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Lord Freeman: My Lords, I support the amendment standing in the name of my noble friend Lord Higgins and associate myself with the remarks made by the noble Baroness. When one reads the 1999 report on non-departmental bodies, it is striking to note how many there are and the size of their public expenditure. I believe that it is now in the order of £12 billion per annum and that there are some 90 major public sector bodies.

This Bill provides an opportunity to make sure that we have a consistent practice in terms of audit and accountability to Parliament. I well understand that the Minister has argued--and perhaps may argue again--that it would be more convenient to wait until the appropriate opportunity arises to change the auditors. However, now is the time to change. We have the Bill and we are introducing a most welcome method of accounting in the public sector. Noble Lords on all sides of the House have mentioned the principle of resource accounting and the need to change from the old-fashioned method of cash accounting. In my judgment noble Lords should accept the principle of resource accounting being applied uniformly throughout the public sector, including for all non-departmental public bodies.

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There are two simple reasons for accepting Amendment No. 1 and the principles enshrined in it. I am sure that my noble friends Lord Lane of Horsell and Lord Shaw and many others on these Benches would agree with that. First, the National Audit Office stands in a different relationship to the public sector than either the Audit Commission or professional firms. The National Audit Office provides the information to the Public Accounts Committee to exercise, through Parliament--principally through the House of Commons--control over public expenditure. That is a vital link. We should extend the powers and capabilities of the National Audit Office.

The second reason is allied to the first. In five, 10 or 15 years' time--when the Minister will, no doubt, remember these debates with interest and will reflect on what has been said--we shall move into an age where we measure output and performance and ask the National Audit Office to comment on the effectiveness and efficiency of the public sector in spending the money that we give it. A single body such as the National Audit Office can develop those skills and apply them uniformly.

This is almost the end of a long process to reform the basis of public accounting which began some seven years ago. We are not quite there yet. I conclude by making a plea to the Minister that he will use whatever influence he can exert over his colleagues to ensure that we do not end up in the muddle of parallel accounting involving both cash and resource accounting. If we are to change--I hope sincerely that we can do so quickly--let us move with some boldness and clarity to resource accounting once and for all.

Lord Shaw of Northstead: My Lords, I support the amendment. My noble friend Lord Bridgeman said in the debate last week that the C&AG's independence was diminished by his reliance on negotiating his way into a number of bodies to provide the assurance to which Parliament is entitled. That is the absolute nub of the situation. The C&AG must, as of right, have the ability to act at a time that he feels appropriate to seek the assurances that he is pledged to give to Parliament. I support entirely what the noble Baroness, Lady Sharp, and my noble friend have said. I believe that we should support the amendment.

Lord McIntosh of Haringey: My Lords, on Report last week we had a full debate on the amendments which were then tabled by the Conservative Opposition. Although I made it entirely clear that we did not agree with the amendments--I shall make it clear that we do not agree with the thrust of the change that is proposed--at least we dealt with amendments which had some kind of internal coherence and some kind of relationship to the speeches made in support of them.

The three amendments we are considering in the group before us today are so much more irrational and extreme that it is difficult to conduct a rational debate on them. They are not only worse than the amendments we considered last week. They are in stark contrast to the clear provision the Government have already made in the Bill to deal with this issue.

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The provisions of subsections (6) and (7) of Clause 25--this has not been mentioned once today by Opposition spokesmen--allow the Treasury by order, following consultation with the Comptroller and Auditor General, and subject to affirmative resolutions by both Houses of Parliament, to make him the auditor of a public body even where the current legislation governing that body currently prohibits the Comptroller and Auditor General from being the auditor. This, of course, could not apply to companies which I shall mention in a moment.

This provision will enable any recommendations which the review of the noble Lord, Lord Sharman, makes concerning the auditor of non-departmental bodies to be implemented without primary legislation. I believe that that is the assurance which the noble Baroness, Lady Sharp, sought last week. Of course I cannot say in advance that we shall agree with every recommendation that the review group makes as I do not know what they will comprise. However, we can implement them as we have subsequently included provisions in the Bill to make that possible.

At Report the noble Lord, Lord Higgins, somewhat uncharitably described the review of the noble Lord, Lord Sharman, as a red herring. That is not the case. The review is an opportunity, such as we have not had before, to consider in detail and on a case by case basis what represents the most appropriate audit arrangements for these bodies. The Government believe that the results of the study of the noble Lord, Lord Sharman, will provide the basis for future policy in this area and in the other areas to be covered by the review.

The noble Lord, Lord Higgins, asked me again about the steering group. I cannot go much further than I did on the previous occasion we discussed this matter. The job of the steering group is to steer. As to the relationship between the steering group and the review group, I can hardly comment on that as the steering group meets for the first time later this month. At that stage the detailed relationship will be worked out. It seems absurd to pre-empt the results of the work of the noble Lord, Lord Sharman, through amendments of the kind proposed.

