§ Mr. Speaker
I understand that it is the right hon. Gentleman the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) who is to open the debate?
§ 3.55 p.m.
§ Mr. John Boyd-Carpenter (Kingston-upon-Thames)
I beg to move,That this House takes note of the First, Second and Third Reports from the Committee of Public Accounts in the last Session of Parliament and of the Treasury Minute on those Reports (Command Paper No. 4518).The somewhat startling conjuncture of names on the Order Paper in respect of this Motion is a vivid illustration both of the continuity and of the determinedly non-party constitution of the Public Accounts Committee. I hope it gives me an opportunity for congratulating both the right hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever) and the Committee on the right hon. Gentleman's election to the Chair of that Committee. I am sure it is an appointment which he will find absorbing, if occasionally strenous, and I hope that, without being presumptuous, I may express the view that the right hon. Gentleman has all the qualities required to make a great success of his Chairmanship. In view of the fact that the Chairmanship always goes with Opposition, I hope it will not be misunderstood if I wish the right hon. Gentleman a prolonged chairmanship of the Committee.
The right hon. Gentleman's name appears first on this Motion. I appreciate that. It amounts I think to giving us something of a blank cheque, and I hope I am not misunderstood if I say that there are few Members of this House from whom I would rather receive a blank cheque than from the right hon. Gentleman.
The Committee, of course, is a peculiar one in that its Chairman is selected from the Opposition and the majority of its members from the Government side 876 of the House. But I am glad to be able to tell the House that during the six years in which I was in the Chair of the Committee, from 1964 to 1970, there was on no occasion a division of view or a vote on party lines. Indeed, the right hon. Gentleman will, no doubt, have the same curious experience that I had; for the earlier years of his Chairmanship he will, of course, be dealing with the things which went wrong during the period in which he was a member of the Government, and it is only after a year or two that he will come to disinterring such skeletons as may reside in the cupboards of my right hon. Friends.
In view of the offices which the right hon. Gentleman has held, he may find himself having the same occasionally intriguing and entertaining experience as I had of dealing with a matter in which, as a member of the previous Administration, I had been involved in trying to prevent it from happening, but had been overridden. And it is always a wonderful illustration of the iron sense of discipline of our civil servants that though this fact must have been perfectly well known to the accounting officer or Permanent Secretary appearing before us it is completely offside to give any indication, other than an occasional wink, to suggest that that distinguished civil servant knows perfectly well that that was the case. If he does have that experience, as he may well have, I hope that he will have no greater difficulty than I had in keeping a straight face.
As this is the last occasion on which I shall have the opportunity of making the first speech on this particular occasion, I hope the House will not think it tedious if I take the opportunity to express thanks to a number of people for their work and co-operation over the last six years. Thanks are due to Sir Bruce Fraser, and his predecessor Sir Edmund Compton, as Comptroller and Auditor General, two distinguished public servants of the highest calibre and devotion to duty: to the able and extremely hardworking staff of the Exchequer and Audit Department; to the two clerks from the Clerk of the House's Department, Mr. Clifford Boulton and Dr. Eric Taylor, whose services were and are of the greatest value.
Perhaps I might also refer to four members of the Committee of last 877 Session who are no longer Members of the House—to my noble Friend, Lord Reigate, who presided in my absence; Sir Douglas Glover, whose idiosyncratic methods, which we knew well on the Floor of the House, were displayed to full advantage in Committee; Dr. Edwin Brooks, who brought a powerful and incisive academic mind to some of our problems, and Mr. Frank Hooley, whose efforts, hard work and practical experience were of the greatest value.
I hope that those hon. Members who survive will feel that these tributes are not inappropriate and I cannot forbear specially to thank for their help the hon. Members for Heywood and Royton (Mr. Barnett) and Ashton-under-Lyne (Mr. Sheldon), known in the Committee, as the House may know, as the "heavenly twins", who have played so large a part in the work of the Committee and whose continued residence on earth and on the Committee I hope may long continue.
Effectively, the significance of the Committee depends on three things, the first of which is that it works very closely with the Treasury. As hon. Members not on the Committee may not be aware, one of the Treasury Officers of Accounts attends as a permanent witness at all sittings where evidence is taken. It has also been greatly helped by the co-operation of the Press. I am deeply impressed every year at the speed with which the lobby correspondents absorb a massive and complex report which it has taken members of the Committee many months to work on.
But above all, the Committee's effectiveness turns on the fact that its recommendations are treated with great seriousness in Whitehall. I will quote one large and one small example. The new system of dealing with non-competitive Government contracts, which is dealt with at considerable length in the Report of last Session, was evolved under the impetus of the reports of earlier Committees on Ferranti and Bristol Siddeley and also on a number of less spectacular inquiries. To take a more recent one, I would like to express my gratitude to the last Administration for putting through, shortly before Parliament was dissolved, the Insolvency Services (Accounting and Investment) Act, 1970, which resulted directly from a recommendation of the Committee.
878 Sir, you would rebuke me for tedious prolixity, if not repetition, if I were to attempt in one speech to cover, even briefly, all the subject matter of the massive Reports before us. I will, therefore, follow the practice of previous years and pick out one or two matters on which it might be of assistance if, as the Chairman at the time, I made a comment.
I will start with a reference to the Post Office. As paragraph 198 of the Report spells out, the report before us is the last one covering a full year in which the Public Accounts Committee is likely to deal with the affairs of the Post Office. Every year for as long as I can remember the affairs of the Post Office have been before the Committee. This is not wholly surprising. The Post Office spends a great deal of money by way of capital investment on equipment and so on, and those hon. Members who have served on the Committee in the past will, I think, share my general impression that its relationship with many of the people who supply that equipment has been perhaps unnecessarily cosy. I do not mean by that to suggest impropriety or irregularity of any kind. But the impression created on my mind is that the Post Office policy in purchasing matters has been insufficiently commercial and not such as would be adopted by an enterprise which felt responsible for dealing with its own or its shareholders' money.
For example, there was the long story of "the ring", the suppliers of telephone equipment and telephone exchanges. Successive reports of the Committee have urged the Post Office to introduce competition and not simply place contracts by arrangement with an arbitrarily limited number of suppliers. This has been important in financial terms and indicative of the somewhat uncommercial attitude which the Post Office has adopted for years.
Another feature which is referred to in the Report between paragraphs 174 and 198 is the Post Office's habitual delay in fixing the price of what it buys. The whole incentive element in a fixed price contract is emasculated if the price is not fixed until the goods have been supplied or are nearly ready for supply. There is a particularly bad example of this in the Report.
There has equally been the curious unwillingness of the Post Office to press 879 for the recovery of money owing to it. It has been the practice for some years on occasion to make progress payments on contracts the total of which exceeds the total price of the contract when it is finally arrived at. In these cases a sum of money is due back to the Post Office. We mention in our Report a number of examples, including one in which £159,583 admittedly due to the Post Office by way of such repayment was not in fact repaid for as long as four years. At present interest rates the financial unwisdom of such an attitude hardly needs emphasis.
In paragraph 198 the Committee puts on record its anxiety as to the future when the supervision of the Committee and, more important, of the Comptroller and Auditor General is withdrawn. In parenthesis, concern was also expressed to us by the highly responsible staff association of the Exchequer and Auditor Department. I know that the Post Office Corporation will come within the scope of the Nationalised Industries Committee which, as I said as recently as last Thursday and as we all accept, is a Committee of great ability and force. But the Committee will be under the disadvantage of not receiving the help which the Public Accounts Committee had from the Comptroller and Auditor General and his staff. The accounts of the Post Office Corporation will no longer be audited by the Comptroller and Auditor General but by commercial auditors. I have no doubt that a distinguished firm of commercial auditors has been selected which will work with great efficiency, but there is all the difference in the world between an ordinary commercial audit for the purposes of the Companies Act and the kind of efficiency audit which over the years the Exchequer and Audit Department has undertaken.
Therefore, if the Nationalised Industries Committee, or the Public Accounts Committee—if it likes to exercise the right it still has of going into the affairs of the Post Office Corporation without the Comptroller and Auditor General's help—wishes in the future to investigate the affairs of the Post Office, it will do so without the major advantage of an audit by the Exchequer and Audit Department.
880 I do not believe that the Post Office will be very much changed by substituting member of a Corporation for the Postmaster-General. The same people will be doing the same jobs, most of the way down the organisation. We all felt considerable concern as to whether something could not be put in the place of the Exchequer and Audit inspection of the Post Office in the future. Very large sums of money are involved, the Post Office's attitude on a number of matters has seemed insufficiently commercial, and I wonder whether my hon. Friend the Financial Secretary will be able to help the House by telling us what is the Government's thinking on the possibility of there being some other means of investigating this important body.
We dealt at some length last Session with the administration of investment grants. Our views appear between paragraphs 13 and 34 of the Report. At the time we examined this matter it was of major financial significance. Public expenditure was running in round figures at £600 million a year. The recent announcement by my right hon. Friend the Chancellor of the Exchequer of the decision to discontinue these grants diminishes, although it does not wholly destroy the importance of our recommendations. It does not wholly destroy their importance partly because grants will continue to be paid for a considerable time where application was made before the date of the announcement and, secondly, some of our comments are pertinent not only to the particular system of investment grants but probably to any other system of helping financially investment in industry. I would therefore like to make one or two points arising from our Report.
Paragraph 23 spells out some of the conditions under which these grants were paid. Briefly, they were that the article in respect of which they were paid should be used for at least three years, should not be moved out of this country or, where grant was paid at the development area rate, should not be moved out of a development area. Plainly, this is a difficult condition to police or to supervise, particularly as, by an administrative decision of the then Minister, grant was paid on individual articles down to an individual value of £25. The number in 881 respect of which grant is paid is therefore very large.
Strictly, non-compliance with the conditions I have referred to involves a liability to repay the grant in full. In practice, rightly or wrongly, the Department did not insist on full repayment where the asset had been used for one year, but there is a more important point which our Report brings out. About 3,000 cases in which the conditions for use of the asset have not been complied with were discovered by inspection of a comparatively limited number of cases. When this happened, no distinction was made with respect to the repayment between cases where there had been no disclosure by the person who had received the grant—where they had been found out—and cases in which, in accordance with the conditions of the grant, a change of circumstance was properly reported.
There was, in other words, no incentive whatsoever to any firm to carry out its duty of reporting that the conditions no longer existed. Indeed, the incentive was precisely the opposite way. A person who was caught was no worse off than a person who had owned up. There was a chance, and I think a substantial one, of not being caught and, if the worst came to the worst, and a person were caught, there was always delay and he had the interest on the money. I am glad to see from the Treasury minute that it is now the policy to adopt a much stricter approach where conditions of grant are not complied with.
We spent a good deal of time examining the extraordinary way in which the system worked in respect of ships. Under the legislation grant could be paid, and in certain circumstances it was said had to be paid, in respect of a ship built abroad for operation abroad provided there was British ownership. In paragraph 31 we set out four examples of what happened and we were told that there were 30 foreign built and operated ships which were affected. I will not weary the House by reading out those examples because they are clearly set out in the Report. The ships were built abroad for operation under charter abroad and substantial sums were paid by way of investment grant simply because British ownership intervened. In several of these cases ownership arose by 882 purchase when the ship was already under construction.
It is fair to say that the problem became so acute that the Industrial Development (Ships) Act 1970 was passed this year under which grant need not be paid in such cases if, in the opinion of the Treasury, it would be to the detriment of our balance of payments. But it was still left open that grant could be so paid. It is arguable that if that legislation had been in existence at the time when those cases occurred then some of the payments would not have been made; but the fact still remains that it is difficult to reconcile the payment of these moneys to people acquiring an interest in a ship being built abroad for use abroad with any direct benefit to the national economy. The names of the companies and individual concerned are given in the evidence and I would stress that no irregularity or offence was committed in any of these cases. They simply took advantage of the state of the law and, as we picturesquely put it in paragraph 34,the coach-and-four committed no traffic offence.The 1969–70 Report includes for the first time the result of our inquiry into the affairs of the universities. The House may remember that the 1966–67 Committee stated in a special report that the time had come to end the situation in which the universities alone among the major recipients of voted funds were excluded from examination of their books and accounts by the Comptroller and Auditor General and from examination of their witnesses by the Committee of Public Accounts. We heard a good deal of evidence before making that special report and the right hon. Member for Grimsby (Mr. Crosland), with commendable courage in view of the academic disturbance at the time, accepted our report.
The paragraphs in the present Report on this matter are the first to follow our recommendation and his decision. I believe the result proves us right. Many illustrious academic figures came before us in 1966–67 to say that inspection of the books of the universities would mean the end of academic freedom. But frankly our Committee did not believe it nor obviously did the right hon. Member for Grimsby. I hope that the House, having seen the results of the process now operating, will feel that academic freedom has not been affected in any way.
883 I call in aid a witness who came before us at that time—indeed he gave evidence also during this last Session—Lord James of Rusholme. I am sure the House agrees that he is one of the wisest and greatest men in the universities today. In 1966–67 Lord James stood out almost alone in favour of bringing the universities within our purview. When he came before the Committee on the last occasion and I asked him how he felt it had worked out he said that it had worked out very well and added, "I told you so".
Our analysis has not revealed any major disasters but has revealed a quite considerable degree of weakness in financial control by the University Grants Committee. A number of cases illustrated this weakness. For example, three universities, apart from Oxford and Cambridge, charged college fees in addition to other fees charged. The universities included these fees quite properly in their accounts—and there is no reflection upon them whatever. But the University Grants Committee's witnesses admitted to us that when assessing grants to these universities they were unaware that this source of income existed, although the information in the shape of the university accounts was in their own office. It appeared that they were under-staffed, and I am glad to see that the Treasury minute suggests that this is being remedied.
There is another element in the situation which might be expected in an area where there has not been the same degree of public accountability in the past as in other areas. It is that there has been a failure to match capital expenditure on buildings with current expenditure on maintenance with the result that universities did not receive sufficient current grants fully to use these buildings. There were also one or two cases in which buildings were bought by universities with the authority of the University Grants Committee, which required substantial conversion, but the University Grants Committee had not seen fit before authorising this purchase to find out how much either the cost of conversion would be or how long was the lease on which the property was held.
I hope the House will feel that the view of the Committee—and, indeed, the deci- 884 sion by the right hon. Member for Grimsby some years ago—has been justified and that we have been able to help the universities by helping to secure that their finances are conducted in such a way that the always limited funds that any Government can make available shall be used the fullest and best extent for the desperately important purposes of advanced education. I hope there will be something of a shake-up in the administration of the financial side—I say nothing of the rest of it—of the University Grants Committee.
