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4 Nov 2009 : Column 932

We do not need to define the Comptroller and Auditor General's access rights. He has all the access he needs. Make no mistake: the National Audit Office can interview any civil servant, open any filing cabinet, and report on anything it likes. Having been Chairman of the Public Accounts Committee, I assure the House that no restraint or inhibition is placed on the Comptroller and Auditor General doing his job. Clause 37 is right, and gives him the power he needs.

David Howarth: May I say that I was immensely reassured by the speech of the Chairman of the Public Accounts Committee? It is vital that the Comptroller and Auditor General remains absolutely independent in judgment. Whatever the governance arrangements and administrative structure built up behind the Comptroller and Auditor General, his judgments-perhaps hers in the future-on reports must be independent. As the Chairman of the Public Accounts Committee said, that is built into the entire structure, the cross-party nature of the appointment and the nature of the office.

I shall not pursue the argument about the overall structure of the Bill. I fully accept that the commission and the Government have struck the right balance in relation to the NAO and its board, so I shall not detain the Committee for long. I intend simply to comment on the amendments and new clause, and to ask a question about the application of clause 37 which I hope the Minister will be able to answer.

I agree with the Chairman of the Public Accounts Committee that it would not be a good idea to define the functions of the Comptroller and Auditor General too closely. Any such definition might result in a restriction that we would not want to see. However, I think it worth asking about a particular aspect of new clause 41. The new clause states:

One of the problems that I see with the present structure, not in theory but in practice, is that it is far better at supervision than control. In other words, it is far better at looking back than looking forward. The Comptroller and Auditor General has two roles. The job of Comptroller is the forward-looking job of ensuring that the Government do not obtain the public's money for purposes that have not been authorised by the House, while the job of Auditor General is that of looking back to see whether that money has been properly spent. I think that, at some point, we must consider the important question whether the arrangements for the forward-looking role are as strong as they could be, and as strong as the arrangements for the backward-looking role.

I disagree with the PAC Chairman about amendment 78. The hon. Member for Luton, North (Kelvin Hopkins) made clear that what concerned him was the problem of bodies which are not, in organisational form, public bodies at all but private trusts or companies of various sorts, but which are in reality carrying out public functions. That is the whole point of the discussion of contracting out. I think that the Chairman was referring to issues relating to non-departmental bodies, in respect of which the National Audit Act lays down clear guidelines on the Comptroller and Auditor General's powers. I understand that there is no power of the kind that the hon. Member
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for Luton, North is suggesting in the existing legislation. The point is that there should not be anything in the way in which we set up our audit arrangements that biases the entire system in favour of contracting out. Similarly, there should be no bias against contracting out.

It seems to me-and I think the amendment raises this point-that an immensely effective audit system involving great powers, which successfully terrorises public officials into compliance with their duties but does not apply to private organisations that carry out state functions under contracting-out arrangements, effectively gives those organisations a huge advantage over the state.

Mr. Leigh: I have taken advice on this. The Comptroller and Auditor General has statutory access to contractors for the purposes of examining the public body concerned, but the National Audit Office does not think it would be appropriate for him to have access to suppliers' commercial records further than is needed to audit public bodies. I think that we only need to secure access to the part of the contractors' work that directly affects his contract with the Government.

David Howarth: That is absolutely right. The purpose is thought to be only to audit the Government Department and not to have any access to the private body, but I think that is a problem under current arrangements. As I remember it-I might be wrong on this-if a Minister agrees and the body agrees, there is further possibility of an audit of a private body. I am, however, unsure whether that is often invoked.

The problem that has been identified is worth thinking about, but I am unsure whether the proposed solution is the right way to deal with it, as that is a discretion at large, which might produce problems in itself.

5.15 pm

Mr. Leigh: The Bill is primarily about the governance of the National Audit Office; it is not about audit rights. We in the Public Accounts Commission thought it wise for the Bill to concentrate on the governance, as that is set in concrete and is permanent, whereas audit rights can change over time. Indeed, only last week the Government announced that the NAO was for the first time to be allowed to audit the Financial Services Authority. We have also got a long-running campaign to audit the BBC. If the Bill starts getting into the territory of contracts, suppliers and so forth, that could make things quite messy and difficult in terms of an Act of Parliament that we hope will last for many years.

David Howarth: I accept that point from the Chairman of the Public Accounts Committee. In fact, many of these considerations are themselves legislative, because they are all to do with issues such as, for instance, which bodies are listed in schedule 4 to the National Audit Act 1983. There has not been a long and organised debate that can advise the Committee on this issue, but I think the hon. Member for Luton, North (Kelvin Hopkins) has raised an important point, and although I do not expect him to press his amendment to a vote tonight, I would like the Government to accept that it is a matter that it worthy of further debate.

