HC Deb 29 January 1981 vol 997 cc1091-148
Mr. Dick Douglas (Dunfermline)

On a point of order, Mr. Speaker.

Mr. Speaker

Order. I am not taking points of order at the moment. I have already embarked upon the business of the day.

Mr. Douglas

On a point of order, Mr. Speaker—

Mr. Speaker

Order. The hon. Gentleman and the House know what to do if they are not prepared to accept my ruling. Mr. Joel Barnett—

Mr. Douglas

On a point of order—

Mr. Speaker

Order. I am not taking a point of order, and I must ask the hon. Gentleman to resume his seat.

4.26 pm
Mr. Joel Barnett (Heywood and Royton)

I beg to move, That this House takes note of the Eighth, Ninth, and Eleventh to Thirty-Fifth Reports from the Committee of Public Accounts in the last Session of Parliament, and of the Treasury Minutes and the Northern Ireland Department of Finance Memorandum on those Reports and on the Fifth, Sixth, Seventh and Tenth Reports presented in the last Session of Parliament (Cmnd. 7925, 7962, 7992, 8066, 8067 and 8125). Before turning to the reports which we are about to debate, I hope that I shall be allowed to pay a number of tributes, as is the custom, as the Chairman of the Public Accounts Committee.

First, I want to give my personal thanks to the members of my Committee, who supported me so admirably throughout last Session. I am most grateful to them for their hard work and for the support that they have given me. At the same time—I am sure that hon. Members who were on that Committee will wish me to do so—I thank the Clerk of the Committee, Helen Irwin, who, with a very small staff—her assistant and one other assistant—did a remarkable job throughout the Session. Both in volume and quality of work, we were fortunate in our staff.

I pay a personal tribute—which I am sure will again be supported by my Committee—to Sir Douglas Henley and his staff. Sir Douglas Henley, the Comptroller and Auditor General, will be retiring later this year. I worked with him in the Treasury when I was Chief Secretary and then as Chairman of the Public Accounts Committee. At a time when civil servants are generally under attack it is right that I should say that that gentleman has given an enormous amount of first-class service to this country in all the duties that he has performed. I know that I carry members of the Committee—and I hope also hon. Members in the House—with me in wishing him a healthy and lengthy retirement.

I add a tribute to the Northern Ireland Comptroller and Auditor-General, Mr. Sythes, who has also retired. Whilst offering thanks, I should also include all the witnesses who have appeared before us, including Joe Carey from the Treasury, who, as always, has been assiduous in his attendance, even if his answers and those of the witnesses were not always to the liking of the Committee. We appreciate the answers that they have given, and where we disagree with them we shall indicate from time to time. Generally speaking, both the Treasury witness and the other witnesses give us first-class and positive responses to the questions that we put to them.

The Session has been busy and historic, at least in terms of the number of reports which we have issued. Thirty-five reports were issued, some of which have been debated. We are now debating 27 reports on the relevant Treasury minutes. All the reports were unanimously approved by the Committee.

On 1 May 1980, when we last debated the Public Accounts Committee report, we discussed six reports of our Committee and eight previous ones. At that time I said that it would be impossible for me to refer to all those reports. With 27 reports before us today, I hope that the House will forgive me—I am sure that it will—if I do not refer to them all.

I must go along with the tradition of not referring to the Northern Ireland report, even though I should place on record my appreciation of the kind remarks of the hon. Member for Belfast, South (Mr. Bradford) in our last debate, when he said that he would have liked me to comment on Northern Ireland affairs. I have decided, however, that it might be better to abide by tradition on this occasion as well.

Although I am not able to refer to so many of the reports, I hope that I shall not be thought in any way discourteous, or that it will be concluded that any of those to which I do not refer are not important. All the reports are important, but I am governed by time.

There is a common thread running through all the reports—an all-party desire to have the most cost-effective and efficient way of spending the huge sums of public money that we are discussing, and to ensure that we get the best possible value for money. That is not a party political issue, regardless of the level of public expenditure. To paraphrase what I said in a previous debate, one Department's waste of public expenditure is another Department's cut—or, indeed, its own cut.

The small number of reports that I want to refer to have one aspect in common. The subjects covered by them will certainly be coming up again repeatedly in the years ahead. That is inevitable. They are subjects that are constantly coming before Departments and, therefore, the PAC. In no respect is that more the case than with the sixteenth report, relating to the Ministry of Defence. I want to refer to two most important issues in that Department. One is Sting Ray, but I must utter a passing word on cash limits, which I shall return to in the case of the carry-over of cash limits on the twenty-seventh report.

The PAC strongly supports the Treasury in reducing the Ministry of Defence's cash limit by £72 million in 1979–80 on account of the 1978–79 excess. The overspend, we now understand, is continuing. It continued into 1979–80, and again into 1980–81. I hope that the Financial Secretary will be able to give us some indication that no further overspend is expected.

I turn now to the Ministry of Defence report and welcome the steps that the Department has taken to improve estimating and control of development work, which includes greater attention to estimates at the project definition stage, the improvement of internal procedures and relationships with contractors, and a better cost recording and reporting system in the naval weapons directorate.

On the other hand, the Committee was far from satisfied with the position on Sting Ray, which is an air-launched anti-submarine torpedo being developed under contract by Marconi. There is no foreign participation in the project, and, so far, no prospective overseas customer. The project definition stage of development began as long ago as 1969, but the development programme had to be completely revised in 1976 after technical problems were encountered. At that stage, Sting Ray was preferred, subject to a later review, to an improved version of the United States MK 46 torpedo, which offered some of Sting Ray's characteristics, with an earlier in-service date, for about half the cost.

The further review in 1978 indicated a widening in the price difference between Sting Ray and the United States torpedo, but Ministers decided at that time that Sting Ray should proceed, because of its potentially better operational performance. The latest cost estimates that we were given, at September 1979 prices, are £920 million for the development and production of Sting Ray—so one assumes that it is now in excess of £1,000 rnillion—compared with £200 million for meeting the requirement by modifying the Ministry's existing MK 46 torpedoes and buying some of the improved version from the United States.

These are huge sums, and there are huge differences in cost. We in the PAC commented on two aspects of this project. The first was the justification for preferring Sting Ray to the improved MK 46 torpedo. We felt bound to say that on the evidence available to us we were not convinced by the Ministry's case for spending the additional £720 million that Sting Ray will cost compared with the United States torpedo. We suggest, in view of the technical issues involved, that the Select Committee on Defence should look into that aspect of the matter. But if the Ministry's confidence in the latest timetable for Sting Ray and in the cost estimate is not justified I certainly hope that it will be reviewing the project's cost effectiveness in terms of the resources still required to complete it. That is certainly the view of the Committee.

I was interested to note the views of the Government in the Treasury minute. I know that Treasury minutes are most carefully drafted, so I noted the wording with particular interest. They recognise the problem involved, but I note that the Government have in mind that they may need to consider the matter again if other factors arise in the next year or so. I hope that the Financial Secretary will give us his observation on whether anything has happened that could possibly mean that Sting Ray will not be proceeded with.

Of course, I and the members of my Committee recognise the great problem created by the understandable desire, which I share, to buy British, and the huge differential in cost between the two torpedoes. We recognise also the problem with highly technologically advanced weapons of this kind. However, when there is a difference as large as this one must look at it again. One could buy a great many British goods, providing more employment in Britain, with the £720 million that might be saved by purchasing the MK 46 torpedo. I hope, therefore, that the Minister will be able to tell us more about that tonight.

The next item that I wish to refer to in the MOD report may also have consequences for the future. It is International Military Services Ltd. and the effect on IMS of the Iranian situation. Its contracts with Iran have accounted for most of its business, and the company is running on a tight margin with only very small reserves. When we were discussing the matter it was down to £2 million in relation to a turnover of £246 million in 1978. The 1978 accounts, showing a loss of £12.4 million, were filed only shortly before the Public Accounts Committee hearing in February 1980, with an audit opinion which was heavily qualified for the understandable reason concerning the uncertainties surrounding the Iranian contract.

The Ministry told the Committee that IMS's order book was recovering and that it expected to trade at a profit again. We criticised the Ministry for failing to tell the PAC of the qualified audit opinion on IMS's 1978 accounts. We were left to discover it from a copy of the accounts supplied after the Department had first given evidence. Since then, however, a newspaper article has appeared making severe and serious criticisms of IMS and the Department, all of which, I am glad to say, has been rebutted by the Department, which has denied them categorically. If they were true they would be very serious allegations. The Committee will have a number of searching questions to put to the Department in due course on the whole subject.

I turn to another report that has serious consequences for the future and getting value for money from our public expenditure. I refer to the twenty-fourth report and the vital question of special employment programmes, not very pleasantly described as YOP and STEP—the youth opportunities programme and the special temporary employment programme. I should make it clear that neither I nor members of my Committee are seeking to make a party political point out of the matter because the high levels of unemployment that face the country now have been and will be with us for a considerable time. We want to ensure that the limited resources that are available to cope with the serious problem through the Manpower Services Commission are used to the best possible advantage.

It is all too easy to criticise the Manpower Services Commission and the Government because of the understandable concern and worry that everyone in the House has about the high level of unemployment. It is too easy to criticise them simply for throwing money at the problem. Large sums of money are being "thrown" at the problem. I do not mean that the Manpower Services Commission is not conscious of the need to be careful about the way in which money is being spent. I am pleased to see that there have been some improvements in control of the administrative costs, particularly those on such schemes as STEP.

We also welcome the Manpower Services Commission's assurance on the need for tighter guidelines and an improvement in the quality and the number of monitoring visits. That would mean a small increase in costs, but we hope that it would be much more cost-effective than not having monitoring visits.

We are told in the Treasury minute that the Manpower Services Commission will continue to watch all aspects of these matters. So shall we in the Public Accounts Committee, for everyone's interests, not least those of the young people who are, tragically, unemployed, are at stake if we are to see money wasted which could otherwise be spent on saving valuable jobs and providing training for young people.

I turn to the report to which I referred earlier, that on the Ministry of Defence, the DHSS and the Department of Transport. It is the twenty-seventh report on the carry-over of cash limits at the end of the financial year. The parliamentary cash control system requires an annual cutoff of expenditure at 31 March. We have all heard, and we are concerned, about the effects of that on sound financial management of some of the Government's major expenditure programmes. In our constituencies and elsewhere we hear from time to time of money being wasted because there has been a rush to spend it before 31 March, because of the fear of those spending it that they will not receive the money the following year. We thought that that argument was worth considering.

The PAC took the initiative of inquiring into the effects on the three Departments most involved; the MOD, the DHSS and Department of Transport. It is interesting that none of those Departments supported the view that the present system resulted in wasteful spending at the year end. They would have liked to see some flexibility in the cash limit system, which was also interesting. I should be interested to hear how the Financial Secretary has dealt with those views in his discussions with the Departments concerned. Indeed, I should like to hear about many of the discussions that the Financial Secretary has had with the Departments.

In order to be certain of keeping within the cash limit, a Department must aim to spend substantially below it when the expenditure flow cannot be controlled accurately. Even 1 per cent. underspending on a large programme can be substantial in cash terms. The Treasury was considering a scheme for a 5 per cent. carry forward of underspending on capital programmes, such as roads and the MOD procurement programme. The cash limit for the next year would then be adjusted accordingly. Departmental views differed about whether such a scheme would work.

In the Public Accounts Committee we were sympathetic in principle to such a scheme, subject to the need for strict controls over its application and to Parliament's being kept informed of the details each year. We suggested that a controlled experiment would be helpful. I note that the Treasury was perhaps a little concerned about a few of the words that we used, and that a less censorious attitude to occasional unavoidable overspending might be an acceptable development of the cash limit system. But I emphasise that we said that any overspending should mean an automatic reduction in the limits for the following year. That does not appear to have happened in the Ministry of Defence in the past year or two.

I was surprised at the comments in the Treasury minute that tell us that it cannot support or condone any relaxation of cash limits. At that time, we in the Public Accounts Committee were talking about a Treasury scheme. I understand that it was not an agreed scheme but a proposal or an idea concerning one way of dealing with flexibility. In the light of the Treasury minute's comments it would be interesting to know whether Treasury Ministers agree with Treasury officials—I know that that is a lot to ask—because to imply that our report supported a relaxation in cash limits is far from the truth. Indeed, we specifically said in our report: although any overspending should mean an automatic reduction in the limit for the following year. We said that we would be interested in an experiment to see how it worked, because, like the Treasury, we do not want to see serious harm done to a system which we believe is in the best interests of control of public money. However, there seems to be some difference of opinion if it is thought that the Public Accounts Committee was seeking to relax the system of cash limits in a major way. We are not seeking to condone overspending of cash limits.

I turn to the twenty-eighth report. Among other matters in that report we examined the adequacy of parliamentary accountability and sanctions within the European Economic Community. We asked for more comprehensive statements on the EEC budgets, United Kingdom contributions and receipts and the corresponding out-turn figures for reconciliation with the Consolidated Fund accounts. I am delighted to be able to welcome what I consider to be a constructive response from the Treasury, in that it will be publishing figures which I hope will be helpful to the Committee and the House.

Since then the Public Accounts Committee has looked briefly at these matters in relation to the points that we discussed in the previous report—not because we pretend that the United Kingdom system of control is perfect but because we are concerned to see, for example, whether the Court of Auditors is exercising an adequate degree of control over Community spending in other countries and in the Community. That is under the direct control of the Community. In the current Session we propose to look at that aspect of EEC matters. In due course I hope that our report will be of interest to the house.

I now turn to the thirtieth report, on Rolls-Royce. We examined the Department, the NEB and, exceptionally, the chairman of Rolls-Royce, on the loss of £58 million disclosed in the company's 1979 report and accounts. The chairman's statement had indicated the loss arising from RB211 sales, priced in United States dollars, on which the company had expected to benefit from a fall in sterling against the dollar. But the exchange rate had moved the other way. In addition, contract prices had escalated in United States price indices but United Kingdom inflation had out stripped that in the United States. The chairman had claimed that the NEB and Government Departments had accepted the exchange rate assumptions used by the company in calculating its offers. Rolls-Royce had not protected its United States dollar receipts by selling forward in the currency markets.

The Department told the Public Accounts Committee that it had accepted the assumptions in the context of the company's five-year forward plans. Neither the Department nor the Treasury agreed that they had accepted them in relation to the offer on particular contracts. The Department had thought that individual contract pricing and the question of forward sales were matters for Rolls-Royce management. With hindsight, it thought that there were lessons for its new monitoring arrangements.

The PAC accepted that Rolls-Royce had taken the fully considered decision to operate in the spot market and should not be criticised with the benefit of hindsight. We noted that the company was now adopting the normal commercial practice of avoiding undue currency risks, but we considered that the monitoring arrangements of the NEB and Department were open to criticism for failing to disclose the misunderstanding about exchange rates and the company's reliance on the spot market. However, having regard to the assurances of Government support for Rolls-Royce, we considered that the Department should have been aware of the possible financial consequences of the company's policies.

Rolls-Royce informed the Committee of its proposals for supplying information to enable the Department to undertake monitoring. The Committee thought that, as a sound starting point, it was important that the Department should have full information about the financial implications of policies and, in certain cases, instances where there are departures from them. I am pleased to note from the Treasury minute that the new monitoring arrangements are in operation, and I look forward to hearing from the Financial Secretary how they are proceeding.

The thirty-second report is an important one, relating to the Departments of Industry and Energy and the Property Services Agency. I wish to deal with only one aspect, namely, private finance for nationalised industries and publicly owned companies. Our report raises some fundamental issues about the rationale and remuneration of private sector finance obtained for nationalised industries and similar public sector bodies.

The Committee considered the Department of Industry's decision to ask Rolls-Royce to secure substantial fixed interest finance from the private sector in 1980 and the Department of Energy's announcement that private capital would be introduced into the BNOC. We stressed, and I emphasise again, that we were not concerned with the political aspects of such investments or with the separate question of selling parts or the whole of nationalised concerns to private owners. We were concerned with the financial impact on the Exchequer.

We drew attention to the fact that there could be no risk of capital being lost to private investors because the industries were fully backed by the Exchequer. If the private capital took the form of fixed interest lending we saw no reason why the industries should pay more by way of interest than the Exchequer would pay on comparable gilt-edged securities. However, that would seem to have no particular attraction for investors. If the capital took the form of equity, only profitable industries were likely to attract private investors, and the question arose, how much the industries and, at one removed, the Exchequer, should be prepared to pay by way of dividends in exchange for the advantages seen in a greater stimulus to efficiency that private participation might be thought to bring.

We considered that Departments monitoring public bodies should ensure that they received information that revealed to the Government the financial consequences of using private sector fixed interest finance and we hoped that the Government would bear in mind the likely effect on the Exchequer of seeking private equity capital. Essentially, we were asking the Government to clarify the situation.