Paragraphs 4 to 13 of the Report deal with a point of general interest to this House since the Committee sought to ensure that grants authorised by Parliament were paid only for the purposes Parliament intended. The Transport Act 1968 provided for a payment of subsidy to British Railways in respect of certain railway services. It appeared from the evidence before us that in certain cases where a subsidised passenger service was operating over the same tracks and using the same signalling apparatus as unsubsidised goods services the whole cost of both track and signalling had been attributed to the subsidised passenger service. The substance of the matter was that a subsidy was being given to the goods services since they were getting their track and signalling free. There is no harm in that in itself, but it is an important principle from the point of view of this House that subsidy by Parliament for one purpose should not be applied to subsidise something which, for better or worse, Parliament has not decided to subsidise. I am glad to see from the Treasury minute that steps are being taken to put this matter right.
The longest part of our report runs from paragraphs 42 to 101 and, in spite of its length, I will deal with it extremely quickly. It concerns the immensely important and almost equally complex subject of the arrangements for Government contracts where it is not possible to go out to competition. There is, as the House will be aware, a large sphere of Government contracting in which the wholesome disciplines of competition are quite impossible. In developing a new type of aircraft or a new weapon, there is no competition in the ordinary sense and there are no competitors. The Departmen concerned has to go to a particular 885 firm with the know-how and enter into a financial arrangement with it. I do not wish to revive some rather sad and unhappy memories of how that kind of thing worked on some occasions in the past, but it is obvious that if a firm which has much better information about the real costs is involved in negotiating a non-competitive contract with a Government Department which itself does not know those costs, the possibilities of an excessive price exist.
It was for this reason that some years ago the Committee recommended the now accepted doctrine of equality of information. Even that doctrine is somewhat complex when it comes to application. However, the Government of the day carried out prolonged negotiations with the Confederation of British Industry. I believe that these negotiations were conducted with great ability by the then Chief Secretary to the Treasury, now Lord Diamond, using his own considerable expertise as an accountant. A system was evolved which I will not attempt to explain to the House, since I can only do so when I am in particularly good form and at great length, but it contains a highly complex formula for determining the profits to be allowed. It takes into account a ratio between costs and capital employed. It lays down some arbitrary rules as to what should be taken into account by way of capital employed and is obviously a most difficult matter. On the other hand, very large sums of public money are involved and the Committee went into the whole matter and made certain detailed recommendations as to how the formula could be improved.
The Government of the day wisely provided a Review Board to look at the working of the agreement. I understand that the review board has been considering the matter partly in the light of the Committee's recommendations and partly in line with its own views and that some refinement and perfecting of the system of Government contracts will result. The House will be interested to hear from the Financial Secretary about the present position.
The Committee of Public Accounts has been in operation for over 100 years and I hope I may be allowed to say that over that long period it has succeeded in 886 rendering some service to this House and to the country. I conclude by expressing the hope that it will continue for at least another 100 years, and I wish the right hon. Member for Manchester, Cheetham great success in the work that lies ahead of him.
§ 4.30 p.m.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
I associate myself with the tributes paid by the right hon. Gentleman the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) to our officers and to those members of the Committee who are not with us during this Parliament. Beyond that tribute, I add one to the right hon. Gentleman himself. The whole Committee, throughout its six years, was deeply impressed by the chairman under whom we were fortunate to serve. He obviously spent a great deal of time in mastering the background, and his questioning and direct approach always impressed us, both in his knowledge of the subject and, what is more important in these matters, his understanding of it. His grasp of the whole of the problems facing the Committee was always assured. My only regret is that his party won the election, so that he is no longer able to utilise that talent in the admirable service of the House which he gave over so long a period. Perhaps that under-utilisation of talent will be remedied on a future occasion.
Reference is frequently made during these debates to the small number of hon. Members who take part, or even attend. In an article in The Times last year, Mr. David Wood pointed out how deplorable this was. I think that he missed the point. The main purpose of the work of the Committee is to question those civil servants who, if the Public Accounts Committee did not exist, would not have to justify themselves as they have to justify themselves now. In a sense, one can say that the Committee which sits upstairs in Room 16 is very largely, though not entirely, an end in itself. That is not to say that we should not have debates here, but those who are troubled by the impossibility of debating every report of the new Select Committee on Expenditure should consider this.
The old idea of the Public Accounts Committee was obvious: it was to ensure that the moneys voted went in those 887 directions which Parliament intended. Its value was clear. We have seen over the years a considerable change in the direction in which the Public Accounts Committee has moved. We have seen it even in the short space of the past few years. Led by the right hon. Gentleman the Member for Kingston-upon-Thames, much more of the questioning was directed not merely to ensuring that the money had gone in precisely that way, although that is an obvious and necessary function, but we were more concerned about establishing good methods of practice which might be copied by other Departments. As we learned more about certain errors, we tried to see whether those errors occurred in other Departments.
The reputation the Committee once had of saving candle-ends is coming to an end. One saw the last flicker of this, if I may so put it, in the attitude of the University Grants Committee. It was clear that when the representatives of the U.G.C. originally appeared before us, they were very conscious of this aspect of our work and were rather frightened by it. As the right hon. Gentleman pointed out, their acceptance of the way in which we work and, beyond that, their understanding of the assistance that our work can give to Departments by questioning their methods and suggesting others, shows the way in which the work of the Public Accounts Committee has changed.
We have mentioned this time and again, but I see no reason not to drive it home once more. The Public Accounts Committee was once called, I think by the right hon. Gentleman himself, a negative efficiency audit. This is true. Over the next few years, however, we might need to think about moving towards more positive ways of improving efficiency, for we know too well that the scope of a Department today goes well beyond the ability of any Minister to control it effectively. We see this in one of the unremarked paradoxes of the work of the Public Accounts Committee, that when we draw attention to serious errors or shortcomings, it is rare, if ever—it has never happened to my knowledge—that the Minister suffers personally as a result of a grievous error by the Department of which he is nominally the head. The 888 Minister is always exempt from criticism on this score.
For those who still adhere to the doctrine of Ministerial responsibility, this is an obvious nonsense. They face the dilemma that either they must concede that Ministers do not have that power, or that the work of the Public Accounts Committee should be related to the Minister. We all know where the truth lies in this matter. It lies in the fact that the Ministers do not have that control over their Departments which our Constitution supposes.
As a result, the work of the Public Accounts Committee is made even more important than might otherwise be supposed. If Ministers do not have that control over their Departments, the questioning function of those Ministers is not being exercised, and somebody has to question the working of the Departments. If the Minister does not do this, all we have available to do it is the new Civil Service Department, which, we hope, eventually may be able to take on some of these functions, which could be additional to those of the Public Accounts Committee. But I should not like to discuss that at this stage because it is a new field. The other alternative we have used for many years is that of using Parliament to provide for the crucial questioning, of a Department, which is controlled only in name, on some of the important things we discuss.
As regards the particular matters we discussed during this year, I take, first, the point about the British Rail subsidy, to which the right hon. Gentleman referred. I believe that it was right to introduce a subsidy paid in relation to those services which in the public interest were held to be desirable. I believe in the distinction between those subsidies which are provided for general purposes and those provided for particular purposes. If one confuses the two, the difficulty is that one does not have the spur to efficiency which can be created if there is a distinction made between general profitability and the particular subsidy.
The matter I found disturbing was that British Rail seemed to be unable to relate the subsidy to actual parts of the network which were losing money. If it was unable to make this distinction, it was 889 unable to found the claim to that money. There was another, though less important point regarding British Rail's inability to understand the matter of marginal costing which I noted. We must look for considerable improvement here if the scheme is to fulfil the purposes for which many of us hoped.
I turn now to the matter of investment grants. There were several disquieting features in this connection, but that is not the point which I have in mind now. I am thinking of the change from investment grants to allowances. I understand that the Government consider that, as a result of the change, the Civil Service staff in this area will be reduced by about 1,000. That sounds quite a lot, until one costs it and finds that it is about one-fifth per cent. of the investment incentives. So it is not an important factor. What is important, however, is the way in which the grants or allowances are examined.
Under the old system of investment allowances—or capital allowances as they will be from now on—the examination of assets was insignificant or almost absent. The introduction of investment grants, on the other hand, since the Treasury paid out money and Treasury control is very strict, meant that there had to be a physical examination of a number of the assets, with spot checks, and a full examination to make sure that the case qualified. As a result, we had a much more direct incentive in those areas in which applicants qualified for investment grants.
In returning to the other method, we shall have much less control, so that, in my view, the investment incentives which the Government will be paying out will not produce the same return on their money as the investment grants produced. Depreciation allowances cannot be examined in the same way as particular kinds of asset could be examined, because the Inland Revenue does not have that sort of staff; the staff had to be recruited specially, and now, presumably, they will be disbanded.
I think it wrong that, if one changes from one system to another, the method of control should be so much reduced. I realise that there are hon. Members opposite who do not agree, but it does not strike me that there is a great difference in principle between giving 890 money in the form of capital allowances and giving it in the form of investment grants, but what concerns me is that we should not sacrifice a measure of control in changing from one system to another. I should be most unhappy to see a lack of control develop such as existed before the giving of investment grants for the purpose of providing incentives for the investment which is felt to be necessary and desirable in the national interest.
The most important part of our work, I suppose, concerned the costing of a number of projects undertaken in circumstances of little, if any, direct competition. The buying of goods or services in a competitive sector is relatively simple. One can go out to tender, receive a variety of quotations, and choose the best. But the work of efficiently settling prices for non-competitive work is an important part of the task of the Public Accounts Committee, and a growing part of that task. I quote here from the evidence. It is a passage in the questioning dealing with the payment of efficiency bonuses. A price was fixed, and if it was considered that the work had been done efficiently, there could be a maximum bonus of 3 per cent. for efficient work. This is Question No. 3762:In the assessment of the three per cent. range, which I noticed, I did not understand how the calculation of the estimates varied. Can you tell me what is the highest percentage ever agreed for efficiency, and what is the lowest?—(Answer) So far, Sir, we have not in fact given anybody more than 1½ per cent. We have given almost everybody 1½ per cent., and the four cases—I think it is—which have not had that have all been below. No one has yet got more, but the sample is still pretty small.Thus, we see that an attempt made to evaluate efficiency related to a 3 per cent. maximum bonus available ended up in the payment of 1½ per cent. in almost all cases. That sort of efficiency payment is a nonsense.
This is one of the great problems which the Government have to face. Marketplace efficiency is easy to measure. Monopoly efficiency is extremely difficult to measure. But what makes it even harder for us is that it is becoming increasingly important to measure efficiency in a noncompetitive situation. I believe that we have some new men now who are likely to prove valuable and to produce useful reforms in this important area, but the answer is a long way off. We shall need 891 to pursue the matter not only in this field but in many related fields.
Finally, a word about the Post Office. A number of matters have come before us year by year in this connection, and the right hon. Gentleman the Member for Kingston-upon-Thames pointed to some of them. The difficulty is that when this body moves away from the purview of the Public Accounts Committee there will be grave doubt about the stimulus upon the Post Office itself year by year, not just every now and then through the Select Committee on Nationalised Industries. It is not as though we were always satisfied with its work. There have been a number of disquieting features, and we do not know how these are likely to be put right over the years ahead.
It may well be that since a Minister will not be directly in charge of the board and will, therefore, have less control than the Minister of a Department which we do investigate—and he has little enough influence over that—the control of the Post Office as it now is will be quite inadequate. We may well have to inquire into and discuss other methods by which the valuable questioning function can be continued. I do not believe, as the right hon. Gentleman said, that it can be done by the auditors themselves. I do not believe that auditors ever do the questioning; they are too much committed on the side of the body itself. They have not that scepticism which is an inherent quality of the questioning process. I look forward, therefore, to hearing proposals showing how this necessary function is to be continued.
I end as I began, by congratulating the right hon. Gentleman the Member for Kingston-upon-Thames on the magnificent work which he did for the Committee and for the House. I hope that my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) will follow in those footsteps so well and truly marked.
§ 4.48 p.m.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
Not having been a member of the Public Accounts Committee, I scarcely dare to intrude on this occasion, any more than I should intrude in a Scottish debate, but I wish to follow the hon. Member for Ashton-under-Lyne (Mr. Sheldon) in one or two of the points which he raised.
892 First, I join the hon. Gentleman in paying my tribute to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), the Chairman of the Committee, and to all those who served upon it. They undergo an onerous task, the most onerous of all our Select Committees, I think, and it is without question discharged to the satisfaction of the House. As my right hon. Friend reminded us, the origins of the Public Accounts Committee go back to Gladstonian times, when Mr. Gladstone considered that it completed the circle of control of public expenditure. He was very emphatic about that. I do not imagine that any of us, however much we honour the Committee today, would share that thought now. The fact is that the whole range of public expenditure has grown so wide that no one committee, however brilliantly staffed and however admirably led, can exercise the Gladstonian sort of control, which, of course, had something to do with candle ends. Candle ends are clearly out of fashion.
The first point raised by the hon. Member for Ashton-under-Lyne which I want to take up relates to the Post Office. The Post Office was subject to a full survey by the Select Committee on Nationalised Industries led by the hon. Member for Poplar (Mr. Mikardo). An inquiry in considerable depth was conducted, I think successfully, and the Post Office Bill which followed that was based to some extent—not a negligible extent—on the report of that Committee. To start getting nervous about the Post Office now or to feel that its failings will be corrected only by a further inquiry is to do it less than justice. We have given it a start. It should be given a few more years to do its job.
Next, the hon. Member expressed concern that investment allowances might be ill spent because they were spent without the Government's supervision. The philosophy of the present Administration is that it is not for Governments to supervise the expenditure of private companies in a business that they know. It is the Government's policy to reinforce success, and they regard the investment allowance system as a means to that effect. Therefore, it is not a question of one form of supervision or another. It is one philosophy or another. I can see no likelihood of there being any form of 893 supervision of investment allowances until that unlikely day when the hon. Gentleman's party takes office. Investment allowances do not need supervision. The hon. Gentleman said that about 1,000 civil servants could deploy their energies elsewhere. It must be evident also that at least as many officers of industrial companies will be able to devote their energies to more profitable matters.
§ Mr. Sheldon
The supervision of investment grants was just a check to ensure that the money was spent for the purposes intended.
§ Mr. Sheldon
It was not done by the Inland Revenue. In the Public Accounts Committee we elicited the fact that the Inland Revenue imposed practically no check. For the investment grants system, because the Treasury was paying the money, there were spot checks to ensure that they fell within the right category. That system of minimal but necessary checks will still be essential under the investment allowance system.
§ Sir H. d'Avigdor-Goldsmid
If I heard the hon. Member aright, he referred to the change-over from investment grants to investment allowances as freeing 1,000 civil servants. I suggest that it will free at least as many people in industry whose job it was to prepare information for those civil servants to look at. So the hon. Gentleman's explanation does not challenge my conclusion in any way.
