COMMITTEE OF PUBLIC ACCOUNTS (REPORTS)

HC Deb 02 December 1971 vol 827 cc691-768

5.2 p.m.

Mr. Harold Lever (Manchester, Cheetham)

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. 4817). This is an annual occasion on which the House evidences, by some of its Members at any rate, the great public interest in the Reports of the Public Accounts Committee. I must assume that even those hon. Members who are not present and those present who do not choose to speak, have brooded over our reports and considered them in considerable detail.

This is also an occasion on which I must express our gratitude to Sir Bruce Fraser, the former Comptroller and Auditor General, for the years of service he has given to the House and the Committee. He is a distinguished public servant, whose zeal, pertinacity and great personal interest in the work he did was a great source of support to the Committee and previous Committees which he served.

I welcome Sir David Pitblado, who has taken over the job. He has the advantage of being well acquainted with my personal weaknesses and foibles, as I had the satisfaction of working with him at the Ministry of Technology for a number of months. It is an advantage that is for him not wholly of unmixed blessing, I should imagine. I have the undoubted advantage, unqualified, that I already know the wisdom, shrewdness and balance of Sir David in his capacity as Permanent Secretary, and I look forward to the service he will give to our Committee.

I must also thank Mr. Ecclestone, the Clerk of the Committee, for his devoted service at all times.

I know that my colleagues would not wish me to speak for too long. That is why I shall be very brief in my commendation of my fellow members of the Committee. Were I to expatiate at length in the particularity to which they would normally be entitled, this speech would be of indefinite duration. I am deeply grateful to them all for the shrewdness and zeal they have contributed to our work, and for their maintaining the non-party spirit in which we do our work. That is not to say that we cease to have a party political personality. Certain of the evidence and questioning has on occasion aroused what might be described as party political chuckles, but these, happily, are not recorded on the very efficient transcript that is kept of our proceedings. I should like to express my personal gratitude to every member of the Committee for the assistance that has been given in conducting this work.

I shall not range widely over the reports but shall pick on two items which I suggest are worth comment. First, I want to refer to that part—paragraphs 31 to 48—which relates to the giving of equality of information between the Government and contractors on defence in respect of non-competitive contracts. This is a very difficult area, and no one has the right to come up with facile solutions. I think that what we have done is broadly right. We have sought, under the previous Government and the present Government, to grapple pragmatically with the problem of contractors who cannot be subjected to competitive tendering in the nature of things, in the nature of the work they do.

We have not achieved any final solution, but the last Chief Secretary to the Treasury, I think, introduced the scheme referred to in the report, which represents a considerable advance. The heart of that scheme is that the Government should be entitled to detailed information on costings and the like available to the firms doing the contracting. The Committee was very happy to note that that proposal has been widely accepted by the contractors, but, alas, four substantial subcontractors have found themselves for one reason or another unwilling to participate in the exchange of the information. I should say—and I am sure that I carry the Committee with me—that we have made no assumption because of this of an abuse of monopoly power by the four subcontractors. There has been no disclosure of their names in the report, but it should be publicly stated that the Committee will not rest content until all contractors and subcontractors accept the system that has now been brought into being.

It will be necessary at some point to examine what possible further steps we can take, unless, in the time we have given them more mature consideration, the four firms feel able to come into line with the rest of the firms concerned, as I hope they will. If the present situation persisted, we should have to consider calling them before us to explain their motives, which may be entirely justifiable, and ask them why they refuse to put the information upon the table. If we were not able to get adequate information, we should have to consider what alternative methods of securing the information could be open to us, either under the existing monopolies or patent legislation or by a suitable amendment. It is a very serious matter, when the Government are contracting with people who have patent rights or are in monopoly situations in relation to the material and objects necessary for defence, if they cannot have before them all the information which would enable them fairly to price the work they are seeking to have done.

We must look at all those possibilities, and there may be some others. I am not anxious to raise party political issues, and what I am about to say may not be a party political issue. At the end of the day, whichever Government were in power, it may be that some would think that the right remedy was to take the firms into public ownership, if the alternative, on vital matters of defence, was that we were unable to ensure that the pricing was arranged on a basis fair to the public purse, by at least examining in daylight the full facts relating to what is being ordered.

I said at the beginning that it is not an easy subject. It is an almost insoluble problem. Therefore, we must not seek perfectionist solutions. I do not know which of the possible answers would seem perfectionist to which of my colleagues, but we must make clear—and I hope that note will be taken of my words—that the Committee is satisfied that what has been done is a great improvement in the system and offers opportunities for improving it further. We cannot allow four firms to stay outside the system and to refuse information simply on their say-so.

I have every sympathy for all firms. I appreciate that, for example, the nationalised industries resent spending time in getting at facts and figures which have to be re-examined and probed in detail. However, I am afraid that it is a chore which has to be accepted in this sort of situation. I hope I carry the House with me in general sympathy with the proposition embodied in the report on this subject.

The second matter which seems to me to be of immense public importance is the question of the Beagle contract. The paragraphs in our report referring to this matter and the inferences to be drawn are worth examining in great detail.

The Beagle Company, although wholly Government-owned, was not a public intervention on traditional lines; that is to say, it was not a public intervention in which we set up a statutory corporation by Act of Parliament with all the capital and management arrangements that go with it. It was a public intervention—and none the worse for that—because, in the nature of things, when one is dealing, not with a great industry but with an individual firm, if the Government decide to intervene it is an extemporising intervention in which the Government hope that, after a reasonable period of time, their intervention can be withdrawn. These hopes are not always fulfilled as early as the more optimistic interventionists might hope. In the Beagle type case we were dealing with transitional aid rather than with permanent arangements. Because of this, there has been a good deal of neglect in arranging in systematic form what should be the Government's attitude in their financial relationship with this company and in respect of possible liability to criticism.

The Treasury Minute has referred to our comment about the inadequacy of continuing information to the Government and continuing appraisal of the Government's position on Beagle. The Treasury Minute is written in words of such opacity, and, indeed, almost taciturnity, on this interesting subject that, had I been in the Financial Secretary's place today, I could hardly have bettered the section in the Minute on this matter had it been my purpose—as I suspect it might have been in the case of this Minute—to withhold any kind of comment at present on the subject under discussion.

Although I compliment the Financial Secretary on the Treasury Minute, which takes a substantial paragraph to add nothing to our information, and though I recognise that it would be unfair to expect the hon. Gentleman even today to elaborate on this matter at any great length, I feel that this subject necessarily must be causing a good deal of searching of minds in the Treasury and in other Government Departments. I am not complaining, but I hope that this Minute is the hon. Gentleman's first word on this matter rather than his last in the weeks and months ahead. I exempt him from an obligation to be too forthcoming to-day since I recognise his difficulties.

I am not under the same restraint as the Financial Secretary and, therefore; I shall say a few words on this subject; and I hope I shall carry most hon. Members with me. In cases of Government intervention there have to be some firm principles, publicly known and clearly established, as to where the Government stand. It is not enough for the Government to say, as they do in the Minute, that nothing in the legal rights and duties of a shareholder changes because the shareholder happens to be the Government. That does not quite answer the problem. When the Government intervene as a shareholder, they are rarely wholly passive. They tend to appoint directors to the board, to exercise some degree of supervision and in some ways to become responsible for what the company does.

When the Government have a major financial stake in a company, the first question to be asked is: what are their obligations to creditors? The Government cannot ride off by saying "We told the directors to act commercially and, therefore, any liability to creditors is a liability of the company and not of the Government." It is difficult for the Government to say this in respect of the Beagle Aircraft Company. I am not criticising any one Government on this score since the Beagle matter occurred under the previous Government, whereas other matters of this nature happened during the period of office of other Governments. In respect of the Beagle company we had to meet the creditors. I do not want to go into the law on banicruptcy because it is rather vague and capable of different interpretation, but there is no doubt about the commercial morality on this subject. Whether one is a Government or an honourable private citizen, if one is financing a company and actively participating in its affairs with knowledge one has no right to spawn companies which can take on credit without any reasonable expectation of paying the debts one is incurring.

A great deal follows from this from the Government's point of view. If they are to have some kind of participation or supervision in management, what is to occur when they know, or ought to have known, that the company is taking credit which it has no reasonable prospect—or only a gambling outside chance—of meeting? In these circumstances the Government must pay up if they have participated in other than a strictly banking or shareholding capacity.

Past Governments—and I emphasise that this is not a party political matter—have tended to assume "We are putting up so much money, we are appointing reputable directors and we must assume that they will see that the law is obeyed and that they do not incur debts which they cannot meet". If the Government know or ought to know that a company's commercial prospects are not promising—in other words, if it is a socially sub-vented operation—the directors are acting in the confidence that they can meet the creditors because they are confident that the social purposes they are thought to be pursuing will result in the Government giving a continuing subsidy or a continuing non-commercially based loan or share subscription. Once the Government have embarked on this course, which I am afraid has been the case in the past, they must not be under any illusions that they can go on running the company in the knowledge that it has only a slight chance of commercial viability and then say "We shall only subvent it by £2 million a year", only to find that it will cost £5 million and then want to close it down. In those circumstances they are already committed to the creditors because they have been running the company on the basis, which the directors and the Government must have known, that, even if the loss had been kept to £2 million, the creditors could have been paid only if the Government paid up.

Governments must realise that there is no soft option for them. If they are running a company, knowing that it is running at a loss and there is little prospect of doing other than running at a loss and the loss suddenly becomes gigantic and they are tempted to withdraw, they cannot withdraw without satisfying the creditors who have already given credit to the company and never had the prospect of being paid except from Government funds.

It follows that the Government must not put money into companies of this kind unless they also put themselves in a position to know the extent of their liabilities. It means that there must be a continuing appraisal and continuing information from the company. The Government cannot rest unless they have a flow of continuing information about the company's prospects, because its prospects are, in a sense, the measure of the Government's ultimate potential liability. Therefore, they have to see that that information and appraisal goes on the whole time they are engaged in such a situation.

It is not good enough to appoint gentlemen of distinction to the board—an eminent accountant or general; talent of the kind that Governments are apt to find for these jobs—and then say, "We were not to know that the losses would be so great. We would have been ready to pay up for a smaller loss, but not for this gigantic loss, and we now wish to withdraw." In those circumstances, they cannot bow out without meeting the creditors. It follows that the appraisal and information must be continuous.

Something else follows, too. Before Governments undertake these ventures they must obtain an expert and dispassionate commercial judgment about the prospects and they should found their decision on that. I hope that no one will misunderstand me. Any Government are entitled to have their view about the social costs of intervention. The Conservative Government—I do not want to stray into party politics—preach a great deal of hard-facedness on the subject which, to many, is widely divorced from much of their practice. I do not resent that. It provides much material for criticism by their opponents, which they are unable to challenge, about what they preach on the subject. They are in the unhappy position of being in a minority. I have always said that the central bankers were one of the few groups whose practice was better than their preaching. I think that, even so, in the very narrow area of Conservative Government, their practice is far more intelligent and up-to-date than their preaching.

Mr. Cranley Onslow (Woking)

I am sure that the House admires the exquisite tact with which the right hon. Gentleman is addressing this homily to the absent figure of his former colleague the right hon. Member for Bristol, South-East (Mr. Benn), who should be benefiting from it, because it is his business methods which are being called in question. In this instance the Government obtained professional advice about the level of capital which the Beagle Company would need if it were to succeed, but they then instructed the company to succeed on the basis of having half that capitalisation. That was not a very good way of going about it.

Mr. Lever

I was trying to draw some useful general principles in the belief that, by poring over the report, hon. Gentlemen will get what they need of the details without my elaborating on the report in my speech.

Mr. John Nott (St. Ives)

On the general principle, does the right hon. Gentleman agree that if the Government have a social obligation towards creditors the answer is not to incorporate such companies? I cannot see the object of a wholly-owned organisation of the Government operating as an incorporated entity with a paid-up capital if the philosophy which he is outlining is relevant. Would it not be better for the Government to run such companies in a partnership form?

Mr. Lever

Is the hon. Gentleman challenging my proposition that where the Government are actively in control of a company, whether by total or partial shareholding or by financial control, they are not liable to the creditors when, to the Government's knowledge, the company is incurring debts without a reasonable prospect of meeting them unless the Government fork out the money? Perhaps he is asking—if that doctrine be right why bother to form a limited company? There are two answers. First, a company is a convenient vehicle for carrying on trade rather than calling it the Department of Civil Aviation Manufacture at the Ministry of Technology, which is what I suppose the hon. Gentleman would have as an alternative; and, secondly, the position may be temporary. If the best hopes of Beagle had been fulfilled, it might have made a profit and been exceedingly solvent and continued to run as a company. If so, a Labour Government could have enjoyed the fruits thereof, or a Conservative Government could have wasted a great deal of parliamentary time seeking to hive it off. All this argues in favour of having a company which is a satisfactory vehicle for this purpose.

Mr. R. T. Paget (Northampton)

I agree about a company as a vehicle. But does it have to be a limited company? Is there any point in it being a limited company in these circumstances? Would it not be tidier if a Government wholly-owned company had an unlimited liability?

Mr. Lever

That is a point well worth considering. Where the Government were to take liability, that would be the case. But sometimes the Government may know facts about a company which they are not keen to advertise. If, in affect, they said that it was an unlimited liability company, they might be, as it were, hinting to the world at large that they were taking a pessimistic view about its immediate prospects of meeting its obligations.

Mr. Nott

Surely we must stick to a principle. The creditors are either dealing with a limited liability organisation or with an unlimited liability organisation. I understand what the right hon. Gentleman is saying. However, why make a special distinction between a limited liability company which is owned by the Government and a limited liability company which is owned by the general body of public shareholders? I do not want to make a speech. I take the right hon. Gentleman's point. But surely there is a principle. The Government must, in certain circumstances, as a limited liability organisation, be entitled to trade like other organisations in the private sector.

Mr. Lever

The hon. Gentleman's first point is pedantic but misplaced, as I will explain. He asked: why trade under a limited liability company if the liability is not limited? The answer is that in all limited liability companies the liability is not limited whether the person concerned be the Government or a private citizen. If a private citizen engages in trade in the manner I have indicated, though he is but a shareholder, or not even a shareholder but has de facto control of the company, and the company incurs debts at his instigation and with his participation without reasonable expectation of meeting them, under our law, although it is a limited liability company, he can be made liable. I am not seeking to score off the hon. Gentleman. I understand why he raised this point. It seems a contradiction in terms.

If I were to send a company abroad incurring debts with one chance in a hundred of meeting them, and I did this knowingly, albeit I was only a shareholder, and I promoted the directors to this activity and risk, I should be liable although it might be a limited liability company. I am not without some sympathy, in special cases, for my hon. and learned Friend's suggestion. However, in general there is nothing wrong in using a limited liability company if one realises that the expression "limited liability company" does not give blanket protection under the law as it stands. I am drawing no distinction between the position of the Government and that of any other person who runs a limited liability company, except that I hope that, on the fringe cases, the Government would set their moral standards no lower than the best standards of leading commercial companies.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

I do not want to be drawn too far into this, for reasons which I shall make clear if I succeed in catching Mr. Deputy Speaker's eye. From what the right hon. Gentleman is saying, he seems to suggest that the extent of the Government's obligation in these circumstances, according to his view, will turn on the state of knowledge of the Government at the time. But this, by itself, is not a great deal of help to the creditors.

