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Lord MacGregor of Pulham Market: My Lords, the quotation from Robin Oakley was not critical of the satirists—I am certainly not, as they raise parliamentary awareness. The point was that they concentrated so much on those aspects that insufficient attention was given to reporting more serious matters.

Lord Williams of Mostyn: My Lords, I agree with the noble Lord. Of course, the sketch writers are part of a wider spectrum which includes those aspects of the media referred to by the noble Lord, Lord Saatchi. Taken as a whole, we should be entitled to look to the broadcast media, which is probably the way that the majority of young voters receive information about politics. I do not believe that most of them scrabble for the parliamentary sketches, whatever paper they happen to read, because I am sorry to say that most young people do not read newspapers. Most of them take such information from the television or the video.

Mary Morgan and her colleagues carry out an extraordinarily good job of work and they are thinly resourced. The noble Lord, Lord MacGregor, said something that struck a chord in my mind. Other noble Lords hinted at it, sometimes more brutally in the case of the noble Lord, Lord Phillips of Sudbury, who said that we are a sick society. I do not believe that we are. I believe that we remain a generous-hearted country which could do better. Fundamentally I believe it is a decent, good and tolerant society, civilised in its accommodation of other people's different views. The noble Lord, Lord MacGregor, pointed to the fact that we are now a less deferential society, which is undoubtedly true. The juries of my youth, which was not pre-flood, were always dressed in a collar and tie and a suit. Now people sit there in T-shirts.

The world has not become worse, but it has changed and our experience is different. Non-deference is quite good in a society that has been over-obsessed with secrecy and the proposition that those set in authority over us are necessarily always right on every conceivable occasion. My experience shows that not to be a universal truth.

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Part of the remedy must lie in our own hands. We need a visitors' centre. Comparing the workings of our Chamber with other chambers in other parts of the world, I visited the Basque Parliament in Vitoria and the Scottish Parliament in Edinburgh. I went unannounced so they were not doing me a great favour. On entering the Scottish Parliament one is immediately made welcome and made to feel that they want to see you. The information is readily available; the facilities for the broadcast media and the print media are in place.

I believe that little is required for our two Chambers except a modest amount of thought. The necessary resource would be limited. If one considers other quite new chambers—our colleagues in Spain post the Franco regime and those in Belfast, Edinburgh and Cardiff—one sees that they have the advantage of not being encumbered with the wrappings of tradition.

Baroness Carnegy of Lour: My Lords, I suspect the Minister saw that the visitor centre in the Scottish Parliament is constantly full of children, particularly primary school children, who visit in school time. They are very interested in the interactive arrangements that they can enjoy.

Lord Williams of Mostyn: My Lords, I did notice that. It struck me that that is a useful device. That is a young Parliament, using imagination and a certain amount of resource, but it is not vastly extravagant. In Belfast children visit the Chamber, which faces difficult circumstances, to act out the roles of Speaker and so on. Those are small steps, but incrementally they are capable of bringing about good consequences.

How do we raise public awareness of the work of Parliament? I bear in mind one noble Lord's cautionary note, that if we do not do very well and people know more about us the conclusion will not be entirely gratifying. I believe that we should try to focus on scrutiny of the Government, general revision of legislation and debates of this kind. There are many parts of every notional parliamentary week when we are not using the time: in the mornings, except for committee work, often on Fridays and for a large period in the summer.

I hope that noble Lords will join with me in what I believe to be our common purpose and I shall seek their support when we try to improve ourselves. If we make improvements to the work that we should carry out, undoubtedly those improvements will resonate with the public; and the public, whom we try to serve, will benefit as will this House, which I believe we all respect and want to serve in the best possible way.

I repeat my thanks to the noble Lord, Lord Norton. In 16 or 17 minutes I have not been able to deal with all the points that have been raised. I simply refer back to my original proposition. There is a common theme: we believe that this House is of substantial quality. I do not have the curse of the noble Lord, Lord Pym, in having any kind of majority, being 21 short of the main Opposition party. There may be a moral there, but if there is I shall not attempt to draw it.