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Mr. Dunne: I do not intend to detain the Committee for long, but I would like to follow up the observation I made to the Chairman of the PAC, my hon. Friend the Member for Gainsborough (Mr. Leigh). He has described the process governing the first appointment under this legislation-although it has not been enacted yet, of course. He said that the chairman of the NAO was able to offer his advice to both the Chairman of the PAC and the Prime Minister, which is proper. However, I would like the Minister to explain what would happen if the NAO chairman were unhappy about the appointment being made. There seems to be no provision in this clause for formal consultation; that just happened by way of practice rather than under statute. Does that not leave the NAO open to the possibility of having a fractious appointment imposed over the head of the chairman of the body?

The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): It is a pleasure to serve under your chairmanship this afternoon, Sir Alan.

This part of the Bill implements the recommendations of the 15th report of the Public Accounts Commission. I would like to begin by paying tribute to the work of the NAO and the Comptroller and Auditor General. Part 7 of the Bill modernises the governance arrangements for national audit and continues the office of the Comptroller and Auditor General as an independent officer of the House of Commons, but limits the term of office to a single appointment of 10 years.

David Howarth: At this point, will the Minister clear up one particular problem with the drafting of clause 37? Clause 37(1) says:

but it does not say that the person currently in office will continue to hold that position. Can the Minister confirm that that is the Government's intention, and that these arrangements will not apply until the next appointment?

Sarah McCarthy-Fry: I can certainly confirm that that is the Government's intention. After all the work the Chair of the PAC has done on the appointment of the current Comptroller and Auditor General, he would be most unhappy if we had to go through the process all over again.

The Bill provides for the establishment of a new corporate body-the new National Audit Office-whose functions will include providing resources for the Comptroller and Auditor General's functions, monitoring the execution of those functions and approving the provision of certain services. Importantly, the new NAO will be able to support and challenge constructively the CAG's decisions without, of course, preventing him from carrying out his statutory responsibilities.

I come to the proposals made by my hon. Friend the Member for Luton, North (Kelvin Hopkins). As he was not feeling too well during the Second Reading debate, he did not get on to the points he wanted to make about the national audit provisions-I hope he is feeling better today. Amendment 68 would set out in statute that the principal function of the CAG is to further the purposes of national audit, which he set out in new clause 41. Amendment 78 would enable the CAG to have access to
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thousands of private sector companies that supply central Government. I thank the hon. Members for South-West Hertfordshire (Mr. Gauke), for Gainsborough (Mr. Leigh), for Cambridge (David Howarth) and for Ludlow (Mr. Dunne) for their contributions to this debate. Most who spoke this afternoon are of the same opinion; we welcome the contribution that these proposals have made to the debate, but the consensus is that they are not necessary. I shall now discuss the detail, where we have been extremely fortunate that the Chair of the Public Accounts Committee was able to share his insight into the appointments process.

On new clause 41, of course the CAG exists to assist Parliament in holding the Government to account for the use that they make of public funds and, in doing so, promotes the objectives that my hon. Friend the Member for Luton, North mentions. I can assure him that the Government value that work as much as he does. I cannot dispute the fact that the effect of the arrangements in this part of the Bill will indirectly strengthen parliamentary scrutiny, but that is not their primary purpose.

The Government are implementing the recommendations of the Public Accounts Commission's 15th report. In doing so, we are accepting the commission's two driving principles. The first is the need to ensure that the CAG has authority to form completely independent judgments about the audits and value-for-money studies conducted by the NAO. The second is the need for the NAO to maintain systems of governance and internal controls consistent with best practice. When we prepared the provisions in part 7, we took the utmost care not to jeopardise the CAG's independence in those areas.

As now, the Public Accounts Commission will oversee the work of the CAG and the NAO-indeed, its role is increased by these reforms. However, it would be inaccurate to describe the main purpose of this part of the Bill as strengthening parliamentary control, because, as the Chair of the Public Accounts Committee said, its focus is rather on strengthening governance.

I would add that the Government are doing a number of things to improve parliamentary scrutiny of government expenditure. Hon. Members will be aware that the Government provided a memorandum to the Liaison Committee in March containing formal proposals to Parliament for better alignment between budgets, estimates and accounts. The memorandum explained the plans to simplify the Government's financial reporting to Parliament, ensuring that they report in a more consistent, transparent and straightforward fashion on spending plans, estimates and expenditure outcomes. I hope to assure the hon. Member for Cambridge that further work on the way Parliament supervises expenditure continues in a number of ways, including through the work of the Select Committee on Reform of the House of Commons, which is expected to bring forward its proposals shortly.