Mr. Lever

No. It is not the state of knowledge of the Government. It is the extent of the Government's participation in the company's affairs which is the crucial factor.

If the Financial Secretary chooses to subscribe to a company and, without knowing its prospects, is content to let it go round trading and takes no further part in its activities, when it goes bankrupt, he is not liable, and the ordinary rules of limited liability will apply.

I am discussing what happens in almost every Government intervention, which is that the Government tend to put themselves, in almost every case—and certainly in the Beagle case—into a position where they know or ought to know that the company is incurring credit which, with reasonable expectation, can be met only if the Government subsidise the company. Secondly, the Government intervene in the supervision of the affairs of the company in such a way as to make themselves responsible, in some senses almost being a de facto director of the company.

I am aware that the Government have a technical legal defence to any action by which they can escape responsibility, but Governments are reluctant to make use of such defences. Where the Government are actively intervening in the affairs of a company and know or ought to know that the creditors' reasonable prospects of being paid will depend upon Government money, they must recognise that they will be liable for the debts of the company. I do not draw a distinction between the Government and commercial firms in this, though on borderline cases I should not expect the standard of morality of the Government to be less than that of any of the commercial concerns in our country in relation to their own subsidiaries.

When I said that the Government must start the operation with a clear and dispassionate commercial judgment, that does not end the matter. It is the beginning. When they know what the commercial prospects are, they start to apply the political judgment, be they a Con servative Government or a Labour Government. They start to ask themselves how much they are prepared to pay for the social interests of the situation, but they do it with their eyes open. They do not have a misty mix-up between commercial, semi-commercial, and semi-social feelings. First, they see what they think it will cost, including possible liability to creditors. They set up machinery to protect themselves from unnecessary liability to creditors. Then they make a decision about how much it is worth in social terms.

I am not implying that, if a commercial judgment told me that in Cammell Laird I am unlikely to see a commercial profit from the Government's investments, that is the end of the matter. That is where I start. I do not end here. Then I ask myself what it is worth in social and human terms. Those cannot always be assessed in cash terms. Human suffering has a value from the Government's point of view, and one has to use one's best judgment in thinking about the social value. One must start the process on a realistic basis and continue it on a basis which does not involve one in unforeseen liability.

Too often, the Treasury approves £2 million or £5 million for a project in the belief that that limits the total cost. Then it finds that because of other considerations, it does not, and that it has other liabilities brought on because of contractual liabilities to creditors, as in the case of Beagle.

Again without raising too many controversial points, I should add that Beagle is not alone. There must be lessons and stimulating thoughts on the subject of the Rolls-Royce Company and the Upper Clyde company. If the Government had had a clearer view of their obligations and a clearer system for assessing them, the panic actions which resulted in the bankruptcy of the Rolls-Royce Company might never have occurred. I do not suggest on the part of the Government. I do not take the view of many of my colleagues and make pronouncements on the subject of lame ducks, and the like. I do not believe that these flights of oratory are a fair measure of the Government's record in this matter. But if the Government had put themselves in a better position to assess the Rolls-Royce situation, what were its actual liabilities and what they might do to obtain a temporary easement of the company's cash position without putting themselves in the position of becoming liable to all the creditors, we might have been able to escape the bankrupting of one of the world's famous names which must have been a source of grief to every hon. Member.

Mr. Robert Sheldon (Ashton-under-Lyne)

Will my right hon. Friend take that further and realise that, given the way in which these matters are arranged at present and given the will, there could have been a renegotiated contract, as Sir Denning Pearson has already told the Trade and Industry Sub-Committee of the Expenditure Committee, which Lockheed would almost certainly have accepted, with the advantage of retaining the firm intact?

Mr. Lever

My hon. Friend is evading what was the real Government difficulty here. The Government needed time for this re-negotiation to take place. For that time to be forthcoming, the Rolls-Royce Company needed cash. The only volunteer for this cash was the Government. I suspect that the Government were afraid that, if they put in the cash, they would come within the rules of liability that I have discussed and make themselves liable for the entire range of the Rolls-Royce Company's liability. It was not lack of good will on the part of the Government. There was no lack of willingness to put up the modest amount of cash required to give time to the Rolls-Royce Company to renegotiate the contract. It was that the Government had no idea how that cash might be put in without exposing themselves to liability to the whole of the company's creditors.

I suspect that the truth about the Government's thinking was that, if they put themselves in a position in which they could have financed this time for renegotiation by having a suitable banking instrument at their disposal with which to do it, they would not have so hastily allowed the receiver to go into the company—and irretrievably, because once it is done, although it is possible to put Humpty-Dumpty together again, probably it can be done only at a greater cost than if he had never fallen off the wall. The damage to Britain's reputation and credit is not retrievable. But, having no such instrument—

Mr. Onslow

All of this is not only speculative; it is also irrelevant to the matter in hand. The Committee has heard no evidence on the subject. It is a mistake to draw conclusions on bases which are in dispute and to suggest inferences that the House is not in a position to draw—nor is the right hon. Gentleman.

Mr. Lever

I am not asserting this as a certainty. If the hon. Gentleman cares to read my words tomorrow, he will see that I said that it may be that the reason why Rolls-Royce was made bankrupt was the lack of system and systematic rules for the intervention actions of Governments at the time of the collapse.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I am obliged to the right hon. Gentleman for giving way to me, particularly as I was not sufficiently fortunate to be a member of his Committee. On the Rolls-Royce issue, I am surprised that someone of considerable commercial experience should be talking with all the arrogance of a legal simpleton. The point about Rolls-Royce is that people just do not know what the position is. The information discovery machinery does not work. The figure for stocks and work in progress is not available for checking and is built up out of a variety of valuations taken at various times. I speak from personal experience of a company of rather smaller dimensions. When a company has got itself into a mess like this, it is not something which can be discovered by a quick look through the books. It probably takes a year to determine what the true position is.

I do not altogether go along with Sir Denning Pearson's comment that, if he had had a little time for renegotiation, everything would have been all right. He had plenty of time and he got into a mess.

Mr. Lever

I do not know why the hon. Baronet is criticising me. This is my point of view, too. I am not criticising one Government only on the question of Rolls-Royce or anything else. My point is that if, when we first intervened in the affairs of Rolls-Royce, we had recognised that such intervention must be accompanied by a very detailed knowledge of the company's position and that this should be an on-going knowledge, things might have been different.

I am not blaming either of the Governments. What happened arose because we did not evolve a system which recognised that one cannot go in with a cheque book and a few wise words of advice about what one feels should be done. I agree with every word that the hon. Baronet said. It takes a considerable time. One must begin at the beginning. Before the Government become heavily involved in one of these financial operations, even if they do not own shares, when they are necessarily because of the scale of the intervention wanting to exercise, and inevitably forced to exercise, some supervision from the outside, they must ensure that information is available. It takes a very considerable time.

It is clear that neither the previous Government nor this Government ever had at their disposal the information which I regard as being reasonable when these major interventions are to be undertaken. I am not apportioning blame between the last Government and this Government on the Rolls-Royce issue. I am saying that, because of the system, this sort of panic decision had to be taken.

As to Sir Denning's comment to the junior Committee which has been considering this matter, I must say, without any criticism of Sir Denning Pearson, that directors of Rolls-Royce have from time to time expressed hypothetical opinions which events have not always justified, so we must not take that comment as gospel.

Mr. Tom Boardman (Leicester, South-West)

I am following the right hon. Gentleman's argument on the evidence that came out in Beagle and the general principles that he developed from that. But is it wise to go on and apply those general principles to matters and facts which were not in evidence before the Committee and which were not dealt with by the Committee? In this way he fails to do justice either to the report or to his own argument.

Mr. Lever

I will not stray too far. If Beagle were the only case in point, it perhaps would not be worth being made the centre of my comments today. Hon. Members on both sides should be stimu lated to realise that the legal issue raises matters of fundamental importance in many other cases, of which the more obvious ones like Rolls-Royce and U.C.S. come to mind. I assure the hon. Gentleman that I was not seeking to make party political points out of this, because neither party in government exercise the proper system or are yet exercising the systematic approach to these affairs which I believe has to be taken.

The point which must be made, although it does not come strictly from the report, is that these problems do not arise only in relation to public intervention. They arise also in relation to private concerns generally. The problem from the resources point of view is that of ensuring that we direct our resources to the country's advantage, whether they are privately-owned resources or publicly-owned resources.

Again on the question of systematising finance, I hope that if we learn lessons from Beagle as to the way these things should be financed, we shall not be tempted to seek finance elsewhere. I hope that I do not offend by concretising my comments. I could easily refer to other possible cases, but I prefer to name the company properly.

If the Government had a proper system and proper rules for financing and intervening, I do not believe that the situation would arise as in Rolls-Royce in which the Government impose the somewhat invidious task on the Governor of the Bank of England of bringing pressure to bear upon private firms to finance, on terms which they would not voluntarily wish to undertake, a company in which the Government are interested.

The lessons of Beagle are that the financing must be systematic, given according to sound rules, and taking into account profits—not the amounts of cash immediately advanced, but the total liabilities the Government are incurring when they negotiate in these matters; so that no Government will be driven to blur the issues by getting finance from other quarters than from the Government themselves. It places us in a rather absurd position and gives an idea of muddle if Governments proceed in that way.

I again assure hon. Members that I can give plenty of examples under both Governments where the Government went round persuading private firms to give finance on non-commercial terms. If it is a public purpose, the right source for it is the Government. If the Government think that it is worth doing, let them put their hands in their pockets and not go round putting all kinds of persuasive, oratorical or financial pressures on other people.

I hope that I have said enough to show that I regard this as the biggest and most stimulating issue that we have considered this year. The Committee will undoubtedly want to return to this issue when the Government have had time to put their thoughts in order and let us know the kind of rules that they are to bring into being covering these interventions in the public interest and for the protection of the public purse.

All of us on the Public Accounts Committee are anxious not to preserve intact the false Gladstonian image of the Committee as being concerned only with candle ends, still less concerned to preserve the image, which was perhaps intended by Gladstone when he set up the Committee, of the severity of our approach to anything that goes wrong.

We do not want to become, and I do not think that any member of the Committee has become, expert in retrospective judgment and hindsight. Our function is to encourage foresight and care in officials, not to discourage flexibility because of the feeling, if something goes wrong, that they would have been wiser to stick to more staid, if less justifiable, rules.

The Committee must go on with the development of its role, which has already taken place over the years, not to be a purely negative influence on the Civil Service. Members of the Committee will want the Civil Service to know that, in judging what has happened when things have gone wrong, we place ourselves emphatically in the minds of the officials themselves, not with a view to discouraging flexible initiatives, not with a view to encouraging the play-safe attitudes which can always ensure that someone does not come before the Committee. It is in this spirit that we should continue to do our work, which is still one of vital importance to the public interest.

5.50 p.m.

Mr. Kenneth Clarke (Rushcliffe)

It is a pleasure to take part in a debate opened by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). It is true to say that a 50-minute speech from him does not seem as long as it does from other Front Bench speakers in most other debates. Sad to say, I do not intend to follow his subject matter because, as he himself said, each of the 630 Members of this House who, no doubt, give close attention to the report, singles out the particular part which attracts his interest. The part of the report which drew my attention was that on the social security system and the light it throws on and the information it gives about some of the practical difficulties and some of the failings which occur in our system of attempting to alleviate poverty.

I realise the background to this part of the report and the circumstances in which the Departments of Health and Social Security and Employment are trying to wrestle with the difficulties of poverty. We are dealing with the front line of the battle against poverty. Sometimes it is rather a sordid front line, set in bleak offices throughout the country, despite the attempts to brighten and improve them. There are certain situations in which harassed staff are dealing with a large number of claims—and we all know the failings that can lead to. But many of us suspect that the system misses many of the poor and does not help them to the extent to which they are entitled, and at the same time helps, either by error or abuse, people not entitled to it. This is a difficult subject always for anyone to venture into in a speech and the report gives a valuable background to the delicate issue involved.

The report deals in one section with the extent of fraud and abuse of the social security system. A lot of really civilised politicians on both sides rather tend to avoid this embarrassing aspect of our system. Unfortunately, it is sometimes taken up by would-be hatchet men, who use these allegations of fraud and abuse in the hope of attacking, discrediting and destroying the whole system. Partly because there is fear that this is what these people are doing, others tend to over-react and to regard any criticism of the system as reactionary and absurd. Unfortunately, this does not get us very far. Least of all does it satisfy the public, who hold wide beliefs that the system is abused and would like an assurance that the Government are doing something about it.

The allaying of public disquiet, which was widely expressed at the last General Election, is something to which every Government have a duty to pay attention. Belief that fraud is going undetected leads to a disrespect for the system of social security which sometimes affects the status and self-esteem of those people who have good and deserving reasons for trying to obtain benefits to which they are entitled. The Government pledged that they would try to cut down abuse of the system. That pledge is going to be difficult to carry out with humanity and without producing undesirable results, but it is nevertheless one which the Government have a serious duty to face.

My right hon. Friend the Secretary of State for Social Services has appointed the Fisher Committee to inquire into the subject. I hope that its report will give guidance on the fundamental problems—first, how to make sure that any policing of the system does not lead to enormous expense in investigations, whereby we would be spending more money in investigating abuse than the amount saved in preventing it, and, secondly, how to avoid any exposure being embarrassing and humiliating to the vast majority of honest applicants, who need help because they are in trouble. As the civil servants who gave evidence to the Public Accounts Committee recognise, there can be no question of just waiting for the Fisher Committee to report before we do anything. There are areas where more action is called for now and which we could usefully consider now.

The Public Accounts Committee's Report gives a useful indication of the scale of fraud and abuse in the system, and it gives the lie to those who so overreact from their liberal and humanitarian viewpoint that they pretend that the criticism is all got up by the Press or invented. Evidence shows that 25,000 cases of fraud were detected by the 300 or more investigators of the Department and that 15,000 of these were in the supplementary benefit sector. It is important to publicise to the general public these successes which the Department achieves now in finding out so many of these cases and prosecuting where it is worth while. It is simply not true that all cases of deliberate dishonesty go undetected and unpunished. But there are certain categories of perhaps widespread abuse where comparatively little is being done.

One of these is the category of the deserted wives who find themselves obliged to seek supplementary benefit. Some of the worst difficulties are experienced by the single woman left coping with children. She is often in the greatest need in our society and is normally deserving of great help. She is usually in that position through no fault of her own. It is, therefore, unfortunate that the estimate in the report shows that, of the benefits at present paid out to people who put themselves in this category, almost 7 per cent. are suspected to be fraudulent, in that genuine claims are not being made, because the wife has either not actually been deserted by the husband or is having her family maintained by someone else to whom she is not legally married. Seven per cent. is a high proportion—I estimate that it is one in 14—and is not insignificant.

One comes across flagrant cases from time to time. I remember a case in the law courts when a wife, who had come before the court to obtain a matrimonial order on the instructions of social security officials, attended with her husband to discuss possible grounds and to arrange that the hearing should be held at a convenient date for the appropriate order to be made.

There is much largely undetected deliberate fraud, and it is no good, in facing the problem of investigation, saying that it is distasteful to investigate the way in which women are living. It might be distasteful if the investigation were conducted in the worse sort of private detective way, but nevertheless there is fraud.