There is one point about which I am deeply concerned. It is in the context of the new Expenditure Committee which is to be set up. I wonder how a committee can function effectively without access to a staff of, the size which is at the disposal of the Comptroller and Auditor General—that is, a staff of more than 500. I have never heard any suggestion that the new Expenditure Committee should have more than a handful of staff.
I am perturbed at the idea that by establishing an Expenditure Committee we shall do no more than go through a form of language. I am convinced that the whole edifice of national expenditure has become so wide and embraces so many activities which were far re- 894 moved from Mr. Gladstone's mind that there is no likelihood of the House establishing an effective form of control over expenditure unless we are prepared to get to the situation envisaged by the late Lord Passfield in which every civil servant had an auditor standing behind him. This is not a situation that any of us want to see. We cannot believe that such a doubling of manpower would perform the same result.
I am driven to the conclusion that we should give a fairly free rein to those concerned with expenditure, subject always to the supervision of the Public Accounts Committee.
I do not know how the tradition arose that this Committee should be chaired by a member of the Opposition. Perhaps the tradition goes back to the very origin of the Committee. I think that it is an extremely sound tradition. My right hon. Friend the Member for Kingston-upon-Thames could not have a better successor for Chairman of this important Committee than the right hon. Member for Manchester, Cheetham (Mr. Harold Lever).
§ 4.56 p.m.
§ Mr. John Golding (Newcastle-under-Lyme)
You, Mr. Deputy Speaker, know that I speak for Post Office engineers, who have a vital stake in the wellbeing of British telecommunications. I welcome the recommendation of the Public Accounts Committee that a means be found to continue independent scrutiny of Post Office accounts. It is important that the very large investment programme of the Post Office be examined from time to time in Parliament, although it is of no real concern to me whether this be done by the Select Committee on Nationalised Industries or by any other body.
The Third Report of the Committee and the evidence behind it reveals a disturbing relationship between the Post Office and the main telecommunications equipment manufacturers—A.E.I.-G.E.C., Plesseys and Standard Telephones. Delays in recovering money owed, the long delays in settling prices under the bulk supply agreements, the delay in abandoning the development of the TXE exchange, which eventually cost £1.8 million—all this shows the need for a much tougher attitude on the part of the Post 895 Office towards the manufacturers, its suppliers.
The Report raises one questionable point, however, when it suggests that effort should be made to interest further firms in the production of TXE exchanges. It supposes that the policy of relying mainly on Strowger exchanges in the medium term and TXE exchanges in the long term is correct. Unfortunately, there is a question mark hanging over this policy, a question the answer to which could have important implications for our exports.
The question is: how well will we be able to sell either Strowger or TXE equipment in the world market?
For a number of years the British telecommunications equipment manufacturing industry has been failing in the export field, at a time when imports have been rapidly rising. The growth of British exports of electric line, telephones and telegraph equipment between 1963 and 1968 was 0.3 per cent., compared with 60.8 per cent. for Germany and 116.2 per cent. for Sweden—our main competitors. The American General Electric Company, which makes the equipment for Bell, is prohibited from exporting.
During this time, while Germany's share of the world market only fell from 24.3 per cent. to 21.1 per cent. and Sweden's increased from 18.3 per cent. to 21.4 per cent., Britain's share fell from 24.1 per cent. to 13 per cent. The electronics industry E.D.C. believes that the situation is improving. It believes that the United Kingdom is in a strong position in transmission equipment and should be able to offer the competitive crossbar type of switching equipment. Export orders are currently at a high level, the E.D.C. reports, and for these reasons our exports should be two-thirds higher in 1972 than they were in 1968.
The report of the electronics industry E.D.C. emphasises that it is vital, in looking beyond 1972, to remember that a great deal depends on what equipment the Post Office selects to replace the obsolescent Strowger equipment, which forms the bulk of our present system, and whether this turns out to be the type of equipment which other countries, particularly our export markets in the developing world, will be requiring.
896 If the Post Office takes its decision with its eyes firmly fixed on likely developments in world markets, this sector could turn out to be a substantial source of exports in the long run. But if the United Kingdom system falls out of line with world requirements, as it has tended to do in the past, our share of world trade will continue to diminish. In this task the Post Office Industry Advisory Group on Systems Definition will have a crucial part to play.
Britain must be careful not to create a telecommunications system which is out of line with world requirements. There is a rapidly growing demand for telephones and switching equipment throughout the world and we must be absolutely sure that there will be a market for TXE equipment before we develop totally along that line.
Britain, which gained supremacy in this sphere by selling Strowger equipment at home and throughout the Empire, as it then was, lost that supremacy because of the development of the superior Swedish "Crossbar" exchange equipment which is faster, easier to maintain, more suitable for the majority of exchanges and better able to handle complex trunk routes.
Other countries have switched from Strowger to crossbar, but in Britain the Post Office and the manufacturers decided in agreement not to do so in the early fifties. Instead, they decided to go straight into a telephone exchange system which would work by computer without moving parts. That decision, though brave at the time, proved to be wrong and perhaps it should have been abandoned when the Highgate all-electronic exchange failed in 1962. Because we stayed with Strowger equipment our industry has not had a sufficiently large home market to exploit the rapidly growing demand for crossbar equipment abroad. We must be sure that we are not at present making a similar miscalculation.
By fitting only a small amount of crossbar equipment in our exchanges we are still mainly relying on Strowger equipment until the TXE type is available to replace it. If the TXE exchanges, which are not fully electronic but are based on reed relay switches, do not sell abroad, our electronics industry will be at a further great disadvantage.
897 Unfortunately these exchanges are expensive and may not be able to compete with crossbar equipment, particularly taking account of the development of a system called Stored Programme Control. How serious the situation is can be judged from the fact that the failure to convert the crossbar and the concentration on TXE exchanges, to the exclusion of Stored Programme Control, appears to have already lost us markets in Australia—which was formerly our biggest market. Although Plessey has started to develop work on Stored Programme Control, the British industry is still five or six years behind its international competitors.
Considering the electronics industry E.D.C's. Report, I suggest that it is important that we examine in careful detail the costs of accelerating the pace of modernisation of the British telecommunications system and particularly of getting rid of our dependence on Strowger equipment. While I appreciate the points made in the E.D.C. Report about the difficulty of doing this, it is important to emphasise how much more expensive it will be to us if our system becomes yet again quite different from that adopted by the rest of the world.
Leaving aside these technical problems, it is clear that the evidence given to the P.A.C. revealed serious shortcomings in the manufacturing industry. I regret that no comment was made about this in the P.A.C.s Report. Perhaps comments of this type have been made so often that the Committee gave up in despair.
It was revealing to discover, for example, that with the ending of the bulk supply agreement, prices for telephones fell dramatically, by 27 per cent. between 1967–68 and 1968–69. Listening to engineers talking, I suspect that competition is still not working properly in the purchase of exchange equipment.
Not only have prices been too high—this is clear from the Report—but there have been great delays in the delivery of equipment to the Post Office. The evidence before us shows that the number of contracts six months behind or more fell from 85 per cent. to 80 per cent. but that the overall delay has gone up to 8.4 months.
In other words, 80 per cent. of contracts were six months or more behind and the overall period of delay of tele- 898 communications equipment to the Post Office went up by about eight and a half months. Given the number of warnings from successive Postmasters General, it was surprising to find that no penalty clauses were invoked. Indeed, I was astonished not to find a mention of this in the Report of the P.A.C.
Where the delays were due to the Post Office failing to provide buildings, changing specifications or to slackness in giving details, then the Post Office must accept the blame and there can be no question of compensation from the industry. But the Post Office itself excused the industry its delays, partly because of the rapid increase in orders, partly because of the breakdown of a control system in a private firm and partly because of the strike of draughts-men.
Why should the Post Office lose money because of the failings of the manufacturers? Knowing their own capacity and having contracted to deliver on time, they should have been penalised for their failure. The Post Office, and particularly its engineers, are frequently blamed by the public for delays in fitting telephones and for service faults when, at times, the fault clearly lies with the manufacturers.
If people are waiting for telephones for six months or more and the equipment manufacturers are eight and a half months behind in providing the exchange equipment, the fault clearly lies with the equipment manufacturers. To meet the problem of high prices and delays in delivery, it would help if the Post Office were to manufacture some of its own equipment. It was disappointing to read in the evidence that the Post Office stated that it had not used their own, to use the words of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter):highly competent engineersto install exchange equipment. It is one of the absurdities of the present system that equipment is not being put into use because the manufacturers have not got the skilled labour to instal it. The Post Office has, and it is an absurdity that it does not install that equipment. It was also disappointing to me that the Post Office disclosed that it did not intend to manufacture equipment for itself in these circumstances.
899 In 1966, influenced by studies of the American and Swedish situation, the Select Committee on Nationalised Industries in the Report mentioned by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) recommended the serious study of Post Office manufacture. It did so believing that this might not only give lower prices but also give to the Post Office… the quick, direct and full feed-back to the Post Office's research and development organisation of relevant information regarding technical difficulties encountered in the course of manufacture.In the United States of America, A.T.T.I. controls development through the Bell Telephone Laboratories, supplies through Western Electric and operates through Bell. In Sweden the State system not only competes with Ericssons but has gone into a jointly-owned enterprise with it responsible for the development and production engineering of new systems.
There are two ways in which the Post Office could emulate the American-Swedish pattern, a pattern which appears to have been successful in those countries. It could do so through its own factories or by the purchase of an existing company. Its own factories should be used. We have a skilled, well-trained and adaptable staff. During the war large-scale manufacture did take place in the Post Office factories, but this was stopped in the 1950s. In the circumstances of today, where private industry is failing completely to cope with the growth of demand for telephone equipment, these factories should be expanded once again.
But there will be need for more than the expansion of existing Post Office factories. The American Brookings Institution—no wild socialist pressure group—stated of the supply of telecommunications equipment: in "British Economic Prospects":The Post Office should go further in exploring alternative sources of supply … The Post Office should expand its research activities and consider acquiring one of the stronger supply firms for production and experimentation.The Post Office should take that suggestion very seriously if it wants to secure certainty of delivery and lower prices for the future.
900 If we are to avoid the sort of evidence presented to us in the Report, the Post Office should manufacture a proportion of its own equipment. Certainly, in view of what I have said about the export situation, it is vital that the Post Office and privately-owned industry get together now to work out how to face the technical and commercial threats from abroad. Engagement, not disengagement, is wanted here if we are to prevent our world competitors from taking a pot-shot at what could become one of the lamest ducks of all, to judge from the evidence. I am talking about the British telecommunications equipment manufacturing industry.
§ 5.15 p.m.
§ Mr. David Knox (Leek)
I am grateful to be called to speak in this important debate. I hope that the hon. Member for Newcastle-under-Lyme (Mr. Golding) will not mind if I do not follow his highly technical dissertation on a matter on which he is an acknowledged expert but about which I must confess I know very little.
I also hope that the House does not think it discourteous of a Member who was not even here when the Public Accounts Committee sat to comment on the report. I have gathered from examining the report in HANSARD of the similar debate 12 months ago that, generally speaking, such a debate is the preserve of members of the Committee. There has been a change this afternoon, and I can only assume that the reason is that suggested by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), that some of the members of the Committee are no longer in the House for one reason or another.
I am sorry that there are not more Members present at least listening to the debate, if not participating in it. But my right hon. Friend must take some satisfaction from this, because I am sure that the real reason is that hon. Members are very satisfied with the Committee's work and trust it, rather than that they show a lack of interest in its work.
I have read the three reports of the Committee, and I found them extremely fascinating. The House is much indebted to the Committee's members, and particularly its chairman, my right hon. Friend, for the very hard work they have obviously put in over a very long period.
901 I intervene in the debate not as someone who is dissatisfied with the Committee's work or the reports, and in no way as an unfriendly critic. I find myself in general agreement with the Committee's findings. I intervene partly to support those findings and partly to emphasise two aspects. I do not wish to keep the House for long, so I should like to deal with just two items in the Third Report.
The first, in the first and third paragraphs, concerns dealing with tax fraud and evasion and the Inland Revenue. The Committee has done great public service in drawing attention to the serious backlog in investigations of possible tax evasion. The fact that the number of back-duty inquiries rose from 9,300 on 31st March, 1966, to 31,000 on 31st March, 1969, is a matter for deep public concern. When we find in addition that the number of completed cases of fraud and evasion fell from 11,618 to 8,983 between those dates, and that the reason was the deferment of back-duty inquiries, the seriousness of the situation becomes plain to everyone.
In general, I agree with the Committee that we must accept the Inland Revenue's reason for the deferment. Quite simply, it is the heavy additional burden on the Department following the Finance Act, 1965 with the complications and intricacies of the corporation tax and capital gains tax. I do not pretend to understand all the details of the Act, or of those two taxes, but what little I do know convinces me that that is a very substantial reason for the backlog of work in the Inland Revenue.
Equally, we must accept the view of the Inland Revenue that when the work on the backlog is started again many of the cases should be cleared up fairly quickly.
Those things said, this is a situation which cannot be allowed to continue for very long, for two good reasons. First, if it is allowed to go on for too long there will be a strong incentive to more and much wider tax fraud and tax evasion. If people think that they can get away with it, or if they think that there is only a remote chance of their being caught, more and more people will try to cheat the Inland Revenue, and once that sort of thing starts on a big scale it will be immensely difficult to stop. Indeed, it could result in a permanent, 902 long-term increase in the work-load on the Department in tracing such evasions and frauds.
The second reason is that even the deferment for a relatively short period in the investigations must inevitably make it more difficult to investigate back-duty inquiries, thus making the recovery of the correct tax much more difficult.
In view of all this, I am a little disappointed that the Committee accepted that there was no immediate solution to this problem. One accepts, as one must that the shortage of fully-trained inspectors makes an early solution difficult, but this is not an insuperable problem, and I ask that the Inland Revenue should look at this matter with some care to see whether it can overcome the problem fairly quickly by engaging fairly specialised staff to do the job.
There is a final point. It is one that affects us in this House, and it is one to which I hope my hon. Friend the Financial Secretary is giving his attention. We can make a contribution to easing the work load on the Inland Revenue by doing something to simplify the tax system. One must accept that there is conflict between the principles of simplicity and equity in any system of taxation, and that in the middle of the twentieth century absolutely dramatic progress is not possible, but some simplification of the tax system is undoubtedly possible, and I hope that in next year's Budget, and in the next one after that, the team at the Treasury will have done something to simplify the system without in any way producing a dreadfully inequitable system in its place.
The second major point to which I should like to refer relates to paragraphs 146 to 163 of the report as they apply to the universities, and particularly as they apply to the University of Keele. I thought that the hon. Member for Newcastle-under-Lyme might have touched on this because he, like me, is a Member for a North Staffordshire constituency, and no doubt, like me, he is a member of the Court of the University of Keele. I have not had time to discover what the Court does, but I can only assume that it is not a very important institution, not because the hon. Gentleman is a member, but because I am.