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5.28 p.m.

Lord Norton of Louth: My Lords, I have great pleasure in thanking all noble Lords who have taken part in the debate. It has been an extremely worth while debate. I take on board the points that have been made. There has been a common theme and a recognition of a common problem, which is the disconnection between people—especially young people— and Parliament. Affluent young people with access to the Internet are not interested in politics, but at the last election the lowest turnout was among those from the areas of greatest social deprivation. We face that very real problem. The problem of disconnection is not simply confined to Parliament; nor as my noble friend Lord Moynihan mentioned, is it necessarily confined to this country. Other countries face similar problems.

A major task to be undertaken is almost a re-creation of civic society. I agree that a large part of the route is through education. I declare an interest, as I spend all my time in education. There is great progress to be made. My experience of talking to schools throughout the country is that one can gauge that people are interested in issues. I take the point raised by my noble friend Lord MacGregor that those issues are variously debated, but not in a way that resonates outside and not necessarily to the extent that I would like. Although it is true that more and more constituents go to see MPs, they are still in the minority. There is a great deal more to be done to connect with the people in this country to make them more aware of the work of Parliament.

A central point that has been made is that Parliament is part of the problem. It must also be seen as part of the solution. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Central Government: Audit and Accountability

5.30 p.m.

Lord McIntosh of Haringey: My Lords, with the leave of the House, I shall now repeat a Statement made in another place by the Chief Secretary to the Treasury on audit and accountability in central government: government response to the Sharman report Holding to Account. The Statement is as follows:

    "With permission, Mr Speaker, I should like to make a Statement on the Government's response to Lord Sharman's report Holding to Account which made recommendations about audit and accountability in central government. Copies of the Government's response, Audit and Accountability in Central Government are available in the Vote Office [the Printed Paper Office].

    "The structure of audit and accountability, springing from the Gladstonian reforms, is an important matter. This House, and the country, have benefited enormously from the work of the Comptroller and Auditor General and the National

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    Audit Office, which—while accountable to this House—have a remit that is independent of both Government and Parliament.

    "Over the years, Members of this House—and particularly the Committee of Public Accounts—have expressed concern that the remit of the Comptroller and Auditor General had become artificially restricted.

    "It has been the general practice of this Government to appoint the Comptroller and Auditor General to audit each non-departmental public body set up since 1997 under our control.

    "But despite this commitment to openness, there are still significant areas of central government where the Comptroller and Auditor General is not the auditor—including around 50 non-departmental public bodies that had been established previously with auditors appointed by individual Secretaries of State. And in a number of areas, he is also dependent on negotiated administrative access.

    "In debates on the Government Resources and Accounts Bill the subject of the Comptroller and Auditor General's remit was raised and I undertook to review the position.

    "Accordingly, I set up an independent review of audit and accountability in central government to look at all areas of the accountability framework, and to take evidence from a wide range of interested parties.

    "I am grateful to the noble Lord, Lord Sharman, for leading that review, and to all members of the steering committee, including the right honourable Member for Haltemprice and Howden (David Davis), the right honourable Member for Swansea West (Alan Williams) and the honourable Member for Newbury (David Rendel).

    "The noble Lord, Lord Sharman, reached independent conclusions and made recommendations that were addressed to the Government, the Comptroller and Auditor General, the Committee of Public Accounts and the Public Accounts Commission. The response I am publishing today sets out the Government's position in relation to Lord Sharman's report.

    "In considering Lord Sharman's recommendations and how to carry them forward I have been very mindful that reforms need to command confidence on all sides of this House. They also need to be workable. I am very grateful for the constructive discussions that have taken place with the Comptroller and Auditor General and his staff which are reflected in the response.

    "I am pleased to inform the House that the Government have accepted the main recommendations that the noble Lord, Lord Sharman, directed to the Government and that we support those addressed to others.

    "There are five central recommendations: first, the Government agree that the Comptroller and Auditor General should audit all non departmental

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    public bodies. This will make him the auditor of bodies such as the Environment Agency, English Partnerships, English Heritage and the Housing Corporation.