Another category is the false claims made by men receiving sickness or unemployment benefit for wives who are in fact working. Again this is difficult to investigate without causing embarrassment to honest claimants. But over £1 million a year is being paid out to dishonest claimants in this category.

Having indicated the scale of the problem, what is to be done about it at the moment? This aspect is dealt with in Question 3089 and onwards in the report. I accept the difficulties here describbed—the problem of staffing because of the ceiling set on the Civil Service at the moment, the need for skilled and experienced staff for this work, and the problem of cost effectiveness in perhaps spending more money investigating than we save through investigation. The Department frankly acknowledges that it is under-staffed for this work and is not doing enough to cut down the area of abuse. But I do not think that this is only an argument that it might cost more than would be saved by employing more investigators. I think that we should look at the psychological effect in trying to cut down deliberate dishonesty and abuse.

The Department should be allowed to spend more money on this aspect of investigation. It must be able to recruit the staff to carry it out because it is important to get across to the public that the scale of investigation is being increased, that abuse and fraud are being eliminated, so that the public can have confidence that the help which is being given at ever-increasing cost to the taxpayer is going to the right people.

Mr. Harold Lever

Will the hon. Gentleman acquit me of discourtesy if I absent myself for a minute or two in order to ascertain whether I am sitting on the right bench?

Mr. Clarke

I will not think it discourteous. I must say that at certain stages of the right hon. Gentleman's speech I myself wondered whether he should have been speaking from the Opposition Front Bench because I welcomed certain aspects of what he said on the Rolls-Royce, Beagle and other affairs.

I now turn to deal briefly with what strikes me as even more serious than fraud and abuse, and that is the failure of the system due to sheer error and mistakes by the people who administer it. One thing that comes out of the report is that in 10 per cent. of the cases in which people receive supplementary benefit the staff get the amount of money to which they are entitled wrong. This is not only over-payment. It is about over-payment and under-payment equally. In one case out of ten, through no dis- honesty,through no abuse, but simply because the staff get their calculations wrong, some people get more money than that to which they are entitled if they are strictly assessed. What is more serious, bearing in mind that those who apply for supplementary benefit are below the poverty line and want to be brought up to it, is that because someone makes a mistake many people receive less money than they ought to get, and to which they are entitled. It is estimated that up to £1 million is under-paid to applicants for social security benefit.

The difficulty is that of the staff making errors, and when that leads to serious consequences I think that we have to look at the reasons for those errors and consider what can be done to put matters right. The main point is that the staff are inexpert because there is a tremendously high turnover of staff. That is hardly surprising, when they work in such unattractive conditions, and have such comparatively poor status and pay that they have to be dedicated people to do it.

Whatever incomes policy is being applied, if it is found that the high turnover of staff is reaching such a point of inefficiency that one case in ten is being assessed wrongly, that, surely, is a good reason for improving the status and pay of the staff to try to get more of them to stay on and acquire the necessary knowledge and experience.

What worries me is to learn that a mistake is made in one case out of ten, and that Members of Parliament and a few social workers are the only people who take up individual cases. Most people who receive money are probably blissfully unaware of receiving incorrect amounts and that they are entitled to more money, or, even more blissfully, are unaware that they are receiving more money than they ought to get.

Another reason for the 10 per cent. of errors is that the system for dealing with poverty is so complicated. The calculation of supplementary benefit, and how much someone is entitled to, is extremely complicated. It not only baffles the applicant, who cannot understand how the figure he is paid is reached, but is a maze for politicians and social workers to follow when they are trying to check on any case.

A system which is too complicated, which is administered with such a poor standard of efficiency, and which produces such inaccurate results leads one to ask how the whole system can be changed to provide a more efficient and more simple method of alleviating poverty.

This leads me to a matter which comes closer to the province of my hon. Friend the Financial Secretary than anything else that I have said so far. One of the things which the report leads me to wonder is not only whether we should not wait for Fisher before deciding how to deal with abuse and fraud, but whether we should speed up the consideration of negative income tax as an alternative method of trying to deal with poverty.

There are many reasons for advocating a negative income tax in one form or another as an alternative to the present system. I hope that when the review is finished—and it ought to be finished more quickly than seems likely from recent pronouncements—one of the considerations which will be given to the possibility of negative income tax, is that such a system would provide less scope for fraud and abuse, and would also reduce the number of inaccuracies in the payment of benefits to those who are the most deserving in our society.

The report deals in detail with figures, and gives statistics of fraud, abuse and inaccuracy in the payment of benefits. The people with whom we are dealing are among the poorest in our society. The honest ones, the overwhelming majority of those who receive benefits, are those whom all hon. Members would most wish to assist with public money. To those recipients of benefit the extent of fraud, abuse, error and inaccuracy on the scale that exists is a matter of grave concern, and must be a cause of some hardship and difficulty. I am grateful to the Committee for this part of its report, and I hope that the material contained in it will be of assistance when we go on to improve the effectiveness of our social security system.

6.5 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

I have no great desire to deal with the part of the Report dealt with by the hon. Member for Rushcliffe (Mr. Kenneth Clarke). I do not wholly agree with the hon. Gentleman's severe strictures. Nevertheless, I welcome what he said about the Committee having given tacit approval to the method being used—perhaps not as successfully as the hon. Gentleman might have wished—to overcome any fraud being perpetrated with regard to social security benefits.

I want to follow a little along the lines indicated by my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) because they were valid in their contemporary context, particularly with regard to what is happening in one or two Scottish concerns.

As a new member of the Committee, having been appointed to it some way through its deliberations during the last Session, to me one of the most interesting things about its investigations was to see my right hon. Friend in his capacity as Chairman of the Committee on one side, and the noble Lord, Lord Goodman, in his capacity as Chairman of the Arts Council on the other. I never quite knew which was the donor and which was the knife. At all events, I found it a most illuminating and edifying educational experience.

My right hon. Friend touched on one or two issues of supreme importance, and he mentioned Upper Clyde Shipbuilders. The position at U.C.S. is not on all-fours with what happened to the Beagle Aircraft Company, because that was not a wholly-owned Governmental concern. It was a concern in which the Government owned about 48 per cent. of the equity. Nevertheless, there was a substantial Government subvention and shareholding in that operation.

Although I put my name to a Bill introduced by my right hon. Friend the Member for Bristol, South-East (Mr. Benn), I took the view that U.C.S. was virtually a public company and therefore the Government had an obligation, in operating that type of company, to ensure that their representatives, albeit one stage removed, on the board of directors of the company gave them adequate and full information about what was happening.

I know that the "Governmental director" on the board was, in effect, the representative of the Shipbuilding Industry Board, and one of the great mysteries surrounding U.C.S. was the relationship of that director to the Department of Trade and Industry. If the Government subvent industrial concerns in this way in the future, the House must be given much more information about the terms of reference given by the Government to their representatives on the boards of such companies.

I am unable to quote them, but I was astounded to receive the information that I did in reply to Questions which I put to the Department of Trade and Industry. The replies gave no indication that the representative of the Shipbuilding Industry Board at U.C.S. had any clear terms of reference.

This is quite alien to anything I used to inculcate into my students in relation to getting clear-cut lines of communication and terms of reference. I was further astounded to find that the Department did not necessarily operate through the directors of U.C.S. but sometimes operated through the chairman of the company.

I do not place too much weight on this, but if the Government are to have an equity interest in a concern and if, as my right hon. Friend the Member for Cheet-ham said, the liabilities may be difficult to ascertain in the medium and long-term then the lines of communication between the Government and the concern must be very clear indeed. Although the Committee of Public Accounts and Treasury Minute did not go into this in detail, it is obvious that if the Government are to subvent industry by taking an equity interest, this issue must be clarified.

Commenting on investigations which the Committee of Public Accounts undertook into cases of the subvention of drilling rigs and subvention by the investment grant procedure, the report states in paragraph 30 on page xxiii: Your Committee observe that, in the two classes of case described … involving transactions between associated companies, the Department exercised their discretion in favour of allowing costs which were enhanced by the intervention of the subsidiaries, mainly on the grounds that the intervention was a normal commercial practice and that the price involved in the transaction was on an arm's length commercial basis. Your Committee, however, are not satisfied that the arrangements made between the associated companies were not influenced by the prospect of obtaining higher grants". I am not necessarily putting a view unequivocably in favour of investment grants and in total opposition to tax- based allowances, but one objection which hon. Gentlemen opposite have made to investment grants is that on occasions they have gone to concerns which were unprofitable and that, by this means, the Government were throwing good money after bad. Be that as it may, no matter what system of investment incentives is offered to industrial concerns, it is in the interests of those concerns to find ways round them and operate investment incentives in a manner most beneficial to them.

I question the efficacy of the procedure which we adopt in this House and the meaningfulness of that procedure in contemporary circumstances. We have rightly moved away from the counting candle ends view which the Treasury used to apply and we now adopt the Plowden philosophy of trying to get value for money. But in contemporary circumstances, particularly when dealing with multi-national companies, we must remember that these concerns operate their affairs in such a way that they can often dodge the payment of tax on profits earned by any of their companies. In other words, they can operate their procedures so as to avoid payment of tax in that way. On the other hand, if investment grants can be obtained, they are able to obtain them.

I am questioning whether the Committee of Public Accounts as at present constituted can get behind the ideas and the performance of particular companies to see their motivation. Perhaps this is too difficult to do or too idealistic. We questioned the accounting officers of the various Departments but we were rarely capable of being able to go behind the scenes, as it were, and to get the observations of the concerns which the Government are subventing.

I welcome the initiative of the Select Committee on Expenditure in this regard. We in the Committee of Public Accounts may find that that is the direction in which we shall be required to go, and I hope that considerable attention will be paid to the reports of this excellent Select Committee on Expenditure.

Perhaps I can show what I mean by saying that we need to go behind the ideas of these companies by referring to the examination of accounting officers for the Navy, and the investigation of unrecorded items and items in the hands of contractors. I put a question about this to one accounting officer and I was told in reply: we intend to introduce a new system to deal with this. As accounting officer, I now have several million pounds worth of Admiralty property which is not on my loan records. I recall that being said because I met the accounting officer in question informally on a subsequent occasion; it was at the opening of the covered berth at Yarrow shipyard. That disclosure to which I referred was made somewhat off the cuff.

Is a great deal of this equipment still out on loan? Is any of this machinery now in the factory at Alexandria, which was formerly the Royal Naval torpedo factory, commonly known as the Argyll Works and now in the ownership of the Plessey Company?

I ask this because last Friday I was in that factory with several of my hon. Friends. As I looked at the machinery I saw some which had a specific function; it was not the usual lathe or drilling or planing machinery. I saw five machines which I imagine were all Admiralty designed to wind armature cores for a specific class of motor.

I am very sorry that I cannot bring the correct information to substantiate it in writing, but I understand from discussions that the Plessey Company is very anxious to get hold of this machinery, to remove it from Alexandria to its works in Ilford. This machinery is required to manufacture the Mark 24 torpedo. I am asking for some investigations to see whether that machinery is owned by the Plessey Company or is on loan.

Behind this relationship, in terms of accountancy and Governmental practice with industry, I understand that the sale price for this huge concern at Alexandria was £650,000. I cannot estimate the break-up value of such property, but I would hazard a guess that valuation of that plan and machinery is well over £650,000.

Perhaps, at our next meeting of the Public Accounts Committee, we could go behind the relationship between Government and industry, when the Government have to subvent private industry in this way. I formed the view from a long discussion with the people in this former Ministry of Defence establishment, that the company moving in—Plessey is a multinational company—gave the impression that they were doing, the Government a favour by taking over this concern.

I have read with interest the balance sheet of the company which says, on page 12: Nowhere was the order fall-off more drastic than in our enlarged numerical control company, where a 50 per cent. decline in the United Kingdom business and a 30 per cent. overseas forced the closure of the recently acquired Argyll Works in Scotland. This was a harsh decision for us to have to take and, I recognise, a grievous blow to the Scottish people at a time when their hopes of other work are small". That is certainly a truism. What was harsh for the company is much more harsh for the men involved.

I wonder whether, in drawing up this type of contract—I am not privy to the type of contract which was passed between the company and the Ministry of Defence—the Government are right to tell a company that it may close at will something which was built up by the nation. The only thing which has prevented this—and, I suggest, the only thing which has prevented the moving of some machinery which still belongs to the Ministry of Defence—is the action of some men on the shop floor. This is disastrous. It is not in keeping with the type of contract to which I would want to be a party that one should give the impression to a public company that it is doing one a favour by taking over assets whose break-up value would be much more than the £650,000 which it claims.

I know that this is embarrassing for Plessey, because it is willing to sell or participate in a new form of organisation with other concerns, without raising the price which might be bid for the assets on that site. I question this whole procedure. We are dealing not with national companies but with companies which can switch their investment. They can so involve their investment decisions on an international basis that the people in a locality suffer great hardship: an investment decision is taken remote from them and in a manner which disturbs their future well-being.

I want to describe some of the problems of investment decisions, which are examined in great detail in this book, "The Structure and Growth of the Scottish Economy", by Professor Johnston and others. He says on Page 342—

Mr. Onslow

Which Professor Johnston is this'?

Mr. Douglas

I apologise. This is Professor Tom Johnston, Professor of Economics at the Herriot Wall University at Edinburgh. There are other Professor Johnstons and I have a suspicion which one the hon. Member has in mind—but he is more a monetary economist than the one I am quoting. Professor Johnston says on Page 342 of this book: Regional measures have sought to stimulate capital formation, to affect both the quantity and quality of labour supply, and technological advance has been pursued through the efforts that have been made to promote the growth of such new industries as electronics. All the measures deployed with a view to influencing the regional supply of factors have demonstrated an interest in seeking to improve Scotland's resource position and her comparative advantage. We have identified and tried to quantify them in this study. Nevertheless, disquieting questions have kept recurring as we proceeded. Why has the tempo of change not been more rapid? Why is Scotland still out of step with the national average? We have done a lot in terms of trying to assist companies by either giving them public assets, at what I consider to be a relatively low price, or assisting them with investment grants and in other ways.

In looking at the rôle of the Public Accounts Committee, should we not develop a new technique, a new rôle in terms of the financial analyst approach to public expenditure? We cannot look at the operations of companies in which public money is used. We may have the accounting officer who can account strictly by his balance sheet, but we have very little or no opportunity to get behind all the public expenditure in terms of the investment decision. We have no opportunity to consider the effects of public expenditure, and investment decisions which flow from that, on the men in particular regions.

I hope that I have not taken too long, but these are important points. I will try as a member of the Committee to find ways, with the assistance of other members, particularly my right hon. Friend the Member for Cheetham, the Chairman to see that some lessons are drawn by the Committee in the coming Session.

6.28 p.m.

Mr. Tom Boardman (Leicester, South-West)

The success of the Public Accounts Committee was due to two factors. The first, as the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) said, was the work of the Comptroller and Auditor-General and his staff. I would echo the right hon. Gentleman's praise of Sir Bruce Fraser. The second factor was the chairmanship of the right hon. Gentleman himself, who gave us both an entertaining and instructive, and, I hope, a useful, session.