The Treasury minute gave the Government's approach. It is a lengthy document and I refer to only one reply, namely, that on the important question of equity issues for Exchequer-backed bonds. I am pleased to note that the Treasury accepted the PAC's view, but the issue of shares in subsidiaries was not ruled out and the Government were not averse to a substantial take-up of equity capital in freestanding enterprises within the public sector where market forces would operate because Exchequer credit would not be at stake. By necessity, we had to deal with the matter briefly, as did the Treasury minute. However, it is a question of growing importance and I hope that the Financial Secretary will clarify the situation and the Government's views.

I turn to a report that is not specifically on expenditure, but, rather, on revenue. However, if anything, it has even more serious consequences than do most of the reports on public expenditure. I refer to our twenty-ninth report, dealing with the black economy.

The latest estimate of the chairman of the Board of Inland Revenue is that the income that is going untaxed is £12 billion, on which the loss of revenue could be £3 billion to £3½ billion. The PAC said that the black economy dwarfed all other problems facing the Department. Were we not so cautious a Committee we might have added "and the nation". The problem of dealing with the black economy and the loss of so much tax revenue dwarfs many of the problems that we face.

I note the careful choice of words in the Treasury minute, which refers to the need for a constant review. I agree that the detection of evasion is, as the Treasury has said, a difficult and cost-intensive matter. But it is also a dangerous issue. If it is allowed to continue to grow as it has been growing it will pose grave dangers to the structure of our democratic society. On the other hand, I am bound to recognise, as do the PAC and the House, that the method that we choose to deal with it will also pose serious problems, because in the lengths to which we go to deal with the problem we could be in danger of infringing the personal liberties of the democratic society that we seek to defend.

We need to have a careful balance, and I was pleased to note from the Treasury minute that an investigation is being carried out by Lord Keith into the whole question of how we might be better able to deal with the problem. I wish Lord Keith the best of luck. It is a serious and difficult problem and I hope that the Financial Secretary will be able to give us some indication when we might expect the results of the review. I hope that they will be made public as soon as they are available.

I apologise for not being able to refer to many of the reports. That emphasises the need for more frequent debates on the Floor of the House on these important matters. The issue of the control of public expenditure will not go away. Whatever the level of public expenditure under any Government, questions of waste, efficiency, effectiveness and value for money will be of growing importance.

That brings me to the role of the Comptroller and Auditor General and to the Government's Green Paper. I said in our previous debate on 1 May that I hoped that the PAC would be able to report fairly quickly. I do not apologise for the time we have taken on this important matter. The issue is too important to rush, but we have nearly completed our report and I hope that we shall be able to publish it in the first week in March. I should like to take the opportunity to thank again the members of the PAC, who have had an enormous burden to carry and a huge volume of papers to consider. I hope that the report, which we see as a major report, will be helpful to the Government, the House and the country, and that we will be able to get a better control of public expenditure than has yet been achieved.

I should like an assurance from the Financial Secretary, though I know that it is not entirely in his command, that we shall have an opportunity to debate our report in the House before a Government decision is taken. Does it remain the Government's intention to legislate as soon as possible, by which I assume they mean next year? It only remains for me to ask the House to note the reports and, with them, the vital need for improved control of public expenditure.

5 pm

Mr. Peter Emery (Honiton)

First, I congratulate the right hon. Member for Heywood and Royton (Mr. Barnett) on the way in which he introduced a vast number of reports, the ease with which he was able to cover the many subjects, and the considerable work that his Committee has carried out. I am sure that all hon. Members would wish to congratulate him.

I wish to deal with two reports that were not mentioned by the right hon. Gentleman. They affect the Manpower Services Commission, the underwater training centre, Shenley Trust Services, a company of which I am chairman, and me. Obviously I declare an interest.

I wish to make one personal matter clear. I have always held, and still hold, that it is of great use to the House and to the Government that Members of Parliament should have interests outside the House. It allows Members to bring a wider experience into the House. Persons who are able only to make judgments on party political experience or experience as a Member of Parliament cannot contribute as much as those with a wider experience. I am delighted that my constituency demanded that the Member that it adopted, when it adopted me, should have interests outside politics.

With regard to the report on the underwater training centre, I am particularly concerned that the Select Committee, in examining this unique and considerable advance in technology, saw no way to praise what had been achieved. It is the first school in the world to have been set up for training divers in mixed-gas techniques and with a lock-out facility. The centre has been successful. It is worthy of note and praise, to the extent that it is being copied by Norway and Canada.

There are two criticisms in the report of the Public Accounts Committee which I must answer. I had hoped not to have to do so directly, because, although I have argued that Members of Parliament should have business interests and declare them, I feel that they should not use the House as an instrument for carrying them forward. It is because I have not been able to get the Manpower Services Commission to correct certain information that I cannot let the matter pass in this debate.

My first criticism is direct, the second indirect. The first is set out on page XIII of the twelfth report. Basically the Committee accepted a criticism that in carrying out the management of the underwater training centre, Shenley Trust had adopted too remote an attitude. That is a serious criticism. I quickly put to the House three items of information. First, a feasibility study was written by Shenley and adopted by the MSC, and when the centre was created a unique aspect of consultation was set up. As well as a board of control there is an advisory board composed of 16 people representing North Sea oil interests, diving and other industries concerned with training for underwater work. They are divers, people from the oil industry, medical people, people from the Ministry and others who can make a contribution. That council meets two or three times a year and its sole concern is to ensure that the centre is not remote in attitude. It advises the centre on modernising its techniques, updating its operation, and so on.

In addition, the criticism was substantiated not by evidence but purely by a statement made in cross-examination. It is remarkably strange that the Manpower Services Commission is willing to stand by that criticism when it nominates three of the five members of the board of control of the UTC. One of them is Mr. Bill Reed, the TGWU area organiser for Aberdeen, to whom I pay tribute for his considerable amount of help and work in the buildup and successful operation of the underwater training centre. The second is the civil servant—there have been three different persons in the life of the UTC—who is responsible within the MSC for the liaison and operation of the centre. Thirdly, the chairman is Mr. Duncan Dewdney, who was chairman for all but three months of the committee's considerations. He was appointed by the Manpower Services Commission and for much of the period he was the deputy chairman of the MSC.

One would have thought that if that criticism was to stand up to examination it would have been voiced by the representatives of the MSC at some stage during the 23 meetings of the board of control. Not once was that done. It therefore casts some doubt on the fact that the criticism was made by the present chairman of the MSC who has been to the centre only once, and has never attended a board meeting. Perhaps when that evidence is put before the House it will make people believe that the criticism was facile.

My second point arises indirectly. In the twelfth report, the Public Accounts Committee suggests that: The contract allowed Shenley a margin of 70 per cent. profit over the attributable cost. The public and the press took an interest, which is not surprising where a Member of Parliament is concerned. One hears only certain hon. Members below the Gangway jeering about 70 per cent. profits. I and the company submitted to the Public Accounts Committee evidence, which is published fully in the thirty-fifth report, stating that that level of profitability was wrong and inaccurate.

While the matter was being considered, the PAC never once invited Shenley—which was managing the underwater training centre—or me to give evidence. It was at my suggestion that evidence was submitted to the Public Accounts Committee. At a press conference to introduce the thirty-fifth report, the Chairman of the Public Accounts Committee stated that at no time had Shenley disagreed with the figures of the Committee. Three times, on pages 1, 2 and 3 of the thirty-fifth report, we say absolutely that the 70 per cent. profit is wrong.

Mr. Joel Barnett

The hon. Gentleman was present in the room. I do not believe that what I said was in any way inaccurate. The difference of opinion between us is on the question where the total profit, or surplus, if the hon. Gentleman prefers, should be attributed and not the actual figures.

Mr. Emery

I am certain that the right hon. Gentleman would not wish to mislead the House. The third line on page vi of the thirty-fifth report states: neither the MSC nor Shenley have disputed the factual accuracies of the figures of profit derived". We have denied this, and I shall quote exactly where and how.

Mr. Michael Morris (Northampton, South)

My hon. Friend is tempting the House to mislead itself. The point of difference is not on the actual pounds spent—the attributable costs and the margins available—but on the percentage figure.

Mr. Emery

That is correct. If I may continue with my speech, the House will see exactly the relevance. One can obtain percentage figures only by having basic and proper facts on which to base them.

The history of the way in which the contract was obtained is important when considering the submission of evidence to the Committee. The Shenley Trust was not requested to undertake the feasibility study. It did it off its own bat. In September the MSC intimated that it wished to invite Shenley to contract to create the underwater training centre.

Mr. John Prescott (Kingston upon Hull, East)

While Shenley may not have been asked to do the job by the Government, I and others asked for a school to be set up, and I approached the hon. Gentleman who was then the Minister responsible.

Mr. Emery

Ever since the Hewett field came into existence, many of us have considered it was necessary to have British diving training. However, nobody specifically requested the feasibility study.

The feasibility study recommended that the capital for the school should be provided privately. After we had been asked to proceed, the MSC suddenly intimated that it wanted all the capital to come from the Government and asked us to continue with the turnkey project. That project was accepted, and negotiations went ahead in which the fees and heads of agreement were settled. On 19 December there was a press announcement that the Government had agreed to the proposal to provide capital for the centre; that the centre should be located in Fort William; and that they had asked Shenley Trust, a merchant bank group, to establish the centre in conjunction with the Training Services Agency.

The important point is that a fee was established only to deal with the turnkey project. Only in January, after the announcement, was Shenley asked whether it would be responsible for the continuing management on completion of the turnkey project. The two separate matters were negotiated separately, although a single contract was agreed by lawyers.

Shenley has always argued that the manner in which a percentage fee is arrived at in corporate financial organisations is as a percentage of the capital cost involved. I have experience of such matters, and 10 per cent. is not unusual. I have recently taken advice from BNOC. Those involved in the North Sea tell me that fees there run to 15 to 17 per cent. of the capital cost.

The PAC rejected Shenley's evidence. That is somewhat strange, as Shenley had cleared the evidence with the members of the MSC responsible for the underwater training centre. Other than depreciation, which does not affect the argument, those representatives said that there was nothing in principle with which they disagreed in our evidence.

A letter was sent to the Chairman of the PAC by Mr. Duncan Dewdney, ex deputy chairman of the MSC, who carried out the negotiations for the Government. He has nothing to do with myself or Shenley Trust. He stated: I was Deputy Chairman of the Manpower Services Commission at the relevant time, charged by the Commission with responsibility for these arrangements. I have to say that the Public Accounts Committee is wrong. A contract was negotiated for the design and supervision of the Centre for a fixed fee. At my request the fee was reviewed by the Treasury and the Public Works Department and found…to be reasonable in their view. At the Commission's request, this fee was paid in several annual instalments. The construction of the Centre was set in train. There then arose the question of how to manage it. Various management agencies were considered but in the event the responsibility for day to day operation was given to the same contractor, who asked for reimbursement of his out of pocket costs plus appropriate overheads. The arrangements were drawn into a single document by the Commission lawyers. To relate one arrangement to the other and particularly to think of one as profit on the other is entirely without logic. If you pay the Gas Board to install a boiler and subsequently pay to have it maintained, you do not regard the one payment as the Board's profit on the other. Apart from the injustice in the Report to the contractor and to Mr. Peter Emery M P., there is the inference that I myself was wildly irresponsible in the application of public money, a suggestion which is equally without foundation. Irrespective of that, we have to consider the method by which the PAC worked out its 70 per cent. profitability. It needed all the financial information as a base. Therefore, disregarding the previous factors, the main point to be cleared up is the alleged profit of 70 per cent. Let us reject the Shenley approach to the contract and consider the calculation of percentage profits as used in the PAC report. The major consideration is that the PAC has not been given all the figures on which to make its calculations. The information was never given to the Committee by the MSC or the Comptroller and Auditor General, and the PAC has never asked Shenley for it. That is perhaps surprising when Shenley stated clearly in its evidence in July—page 2, line 11 of the thirty-fifth report— statements are made that a 70 per cent. profit was obtained…On the information given to the PAC, those observations are…incorrect because all of the facts were not provided. Attributable costs were £270,000 and fee payments were £209,000 for the period in question. That is set out at lines four and five of page xii of the twelfth report. The Manpower Services Commission has accepted in writing that Shenley had major expenses in preparing the feasibility study, in the financial costings and in the collection of evidence, which arose during 1974 and prior to 1 January 1975 Those costs were not reimbursed. Nor was it the intention of the Manpower Services Commission that they should be claimed as attributable costs. Contrary to the PAC's statement in paragraph 6 on page vi of the thirty-fifth report, it is not true that the Manpower Services Commission bore all Shenley's overhead costs and expenses". That statement becomes true only if one adds the words "after the start of the contract on 1 January 1975". Then, indeed, it is correct. Never had Shenley been asked by the Manpower Services Commission, by the Comptroller and Auditor General or by the PAC what expenditure prior to the signing of the contract had to be met out of the fees earned by that contract. The major expenses of all of the work in 1974, which was the primary cost period for Shenley, were never repaid as attributable costs because they arose before the start of the contract.

Mr. Michael Morris

Does my hon. Friend wish to apply that argument to all preliminary new business costs that contractors in the United Kingdom enter into in order to get public service contracts? They are highly competitive, and half a dozen different contractors may all enter into major negotiations. Five of them are bound to have to write off the costs. Is my hon. Friend saying that in the future we in the Public Accounts Committee and the House should consider those costs to be attributable costs for a new contract?

Mr. Emery

I am not saying that. I am saying exactly the opposite. I am saying that those costs have to be set against the fee. One therefore cannot take the total fee and set it in proportion against the attributable costs.

Mr. Douglas


Mr. Emery

Not "really" at all. It cannot be correct to suggest that the profitability on a particular contract does not have to take into account all the costs that arise out of the creation of the feasibility study and the carrying out of the contract.

The costs which had to be met by Shenley arising from the feasibility study of the UTC prior to the date of the contract, which were not reclaimed from the Manpower Services Commission—nor do I suggest that they should have been—amount to more than £144,000. Using the PAC method of calculation, the percentage profit therefore works out at 13.9 or 14 per cent., not 70 per cent. The project was undertaken at risk, with no certainty of payoff. If MSC had not proceeded to a contract, Shenley would have had to bear the loss or set that amount against fees obtainable from other contracts.

Mr. Douglas

That is normal business practice.

Mr. Emery

No one is suggesting that it is not. Perhaps the hon. Gentleman will not interrupt from a sedentary position. I am making it absolutely clear that, even using the PAC method of calculation, which is not one that we would use, the profit figure would be 14 per cent. There is no getting away from that.

My criticism of the PAC is that, in my view, none of this would have arisen if Shenley or myself had been called to give evidence to the Committee. It cannot be natural justice that people can be condemned by a Committee, which may have serious effects upon them and their business, without having a right of reply. If the inquiry had been carried out by The Sunday Times "Insight" team, it might have been slightly more accurate. But if they had made the accusations made by the PAC, one could have gone to law and sued The Sunday Times and, I am told, obtained considerable damages.

The Public Accounts Committee, however, is protected by parliamentary privilege. Nobody would suggest that that should not be so, but it seems absolutely unreasonable that accusations against private bodies—not public bodies—should be made without those bodies, those people, or those partners having the chance of reply. It is a very strange situation.

Mr. Joel Barnett

Is the hon. Gentleman prepared to say which figure in our report is incorrect?

Mr. Emery

It is the figure for the total costs which have to be set against the fees.

Mr. Peter Hordern (Horsham and Crawley)

I understand the importance that my hon. Friend attaches to this matter. But if he attached so much importance to it, why on earth did he not submit it in his long and detailed letter to the Committee on 24 July last?

Mr. Emery

That is a perfectly fair question. The reason is that, when one submitted the evidence of the way in which we calculated the fee—and this was backed by the Manpower Services Commission—one did not believe that it would not be accepted by the Public Accounts Committee. As is pointed out by Mr. Duncan Dewdney, one believed that its method of calculation was incorrect. We believed that it would be absolutely accepted, because the way in which the Public Accounts Committee calculated is not the way in which the normal accounts are kept in the corporate finance department of the company.

It was therefore more than a surprise that the Public Accounts Committee did not accept the evidence. It was only after the Committee had not accepted it that it became necessary to take this action. I therefore say that it is an unusual position for the Public Accounts Committee. I myself serve on the Select Committee on Industry and Trade. At the moment we are investigating the costs of Concorde. In considering that matter, we do not take evidence only from the civil servants. Only yesterday we had before us representatives of Rolls-Royce, British Aerospace and British Airways. We shall also have the Minister and the civil servants.

I understand that that is not the way in which the Public Accounts Committee has operated in the past. I also understand that the PAC is very loth to have to call on Ministers, because Ministers are often attempting to avoid the criticisms that the Committee makes. But Ministers are represented by their officials and by the accounting officers. An accounting officer, or, for that matter, the Comptroller and Auditor General, cannot be expected to represent a private individual or a private company, particularly in certain instances when it may be in the interests of the civil servants to shed blame from themselves on to a private company.