I also remind the House of the considerable powers that the Comptroller and Auditor General already enjoys in relation to non-departmental public bodies where he is not the auditor. The noble Lord, Lord Higgins, and the noble Baroness, Lady Sharp, have heard me make that point on several occasions. Therefore, I address my remarks to the noble Lords, Lord Freeman and Lord Shaw, as it appears from their remarks that this point is not clear. It is simply not true to say that unless the C&AG is the auditor of a particular body, that body is not properly accountable to Parliament. It is certainly not true to say--as the noble Lord, Lord Freeman, appeared to suggest--that somehow non-departmental public bodies will not be subject to resource accounting. If the noble Lord seeks an assurance on that point, I give it to him gladly. The C&AG has inspection rights in respect of all non-departmental public bodies. That means that he already has the access needed to investigate and to

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report to Parliament on any irregularity or impropriety discovered at a non-departmental public body.

Most importantly, under the National Audit Act 1983 he has the right to carry out value-for-money studies at all of these bodies. In many respects it is these studies rather than matters arising from routine financial audit which are the most important form of parliamentary control. Value-for-money reports of both departments and non-departmental public bodies normally account for about 40 of the 50 or so hearings held each year by the Public Accounts Committee. That means that even where he is not the auditor, the Comptroller and Auditor General already has the powers to hold these bodies properly to account.

Turning to the amendments, when Amendment No. 3 was tabled I thought that it was an attempt to correct the manifest defects in Amendment No. 1 and that the noble Lord, Lord Higgins, would speak to that amendment instead of to Amendment No. 1. The proposed new clause in Amendment No. 1 is similar to the one tabled on Report. The only change seems to be one of relieving the Treasury of the duty of presenting the accounts. It does not respond in any way to the concerns that I expressed at Report stage about the deficiencies in its definition of a non-departmental public body.

Amendment No. 1 is deficient because, as the tabling of Amendment No. 3 recognises, the definition of a non-departmental public body is defective. It is too wide and could lead to bodies such as National Health Service trusts being caught. It is definitely open to legal challenge--and the result of that could be that the courts and not the Treasury will decide which bodies the Comptroller and Auditor General can audit. That may not worry noble Lords, but certainly it will not be Parliament making the final decision.

I cannot say that the proposed new clause in Amendment No. 3 is any kind of improvement. Indeed, it seems to me to be a good deal worse--even from the point of view of the Opposition. It gives up any attempt to define a non-departmental public body; instead it relies on a listing of those bodies which the Government decide to include in any particular year in a particular command paper. This approach would leave it entirely in the hands of the executive as to whether a particular body is included or not. Under this proposal, Parliament will have no say over which bodies are to be audited by the C&AG.

As definitions adopted by the Government change over time, bodies may be included or excluded, with the possibility of consequent disruption to their audit arrangements. Is that really what is intended? It is even possible that at some point in the future a government will decide to stop publishing the document and information would rapidly become out of date.

The publication referred to in the clause is not designed as a comprehensive listing of NDPBs. It lists 89 bodies--20 of which report to the Scottish Executive or Welsh Assembly--but there are more

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than 200 executive NDPBs. So the listing covers only a third of all NDPBs, those spending more than £15 million a year. I do not see how relying on this document will fulfil the aim of ensuring that the C&AG is the auditor of all such bodies. The fact that the Opposition have been forced to rely on a listing of NDPBs contained in a document published by the Government highlights the impossibility of adequately defining these bodies. Relying on a government publication will remove parliamentary control.

Amendment No. 2 is even more extraordinary. It is entirely new, and it seems strange to bring forward such an important new clause at Third Reading in the second Chamber. It would appear--although the drafting is unclear to the point of unintelligibility--to make the C&AG the auditor of all the subsidiaries and associates of NDPBs, assuming that the undefined reference to government executive non-departmental public body means NDPBs. These are mainly the trading and commercial arms of bodies such as the national museums and galleries. These bodies are set up as companies. As a matter of company law, the C&AG cannot audit companies--which at least Amendment No. 1 recognised. No such exclusion is included in this proposed clause. It is simply not possible without a change in company law.

As I said earlier, because the proposed clause is so loosely drafted it would require the C&AG to become the auditor not only of subsidiaries but of associated companies--even if they were a small minority. It does not seem to be a recipe for encouraging public/private partnerships or for dealing with the issue of the burdens on business, which noble Lords opposite appear to have ignored. So this clause, too, is highly defective.

Even if it were right to impose a blanket access on all NDPBs--which I think is the fundamental objective behind all of the amendments--we have shown that it is not necessary for scrutiny; we have shown that it is not necessary for parliamentary control; and we have shown that even the Comptroller and Auditor General himself does not believe it is necessary. There has never been a comment from any of the value-for-money studies that the Comptroller and Auditor General has been held back by lack of access.

Even if any of the points raised have any validity--which they do not--each and every one of the three amendments is hopelessly defective. Amendment No. 1 is hopelessly defective, as I said, because it does not provide an adequate definition--and, heaven knows, noble Lords opposite have had three goes at this and still they have not come up with anything useful; Amendment No. 2 is hopelessly defective because it covers not only all subsidiaries but all associates, including companies--which is nonsense in company law; and Amendment No. 3 is hopelessly defective because it relies not on a definition of an NDPB but on a government command paper. This House cannot in conscience agree to these absurd amendments.

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