    "Secondly, subject to legislation, this extension to non-departmental public bodies will include those that are established as companies; for example, the Student Loans Company, the Film Council, the National Consumer Council and the National Forestry Company.

    "Thirdly, the Government agree that the Comptroller and Auditor General should have statutory access to the documents needed for his audit work in place of the current non-statutory arrangements. We welcome arrangements proposed by the Comptroller and Auditor General to ensure that this right of access is exercised so as to minimise any additional burdens on either public or private sector bodies.

    "His access to documents in completing value for money studies will be extended by right, for example, to registered social landlords, train operating companies and contractors, including those in PFI contracts.

    "Fourthly, the Government's response makes clear our commitment to ensuring the information that underpins the reporting of progress against PSA targets is reliable, and accepts that there should be an extension of external validation of departmental data systems that relate to these targets. The Government intend to invite the Comptroller and Auditor General to take responsibility under his existing powers for the validation of such data systems, usually on the basis of a three-yearly review.

    "Finally, the Government welcome Lord Sharman's acknowledgement of the steps being taken to promote strong management and innovation across government in the delivery of public service.

    "Before implementing these proposals, the Government will consult bodies affected by the changes.

    "I am confident that the proposals we are setting out today will strengthen audit and accountability and improve transparency, in the interests of this House and all those we represent.

    "I commend these new arrangements to the House". My Lords, that concludes the Statement.

5.37 p.m.

Lord Saatchi: My Lords, I am grateful to the Minister for letting me have an earlyish copy of the Statement this morning.

It is a splendid aim, shared on all sides of the House, to give the public sector a proper balance sheet and proper accounts, based on clear, simple and rigorously defined rules. We all owe a debt of gratitude to the noble Lord, Lord Sharman—I am sorry to see that he

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is not in his place—for leading the way with his report last year which has stimulated this belated response from the Government today.

There is much need for improvement in the compilation and presentation of government accounts; for better rules which show us what the taxpayer owns; how it is being used; and what it is being spent on. We are agreed that we need better information on that. Therefore, we welcome the Government's acceptance of the attempts of the noble Lord, Lord Sharman, and the Public Accounts Select Committee in another place by including in the remit of the Comptroller and Auditor General the over 1,000 non-departmental public bodies which currently employ 30,000 people and spend £25 billion of taxpayers' money a year.

I wish that I could stop there because if ever there was an issue that deserves to be dealt with on a cross-party consensus basis, that must surely be it. But I am afraid that the current situation, even after the worthy attempt with the Government Resources and Accounts Bill and this response today, is that unfettered discretion still resides in the Treasury so far as concerns the compilation of accounts; there are no clear principles for the accounting of income or expenditure, and we still permit the Treasury to continue to omit large public assets and liabilities from the national balance sheet.

There are at least three areas of major concern which the Government did not address in their response today. First, the accounting treatment of billions of pounds a year of tax credits is not in conformity with generally accepted accounting principles. By breaching OECD guidelines the present accounting treatment allows the Treasury to paint a more flattering picture of a key issue, which is government spending, by excluding their amount—now heading with the new Tax Credits Bill to perhaps £15 billion of public expenditure a year—from the total.

Secondly, let us consider the question of liability, which is not mentioned in the response. We are desperately lacking in that regard. We have no proper account of the great and growing liabilities of the public sector in relation to, for example, pensions. The public state pension represents an enormous and ballooning liability not just in this country but in many others. We need clarity in regard to the scope and scale of that liability. We have just seen the impact on private company accounts of the new FRS 17 accounting rule, but we have no idea what would be the impact on the public accounts of applying that accounting treatment to final salary schemes in the public sector.

Thirdly—we discussed this matter at Question Time today—we need to understand far better than we do at present what are the real liabilities that arise each time a project is implemented in the public/private sector under PPP, where the public sector establishes a contract that effectively enforces on it a series of payments over a long period of time that currently do not appear in the public accounts at all. We have seen with Enron the dangerous practice of allowing a build-up of debt to be hidden off the balance sheet. Despite

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what the Minister said at Question Time, there is widespread concern that that is what is happening with public/private partnerships.