In another instance, a Public Accounts Committee report concerning certain architects made major allegations which could have ruined that company. Those allegations proved to be wrong, but the partnership was never called to give evidence. It never had any way of defending itself. The matter was corrected by the Department of Health and Social Security. It was never cleared up by the Public Accounts Committee.

The only reason why this present matter can be dealt with is that I am a Member of Parliament. If I were not, the whole matter would be brushed to one side. I cannot believe that in natural justice it can be correct for extremely harmful recommendations of this kind to be made by a Committee when the body concerned has not been given the opportunity, or been called before the Committee, to answer the allegations being made.

In conclusion, if the Public Accounts Committee will not move to ensure that when accusations are made against private individuals, those individuals are seen, or at least that evidence and questions are asked of them, and if it will not alter that procedure I believe that it is essential that the Procedure Committee should consider the procedure for the calling of witnesses. I am delighted to see that I am not the first person to suggest this. My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) did so in the last debate on this matter.

Mr. Douglas

I concede that the hon. Member has a fair point about natural justice, but the crux of the Committee's reports relates to a view of attributable costs and the costs of his company. Nowhere in the body of his remarks or in the time scale that we have had to deal with this matter has he really contradicted the view taken by the whole Committee on this matter. He has made suggestions about some background costs or overheads, which all companies have to bear when they submit contracts. They may or may not seek to recover all or part of those costs in their contract negotiations, but that has nothing whatever to do with the figures which were available to the PAC and the considered judgment which was made.

Mr. Emery

I thank the hon. Member for making that point, but if he examines the evidence he will see that it destroys his point. The PAC actually asked the MSC what other costs had to be set against the fee in the contract period. The figure of £12,000 was given. The hon. Gentleman has asked a fair question, and there is nothing wrong with it, but if one is going forward with the percentage calculation, that figure should have been not £12,000 but £152,000.

We stated clearly, as I said earlier, that the figures were not presented to the Committee. On the figures which were presented, I can see how the Committee made the assessment that it did, but if a body is not asked what its expenditure is, how can one expect the MSC or the Comptroller and Auditor General to put forward those factors? They have never been to inquire. How can one have the proof when a civil servant is being asked to represent the matter without contact with the company, as happened in this instance?

It is therefore imperative, as a matter of justice, that when there has to be criticism, severe or otherwise, of a non-public body or person, that person, as is the case with every other Select Committee, should have the right to be represented at or to give evidence to the PAC.

Mr. Prescott

This matter involves a number of us and the hon. Gentleman has made a fair point that he wants his case to be dealt with fairly. However, as chairman of this company he was involved in the negotiation of the assets of the diving school. If the House is properly to assess whether the company made a fair return it would be easier if we knew what the terms of the compensation were likely to be for the assets which are at present available for disposal. The Department involved has not yet implemented the new scheme for the school, primarily, I believe, because the compensation terms are excessive. I do not know whether that is true, but I wonder whether the hon. Member, who negotiated the terms, could give us some indication. That is a point which I asked to be dealt with in the letter to the Committee.

Mr. Emery

I can quickly clear that up. All the assets of the centre are the property of the MSC and not of Shenley or anyone else. The assets and their value continue to he the property of the MSC. Secondly, at the conclusion of the contract period, there is no compensation at all for Shenley. It is quite simple to clear up both those points.

5.34 pm
Mr. William Hamilton (Fife, Central)

The hon. Member for Honiton (Mr. Emery), in a speech lasting nearly as long as that of the Chairman of the PAC, seemed to me to be protesting too much about his special case. I hope that he noticed that four members of the Public Accounts Committee are sitting behind him—members of his own party. They took part in the presentation of a unanimous report to the House, after the hon. Member's company had had all the opportunities to present its written evidence to the PAC, reacting to the twelfth report to which he has referred.

It is important to put on record the unanimous view of the PAC after it had considered all the facts. I quote from page vi of the thirty-fifth report: We further note that neither the MSC nor Shenley"— that is the hon. Member's company— have disputed the factual accuracy of the figures of profit derived from the fee and of 'attributable costs' reimbursed to Shenley. We went on: We observe that the Treasury Minute refrains from suggesting a fair relationship between the profit and any other project figure; and that Shenley submitted no evidence on the level of profits normally made by a consultant in relation to his costs. In these circumstances we"— the whole Committee, including the four members of the hon. Gentleman's own party— see no reason to change the views which we expressed in our Twelfth Report. A great principle is involved here—

Mr. Emery

Hear, Hear.

Mr. Hamilton

—and the hon. Gentleman had better face it. He was a Minister in the Department of Energy. Almost immediately on relinquishing that post, on the defeat of the Tory Government in 1974, he took private business directly related to the Department of Energy.

Mr. Emery


Mr. Hamilton

I assert that that is what he did. The important public lesson which must he learnt from this is that if, on relinquishing office on the defeat of their party in Government, Tory or any other Ministers then go to private industry and seek to use all the expertise that they have obtained in the Departments in which they were Ministers for their own private profit, they are looking for trouble. That is what the hon. Member for Honiton has got himself into and that is why he has protested, to the length of a speech lasting more than half an hour this afternoon.

Mr. Emery


Mr. Hamilton

I do not want to make a half-hour speech.

Mr. Emery

I was a director of an oil company before I was a Minister. I had many invitations to go back into that field and I turned down every one of them, so that I would not use the knowledge that I bad as a Minister on the lines suggested by the hon. Gentleman—much to my loss of income. The subject of diving was something over which I had no control whatsoever as a Minister.

Mr. Hamilton

I leave the matter there, but I hope that my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) will speak, because he can reveal facts about the hon. Member which I am not in a position to reveal.

I want to turn to one or two of the other reports. My right hon. Friend the Member for Heywood and Royton (Mr. Barnett), the Chairman of the PAC, made the sort of speech that Chairmen of the PAC have to make—a non-partisan, consensus speech. I shall not even attempt to make such a speech; it would be against my temperament. This speech will be highly partisan, from beginning to end. I think that there would be better attendances at these debates if we had less consensus politics, because there is a wealth of party dynamite in these reports. One can take one's pick over the whole field, and I have taken my pick.

The eighth report deals with the subject of tax avoidance and evasion, which is probably our only major growth industry at the moment, often assisted and advised—I am glad that the Minister of State, Treasury has taken his seat, because I read the next words from my notes—by gentlemen now occupying prominent positions in the present Government.

The eighth report deals with the taxation of business partnerships, the taxation of earnings from offshore employment—principally North Sea divers—and the taxation of private woodlands. Tax avoidance is taking place on a large scale in business partnerships. The PAC's report for 1977–78 revealed that in 13 cases that had been examined a total of £12 million had escaped assessment for tax purposes. The plea in mitigation made by the Inland Revenue was based on a shortage of staff of 300 to 400. It claimed that it could not investigate every case. It appears from what it examined that it had uncovered the tip of an ugly iceberg.

There are genuine difficulties surrounding the taxation of divers' earnings. There are foreign-based employers of divers in the North Sea and it is difficult to secure their co-operation in assessing divers' earnings for tax purposes. From the facts given to the PAC it appears that the cumulative tax loss in early 1980 was about £40 million from 5,000 to 8,000 people working in this sector. We were told that a legal appeal was in train which was to be heard in the High Court early in 1981. I do not know whether that appeal has been heard. It will be interesting to ascertain from the Treasury whether it has been heard and whether any progress has been made towards the resolution of the problem.

I refer briefly to the taxation of private woodlands. This is interesting in the context of that which the Government are proposing for the Forestry Commission. They intend increasingly to hand over the assets of the publicly owned Forestry Commission to private woodland owners. By legal manipulation of the tax system—the hon. and learned Member for Dover and Deal (Mr. Rees), the Minister of State, Treasury knows a great deal about the manipulation of the tax system because that was his profession before he became a Minister—private woodland owners can and virtually do avoid paying all taxes.

The case was spelt out in the eighth report and by my hon. Friend the Member for Durham (Mr. Hughes), who spoke from the Opposition Front Bench last Monday on Second Reading of the Forestry Bill. The estimated loss is between £8 million and £10 million a year. Those were the figures given to us. It is worth quoting the report, which states: The three Inland Revenue subjects dealt with above— those are the three to which I have referred—

have several features in common. In each case substantial tax losses are occurring". Paragraph 23 of the report states: At a time when the Government are seeking substantial reductions in public expenditure, we think it particularly important to guard as far as possible against avoidable losses of revenue. We accordingly recommend that the Inland Revenue Department should seek to identify any further unintended loopholes in the statutory provisions which are leading to appreciable losses of revenue where legislative remedy could be applied; and that the Government should report to Parliament the increased tax yield that might be obtained by closing such loopholes and the additional administrative cost of doing so. That was the Committee's recommendation. The response in the Treasury minute, Cmnd 8067, was as follows: They are"— that is, the Treasury— not persuaded however that a general conclusion can be drawn from the three cases cited by the Committee. After considering the course that we recommended the minute continues: to follow the course of action proposed by the Committee would be unlikely to shorten the time before a legislative remedy could be introduced, and might well lengthen it. Paragraph 7 at the bottom of the page adds: They"— that is, the Treasury— do not think that the difficulty would be solved, or indeed diminished, by the adoption of alternative Parliamentary procedures. In other words, the Government said "We are not going to do anything." There is to be no action and the Government are preparing under the terms of the Bill that received its Second Reading on Monday, to seek to increase the amount of tax avoidance by handing over to private owners more woodlands now in public hands.

I turn to the report that I desperately hoped my right hon. Friend the Member for Heywood and Royton, as Chairman of the PAC, would refer to. He deliberately kept it—I think that he did so for parliamentary effect—to the last few minutes of his speech. I refer to the twenty-ninth report, on the black economy. It deals with various forms of tax avoidance and evasion. It refers to the taxation of individuals and partnerships under schedule D—mainly small businesses. The evidence that was given to us indicated that only a minute proportion of such businesses is examined. I think that the figure was about 2–5 per cent. I am not blaming the Inland Revenue for that. It pleads a lack of inspectors. It takes three years to train an inspector, and there is a short supply of those with the right qualifications. No increase in the number of inspectors is contemplated.

The understatements of profits by those engaged in small businesses in 1978 and 1979—only a minute proportion of the total number of such businesses was examined—were 79 per cent. and 82 per cent. respectively. Seven or eight of every 10 individuals, or private companies under schedule D, whose accounts were examined had profits that were found to be more than they had indicated. In 1977 £5 million in taxes was reclaimed. In 1978 it was £12 million and in 1979 it was £14 million.

My right hon. Friend the Member for Heywood and Royton put on record certain interesting facts. He drew attention to the very low taxable incomes declared by many schedule D taxpayers. In 1976 905,000 of the schedule D assessments were on declared incomes of less than £1,500 a year. Nearly half a million—437,000, to be exact—were less than £500 a year and 183,000 declared incomes of £500 to £1,000. If we move higher up the scale, 254,000 had declared incomes of between £2,000 and £3,000.

When my right hon. Friend asked for information and wanted to know how those figures related to average earnings at that time, a note was provided that appears in a footnote in the report on page 21. It shows that in 1976–77, when private firms and individuals in business were putting in returns, the average earnings of a full-time worker were £3,370. It shows that 60 per cent. of schedule D taxpayers—small businesses—said that they were earning less than average in that year.

As Sir Lawrence Airey, the chairman of the Board of Inland Revenue, remarked at the time: on the face of it it is very surprising that people should want to be self-employed if their level of earnings is so low. Hon. Members may refer to question 4729 for that quotation.

Conservative Members claim to be the champions of small business and of the thrusting entrepreneur. My noble Friend Lord Houghton is a great expert on tax matters. Several years ago, he said that there were two ways of paying tax in Britain—pay-as-you-earn, and pay-as-you-like. How true. That has given rise to a lot of disquiet among ordinary workers. They know very well that under the pay-as-you-earn system every penny of tax is taken from them before they catch sight of a penny in their pay packets.

Workers cannot avoid tax, but many others pay as they like. That is shown by the facts that I have placed before the Committee. My right hon. Friend the Member for Heywood and Royton has quoted the figures for the estimated loss of revenue. The Inland Revenue estimated that loss of revenue to be between £2,000 million and £2,500 million per annum. That evidence was given in answer to question No. 4641. When Sir Lawrence Airey was pressed on that point, he said that he might settle at a figure of about £3,500 million.

A pamphlet entitled "Whose pocket are they picking?" has been produced by trade unions in the Civil Service. It was produced by highly responsible and knowledgeable Civil Service trade unionists who know what they are talking about. They put the figure at a very conservative £3,000 million per annum. That tax is not being paid, although it should be. The unions said that if that tax, or even a sizeable fraction of it, could be collected, the National Health Service could be completely modernised. Every hospital could be modernised. The salary bill for nurses in the Health Service amounts to £2,000 million. If we could collect that £3,000 million, we could increase every nurse's salary by 50 per cent. at a stroke. Who could say that that would be money wasted?

I understand the difficulties involved in collecting the money. The trade unions faced up to that point. Moonlighting is often mentioned. By "moonlighting" I mean the activity involved when a fellow takes a part-time job on the side. He may be a plumber, electrician, or fireman who goes window cleaning, gardening, cleaning a car or mending a television set. But the amount of money involved in moonlighting is chicken feed compared to the amounts of money that hon. Members can make from the House, or that accountants, doctors, lawyers and others can make from fees. It is not a class problem. It is spread across the board. If under-the-counter cash transactions are involved, they are difficult to discover. It is a complex problem.

The payments that businesses make to casual workers are more important. As the trade unions said, that represents a double loss to the Exchequer. There is a loss from the recipient—who often cannot be identified—and further loss results from the exaggerated claims that unscrupulous firms employing such casual labour make for tax deductions. The trade union pamphlet quotes a Financial Times article of 9 October 1979, in which Mr. Roy Tucker and Mr. Ronald Plummer estimated that between 1972 and 1978 the Rossminster group—which was closely associated with the hon. and learned Member for Dover and Deal, who is now Minister of State, Treasury—made £5 million clear profit out of tax avoidance activities alone. I gather that the hon. and learned Gentleman was Rossminster's legal adviser. All of that tax avoidance may have been legal. I am not accusing the hon. and learned Gentleman of any dishonest activities. He was acting in a legal capacity and was advising the Rossminster group on how to stay within the law and still avoid paying tax. That is perfectly proper.

Mr. Hordern

The hon. Gentleman said that my hon. and learned Friend was closely associated with Rossminster. It is quite clear that he was not. I do not know how the Rossminster group acted. I suppose that it asked my hon. and learned Friend—along with other lawyers and barristers—for technical advice. In no way was my hon. and learned Friend associated with it. In courtesy to the House and to my hon. and learned Friend, the hon. Gentleman should withdraw those remarks.

Mr. Hamilton

I said that the hon. and learned Gentleman gave the Rossminster group legal advice on how to avoid paying tax while remaining within the law. It was entirely proper for him to give legal advice on how to evade or avoid tax and remain within the law. [Interruption.] I should have said "avoid". Some companies carry out such practices. Many of their practices are legal, but, as the trade union pamphlet says, Legal avoidance involves a widespread and sophisticated industry employing some of the best brains the country has to offer in a field considered bey many to b thoroughly objectionable…where legal avoidance teeters on the edge of, and sometimes goes over the brink of criminal evasion. Special offices try to deal with tax avoidance. In the year until 31 October 1978 four offices, including one that had been set up in 1978, had recovered £11.6 million of tax that would have otherwise been lost. The offices are clearly cost-effective. As my right hon. Friend the Member for Heywood and Royton said, we are concerned about cost-effectiveness in terms of public expenditure. The trade unions fairly ask why there are not more offices. I asked that question, too, and the answer was "Well, it is difficult to get the staff to man them and to hold the staff. Each office has about 12 to 14 people in it. It takes three years to train them. We just cannot have one office in every region of the Inland Revenue."

One special office in each of the 15 regions of the Inland Revenue would mean an extra 108 or 110 staff, according to the evidence that was given to us. The calculation made by the Revenue was that each of those offices could save 15 times their salary cost if they were set up. That is a very good reason why every effort should be made to set up and expand the number of offices. Few sounder investments could be made by the Government than to speed up the recruitment and training of more tax inspectors and put them on the job of tackling this big problem.