The right hon. Gentleman's main theme was the Beagle aircraft. If I develop from that point, I do so because, as the right hon. Gentleman said, there are many lessons to be learned from it. It was not the amount involved—£8½ million, which is a not insignificant sum, although it was relatively small in relation to many of the amounts discussed. Neither do I wish to raise it because of the party political issues which have been discussed in this House from time to time during the incidents which gave rise to the acquisition and subsequent downfall of Beagle. It illustrates the problems that arise from Government intervention. Whether we like it or not, there is Government intervention in industry, and on some future occasion there will be further Government intervention, by one party or the other. We should see what lessons can be learned from this.

I shall not go, blow by blow, through the sorry incident of Beagle, but there are some facts which came out in the evidence and which were not referred to in the House but which should be mentioned as illustrating the sort of faults which arose in that case and which we should avoid in future.

The episode began with the acquisition in July, 1966, of the Beagle Company in a way which needed, but did not secure, the approval of this House. There was an interval of two years between the time when the Government undertook to acquire the share capital, guaranteed the amount to be paid, and guaranteed that it would cover all losses in the intervening period, until parliamentary approval was given. They had taken on all the commitments and obligations that would have followed the acquisition of the share capital of the company. This could not be acquired because parliamentary approval was lacking. I accept that there must be many occasions on which the Government have to take action and ask for approval afterwards. In this case there was a long delay of two years, in which the company appeared to have deteriorated, before the matter came to the attention of this House.

The Government having made the acquisition—the right hon. Gentleman made an indirect reference to this—which we must assume was made on careful investigation of the facts and figures, and having got themselves into the saddle, there was no post-acquisition audit which would, by normal commercial standards, have been the appropriate course to take.

Any large company having acquired another company would periodically, and normally as soon as possible after it was in the saddle, have had a post-acquisition audit to see whether the forecasts and assumptions on which the purchase had been made were supported by the facts of which it was then in full possession. That was not done in this case.

Turning to the point which the hon. Gentleman the Member for East Sirlingshire (Mr. Douglas) has touched on, a Government nominee was appointed a director to "safeguard the interests of the Ministry". This was in the interval between July, 1966, and July, 1968, when the acquisition was completed. It begs the question, which the hon. Gentleman himself begged, of what is the responsibility, the role—what kind of animal a Government nominee is. We are accustomed to hearing that a certain person has been nominated to a board to represent some sectional interest, but there can be no such representation. A director is one of a board of directors with collective responsibility. It is dangerous particularly for a Government to claim that they are entitled to put someone on a board to represent their interests, interests which are presumably in conflict, or could be in conflict, with the interests of other shareholders in the case of partly owned companies or other duties which a director should discharge. A director has collective responsibility. He cannot say that he is responsible for only one section of the shareholders, or that he has a primary duty to one particular group not shared by his fellow directors.

There requires to be clear thinking on this point. Some of the problems which have arisen in subsequent cases have shown that reliance has been placed on the so-called Government nominee or representative director on the board. Criticism has been made because he has not run back to his sponsor and told him the facts. It begs the question whether any director who represents a sectional interest is entitled to go to that section and tell it facts not known to all the shareholders.

Mr. Douglas

I am sorry to interrupt, but the point I questioned was the fact that Mr. MacKenzie, who was a member of the S.I.B., went scurrying to the Department of Trade and Industry on 14th October to tell it his view of the facts. That triggered off the crisis.

Mr. Boardman

I wanted to avoid widening the discussion to deal with Upper Clyde and Rolls-Royce and to go on to develop the general principle on the facts of which we have evidence in the Beagle case. How this can be developed is a matter which the House can discuss.

A director's responsibilities are laid down under the Companies Act. We should be cautious before we nominate someone as a director and expect him to have a special duty.

There was a further feature in the Beagle case which caused me concern. The Government having acquired their control and appointed their directors, and having put in their financial management, there appears to have been a lack of prudent commercial appraisal and, despite the completion of monthly and quarterly forms and the holding of periodic meetings, the writing on the wall, which I would have thought was to be seen, was missed. It was not until the disaster struck that anyone responsible appeared to recognise the consequences of their financial policy, consequences which should have been apparent a long time before. That is a matter of management.

A further factor which came to light and to which I would draw attention was the way in which the Government put in the money. It was initially said in Committee on the Industrial Expansion Bill in 1968 that further capital was required within the company and that this would be put in by Government in the form of share capital. But when the Government found that further money was needed they did not subscribe further share capital; they made additional loans. When it was asked why this had been done, the Department said that the money would have been subscribed to shares if the Government had been satisfied that the company had a future and would trade successfully. The inference—in fact it was stated—was that the Government would subscribe in the form of share capital only if the company was solvent. If the company were to become insolvent, it wished to have the priority of loan capital above share capital. This is most relevant to the argument which the right hon. Gentleman put forward about safeguarding the position of the creditors. Having publicly stated, in so far as the minutes of the Standing Committee are public documents, that all further Government capital would be subscribed share capital, and then to put in several million pounds as loan capital, so that when the receiver was appointed that additional Government subscription ranked with the creditors instead of below them, was a course of conduct which, had it been carried out by gentlemen in the City, would I am sure have been described as some form of swindle. I suspect that the original statement as to how the Government would subscribe the additional funds would have been named as a fraudulent prospectus.

When the company went bankrupt, was it not considered straightaway that this would make a difference? It was not said that the creditors would be paid in full and it was not said that the money the Government had put in by way of loan would be deferred. Hon. Members will recall that there was an interval of many months, about four, during which the Government of the day were unable to say whether the creditors would be paid in full. At one stage the Government said that they were considering the legal implications to decide whether it would be possible for the creditors to be paid. That is a course of conduct which it is quite improper for a Government Department to pursue.

The creditors were paid in full but there was some doubt whether they would be, and that brings me to the Treasury Minute upon which the right hon. Gentleman has commented. I share his views. It is skilfully drafted and avoids what I believe is the main issue which should be faced by Government. It must be said quite clearly, when Government becomes involved in investments of this nature, whether or not they accept liability beyond that which would be incurred by an ordinary shareholder. In this case, the public looked upon this as if the Government had taken the company over. In the minds of creditors, many of whom were my constituents, and many of whom approached me and told me of their attitudes, the company was in the same position as the Coal Board or the Steel Corporation. These people looked upon their money as being safe and secure. They were horrified, shocked, when they were told that it was a limited company and it depended on the proceeds of liquidation whether they would get their money and that in any case a large part of the money which the Government had put in was on loan and ranked equally to the company's obligations to them. At that time the Government took the line that they were unsure, in the light of legal advice, what the position would be. The Treasury Minute has certainly not clarified this for the future.

Whenever Government make an investment, whether into a wholly-owned company or whether they are making a substantial investment into a company and are know to be, this knowledge of Government participation lulls creditors into a false feeling of security. This is something about which the Government should think more deeply. In future it should be made clear whether Government have accepted unlimited liability, or the extent of the Government commitment should be clearly set out.

Mr. Harold Lever

I think the hon. Gentleman would welcome an intervention to allow me to qualify what he has said. He appears to have said that if the Government make any investment in a company they must issue notice that they are not taking liability for creditors, on pain of meeting these creditors. He surely would not say that people give credit to B.P. on the strength of the Government's shareholding, quite apart from its own strength. It never occurs to them that the Government would be behind it merely because of their shareholding. A great deal depends on the activity of the Government in relation to the company.

Mr. Boardman

I am obliged to the right hon. Gentleman. I think my statement was too sweeping. If we take the case of Beagle and the facts that we know about that, where it was known to those who were trading that this was a "Government company", then it is different. There are at the other end of the scale those companies in which the Government may have investments in one form or another, the extent of which may not be known to the creditors and those who trade with it, or, if known, may be irrelevant. There is an area between these two extremes, and I find it difficult to draw a dividing line. This requires further thought. Beagle provides the opportunity for some fresh thinking on a number of such factors.

A general point which disturbed me in the evidence which came before the Committee, a point developed already by the right hon. Member, was the position of the sub-contractors who were in something of a monopoly position and yet were apparently able to resist demands for information and to continue to supply on prices which they fixed. The right hon. Gentleman has made the point, which has been carefully considered by the Treasury and the Minute refers to it.

There is a further point involving the bacon industry, which was investigated. It received £42 million over four years, yet the Ministry did not require the firms which have been supplying statistics to produce any breakdown of their costs and profits attributable to this operation. This disturbs me considerably. There was no breakdown of operations into the parts appropriate to the subsidy and those parts inappropriate to it.

It appeared in evidence that it was thought to be difficult to make this division which would be essential in assessing the level of subsidy. I would not have thought it unreasonable to tell a firm which expected such a subsidy that it must justify it by producing proper costings to show the figures upon which it based its claim. I hope that the discussions now in progress will enable that to be done.

I recognise that the only matters which come into this report and which come before the Public Accounts Committee are those where questions of doubt arise. The House will no doubt bear in mind the thousands of other matters which go on daily and reflect upon how small are the number with which we have been concerned.

My first year's experience on the Committee is that it has a good disciplinary effect, and, while no doubt over the years the processes will be improved and developed, I have enjoyed my year, and I hope that the work which the Committee has done will be of use to the House.

6.50 p.m.

Mr. John Smith (Lanarkshire, North)

I do not propose to follow the hon. Member for Leicester, South-West (Mr. Tom Boardman) in his interesting discussion about the way in which the Government are involved in the activities of private companies. I prefer to direct the attention of the House to the decision by the Government, which is noted in the report of the Committee, to discontinue the payment of investment grants on 27th October, 1970. This decision has had serious implications for the development of regional policy, and the Committee discuss in the report one or two problems which arise from the discontinuance of investment grants.

The House will recall that under the previous Government there were two major arms of development area policy. One was investment grants, introduced in 1966, which made a 20 per cent. grant available to manufacturing firms undertaking capital expenditure in non-development areas, and a grant of 40 per cent. on capital expenditure on plant and equipment inside development areas.

As is noted by the Committee, on 27th October last year the Government replaced this scheme by a system of differential tax allowances, whereby firms in non-development areas could write off 60 per cent. of their capital investment against corporation tax in the first year, while firms in the development areas enjoyed free depreciation and were able to write off 100 per cent. of their capital expenditure in their first year. This system was further amended in July, 1971, when the Chancellor of the Exchequer allowed firms in non-development areas to write off up to 80 per cent. of their capital expenditure on plant and equipment in a one or two-year period.

It would not be in order for me to discuss the basic argument whether the investment grants system was an intrinsically better system than the free depreciation system, on the grounds that it benefited companies not making immediate profits and was a much more direct inducement to invest than the system of tax reliefs. Many hon. Members on this side of the House believed that the change was made more from a desire to reduce public expenditure and an aversion to Government money being given to private enterprise than from a desire to revise regional policy.

I draw to the attention of the House some recent developments which, directly or indirectly, are speedily eroding the value of such regional development incentives as presently exist. They are arising partly because of the form of these incentives. In the July measures announced by the Chancellor of the Exchequer the proposal to give 80 per cent. free depreciation to firms in non-development areas reduced the differential advantage for firms in development areas. In addition, the decision earlier to reduce the corporation tax from 45 per cent. to 40 per cent. diminished the value of regional development incentives in the form of tax allowances.

The result has been picked up recently in research carried out by Dr. Rhodes in the Department of Applied Economics at Cambridge University, who noted that the differential value of the free depreciation system for a firm in a development area over a firm in a non-development area in which £100 invested was worth about £12 under the old system had been reduced to about £2 per £100 under the new system. This is dramatic evidence of a serious erosion in the value of the incentive, which has been caused basically by the decision to move from investment grants to free depreciation and by various other matters I have mentioned which followed as a result of the Government's development area policy. We should bear in mind that the whole key to the notion of development areas is that there should be a substantial differential between a development area and a non-development area, otherwise the policy of assisting the development areas is not likely to have a very important effect.

What is more, when one looks at the whole question of development area policy other things are taking place which make matters even more serious. One of these is the atmosphere in which decisions are taken in the knowledge that the regional employment premium is to be phased out in 1974. The knowledge that it will not be in existince in 1974 means that many businesses discount it completely in their future planning, because they tend to take their planning decisions over a longer period than from now until 1974. That is an unfortunate feature of this decision, and, in addition, there has been no announcement by the Government of any other form of labour subsidy to take its place after 1974.

The regional employment premium is a fixed amount, £1.50 per employee, and it is becoming worth less each year in the light of inflation. It is, therefore, reducing in value as the amount of the wage bill which the firm has to meet is increasing. That has been a feature of the last year or two, so that the value of the R.E.P. is scaling down as inflation increases. There is now an urgent requirement for the Government to announce either that the R.E.P. will continue beyond 1974 or that another form of labour subsidy will be introduced at that time. This would be a great help in ensuring that we have an effective regional employment policy, and it would also have the advantage that the R.E.P. is one of the few regional development aids which is of benefit to existing industry as well as to incoming industry.

There has recently been a good deal of complaint by companies in special development areas that they are not given the same assistance in their struggle to retain employment as incoming firms are given to bring in new employment. The R.E.P. is a form of assistance which benefits both equally. Although the cost may be fairly high, I counsel the Government to think seriously about announcing either that it will not go or that it will be replaced by something of equivalent value, in the meantime perhaps increasing it to take account of the influence of inflation upon its value, and to show that the Government are serious about wishing to assist industries struggling to keep their labour force.

This problem is particularly common in Scotland, and an immediate objective of Government policy should be to try to hold the line in Scotland to prevent the unemployment situation becoming even more serious.

I know the Government will plead that there are other features of their regional development policy, such as the special development area provisions which cover, for example, areas like West Central Scotland, but these have not yet borne much fruit, and we may have to wait a considerable time before any advantage is gained from them. Certainly these policies would have been much more effective if they had been set in the context of an investment grant system rather than in the context of the system of tax allowances which the Government produced in its place.

There has been an increase in public expenditure involved in the public works programmes recently announced by the Government. There is a certain irony in the Government in one year reducing investment grants paid to manufacturing industry so as to reduce public expenditure, and in the next year having to increase public expenditure in the form of public works programmes to deal with the economic difficulties which have to be faced.

Mr. Patrick Jenkin

I do not want to choke off the hon. Gentleman's remarks, but they do not bear strictly on the report which we are considering. On the particular point he has made, it is fair to point out that the Government have all along related the abolition of the investment grants to the reintroduction of the tax allowances, and have consistently stated that the savings in public expenditure are net of any savings in investment grants.

Mr. Smith

I do not follow the hon. Gentleman's last point. Will he repeat it?

Mr. Jenkin

The hon. Gentleman is making the point that the Government cut public expenditure by cutting grants last year to private industry, and are now increasing public expenditure as part of the measures to promote employment. My point is that, according to all the figures and percentages, as the expenditure White Paper shows—and we shall be debating it next week—the reductions in public expenditure last year were all net of the cuts in investment grants. The investment grants were not taken into account as part of the cuts in public expenditure.

Mr. Smith

In the public expenditure White Paper we see that there will be considerable savings for the Government in the future arising from the decision to abolish investment grants. That decision was taken with the future in mind as much as the present. In the present situation the Government should either reinstate the investment grant system or make substantial amendments to their own proposals, which would perhaps involve increasing the regional employment premium now.

There is the difficulty that changing regional development incentives has an unsettling effect upon investment decisions, because firms deciding to invest in development areas are never very sure how long a particular area development area policy will remain in operation. We see the argument that there should not be too much chopping and changing. That is why it was unfortunate that the Government departed, very shortly after coming into office, from a system which I thought was doing reasonably well in building up new industries in the development areas.

