changes, incidents such as the SATs testing fiasco are likely to recur.
Let me move on to the national health service information technology fiasco. Perhaps the most prominent contractual and project failure of them all is the national programme for IT in the NHS, with total costs projected to reach nearly £13 billion, assuming full implementation is ever achieved. The Committee's summary, in my view, is
surprisingly mild in the circumstances, although the facts speak for themselves. Most of the mistakes were made before 2006-before the period under scrutiny today-but there remains the question of whether the Government are throwing good money after bad. There are real doubts about the ongoing viability of the programme and one of the Committee's recommendations is to allow trusts to put forward applications for central funding to develop alternative systems.
Incredibly, in rejecting that recommendation, the Department of Health stated that it does
"not accept that the Programme is not providing value for money at present".
That must be one of the most extraordinary admissions from a Government Department in relation to the PAC. The Department has never published a compelling cost-benefit analysis for its top-down imposition of a structure for which there was so little demand and for which the costs were always projected to be vast. It seems that the Government will remain in denial until the very last.
The Opposition believe that integration should be pursued through local procurement that is open to national, open standards. Any action that we take if we are elected will depend on what we inherit, but we intend to halt and renegotiate the local service provider contracts to prevent further inefficiencies and to dismantle the central IT structure.
Mr. Bacon: I was interested to hear what my hon. Friend said about renegotiation of contracts because one argument that is sometimes adduced-wholly falsely, in my view-is that there would be such huge penalties that it would not be possible for contracts to be renegotiated. Does he agree that since disputes with IT contractors never end up in court and since IT contractors want to work for government again in the future, there is almost always a way through that does not involve huge penalties on either side?
Mr. Hands: My hon. Friend is absolutely right. The Government have, at their peril, underestimated their power in negotiating these contracts and ironing out details of them. In some cases, providers owe part of their existence to the Government, so the Government need to start punching their full weight in approaching this contract.
Let me move on to the Department for International Development-I shall try to be a little briefer on this point. DFID needs some scrutiny, and I do not think that many speakers have focused on this report.
In addressing the damage that the Government have wrought on the public finances, we have been clear that the NHS should not face budget reductions. However, that in no way removes the need for it to provide value for money. Given the increasing demands being placed on the NHS, efficiencies will also be essential. Similarly, although we gladly honour the UK's spending agreements on international development, the pattern of that spending and the associated standards of financial management must improve.
The PAC report on DFID's operations in insecure environments highlights the need for change. I think that many hon. Members will agree that DFID's performance in conflict zones such as Iraq and Afghanistan needs urgent improvement. Its spending in
such environments has increased to more than £1 billion, but project success scores in the same environments have fallen while expenditure has risen. It is true that one might expect success there to be lower than in secure states, but the deterioration should concern all of those who want us to succeed in places like Afghanistan.
My hon. Friend the Member for Sutton Coldfield (Mr. Mitchell), the shadow Secretary of State for International Development, made a similar assessment when the PAC report was published. He said that
"brave DFID staff work...in dangerous environments to improve people's lives, but their individual courage must be supported by radical policy and management improvements.-[ Official Report, 13 November 2008; Vol. 482, c. 1019.]
It is important that the monitoring of projects for fraud and corruption is enhanced, as the risks of both are greatest in unstable countries, yet insecurity appears to have been used as a reason not to undertake full assessments of the expenditure made. Surely the potential for destabilisation demands the opposite approach-we should be more careful about expenditure in such environments.
The PAC report on departmental oversight of the CDC group has been highlighted by a couple of speakers. It reveals further failures to monitor and control public spending in an effective way, and that is especially true when it comes to the remuneration of senior staff. The strong financial performance of CDC notwithstanding, it cannot be right that the chief executive of a company that is wholly owned by the taxpayer received an increase in pay of nearly £600,000 in a space of just four years. It is extremely hard to justify total pay of around £1 million when one has complete job security and, despite the fact that the Department has tried to make comparisons with the private sector, when one does not have to compete for capital to invest. We have drawn attention to excessive pay in quangos, and this appears to be a parallel case.