A leading article in the trade union magazine "Taxation" dated 8 March 1980 said: At the present time, pressure is being exerted to reduce the cost of Government agencies. This is wholly commendable but if it results in a real fall in net revenue, the whole exercise becomes self-defeating. Where increased expenditure…does result in a greater yield from tax collection, common sense must surely prevail at the expense of political dogma. Our Committee expressed similar sentiments in its recommendations, found in paragraph 23 of the report. The Treasury minute, Cmnd 8125, says about our report on the black economy: The Treasury and the Board of Inland Revenue note the Committee's views about the importance of the 'black economy', and will ensure that the area is kept under constant review Those expressions are well known to hon. Members. Our recommendations are "noted"—a deadly word in the House. They are kept under "constant review"—two equally deadly words. It is "difficult". It is "cost-intensive". It requires "special techniques". We need go no further. No action will be taken that is worth while. The £4 billion—other figures of £2 ½ billion, £3 billion and £3½ billion have been quoted—of tax avoidance a year is dismissed in eight lines of print in this Treasury minute.

The reaction of the Government to this problem is very different from their reaction to social security fraud. A big article appeared in New Society, a non-political magazine, on 22 January called "Scroungermania again at the DHSS". When certain hon. Members talk about poor people and inarticulate people on social security benefits—it might be a one-parent family, an unemployed man or an old-age pensioner—they use all the emotive language that they can lay their tongues to. Such words as "scroungers", "malingerers", "layabouts" and "workshy", which are particularly heard at the onset of an election, are not used about the people that I have been talking about, the people in Rossminster or their clients, or the Vesteys. No one ever accused the Vesteys of being scroungers, but they have taken millions out of the taxpayers' pockets for years and years. They are never accused by Conservative Members of being scroungers.

A year ago the Government decided to clamp down not on the Vesteys but on the unemployed and those on social security by appointing I do not know how many thousand extra specialist staff, not to save £3,000 million but in the hope that an extra 1,000 Gestapo-type investigators would save £50 million to be taken out of the pockets of social security beneficiaries. A magazine called the "Fraud Investigator's Guide" is now sent out to these people. A caveat in the magazine warns this new Gestapo: Take care to avoid any approach which could lay you open to the accusation of pressurising the claimant into withdrawing his claim. According to a union, referred to in New Society, it goes on to say that social security claimants—not the Vesteys, for none of those people is subject to these procedures—are being visited where there is only a suspicion of fraud or abuse, and investigators are being asked to conduct interviews with the aim of persuading the people concerned to withdraw their claim. The union has dubbed the exercise the "knocker campaign". That is what we have got in this great civilised community of ours.

We have 1,000 extra investigators, not of the Inland Revenue but of the DHSS, knocking at doors where a woman might be left on her own. The investigator comes, perhaps late at night, and says, "You are claiming social security benefit. We have reason to think that you are falsely claiming it. Can I come in and discuss it with you?" Terrified, the woman allows him in. He asks questions. The pamphlet says: The benefits are being withdrawn on the basis of allegations or evidence that the DHSS knows would not hold water in a court of law. People are being frightened not into withdrawing their claim for benefit but, worse, from applying for it in the first instance. When people get to know that this might happen to them, even though they may think that they are entitled to benefit they are not claiming it.

I put those two cases in juxtaposition. I have shown how the amount of money that could be saved if we could get these tax avoidance people can be counted in thousands of millions of pounds a year, but the Government do very little about it. To save £50 million a year from people at the lower end of the income scale the Government are prepared almost overnight to find 1,000 special investigators who are going round Merseyside, Scotland and other parts of the country terrifying people into withdrawing their claims for supplementary and other benefits within the DHSS scheme. There truly is a law for the rich and a law for the poor. I hope that I have drawn attention to them.

6.9 pm

Mr. Peter Hordern (Horsham and Crawley)

I shall not follow the hon. Member for Fife, Central (Mr. Hamilton) in what he said.

Mr. Douglas

Why not?

Mr. Hordern

Because I am going to make my own speech. I wish to say one word about the intervention of my hon. Friend the Member for Honiton (Mr. Emery). I believe that from time to time the Public Accounts Committee is faced with a serious dilemma. That dilemma occurs when a public Department that comes before us has been involved in a plain over-expenditure of money compared with the Estimates.

When that Department has a contract with the private contractor, it sometimes happens—not in the case that my hon. Friend raised—that the Department itself is in dispute with the contractor and that the facts are therefore not able to be agreed beforehand. But in the case of my hon. Friend, and in other cases that I recall, it is of the essence of the matter that the Manpower Services Commission should have done its very best to agree with my hon. Friend the facts of the case before it ever came before the Public Accounts Committee. I criticise the Manpower Services Commission for not doing that.

My hon. Friend put his case extremely well. I only wish, for his own sake, that he had included in the written evidence that he gave to the Committee the figures that he gave the House today. I shall say no more on the subject.

There is a difficulty here. The Public Accounts Committee is not a court of law, and yet the statements that its members make can have a considerable effect upon private individuals and private firms. It is therefore of the essence that where agreement can be reached upon the evidence, that agreement must be reached before the case reaches our Committee.

I thank the right hon. Gentleman for his skilful and adept chairmanship of the Committee. I have known him for a long time. I only say that I should have expected nothing less.

I want to refer to two or three matters in the reports that we produced, and to a point of principle. The right hon. Gentleman mentioned the role of the Comptroller and Auditor General. As the House knows, we are shortly to produce a report on his role, so I shall say no more on that subject. However, I have always thought that the Comptroller and Auditor General should carry out a role that is strictly more than a simple accounting one. By that, I mean that he should seek to ascertain whether the taxpayer is getting good value for money. That is a most important function. However our report is treated, I hope that that is what eventually will emerge.

Let me give one example to illustrate why I think that that should happen. It is true that Ministers have the right to examine closely the operations of their Departments and call for reviews, but I notice that from time to time these reviews tend to be internal reviews, and that nothing much seems to emerge from them. It is true that Sir Derek Rayner can be invited by a Department to examine its work, to look at some small element of its practices, and to report and recommend. That, too, is a step forward. But the essential point of principle is that while it is one thing for Ministers to run their Departments efficiently it is also the responsibility of the House to see that taxpayers' money is properly spent. In my view, we do not exert that function simply by passing, on the nod, a large block of expenditure that comes before the House from time to time. For that reason, the task of the Comptroller and Auditor General should be to make a running survey of all the Departments of State to see whether we are getting value for money.

Too often, in cases that come before the Public Accounts Committee, it is plain that the public are not getting good value. Let me give one example. It does not involve hundreds of millions of pounds; in fact, it involves only a few million pounds. Year after year, we find these examples of waste. In the case of the National Health Service we found that savings of about £15 million a year could have been found from co-ordinated purchasing requirements. That was our view 18 months after the Department itself had recommended that a supply council be set up. But that was not the only occasion. Previous reports show that the Public Accounts Committee was given assurances by the Department time after time, spreading over 25 years, that it would have a central purchasing supply organisation. Yet nothing has happened.

Money is wasted when there is no co-ordinated policy for purchasing computers by the same Department, or for the standardisation of hospital design. That is not all. One might think that these were isolated lapses, but they were not. Nor does it involve the decentralisation of responsibility that the NHS has carried out. It indicates an insufficient management control of the Health Service. I yield to no one in my understanding of the difficulties that must be involved in managing a service of this kind. However, I shall give one other fact.

The huge shift of employment from the private to the public sector over many years is particularly evident in the Health Service. In 1961, there were 575,000 people employed in the Health Service. In 1980, the figure was 1.22 million. It could be said, of course, that this does not take into account the effect of the reform of the Health Service in 1975. Lest that be said—certainly, there was a transfer from the local authority departments looking after health matters in those days—let me say that the numbers lost were made up by the local authorities within two years, and the Health Service has never stopped growing since. Last year, for example, it increased by about 25,000, at a time when the Government were seeking to make great economies in the public service.

I do not believe that the mechanism is sufficient to ensure control of recruitment. I wish it could be said that recruitment consisted entirely of doctors and nurses and those who were giving a service to the patients, but that is not so. Year after year, administrators and clerks are recruited to the Health Service. I know—the Department has given me considerable assistance in this respect—that it does not believe that central control, or central knowledge of recruitment and what the various health authorities are doing throughout the country, is an essential part of its job.

The figures plainly show that there should be some sort of proper management control. The effects on the country are enormous. During the past three years the wages and salary bill of the NHS has risen from £3.3 billion to £5.24 billion. My right hon. Friend the Financial Secretary to the Treaury—I congratulate him on his appointment; I should have done so earlier—will, I know, be searching for ways in which to reduce the borrowing requirement. All I can say is that the best and easiest way to do that is to have close control over recruitment in the public sector, particularly in the Health Service.

There is one other matter that I want to mention briefly, namely, Sting Ray. In case I make myself unpopular with those of my colleagues who are interested in defence matters I should point out that I have no wish to criticise the efficacy of this weapon. I have no knowledge of how it performs. I take it to be beyond doubt that it is better than any other similar torpedo in the world. All that I say is that at a cost of £920 million it certainly should be. I cannot understand how, of all the NATO countries, it should be our unique responsibility to have a deterrent of that kind. Before any such programme is embarked upon in the future the customers should be lined up first.

The same is true of joint production. That did not happen in this instance. With the possession of both Trident and cruise missiles, which I entirely favour, I believe that the Government should have laid on some customers before this torpedo got as far as it has. I must bear the oppobrium of my colleagues for saying so.

Finally, I shall say a word about the Polish shipbuilding order. It is a classic of its kind. We were told that the purpose was to provide employment in the shipbuilding yards. With ill grace on my part, I accepted that that was the case. I never thought that it was a good deal, and I shall shortly remind the House why it was not. But that was the evident purpose of the expenditure. Now we find that half the ships ordered by Poland—for which we had provided assistance totalling £28 million from the shipbuilding fund—were being built in yards that British Shipbuilders had subsequently scheduled for closure altogether. So there could not have been a requirement of this kind. Furthermore, the Department has paid out or offered a further £57 million up to February last year, and I understand from the Treasury minute that even larger sums are envisaged.

The plan was that the sums of money to which I have referred were to be advanced to the shipbuilding yards and that they in turn were to build ships for a company the ownership of which was to be fifty-fifty as between ourselves and the Poles. But in subscribing the capital to this joint venture—for such, I suppose, it can be called—the Poles had to part with only £25,000. For the expenditure of £25,000, the Polish merchant marine had a fleet of ships built for it at a cost of at least £28 million—we are now told that a further £57 million will be spent—with which it could compete directly with our own merchant marine. If that does not appal the hon. Member for Kingston upon Hull, East (Mr. Prescott), who takes a great interest in seafaring matters, I do not know what will.

Mr. Prescott

The hon. Member makes a very interesting point, but I have always been against giving a load of money to the shipowners who order two-thirds of their ships from yards in places such as Taiwan, with which it is impossible for even the efficient German yards to compete. It is crazy to pour out public money in this way to the shipowners. We should find some other means of ordering.

Mr. Hordern

I do not think that the hon. Gentleman has quite followed me. I would not have minded if it had been a subsidy for our shipowners, but it was a subsidy for the Polish shipowners, which enabled them to compete with our own merchant marine. I hope that we shall not engage in any similar trading ventures with Poland, or anybody else, in the future.

6.23 pm
Mr. Barry Jones (Flint, East)

The hon. Member for Horsham and Crawley (Mr. Hordern) should sleep soundly in his bed tonight and should not worry about Sting Ray, because he spoke the truth.

Thanks should go to our Chairman for his very shrewd and cheerful chairmanship of the Public Accounts Committee throughout the year.

The PAC more than justified its existence when it summoned senior civil servants from the Treasury and from the Ministry of Agriculture, Fisheries and Food on the subject of Britain's financial contributions to the general budgets of the Common Market.

The estimated contribution for 1980 was over £2 billion, but there is no clear exposition of the complex arrangements for determining how much we pay into the Common Market for each year's budget. No Member of Parliament and no citizen can easily establish what part of our national funds is paid into the Brussels cashbox. We were right, as a Committee, to examine the senior officials from Whitehall about the Government's accountability for the use they make of the powers granted under the European Communities Act 1972.

The Ministry of Agriculture, Fisheries and Food estimated that the current effect of the common agricultural policy on the United Kingdom's retail food prices was to increase them by about 9 per cent., or by £2¼ billion a year. That makes no allowance for the costs that would otherwise have been incurred in providing alternative forms of support for British farmers.

With regard to the imbalance in the United Kingdom's net contributions to the EEC, it is stated that the United Kingdom's contribution, after allowing for adjustments, exceeded its budgetary receipts by £626 million in 1978 and by £845 million, provisionally, in 1979. The initial budget estimate for 1980 suggested that the excess would increase further, to £1,310 million.

In each of the three years, the United Kingdom was the largest single net contributor, with Italy the second largest in 1978, and Germany in 1979 and in 1980. The Treasury attributed this obvious imbalance in the United Kingdom's net contribution mainly to lower than average receipts in the Community, but partly to higher than average contributions.

With such huge sums of taxpayers' money as are involved each year, and which are paid over to the Common Market, it is clear that hon. Members need information about the EEC budget which is not on the current ad hoc basis and which is not in the present confusing variety of forms. The Government should present a statement to Parliament, giving the details of the EEC budget and Britain's contribution towards it and the receipts from it, in the clearest possible manner. That is the least that the Government can do for the people of Britain, who, it is no exaggeration to say, are now very disillusioned with our membership of the Common Market. The figures point to this conclusion, and so does the decision in 1980 by the Council of Ministers to reduce our 1980 and 1981 contributions by approximately £400 million in each of the two years.

As the CAP is now constituted it is a major scandal. It is hugely to Britain's disadvantage. It is clear that in the Common Market's net budget transfers, France in 1979 received CAP payments of £1,326 million. In that same year Britain received CAP payments of only £340 million. It is clear that overall the French lost to the extent of £120 million in their European budget, while Britain lost £845 million in that year.

I do not think that Britain would begrudge, say, the Dutch being in the black in their EEC payments, but why should the French find themselves only marginally in the red, while Britain is £845 million out of balance? We are carrying too big a burden for a nation with almost 2.5 million people out of work. The Government should act speedily to get a long-term and a more obvious and better deal.

6.28 pm
Mr. Michael Morris (Northampton, South)

Having spent my first year on the Public Accounts Committee I can say how much I welcomed the opportunity to question our witnesses and to take part in the proceedings of the Committee.

I should like to comment on six of the reports. First, I should like to look at the Committee's eighth report, on the Inland Revenue, and particularly at the review of tax avoidance and evasion among those employed in the North Sea. Several hon. Members have already referred to this issue.

It is worth reminding the House of the scale of the problem that we face in the North Sea, where between 14,000 and 18,000 people are employed in United Kingdom waters. At the time that we took evidence it was reported to us that between 3,000 and 5,000 of the United Kingdom residents and between 2,000 and 3,000 of the foreign residents working in the area were not paying PAYE. The loss at that time, on a cumulative basis, was about £40 million. The continuing annual loss was between £10 million and £20 million.

A problem of that scale should be considered. We questioned the Treasury witnesses and were told that a number of exercises had been carried out to investigate in what way that avoidance could be prevented. The conclusion reached was that none of the schemes that were considered was worth it.

That constitutes a major problem. Not only is there an unfair balance with mainland taxpayers; there is an unfair advantage—we draw attention to that in our report—over the legitimate operators in the North Sea—who are co-operating with the Treasury and whose costings and employment conditions cover the normal way of operating—by the pirate operators who are not meeting the terms of the law. In the Treasury minute the response says: The Treasury and the Board of Inland Revenue note the Committee's views and recommendations to which they are giving full and careful consideration. I venture to suggest to my hon. Friends that this is not acceptable. I hope that when he responds my right hon. Friend the Financial Secretary will be able to draw the attention of the Chancellor of the Exchequer to this major loophole and that attention will be turned to it in the Budget on 10 March.

I now turn to the seventeenth report, which deals with Thames tidal defences. Hon. Members on both sides of the House should be united on this matter. It is fundamental that we should prevent London from suffering the risk of major flooding. There is no argument about the need for the Thames tidal defences.

Hon. Members know that this sort of project is costly. The initial budgeted figure was £230 million, in 1973, which by 1979 had risen to £600 million—not insubstantial sums. Of that increase of £370 million, £280 million was due to inflation and a not insubstantial £90 million was due to a number of different factors.

It took a long time for the relevant Department to get round to appointing an independent three-man team to advise on the progress of the barrier. In our report, we said: We were pleased to be informed that the team had made significant and helpful contributions to the project in a number of ways, including the identification of future problems and suggestions for improved project management and financial control. I hope that the Department of the Environment and the other major Departments of State that are undertaking substantial capital schemes will not have to learn the same lesson each time. This is not the first major project upon which the House of Commons has voted, and it is not the first one that has gone wrong. I hope that in future we shall insist that these three-man teams or their equivalents are automatically appointed to projects of that scale.

The twenty-third report deals with advances to the Housing Corporation and to housing associations. This report revolves around the question not of the absolute borrowing limit for the Housing Corporation but on how the payment of interest due on any advances that were deferred up to a period of five years was to be attributed.