It was concerns such as those that led the noble Lord, Lord Sharman, to press for new measures to create greater scrutiny of audit and accountability in government organisations. We shared many of the views that he expressed. We both suggested a wider role for the NAO and the C&AG. For example, during the passage of the Government Resources and Accounts Bill we both asked for the statutory right of the NAO and C&AG to be extended to all non-departmental public bodies, including the BBC.

As the Minister will well remember, during the passage of the Financial Services and Markets Act 2000 we, together with the Liberal Democrats, moved amendments to provide for the NAO to audit the Financial Services Authority, but they were refused by the Government. I am therefore deeply disappointed that today's Statement continues to exclude two of the most important public bodies in the land—the BBC and the Financial Services Authority—from NAO scrutiny. Perhaps the Minister will explain why that vital exclusion continues.

We need a clear, complete and comprehensive set of accounts. They must be composed under standards of accounting practice so that people have at least a chance of doing the detective work to find out what is really happening. That is democratically proper and a matter of common sense; we do not have that after this Statement.

5.41 p.m.

Lord Razzall: My Lords, in rising to respond to the Minister's Statement, perhaps I may say on behalf of my noble friend Lord Sharman how sorry he is that he cannot be in his place today. Having spoken to him in the light of the Government's response, I know that I speak for him when I say that he very much welcomes their response to his report. Indeed, those of your Lordships who have had the chance rapidly to digest the 55 pages of the Government's response in the available time will be aware that 98.5 per cent of my noble friend's recommendations have been adopted by the Government. Obviously, we welcome that.

I cannot comment on the criticisms made by the noble Lord, Lord Saatchi, which appeared to have little to do with the Statement. Had he given me advance notice of the extra items that he proposed to raise, I should have said whether I agreed with them. I had the advantage of an hour's notice of the Government Statement, but not of the noble Lord's separate statement on another topic.

Having broadly welcomed the fact that 98.5 per cent of my noble friend's recommendations have been adopted, I shall cavil with two of the Government's responses and then finish with a general comment. Recommendation 2 states:

    "All departments should have a formally constituted audit committee. Some basic principles for audit committees include that they should".

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There follow seven or eight requirements that recognise that the bodies to be subject to audit committees are not corporate bodies, but that several of the requirements of audit committees of corporate bodies should be adopted.

I am concerned by the Government response in paragraph 2.5 on page 12 of the report, which states:

    "However, central government is a wide and diverse field, and central government bodies are not identical to companies. In particular, unlike companies, government departments do not have a corporate board structure from which informed non-executives with statutory responsibilities . . . can be appointed to the audit committee".

The report continues:

    "Existing Treasury guidance will continue to be developed in the light of the above considerations, Lord Sharman's recommendations, and other factors as appropriate".

Well, if ever I have heard the Civil Service preparing itself for not doing very much with a recommendation, that is it. I am concerned that the recommendation will be lost in the realm of Whitehall and that the principles for audit committees developed in the private sector will not be satisfactorily adopted as my noble friend recommends.

My second cavil, which I share with the noble Lord, Lord Saatchi, is with regard to the BBC. In recommendation 7, my noble friend's committee said clearly that the BBC should be brought within the ambit of the Comptroller and Auditor General. His report points out that the 1999 Davies review of the BBC recommended the same thing. I am not persuaded by paragraph 2.33 of the Government's response that the BBC should be excluded. No satisfactory reason is given why the Government reject that recommendation.

Those are two points of substantial detail. In concluding my remarks, I should tell the Minister and the noble Lord, Lord Saatchi, that I well remember that in the private sector—probably following the Maxwell affair—an enormous industry was created with regard to audit and audit control. The private sector now recognises that in many cases the baby was thrown out with the bath water—to use an unfortunate pun. I refer noble Lords to recommendation 17 of the Sharman report, which the Government should bear continuously in mind. It states:

    "Accountability mechanisms are perceived by some in government as a discouragement to innovate and change, but this appears to be only one of a number of complex factors . . . Whilst acknowledging this, it is important that auditors recognise the dangers of being perceived as discouraging well managed risk taking, and ensure that their work lives up to the spirit of statements made on attitudes to innovation".