A number of the reports about education and skills were equally damning about many aspects of the Government's approach in recent times. In due course, we will all end up paying for the deficiencies in literacy and numeracy on the part of both children and adult learners. To the Government's credit, the departmental responses to the indictments in the PAC's reports on schools acknowledge that too few people possess the key skills. However, there is little indication of fresh plans to turn the situation around, and we can ill afford the current lack of progress to continue.
In conclusion, we need to return to the question of the size of the deficit. As we know, the Government are borrowing around £500 million a day, and one has only to see the various reports from OECD and other bodies to grasp the seriousness of the situation.
The deficit poses grave dangers to the country. Ours is the worst of any major nation, but the Government sometimes say we do not need to worry because, as a percentage of overall gross domestic product-as I said, it was at 59 per cent. but it is rising rapidly-it is still below the level in other countries. For instance, in Japan it is 188 per cent., in Italy 116 per cent., in Germany 78 per cent., and in France 77 per cent. The Government remind us that our deficit is only marginally larger than that of the US, but a number of the countries
in that list have very strong domestic savings markets that we unfortunately lack. The danger is that we could become overly dependent on foreign buyers of our gilts.
I end by returning to the theme of the day. The need to make savings can never have been greater, as with the need for proper scrutiny of what is spent-hence the role of the PAC. I think that all hon. Members owe a debt of gratitude to the Committee and its Chairman, my hon. Friend the Member for Gainsborough. I look forward to hearing the Minister's response to a number of the points raised in the debate.
3.59 pm
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): It is an enormous pleasure to respond to the debate on behalf of the Government. As the hon. Member for Gainsborough (Mr. Leigh) said and the hon. Member for South Norfolk (Mr. Bacon) mentioned, I have served as a member of the Public Accounts Committee under the chairmanship of the hon. Member for Gainsborough, and I congratulate him on the work he does. I am no stranger to public accounts debates, either: by looking back in Hansard, I confirmed that I attended and spoke in the debates on 26 January 2006 and 18 July 2006; and, after leaving the PAC on becoming Parliamentary Private Secretary to my right hon. Friend the Member for Wentworth (John Healey), who was then a Treasury Minister, I attended the public accounts debate to which he responded.
Serving on the Committee and seeing how ministerial decisions have been implemented gives one an insight that is really helpful when one takes up a ministerial post. We all know that Ministers make decisions in good faith-that was mentioned by my hon. Friend the Member for Great Grimsby (Mr. Mitchell)-but, of course, that is not the end of the story. If those decisions are not implemented effectively, it undermines both the policy and the Government's relationship with the people. That is why the Government have increasingly emphasised policy delivery-actually doing what we said we would do. Today's debate has again emphasised not only the wide-ranging nature of the Committee's work, but the fascinating insight it gives its members into the way government works. As a former member of the Committee, I can attest to that.
The Committee builds on a great, long and proud tradition of ensuring that public moneys are properly accounted for and provide value for money, and that the appropriate lessons can be learned when reports are produced. In these times when money is tight, as many speakers mentioned, it is even more important to ensure that we get the best value for money for every pound spent. That is where the Committee keeps Government up to the mark. I have just seen the letter from the hon. Member for Gainsborough to the Chancellor, which again illustrates the benefit that the Committee provides in terms of improving value for money.
In his letter, the Chairman gives examples of how the Committee has helped Departments to achieve substantial savings and of where he thinks we can go further. All such suggestions are, of course, gratefully received. I do not want to match his list with a list of what the Government are already doing in each of the areas he
highlights in his letter, nor do I wish to anticipate what we might say in our response to it, but I shall give a couple of examples. In financial management, where the hon. Gentleman highlights back-office costs, the Government have targeted savings of some £4 billion through standardisation and shared services; and in public sector procurement, we expect to achieve savings of some £7.7 billion through the operational efficiency programme. We all acknowledge that there is more to do, however. We shall examine with interest the specific examples in the hon. Gentleman's letter, and respond to his comments.
Mr. Bacon: On the point about shared services, will the Exchequer Secretary always bear in the back of her mind, if not the front, the Committee's report on shared services in the Department for Transport? That was the project that cost about double the amount it was supposed to save and the computer spoke to people in German.