Nevertheless, I think that in the report, and particularly in that part of it which 903 refers to the University of Keele, there is a situation which is a matter for some public concern, something about which one cannot be terribly happy. I am referring to the fact that there is over-provision of academic buildings, of library accommodation and of dining and catering facilities at Keele University. There were, when the Committee sat, about 2,000 students at the University of Keele. There was academic accommodation for 2,400 students, and there was library accommodation and dining and catering facilities for even more.
What is really alarming about all this is that the surplus capacity at Keele was estimated as representing capital investment to the tune of £911,300—almost £1 million. What is even more alarming is the fact that the university thinks that it will be 1973 or 1974 before the surplus academic buildings will be taken up. Even when that happens there will still be the problem of extra library accommodation and extra dining and catering facilities.
I consider this to be a very serious matter. It has arisen, as the report says, through a lack of co-ordination in the planning of capital grants for the building programme and the recurrent grants which determine how many students the university will have. It is obvious, and a superficial reading of the report shows this to be so, that the situation calls for better co-ordination of these two kinds of expenditure. The U.G.C. has started to make some progress in this matter. Obviously, as the report suggests, the root causes of the problem are inadequate information and the inconsistency of the decisions being taken. I hope that the Committee's Report will be accepted.
§ Mr. Golding
The hon. Member knows that I support his remarks. Will he perhaps comment—as I cannot, being a graduate of Keele—on the inconsistency of the administration of Keele denying students a proper say in the running of their University, when the report reveals that the administration does not seem able to make proper provision itself for forward planning?
§ Mr. Knox
I do not think that that is quite within the terms of the Committee's report, though I seem to recollect reading in the Evening Sentinel on Friday 904 that certain steps were being taken in this respect for Keele University.
I hope that the Committee's recommendations will be accepted and that in future when total capital programmes are determined there will be implicit in them the intention to adjust the recurrent grants to ensure that capital assets are fully utilised. The second suggestion made by the Committee, which I hope will be accepted, is that there should be a greater degree of flexibility in adjusting the capital programmes and the recurrent grants for individual universities when these get out of balance, as they must do sometimes no matter how good the planning may be.
This is particularly important because in this House, I think on both sides, there is considerable concern that we should each year increase, and increase considerably, the amount that we devote to education. There may be differences about how this should be allocated, but these are differences which exist not just between the two sides of the House but on each side of it. No matter what happens, no matter how much money the Government make available for education, there will still be some form of expenditure that we would like to undertake but cannot.
In those circumstances, it seems particularly unfortunate that there is waste of the kind to which I have referred because of a lack of planning. I hope that in future much more concern will be shown to make sure that we get the right balance between capital expenditure and these recurring grants, and that there will be no under-utilisation of places in the universities, because this sort of extravagance and waste is not in the real interest of education.
I conclude by saying again how indebted I believe the House is to the Committee for the work that it has done and for producing a Report of such a high standard. The Committee has done a particular public service in this respect, and I hope that in some small way my intervention may help in the furthering of that public service by drawing attention to and underlining two of the points made by the Committee.
§ 5.29 p.m.
§ Mr. Tam Dalyell (West Lothian)
Hon. Members are for ever excusing 905 themselves for not following one another. I hope that the hon. Member for Leek (Mr. Knox) will forgive me if I follow him, impromptu, and at a little length, because I thought that what he was saying about the Inland Revenue was important and interesting.
Perhaps I may first give the hon. Gentleman a caution. When I was a new Member, I put down a somewhat brash Question to the then Prime Minister, Mr. Harold Macmillan, on how simplification could take place in the tax laws. Rather than snub me, as he could easily have done, he was very kind. He took me aside, and then sent me to see Sir Noel Hutton, the Chief Parliamentary Draftsman. I do not know whether it was kind in retrospect, because in an hour and a quarter I was torn to shreds by the Chief Parliamentary Draftsman. He spoke gently, and showed me with a good example that his business was not to concern himself with decent men and women who would abide by the spirit of the tax laws but to create tax laws which could not be got round by clever income tax evasion lawyers. I hope, therefore, that in what the hon. Member for Leek said about this, he will remember than 1 per cent. of the population at least is somewhat circumlocutory in its approach to the Inland Revenue.
However, I was also interested in what I took to be references to the whole affair of the Estate Duty Office, and I take the opportunity of saying to the Financial Secretary that many of us are very worried about the set-up at the top of the Inland Revenue in dealing with these complicated estate duties and this kind of revenue.
The hon. Gentleman will know the situation, for example, in the Scottish Estate Duty Office, where over a decade the figures are roughly that that office had 32 graduates whom it financed through the universities to be expert in these matters. I think I am right in saying that seven of those 32 went off to banking and insurance, 13 went to private law firms, four went off to get married, four were for other reasons unsuitable and about four remained. I am not certain of the current accuracy of those figures—they were for a 10-year period—but it is the sort of issue that we are up against.
906 Whereas the party opposite have no intention of trying to introduce a wealth tax, some of us who would like to have seen the Labour Government introduce a wealth tax were stymied on the issue of the Estate Duty Office and the fact that there were not the personnel to put it into operation. If, therefore, I say with my tongue in my cheek that in view of the coming of another Labour Government and a wealth tax I hope that the Financial Secretary will be fair about improving the Inland Revenue, he will know the point at which I am getting. The serious issue is that for all parties there is a terrible problem of high-quality staff in the Inland Revenue.
I wish to follow the hon. Member for Leek in one more point. Much has been said in criticism of the Inland Revenue, and particularly my hon. Friend the Member for East Stirlingshire (Mr. Douglas) will know of the Estate Duty Office at East Kilbride. Having visited East Kilbride, I should like to record that whatever has been the experience of other hon. Members, as a Member of Parliament doing constituency work I have had total and prompt co-operation. If anybody takes the trouble—and any Member of Parliament is welcome—to go and see how the office does it and how its computers operate, one can understand something of the difficulty that is involved. I would like to record here and now in the House of Commons that many of us have had excellent service on behalf of our constituents from Centre One at East Kilbride. I would like the Financial Secretary to know this.
I had better be careful about my comparisons concerning Chairmen of the Public Accounts Committee, because I served under two other Chairmen. One was my right hon. Friend the Member for Huyton (Mr. Harold Wilson), and the other was the current Chairman of the Parliamentary Labour Party, my right hon. Friend the Member for Sowerby (Mr. Houghton). If I were to say that the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was the best Chairman of the Public Accounts Committee under whom I had ever served, it might be a little awkward but—[Laughter.] Who knows?—the Whips might go running out to tell on me.
At any rate I should like to record that it was part of my education to serve 907 under the right hon. Member for Kingston-upon-Thames. In this respect, I am grateful for having been what one might call a Boyd-Carpenter alumnus, because by the sharpness of his questions the right hon. Gentleman taught a great deal to all those incoming Members of Parliament who served under him at one time or another in the Public Accounts Committee.
I should like to refer to a tribute that the right hon. Gentleman paid to my former colleagues, Edwin Brooks and Frank Hooley. I was on the Public Accounts Committee with neither of them, although I read a great many of their sharp and meaningful questions. I would say the same thing about a Conservative Member who lost his seat in 1966. That was Sir John Arbuthnot, the former Member for Dover. Here are Members who do a great deal of work for little or no political kudos, because I suspect that Sir John Arbuthnot got very few votes in Dover for what he did, and I suspect equally that my former hon. Friend Edwin Brooks got comparatively little help from the electors of Bebington for the work he did in the Public Accounts Committee.
At the same time, in matters which are not secret, and no one expects a revelation of the Exchange Equalisation Accounts—I hope that I am not wrongly taken—I should have thought that of all the parliamentary procedures, this kind of Select Committee presents itself most aptly to the working of television. Certainly, many of the inquiries—not least the inquiry on higher education, in which there was very little of a secret nature—would have made superb adult educational television.
I hope that when this subject comes up in the House of Commons again, thought will be given about how the long-standing Select Committees can properly be televised, not only for any electoral benefit that may accrue to members of the Committee, but because I hold the view deeply that it would be good for British democracy if the public could see this important part of the operation of Parliament in action.
I go along with the right hon. Member for Kingston-upon-Thames in what he said about the examination of the 908 universities, because none of us could ever forget the absolutely stonewall opposion which was presented at the time. The very thought of examining the universities caused such a flurry among the vice-chancellors that one could hardly believe that academic freedom was not at stake. There was, of course, a very honourable exception, as the right hon. Member for Kingston-upon-Thames said, and the exception was Lord James of Rusholme. Lord James is well in a position to say, "I told you so". On the other hand, I agree with the right hon. Gentleman that the whole issue of the failure to match capital expenditure with current maintenance is a subject which all those in higher education should really look at.
I gave notice a week ago to the Secretary of State for Trade and Industry that I wished to raise certain issues arising out of paragraphs 42 to 101, Class IV, Votes 20 and 21, and I am grateful to the Parliamentary Secretary to the Ministry of Aviation Supply for being here this afternoon as he has responsibilities for aviation.
These are hardly recondite issues which should be buried in obscure Parliamentary reports. The issues which are raised here are the very issues that are exercising a great many of us on the fate of Rolls-Royce, and, for that matter, the same problems that surround Pratt and Whitney and the General Electric Company. As the right hon. Member for Kingston-upon-Thames, said, it is the whole issue of what happens when, as the right hon. Gentleman put it—although I might not put it in exactly the same phrase—the wholesome benefits of competition are absent, although I would add a caveat that foreign competition on almost all these occasions has very much been present.
For the sake of coherence, I would like to relate my points fairly closely to the paragraphs in the Report and to the Treasury Minute. The first issue that I wish to raise is the question of what constitutes "reasonable contingency provisions in price estimates". Rather than refer to the paragraph, I turn to Question 2483, where the Chairman, addressing the Treasury, said:Mr. Phelps, I see also there is provision for contingency allowances?909 Mr. Phelps, on behalf of the Treasury, replied:Where there are contingency allowances that of course reduces the risk to the contractor?—The new agreement provides that the need for contingency provisions should be separately identified and justified. This is something which the Department will be watching in negotiating their contracts. I think one can distinguish between the concept of a contingency provision and the concept of a reward for risk.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
I apologise for intervening in the hon. Gentleman's speech, but I think that as a matter of accuracy I ought to point out that the first sentence of his quotation was in fact from the question put by the Chairman, not the answer by the Treasury official.
§ Mr. Dalyell
In the interests of time, I will not read it again. The hon. Gentleman was quite right.Where there are continguency allowances that of course reduces the risk to the contractorwas a question put by the right hon Gentleman.
I should like to ask something about the intrinsic nature of these contingency allowances. I may be very dim, but this is a distinction which I do not follow, and it is a distinction which has some substantial importance in relation to recent events, because it is no secret that if there are difficulties with Rolls-Royce at the moment, those difficulties are very much bound up with the escalation of costs.
If, for reasons of political pique, or for other reasons—I know not which and it is not pertinent to this debate to argue the matter too closely—the Government have seen fit to dismantle the I.R.C., rightly or wrongly, by what mechanism will the issue of contingency provisions in price estimates be dealt with? I for one would have grave doubts about the whole system of fixed price contracts. It may well be that the Rolls-Royce situation will not be unique. What is the Government's thinking on this matter in the light of paragraph 47 since it has assumed not tragic but pertinent relevance? What alternatives do the Government have in price estimating for aerospace projects to those which in the 1960s led to a certain degree of trouble?
910 My second point arises from paragraph 48. This concerns seriously defective or misleading data. The Treasury Minute says:The Ministry have confirmed that they would normally refer to the Board cases where they considered that price adjustments were warranted because data presented by contractors was subsequently shown to have been defective or misleading.I wonder how many times this has happened.
It may be within the recollection of at any rate the right hon. Member for Sowerby that I was the man who suggested that Sebastian de Ferranti, in the light of the Report produced by the then Comptroller and Auditor General, Sir Edmund Compton, should be brought before the Public Accounts Committee. For two or three years, I was very proud of myself for having made the suggestion. Now, in retrospect, perhaps because I have become less brash, I am not at all certain that this was a very good thing to have done, because this was not a case of black and white; it was a case of all sorts of shades of grey.
Ferrantis were not pure white, because, in a sense, they put themselves in the wrong, and perhaps in a sense I may be forgiven because they did not produce information which should have been produced to the Committee. On the other hand, let us be clear that there can be all sorts of views about what constitutes defective and misleading information. Without going all over the story of Bloodhound again, I wish to say that there must be some deep thinking, and perhaps deeper thinking than I have been able to extract from the P.A.C. Report this year, about the relations between the Government and private industry and the whole subject of defective information.
I take Rolls-Royce as the example again, and I use the issue of carbon fibres. I thought that the Press on Sunday was rather nauseating on this issue. How often have we been told that the British make the developments, but, because of inertia, or because of our incompetence or for some other similar reason, others have been left to exploit them? How often have we been lectured about not taking advantage of Whittle and jet engines because we did not have the will to exploit them? We are told that variable geometry in aircraft was a British 911 invention and yet the British somehow did not exploit variable geometry techniques.
But, lo and behold, when a company tries to leapfrog into the future, as Rolls-Royce did with carbon fibres and carbon fibre developments and fan blades—and I will admit that the fan blades may be not the whole matter—it seems very cruel that Rolls-Royce should be hauled across the coals for attempting, albeit not very successfully as yet, to develop a British engine of lighter weight which might have been an enormous success. It makes me sick to see the very same pundits in the Sunday Press, who not so many months ago were holding up Sir Denning Pearson and Sir Dennis Huddie as the great heroes of exports, today running them down and talking about abortive essays into carbon fibres.
What constitutes defective data? We are now told that the RB211 was based on defective and misleading data. A great deal more thought has to go into this subject. I leave it at that, because I have no wonderful conclusions to offer, but I should like to hear the Government's thinking.
I come to paragraph 53 and the old subject of equality of information. How many times have we gone over this issue? I see the right hon. Member for Kingston-upon-Thames nodding agreement. I am particularly concerned with the equality of information among sub-contractors. The relevant passage on page xxvi reads:Your Committee were informed that, with one exception, the sub-contractors had now agreed to give the Department the information required under the Standard Conditions for all future non-competitive contracts and the sub-contractor who had not yet agreed was expected to do so.I go on to the whole of paragraph 56:Your Committee cannot regard it as entirely satisfactory that, so far, the Ministry have been unable to accept (on a trial basis) the cost-recording systems of only one-half of their main contractors as adequate to provide the required information, and that it is likely to be two more years before the systems of the remaining contractors can be examined and finally approved. They are also concerned to learn of the initial refusal of certain important sub-contractors to accept the standard contract conditions. Equality of information, and access to records to ensure that equality, represented one side of the bargain with industry of which the other side was improved profit rates. It is essential that in meeting their side of the bargain, the Ministry should insist on the provision not only of equality of 912 information but of information in a form which will enable them to negotiate fair and reasonable prices.I apologise for reading the whole of that paragraph, but anybody outside the House who reads the reports of House of Commons speeches is mystified if he does not know to what it is that an hon. Member is referring. I wish that we had the system of being able to insert into our speeches paragraphs in reports to which we refer, so that we do not have to take up the time of the House by quoting them.