When we took the evidence in the report I was greatly surprised that there was this area of argument between the Department of the Environment and, presumably, the Treasury, on the question whether this interest should be counted against the overall borrowing limit. That argument went on for some years. In the end it was agreed that that interest was just as much capital borrowing as anything else. Again, we were dealing with not insubstantial sums—the figure in question was about £30 million. When we are dealing with such sums we should know that there are firm rules on the way in which transactions are to be attributed. That loophole has now been closed. I hope that the Financial Secretary is ensuring that any similar loopholes will be closed in other Departments of State.

I now turn to a report to which the Chairman referred—the twenty-seventh report, which deals with cash limits and the roll-over of programmes. Parliament has taken a great step foward on cash limits. It recognises that when controlling the Departments within the cash limits it is difficult not to want to ease the situation.

I agree 100 per cent. with my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), in his comments on Sting Ray, but the Ministry of Defence made an important point when it said that the present operation of direct cash limits was preventing it from planning properly and was militating against value-for-money purchasing. Therefore, I support the request by the right hon. Member for Heywood and Royton (Mr. Barnett) that an experimental scheme should be set up so that we can consider how to ally the obvious benefits of cash limits to a sensible arrangement for buying on a value-for-money basis.

I now turn to the thirtieth report, by the Department of Industry, in relation to Rolls-Royce. On this matter I questioned the witnesses at some length. We received evidence on what assumptions were made about the value of sterling. We must recognise that Rolls-Royce is selling to a country that is almost a monopoly buyer. The United States is and will remain the chief buyer of Rolls-Royce engines in the civil market.

The Committee concluded that there was some confusion between Rolls-Royce, the NEB, the Department of Industry and the Treasury about who held ultimate responsibility for the assumptions on the current and future exchange rates in respect of future deliveries of engines. In the end we were not able satisfactorily to pin down who should have held that responsibility. We know that it went badly wrong, and because it went wrong the company made a major loss. In the evidence we were told that with the removal of exchange control restrictions at the beginning of the Government's period of office much of the problem was alleviated.

I say to my right hon. Friend the Financial Secretary—I congratulate him on his appointment—that there is a real lesson to be learnt. The major nationalised industries must clear with the Treasury their assumptions on exchange rates. The House has heard the announcement, this week, of the Government's agreement to the BL corporate plan. About £990 million is to be allocated to that nationalised industry. I understand that the plan involves a forecast depreciation in the rate of sterling over the next few years. I believe that that is an incorrect assumption, although I may be wrong. I should like to be assured by my right hon. Friend the Chief Secretary that BL's assumption is one with which the treasury concurs. If it does not, my right hon. Friend should remember that it is for the House and the Government to pick up the tab.

I turn finally to the thirty-second report, about the Property Services Agency's disposal of the Effra site, in Vauxhall. A number of hon. Members have views about the agency's operations in many spheres, and not many of those views are complimentary. The evidence in this case, however, is a lesson for all of us.

The saga started in 1967, when the site was purchased. For eight years a number of propositions were put forward to the planning committee of the relevant local authority and, presumably, to a number of Departments. However, after that period—surprise, surprise—nothing happened. There then came the periodic and fairly predictable request from the Government that the PSA should make its contribution to a cutback in spending. The agency had to sell surplus land and buildings. It responded, and decided that the Effra site should be sold. Its value had risen to £2.5 million. It was sold for £4.25 million, making a loss on the transaction of £1.5 million.

The surprising thing—although perhaps it should not surprise us—was that the strategy in the PSA was, first, to raise its share of the savings and, secondly, to follow another Department's policy on the dispersal of civil servants. We found from the evidence that one month after the sale of the site the policy of dispersal was changed and the site was, in theory, needed again. That is the ridiculous position. We now find that the PSA agrees with us in principle that it is better to own than to rent offices. There is, however, the problem of how it can make its contribution in the future.

Our conclusions have not had a satisfactory response in terms of the Treasury minute. They were

  1. "(i) to devise a clear and cost-effective policy of increased Crownownership in the provision of government office accommodation;
  2. (ii) to avoid undeveloped sites being held unproductively for long periods at a high cost in interest."
In terms of the millions of pounds involved, this issue is not of the scale of other matters that the PAC examines. However, the combination of time, covering more than 12 years, and an almost Pavlovian response to Government policy when that policy changed a few days after decisions were made, make it a matter that should be taken on board.

6.44 pm
Mr. Dick Douglas (Dunfermline)

I shall take up some of the points raised by the hon. Member for Northampton, South (Mr. Morris) because I do not necessarily wholly agree with his interpretation of some aspects of the reports. It has become evident during the debate that—to use a trite phrase—the PAC is a broad Church. We seem to contain all shades of political opinion, and that leads to the most unusual PAC debates. My experience of the PAC from 1970–74 and, subsequently, to 1979 is of muted occasions on which hon. Members from time to time exchanged pleasantries. It is no bad thing that my hon. Friend the Member for Fife, Central (Mr. Hamilton) and others have indicated the deep concern that is felt in the House and reflected in the country about the topic that we are discussing, namely, the essential importance of the House in the control of public expenditure and accountability for it.

The House is divided not just on the basis of those who want more or less public expenditure. It is divided also about the uses to which public money should be put. None of us, on either side, should be complacent when public money is misused or misapplied.

I express my praise for my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) for his excellent chairmanship of the Committee. I have not totted up the value of all the reports before us, but they may constitute our contribution to ensuring an increase in the public sector borrowing requirement. My right hon. Friend has managed to guide the Committee and obtain information from witnesses in a most pleasant and congenial way.

One of the most difficult areas for modern government concerns the interrelationships between Departments of State and industry. Key aspects of these relationships are concerned with the question of where Government money goes. It is therefore the policy of the Comptroller and Auditor General to follow its use by techniques that ensure public accountability. In modern terms this means much more than the traditional financial and reliability approach. It now must mean adopting a value-for-money approach, including an examination of the effect of this and the efficiency of the expenditure.

If that approach is coupled with the fact that the Government, in one guise or another, may be the sole or dominant shareholder in an enterprise, the danger is all too prevalent that the Committee or the Comptroller and Auditor General may try to second-guess the management of these enterprises. We should try to avoid that danger.

I have one or two examples to illustrate what I consider to be the problem of second-guessing. I take as my text, as it were, the words of Sir Arthur Knight, who was chairman of the National Enterprise Board, in his lecture to the Institute of Fiscal Studies on 11 November last. He said: Government must find it difficult to take good industrial decisions not only because it has less access than businessmen to all the facts, but also because those taking the decisions do not have the prospect of gains which accompany success or the penalties of failure. Moreover, their decisions are influenced by other pressures not relevant to the industrial issue. The country wants to know, from the debate and the reports, where the responsibility lies for misuse—I use that loose term—of public funds. Who bears the penalty?

I use the example cited by the hon. Member for Northampton, South, namely, the Rolls-Royce issue. The report refers to the family of the RB211 engines. It states: The annual report and accounts of Rolls-Royce Ltd. show that in 1979 the company incurred a pre-tax loss of £.58.4 million. In the report the chairman stated that the most important factor affecting the 1979 trading result had been the continued weakness of the United States dollar against sterling."— in a phrase, the North Sea oil syndrome.

The evidence shows that during the earlier period the company had made a profit because the exchange rate went the other way. For the first time in my experience we took evidence from the chairman of the company, and it was most revealing. On all such matters we have to be careful, when ascertaining the facts, that natural justice is served. We should try to bring into the orbit of the Committee all the details and relevant evidence when determining who are the most appropriate people to give evidence. We questioned the then chairman of the company, Sir Frank McFadzean. We were all but persuaded that it was a difficult decision to take about exchange rate considerations.

The shareholders of the company, who were the NEB, the Treasury, and the Department of Industry, were all aware of the exchange rate assumptions being used by the company. For the period from 1978 to 1982 Rolls-Royce had assumed and used an exchange rate of $1.92 to the pound. In the same period, the NEB had suggested a rate of $1.82, going down to $1.67 to the pound.

Different assumptions had been made in 1979 by Rolls-Royce, the NEB and the Treasury, but the downward trend was not in dispute. A problem for all of us is how far one guides and persuades managements in such decisions. What is disturbing to me is not the fact that the company got it wrong—exchange rates are difficult to gauge for six months ahead, far less over a five-year spread—but the method of approach of the NEB, the Department of Industry and the Treasury. That led us to say, in paragraph 32: Nevertheless, it is normal commercial practice to protect corporate earnings and net assets by seeking to avoid undue currency risks and Rolls-Royce now intends to follow this practice It is able to follow that practice partly because of alterations that are taking place in exchange controls and further discussion with the Bank of England.

It is difficult to be hypercritical of the company, but I cannot be satisfied with what I consider to be stonewalling evidence by the Treasury witness, in this case Mr. Carey. I refer to page 42, question 5668. That is a masterpiece of stonewalling. I do not think that the Committee or anyone else got anywhere near an understanding of the discussions that took place between the company, the NEB and the Department of Industry, which arrived at a consensus about the downward trends of exchange rates without any of the parties knowing what assumptions about exchange rates would be used. I find that unsatisfactory. That is a major difficulty for the Government and their relationship with a company engaged in a highly difficult and capital-intensive venture.

My second example is what I choose to call the Portavadie saga. That concerned a village—if I may dignify it as such without offending hon. Members who come from the West of Scotland—called Pollphail. In March 1978 the sum of £3.3 million was spent on building workers' accommodation. It may be difficult for the House to grasp that it had been the practice of the Public Accounts Committee not to participate as other Select Committees have tended to do, or to see the situation on the spot. The workers' accommodation was built on land owned not by the relevant Department but by the platform constructor who was concerned with a building lot adjacent to the workers' accommodation site. The matter has been the subject of much public comment in the Scottish press, and I am concerned to know where responsibility lies.

In The Scotsman of 14 January we are told that on Christmas Eve a gentleman called Mr. Iny paid £175,000 for the village and a few days later sold it for £450,000. It may be said that that is good business. The Financial Secretary nods his head. I digress to refer to a matter to which I have referred in the House previously. The Ministry of Defence owned houses in my constituency and sold them to an Edinburgh builder for £720,000. There were 300 houses, at a rock-bottom value of £2,000 per house. The houses are being advertised in the Dunfermline press at £9,000 each. I shall ask the Comptroller and Auditor General to examine that.

I am not knocking public servants or chastising them, but the public are entitled to know what happens when such mistakes are made. It is all very well our debating such subjects where we have lovely guarded Treasury minutes, but the public want to know what happens, for example, to the promotion prospects of an individal in a Department, or whether he is censured. Those are disgraceful happenings. In terms of total public expenditure the sums involved are not large, but we took further evidence from Mr. Gillett and Sir Jack Rampton which was a marvellous exercise in passing the buck.

I can accept the Treasury view that if the building dock, which cost well over £11 million, had not gone ahead, there might have been a loss of orders. However, the Offshore Supplies Office and the Department of Energy were much too close to the oil company at that time. There was a clear case of that at the public inquiry in connection with Kishorn. Individuals from the Department and the OSO were asked about projecting the demand for concrete production platforms for the North Sea. Invariably they said that their evidence came from the oil companies, but the companies never appeared at the inquiry.

Massive sums of public money, totalling £14 million, were spent, but I suggest that no positive use will be found for that building dock. We have seen £3 million of public money spent on accommodation for which the legal entitlements of the Secretary of State and the nation were not safeguarded.

The third example of the horror stories appears in the twenty-fifth report, which deals with the Royal hospital for sick children in Glasgow. In 1971 the hospital cost £4 million, but now we are told that it will not be fully operational until 1982 and that the estimated cost of the remedial work necessary to make it operational will be £7¼ million. The mystery is that all but £32,000 of the contract price was paid for buildings that are totally unsatisfactory. Whose head rolled? Where is the public accountability? The public want to know the answers to those questions.

Next, I want to know what happens when we fund nationalised industries or alter their funding, albeit for political purposes. In the thirty-second report we look at the Government's tentative proposal for injecting private finance into the BNOC—a proposal that has not been fully explained. On the upstream sector of the BNOC it is being suggested that some form of bond, "Granny" or otherwise, will not mean that the BNOC will have to pay more for its capital.

I hope that the Chief Secretary will explain how the proposal to privatise the upstream sector of the BNOC can fail to involve the corporation in having to pay more for its capital, and will not give numerous people any title to ownership of the North Sea oil resources.

I accept that there is a balance to be achieved and that it will be difficult to achieve it. We are not over-rigorous and over-critical in the examination of public expenditure, particularly when it relates to industrial matters. If we give the impression that no one in public corporations can undertake that task, we shall diminish initiative. All too often we avoid probing the political and economic benefits that were in the minds of Ministers and civil servants at the time. There is a greater danger in our being too slack in our examinations.

I do not want to trespass on the report that we have been compiling on the role of the Comptroller and Auditor General, but we have to be careful that in putting more power into his hands we do not put him into the position of feeling that he is trying to second-guess the companies in which public money is invested.

Those are all vexing and difficult subjects. My plea is that individuals who want to reduce or advance public expenditure, particularly those in the policy-making bodies of our major parties, should read our reports, particularly those that we have been discussing today. If they did so they would have a much more sober and realistic view of what happens to public expenditure, and they would appreciate that in the present context it is difficult to call people to heel for the misuse of public money.

7.7 pm

Mr. Michael Shaw (Scarborough)

I welcome the chance to follow the hon. Member for Dunfermline (Mr. Douglas) because, like me, he has returned to the PAC, which seems to be even more fully occupied than it was during our earlier presence at its deliberations several years ago.

Judging by the past 18 months, the amount of work that we have got through—and I hope that the debate shows that we have been delving fairly deeply into a number of subjects—makes one wonder how any recommendations that we make will be fitted into a programme that already seems so heavy. Nevertheless, I am sure that ways will be found of doing that.

In spite of all the new Committees that have been set up in the House, the work of the PAC is as important as ever. We may develop a new role, but we shall have the same relationship with other Committees and with the House as in the past.

I add my congratulations to those paid to the right hon. Member for Heywood and Royton (Mr. Barnett), the Chairman of the PAC. He has worked hard, because he has had to do so much preparation before the meetings. We have had to read a lot, but he has had to read much more. He has done his work well and efficiently, and has led us through a great deal of useful work in the past 18 months. Of course, we should also congratulate the staff who have worked with him.

I wish to deal first with the twenty-eighth report on the United Kingdom contribution to the EEC. I do not want to discuss the amount of the contribution, because this is not the debate in which to do that. In considering the report and our discussions it is clear that we have to think carefully about how we are to keep a proper control over the money that goes into Europe.

We cannot think alone in this matter. No doubt other countries are wondering the same sort of things that we are wondering. The Community, the Commission, the European Parliament and, above all, the Court of Auditors are wondering how this control is to be kept. The spending of the money is being carried out in so many different countries under the authority of so many different people, yet we all have a vital interest in ensuring that the money is well spent. There must grow up a working relationship between ourselves, the other countries of the Community and, above all, the Court of Auditors. I hope that it will be part of our duty in the future to seek that relationship so that we can better monitor the moneys that we pay into the Community.

It has been said that, unfortunately, we have too much consensus politics. Perhaps that is so in the House, but I hope that it is not a criticism made of the Public Accounts Committee. That is one of the great things about the PAC. We do not sit in ranks opposite each other. We sit around the table and discuss. To a large extent, party differences do not exist, and I hope that that continues. If we have to break it here, so be it. I go along with the hon. Member for Fife, Central (Mr. Hamilton) in saying that I shall seek a consensus with him about speaking for less than half an hour. He did not keep to his bargain, but I hope to keep to mine.

I wish to discuss two matters, which have been touched on before, as have most matters. The twenty-seventh report deals with the possibility of carry-forwards. As explained in our report, the budget calculation—the estimates for the annual public borrowing requirement—can make allowances for any known under-spending in the previous year, provided it is still considered necessary to spend the money. Now that we are using cash limits, under spending in any one year cannot be offset in the following year. In assessing the matter, all had the feeling that the Treasury had accepted that there were certain advantages from some form of carry-forward provision. It was fearful that in acknowledging that it might at the same time give an opportunity for releasing control over spending—control that it feels it is at last managing to achieve.

Some form of carry-forward provisions should be achieved, by means of money which has been authorised but not spent, or delayed for one reason or another. That could not be done generally. In a wide area of Government expenditure—salaries, routine every-day expenditure, and so on—it is clear that there is no such need. There are other areas where it is impossible to forecast exactly when expenditure will become due—for example, in defence, where there are complicated contracts for provision of new products, ships, weaponry, research, and so on. The time period in which the money is to be spent cannot be exact, but must upset any planning if no provision for carry-forward is made. For instance, with regard to transport, some winters are mild and some are severe. Sometimes road building works go ahead even faster than the contract allows but others are held up for months because of bad weather conditions. In building bridges unforeseen problems may arise and therefore delays may take place. Good planning demands some provision for carry-forward.