My constituency is within the West Central Scotland development area. It is a constituency with a male unemployment rate in excess of 10 per cent. Those of us who come from development areas are bound to look on regional policy as just about the most important thing affecting the interests of our constituents. Scotland has a male unemployment rate of 8.6 per cent. The whole country is acutely conscious of the need for an effective policy of regional development, which is why we look with a great deal of foreboding at the present evidence that the value of regional development incentives has been greatly reduced, both by changes in Government policy and by events over the past year or so.

I urge upon the Government, and upon the Committee in its future deliberations on investment grants, to pay particular attention to the way in which Government policy works out in practice. I have been trying to give some evidence of how the present policy is not working successfully. I hope that the Committee can check the way in which Government policies work out and bring to the attention of Parliament those occasions when it is not working successfully.

The reasons why the policy is not working under the present Government are clear enough. If the Government seriously wish to stimulate investment, to stimulate industrial activity in the development areas, the time has long since passed for a fundamental review of the policies upon which they are embarked. I understand that Lord Rothschild's group is considering a study of regional development policies. I hope that it proceeds quickly and that the Government do not feel restricted by any of their ideological notions when considering the future of regional development policy.

It is perhaps a little unfortunate that it is this side of the House which by and large represents the development areas. As well as an economic division in the country between the better-off areas and the development areas, there is almost a political division. It would have been healthier for the development areas if more Conservative Members had to face the problems there. I hope that hon. Members opposite will not be blinkered in their view by the fact that most of the pressure for change comes from this side.

It is unfortunate to see both an economic and a political division developing between areas which are better-off and those which are less well off. To avoid the division developing further, to have unfortunate social effects as well, I urge the Government to change their policies in the light of a complete review of the effect of regional development policy as presently constituted.

7.4 p.m.

Mr. Cranley Onslow (Woking)

I am not sure what most of the speech of the hon. Member for Lanarkshire, North (Mr. John Smith) had to do with the report, but I will not prolong my speech by inquiring.

I want to make just three brief points. First, I want to add my thanks to the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) as Chairman of our proceedings. I remember particularly his inventiveness. Students of parliamentary oddities may like to read the interesting exchange of evidence on the "Electro-Magnetic Enemy-Killer", which the right hon. Gentleman invented as a hypothetical article but which he has obviously put to good use lately, since we still see him on the Front Bench where lie started the debate.

My second point has already been made substantially by my hon. Friend the Member for Leicester, South-West (Mr. Tom Boardman), who analysed with great clarity and precision what we should be looking at in the Beagle affair and the lessons we can properly draw from it. I was startled to hear the right hon. Gentleman, in his opening speech, interpolate a piece of information which was new to me and the Committee, and which I believe is also new to the House, that it was the intention that governmental intervention in the affairs of Beagle should be only on a transitional basis. I was very interested to hear that, and perhaps at a convenient moment we can hear the right hon. Gentleman further on the subject.

Mr. Harold Lever

What I said was that there were a number of situations which were of a transitional or extemporised character—that is, they were not regarded as central pillars of economic and political policy. I did not imply that it was thought that Beagle would be transitional, certainly not in the sense in which it became transitional. In fact, it could reasonably have been hoped—I do not know whether this was so—that it might get on its feet and then operate independently of Government support.

Mr. Onslow

What a beautiful piece of extemporisation! But what the right hon. Gentleman actually said—the OFFICIAL REPORT will probably confirm that I got his words right—was that this was a situation such as might occur elsewhere, where intervention one day was to be withdrawn. If the right hon. Gentleman did not mean to say that, or did not say it, of course I will say that I am sorry. But this is a facet of the affair that I think is new to the House, and on a convenient occasion I shall be delighted to explore it with him.

Mr. Edmund Dell (Birkenhead)

Perhaps my right hon. Friend intended to imply that the late Government's intervention in Beagle was to be as transitional as the present Government's intervention in Rolls-Royce.

Mr. Onslow

I should be delighted if that were to be so. We might find that the present Government will outrun the previous one by that standard.

I return to the real point. It is wise that on this occasion we should stick to such conclusions as we know can safely be drawn from the Beagle affair and the evidence we have taken on it. The safest possible conclusions to be drawn, which I have advanced to the House before, summarises my view in a nutshell. It is that any private citizen in the City of London who behaved in like fashion would be in dead trouble with the law.

My third point is that, fascinating though it is to join the right hon. Gentleman in speculating about the functions which the Committee might perform in future, and inclined though I am to join him, we are somewhat confounded by Standing Order No. 86, which sets us up. There we find that the Committee is appointed for the examination of the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and such other accounts laid before Parliament as the committee may think fit … But by long-standing custom the nationalised industries are conceded to the proper concern of the Select Committee on Nationalised Industries. Whether we can without further instruction from the House institute ourselves as a Committee to advise the Government on how other activities which are nearly but not strictly nationalised industries should in future be accountable to Parliament, which votes their funds, I do not know. It would be interesting to do that. Perhaps we might first have to redraw the demarcation line between ourselves and the Select Committee on Nationalised Industries, or have it redrawn for us, or we might usefully consider whether we need two distinct committees.

I am conscious, and the right hon. Gentleman may well be equally conscious, that Parliament probably has about enough committees and would not mind cutting down in number. The time to carry out their proceedings adequately, the ease of obtaining a quorum and, indeed, the amount of manifest parliamentary enthusiasm for debating their affairs, are all rather less than in Glad-stone's day. That is not necessarily a bad thing. We move on. If it is correct to describe the P.A.C. as the most influential of the Select Committees, and its reports as the most authoritative, at the same time we must try to entitle ourselves to that lofty description by moving on with the times.

So I ask that somebody should seriously consider whether there is a continuing need for this kind of Public Accounts Committee. In our grandfathers' day it was no doubt an enormous comfort to have a broadsword hanging over the ancestral fireplace, but now we are too puny to lift so large a weapon even if it retains its cutting edge. In a day and age when government is steadily becoming more professional administratively we amateurs must ask ourselves whether this Committee, Parliament's great old broadsword, is still as effectual as it used to be. I will say no more now—I have had only one Session as a member of the Committee and no doubt I have asked as many useless questions in that time as any other member of the Committee and probably more. I may be slightly wiser at the end of the next Session, but it is not too much to ask at this stage that we should consider the Committee and its function with a slightly critical gaze.

Mr. Harold Lever

I do not know whether the hon. Gentleman thinks there is any dubiety about the Commiteee's right to investigate appropriations of money on any enterprise, whether it be Beagle, U.C.S. or Rolls-Royce, which do not fall within the purview of the nationalised industries, which by courtesy rather than by strict rule we allow them to investigate.

Mr. Onslow

The right hon. Gentleman is leading me to prolong my speech, which I do not want to do. We exist to serve Parliament. If Parliament wants the task to be carried out, it would be as well that we should have a formal instruction to that effect rather than invent new tasks for ourselves. Meanwhile we might consider whether it would be most effective for us to undertake new tasks in the old way or whether some new machinery might more effectively be evolved.

7.12 p.m.

Mr. George Cunningham (Islington, South-West)

This is the first debate on the Report of the Public Accounts Committee in which I have taken part. I find it a curious kind of debate, with each of us talking about his own particular obsession. With the exception of my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) and the Government's spokesman, each of us waits for the previous speaker to resume his seat so that we can get on with our own speech.

The hon. Member for Woking (Mr. Onslow) gave a clue as to one direction in which the work of the House in overseeing expenditure should go. We should get into the habit of using such specialist committees as the House reluctantly provides itself with to perform the job of overseeing expenditure before the event—and in some ways after the event.

The Public Accounts Committee has a very special function in that it looks at expenditure after the event, and such a rôle calls for a general committee rather than a specialist one. But if we are to have specialist committees on particular subjects, it surely is sensible—if the House of Commons could ever bring itself to do such a thing—for the Public Accounts Committee to pull in one or two representatives from one of the specialist committees to assist the Public Accounts Committee when discussing a Department's affairs.

I illustrate this point by drawing attention to the Committee's comments on overseas aid. I am sorry to say that on the subject of budgetary aid I find myself in agreement with the hon. Member for Woking, but probably for very different reasons.

The Committee and the Treasury in its reply endorse what in recent years has become the conventional wisdom of our aid machine, which is that budgetary aid should be brought to an end as quickly as possible. This surely is far too simple a view of the situation. There are only three or four independent countries in relation to which we provide budgetary assistance as against development assistance, but I think I am right in saying that in not one of those places do we provide only budgetary assistance. We always provide budgetary assistance along with development assistance. If we intend to give to Botswana, say, £2 million development assistance each year, which is probably about the right figure, it makes sense for us to assist the Botswana Government to maintain the quality and size of administration which permits it to make sensible use of that development assistance.

The Committee was concerned with the detailed control and investigation of the budgets of independent countries which, according to present practice, the provision of budgetary assistance entails. Perhaps some members of the Committee would not mind continuing to assist developing countries in meeting the difference between their expenditure and their revenue but would like to stop detailed investigation of the budgets of those countries. In other words, we would continue to provide budgetary assistance but would not demand the detailed control which, with rather rare exceptions, we have always demanded in the past. When we used to vote £6 million a year to Jordan we did not ask for the detailed budgetary control which we now normally ask for any country which is to receive such assistance. I suggest that there is no practical possibility of Britain providing budgetary assistance without asking for, and rigorously examining, the details of the budgets of the countries which we are assisting. I am surprised that the implication in the report of the Public Accounts Committee is that there should not be a degree of detailed control.

If it is suggested that we simply want to get rid of budgetary assistance as quickly as possible and concentrate on development assistance, then we need to know whether this would mean that we shall move away from a system of aid allocations to countries like Botswana Malawi, Lesotho and, in the past, Swaziland—countries which have not been able to meet a reasonable level of expenditure on their own revenue.

I hope that in future whenever the Public Accounts Committee looks at the budgetary assistance programme, it will look at it with rather more sympathy than it does in this report. We happen to be assisting with budgetary help a few countries which have strong historic ties with us and which cannot look to other aid donors for assistance. If we get out of the business of giving them budgetary assistance until they can look after themselves, then nobody else will go in to fill the gap.

Mr. Harold Lever

I hope my hon. Friend is aware that nobody on the Committee, so far as I know, wanted to reduce the assistance given to these countries. They wanted to bring to an end as soon as possible the budgetary aid system. Unless my hon. Friend thinks that that system is better than the other methods used in every other case, he has no complaint against the Committee. If, on the other hand, he thinks that the budgetary aid system should be perpetuated because it has special advantages over other kinds of aid, he should know that not a voice was raised to suggest that we should reduce total aid. Is he so attracted or infatuated by this method that he is advocating that we should extend it, not only to those four or five countries, but to other recipients of aid in replacement of some of the aid which they are now receiving?

Mr. Cunningham

I do not want to quarrel with my delightful and respected Front Bench colleague, but what he has just said will illustrate the difficulty of a general committee which has never had any need or opportunity to go into the details of the aid programme or to make judgments on this matter. My right hon. Friend seems to think that budgetary aid is a device and that we can give assistance for purposes with similar ends by different devices. I am prepared to assert that that is not so. Budgetary assistance is to meet the difference between revenue and expenditure. That cannot be done in India because there is no gap between revenue and expenditure there. There is no need for there to be a gap. India is able to raise from its own revenue the expenditure which it has on what I may call its current account.

However, whatever development assistance we give to Botswana cannot be diverted to making up the difference between revenue and expenditure. If we stop budgetary assistance to Botswana, it has to sack some civil servants. It is as simple as that. It has to reduce administrative expenses and have more development projects. That would be the effect of telling Botswana, "You will get the same next year as last year, but next year it will be development assistance; none of it will be budgetary assistance." We would be telling Botswana to run more development projects, but it would have fewer civil servants to help it to do that. With a country in Botswana's situation it simply is not practical or sensible aid administration to do that.

The second principal item of aid coverage in the report concerns expenditure at the end of one year on a hurried item to use up the Department's total allocation of funds because if the Department had not used the funds in March they would have been lost and could not be spent in April.

I should like to take this opportunity, although understandably neither the Minister for Overseas Development nor the Treasury Minister concerned is present, to retract congratulations which I offered to them for the very sensible innovation introduced a few months ago by which, if the overseas development administration undershoots its target by up to £5 million in future, it will have up to £5 million added to its allocation the following year. Since that idea had been in the minds of officials in the Ministry of Overseas Development for some years and as it was brought into force this year, I thought it right to pay public tribute to the Ministers responsible. It was only when I read this report that I discovered that the Ministers were not responsible and that it was a recommendation from the Public Accounts Committee which achieved this very worthy end. So, having retracted my congratulations to the Ministers, I should like to transfer them to my right hon. Friend the Chairman of the Committee.

I suggest that there is a better way of dealing with this matter. Although it is the ingrained view of the Treasury that finance can be authorised only in annual sections, other countries have more sensible ways of running their affairs. The Canadians, for example, on the specific matter of aid, have got round the enormous difficulty which the Treasury imagines exists by simply realising that there is no problem at all. When the Canadian Parliament, which is based on our constitutional basis, votes aid loans, the money can be expended in that year or in any later year. That encounters no difficulty, technical, political or otherwise, in Canada. When money has been voted for aid grants, if there is anything left in the kitty and at the end of the year it goes into a suspense account, a special account, and is regarded as having been spent. It can be spent from that account in later years in addition to whatever is voted in those later years. I suggest that that would be a more straightforward and sensible way of providing for the necessarily long-term nature of aid funding than this very small device which we introduced this year of allowing up to a £5 million carry-over from one year to another.

It was perhaps a little unfair, though necessary and right, that the overseas development administration was rebuked by the Committee for having gone out of its way to spend the money that Parliament had told it to spend. We now have a dual method of financial control. Although the two methods are drawing closer to each other, they are still very far apart. On top of the traditional estimates method, by which we approve detailed estimates which can be used only for the purposes stated, we have now superimposed the Public Expenditure Survey Committee system, with the approval of the Government, and the noting of the House of programme totals.

What was the overseas development administration expected to do when, at the end of the year, it found itself with £7 million or £8 million free out of its total but without the detailed provision made in the estimates? If we care to rebuke Whitehall for doing what it thought right on that particular point, we are entitled, when the matter comes before the House, to say that the blame also lies with the House for not making more sensible arrangements for approving aid expenditure.

One part of this difficulty arose because some of the approved expenditure which did not materialise in the year in question was expenditure which, under the Treasury's outdated rules, was not subject to virement. I suggest that when the main decision on aid is not the detailed decision to spend this and that bit on aid but is the approval of the total amount of aid to be spent in the year, there is no longer any justification for any item of aid expenditure not being subject to vire- ment.This would get rid of some of the difficulties encountered here.

Finally, I invite the Minister to do what few Ministers of any Government are ever prepared to do: to give his attention to the form of our Votes. There has been some rationalisation of the form of the Votes undertaken on the initiative of Whitehall in recent years, but I suggest that it has not gone nearly far enough concerning aid Votes.