If every audit committee and every auditor in both the private sector and the public sector lived up to that, the world would be a better place.

5.47 p.m.

Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their response to the Statement—rather more grateful to the noble Lord, Lord Razzall, because he addressed both the Sharman report and the Government's response to it, whereas

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the noble Lord, Lord Saatchi, referred to them only towards the end of a, shall I say, wide-ranging speech. The issues raised by the noble Lord, Lord Saatchi—his accusation about the unfettered discretion of the Treasury, for example—need to be examined. I should be happy to have an opportunity to respond to them. Issues about tax credits, long-term pension liabilities and liabilities under public-private partnerships all deserve to be debated—perhaps it would be appropriate for that to be in Conservative time—but not today.

The Sharman committee was set up to,

    "consider suitable arrangements for the audit and accountability of central government in the 21st century on behalf of Parliament".

It was especially concerned with the role and power of the Comptroller and Auditor General. That is what the noble Lord, Lord Sharman, did and I congratulate him on an excellent job.

In so far as the noble Lord, Lord Saatchi, referred to the report and our response to it, he made valid points. It is true that we did not accept the recommendation of either the noble Lord, Lord Sharman, or, earlier, Gavyn Davies, for the BBC. In view of Gavyn Davies' subsequent appointment as chairman of the BBC, we seriously considered his recommendation again. But the important point is that we want to avoid not only the reality but also the appearance of any interference with the editorial independence of the BBC. It was on that basis that we decided not to take action or to agree with the recommendation.

The BBC is, after all, set up by Royal Charter. The Royal Charter requires that it should be audited by a company regulated by private audit standards and with membership of the appropriate professional body. It would require an amendment to the Royal Charter of the BBC to change the audit arrangements and bring them under the National Audit Office. Although the National Audit Office is, of course, independent, we are reluctant to run any risk that the internal finances of the BBC could become issues for political debate. That is why, after much consideration, we rejected that amendment.

The noble Lord, Lord Saatchi, referred to the Financial Services Authority. He knows that the noble Lord, Lord Sharman, made no recommendations about the FSA. He said that the arrangements should be left alone. The FSA is a company limited by guarantee; we would need primary legislation to have it audited by the National Audit Office. There is some reassurance in the fact that the Treasury can commission value for money inquiries within the work of the Financial Services Authority, and there is no reason why those should not be carried out by the National Audit Office.

The noble Lord, Lord Razzall, spoke about audit committees. The difficulty with the public sector and particularly with central government is that we do not have non-executive directors responsible to departments in the way in which companies do:

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perhaps we should. It is a legitimate point. But, having said that, we think that the points made by the noble Lord, Lord Sharman, in recommendation 2 are valid.

I can confirm, as the noble Lord, Lord Razzall, said, that the response to virtually all of the report is positive. I repeat my thanks to the noble Lord, Lord Sharman, and all his colleagues for the report.

5.52 p.m.

Lord Sheldon: My Lords, I congratulate my noble friend the Minister. The report is a valuable contribution to the work of the Public Accounts Committee and the National Audit Office. For years, the Public Accounts Committee and the National Audit Office wanted to be able to audit all non-departmental public bodies. What we got was an agreement that all the new ones would be audited, and that practice was maintained. It is good to know that all the others will now be given that treatment.

The Housing Corporation was a particularly difficult case; we were given it only on sufferance. It was a concession to the National Audit Office to allow it to investigate the billions of pounds that was spent. That was an outrage. My noble friend has spoken about the valuable agreement that he was able to obtain on that issue.

With regard to the value for money aspects, I was pleased to hear that the issue of social landlords would be dealt with. I shall also say a word about the BBC. The BBC, of course, has a Royal Charter, as my noble friend said. However, we discussed the World Service, and we took evidence from John Tusa, who came before the Public Accounts Committee. We were able to get those accounts audited.

All in all, it has been a good job. I congratulate my noble friend.

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