What are the problems—the facts—of not having a carry-forward scheme? The first fact is that rather than risk exceeding cash limits, Departments always deliberately aim to spend substantially below their limits because otherwise they would be in difficulty. That might lead to a Department seeking a large limit so that the actual shortfall will leave them with their real expenditure estimates. It may be argued that that is the normal form of haggling between Departments. Surely it is better to plan on a real estimate of what is intended to be spent and a figure that can be accepted by both sides, instead of people making allowances and deliberately juggling the figures in order to arrive at a final solution. A limited measure of carry-over would be helpful.

I congratulate my right hon. Friend the Financial Secretary, and refer him to the financial regulation of 21 December 1977 of the European Community. In that, provision is made under article 6 for such an occurrence. It states: In the case of the appropriations referred to…the Commission shall submit to the Council and shall forward to the European Parliament before 1 May, the requests to carry over appropriations, duly substantiated, made by the European Parliament, the Council, the Court of Justice, the Court of Auditors and the Commission itself. That is because they all have separate budgets, But, more important, it continues: Unless the Council, acting by a qualified majority after consulting the European Parliament, decides otherwise within one month, the carry-over of these appropriations shall be deemed to have been approved. That is the right way with which to deal with these carryovers. They should be regarded as being normally acceptable and accepted. Only in exceptional cases will they be turned down. In that way we can get a better estimation of expenditure, and things will work more smoothly, without the Treasury losing any real control.

The other point that I wish to make has been touched on quite a bit in the debate. It concerns the Sting Ray project, referred to in the sixteenth report. The details have been spelt out. The project has gone on for a long time. I and, I believe, others have been criticised by hon. Members whose interests lie in defence for raising the matter on the grounds that it is knocking the Navy or is no help to our prospects of future sales of Sting Ray. However, under the terms under which the PAC acts we have to consider such developments.

Ten years ago, the scheme was estimated to cost £82 million; by October 1978 it was estimated to cost £700 million, and by September 1979, £920 million. We made it clear that cash was not the only criterion. Our report spells that out. We stated: We feel bound to say on the evidence available to us, we were not convinced by MOD's case for spending an additional £720 million, which is more than the alternative. However, the decision to procure Sting Ray depends not only on the cost of the development and production programme as compared to that of alternative systems but also on the technical capabilities of the different weapon systems…Without a balanced technical assessment it is impossible to come to a final judgment about the value being obtained from the money spent and committed to Sting Ray. We therefore suggest that the Defence Committee of the House investigate the capabilities and cost effectiveness of the two weapon systems. There is a danger that if people read only our criticism of the advance costs there will be an adverse reaction. However, we go on to say that the Defence Committee must make the final assessment. We should not be deflected from doing our duty on the PAC by the fact that the media and others pick up only parts of our report. In a free society we have a duty to report and those who comment on our report have a duty to consider the whole of it. It is an important matter. Some people do regard our action as disadvantageous to them, but I believe that we were entirely right in our report.

Like my hon. Friend the Member for Honiton (Mr. Emery), I regret that we did not hear earlier the information that we heard today. We must continually reassess the way that we take evidence in the PAC and the people from whom we take evidence. We must be as fair as possible. Having listened to the debate, I am sure that we shall continue to consider how we can improve matters.

Mr. Douglas

I am sorry that the hon. Member for Honiton (Mr. Emery) is not in the Chamber. Even had we had the information, I do not see that we would have come to a different conclusion on the figures. The hon. Member for Honiton is in a privileged position. He attended the press conference and has had time since December to include other information, although he has not done so.

Mr. Shaw

In fairness, he has.

All members of the Committee will agree that the matter should be reconsidered in the light of the debate. I hope that the results of our deliberations have been duly noted and that our reports will be found to be of use.

7.25 pm
Mr. George Foulkes (South Ayrshire)

I am only the second non-member of the PAC to have participated in the debate. That is a pity. It is no critisism of the Chair. It is perhaps a criticism of other hon. Members. It is a vital debate, concerning important matters. The other non-member, who was from the Conservative Benches, spoke at length on his personal interest. My interest is a constituency one. I believe that we are elected to represent our constituency interests and not our personal interests.

The eighteenth report covered the work of the Scottish Development Agency and the Scottish Economic Planning Department. I welcome the opportunity to consider the PAC's comments on the Stonefield vehicle company and the Treasury minute that purports to reply to the report. The Stonefield vehicle is Scottish-designed. It was produced by Jim McKelvie, the sort of entrepreneur who Conservatives constantly tell us we should be encouraging. It is a useful cross-country vehicle, just a bit bigger than and a step up in the capability of the Land-Rover. Until recently it was built in Cumnock, in my constituency. The company was effectively a subsidiary of the SDA. That fact is important in the context of my later remarks. The SDA had close control over the management of the company.

The vehicle was proceeding naturally through the development stage of any such sophisticated vehicle, when, unfortunately, the general election was called. 3 May 1979 is one of the black days in the company's history. The other is 1 August 1980, when it went into receivership. That was one week after the production of the PAC's report. I do not suggest a cause and effect. The reason that it went into liquidation was simply the Government's decision. First, they changed the guidelines of the SDA and required Stonefield to bring in a private partner to invest in the company at a difficult time for any investment, let alone a risk investment.

Sir Albert Costain (Folkestone and Hythe)

To which report dealing with private enterprise is the hon. Gentleman referring?

Mr. Foulkes

The change in the Government guidelines of the Scottish Development Agency, a specific act of Government policy, is referred to in the eighteenth report. I am glad to see that the hon. Member for Folkestone and Hythe (Sir A. Costain) put his name to that unanimous report of the Public Accounts Committee.

The second part of the Government's decision which adversely affected Stonefield Vehicles was the limitation of finance. Money, was requested by the Scottish Development Agency and Stonefield Vehicles earlier last year, but the full amount was not given to the SDA.

I have given a brief history of the matter. I now wish to analyse the views expressed by the PAC and the reply given by the Treasury. The Public Accounts Committee report rightly criticised the Government. Quoting the Scottish Development Agency, the report said: The SDA pointed out that the requirement to bring in a private sector partner had undoubtedly caused delay and thus some detriment to the project, particularly to its marketing and sales efforts. The unanimous conclusion of the Public Accounts Committee, having heard all the evidence, was as follows: But we judge that the Department's decision that the SDA should adopt the revised policy in the new Guidelines"— that is the answer to the hon. Member for Folkestone and Hythe— for this particular project has had a marked effect on the pursuit of the company's sales efforts which without doubt are the key to the success of the whole project. No one denies that. The Committee then said: We can only regret"— that is a fairly strong expression of opinion from the Committee— that there was not sufficient flexibility in the provision of public finance to enable the successful development of this vehicle to proceed smoothly to the production phase, in order to safeguard the substantial investment of public funds already made. What was the Government's and the Treasury's reply?

Mr. John Home Robertson (Berwick and East Lothian)

As I am sure my hon. Friend is aware, Stonefield Vehicles is not unique in being affected in this way by the new guidelines imposed by the Government on the Scottish Development Agency. Another extremely important firm, a manufacturer of electric motors called LEMAC, in my constituency, is subject to the same problems. That firm has been affected in exactly the same way but, fortunately, still has its head above water. The point raised by my hon. Friend therefore has wide implications.

Mr. Foulkes

My hon. Friend is quite right. There are a number of other cases. I am glad to see my hon. Friend the Member for Stirling, Falkirk and Grangemouth (Mr. Ewing) present, because he, as a Scotsman and as Opposition spokesman for industry in Scotland, repeatedly pointed out the deleterious effects of the change in the guidelines. It has affected firms in every way. Stonefield Vehicles is one of the worst affected. That is one reason why I have highlighted it today, although clearly I also have a strong constituency interest.

I turn to the Government's reply to the strong criticism of the Public Accounts Committee. I hope that later in the debate there will be a further explanation of this from the Minister. The first point in the reply was as follows: In reaching his decision not to approve the commitment of further substantial funds, the Secretary of State judged that the Agency could not by itself obtain the necessary expert marketing, sales and other support which would be essential for the success of the project". That is the purported reason. It was given in the report and I have heard it elsewhere. But this small company already had inquiries from Malaysia and from Kenya for what is undoubtedly a world-beating vehicle. Subsequent events have shown that, even in receivership, the company received inquiries from the Government of New Zealand for a quotation for that vehicle.

Secondly, only a few months prior to going into receivership a marketing director had been appointed by Stonefield Vehicles with the knowledge and agreement of the Government. That marketing director, although he was appointed with the Government's knowledge and approval, was not given much chance to get moving. I hope that the Public Accounts Committee will give further consideration to this matter. It could certainly be examined in much greater detail. I am sure that that marketing director, who was in the process of producing a marketing development plan, could give some interesting and revealing evidence to the Public Accounts Committee.

Mr. William Hamilton

Does my hon. Friend believe that even at this late stage the project can be retrieved, assuming that the PAC reinvestigates it? Does he not also believe that at this critical moment in the venture the Scottish Office ought to have a senior Minister on the Government Front Bench to brief the Treasury on this matter?

Mr. Foulkes

I believe that it can be retrieved. I see a Whip making a very quick exit. He looks more like an athletics blue than a boxing blue as he departs from the Chamber. It is because I believe that the situation can be retrieved that I am working as hard as possible, as are other people, to try to achieve that end. In reply to my hon. Friend's further point, as a matter of courtesy I informed the Under-Secretary of State for Scotland—the hon. Member for Edinburgh, North (Mr. Fletcher)—earlier this afternoon that I should be raising this matter in the debate.

Even if my first two points are not accepted, it is possible in any case to contract in marketing, sales and service—if they cannot be provided fully in a small company—without the need for private investment as the Government required. That was never even considered. That is my reply to the first part of the Government's reply to the Public Accounts Committee.

The answer given by the Treasury minute is different from answers given elsewhere by other Government spokesmen. The reason given elsewhere for the Government's decision was not one of inability to get marketing, sales and service support, but a change in guidelines to the Scottish Development Agency. That has been conceded elsewhere—and indeed, in an Adjournment debate—by Ministers. The other—this is very revealing—is that when the Under-Secretary of State for Industry visited my constituency, in speaking about this very matter in Girvan he attacked me for raising the subject and looking after my constituents.

The Under-Secretary of State said, in a revealing statement, that perhaps the Stonefield vehicle was rather like Concorde: it might be technically advanced and a world beater but there was no market for it. I shall not enter into the merits or otherwise of that argument, but it is very different from the answer given in the Treasury minute and elsewhere.

Thirdly, the Government allege in their reply that substantially more time was allowed to find a private partner. That is new information—quite different from what was said when the Public Accounts Committee looked at the matter. But in reality the £600,000, which was much less than the £2 million that was requested, gave only six months, additional time to Stonefield Vehicles to try to find a private partner at a time when investment was declining rapidly in any case in every sector of the economy and when Government-induced uncertainty surrounded the future of Stonefield Vehicles. That is certainly not substantially more time.

The Treasury's main witness in evidence in its reply was the company TKM—Tozer, Kemsley and Millburn—who took an option to purchase the stock. That is the private company that is not mentioned by name. The Treasury's reply says that the subsequent decision not to purchase "would appear"—that is a cautious statement— to vindicate the Department's judgment. In this case, as in many others, appearances are deceptive.

One of the things that the reply does not say—it is very short—is that TKM maintained a strong interest and maintained inquiries in Stonefield Vehicles after it decided not to take up the option. Why did it maintain interest? Was it perhaps because it thought that in those circumstances it would get the company at a bargain price? Was that a strategy of TKM?

I accept that the judgment is always fine between safeguarding the previous investment of a few million pounds by the Government by a further trances of money and cutting their losses and pulling out, but I ask hon. Members to remember that the SDA was set up to take calculated risks. Other institutions exist to make commercial investments. The SDA was given a wider responsibility and it had a social purpose as well. Also Stonefield was at a crucial stage in a logical development when the plug was pulled by the Government.

Mr. William Hamilton

My hon. Friend will want it to be put on the record that the Scottish Whip went out when I drew attention to the fact that no Scottish Minister was present. He obviously went to seek one, but so far one has not arrived. Does my hon. Friend not think that it is an absolute contempt of the House that in a critical matter of great Scottish interest no Scottish Minister is here to brief the Treasury?

Mr. Foulkes

I cannot but agree. As I said, I warned the Under-Secretary earlier in the day that I would be raising this matter. I am sure that the Government Whip can confirm that. This is not unusual in the case of Stonefield. Despite repeated requests, neither the Secretary of State nor the Under-Secretary has visited the factory or come to see the vehicles, although Opposition spokesmen have done so.

The people of Scotland, of Ayrshire and in particular of Cumnock are now comparing recent events. I welcome the Government's decision to invest £990 million in British Leyland, but cannot help comparing that sum with the £2 million which would have kept Stonefield Vehicles going.

Another comparison is with a somewhat more dubious investment. A newspaper that I do not oftern read, The Daily Telegraph, under the headline Car Company Seeks More Aid", said: The De Lorean Car Company, which has already been guaranteed £67 million in taxpayers' money under a controversial deal…is appealing for more State aid. It has applied to the Northern Ireland Office for help with a 'short term working capital requirement'". So one can compare the few million pounds needed by Stonefield with the tens of millions of pounds already given, with a request for more, by De Lorean Cars in Northern Ireland. One must also compare the products—one a sports car, a luxury product, hardly vital to the development of our economy; the other a useful vehicle which has already been tried by public utilities and, with a little public expenditure, would have been bought by fire and ambulance authorities throughout the United Kingdom. The comparison is disgraceful. Scotland and Cumnock are getting a poor deal from the Government and the Scottish Office compared with the treatment of Northern Ireland.

I should like to deal now with what has happened to Stonefield Vehicles since 1 August, when it went into liquidation. I pay a great tribute to the former work force who have set up the Stonefield action group and have been campaigning valiantly to save their jobs. They have even offered to work for nothing if necessary to keep the company going; not many people would offer to do that. I pay tribute also to the Cumnock and Doon Valley district council, which has also been campaigning.

There has been a great deal of publicity for the Stonefield vehicle, all of it favourable, saying what a marvellous vehicle it is and how disgraceful it is that it should have been allowed to go under. There have been further expressions of interest from potential purchasers—from New Zealand, although the company is in receivership, from Nigeria and from other countries.

I pay tribute also to the receiver, Mr. William Brownlie, who has done a good job in trying to find purchasers, given the unfavourable economic climate and the Government's damning action.

However, I am not so full of praise for the Scottish Development Agency. It has devoted a great deal of time to the matter, but I have some doubts about its commitment. I wonder whether, in the back of their minds, the SDA and the Scottish Office have thought that if Stonefield proved successful under some new arrangement their operation of it would be seen to have been open to criticism.

All of us who have been concerned with this vehicle desperately hope that it will succeed. As my hon. Friend the Member for Fife, Central (Mr. Hamilton) said, we hope that it will be given a last chance. It was not helped by the Government's action. I hope that, even at this late stage, they will have second thoughts and perform a U-turn. The Secretary of State for Industry agonises over British Leyland. I hope that the Secretary of State for Scotland will, in the light of the things that I have said today, have an agonising rethink about Stonefield, and that the company will be back in operation again, producing vehicles which can go out into the field and help to build up our economy.

If the worst comes to the worst and nothing comes of the future of the vehicle, I hope that the PAC, whose work I continue to commend, will have another look at the matter and learn some lessons from the saga of Stonefield to ensure that it does not happen again.

7.48 pm
Sir Albert Costain (Folkestone and Hythe)

I think that this is the twenty-first debate on reports by the Public Accounts Committee in which I have taken part. I was appointed a member of the Committee 20 years ago and have served under five Chairmen.

This debate has been fascinating. I was fascinated by the hon. Member for Fife, Central (Mr. Hamilton). One could see the glint in his eye when he said "There is a lot of political stuff in this and we must make the best of it". But the hon. Gentleman forgot—or did he?—that what the reports criticise is a period when his Government were in power. It is his Ministers to whom these reports refer, but one never knows with his party from which side of the fence he would be criticising.

The PAC has been in existence for 120 years, and one of the traditions is that the ex-Chief Secretary becomes Chairman in Opposition. I pay a terrific tribute to all the Chairmen, not least the present one. For the first year or two years during which the Chairman holds office, he is the Chairman of the court that is prosecuting him. I am sure that nowhere else on earth does that happen. However, the PAC is so free, or was so free, from political bias that no one has ever objected to that. I can produce no evidence against the present Chairman to show that he has not been critical of himself. He has managed to get the entire Committee to agree to the criticism of himself. I doubt whether some of our learned judges could do that.