We have two major aid Votes, but both contain items which do not count for control of expenditure purposes as part of the aid programme. Other Votes, not called aid Votes, contain items which do count as part of the aid programme. Therefore, any humble hon. Member like me trying to reconcile the total approved expenditure for aid with the estimates finds it totally impossible to make the transition from one to the other. I beg to state that no one below the level of a Treasury higher executive officer could possibly make that journey from one figure to the other. It may always be difficult, but I suggest that it is possible to make it a great deal easier than it is at the moment. I suggest that we should have one aid Vote which contains all the items which count as part of the aid programme for domestic purposes. This translation from the P.E.S.C. figure to the Estimates figure would be much easier to make. If we did that, I think that we should facilitate a closer interest on the part of hon. Members in the voting of funds than exists at the moment.

It seems curious that in this Legislature, perhaps uniquely in the world, we have an Expenditure Committee which does not look at the Estimates. I cannot see any purpose in having an Expenditure Committee and having it broken down into sub-committees looking at individual Departments if the Estimates are to come before this House in the end without having been referred to the Expenditure Committee. It means that the voting of hundreds of millions of pounds goes through the House on the nod with hardly anyone taking any interest, and in such a form that, if anyone did, it would be very difficult to follow the figures. We have a long way to go before we look at expenditure in this House in a remotely rational way. I suggest that some of these changes would make matters a great deal easier for hon. Members.

7.30 p.m.

Captain Walter Elliot (Carshalton)

As the hon. Member for Islington, South-West (Mr. George Cunningham) said, we tend in this debate to concentrate on points which interest us. For that reason, I hope that the hon. Gentleman will not think that I am discourteous if I do not pursue his arguments.

I am not a member of this distinguished Committee, and inevitably I cannot examine these matters as deeply as the skilful and experienced right hon. and hon. Members who are. However, this debate on the Floor of the House on what is an extremely valuable report gives some hon. Members who are not connected with the Committee an opportunity to look at its work more broadly and talk about our impressions.

Traditionally, all Governments are considered to waste the taxpayers' money. This report strengthens my view that there is some force in that argument. But I suppose that most hon. Members are too busy to worry about water under the Bridge. One hopes that, as a result of the Committee's investigations, action will be taken to prevent similar waste occurring in the future.

The reactions of some Departments to the reports of investigations seem to be remarkably flabby. I have looked at four of the items which the Committee examined in order to illustrate what I mean by that.

I take first the launching aid for aircraft, and I turn to paragraph 60 which deals only with the Trident series, which must be a good many years old. Its estimated launching cost was £49 million, of which the Government contributed £24 million. The expected receipts from that were £5½ million. I do not wish to inquire too much into where the £19 million has gone. I suppose that it has gone somewhere. But we see that the original estimate of receipts of £5½ million is now reduced to £2 million, and that the receipts to date have been roughly £500,000.

In paragraph 67, we see the Committee's comments: in total the prospective recoveries of Government aid fall considerably short, not only of the aid given, but also of the amount expected to be recovered … But it is clear that, even so, the results have been less satisfactory to the taxpayer than the Government intended. When such a big contribution was made by the Government in the first place, I think we ought to have got back something approaching the sum that we estimated, which was a very small proportion of the original amount.

What does the Treasury say about it? On page 6 of its Minute, it says: The Treasury and the Department of Trade and Industry note the comments of the Committee and welcome their endorsement of the Department's proposal to treat each future case on its merits, to seek better terms for the Government and to include in agreements provision for the review of margins. That is what I mean by a rather flabby response to what has been a considerable loss on the part of the Government.

I turn next to that interesting area, the bacon curing industry. In paragraph 70 the Committee says: It was the Government's intention that payments and levies, taking one year with another, should be broadly self-balancing, but between April, 1967, when the stabiliser arrangements were first introduced and 31st March, 1970, total payments to curers amounted to £21,587,000; and further sums of £20.5 million and £15.5 million are expected to be incurred in 1970–71 and 1971–72, respectively. Total levies to 31st March, 1970, amounted to only £56,684. Originally, these were supposed to be self-balancing.

With considerable anticipation, I turned to the Committee's conclusion. It says in paragraphs 80 and 81: Your Committee are disturbed to note that the Bacon Curing Industry Scheme, which was originally intended to be self-balancing, has turned out in the event to involve such heavy net expenditure year after year; it appears that during the first five years of the scheme, the payments, so far from being balanced by the levies, will have outweighed them by about a thousand to one … Your Committee cannot feel satisfied that the heavy expenditure has produced value for money either for the taxpayer or for the consumer. That is very much an under-statement.

There again, one would hope that the Department concerned might be disturbed with what appears to be a great miscalculation. In paragraph 81 the Committee … welcome the Ministry's assurance that, in future, costs will play a less important part in the determination of the scale of assistance to the industry, and that more attention will be given to the general policy of bacon production …". I do not know what is meant by that, but surely costs should have been considered in the first place.

The third area to which I want to look is that of the social services. I do not make too much of this, because I know the vast sums involved. Paragraph 98, dealing with supplementary benefits, is headed Overpayments of Social Security Benefits. Overpaid, including sickness benefit and unemployment benefit, amounted to over £3 million. Underneath that there is a sentence which I do not like: There was, however, evidence to suggest that overpayments not discovered and not therefore written off were likely to be much greater than the £3 million written off in 1969-70. Large sums are involved. What is meant by "evidence to suggest"? This matter should be examined more closely.

Paragraph 100 estimates that errors—I appreciate that errors can be made by staff—would amount to a further £3 million. I have already identified £10 million. In the last few weeks there has been much argument about the cost of children's milk at school, which was £9 million.

Another very interesting item is paragraph 111, concerned with deserted families. I did not realise that the sum involved was so great. The paragraph states: In 1969 supplementary benefits totalling £78.5 million were paid to 211,500 deserted families, including separated and divorced wives and single women with illegitimate children". Of that sum only £7 million was recovered. Greater effort should have been made to recover some of that huge sum.

Paragraph 117 contains this statement: On 10th March, 1971, the Secretary of State announced the establishment of a committee under the chairmanship of Sir Henry Fisher to review departmental measures to prevent and detect abuse … It is not expected, however, that the committee will present an early report. Surely there should have been a greater display of urgency.

My fourth and last point concerns naval stores. As I understand the system, the depots transferring stores to and from the four naval dockyards have a system whereby stores are issued and the value is checked. The stores are received at the other end and checked and the value is checked. At the end of each year or specified period the difference between those issued by the issuing department and those received by the recipient is costed and the difference is labelled "stores in transit". In other words, stores on the way will not appear in the books at the recipient's end.

Paragraph 167 says: In 1965, a mechanised (computer) procedure was introduced at the four home dockyards for matching, three times a year, the receipts and issues of stores". It is very disturbing to read in paragraph 168 that on 1st April, 1969, stores valued at over 11.3 million were recorded in these accounts as having been 'in transit' … for more than a year and that at 31st March, 1970, the comparable figure was over £22 million. It is pertinent to ask where the stores were. Inter-depot transfers amounted to only £16 million; so these are considerable figures for stores in transit.

The Department's view was that the discrepancies were caused very largely by paper errors arising from computer miscodings or valuation discrepancies. That estimation strikes me as being vague. I do not know whether it can be accepted. The cure proposed is the introduction of a new computer complex in two years' time. That will involve more expense. It might have been wiser to have got the present computer system working properly before installing another.

On page 10 of the White Paper the Department says this: More effort will be devoted to investigating large discrepancies and less effort to the more numerous small ones. That is not very encouraging. It would have been better if greater effort were to be made abroad.

I realise that large sums are involved in the various Estimates and that there are bound to be some errors, but I think that in some cases the errors are rather large. My impression from what the Departments say is that they are inclined to take the view that such errors are inevitable. What stands out is that the inevitable loss always seems to be underestimated. If this happened in private industry—some private companies are very large—the company concerned would be bankrupt. Therefore, it does not happen.

I hope that the Treasury and the Ministers will carefully study this valuable report and not just let it disappear into a cupboard. The Departments' reaction to these investigations in different areas is complacent and lacking in urgency. I have taken only four examples. For all we know, there may be many more leaks, and I suspect that there are. I hope that the Treasury will supply the driving power to implement what this very industrious and skilful Committee has submitted to the House today.

7.48 p.m.

Mr. Norman Buchan (Renfrew, West)

I will not follow the hon. and gallant Member for Carshalton (Captain W. Elliot) in all the points that he made, but I must take up one or two of them, particularly his final point that if errors of the magnitude which have been brought out by the Committee occurred in private industry the company concerned would be bankrupt.

It is only in public affairs that we get this open, public questioning, examination and analysis, and then discussion in the House. Private enterprise conceals and buries its errors. It is true that a company which becomes very inefficient goes bankrupt, but through the whole of private enterprise there is a tremendous weight of inefficiency, as events over the last 18 months have shown, but private enterprise is not subjected to this vigorous examination. We must not fall into the error of believing that because we subject public industry to public scrutiny and are prepared to discuss it openly there is more inefficiency in public industry than in private industry. There is not—far from it. If all private industry were run as efficiently as most of our public industries are, this country would be in a very much better state.

There is a fair point to raise about over-payment, for example, of social security benefits, with the figure of £3 million in over-payment and the suggestion that a further sum is undetected. But, of course, this sort of thing happens with people who are largely in tragic circumstances anyway. It does not happen with people who are trying to get a nice, fat, greasy cut. It happens to poor people who are trying, for example, to push up £2 benefit to £2.50 to pay the gas bill. Secondly, this is a tolerable error in the sense that the expansion and overweighted structure that would be needed to prevent such errors would have two effects: first, it would be too expensive and would probably cost more than the money saved, and, secondly, it would create a kind of inhumanity in the structure and the running of the scheme which would not be compatible with what we see as the kernel of the social services.

This has relevance to the main point that I want to raise. It has already been referred to my hon. Friends the Members for East Stirlingshire (Mr. Douglas) and Lanarkshire, North (Mr. John Smith). It concerns investment grants and particularly the two curious paragraphs, Nos. 26 and 28, in the report. Those paragraphs are curious in that they describe two incidents which for some reason or other the hon. and gallant Gentleman did not take up, although he was worried about the lack of care and drive on the question of public expenditure. In paragraph 26 there is reference to one case of a subsidiary company in which the manufacturer received a grant, based upon the total list price, of £1,918,228, although the total cost to him was £979,755, almost £1 million difference. Investment grant was paid on the higher amount. If he is worried about 25p too much being paid to an individual on social security, one would have thought that this kind of costing would have attracted the hon. and gallant Gentleman's attention, at least to some extent.

The Committee looked at this question, and I am glad that it has taken on board some of the points made. It seems a curious situation, as the Committee says, that … grant … should have been based on costs higher than the capital expenditure incurred at first hand, which in Your Committee's view was the appropriate measure of investment by the group taken as a whole. This makes me wonder to what extent we have properly analysed the total effect and cost of investment grants. I am an unrepentant supporter of investment grants. We should have done a proper analysis of the situation instead of leaving it to The Guardian and one or two other newspapers which have examined the cost-benefits of investment grants as opposed to tax allowances.

We are in a very difficult economic situation—and this is especially true of Scotland. The most alarming factor during the past year has been not only the increasing unemployment but the disparity between the regions. After a decade of regional development by all Governments, both Conservative and Labour, we were beginning to see—if not the effects of a boom in the regions—at any rate the cushioning effect of direct policies. For example, unemployment in Scotland had been running over the last few years at one-and-a-half times the national average instead of double the national average, as had been the previous unhappy history. But over the last few months this one-and-a-half times has been creeping up again to double. In other words, the tendency has been worsening in Scotland in relation to the total economy.

I do not believe, therefore, that the usual answer of the Government—that when the economy as a whole picks up the regions will automatically pick upholds water. That is not necessarily a corollary. A pick-up in the economy as a whole is necessary, but it is not sufficient. The sufficiency comes in with conscious policies designed to ensure that the pick-up goes to the regions. Investment grants were a useful cushion in that respect.

I want to look at what the Committee said about two events in particular—the Plessey factory and U.C.S. From these two incidents certain lessons emerge. It would be interesting to know to what extent shipowners have not been over-keen to withdraw their ships on order from Upper Clyde but have been keen to co-operate because they had investment grants which they would lose if they were to have their ships retendered for and the orders placed elsewhere.

The main lesson, however, is the reaction to these events. As my hon. Friend the Member for South Ayrshire (Mr. Sillars) said yesterday, the Government should give a vote of thanks to the shop stewards and workers of U.C.S. because without their action the Scottish unemployment figures would have been even worse. What the workers in U.C.S. and in Plessey asserted is something which we have often argued—the right to work. It is a principle easily stated but its fulfilment is difficult to achieve. The right to work is emerging through their action. It is emerging throughout Britain as a whole and is being seen no longer as an aspiration but as moving into being of equal value with other human rights which we have established—the right to education, the right to good health, and the right to homes—and it is a factor which no Government in future, either Conservative or Labour, can ignore. They will do so at their peril. The right to work is being asserted in a way as universal as the concept of free education.

This poses certain problems not unrelated to the Public Accounts Committee and the question of investment grants. What, in incidents like those of Plessey and U.C.S., is the responsibility of private industry? I agree with many of the criticisms made by my hon. Friend the Member for East Stirlingshire. Plesseys put out an investment of £650,000 for the Government factory when it went to Scotland. Within a few short months it was folding up and leaving. I believe that a great responsibility rests upon private firms.

Speaking about closures, the chairman's report says: This was a harsh decision for us to have to take and—I recognise—a grievous blow to Scottish people at a time when their hopes of other work are small. It is always difficult to reconcile commercial realism with human needs. That raises the issue of the social responsibility of private industry, and I am not sure that private industry can meet the problems raised by the demands of social responsibility. One simply cannot ask a firm to work at a loss.

The consequence of that has been underlined by a fascinating inquiry carried out by the Scottish T.U.C. during the summer in which, for the first time in this country, and, perhaps, in any country, an attempt has been made to estimate the social costs of a closure, because far too lightly we in Parliament and people in industry have accepted the phrase that it is difficult to reconcile commercial realism with human needs.

What the Scottish T.U.C. said was, "Let us look at the costs of a closure. Let us not merely say that a firm is running at a loss, or coming near to making a loss, or is not showing a sufficient profit. Let us consider what would happen in terms of social cost if there were a closure".

Those concerned have been equating the amount of money needed to keep U.C.S. going with the cost to the community in terms of redundancy payments, unemployment benefits, and so on, of closing it down. More important, they have been considering the cost to the community if the 5,000 workers were moved elsewhere, in terms of hospital beds, teachers in schools, and schools themselves, and the infrastructure necessary to cater for the needs of those workers. For the first time that kind of cash-cost assessment has been carried out, and there are good reasons for thinking that the acceptance of the imperative demands of commercial realism, and the closure of a factory, has been shortsighted, even in cash terms, let alone its monstrous effect in human terms. That is something else that we have learned from the assertion by the workers at U.C.S. of the right to work.

More and more the social responsibility of the Government and of industry to provide work and employment for our people is being made known. I remember my favourite shop steward, Sammy Gilmore, at the Govan Shipyard, being asked on television, "Are you trying to say that the world owes you a living?" His reply was, "No. I am trying to say that the world owes me the right to earn my own living", and that is the right that is being asserted.

