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Baroness Sharp of Guildford: My Lords, on these Benches we find this a very difficult issue. We discussed it at very considerable length in Grand Committee. At the centre of the debate, as the noble Lord, Lord Higgins, has made clear, is the issue of parliamentary scrutiny of the spending functions of the executive and the emergence in the course of the past 30 years or so of a large number of non-departmental public bodies. These bodies have escaped public audit although--and here we accept the point that has been made several times by the

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Government--they do not escape audit altogether. They are audited according to appropriate standards by private accountancy firms.

Equally, it is also quite clear that the Government themselves have not conceded anything at all on this issue, whereas in tabling their amendment the Opposition have sought to accommodate the issues raised by the Government in discussion in Grand Committee. What we see in the new amendment tabled here is an attempt to define non-departmental public bodies. These bodies, and those that are exempted under the Companies Act, are excluded from these provisions. Also, perhaps most importantly, Ministers are provided with an opt-out clause, subject to an affirmative resolution.

The issue then is what should and should not fall within the purview of public scrutiny. I think it is that issue which is the substance of the Sharman report. Indeed, when we did discuss it in Grand Committee one of the main objections raised by the Government to the amendment which had been put forward at that stage was that it was going to be covered by the Sharman report.

If we accept this amendment, we effectively pre-empt that report. Indeed in some respects with the "softening" of the amendment as it now stands, and with the "opt-out clauses" given to the Government, the amendment could be less far-reaching in its effect than the Sharman report itself.

The case for legislating now is that it provides an insurance policy. The Government claim that they do not need to legislate in order to implement the Sharman report. However, many government reports have been left to gather dust on departmental shelves. We do not want that to happen with the Sharman report. As I say, the Minister has said that there will be no need to legislate in order to implement the Sharman report. I should like to hear the Minister make a clear statement that the Government intend to take the Sharman report seriously; that they will not let it gather dust on the shelves in the Treasury; and that it will be fully implemented. If the Minister can assure me that this will be the case, it seems to me that we have no need to accept the amendment. As I say, to some extent it pre-empts the Sharman report and its effects may be rather "softer" than those of the report.

I shall listen carefully to the Minister's response to the amendment to determine how these Benches will react to it.

5 p.m.

Lord McIntosh of Haringey: My Lords, as the noble Baroness, Lady Sharp, made clear, I acknowledge that the noble Lord, Lord Higgins, has moved away from the more rigid position of the amendments on this subject that he tabled in Grand Committee, for which I am grateful. I am also grateful that he has accepted the argument that I put to him on that occasion; namely, that the policy of "one size fits all" does not work in the situation we are discussing.

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I turn to the matter which the noble Baroness, Lady Sharp, identified as being the most important issue; namely, that of public scrutiny. I believe that there is a degree of misunderstanding about the relationship between responsibility for audit and the matter of public scrutiny. It is completely wrong to imply that, if the Comptroller and Auditor General does not audit certain non-departmental public bodies, Parliament does not have any oversight of those bodies. Ministers are accountable to Parliament for all such bodies and the accounts of all these bodies are laid before Parliament regardless of who carries out the audit.

It is not even true that the C&AG has no oversight of NDPBs which he does not audit. He has inspection rights at all executive NDPBs. He is therefore able to investigate matters of concern even where he is not the appointed auditor. He has in fact produced a number of reports on NDPBs for which he is not the auditor. The existence of these inspection rights means that he can carry out value for money studies--which, after all, is the real parliamentary scrutiny to which the noble Baroness, Lady Sharp, refers--at all NDPBs under the National Audit Act 1983. He has produced many such reports for Parliament.

As has been acknowledged, more generally, this Government have demonstrated their confidence in the work of the C&AG by appointing him auditor of those NDPBs created since the previous election.

Nevertheless, the Government may have good reasons--without implying any disrespect to Sir John Bourn or to his office--for not appointing him the auditor in certain circumstances. We need to take account of the clear practical advantages that departments have identified in appointing commercial auditors for some of those bodies. Our existing provisions in the Bill allow for this. Clause 23(6) and (7) provide for the Treasury to propose an order for the C&AG to be made the auditor of any NDPB where statute currently rules out his appointment. I am surprised that the proposers of this amendment do not appear to have taken account of that.

However, before proposing to Parliament that the C&AG should be appointed auditor of any particular NDPBs, the Government will need to take account of the outcome of the Sharman review. I very much appreciate the strength of the remarks of the noble Baroness, Lady Sharp, in that respect. The noble Lord, Lord Sharman, will examine a number of key issues, including the concerns of departments, which are responsible to Parliament for overseeing NDPBs.

Lord Higgins: My Lords, I am grateful to the Minister for giving way. I hope that he will clarify a point that I raised earlier with regard to the exact relationship between the Sharman group and the so-called "steering group"?

Lord McIntosh of Haringey: My Lords, the steering group is there to steer. I believe that the relationship will be worked out as the distinguished membership of these two bodies settle into their work. As they are at the stage of determining their terms of reference, I do not think that it would be appropriate for me to

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anticipate the way in which it will work out on the ground. Certainly it is not a matter which will be mentioned in statute.

I return to the issue of the status of the Sharman report and the concerns which the noble Baroness, Lady Sharp, has expressed. She was right to draw attention to the rule whereby if one does not like the findings of inquiries of this kind one ensures that nothing is done to implement those findings. The normal rule is that one does not set up an inquiry of this kind unless one knows what its findings will be! I am afraid that we have broken that rule in this case in that we shall have to take the report on audit and accountability extremely seriously. By setting up a review headed by such an independent person as the noble Lord, Lord Sharman, and by ensuring that the steering group for the project is made up of highly distinguished parliamentarians and internationally renowned experts in the field of audit and accounts, we have broken this firm rule. We genuinely do not know what conclusions will be reached.

Therefore I cannot say that we shall accept every recommendation that the noble Lord, Lord Sharman, makes. However, it is in the Government's interest as much as Parliament's that we have strong, independent audit of public bodies and public expenditure. It will therefore be in the Government's interest to see implemented the proposals of the noble Lord, Lord Sharman, for improved audit, whatever they may be. I am sure that the members of the steering group would not let us get away with anything less.

As the Chief Secretary made clear, and as the noble Lord, Lord Higgins, reminded us, arrangements for audit and accountability in central government are in disarray. The noble Lord, Lord Higgins, used the words "a mess"; the Chief Secretary used the words "a hotchpotch". The Government welcome the inquiry of the noble Lord, Lord Sharman, as an opportunity to bring some coherence into this area. We are pleased to acknowledge that the Bill has acted as a catalyst for the Government in setting up the review. However, as I have already said, it is as much in the Government's interest as anyone else's to ensure that the review succeeds and has a major positive impact. The Government consider that the review will set the basis for future arrangements in audit and accountability--a basis that will satisfy the needs of both government and Parliament.

I turn now to the amendment--

Lord Shaw of Northstead: My Lords, I am most grateful to the Minister for giving way. I have not entered into the earlier discussions but my point arises from something he said today. Will he confirm that there is a completely different responsibility as between that of the Government on the one hand and that of the C&AG on the other? The C&AG is directly responsible to Parliament itself and to the Public Accounts Committee, on which I sat for a number of years.

Where a separate auditor has been appointed to a NDPB, did I understand the Minister to say that the C&AG would none the less have an automatic right,

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without seeking permission from the Treasury, to investigate any matter that he felt needed to be investigated from his special point of view in those organisations that have a separate audit?

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