I shall not go into all the details of the reports. It has been clear throughout all the PAC debates that I have attended that they are the best way to clear the House of Commons. In the Chamber at present we have the members of the PAC and one or two hon. Members with an interest. The hon. Member for South Ayrshire (Mr. Foulkes) rightly referred to his own constituency. He talked as if he were criticising the Government. If he had read the report he would have learnt that it refers to events two years ago.

Mr. William Hamilton


Sir A. Costain

Let us get it right. I do not think that the present Government were in power in March 1979.

Mr. Foulkes

The hon. Gentleman should have read to himself more of the March 1979 quotation.

Sir A. Costain

I do not want to quote the entire report.

Mr. Foulkes

In March 1979, under the Labour Government, the Scottish Development Agency, In accordance with the policy of the Labour Government, became the major shareholder in Stonefield and put a substantial sum into the company to allow it to go into the development stage. If the hon. Gentleman reads the report he will find that the black day for Stonefield came during the period of office of the Conservative Government.

Sir A. Costain

The hon. Gentleman is saying that subsequently it transpired that the Labour Government had made a rotten investment. It is no good blaming the present Government because the company could not sell the vehicles that it produced. That is what it is all about. If a person buys a company and he cannot sell the product, he cannot blame the Government. I know that it is jolly good political stuff for Opposition Members to blame the Government for every failure when companies cannot offer products at a competitive price. We are now discussing the PAC's reports and I do not want to make political points.

The hon. Member for South Ayrshire is one of the few Members who has intervened in a PAC debate to put up a case for his own constituency. In doing so he did a jolly good job. I am sure that his local newspaper will revel in what he said tomorrow morning. It will be delighted and the hon. Gentleman will have a happy weekend. Let us get down to facts. In the previous five PAC debates in which I have participated I have said that if we are to criticise individuals and companies outside Parliament we should in fairness take evidence about them. That is coming through fairly clearly.

It is generally forgotten that the PAC was formed primarily to criticise the accounting officer. He is the chappie who is put in the dock. It is something of an anomaly that a man who controls a staff of some 70,000 or 80,000 should be responsible for some of the silliest litle things as well as some of the bigger things. He cannot possibly know of everything that is going on. He has to delegate. He has to give evidence to the PAC and he has to learn what is going on in the Department, as does the Minister. The civil servants know that if they step over the line they will find eventually that the issue is brought before the PAC and it will travel all the way up and down the Department. Of course, that is a very good thing.

I do not agree that members of the PAC should refer to individual reports. All that they are doing is transferring into Hansard what we have said in the reports. After all, other Members of the House are not listening to them. The debate would be much better if the Chairman made his statement, the Treasury Minister replied and non-members of the committee made constituency points, as did the hon. Member for South Ayrshire. That is what it should be about.

In the past two years we have established many more committees. We have many more Select Committees, and I know it. I sit on the Committee of Selection. It is the best way of making enemies and friends of which I am aware. One makes more enemies than friends. These Committees take an enormous amount of time for any hon. Member. I spend between 10 and 20 hours a week—mostly at weekends—in preparatory work for the PAC. The other Committees on which our colleagues are sitting make the same demands.

We shall find that the PAC debates become less and less well attended. However, we shall continue to hold the debates because the Committee is that sort of beast. We feel that our work is so well done that we should have a larger audience. That is like amateur dramatics in my constituency. It is necessary to whip up support. From an expenditure point of view it is right to have these debates, but I wonder whether there is the need to give the parliamentary time that we demand for them.

7.57 pm
Mr. John Prescott (Kingston upon Hull, East)

I did not intend to participate in this debate. Indeed, I indicated to one of the Ministers involved in the Fort William project, in which I have a long-standing interest, that it was not my intention to speak. However, when I saw the hon. Member for Honiton (Mr. Emery) rise to make a statement on the Fort William centre—a controversial issue with which I have personally been involved—I felt that it was necessary to make my own statement on the facts as seen by the Public Accounts Committee. The hon. Member for Honiton disputes the conclusions drawn by the Committee in not only the consequential thirty-fifth report but the twelfth report, the major report on this development.

My interest in the subject is as a seaman. My union organises the divers, and I have a certificate for deep sea diving. The hon. Member for Honiton was aware of that and he used to invite me to the receptions that he gave, as a Minister, for those involved in North Sea diving and safety and training. There is controversy about the contracts and terms of the diving school, but it has made a contribution to reducing the tremendous number of deaths among North Sea divers. I do not think that there is any doubt about that. We are pleased that the institution was established and has contributed to saving the lives of men who are engaged in the most dangerous of occupations.

My major concern is to press on the Government, and especially on the Treasury, that if there have to be contract arrangements, as presumably there have to be, the school should be reformed or financially reorganised so that it may continue to train divers and make a proper contribution to the saving of lives in an extremely dangerous occupation. Certificates and regulations are on the way, but the diving school continues to be at the heart of the problem.

In his evidence to the PAC, the hon. Gentleman made clear something for which I pressed in 1972, namely, that it is essential that divers are certificated. It was and is essential that no diver should be diving who does not have the proper qualifications. In that respect the school plays a crucial role.

The hon. Member for Honiton said in evidence to the Committee that whether the school would be profitable would depend on whether it could be guaranteed that divers would be sent there. The cost of training a diver is about £4,000 or £5,000. If companies can avoid paying that amount, they will do so, and have done so. Inevitably the State had to step in through the Manpower Services Commission and provide public money so that training in the most profitable sector of industry could be carried out. That is a condemnation of the oil industry, which resisted a training levy.

I have been most interested in the Public Accounts Committee's investigation. Indeed, I pressed for that investigation. As the hon. Member for Honiton knows, when the contract was first awarded in 1975 I protested to my right hon. Friend the Member for Doncaster (Mr. Walker), who was then a Minister in the Labour Government. I disapproved of the way in which the contract had been given to Shenley Trust, because it involved an ex-Minister. That ex-Minister, the hon. Member for Honiton, and I discussed the matter. He asked me whether I would be interested in joining him and helping to establish the training school. I retorted that I did not believe that Members of Parliament should get involved in business interests. I said that they should stay out of business. This affair more than bears out that judgment. That is one reason why I was most concerned about the terms of the contract that was given in 1975.

I have some sympathy with the point made by the hon. Member for Honiton. When a Select Committee investigates a matter, hon. Members will sometimes be involved. The Select Committee will sometimes have to make judgments about those hon. Members. That is a difficulty if one is involved in business. I do not say that if an hon. Member has business interests he should automatically be consulted by a Committee. However, the Manpower Services Commission informed the Committee that the Minister had agreed the contract. That was untrue. When we protested, the Committee corrected the information. Indeed, I was glad to see that in the report. The Committee heard only the evidence of the civil servant. That was quite proper. However, it meant that hon. Members were being confronted with facts that were wrong but that were printed. I am sure that members of the Committee will consider those procedural difficulties.

After protest, the Committee reconsidered the matter. It received protests not only from the hon. Member for Honiton but from my right hon. Friend the Member for Doncaster and myself. I was concerned not only about the factual correctness of the way in which the contract had been awarded—it was not agreed by a Minister of the Labour Government, although it was given—but about the terms of the contract. I was worried about the likely cost to the taxpayer. The taxpayer will still have to pick up a further bill. I hope that the Treasury will direct its attention to that.

The Treasury has made a number of comments about the contract that bear out the arguments of the Committee rather than those of the hon. Member for Honiton. The dispute concerns the terms of the contract and how that contract was awarded. The hon. Member for Honiton made it clear that three parties were involved in the contract at that time, namely, Dundee university, the Underwater Engineering Group and Shenley Trust. The hon. Gentleman was a director of Shenley Trust. He said again tonight that he believed that the project could have been financed privately as long as certification ensured that divers attended the school.

The contract was awarded in October 1974, shortly after the hon. Gentleman ceased to be a Minister. The hon. Member for Honiton said that the contract had not been awarded by his Department. That is correct. The Department of Employment was involved. However, as the hon. Gentleman knows, civil servants from the Department of Energy were involved in the decisions and made decisions with the Department of Employment. I am not suggesting that that is an improper process.

Mr. Emery

I do not agree with the hon. Gentleman's general thesis. However, if he checks on the details, I think that he will find that the contract was awarded by the Manpower Services Commission—which had a right to do so—and not by the Department of Employment. However, I accept that the Manpower. Services Commission is responsible to the Department of Employment.

Mr. Prescott

The point that I was trying to make was that civil servants of the hon. Gentleman's former Department made the decision about the contract. They made recommendations about who was the best bidder. I think that they used the phrase "the one closest to the North Sea experience". The contract was awarded on those terms, although I accept that the MSC actually awarded the contract.

The civil servants said in evidence to the Committee that they would have been most surprised if the Minister had not endorsed the contract. The Public Accounts Committee asked for information and was given a paper that substantiated the fact that the Minister had not endorsed the contract. At that time some alarm was caused because the contract had been given on the basis that private money would be used. That was the purpose behind Shenley Trust's bid. Obviously, Dundee university could not offer money unless it was purely for a management organisation contract. As the hon. Gentleman knows, the Underwater Engineering Group was making a loss. For a year or two before that, I had been talking to that company about the work that it carries out in Rothes pit. That is one of the deepest shaft areas for diving trials.

Mr. Emery

It was not Underwater Engineering Group Trials that put in for the contract but the Underwater Engineering Group. That group is entirely different from Underwater Engineering Group Trials and is not connected in any way with Fort William or the Rothes test centre.

Mr. Prescott

I do not wish to weary the House with the details of all the transactions that went on between the Underwater Engineering Group, the Underwater Training Group, Shenley Trust and Shenley Trust Services. However, I am well aware of the distinctions. The way in which the companies changed is relevant to the argument about the amount of money that taxpayers will be forced to pay in compensation. I hope that the Treasury will bear that in mind.

The contract was awarded. Shortly afterwards the MSC said that public money should finance it. At the time I told my right hon. Friend the Member for Doncaster that it should not be a private project and that there should be a levy on the industry. However, even today the industry resists proper funding not only for diving training but for the hyperbaric centre and the other essential things that we should provide for those lads in the North Sea. The most wealthy sector of our industrial community has constantly resisted a levy. Nevertheless, public money was invested. This is a matter to which the House and the Public Accounts Committee have to address their attention.

The answers to questions that I had put to the Government in December show that Manpower Services Commission grants to this company for the Fort William centre by December 1980 amounted to about £ 1.8 million. Its losses up to March 1978 were £498,000. Loans from the MSC amount to over £400,000. There are many outstanding debts and loans that someone will presumably have to pay or it goes bankrupt and finishes.

I want the school to continue. It is therefore relevant to know who will pay the debts if another organisation is to take over this institution. It should also be borne in mind that the contract given to the hon. Gentleman's company was for five years. That contract has since finished. According to parliamentary replies, a new contract is being agreed from 1 January this year on four months, notice. I wonder whether the new contract reflects the same amount of fees that the Public Accounts Committee has criticised.

The Treasury, in its comments, says that fees should not be related to the level of attributable costs but rather to the size of the Underwater Training Centre and to the complexity and unique nature of the managerial task involved. Did the Treasury, in making this comment, continue the same policy on fees or did it impose a new contract that presumably reflected what it thought was a more proper procedure to be adopted? The Financial Secretary could perhaps give some indication on the second point made in the document. It says: Although the setting up of the Centre had many unique aspects the Commission will ensure that standard tendering procedures are followed should similar circumstances arise in the future. What caused concern to the Treasury about tendering procedures? The Public Accounts Committee has not thrown any doubt on the fact that the contract was awarded to Shenley in preference to the other two. What are the tendering procedures that the Treasury believes should be changed? I am not in a position to judge whether, according to the terms of contract, the profit is 70 per cent. or, as the hon. Member for Honiton explained, from his point of view, 14 per cent. I am, however heavily persuaded by a Public Accounts Committee, comprised of hon. Members from both sides of the House, looking at the facts on two occasions, which comes to the same conclusion.

The Treasury, in its recommendation, does not give its endorsement. It says that the whole procedure should change. This presumably means that the Treasury does not endorse it and is not satisfied with it and how it operated in this controversial matter. I am persuaded in those circumstances that too much money was paid in fees.

The Minister, answering questions that I put in December 1980, assured me that the Shenley contract would eventually be finished. It was simply a matter of getting a new contract for the Fort William centre. That contract is apparently being discussed with members of the industry—both the oil producers and the diving contractors themselves. I understand that agreement has not been reached, that there are still great difficulties and that negotiations have broken down. I have been trying to find out why they have broken down. I believe that this may be related to factors of compensation. The matter should certainly be considered.

I turn to the compensation arising directly out of the contracts that were drawn up. The hon. Member for Honiton knows that the contract that he had with the Manpower Services Commission for the management of the centre was for five years, hence the reason for the short contract that he now has on four months' notice. The same period of contract was not given to those who own the assets. The assets of the company, namely, the pier on which it is based, the towing equipment and other associated things, are owned, I believe by Underwater Trials Limited, originally purchased by Shenley Trust, the other company. The hon. Gentleman, a director of Shenley, was originally also a director of Underwater Trials, I understand. He negotiated a contract in both circumstances. He was the one who had to get the assets and negotiated a 25-year contract with this company, in which he was also a director, that held the assets. Having a five-year contract for the centre, he then negotiated a 25-year contract, not knowing, presumably, whether there would be a further extension of his own five-year Shenley contract.

Mr. Emery

That was done at the request of the board of control, which wanted to ensure that in setting up the capital cost—it had nothing to do with Shenley—there was a permanency to enable the centre to go on, irrespective of who was the contractor, who was running it or managing it.

Mr. Prescott

I accept what the hon. Gentleman says. I notice that the trade unions were not on the board of control.

Mr. Emery

They are.

Mr. Prescott

I withdraw that.

I want to make one point about public money. If at the end of a five-year contract it is decided to give the contract to someone else, the obligations for the assets will either have to be included in a new contract or compensation will have to be paid for the assets if they are not to be retained. The assets are considerably greater than are warranted for diver training at the present time. There is a break clause in the contract which allows for three-year compensation payment, and, taking the yearly accounts of charges that can be reviewed, it will be about £350,000.

If loans and compensation are to be paid to the company of which the hon. Member for Honiton was a member—that connection has ceased, but at the time that the contract was negotiated he was a member of both companies, and was therefore liable to receive compensation—if a new contract is to be drafted and the liabilities of the old arrangement are to be established, and if the industry is to take over, I imagine that it will refuse to meet those debts. It will probably say "That is something from the past. Write off those debts, or give us further grants, or pick up the bill for compensation if we do not want the assets embodied in the 25-year contract."

Clearly there are difficulties in new contracts. I hope that the Treasury will be able to assure us that they are not causing unnecessary delay in providing an adequately financed school to train divers. The Government should make sure that divers are properly trained for the North Sea. My main concern is to get the school on a proper financial footing. I hope that the Treasury will tell us tonight how it intends to arrange the terms of contracts in future.

8.17 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

We have in front of us 27 reports. I do not know whether that is a record, but it certainly deserves to be, It is an indication of both the range and extent of the work that is done by the Public Accounts Committee. That work has been extremely well done, and I congratulate my right hon. Friend the Member for Heywood and Royton (Mr. Barnett). I served with him for many years on the Public Accounts Committee. I served for nine years, on and off, as Financial Secretary and, before that, as a member of the Public Accounts Committee. It is a Committee with which I have had a long and close connection.

Although the Financial Secretary is a member of the Public Accounts Committee his work is not particularly arduous. He normally attends the first sitting each year and thereafter merely receives the large amounts of paper that come from the Committee.

I pay my respects to Sir Douglas Henley and his officers, and express my admitration for them. I also congratulate the members of the Public Accounts Committee on the hard work that they have done—and do—in the long and detailed examination of many intricate and complicated matters. The Exchequer and Audit Department examines a wide range of accounts. There are about 450 accounts in all, totalling more than £50 billion. One fact that is not widely recognised is that it has inspection rights over a number of other accounts, including those of the British Standards Institution and the Royal Society for the Prevention of Accidents.

We are at a formative stage in the development of the work of the Exchequer and Audit Department. We await with great interest the publication of the report dealing with the role of the Comptroller and Auditor General. As my hon. Friend the Member for Dunfermline (Mr. Douglas) said, I hope that we shall move a little more in the direction of an effectiveness audit.

One thing is clear—the effectiveness and importance of the Public Accounts Committee. The seriousness with which civil servants prepare themselves to come before the Public Accounts Committee is an indication of the respect in which it is held. I have known civil servants spend many late nights prior to coming before the Committee—where they sit in the famous horseshoe—in order to ensure that they had as much information as they felt they might need to answer the many intricate questions that would be put to them.

Under the right hon. Member for Chelmsford (Mr. St. John-Stevas) there have been important developments in regard to other Select Committees, but the Public Accounts Committee still has its crucial role to play, and will continue to have it as long as the various matters fail to achieve the perfection for which we always strive.