How can we met the aspirations of working people? It is not enough for us to berate the management of Plessey, dearly as I should like to do it here, and as I have done elsewhere. The real question is how we can meet the needs of the regions in terms of providing work. What the Government have to do is to get rid of some of their dogma and adopt some of ours. We cannot have social costing and ask industries to accept a social responsibility if we do not at the same time have social control.

Ultimately, whatever pressures we bring to bear on the Government—and many pressures could have been brought to bear on Plessey as 80 per cent. of its work is done for the Government, and plenty of arm-twisting could have been indulged in to get the firm to keep that factory going—in the long run, without social control, and, therefore, vastly increased public ownership, we cannot fulfil the basic demand of this second half of the twentieth century.

I want to link investment grants with regional policy. About £7,000 million a year is spent on public purchasing. Municipalities buy electric bulbs, and town councils buy scavenging lorries. Two points arise from that. First, if those purchases could be directed to the regions, that would be a revolutionary economic weapon for regional development. There should be a conscious direction of public purchasing towards the regions.

In conjunction with that, the Government should shed their dogma, as they have in respect of Rolls-Royce—this need not raise the problem of nationalisation—and they, the nation, or the people, should move into the public sector to undertake manufactures. I see no reason why manufacturing for the public sector—the Government, municipalities and nationalised industries—cannot be done by a national, public, or, if one likes, people's manufacturing sector. Is it necessary to order scavenging lorries from a private firm? Cannot there be a consortium of municipalities, and, knowing what those authorities need, can we not meet their needs from the public sector? I see no reason why that should not be done.

Third, throughout Britain we rightly subsidise various research and development institutions, such as the engineering laboratory at East Kilbride, and the Agricultural Engineering Research Institute at Bush in Edinburgh. A prototype is developed, and then begins the long process of finding a private manufacturer who will manufacture it under licence.

When I was a Minister I found overnight that I had Ministerial responsibility for agriculture, and one of the things which I discovered I had under my umbrella was the Agricultural Engineering Research Institute. It had developed a plough which was particularly fascinating, but it took about five years to persuade a private manufacturer to undertake its manufacture. That was because the firm was selling its own plough and there was no need for it to rejig or retool its factories so that it could make the new type until it had reached the optimum of sales on its own make and had cleaned up the market. Agriculture is an industry by which we seek to grow two blades of grass where one grew before, yet here there was a hold up of five years.

Another factor is that although the development was the result of public expertise and money, the manufacture had to be carried out in a private sector. The prototypes developed in publicly financed research institutions should be manufactured in the public sector. That would make sense, because in the private sector things become obsolescent in a very short time so that in any case there has to be a retooling and rejigging of machines every five or six years. I stress that suggestion, because it does not raise the whole problem of nationalisation, although I am in favour of that. It merely raises the question of initiative and imagination in starting up new manufacturing developments in the public sector.

Such a process could underpin a restoration of investment grants in the private sector because it would give a keel to the economy by having public manufacturing there, and that is very important. During the last week we have seen the thoroughly deserved panic of the Government because of the unemployment situation. They have scrambled everywhere to scratch up all the projects that can be pushed through to save 0.1 per cent. of unemployment over the next 12 months. They are spending £180 million on public investment to do this.

They must do it because only in the public sector can there be an immediate response. If the Government treat the public sector not as a pariah but as something that should be treasured, it will prove the quickest, most satisfactory and cheapest way of triggering off properly based economic recovery, and we could start seeing this country returning to the kind of growth and prosperity with which this great aspiration—the right to work—can properly be fulfilled.

8.8 p.m.

Mr. Peter Hordern (Horsham)

I hope that the hon. Member for Renfrew, West (Mr. Buchan) will forgive me if I do not continue his wide discussion of investment grants. I wish to refer only to those sections of the report dealing with aircraft procurement and, in particular, with Beagle Aircraft.

I think it is safe to assume that, whatever items may appear in future reports of the Committee of Public Accounts, we are absolutely bound to find, as a recurring item, expenditure beyond the original estimates on aircraft procurement. It is at once the most rapidly growing part of Government support for industry and the one that is the most difficult to appraise and control.

In inverse proportion as expenditure is growing on these projects by leaps and bounds, the worst reasons are given for this expenditure. Whereas Government expenditure used to be justified on the ground that certain aircraft were essential for our national defence, we are now told that a rescue operation must be mounted for Beagle Aircraft so that we can have a light aircraft industry.

Why should we have a light aircraft industry owned by the Government, any more than we should have a Government-owned hairdressing or candyfloss industry? In any case, after the abandonment of the TSR2 we can never again claim to be able to mount a comprehensive and national series of aircraft for the Royal Air Force, and have not been able to make such a claim for a long time.

The next claim for Government support is that we need a strong aircraft industry, partly because of the number of people employed in it and partly because of the advantages of technological know-how and spin-off. But we must recognise that the cost of a strong aircraft industry, and in terms of employment, is borne almost entirely by the taxpayer, and that cannot be a strong base on which any industry can rest.

It is also claimed that we should never allow ourselves to become dependent on another country for the supply of aircraft since the technology of aircraft production is ever increasing and we cannot afford to be left out of it. But it is increasingly apparent that we cannot afford to go it alone in this technology, and, happily, this is becoming increasingly acknowledged.

Finally, it is claimed that we need to undertake important aircraft projects, such as the Concorde, because of the importance of Anglo-French relations, because it is important to earn foreign exchange or even simply because of the honour of building the fastest supersonic aircraft in existence—all no doubt desirable claims, but at what a cost!

I remain unimpressed by all these criteria. Indeed, I think a country is to be judged not by the resources it devotes to technology but by its unwillingness to pursue irrational ends at ever-increasing expenditure provided by the taxpayer.

This does not mean that there is no place for an aircraft industry, because of course there is. However, any aircraft industry—indeed, any industry—must rest for the greater part of its support on what the market will readily provide. But from all the evidence over many years it is clear that Government support for the aircraft industry has had to provide far in excess of all original estimates, and the sums involved are truly daunting and rarely justified.

The estimates now are that Government support will amount to £139 million this year and £213 million next year, without taking into account support for civil aviation services. I take no notice of the official estimates for future years, since they are likely to be falsified by events. I say this not because I doubt the good faith of the experts employed by the Ministry but because the Plowden recommendation that only the more promising projects should be approved have not been followed in the past, and I doubt if they will be followed in the future.

Up to 31st March of this year total launching costs stood at £152 million, of which the Government's contribution was £64 million. Total Government receipts were originally expected to be £36 million but were by March expected to be £26 million. Since then, of course, we have had the Rolls-Royce debâcle, and £183 million is being set aside during the next five years for the RB211.

There is no easier rôle than that of Cassandra in forecasting dire disaster and huge costs in the development of higher technology. There will, it is certain, be worse to come. But at least we could have done without the gratuitous assistance of that walking disaster area the right hon. Member for Bristol, South-East (Mr. Benn). Whatever he touches—Concorde, the RB211, Beagle Aircraft, Upper Clyde; big or small, ancient or modern—bears the unmistakable imprint of the master bungler.

Mr. Buchan

Did the hon. Gentleman warn my right hon. Friend that he would be dealing with him today?

Mr. Hordern

I do not regard this as a personal attack.

Mr. Buchan

"Walking disaster"?

Mr. Hordern

I would have called that a mild expression to use about the right hon. Gentleman. Had I and a number of my hon. Friends given him warning of our remarks and of those that we are preparing to make about him, he would never cease to open his correspondence. I am making a gentle personal reference. I considered advising the right hon. Gentleman that I would be referring to him, but I could not expect him to give up his time to listen to me. I hope that the right hon. Gentleman—I have not finished with him by any means—will let me know if he finds anything in my remarks about him offensive.

About Beagle, we were told by Sir Ronald Melville in evidence: We had recognised that it was a gamble and everybody knew that it was a gamble, certainly". So it was pursued. Plowden might never have been written for all the notice that was taken of it by the right hon. Gentleman.

There was once a Scottish financier named Law who was entrusted by Louis XV with the management of the French economy. His solutions were paper money for Government projects and a Government lottery. That was also the solution of the right hon. Gentleman as Minister of Technology. Both were utter disasters, but at least under Law's system somebody might have won the pools. The other difference was that Law had to leave the country. No matter. We leave the right hon. Member for Bristol, South-East pursuing his relevant way towards industrial democracy. Perhaps the slogan of the industrial democrats will be "We have nothing to fear but Benn."

It is my belief that the work of the Committee of Public Accounts will continue to show that Government-aided technology is the new tyrant of the twentieth century. His demands become ever larger, always more extravagant, and his promises more and more incredible. I do not think that any British Government will ever be able to keep his activities within bounds unless they ask this question: What is State-aided technology designed to achieve for the State, at what cost, and how could the money otherwise be used?

If the work of the Committee of Public Accounts ever succeeds in getting those questions asked and answered outside the Department of Trade and Industry, it will have contributed a signal service.

8.20 p.m.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

This debate has inevitably covered a wide range of the subjects touched on in these reports. The right hon. Member for Manchester, Cheetham (Mr. Harold Lever) is no doubt justifiably celebrating his retention of a place on the Front Bench in an election which has seen some surprising upsets. No doubt when he returns to his place I shall have the opportunity of expressing my congratulations.

I am sure that every hon. Member, particularly those who have had the privilege of serving under his chairmanship on the Public Accounts Committee, will join me in paying a very warm tribute to the skill, tact and humour which the right hon. Gentleman has shown in his chairmanship. Perhaps, as he has returned—

Mr. Harold Lever

I apologise for my absence.

Mr. Jenkin

No. I appreciate the right hon. Gentleman's position. I might reaffirm my congratulations on his retention of a position on the Front Bench. I was saying that we all join in expressing our warm appreciation of his chairmanship of the Committee and that those of us who have studied some of the evidence in which the right hon. Gentleman pursued points of great technicality with tenacity and percipience will recognise the great service which he has rendered, both to the House and to the country.

Perhaps I might begin at the point where the right hon. Gentleman ended, with a few general remarks about the purpose of the Public Accounts Committee. In last year's debate, I said that the Select Committee on Procedure had recommended baldly and briefly that the Public Accounts Committee should be retained and should continue to fulfil its present functions. Since then, we have seen the setting up of the new Select Committee on Expenditure, which has already begun to make its impact on the House, as next week's debate will no doubt bring out very clearly.

But this must prompt the question which my hon. Friend the Member for Woking (Mr. Onslow) asked—was the Procedure Committee right to recommend the continuance of the P.A.C. in its present form? Does it have a part to play in the modern Select Committee structure? I echo what the right hon. Gentleman said when he aptly demonstrated that the Committee has a part to play, that it is thinking about its future, and that it confidently expects to go on playing a vital rôle in our system of public accountability. I am sure that that is absolutly right. The P.A.C. and the Estimates Committee survived together amicably for many years and there is still a need for two such committees in our system.

The changes made when the Estimates Committee was restyled the Expenditure Committee extended its scope and enabled it to examine the projection of expenditure up to five years ahead. Perhaps more important, the new Committee can consider the policies behind the figures. If there are one or two points in the debate on which I do not comment, it may be because they ventured into the field of policy, and whatever else its functions, the P.A.C. does not examine policy—

Mr. Harold Lever

indicated assent.

Mr. Jenkin

I am glad to have the right hon. Gentleman's agreement.

Therefore, some of the speeches of hon. Members opposite about investment grants, regional policy and public enterprise are rather outside the scope of this debate.

But none of this new work of the Select Committee on Expenditure encroaches in the least on the territory of the Public Accounts Committee, which is concerned to see that, once policy decisions are made, the House and the country get value for money in the implementation of those decisions. That is the main consideration underlying the reports.

It is of course a commonplace in these days to say that the P.A.C. is concerned more with value for money, efficiency in management than with the narrower questions of propriety and regularity. We are long past the days when a committee was necessary to ensure that money voted for defence was not spent on the King's mistresses. The Committee must still have the strictest of attitudes to any suggestion of misappropriation, but it is very rare indeed that there is cause for complaint about the honesty with which Departments handle the money entrusted to them.

At the same time, it must be recognised that the meticulous checking of every item and the pursuit of perfect accuracy is a very expensive—indeed, an increasingly expensive—operation and needs itself to be examined for cost effectiveness. I very much welcome what has been said in the debate about this subject. Naturally, Government Departments, like any other bodies, have been examining the possibilities which have been opened up by the more sophisticated methods of control and scrutiny which can be devised by efficient and up-to-date internal auditing.

Some impressive results have been achieved by replacing with much better methods of control much of the old routine checking which was very dull and boring for the staff engaged upon it and very costly for the Department concerned. But we still get the feeling that, in some quarters in the Government machine, there is a reluctance to press this new innovating function in the checking of accounts as far as it ought to go.

Perhaps this is in part due to the fear of the unknown, but in part I suspect it may be due to a fear of unfavourable reaction from the Public Accounts Committee if it should be found that something had gone wrong under the new system. If this attitude exists, it is a mistaken attitude. I am sure—I was grateful to hear what the right hon. Gentleman said today—that it should not cover a Department's proposals or ideas about changing or modernising their accounting techniques.

If an accounting officer has satisfied himself that a new system is well thought out, with adequate but not excessive safeguards against inaccuracy and abuse, and that it will make for greater efficiency of management, he should not feel in the least inhibited by the possibility of criticism if, despite his best endeavours, mistakes occur. His defence would be that, in the long run, such mistakes can be expected to cost less than the machinery required to eliminate them.

Perhaps I can take from these reports evidence in support of this immensely commonsense attitude by the Public Accounts Committee—namely, the Committee's report on the control of internal receipts of the General Naval Stores, the "T" stores episode. Although the Committee properly brought out that things had gone wrong, it was not unduly harsh on the Department, recognising that it was pursuing the laudable aim of saving manpower. The whole House, and certainly accounting officers, will have taken great encouragement and comfort from what the right hon. Gentleman said on this aspect of the Committee's affairs.

My hon. and gallant Friend the Member for Carshalton (Capt. Elliot) made the general charge which he ilustrated with effect that in certain Departments—he also included in this, to some extent, the Public Accounts Committee, of which he is not a member—the reaction to the losses which were shown to have occurred was "flabby". I would assure him, with all the emphasis at my command that there is no complacency about this. Perhaps I can illustrate this best by referring briefly to four matters which he mentioned, all of which show that in the period the Committee was examining, substantial sums of money were expended which, perhaps, if all things had gone well, would not have been expended.

His first example was launching aid for aircraft—and here I shall carry with me my hon. Friend the Member for Horsham (Mr. Hordern) who made a powerful plea for less support for the aircraft industry. The position here is that since 1960 it has been the policy of successive Administrations to support promising civil aircraft and engines which would otherwise fail for lack of finance. The aid is intended to be used for research and development—jigs and tools, and, of course, to help meet the high labour costs of initial production. The Government, in theory, like to recover their investment from a levy on sales.