Sarah McCarthy-Fry: I am sure that that will be borne in mind when we are looking at the use of shared services. When considering how we can improve procurement, a one-size-fits-all process does not work. In discussions with one of the officials taking over procurement, it was made clear to me that, when looking at outside procurement, one sometimes has to take into account local factors that can deliver better value for money, rather than just look at the matter across the piece. That is certainly something that I take very seriously.
We know that some 90 per cent. of Committee recommendations are accepted by Departments. That shows that the process of investigation by the National Audit Office, Committee hearings and Committee reports are useful. Departments improve as a direct result of the investigative process: for example, in its 13th report, the Committee acknowledged that the Department for Work and Pensions' handling of customer complaints' had significantly improved since the 2005 report by the Comptroller and Auditor General.
Many reports are critical, but what is good about the Committee is that, even in a critical report, it gives credit where credit is due. It was therefore helpful that in its 18th report, which a couple of hon. Members have mentioned, the Committee acknowledged that the Commonwealth Development Corporation had performed well, outperforming the market while investing in poor countries, since the Department for International Development restructured it in 2004. The Committee acknowledged also that, since taking over from the Strategic Rail Authority, the Department for Transport had, in letting rail franchises, delivered to planned time scales and protected taxpayer interests.
The Government's perspective on accountability has inevitably been coloured by recent events in Parliament and elsewhere, and those have placed increased emphasis on the need for public accountability from all public institutions and public servants. There is a greater awareness of the value of transparency in underpinning confidence in the use of powers under which public authorities operate. It has rapidly become essential to justify the trust placed in public organisations that use public resources of all kinds.
A real public interest is at stake, too. Some people, in Parliament and elsewhere, perceive genuine value in demonstrating that public powers are used as they are
intended. The Government, and other public authorities with which they work, can gain stature and public support only if they show themselves willing to account for their stewardship honestly and responsibly. We are all now even more conscious of the need for probity in the use of public funds. Trustworthy public audit is the best way to make people confident, all-round, that the right standards are being achieved and maintained.
The NAO's role is unique in providing that assurance, and that is why it is important that the Comptroller and Auditor General be able to audit central Government bodies. The CAG's sphere of influence has grown over the years, and it has recently been extended to a number of central Government companies. When new central Government bodies are set up, the Government now expect the CAG to become their external auditor. If the CAG does not, there must be a good reason why.
I am pleased to say that the Treasury has been at the forefront of such moves, ensuring, for example, that United Kingdom Financial Investments Ltd, the company that was set up to manage the Government's shareholding in banks, is audited by the Comptroller and Auditor General.
Mr. Hands: The Minister is praising transparency at UKFI, so will she tell the House why Ministers continually refuse to answer parliamentary questions about the Government's substantial bank holdings, saying that the service is managed at arm's length from the Government and, therefore, the details cannot be made available to Parliament? Surely, if the Minister believes in full transparency, there should be full answers to hon. Members' questions.
Sarah McCarthy-Fry: It is important that our holdings in those banks be managed commercially and, as such, by UKFI at arm's length. The point that I was trying to make was that UKFI will be audited by the CAG, setting the precedent whereby we believe that the CAG is the right person for the role.
The hon. Member for Gainsborough made a cogent case for auditing a range of public bodies, and the Government agree that it is in the public interest that statutory authorities demonstrate that they provide value for money. The NAO has a valuable role to play in delivering transparency and accountability, so I am pleased to announce today that the Financial Services Authority has decided to appoint the CAG as its financial auditor from the next financial year, 2010-11. That will enable the Public Accounts Committee to receive and investigate reports into aspects of the economy, efficiency and effectiveness of the FSA's performance. I welcome that decision and believe that it can only enhance the FSA's standing and enable it to show how well it discharges its business.
I assure the House that the Treasury continues to explore opportunities to play a bigger role in delivering transparency and accountability in other bodies that use statutory powers or public funds in the public interest. That must include a full audit of the BBC, as the hon. Gentleman said, and the Government will explore with the BBC how that should be accomplished.
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