Mr. Gauke: Can the Minister explain, therefore, why the Government have, in recent years, refused to publish the whole of Government accounts? For the past two years the work has been done but the information has not been released-I believe that we are going to have to wait until 2010 for it.

Sarah McCarthy-Fry: I can only say to the hon. Gentleman that, as I said just now, further work is ongoing on what we can introduce. We want to be more
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transparent and to have a better way of ensuring that we can look at our spending plans, our estimates and the expenditure outcome.

We all agree, of course, that it is important that Parliament should continue to play an active role in scrutinising the expenditure of public money, but we do not think that a declaratory provision of the type envisaged in the proposed new clause accurately reflects the purpose of the provisions.

On amendment 68, the national audit responsibilities of the Comptroller and Auditor General are already set out in legislation, and within those responsibilities some matters are left to the Comptroller and Auditor General's judgment and discretion, such as whether to carry out a value-for-money examination into a particular subject. That is consistent with his independent role in holding the Government to account.

Part 7 of and schedule 7 to the Bill already draw an important distinction between the services to be provided by the Comptroller and Auditor General. The resources available to the Comptroller and Auditor General fall into two categories, those whose allocation is at the sole discretion of the Comptroller and Auditor General and those for additional but important services, which require National Audit Office approval.

We do not consider it to be necessary or desirable to impose any further restriction on the way in which the Comptroller and Auditor General and the NAO choose to exercise discretion on the use of resources by suggesting that one function should be elevated to the status of a principal function. We consider that, while all the work carried out by the Comptroller and Auditor General is important, the provisions relating to the use of resources give a clear indication of where the Comptroller and Auditor General's priorities lie.

Beyond that, it is for the Comptroller and Auditor General and the National Audit Office, within the framework established by the Bill, to establish priorities. That is consistent with the independence of their roles.

Before I move on to discuss amendment 78, the hon. Member for Ludlow asked me a direct question about what would happen if the NAO chair did not get on with the Comptroller and Auditor General. It is right that it is for the Prime Minister and the Chair of the Public Accounts Committee alone formally to make the appointment. The NAO chair would serve only in an advisory capacity and he would not be the one who was making the final decision.

Mr. Leigh: Let us be practical about this. We worked as a team. I was sitting there with Nick Macpherson, the permanent secretary to the Treasury, with Andrew Likierman and with Tim Burr. Although the decision was ultimately mine, I would not have insisted on proposing somebody who was unacceptable to the permanent Secretary to the Treasury. What would have been the point of that? I do not think that I would have insisted on proposing somebody who was completely unacceptable to the chairman of the NAO. What would be the point? In the real world, those involved act together as a team but ultimately one person has to make the decision, and that is the Chairman of the Committee.

Sarah McCarthy-Fry: That is absolutely true.

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Mr. Alan Williams: To meet that situation, we built in a requirement that there should be a code to govern the relationship that they had to develop within the board and to govern the relationship between the CAG and the Chairman. That code has been agreed, as has a strategy, and both have already been approved by the commission.

Sarah McCarthy-Fry: I thank the Father of the House for that intervention, too. It is important that we have seen the practicalities of how these decisions are made and I do not think that it would be necessary to put anything on the face of the Bill.

Mr. Dunne: The Minister referred a moment ago to the powers of the Public Accounts Commission being strengthened by the Bill. In the context of the exchange that we have just had on the point that I made earlier, will she reflect on how that will be achieved if the new board of the NAO is enhanced or enlarged with more non-executive members and a new chairman? Surely much of the advisory role that the commission has been able to play in the relationship with the Comptroller and Auditor General will now be supplanted by the board, in which case the powers of the commission will be reduced.

Sarah McCarthy-Fry: I do not agree. Although we are reforming it and making the NAO more accountable, there is still a very powerful role for the commission, which will be holding these people to account. We have demonstrated what the commission has done to enable us to get to this stage. I still envisage that it will play a powerful role in the future.

May I move on to amendment 78? We all recognise that the Comptroller and Auditor General should have access to the information that he needs to be able to access documents. I think that we have heard that he already has a considerable power to get to the documents that he needs, but amendment 78 would result in a considerable extension of his reach that is not necessary or justified at this stage.

5.30 pm

The CAG already has a statutory right of access to documents held by, or under the control of, not only Government Departments but also a wide range of other public bodies and bodies that are in receipt of substantial Government funds. However, the purpose of this access is to allow him to audit effectively the accounts of Government Departments and to carry out value-for-money examinations with access to all relevant information. These powers allow him to ensure that public money has been used for the purposes approved by Parliament and report on whether it has been well used.

Allowing the CAG access to the books of thousands of individual suppliers in the way proposed is another matter altogether, and would require very clear justification. Thousands of non-governmental organisations and private companies provide services to the Government. The amendment could harm the relationship between the Government and their suppliers.

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