It must be made clear that in the past, launching aid has had the particular objective of earning foreign exchange. It has had other objectives as well, and these were spelt out in a reply by Sir Ronald Melville on 5th May, at question 2,800 on page 333 of the report. He was asked about the circumstances in which launching aid was given. He said: The VC 10 and the Trident I way back in 1960, were not supported only on commercial prospects but the support was part of the arrangements made between the Government and the aircraft firms which brought about the formation of the British Aircraft Corporation and Hawker Siddeley Aviation. In the case of other aircraft, the B.A.C. 1-11/500 and the Trident 3B were supported particularly in order to enable B.E.A. to fly British and the potential sales of those aircraft were not at that time expected to be very big. Given those objectives—this is a matter of policy which it is not appropriate for us to go into this evening—it is scarcely surprising that the recovery should have represented such a small proportion of the total launching aid originally given. There were other reasons for this. The levy recovery arrangements reflected the view held in earlier years that the manufacturers financial weakness justified his enjoying a rate of recovery more favourable than that of the Government. This contributed to the unsatisfactory return. To counter this and other arguments, the investment appraisal become increasingly rigorous and partly for this reason no launching aid, apart from the RB211, has been given since 1967. The Public Accounts Committee rightly welcomes the Department's intention to deal with future cases on their merits and to seek better terms for the Government. That is not complacent or "flabby". It goes a long way to meet the Committee's objectives.

Secondly, my hon. and gallant Friend mentioned bacon stabilisation as did my hon. Friend the Member for Leicester, South-West (Mr. Tom Boardman). With great respect to both my hon. Friends, they did not take account of the changes which my right hon. Friend the Minister of Agriculture announced in an Adjournment debate on 20th April this year. My right hon. Friend then announced changes in the operation of the Bacon Stabilisation Scheme, designed to stimulate closer attention to market conditions and to reduce the cost to public funds. These changes were to be put into effect immediately and have contributed to a substantial saving in stabilisation payments.

The effect of this arrangement is reviewed quarterly, and on 3rd November last my right hon. Friend announced the continuation of these arrangements for a further three months. As a result, the industry is now being forced to pay more regard to market requirements and its reliance on Exchequer support has been substantially reduced. I will quote three figures dealing with stabilisation expenditure if operative for a full year. Before my right hon. Friend made his statement the figure was £23 million per annum; by 12th November, 1971, it was down to £1.22 million; and a fortnight later, on 26th November, the figure was £92 million. There has been a sharp cut-back on the rate at which the stabilisation payments are being made.

Mr. Tom Boardman

My criticism related to the fact that over a period of three years beforehand this system had gone on whereby there was no requirement to provide what I considered to be essential information. It was not a criticism of the current practice.

Mr. Jenkin

I am grateful to my hon. Friend for making that point. Under the new system announced by my right hon. Friend there is now a much more realistic system of demanding costs from bacon producers.

Captain W. Elliot

I am delighted to hear what my hon. Friend said, but I was going on paragraph 70 of the report. I quoted the figure of the total payments which amounted to about £57 million and the statement that … no further levies are expected in the period to 31st March, 1972 I understand from my hon. Friend that that is not the case and I am delighted to hear it.

Mr. Jenkin

My hon. and gallant Friend will be interested to know that when I came to that paragraph in the report I did a swift arithmetical calculation and came out with the ratio of 0.1 per cent. as the return on the total amount paid out. When I got over the page I found that the Committee had done the same sum. It certainly has changed, and my right hon. Friend was swift to make the necesary changes. It has been substantially dealt with—if not satisfactorily, then at least better than before.

My hon. and gallant Friend mentioned the control of internal receipts of general naval stores which I have mentioned already. Here again I must challenge the suggestion that the Department was complacent or that the response has been "flabby". The system which the Department introduced a year or two ago has not proved a success. The level of discrepancies not resolved, although proportionately small, is nevertheless higher than it should be. In an area of business involving vast numbers of stores transactions, many of small value, it is rarely possible to account for them all with complete accuracy. There is no recognised yardstick of tolerance or acceptable level of discrepancy. The effort to resolve discrepancies becomes more difficult and laborious as the 100 per cent. rate is neared. It can be said that the nearer that rate, the lower the return on any extra effort to achieve it becomes.

The report has three aims—to improve procedures and to reduce discrepancies, to identify stock-accounting discrepancies quickly so that they can be chased up before the trail is cold and to concentrate investigation on the more important discrepancies. The Department is now working along these lines and hopes to consider with the Treasury what sort of accounting procedures are reasonably acceptable for this area of business having regard, obviously, to staff considerations. Here, too, this is being followed up with vigour and determination.

While on the subject of naval stores, the hon. Member for East Stirlingshire (Mr. Douglas) asked about certain stores in Alexandria which presumably belonged to the Plessey Company but which, because of the work-in, it never obtained. It has not been possible in the time since he asked the question to get an answer. Perhaps I may write to him when I have the details.

My hon. and gallant Friend the Member for Carshalton mentioned the social security benefits, as did my hon. Friend the Member for Rushcliffe (Mr. Kenneth Clarke) in what I thought was a most thoughtful and helpful contribution to this extremely difficult area. The report makes it clear that overpayments have arisen from two main causes; on the one hand, official mistakes and, on the other, mistake, fraud or abuse by claimants. The main factor in official error has been the great increase in the volume and complexity of the work in recent times. Staff have been working under considerable pressure. There has been much dilution of experience as additional staff have been taken on to deal with increased work loads and to meet the relatively high rate of turnover particularly amongst junior staff. I will certainly take note of what my hon. Friend the Member for Rushcliffe said about staff conditions.

The Committee accepted that there are both moral and practical difficulties in countering fraud and abuse. Most claimants to benefit are honest, as several hon. Members have acknowledged, and procedures which treated them as potential wrongdoers would not be acceptable to the House or to the public. Such procedures would not be practicable because the amount of checking that would be needed would interfere with the prompt payment of urgently needed cash. Therefore, the Government have sought to retain a prompt and humane system for the payment of benefit, while, at the same time, strengthening the machinery for checking abuse.

I agree with those who say that abuse is important, not only for the money that is lost but for the effect it has on honest claimants. I well remember a striking article in the New Statesman by the hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) just after the election, when he recounted in colourful terms the reaction he had had from one of his constituents who was complaining about the "fat slob" down the road who sat on his bottom all week and drew large sums of money which he should not have had. The Government accept that this is important, and, accordingly, staffs have been strengthened. The Treasury has been closely concerned with recent decisions and keeps a watch on progress. As the House has recognised, the Fisher Committee is now sitting and hopes to report next year on the further measures which are necessary to strengthen the procedures.

My hon. Friend the Member for Rushcliffe suggested that a change to negative income tax might ease some of the administrative problems and reduce the opportunities for mistake and fraud. As the Government have made clear on a number of occasions, we still have negative income tax under study as part of our continuing review of the problem of family poverty, and we are not yet in a position to make a statement on it.

I mention investment grants merely to say two sentences and then pass on. The investment grant scheme has now terminated, and there is a relatively short period for residual payments still to continue. The Committee's report, therefore, is really about the past. The hon. Member for East Stirlingshire suggested that some of the same problems might be apparent in the case of tax allowances. I assure him that problems of the same nature as those examined in the report in relation to grants are being most carefully watched.

The hon. Member for Islington, South-West (Mr. George Cunningham) raised several interesting points about overseas aid. His first point did not so much criticise the Government, although I think they were perhaps included in his strictures, as criticise the Committee, again on a policy matter, namely, whether the Committee was right in taking the view it did in its 1968-69 report that budgetary aid should be brought to an early conclusion. This has been a consistent view of the Committee for at least three or four years. It has certainly been the Government's wish to fall in with the Committee's desire.

It is not for me tonight to defend the matter of policy whether the Government should give budgetary aid. I will only say that the Committee has rightly regarded it as an essential concomitant of budgetary aid that the Department in this country should maintain as close a control over the budgetary affairs of the recipient Government as it would over a Department in this country receiving a Treasury subvention. That has always been considered to be inconsistent with the status of an independent country. For this reason it has been felt that to move increasingly the emphasis to development aid is a much more realistic way of helping. I have noted the hon. Gentleman's points and will see that they are drawn to the attention of my right hon. Friend the Minister for Overseas Development and my hon. Friend the Minister of State, Treasury, who will no doubt take note of what the hon. Gentleman said.

Mr. Harold Lever

I do not think that any members of the Committee thought that they were engaging in a policy decision in criticising budgetary aid. What they thought that they were doing—certainly what I thought that I was doing—was to accept the policy decision on aid but to seek a better system for giving it in relation to independent countries, for the reasons the Financial Secretary has given. We were not straying into policy, because we were not allowed to stray into policy. All that we were saying was that if the Government gave that money they must do so under a different system, unless they are prepared to exercise the rigorous detailed control which is appropriate if it is done in that way.

Mr. Jenkin

I am grateful to the right hon. Gentleman for that clarification. In so far as I suggested that the Committee had a policy, that would be wrong, because it would not be for it to criticise such policy.

The hon. Member for Islington, South-West also spoke about the spill-over of aid. While he was justified in piling his congratulations on the shoulders of the members of the Committee, I do not think that he was wholly justified in entirely withdrawing congratulations to my right hon. Friends who had acted so swiftly and effectively in accordance with the Committee's recommendations. I have noted the hon. Gentleman's suggested extension of the spill-over provisions along Canadian lines, and will see that it is drawn to the attention of the appropriate Ministers.

The hon. Gentleman also spoke about the form of the Votes and the reconciliation with the P.E.S.C. figures. This matter is being intensively studied in the Treasury. The next stage must be to make sure that the estimate figures are readily reconcilable with the P.E.S.C. figures. There are many problems, not least of which is the price basis on which one lists the figures.

Finally, there are the two matters of real substance. By saying that, I do not want in any way to criticise hon. Members who have made other points, but the two major matters in this year's report are the non-competitive contract point which the right hon. Gentleman made and the whole Beagle argument. I shall begin with the non-competitive contracts, perhaps with a blinding glimpse of the obvious. It is the intention of the Government and industry that prices should be fair and reasonable and that they should be established at the earliest practicable stage consistent with the risks and uncertainties involved in particular cases. Firms can earn a reasonable profit and have an incentive to meet departmental needs sufficiently. Obvious though the aims may be, their achievement is often complicated. The problems involved are under continuous study.

The Public Accounts Committee made a number of references to the Review Board for Government contracts. I wish to pay a warm tribute to the board for what it is doing to assist both sides in this difficult question. As mentioned in the Treasury Minute, in its most recent report—the so-called supplementary report—the board has carried forward its work on the accounting conventions used in pricing Government contracts to cover the allowances to be made in overheads for contractors' marketing and selling expenses.

That the board made such a good start with its very difficult task was due in no small measure to the wisdom and the personal efforts of its first chairman, Sir William Lawson, whose untimely death earlier this year came as a shock to all who knew him. The Government and industry are fortunate in having secured such an able replacement in Sir William Slimmings, and we are deeply indebted to him for taking on the job. As the Committee was told, the work of the board is arduous and time-consuming, and I take this opportunity of thanking all its members for their valuable services.

Agreement of individual contract prices must take place between the Department and the contractor. Hon. Members on both sides of the House rightly have emphasised that there must be complete frankness and openness in negotiations if these prices are to be fair and reasonable. On the whole the co-operation which has characterised the discussions between central bodies in industry and Government on this subject has been reflected in the individual relationships between firms and Departments. This is important not least because contractors' accounting systems are often not geared to providing information in the form necessary to Departments for pricing purposes. This situation calls for flexibility by both parties to a contract; but there is a minimum amount of data on which Departments must reasonably insist, in the spirit of "equality of information", before they can be expected to agree a price. Timing is also extremely important and a great deal of attention is given to these matters.

However, much turns on the reasonable co-operation of individual contractors, and the persistent refusal of such co-operation by a contractor or subcontractor is something which the Government would be bound to take very seriously. I must make it clear that in such a case the firm in question runs the risk of being ignored as a future supplier to the Government and, as we said in the Treasury Minute, the Government will consider all possible remedies. I noted most carefully the various suggestions made in the speech of the right hon. Member for Manchester, Cheetham.

Defence contracts are now being handled by the recently formed Procurement Executive in the Ministry of Defence. One of the objectives of this new organisation will be to develop further this spirit of co-operation between purchaser and supplier.

Finally, I turn to much the most thorny subject in this report, which has been hanging on the hook of the Beagle Aircraft Company. The Treasury Minute was called by various speakers opaque, taciturn and—by one hon. Member—even evasive.

There are two aspects of this difficult question which must be considered. One is the problem of Crown liability for a company's obligations; the other is the question of information which the Government should have about a company's affairs. I realise that the first matter is a subject of great complexity. I should dearly have loved to be able to pursue the right hon. Gentleman and some of his hon. Friends in their fascinating exploration of the ramifications and complications of this difficult issue, but I am afraid that I am not able to add much to what was said in the Treasury Minute. The Committee recommended that when the Government take a shareholding in a limited liability company and intend to accept no liability beyond that of any normal shareholder, this should be stated publicly so that creditors will not be misled. This recommendation raises immensely complex issues which are still under consideration.

The second question concerns information. Perhaps I can be of more help in this regard. We agree, as the Treasury Minute points out, that where the Government are the sole shareholder in a commercial company, there must be arrangements to ensure that they are adequately informed about the company's affairs in general, its trading position, developments in its activities and prospects. The Government accept that principle entirely and the arrangements which exist—they must obviously vary from one individual case to another—are reviewed from time to time. It is not essential that the arrangements should be uniform in all cases. The main thing is to make sure that they work well in practice. The Government are reviewing the arrangements in individual cases to make sure of this.

At the same time, this does not mean that Government Departments should seek to involve themselves in day-to-day affairs of wholly-owned companies. Again, as the Treasury Minute points out, the fact that such a company is wholly-owned by the Government does not in any way alter the fact that it has to operate under the Companies Acts, and clearly boards of directors must be given the proper degree of freedom to manage the affairs of the company commercially without prejudice to their rights and responsibilities under the law.

The right hon. Member for Manchester. Cheetham mentioned companies in which the Government are part shareholders—[Interruption.]—or not even shareholders at all. I suppose that they may have loan finance. To some extent, the same considerations apply.

Where the Government are not the sole shareholder but have a majority or substantial holding, the position is not quite the same. 'Where the Government appoint directors to the board of a company, it is clearly right that they should keep the Government adequately informed, while at the same time paying due regard to their responsibilities as members of the board which is answerable to the shareholders as a whole. It is the Government's policy to ensure that this is done, but clearly the precise arrangements must vary from one case to another according to the circumstances.

We are not pressed for time tonight. I have, therefore, replied to the debate at greater length than might otherwise be appropriate. I think that I have answered most, if not all, of the points which have been raised by right hon. and hon. Members on both sides of the House.

It is for me a little sad that an important debate in the parliamentary calendar should year after year, he attended by so few right hon. and hon Members. This week we have had important debates on Ulster, on pensions and on Rhodesia, so it is not altogether surprising that on a Thursday evening many right hon. and hon. Members want to go back to their constituencies. However, we have had contributions from three or four hon. Members who are not members of the Public Accounts Committee. They added greatly to the value of the debate. I hope that the limited attendance which the annual debate on the Report of the Public Accounts Committee seems to attract will not in any way indicate a lessening of the importance of that Committee in the scheme of things. Indeed, in a sense, the fact that the debate does not attract large numbers may be taken as evidence that right hon. and hon. Members on both sides are pretty satisfied with the way that it works.

I should again like to pay tribute to the right hon. Member for Manchester, Cheetham for his able chairmanship and to express my satisfaction that he will be chairing the Committee in the year ahead. I wish him and his colleagues every success.

Question put and agreed to.

Resolved, 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. 4817).

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