The remedy to the problem mentioned there is relatively simple—if the sub-contractor will not play ball on the general question of equality of information, the Treasury and the Department are entitled to expel that sub-contractor from the league. I should like to know the view of the Financial Secretary—perhaps the Parliamentary Secretary will whisper something in his ear—about the difficulties of obtaining equality of information from sub-contractors.
No names, no pack drill, but I suspect that there is a major firm not very far from the constituency in which I live and which I represent which is extremely sticky about giving information on any kind of equality. It is often American-based companies which take that view. I ask the Government the direct question—is it more difficult to get information from international companies based in the United States than from British companies? What do the Government propose to do to twist the proverbial arm of a number of companies which are difficult about providing information?
I should like to raise again the issue of stocks in paragraph 61. The Committee says:There is therefore no direct evidence about the relative proportions of stocks and work-in-progress employed on government and non-government work. But Your Committee observe that, if there is in fact no disproportion, it would seem desirable that the Ministry should ascertain why the average levels of stocks and work-in-progress on government account, less progress payments, should represent as much as three months' production, and whether it would not be advantageous to reduce them.The comment of the Treasury Minute is:The Treasury have approached the Review Board, who have confirmed that such analyses will indeed form part of their General Review and that the point would be covered in their Report. The Ministry would have regard 913 to the Committee's observation in paragraph 61 in the light of the outcome.The Public Accounts Committee has done a great deal of work on stock levels. The House might ask the Government for a political view of what conclusions they draw.
I am sad that the sheer volume of work done by hon. Members on both sides of the House does not seem to be followed up. This is one of the pities of the sparsity of attendance at debates like this. It means, in a sense, that in Whitehall the Reports of the Public Accounts Committee are not sufficiently followed up. Indeed, had they been followed up in past years, I believe that the taxpayers would have been saved many millions of pounds which he had to pay out in the late 1950's and throughout the decade of the 1960's.
On paragraph 64, I should like to hear the Government's view of capital employed on Government work. The whole philosophy of how research and development takes place is involved. This is not the time to discuss the Green Paper that was presented by my right hon. Friend the Member for Bristol, South-East (Mr. Benn). However, there are deep issues for British industry.
I was lucky enough to be sent by this House on a delegation to Japan last year. We visited the great Japanese firms of Mitsubishi and Sony. When I asked what research contracts they placed with the University of Kyoto or the University of Tokyo, the Japanese very politely looked at me in astonishment and said: "Contracts? Contracts with the University of Tokyo? Why should we place contracts with the University of Tokyo?" The truth is that much of the research is done inside the great Japanese companies.
Therefore, I should like to know the philosophy of the Treasury and of the Government on this important issue. I do not expect a long answer on the future of great Government research establishments in this country. But I would support hon. Gentlemen opposite if they wanted to hive off research either into suitable firms in industry or into the universities, because I think that there is a heavy argument for raising the issue of capital employed. By "capital employed", we mean much of the research 914 and development costs which are borne by the firms.
Finally, I turn to paragraph 92:Your Committee share the view of their predecessors that late price fixing has unfortunate consequences.In the light of recent events at Rolls-Royce, are we now to accept the doctrine that great companies should be run by accountants rather than by engineers? If so, this is a reversal of much of the thinking, as we understood it, in the 1960's. How often in the last eight years have I heard hon. Members and, indeed, Ministers making pious speeches in this House or outside saying that we must have more engineers in management and comparing ourselves, perhaps unfavourably, with the United States where managing directors and executive vice-presidents of companies are often practising engineers. We seem to have had a change about. If we are to believe the conventional wisdom put forward by Mr. Eglin and others in the Observer and the pundits of the Sunday Press, industry has now got so large that it must be run by accountants and apparently engineers are no longer considered fit to run mammoth engineering firms.
I agree that there may be a real issue of size. It may be that the techniques of management of a giant merger—for example, Leyland and the British Motor Corporation—are rather different from those in what used to be a big firm. Equally, it may be true that it was one thing to manage Rolls-Royce as a large firm, but it is quite a different matter to manage a giant corporation consisting of the merger of Bristol Siddeley and Rolls-Royce.
It seems, from paragraph 92, that deep and important issues spring up about the future management of British industry. I do not expect the Government—or any Government—to decide who shall be managers. But in many of these matters the Government can set a tone. What kind of tone and what kind of climate of opinion do they intend to set?
I thank the House for giving me a hearing.
§ 5.56 p.m.
§ Mr. Kenneth Baker (St. Marylebone)
To serve on any Select Committee is an education, but to serve on the Committee of Public Accounts is a form of higher 915 education. I am not suggesting that the Chairman needs that form of education, but he led us down some very esoteric byways of public administration during the Committee's last session.
I agree with the hon. Member for West Lothian (Mr. Dalyell) about the need for giving greater publicity to the work which goes on in certain select committees. I certainly advocate, as he did, the bringing of television cameras into the work of the Public Accounts Committee and possibly the new Select Committee on Public Expenditure. This would allow a much wider audience outside and, indeed, inside this House to appreciate the valuable work that is done in such committees, because the real purpose of the Public Accounts Committee is to ensure that the taxpayer gets good value for the money which has been spent.
I appreciate that senior civil servants dislike intensely being called before the Public Accounts Committee and look upon it as a singularly refined instrument of torture. But the purpose of that Committee is to call to account the administrators and the people who are responsible for spending public money.
I should like to deal with two particular aspects of the Third Report. The first, which has already been mentioned by my hon. Friend the Member for Leek (Mr. Knox), is the report of the Committee on Inland Revenue cases of fraud and evasion. It is deplorable that over the last three years the numbers of cases of fraud and evasion awaiting examination have increased substantially from 9,000 on 31st March, 1966, to 31,000 on 31st March, 1969. As the Report rightly indicates, these are cases in which the Inspector suspects fraud and evasion and puts them on a special list. I suspect that these cases will show an even bigger increase in 1970 and 1971, because, as my hon. Friend the Financial Secretary will recall, the Finance Acts of 1968 and 1969 were immensely complicated and the possibility of evasion under the provisions of those two Acts will not become known until 1970, 1971 and 1972.
We are suffering from a tax system which has become not only absurdly complicated but onerous. I shall leave aside the heaviness of the system. The sheer complexity makes many people evaders almost by accident; the heaviness of the 916 system makes many people evaders on purpose. I hope that one of the objects of this Administration will be to simplfy the system. If it is not simplified, the scope for evasion is bound to increase. Each year there is a sort of bloodless battle between the Inland Revenue and private tax accountants. It is a battle without honours and it is fought to a bloody draw because as the evasions this year are dealt with, new evasions crop up next year. So it goes on.
The flower of fiscal honesty is a very rare bloom. In some countries it does not flower at all. I suspect that this has something to do with whether a country is close to the Equator. Countries which are close to the Equator never seem to see it flower. The further a country is away from the Equator the more chance it has of seeing it occasionally. The difficulty with our tax system is that it does not encourage the growth of this flower. Parts of our tax system have turned parts of our nation into perpetual fiddlers and evaders, which is to deplored.
I hope that the Financial Secretary, who is expert in tax matters, over the next four years—during the life of this Government and, indeed, of the next Government, of which he will be a member, I have little doubt—will set about simplifying the tax system.
My second point on the Report relates to the Post Office. The House will not be surprised to hear that the conclusions which I draw from the Report are entirely different from the conclusions drawn by the hon. Member for Newcastle-under Lyme (Mr. Golding). The Committee rightly draws the attention of the House to the failure of administration in many contracts with suppliers to the Post Office. I could not agree more with the strong words which have already been used about the delays in deliveries of telephonic and exchange equipment. I could not agree more with the strong words used about the failure of the Post Office to invoke penalty clauses, which has been a grave oversight.
The answer is not to set up the Post Office in the business of manufacturing equipment but, on the contrary, to try to stimulate, as the Post Office is already doing, more competition among the suppliers. I am sure that the hon. Member for Newcastle-under-Lyme will agree that 917 in respect of certain equipment—hand telephone sets, for example—there is very lively competition, but it has not spread to the more complicated and sophisticated equipment as yet.
There is also the possibility of bringing in certain telephonic equipment from overseas. I would welcome that, but, as the hon. Member knows, when this has been done it has usually been fought tooth and nail, not only by the suppliers but by the Post Office and the Post Office Engineering Union. I would therefore welcome more competition from overseas.
But for the hon. Member for Newcastle-under-Lyme to suggest that a patently inefficient situation within certain departments of the Post Office can be improved by permitting the Post Office to manufacture equipment is to make a bad situation worse. That would be no way out. I should have thought that exactly the reverse was needed. If the administration of the Post Office is not efficient, as the Public Accounts Committee has shown, to ask it to take on the burden of running factories, buying its own raw materials and manufacturing equipment to its own or other people's specifications seems to me absolutely crazy.
§ Mr. Golding
When has the Post Office Engineering Union opposed the purchase of equipment from overseas?
§ Mr. Baker
When this matter was discussed, at considerable length, in the Standing Committee on the Post Office Bill, views were expressed, as I thought from the Post Office Engineering Union—they were certainly expressed by members of the Post Office Engineering Union—about there being considerable reluctance to go further down that road. I think that there were only two of us in the Standing Committee who spoke up for it.
To revert to the argument that the hon. Gentleman put forward about extending the scope of manufacture, I think that this is the wrong track for the Post Office to take. The Post Office should not engage in a highly capital-intensive business, namely, the manufacturing of equipment. It is already engaged in the highly capital-intensive area of buying equipment. If it were to go in for manufacturing equipment there would 918 be a massive increase in public expenditure, because the Post Office is the biggest spender of all nationalised industries on the capital account. It spends about £2 million a day on capital equipment. For it, in addition, to go into the business of running factories, with all that that means, and financing the work in progress in factories and the raw materials, would mean a massive increase in public expenditure.
To summarise, the real virtue of the Report of a Committee such as the Public Accounts Committee is not simply to enable us to dig into the entrails of the past just for the love of doing so. We have been trying to find ways of improving the procedures of the future. I could not agree more with the closing remarks of the hon. Member for West Lothian, who hoped that there would be a follow-up to many of the recommendations in the Report. So do I. Many right hon. and hon. Members have spent many hours working on the Public Accounts Committee, and we all hope that Ministers and the Civil Service will take note of our recommendations and will ensure that some of the mistakes of the past are not repeated in the future.
§ 6.7 p.m.
§ Mr. James Hill (Southampton, Test)
I commend my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) on his very lucid and factual statement about what must seem to most people to be a very dull document. The title of the Blue Book isFirst, Second and Third Reports from the Committee of Public Accounts".How dull it sounds. However, its 550 pages make as interesting reading as any Conan Doyle novel.
§ Mr. Hill
My one criticism of the interesting report is that it solves many cases but the public do not know what the penalties are for the cases it has unearthed. Although in many instances the criminal has been detected, the punishment has not been announced.
Referring to the money made by the entrepreneurs, and dealing with four cases of grant towards the costs of new ships, 919 my right hon. Friend the Member for Kingston-on-Thames, in the Report, says:It seemed clear to Your Committee that neither in these four cases nor in others of a similar kind could the actions of any of the parties concerned be described as improper, let alone illegal, given the law as it then stood. The coach-and-four committed no traffic offence. Your Committee nevertheless regret that large grants in respect of ships built and operated abroad have been paid without evidence of gain to the British economy. They trust that the revised arrangements, particularly in respect of foreign built and operated ships, will be kept under close review to ensure that the loopholes have been effectively blocked.I hope that that will be done. It seems that the right hon. Gentleman then said that these people had acted within the concept of the law and that no criticism should be made of them. It is a case of legalised poaching. They still got the bird, and, unfortunately, they gave the Government the bird.
There was another case in connection with the building of Heriot-Watt University. The university asked to purchase at the sum of £50,000; the University Grants Committee approved this building. A professional firm of consultants valued it. The university also valued it and then went ahead and entered into an agreement. The project started off at £50,000 but eventually ended up at £188,000 of which £25,281 was for professional fees. I am wondering whether that firm of consultants, who obviously desperately under-estimated the cost, should, in all fairness, have received their fees.
§ Mr. Dalyell
I must express an interest in Heriot-Watt in that I often go there, but there were in this case peculiar difficulties associated with building university premises in the centre of an ancient and venerable city. There are peculiar difficulties in tackling work on old buildings. There were difficulties here, as was only to be expected.
§ Mr. Hill
In the profession I have chosen myself, there are professional ethics; there are professional ethics here, and the difficulties of the site, the age of the buildings, and so on, which were to be encountered, should have been foreseen.
My hon. Friend the Member for Leek (Mr. Knox) and the hon. Member for West Lothian (Mr. Dalyell) were very concerned about the Inland Revenue and 920 the evasion which had taken place. Apparently cases rose from 9,300 in 1966 to 31,000 in 1969 and over that same period, as is rightly said, cases deferred went from 11,618 down to 8,983. The reason these cases decreased, according to the Inland Revenue Board, was that so many were deferred. It is very difficult for any politician to gain any public sympathy where the Inland Revenue is concerned, but the tax system under which, unfortunately, people have to work, as has been so rightly said, means that they are bound to have this delay. That is not the fault of the tax system but the fault of the Government, whichever party is concerned. We make the laws and we give these people the burden of work, and the sooner we can simplify the laws and lighten the burden, the better.
Another statement in the Report which impressed me greatly was that 34 officers who investigated certain claims over the period investigated 20,800 establishments, and about a quarter of them received grants. The total number of claims, apparently, during that time was 90,748 and the total grant was £46.3 million and only 352 errors were found in all the items. It seems quite true that honesty accounts for that balance.
Another thing which particularly impressed me was how the Committee, which was very searching, investigated to the degree of getting refunds from Bristol Siddeley Engines for repairs and spares contracts. The public must bear that in mind if they think that such Committees as this do no work at all or when, as now, they see so few Members in the House. These Committees are doing their work upstairs. The refund was £3.9 million in this case. The refund was £1.6 million in the case of another company.
One thing which was not sufficiently explained, I feel, concerned the accounts from the Durham, Kent, Lancaster and York Universities. It seems to me quite wrong that copies of those colleges' accounts showing their income from fees were not from the first sent to the University Grants Committee every year. The fees must involve hundreds of thousands of pounds, but obviously, there is another case in which the criminal did not receive any comfort.
I would finish by saying how interesting I have found this Report, and how 921 impressed I have been by the tremendous amount of work which has been put into it. I hope that one day it may be my privilege to sit on this Committee.
§ 6.15 p.m.
§ Miss J. M. Quennell (Petersfield)
As a very new member of the Select Committee on Public Accounts, I intervene in this debate very briefly and very diffidently, but I should like to congratulate my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter). Under his chairmanship in the past years the Committee has done sterling work. I am quite convinced that the right hon. Gentleman the Member for Manchester, Cheetham (Mr. Harold Lever), who now occupies the chair of the Committee, will in the coming next few years carry on the tradition equally well and with an equally esoteric taste for strange avenues of public expenditure.
I think it was the hon. Gentleman the Member for West Lothian (Mr. Dalyell) who, in reference to various companies, put his finger on one of the weaknesses which must prevail when a Committee is trying to do this job; namely, the efficiency or otherwise of costing and forecasting in industry. I think that till we have a more efficient system of costing and forecasting we shall have examples which will give the Committee cause for concern. It was not costing in private industry only about which members of the Committee earlier in the debate expressed some concern. One of the State boards—the railways, to wit—provided an example of inability accurately to cost maintaining a track, and that has been exposed in this debate.
I think that probably this Committee and the newly established Committee on Expenditure may in the coming years have to adapt their techniques and modify the processes which have been employed in the past to assess cost effectiveness when grants are made to State boards and to industries outside the State sector. State boards are not currently answerable to Parliament and, therefore, Members of Parliament, as such, cannot investigate expenditure on individual items or individual capital projects, but over and over again hon. Members have found in their constituencies instances in which they have felt absolutely certain that money spent could have been spent by public boards 922 much more wisely than it was. To amplify that point I will simply refer to an example in my own constituency. The gas board converted to North Sea gas. One of my constituents—her case is one among many, but hers is one of the more glaring—a widow, over 70, had only two gas appliances in her little flat. The cooker converted perfectly, but the gas fire in her sitting room did not. Although about 68 officials and employees of the gas board had tramped through her little sitting room, the fire still did not work; so she wrote to her Member of Parliament who took up the matter with the chairman of the board. If the conversion were accurately costed, what would be the true cost of this enormous number of people busying themselves about one appliance? This is but one of many cases. It is a reflection on the organisation of the gas board at the time, and it illustrates the importance of cost effectiveness. I suspect that as time goes on the Public Accounts Committee and the new Select Committee will have to busy themselves more with the cost effectiveness aspect of their work.
One aspect which does not concern Parliament is local government expenditure which is supervised by district auditors. I do not believe that there is any area in which the Comptroller and Auditor General and the district auditors compare notes. The district auditor is established under the 1933 Act and is responsible to the local authority to which he makes a report, but he makes only a financial statement to the Minister concerned.
These are areas which should be explored, and I mention them so that my right hon. Friends may apply their minds to these issues in the future. Large sums of taxpayers' money are involved, and it is relevant for the House to satisfy itself that that money is being spent wisely and well, and with the best possible effect at the least possible cost.
§ 6.21 p.m.
§ Mr. Harold Lever (Manchester, Cheetham)
Although this is not the first year in which I shall have served on the Public Accounts Committee, I am a new member in that I was last a member when I was Financial Secretary to the Treasury, who, by convention, is a member, but, equally by convention, it is 923 assumed that he will stay away. I see that the Financial Secretary will uphold this tradition in both respects.
I understand that the convention for the Chairman is somewhat different. He is a member, and, judging by the achievements of the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), he is very much there. It is not a mere formal tribute from this side of the House when I echo the sincere sentiments which have been expressed from both sides in saying that the House was indeed well served in having the right hon. Gentleman for so many years as Chairman of this important Committee. I can only say, with considerable diffidence, that I shall set him as my model. I only hope that I shall win something approaching the esteem and confidence that he has won in his years of chairmanship.
I hope it will not be thought that I am straying from the subject when I say that what becomes most important to the Member of Parliament is the opinion held of himself by both sides of the House. Sometimes we are fortunate to have great offices of State entrusted to us, and sometimes we may feel that we deserve them less than the greatness of the office would suggest. Whether one does or does not become entrusted with an office of State is a matter of the unchallenged decision of the Prime Minister of the day. The right hon. Member for Kingston-upon-Thames need not have the smallest doubt that, whatever views may be held anywhere else, the House regards him as an ornament, a man of the greatest ability who has contributed not merely as Chairman of the Committee but to our debates in a way which has won him the respect and admiration of both sides of the House. I regret that circumstances arose which removed him from an office which he so well adorned.
The right hon. Gentleman having entered the Chamber, I can only repeat in his presence that I hope that my period in office will be briefer than his, but within that period I shall look upon him as a model, although I fear that it will be an inferior copy that will emerge.
The right hon. Gentleman said that I will have the experience that he had, in 924 the first stages, of examining the work of a Government of which he had been a member. That is absolutely so. There will, however, be one point of difference. He appears to have had the good fortune of examining Departments in which he was Minister where he had opposed the decision the implementing of which had brought the Comptroller and Auditor General to report the matter concerned to the Committee. I might have the less fortunate experience of finding myself examining those decisions in my Department which, far from opposing, I had unilaterally insisted upon implementing. However, that is for the future.
I am particularly pleased about the efforts the Committee made to deal with the question of direct grants for ships. A more thorough and impressive investigation of this matter yet within a small compass it would be difficult to imagine. But that is to pick out only one aspect of the supervision which the right hon. Gentleman and members of the Committee have exercised. In a way I am excrescent on this point, because it is the right hon. Gentleman's Report and I contributed nothing towards it.
In principle, it is not always a rewarding task to exercise supervision for the protection of public funds in that one's work is not immediately appreciated by those who are supervised. Indeed, it may be said, as it has been said of education, that the greater the need the greater the dislike. Nevertheless, I am sure that the right hon. Gentleman's firmness, coupled with his fairness and moderateness, is absolutely right, and I endorse the tributes which he paid to the Comptroller and Auditor General and his staff who serve the Committee.
I am in a way here on false pretences on my predecessor's Report, and I do not want to detain the House. The traditions set by the Committee will provide future Committees with a clear guide, and I can only express the gratitude and indebtedness we feel to the right hon. Gentleman and the members of the Committee who have contributed so effectively to its valuable work. The Members of the Committee have conveyed to me strongly that it has been a memorable experience for them to have the right hon. Gentleman as their Chairman and to serve under him in this vital parliamentary work.
§ 6.28 p.m.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
I begin by taking up the final words of the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), and joining all those who have paid a well-deserved tribute to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) for the immense devotion and skill which he has brought over the years to the chairmanship of the Public Accounts Committee. Several hon. Members who had the privilege of serving with him have rightly praised the qualities which he brought to the work of the Committee, and I endorse what they said. It is work which is inadequately appreciated outside the House, but I can assure my right hon. Friend that it is not only acknowledged widely in the House but, as I know even from my brief experience, positively dreaded in Whitehall, and that is exactly as it should be. The work is essential and it is therefore necessary that it should be done superbly well, as it has been under the chairmanship of my right hon. Friend. The House and the country are deeply indebted to him.
It is a tradition of the House that the Chair of the Committee shall be taken by a Member of Her Majesty's Opposition, and the right hon. Member for Cheetham, whom I warmly congratulate on his appointment, comes to the office with an enviable experience and qualities which I know he will put to the full service of the Committee in the tasks which it has to perform. His taking over the Chair represents the end of one era and the beginning of another, but the work of the Committee will remain as a vital link in our system of control and scrutiny of public spending.
The Select Committee on Procedure which reported in the last Session recommended baldly and briefly that the Public Accounts Committee should be retained and continue to fulfil its present functions. Even in the few short months that I have been a member of the Government I have become well aware of the seriousness with which the Committee and its investigations are treated by the great Departments of State. It is right that we should have a debate on the Report and the Treasury's observations, and that I as a Treasury Minister should express the gratitude of the House 926 and the Government not only to the Members of the Committee but also to those hon. Members who have participated in the debate and let us have the benefit of their views. If I may not claim the indulgence of the House as a newcomer, perhaps I may have its sympathy when I reply to the debate which has covered such a broad canvas.
Both my right hon. Friend the Member for Kingston-upon-Thames and the right hon. Member for Cheetham have previously held office as Financial Secretary, and they undoubtedly have the great advantage of having been Chairmen of the Public Accounts Committee after having been Financial Secretary to the Treasury. I have become aware that there would have been a great value in having served on the Public Accounts Committee before coming to the office of Financial Secretary.
I will try to answer all the detailed points which have been raised during the debate, since we are not short of time and the points raised were relevant and valid. The Public Accounts Committee criticised the Board of Inland Revenue about the rising tally of back duty cases which the Inland Revenue had to report. As has been said by my hon. Friends the Members for St. Marylebone (Mr. Kenneth Baker) and Leek (Mr. Knox), this was largely due to the severe burdens placed upon the Inland Revenue by the new taxes in the 1965 Finance Act. It quickly became apparent that if those taxes were to be successfully implemented, other work had to be stopped, and inspectors were authorised from the beginning of 1966 to defer taking up new back duty cases for inquiry. The result, which has been slow to appear because these cases take some time to complete, has been a decline in the number of cases settled from an average of about 11,500 a year for the years to March, 1966, to about 9,000 for the year to 31st March, 1969. At the same time there has been an increase in the number of cases listed for attention when circumstances allow.
As the Treasury Minute indicates, I am able to report that we have started to reverse this process. Since 1968 it has been possible to devote more resources to this important work. Again, it will be reflected only slowly in the statistics, but, even so, there are signs of a real improvement, and this will be maintained. The 927 figure of settled cases for the year to March, 1970, will be about 8,500, showing that the decline was then tapering off, and later statistics for the current year so far suggest that the turn has been reached.
The number of cases awaiting that inquiry has now grown less steeply and may even now be slightly on the decrease. But as a number of speakers have pointed out, and as the Committee fairly recognised, the key element is the burden on the Department and especially on the trained inspectors. If we are to keep up to date with back-duty work we must be able to recruit enough people to man the Inland Revenue to a proper level of establishment. Our minute emphasises the efforts we are making in this respect.
The last 12 months have shown a substantial improvement. In that time there were 100 successful candidates for the graduate entry; 71 have taken up duty. This compares with the year before when there were only 58 candidates, of whom only 28 came into the service. In addition, we have selected 103 of the junior staff in the Inland Revenue for full training as against only 39 in the previous year. I am happy to tell the House that the outlook is improving. It is not possible to forecast at what stage we shall be back to the former level. So much depends on the future balance of the Department and the level of qualified staff, but the Inland Revenues intend to make progress as opportunity allows.
§ Mr. Peter Rees (Dover)
When the 1952 Consolidation Act was introduced, the last date back to which the Revenue could raise an additional assessment was something like 1936–37. Would it not be advisable if that date were now brought forward? I am not asking my hon. Friend to condone evasion of tax, but it seems unfair to assess people on years prior to 1950 of which they cannot have any great record. Cannot there be a moratorium for these early years?
§ Mr. Jenkin
I am obliged to my hon. and learned Friend for that suggestion, on which he recently asked a Question. This is certainly something one should look at. There are difficulties in drawing a line because inevitably as one approaches a back duty case the vista tends to open up further and fur- 928 ther back. I am grateful for the suggestion and we will give it consideration.
The proper enforcement of revenue laws is essential to the fair working of the system, as is generally accepted. We will not be satisfied until the level of back-duty cases has reached its normal pitch. Hon. Members have suggested that one key to this matter was the simplification of the tax system. All I can say is that the point has been noted, but I know the House would not expect me to say more at present.
I was grateful to the hon. Member for West Lothian (Mr. Dalyell) for the tribute to East Kilbride, for which I thank him. It has been rare and is all the more valuable for that. I will not go into great detail about East Kilbride since it does not arise directly out of this Report. All I will say to those many hon. Members who represent Scottish constituencies and whose constituents' affairs are handled at the new computer centre at East Kilbride is that we are well aware that the number of complaints has been and remains too high. The only thought I would leave with them is that over 2 million taxpayers are dealt with at East Kilbride. That means that the "chance in a million" happens twice a day. Therefore, it is perhaps not surmising that we should have had rather more complaints particularly in the early months, and this is a matter to which the Inland Revenue and I myself are giving a considerable amount of attention.
I come to the matter of the universities. I agree very much with what my right hon. Friend the Member for Kingston-upon-Thames said that the chief conclusion that emerges from what the Committee had to say on this matter was that the anxieties, if I may so call them, which were widely expressed at the time the decision was made to bring them within the ambit of the Committee's work have been shown to be unfounded. On the contrary, the Comptroller and Auditor General's Department seems to have been able to offer welcome advice and help both to the University Grants Committee and the universities about how they might enhance the value gained from substantial sums of taxpayers' money which are paid out under this Vote. After the first year of investigation, the House will have noted that a memorandum dealing with some matters of common interest which had come to light was prepared by the 929 Comptroller and circulated to all universities by the Chairman of the U.G.C. I have no doubt that this procedure will be repeated to the benefit of universities in the future.
In regard to the new U.G.C. procedures and the adaptation of existing buildings, I was interested to hear what was said about the Heriot-Watt case by my hon. Friend the Member for Leek about the collaboration between institutions, and also what was said about college fees. All these represent welcome improvements. The word "criminals" used by one of my hon. Friends was putting the matter a little high—
§ Mr. Jenkin
Even "offenders" is too high. There are few account clerks working with the U.G.C. and one of the matters that has come out of the Report is the need to strengthen these and ways and means are being found to do so.
My hon. Friend the Member for Leek also raised in relation to Keele University the under-utilisation of university buildings. In our minute we spell out some of the difficulties of guaranteeing that recurrent grants will be forthcoming always to enable maximum use of new buildings to be made. However, I entirely accept that there is room for better planning by the Department of Education and Science with the help of the U.G.C. to ensure that building grants and recurrent grants remain in step.
We also intend to adopt the further recommendation that the implications of a decision on the total value of the capital building programme should be made known to Parliament. After the Government have taken such a decision, the University Grants Committee has the task of fixing allocations to individual universities. When this has happened, my right hon. Friend the Secretary of State for Education and Science will in future make it the practice to inform Parliament of the estimated number of new places that the programme will provide. For example, I can say today that in 1972–73 a programme of £25 million is expected to enable universities to accommodate 12,000 extra students in the academic year 1974–75. The Government have still to settle the recurrent grant for 1974–75 which falls in the next quinquennium. When they do so they will 930 take account, among other things, of these 12,000 additional students.
A number of hon. Members have referred to investment grants. In view of the Government's decision to wind up the scheme in favour of tax allowances, I feel that I need not devote as much time to this matter as otherwise would have been the case. Of course, the policy of the change is not at issue in this debate. A system whereby over £600 million a year in cash grants was payable to industry with a large variety of qualifying conditions posed for the Department involved complex administrative problems. This was one of the elements in the decision which enabled us to reach the view that the system should be abandoned. But it will continue in existence for a year or two yet, though at a declining rate, not only because the grants are payable in arrear but because expenditure on pre-27th October contracts still qualify for grant.
I feel the House would wish me to comment briefly on what has been said on this matter in the debate. The Committee criticised the Administration under three heads. First, as to the level of inaccuracy both of the claims and the Department's examination of them. It is fair to say that a high standard of accuracy is necessary and that, by and large, it has been achieved. Accuracy is necessary because the sums are very large. I say that it has been achieved because since the Report was published we have made a further check covering a 30 per cent. sample, which is a large sample comprising 12,000 claims and involving £35 million grant. The errors this check disclosed were overpayments £15,000; underpayments £3,000; or a percentage of error of 0.05—that is to say, about £1 in about £2,000. It could be said that even that is too much but, bearing in mind the complexity of many of the claims, the House may agree that this is not a bad standard of accuracy. Of more interest is the fact that the cost of carrying out that investigation was about £1,000 more than the money actually saved. When I say "saved" I meant in relation to errors disclosed. It is right that one should always balance the cost of these checks against the advantages in terms of saving money.
The Committee's second complaint was about the enforcement of conditions. I 931 do not think I can add much to what was said in the Treasury Minute except to say that the new Department of Trade and Industry will now be predisposed to enforce full recovery of the grant where a condition is broken. There would be only partial recovery where particular mitigating circumstances existed. We accept the criticism that it was wrong that there should be no penalty for failing to report a change in condition or location or whatever it may be.
On the matter of payments for ships operated abroad, I endorse what was said by the right hon. Member for Cheetham. This matter has occupied the time of the House on a number of occasions and I can claim to have been among the earliest of those who got on the trail of this piece of maladministration in a Question in January, 1968, when I elicited from the then Minister of State at the Board of Trade that £39 million would be paid to companies controlled by non-United Kingdom residents and that, of that, £35 million would be paid on ships built outside the United Kingdom.
§ Mr. Harold Lever
I do not want to leave the hon. Gentleman in lonely modesty, but long before that I personally, not by virtue of my office, raised the matter.
§ Mr. Jenkin
That only shows how suitable is the right hon. Gentleman's appointment to chairmanship of the Committee of Public Accounts. The committee's Report shows that the grants in respect of these ships were of doubtful value to the United Kingdom's economy.
Earlier this year, the House passed the Industrial Development (Shipping) Act which gave the Treasury a veto in cases in which the balance of payments is not served. The House may be interested to know the results of the Act so far. Only two applications for investment grant covered by the powers of veto given to the Treasury have so far been considered. As the granting of these two applications would not be detrimental to the balance of payments, the Treasury has not had occasion to exercise power of veto. It has, however, been given advance notice of some 144 projected transactions in seven of which the Treasury has indicated that grant would be detrimental to the balance of payments and has told the companies con- 932 cerned that if applications were made the Treasury would exercise its power of veto.
Similarly, the Department of Trade and Industry scrutinised some 30 inquiries and one application in respect of ships exempted from the provisions of the 1970 Act to ensure that the transaction will provide a gain to the British economy. It has paid particular attention to foreign-built and foreign-operated ships. One prospective ship owner has been told, on the available facts, that if an application were submitted it would not appear to be a case in which investment grant should be made. The Committee can take considerable credit for the extent to which it has pressed this piece of financial administration upon the Government because, clearly, there was a good deal of money being disbursed entirely legally—there was no question of any fraud, evasion or anything of that sort—but not to the benefit of the country.
Turning, briefly, to the problem of railway grants, which a number of hon. Members have raised, the Ministry of Transport, as it then was, was criticised in two respects: first, that the grants were fixed on the basis of depreciation on a replacement cost basis; second, that the system of allocating track and signalling costs resulted in some non-grant aided lines being in fact grant aided.
As regards the depreciation, as the Committee reported, this could result in the Railways Board building up a fund at public expense in advance of need. We entirely accept that this is not right, though it is right to point out that in 1969 the expenditure on the services in question exceeded the amount of the depreciation which was included in the grant. However, my right hon. Friend accepts the recommendation, and, if occasion for review arises, will certainly give further consideration to whether a change is required.
As regards estimated, track and signalling costs, this is normally done on a ton-mile or train-mile basis. But the so-called Method 2, whereby the whole of the cost was loaded on to the grant-aided lines, is appropriate in some cases. I do not think this is disputed. There can be perfectly genuine reasons of marginal costing, and so on, where this is right, but if carried too wide the effect can 933 be to subsidise the non-grant aided services. Measures were already in hand, in consultation with the Railways Board, to modify the rules. Both my right hon. Friend the Secretary of State and the Railways Board are in broad agreement that the application of Method 2 must now be narrowed to the very limited number of cases in which it is appropriate. It is estimated that this will save about £1 million a year in grants to British Railways.
As regards the Post Office, the House will realise that we are in some difficulty, in that, since the date of the Report, the Post Office has become a nationalised industry and is in the same position as any other public corporation. Therefore if the House will forgive me—particularly the hon. Member for Newcastle-under-Lyme (Mr. Golding) and my hon. Friend the Member for St. Marylebone—I would rather not pursue the very detailed points of management about which they spoke, the problem of procuring equipment, and so on. These are now essentially matters for the corporation and not for this House.
However, a more general point was made on which it would be right for me to remark, the point that the Post Office will be the loser by not having the detailed scrutiny of the Public Accounts Committee to keep it, as it were, on its toes—
§ Mr. Boyd-Carpenter
And, I am sure my hon. Friend wishes to add, the careful examination of its accounts by the Comptroller and Auditor General.
§ Mr. Jenkin
Indeed. Rather unwisely, I tend to use the phrase "The Public Accounts Committee" as a compendious expression for the Comptroller, his Department, and the Committee itself.
The Post Office Corporation will have its accounts audited by two distinguished firms, Cooper Brothers, and Touche Ross Bailey and Smart; the accounts will be presented to Parliament in the usual way by the sponsoring Minister; and, as a number of hon. Members have pointed out, it will be liable to examination periodically by the Select Committee on Nationalised Industries.
I was glad to hear what my hon. Friend the Member for St. Marylebone said about the value of the last Report 934 of that Committee to the Post Office. The fact remains that Parliament has accepted that a nationalised industry status is inconsistent with Ministerial or Parliamentary interference as regards the day-to-day management of the industry concerned. A different type of relationship between the Government and these industries has developed over the last 10 years, and the constant stimulus to efficiency depends largely on the setting of financial targets as described in the two White Papers. I am glad to see present the right hon. Member for Greenwich (Mr. Marsh), who played such a notable part in the second of the White Papers—A Review of Economic and Financial Objectives. I am not sure that more detailed scrutiny would be consistent with the sort of commercial approach both sides of the House would wish to see. But it will certainly be the Government's intention to take any opportunity which presents itself to encourage these industries to develop their own aids to efficiency.
Finally, I come to what has been the major subject of this Report, to which almost every speaker in the debate has referred, namely, the very technical and complex problem of the non-competitive Government contracts. My right hon. Friend the Member for Kingston-upon-Thames invited me in his opening speech to give the Government's view on this matter. If I may say so, we had some extremely relevant and interesting points made by the hon. Member for West Lothian. I will come to those points shortly.
The House may find it helpful if I say something about the general background to this problem. The need for a profit formula is a consequence of a particular purchasing situation. Where the Government are buying equipment of an advanced or complex nature, it simply is not feasible in many cases to put it out to competitive tender. It is in these circumstances essential, therefore, to have some mechanism for establishing that the price which they pay to their contractor is fair and reasonable, both to the Government and to the contractor.
The House will remember that the second Report of the Lang Committee dealt with some of the general principles of non-competitive contracting. One of 935 that Committee's most important recommendations, following on very much from what the Public Accounts Committee had said over the years, was that up to the time of fixing prices or target costs, a Department should have equality of information with its contractor. That is to say, the Department should have access, up to such time, to all the information on costs, manufacturing plans, and so on, which are available to the contractor. The need for this was heavily endorsed by the Committee under the chairmanship of Sir Roy Wilson, which investigated another of the rather unhappy affairs which we have had to consider over recent years.
The second Lang Report dealt also with the rate of profit which should be earned on non-competitive contracts. On this subject the Report expressed the view that there should be a regular review of the profit rates to keep them in line with the general level of profitability in industry or sections of industry. The point was also made that there should be consultation with industry in carrying out any of these reviews. Thus in order to improve the arrangements for non-competitive contracts following this Report, the then Government entered into negotiations with industry with the object of securing the all-important right to equality of information, and the right to carry out post-costing where this was necessary. At the same time, they agreed to examine the case made by industry for a revision of the profit rates payable on the Government's non-competitive contracts. These had not been altered since they were introduced by the Government as part of the defence production arrangements of the Second World War.
Here I join in paying tribute to the noble Lord, Lord Diamond, to whom my right hon. Friend referred, who played a particular part and brought particular accountancy skills to the negotiations between the Treasury and the C.B.I. The noble Lord, the Chief Secretary as he then was, made a statement about this in February 1968. The effect of the agreement reached was that for contracts placed after 26th February, 1968, the rates of profit were improved and the rights to equality of information and post-costing were secured.
936 A further important development in the operation of the machinery for these contracts was the agreement to establish an independent Review Board. The basic philosophy underlying these new arrangements was as before, that there should be fair and reasonable dealings between the Government and its contractors. The new arrangements improved the methods of achieving this, including the setting up of the Review Board by the joint action of Government and industry. Such a board can work effectively only if it receives the wholehearted co-operation of both sides. I should like to make it clear that the board operates quite independently of Government or industry and helps to ensure that the new arrangements work smoothly.
As tributes are in order, perhaps it is right that I should pay tribute and say how grateful the Government are to Sir William Lawson, the Chairman of the Review Board, and his fellow members, for all the work that they have done and, in particular, for the interim Report produced in the summer and to which we made reference in the Treasury Minute.
The new arrangements have a number of important advantages. In the first place, Government Departments now have access to more information to assist them in estimating the costs of non-competitive contracts. This is of paramount importance because, while profits are of obvious importance, the overwhelming proportion of a price paid on any contract by the Government is in respect of costs. Here, I wholeheartedly endorse what the Public Accounts Committee said in its Report, that it is much more important in the taxpayer's interest to reduce the actual costs of a contract than to limit the rate of profit. With the new arrangements for equality of information and the right of post-costing, confidence in the realism of estimates of costs is greatly enhanced.
Second, the profit arrangements are to be reviewed regularly. It is clear that many of the difficulties experienced in the past have come about when the various formulae have simply ceased to be appropriate in changed circumstances. The whole structure of the arrangements can now be examined in an objective way.
937 Before coming to one or two detailed points on the problems which arise, and. in particular, to some questions raised by the hon. Members for Ashton-under-Lyne (Mr. Sheldon) and West Lothian, I have one more observation of general importance to add. One must remember that all these arrangements involve two sides, and in the last analysis this means a purchasing Department and a particular contractor in relation to a particular contract. There has to be understanding and a desire to co-operate if meaningful advances are to be made. Our belief is that, in the atmosphere of the present situation, such co-operation is possible.
I come to the point made by the hon. Member for Ashton-under-Lyne about incentives in what are called cost-plus efficiency-addition contracts. I need not apologise in this debate for using that jargon, for it is the Committee's own jargon and I merely adopt it. The Committee realised the difficulties of negotiating target costs contracts and the preferability in certain circumstances of providing incentives by way of efficiency additions. On this type of contract, the House will have noted from the Treasury Minute that the latest arrangements already embody one of the recommendations of the Committee, that there should be a rather wider band of efficiency additions. Instead of the 0 to 3 per cent. basis, which the Committee has examined, it is now 0 to 4 per cent., and the purchasing Departments hope to be able to make full use of this wider range as their techniques develop. Moreover, we accept entirely the desirability of providing, where possible, a still greater incentive for efficiency.
I must warn the House, however, that it is not easy to make rapid progress in this direction. The larger the scale of efficiency additions, the more difficult it is for Departments to fix efficiency at a particular point on the scale. One must remember that it is necessary to persuade the contractor that the Department's assessment is fair when what will be at stake is a more substantial part of the profit on the contract than under the present arrangements. However, I emphasise that we accept that it is important to make progress in this field, while stressing equally that progress must be 938 made by agreement rather than by unilateral action wherever that is possible.
The hon. Member for West Lothian referred to paragraph 48, in particular, and discussed the question of defective and misleading information. This brings into issue what the Committee has to say about the suitability and adequacy of contractors' cost-recording systems. The Committee had a good deal to say about it. It could not regard as entirely satisfactory a situation in which the cost-recording systems of only half of the Ministries' principal contractors had been accepted on a trial basis for the purpose of fixing prices. It rightly argued that this was slow progress and was somewhat concerned that it would be two years before the process of approving cost-recording systems was completed.
I can tell the House that the work of examining contractors' cost-recording systems has proceeded with high priority. The systems of a number of other large firms have been accepted, and the current position is that, of the contractors' systems we need to approve, about four-fifths have been approved on a trial basis, with opportunity for review in the light of experience. I submit that that represents welcome progress in this direction, although I recognise that there is still some way to go.
It may be helpful if I put into proper perspective what I recognise to be a complex matter. As I have said, it is important that we proceed by agreement. It is important to note also that, until the new arrangement was reached, we had rights of access to contractors' records of costs in only a limited number of cost-plus contract cases, and these were almost exclusively research and development contracts.
Contractors' records of production costs are maintained on an entirely different basis. Therefore, the process of having access to and approving contractors' production accounts posed some new problems for the Departments. Industrial companies formulate their cost-recording systems primarily with a view to the effective management of their own businesses. Their aim is to achieve the tightest possible budgetary control and to provide necessary information about costs so as to be able to take remedial action before it is too late. It is right to point out, also, 939 that these systems are highly sophisticated, involving, for instance, standard cost systems, and are frequently computerised. Although firms do these things for their own purposes primarily, it is in the Government's interest also that they should, for we want to operate with efficient contractors who know the state of their businesses and can run them.
Second, although the Government are often the biggest single customer of these firms, it is rare that they take more than half of a firm's output. Often, when a particular component is manufactured, no one knows at the time of manufacturing whether it is destined eventually for the Government, for a civil customer or even for export. So the approach here must be to reconcile the Government's requirements with those of the firm. There must be give and take on both sides. Departments will not accept systems which do not enable them to fix fair and reasonable prices, so the approach must be one of seeing how, in co-operation with the firm, a system may be so adapted or added to as to meet the legitimate requirements of both sides.
Finally, careful judgment is needed on another factor. Departments must have the information which they really need, but the resources of Departments, especially in accountants and technical cost staff, are, as the House knows, limited. Whatever arrangements are made, therefore, must not provide for such a flood of detailed information that the Departmental system is swamped, for in that case the last state will be worse than the first. A balance must be struck, and that is what Departments will try to do.
§ Mr. Dalyell
Is there still a shortage of technical cost officers who can produce the information which is necessary?
§ Mr. Jenkin
Yes, there is; it would not be right to conceal that this is still a source of worry to the Government, although it is right to point out, on the other hand, that some progress has been made in increasing the number of qualified people in the relevant Departments with this kind of work. But there is still some way to go. Clearly, the hon. Gentleman is absolutely right in regarding this as a matter of the utmost importance if equality of information is to mean what the Lang Committee, the 940 Public Accounts Committee and the House intend it to mean.
The hon. Gentleman mentioned also the problem of assessing the capital employed, referring to stocks, work in progress, debtors, and so on. He will know that the concept which has underlain the profit formula for many years has been related to the capital employed in a firm, and that profit is expressed mainly in terms of return on capital. In practice, it is rarely possible to calculate an exact figure for the capital employed on a particular contract. The problem has been overcome over the years by the indirect method of using for each contractor the ratio that capital employed bears to the costs of production in his case and applying an appropriate percentage to the costs of the individual contract.
The Committee's Report—the hon. Gentleman referred to this—stresses that the capital actually employed on the Government's work need not necessarily be proportionately the same as that employed in other work, and that the assumption which is inherent in this calculation may not be justified. The Committee therefore questioned, as did the hon. Gentleman, whether it operates as equitably between firms and the Government as it ought. The Committee recommended that there should be an examination of this question.
I unhesitatingly accept this. However, it is a very complex matter and the examination must obviously be performed very carefully and thoroughly if the results are to be acceptable to both sides.
§ Mr. Dalyell
If there is to be this examination, could a case study be made of the current difficulties in Rolls-Royce, because in some senses this is a classic example of the type of problem about which the Financial Secretary is talking?
§ Mr. Jenkin
I am coming to make the point that the study will in fact be—and is, in fact, being—carried out by the Review Board. I shall make it my business to ensure that Sir William Lawson has taken note of the hon. Gentleman's suggestion. As this is an independent Review Board, the Government cannot tell it what to do; it must make its own decision as to how to conduct its review. The review will be put in hand after the arrangements have run for three years, the view being taken that it needs 941 a reasonable time before it can be reviewed, and it is the Board's intention to cover in its Report the general point of the calculation of capital employed.
Finally, the Government are very well aware that this is a vitally important field of Government expenditure. In one way it is in the interests of every man, woman and child that we should get the very best value for money.
The arrangements which I have outlined and which are now operating will be a big step forward. However, the area where most of the problems on non-competitive contracts arise is defence procurement, and here the difficulty has been primarily due to the fragmentation of responsibilities. Although the Ministry of Defence has had overall policy control, it has had only partial control over the procurement processes, as the old Ministry of Technology had the responsibility for research, development and production of military aircraft, guided weapons, communications, and electronic equipment.
As announced in the Government's recent White Paper on the Reorganisation of central Government, a project team, led by one of the business men brought into Whitehall, is being set up to make recommendations on how best to organise the integration of all defence research and development and procurement activities under the responsibility of the Secretary of State for Defence. Among the possibilities to be considered will be the establishment of an agency within government—that is, a specialist department of defence procurement responsible to the Secretary of State.
In the light of its conclusions on this, the project team will also advise on how best to handle the Government's relations with the industries concerned, including their responsibilities in support of civil aircraft projects and other civil aerospace activities.
As I am sure the House will appreciate, this is a task of very great complexity, but we expect the team to make recommendations in time for new arrangements to be implemented by 1st April, 1972, and we are confident that this will result in a rationalisation of defence procurement on a lasting basis and that it will be a most important step towards greater efficiency and better value for money.
942 I must apologise to the House for having dwelt on the important problem of non-competitive contracts at such length. A number of hon. Members regarded this as a matter of the utmost importance, and I am grateful to the House for having listened to me.
In conclusion, the debate has ranged very wide and has usefully underlined the three Reports, particularly the Third Report. I again state our thanks to the Committee and to my right hon. Friend the Member for Kingston-upon-Thames, who chaired it for six years with such distinction, and I wish the right hon. Member for Cheetham every good success and fortune in his taking up the reins of office.
§ Mr. Ray Carter (Birmingham, Northfield)
Before the Minister concludes, may I put a question to him? He referred to the complexity of the problems which will be faced by the high-powered team which is to be led by Lord Rothschild and which is to examine the methods of procurement in the defence field—or the unit to which he referred, if it were not Lord Rothschild. Why is it to complex in a situation in which most of the suppliers of defence equipment are in a monopoly position?
§ Mr. Jenkin
I hope that the hon. Gentleman will forgive me if I do not pursue that question at great length. I assure him that those who have given any study in depth to this problem have been immensely impressed by its complexity. It is not the central review body under Lord Rothschild which is carrying out this investigation. It is a team under a very distinguished business man who has had purchasing experience in private business. Despite the very difficult and complex nature of the task, we hope to have an answer by April, 1972 and to get the right answer.
§ 7.15 p.m.
§ Mr. John Biffen (Oswestry)
There is something very casual about breezing in towards the end of the debate when the Financial Secretary is on his feet. I apologise to the House. I have been 943 detained going round one of the largest casting manufacturers in the Black Country. From there, Mr. Speaker, I telephoned your office and expressed an anxiety that I should take part in this debate. I hope that the message got through, because I am most anxious to be acquitted of discourtesy.
May I commence where my hon. Friend the Financial Secretary concluded and offer thanks and congratulations to my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter). I speak somewhat as an alumnus of the Public Accounts Committee, having served on it some years back. It was an immense education.
At a time when the House, quite properly, is anxious to find more effective ways in which the relationship between Parliament and the Executive can proceed, the current fashion of Specialist Committees is well tested by the degree of sustained interest that is shown by the House when its premier Specialist Committee—namely, the Public Accounts Committee—comes to the Floor of the House and reports on its activities.
I am only sorry that the very hard work which is put in by the Public Accounts Committee does not receive wider parliamentary consideration on the Floor of the House when the opportunity so arises, because it is extraordinary that this debate is very nearly coming to a conclusion—indeed, my remarks will not prolong it very extensively—at 7.20 in the evening.
However, in the light of what has happened over the last few days it would be wholly appropriate for there to be a little consideration of the relationships between the Government and the aviation industry. It is in this direction that I want to turn my remarks. I want to spend some time on the whole question of profits earned by this industry, a little on the Concorde project, and, lastly, just a little on Rolls-Royce and the advice that we may have from the Public Accounts Committee in consideration of the situation which was revealed to us a few days ago in respect of Rolls-Royce.
We have pretty well come full circle in the consideration of profits being earned in the aviation industry in connection with the Government. The hon. Member for Birmingham, Northfield (Mr.
944 Carter) may be coming in a little late in the full turn of the circle because, if I followed what I believe to be the implication of his remarks, they would have chimed more with the days when Lord Wigg was in this Chamber and was the scourge of Ferranti.
In those days there was the belief that vast profits were being earned by the aviation industry in relation to the Government. Although I dare say with hindsight Ferranti may feel that it had been somewhat imprudent in some of its commercial behaviour, I think that there is no doubt that the idea that a fixed price contract was almost a licence to print money for the aviation industry has been totally disavowed and disabused by subsequent events. I was particularly interested to read in paragraph 98:Your Committee wish to emphasise that in their view it is much more important in the taxpayer's interests to reduce the actual costs of a contract than to limit the rate of profit.Those remarks would not have been expected shortly after the furore which preceded the setting up of the Lang Committee.
The story which the Committee reveals to us about the Harrier aircraft is a good indication of how difficult it is to apply refined and sophisticated forms of profit control. I emphasise this by drawing attention to what the P.A.C. says in paragraph 90:It will be seen that though target-cost arrangements were considered for all three Harrier contracts they had to be abandoned in favour of cost-plus for the latter stages of case (i) and in favour of a fixed-price in case (iii) and that in case (ii) the target-cost arrangement adopted was not very different, in effect, from cost plus a fixed profit.I suspect that the real truth is that in all these arrangements it does not lie so much in finding some formula which can most satisfactorily regulate dealings between Government procurement and the aviation industry. Rather, it is a shortage of sufficiently well-trained and skilled personnel to interpret those arrangements.
I was particularly interested to read of the continuing difficulties which the Government have in recruiting sufficient high-calibre accountants; proceedings in which, as one would expect, the hon. Member for Heywood and Royton (Mr. Barnett) took a keen part. I was delighted that he seemed to be convincing himself of the significance of the market 945 economy when it came to the pay scales that should be offered by the public service to the accountancy profession. We have now come back to what I believe to be a more realistic conception of what are the problems involved in public procurement of aircraft and the profits to be made by the aviation industry.
I congratulate my right hon. Friend the Member for Kingston-upon-Thames and the P.A.C. on their salutary and continuing reminder that the Concorde project is still with us. This gives Parliament an opportunity, one that we should value, to discuss this vital matter because, as we know, the Concorde project may soon be reaching a new stage when, with the development stage behind it, important decisions will have to be taken concerning the commercial production of this aircraft.
My hon. Friend the Member for St. Ives (Mr. Nott) and many other hon. Members are particularly anxious that the representatives of the Treasury Bench shall be aware of the widespread and growing scepticism there is about the whole viability of the Concorde project, and this is our opportunity to make that clear.
Whatever may be the gargantuan sum now associated with public expenditure on the Concorde, it does not seem to derive from laxity in the contracts drawn between the Government and the aviation industry. Indeed, tribute was paid to the way in which incentive contracts seem to have been reasonably well drawn, and this was contrasted with the unease that had been expressed about this matter in previous years. However, I cannot help expressing some apprehension when I read in paragraph 93(c):Where, as in the case of Concorde, there is a guaranteed minimum profit the incentive to reduce costs diminishes as costs approach the level at which the minimum profit operates and disappears completely when that level is reached.I am sure that many hon. Members have uneasy suspicions that the cost will approach the point where any incentive may be totally diminished, and we shall need constant reassurance on this point. However, the House is particularly indebted to my right hon. Friend the Member for Kingston-upon-Thames for the cross-examination which he conducted of the witnesses from the Ministry of Technology, as it then was, about the 946 risk that was being borne by the aviation contractors in respect of the Concorde project. I will not weary the House by quoting in full the questions and replies on this issue, but there seems no doubt that the element of risk that is being undertaken by B.A.C. is extraordinarily limited.
My right hon. Friend puts us in his debt by the way in which he conducted that piece of cross-examination, because there seemed to be a stage when the Ministry of Technology could almost have been the public relations spokesman for B.A.C., so persuasively did it originally suggest that B.A.C. had, as it were, a vast stake at risk in this project.
I come to a point which was given particular relevance by the events of last Wednesday, and that is the whole issue of Rolls-Royce and the engine which is being developed for the Lockheed Tristar. It is a fascinating case of where, as far as one can judge, a contract was taken at a fixed rate, with inadequate escalation clauses, and where the original prices quoted were extremely keen.
Hon. Members will be puzzled to know who will be the beneficiaries of the £42 million of taxpayers' money which will now be voted for this company.
§ Mr. Biffen
It seems that we are offering dumped British technology for the benefit of American aircraft manufacturers, and I am obliged for that support from my hon. Friend the Member for St. Ives. There must come a time when we should try to get our sense of values right and say that it is worthier for this country to earn profits out of Carnaby Street than losses out of Rolls-Royce.
§ Mr. Dalyell
Am I right in thinking that, had the hon. Gentleman been the Government, he would have let Rolls-Royce crash?
§ Mr. Biffen
That is such a hypothetical question that my only reply must be that the hon. Gentleman is well able to interpret my remarks for himself.
The House will need considerable reflection in the coming weeks of the principles which are relevant to the P.A.C. Report concerning the recent Rolls-Royce debacle. We have, first, the 947 nature of the commitment. We understand that Cooper Brothers are being, properly and prudently, employed by the Government to help assess the nature of the commitment.
§ Mr. Biffen
I find this just a shade ominous, because all too often we find when reading through the evidence to the Committee that there have been precisely those problems in the past, of not really quite knowing what the nature of the problem or the loss was. I draw the attention of the House to Question 2985 asked by my right hon. Friend in respect of Concorde:Why did it take so long to agree the incentive arrangements?to which the answer from Sir Ronald Melville, who was giving evidence for the Ministry of Technology, was:… you cannot let an incentive contract until you can be pretty sure that to the satisfaction of both sides you can define what you are talking about".I do not give that quotation in any snide sense. This is perhaps endemic in such problems. But it means that £42 million is the first figure that has been pulled out of the bag. Is there anyone here so optimistic as to think that when the real nature of the problem is revealed we have seen the first and the last figure? I hope that the experience of the Public Accounts Committee will lead us to be extremely vigilant on this point.
Second, there is the question of pricing policies, which, particularly in respect of original equipment and replacements, come to the fore again and again in the reports of the Committee. We know what has been happening in respect of prices for original equipment; but what will happen in respect of spares prices for the RB engines being used for the Tristar? Again, this is the sort of area where we are given at least some guidance from past work of the Committee.
Finally, there is the whole idea that failure in one section of a company's activities is held to be so vital that that section must be reinforced, otherwise the entire organisation tumbles, the idea that 948 unless Rolls-Royce is redeemed in respect of its sales of this particular engine to the United States every other activity of the company cannot survive under the existing company structure, or under whatever reorganisation in corporate terms might follow a withdrawal of Government support for the Tristar engine.
In the passages to which I referred earlier, my right hon. Friend the Member for Kingston-upon-Thames, cross-examining to find the level of the B.A.C. commitment in the Concorde aircraft, reminded us how all too often it is argued that when companies depend almost entirely on one project it can shatter a company's future should that project fail. I read with particular interest the way in which it had originally been argued that there were vast assets inside B.A.C. which had been created, as it were, for the purposes of the Concorde project. It was then revealed under my right hon. Friend's cross-examination that they were entirely assets that had been placed there by the Government.
§ Mr. Biffen
I beg my right hon. Friend's pardon. Of course that is so.
I should like to think that at some stage the Public Accounts Committee will bring its scrutiny to bear on the money which we shall be voting, £42 million, and whatever may follow it, to sustain Rolls-Royce in the difficulty it has encountered in this particular project with Lockheed.
The Committee has contributed much to our understanding of the use and misuse of public funds over the years, but I suspect that we shall be more than ever in its debt if it can illuminate some of the uncertainties and darknesses that surround that particular Rolls-Royce project.
§ Question put and agreed to.
That this House takes note of the First, Second and Third Reports from the Committee of Public Accounts in the last Session of Parliament and of the Treasury Minute on those Reports (Command Paper No. 4518).