As the hon. Member for Folkestone and Hythe (Sir A. Costain) said, it may seem odd to outsiders that we have in the examination of these matters a former Chief Secretary to the Treasury, who examined and probed the accounts. He comes to the House to explain the errors that were made in his Administration. Speaking for the Opposition, we have a former Financial Secretary, who deplores the mistakes and some of the overspending., and we shall have the present Financial Secretary to the Treasury regretting the errors that he was condemning when he sat on the Opposition Benches.

The civil servants are not usually the ones who were responsible for the accounts which they defend. When the accounting officer comes before the Public Accounts Committee, as likely as not he will be defending the actions of a previous Permanent Secretary who has moved on somewhere else.

Some people might regard all this as a fix and a fraud, but they would be wholly wrong to take that view. The system works—and in my view it works extremely well—only because of the unanimous desire in all parts of the House, in Government and in Opposition, and among civil servants as well as Back Benchers, to make sure that we get efficiency in the public service.

I recall that when the right hon. Member for Taunton (Mr. du Cann, was Chairman of the Public Accounts Committee he talked about an alliance between the Treasury and that Committee. That is not a bad term to use, because they have a common interest. I would go further and say that the common interest goes much deeper and wider than that. We make political decisions and ask the Civil Service to carry them out. The Government propose them, the House of Commons dispose, and the Departments and the civil servants implement them. However right or wrong the decision may have been, all agree that its implementation ought to be efficient.

In looking at the accounts that are presented, and at the report of the Comptroller and Auditor General as it comes before the Public Accounts Committee, we have to be very careful, because we have the enormous advantage of hindsight in these matters, and that is more valuable than all our other senses added together.

The Civil Service frequently works under great pressure. For political reasons, it may be forced to take premature decisions or hurried ones. We need to exercise a certain amount of charity in assessing the competence of others when we look at the work that went before.

If we are over-censorious we may constrain too closely the need for action and the way in which action is implemented. The danger in all these matters lies in having a Civil Service that is so obsessed with never putting a foot wrong that it seldom puts a foot right. This is understood fully by the Public Accounts Committee, and the moderation of its language is widely recognised. Historically it has always been the same, indicating its concern in this respect. But that does not prevent the Public Accounts Committee from making its examination, criticising where criticism is necessary, and trying to achieve the improvements in the public service which are its aim.

In deciding which reports to highlight we must bear in mind that many of them will not be discussed in the House. The Public Accounts Committee has examined them, and the fact that they are not being discussed in every detail is not an indication of their lack of importance. In these matters the House of Commons is conducting something of a spot check. It gives its views on the more serious matters and expresses its confidence in the Public Accounts Committee. Therefore, the Committee is able to return to its work refreshed, and with the plaudits of the House of Commons rightly ringing in its ears. Long may that be so.

In considering these reports we are concerned with two cases. The first concerns the question of where most money is involved and the second arises when an important principle is involved and when lessons are to be learnt.

First, I turn to the case where substantial money is involved. Usually, that means the Ministry of Defence. That is not a criticism of the Ministry. That Ministry spends money under pressure of innovation, trying to be a jump ahead of the competition and of our potential enemies. It has very much in mind the development of various systems of the highest and most advanced technology.

My right hon. Friend referred to the overspend on Sting Ray, which is likely to cost us just over £1 billion, when the Mark 46 torpedo was an alternative option. These large sums must be carefully considered, and we must find some way of being able to assess such escalations of cost before they reach such levels.

There have been four large projects on underwater weapons, totalling over £1,600 million, with increases in cost, from the initial stages to the development of the weapons, ranging from about 55 per cent., in real terms, up to 150 per cent., with a six-year slippage in one case.

I know the problems of the Ministry of Defence in trying to incorporate advances as they are discovered. However, there comes a time when one can try to incorporate so many of the latest advances that when all the money has been spent one still does not have an up-to-date piece of equipment, because much of it has been overtaken by events. Sooner or later the design and cost must be settled, and one has to use existing instruments to produce something that will be of use and which is not too far away from the Estimates.

In the twenty-seventh report, the Public Accounts Committee had an important discussion on this matter and made recommendations for a controlled experiment on a carry-over of money to the following year. Everyone must always be concerned about the great danger of some loss of Treasury control. However, it is right that we should be able to see how far we can go in allowing that underspend to be continued to the following year. In the case of overspending, any relaxation here must accompany a most careful examination during the following year to make sure that there is an automatic reduction in cash limits when there is this overspend, so that some control of the kind that we demand may still be exercised.

I now turn to the twenty-fourth report on the Manpower Services Commission. The commission is not concerned with the same amounts of money, but it is concerned with important principles. Paragraph 12 says that by May 1979 the commission's internal auditors had visited 136 projects under the special temporary employment programme and the project-based work experience scheme. It seriously criticised 30 out of those 136. Ten of those 30 were in financial difficulty and 20 were in a financial muddle.

This is a serious criticism. The sums concerned are not very large, but as long as public money is involved we have a right and a duty to demand a much fuller accounting for the moneys that are handed out. Paragraph 20 of the report says: On the risk of sponsors using schemes to subsidise their own costs, the MSC said that every sponsor had to answer specific questions bearing on that point and to satisfy their officers that the projects would not have gone ahead without support. If they subsequently found that the rules had been transgressed, they would not hesitate to close the project down at once. It concludes: We welcome the MSC's assurances on these points."' It will be necessary not to leave it at that but to ensure that we keep a close watch on this expenditure of public funds. The work that the commission is doing is essential in the limitation of the disastrous consequences of the high levels of unemployment, but we all need to be satisfied with the monitoring of this expenditure.

I come next to tax avoidance and evasion, which is mentioned in the eighth and twenty-ninth reports. The importance of this is the discussion of the extent of the black economy, the scale of which is described in the twenty-ninth report. It is estimated at between 0 per cent. and 15 per cent. A middle figure suggested by Sir Lawrence Airey is 7½ per cent., which fits in with the figure quoted by Sir William Pile some time before that. The Central Statistical Office produced a figure of 3½ per cent., and I note that a committee under Lord Keith will examine the Revenue's powers of investigation.

I look forward to that, but I cannot say that I am expecting all that much. The Government, like all Governments, have been rightly concerned to collect the tax due to them, but when we look at the problems of collecting between £3 billion and £3.5 billion—the figure mentioned in question 4660—we see a whole sub-culture, from which it will be difficult to extract the money. However, the attempt must always be made. We must always attempt to ensure the fairness without which it will be very hard to run a proper taxation system.

We cannot assume indefinitely that our people, who are taxed under PAYE, without any choice, under the most rigorous tests, and who have to meet their obligations week by week in such a way that even their most basic expenditure cannot be set against tax, will accept that there should be a whole range of activities on which no tax is payable. I do not think that there is any doubt that there has been a decline in morality. I do not think that it has a great deal to do with the levels of taxation. Since the Government brought down the rates of tax I have not noticed that the problem has eased.

Mr. William Hamilton

It has increased.

Mr. Sheldon

I see the problem continuing and even, as my hon. Friend says, increasing.

The other problem is avoidance. The eighth report highlights loopholes in the legislation concerning woodlands. We learnt from question 118 of the way in which a syndicate of high-rate taxpayers meets to avoid paying tax. The complications of the tax system have allowed this kind of operation.

The question that we have to ask ourselves, and the question that the Public Accounts Committee poses, is how the loopholes can be stopped. The House will be with the Committee in suggesting that alternative legislative arrangements should be considered to facilitate the enactment of measures to close loopholes in existing statutory taxation provisions. That question is difficult.

In the office of the chairman of the Board of Inland Revenue, in Somerset House, there are shelves containing all the Finance Acts. It does not come as a surprise to be told that they are growing at an exponential rate. An increasing amount of space is taken up each year. But more interesting are the instructions that go with each of the Finance Acts. Every one is accompanied by detailed instructions to inspectors of taxes on how to interpret the various legislative arrangements that the House has passed.

The instructions have grown at an even greater rate. For the years round 1840 there is, typically, one volume covering a decade. For the 1900s there is about one volume a year. For the immediate pre-war years there are several volumes a year, and for the past year or two an entire shelf is taken up with instructions for one Finance Act.

There are a number of consequences, but the most obvious are the complications that one has in attempting greater fairness. One tries to close a number of loopholes, but the increasing complexity that arises from these desirable attempts makes an intricacy and a complication that provides opportunities for those who look for new ways through the maze of complications. Those new ways become more and more profitable every year. That is what has been happening. Schemes for avoidance are growing as the tax system becomes more complicated. We know that schemes for avoidance were being sold and were not picked up by the Inland Revenue until large sums of money had been lost in taxation. We can legislate to close loopholes, but a great deal of money can be lost by then. We can legislate to close loopholes by backdating the legislation to the time of the announcement of the Government's intention. That is the method that is used frequently today.

But even that is not enough in present circumstances, because the time of starting such arrangements is so picked that it is some time before the Inland Revenue becomes aware of what is going on—by which time large sums of money will have been lost to the Revenue.

One can backdate legislation to the time when such devices were first made. There are obvious difficulties. The Labour Government examined them. But the problem is how long the people of this country will pay PAYE, the most certain form of taxation, when they read articles in the papers that carry out investigative journalism which show that people much better off than they are handling large sums of money on which little or no tax has been paid. However great those difficulties are, action must be taken.

It will become impossible to act in these matters unless we act as a united House. We should not have successive Governments legislating, repealing, or having different views on the problem. Surely we should be able to devise a common attitude. The Labour Government tried, but were not successful. If the Financial Secretary asks the House for increased powers to deal with avoidance we shall be prepared to give him a sympathetic hearing. We urge him to consider such an approach.

The thirty-second report deals with private finance for nationalised industries. The problem in producing such finance is that it has so many of the characteristics of gilt-edged stock. The Government are behind it, and once they take that stance it is not so much in the nature of private equity capital, with a risk element involved; it has the certainty of Government backing.

The arguments for private equity capital in such cases are not nearly so great as long as the Government have money that they can lend. We should take a much more relaxed attitude towards the part of the PSBR that is used for such industrial and technical investments. That would save all the nonsense of trying to introduce private capital at no particular advantage to either the nationalised industries or the investors, who would be prepared to accept gilt-edged stock.

The work of the PAC is central to the reputation of our administration and its control by the House. My right hon. Friend the Member for Heywood and Royton has done a notable job as Chairman of the Committee. I never expected anything less from him, and I am delighted to note the results of the Committee's work and to thank it for its endeavours.

8.41 pm
The Financial Secretary to the Treasury (Mr. Nigel Lawson)

I echo the congratulations offered by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and others to the right lion. Member for Heywood and Royton (Mr. Barnett) on his outstanding chairmanship of the PAC and the fecundity with which he has bestowed such worthwhile reports upon us in the past year. I also join the tribute that the Chairman paid to other members of the PAC, the staff of the Committee, the Comptroller and Auditor General, Sir Douglas Henley, who is now approaching retirement after a distinguished period in that high office, his staff and the Northern Ireland Comptroller and Auditor General and his staff.

My hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) made a point that was echoed by the right hon. Member for Ashton-under-Lyne. It is curious that the new Chairman of the PAC has been scrutinising and criticising vigorously and without fear or favour expenditure and decisions that, to a large extent, were taken when he was Chief Secretary to the Treasury. That shows the immense difficulty involved in the process of public expenditure control. If it were not so difficult, the right hon. Member for Heywood and Royton, who was a good Chief Secretary, would not have had so much material to criticise and so many of his own decisions with which to find fault. The fact that control of public expenditure is so difficult makes the work done by the PAC all the more important.

Last year's debate was a hybrid occasion, because some of the reports involved were the product of the previous PAC under the chairmanship of my right hon. Friend the Member for Taunton (Mr. du Cann). Today, it is all the work of the right hon. Member for Heywood and Royton. Nevertheless, it would be unfair, despite his fecundity, to measure the effectiveness of the Public Accounts Committee—the House's most potent instrument for the restraint of waste and bureaucracy—simply by the volume of paper that it produces. Its claim to a unique status within our parliamentary framework has always rested, on the quality rather than the quantity of its work. This time, the right hon. Gentleman and his colleagues have given us both quality and quantity. I can think of several possible explanations for that. One is the right hon. Gentleman. Another element is my hon Friend the Member for Folkestone and Hythe and his unique experience of work in the Public Accounts Committee under five different Chairmen. Yet another reason is the contribution of all the members of the Committee. Whatever else is the case, and whatever the attention given in the press to some of the other, newer Select Committees, there is no doubt that the oldest Select Committee in the House is alive and well and shows all the signs of being a growth industry.

Reference was made by the right hon. Member for Heywood and Royton and by other hon. Members who have spoken in the debate to the special and very important inquiry into the role of the Comptroller and Auditor General, which has occupied the Committee for most of the past six months. It would not be right to comment on that at this stage. Whatever emerges from the Committee's report and from the subsequent debate about it, the end result will be a further enhancement of the prestige and effectiveness of the Public Accounts Committee. The right hon. Gentleman asked me about the debates. I shall come to that in a moment.

Many points have been raised on both sides of the House about the various matters on which the Committee reported. Before dealing with some of those points—and it is inevitable that I can deal only with some—I should like to try to answer a question that is implicit in much of what has been said today, although perhaps it has not been put in so many words. Is there any real, hard, evidence for thinking that the Public Accounts Committee has the unique impact and effectiveness that is so often claimed for it, and which most hon. Members are happy to assert that it has?

To use an industrial analogy, what return are we getting from this growth industry? It is a difficult question to answer because by far the greater part of the Public Accounts Committee's influence is as a deterrent: the very possibility of a PAC inquiry and report strikes terror into the heart of a Department that might be thinking of taking action which perhaps, on reflection, it should not take, and forces it to take remedial action where remedial action is called for before the matter sees the light of day. But, inevitably, it follows that the most important results of the Committee's work are not visible to this House, and the 30 or more reports that we are debating today are just the tip of the iceberg. Although we cannot measure the return that we get from the Committee, it would be a mistake to say that these reports, important as they are, are the only return. They are simply the tip of the iceberg.

There is another reason why the question about effectiveness is difficult to answer. The reports that hit the headlines are not necessarily those that make the biggest or the longest lasting impact on the efficiency with which public money is spent. I give an example that is of special interest to the Treasury. In addition to some interesting conclusions and recommendations about computer purchasing, the Committee's ninth report also recommended more standardisation of computer-based financial systems within Government. This modest-sounding suggestion has attracted virtually no comment in today's debate, and I did not really expect that it would.

However, the matter is of direct relevance to the common-sense but difficult improvements in standards of financial management that this Government are in the process of bringing about. It is not the kind of recommendation that leads to quick or easily measurable results. What it can, and I hope will, do is to pave the way for more economic and efficient administration by changing the attitudes and priorities of managers at all levels. That is one small example of a modest recommendation which has had no acclaim but which will do a great deal of good.

The right hon. Member for Ashton-under-Lyne made a number of points about tax evasion. I note what he said about general anti-evasion measures. I do not want to go into that tonight. However, I should like to say something about one form of avoidance. We have examined the question of the exploitation of the present schedule D rules by partnerships, which the Committee reported on in its eighth report. It is not a new problem, as the former Chief Secretary who is now Chairman of the PAC well knows. There is no simple answer. We need to be satisfied that any measures taken are equitable and do not impose unacceptable administrative costs. This is a highly complex area of tax legislation, and the Government have decided that it would be appropriate for interested parties to be given an opportunity to comment before legislation is introduced. The Revenue has therefore been authorised to issue a consultative document on the matter later in the year.

The right hon. Member for Heywood and Royton raised a number of points about defence measures—and two in particular. He asked whether I could give an assurance that there would be no further overspending in defence. There are signs of further overspending this year, and spring Supplementary Estimates will be presented to the House next month. However, I can confirm that the general practice is that overspending should be offset by a corresponding deduction in the following year.

Mr. Robert Sheldon

Can the right hon. Gentleman give an indication of the sums involved?

Mr. Lawson

The House will be informed in due course.

The other defence matter mentioned not only by the right hon. Member for Heywood and Royton but by other hon. Members was Sting Ray. Perhaps, sometimes, too easy a comparison was made between the cost of Sting Ray and of NEARTIP. They are two very different kinds of weapon, with very different operational capabilities and cost-effectiveness. Sting Ray is very much more advanced technologically. There are many dimensions to the matter other than cost. It is highly proper therefore that the matter should have been referred by the Public Accounts Committee to the Defence Committee for it to make an evaluation of the other factors, which I certainly am not competent to evaluate. The House will, no doubt rightly, wish to have the Defence Committee's report before taking a view on the matter.

The current position is that development is proceeding satisfactorily and Sting Ray is expected to enter service in the early 1980s without further delays and without any revision of the estimated cost reported to the Committee. Of course, if, contrary to expectations, there should be any significant further increase in the estimated cost or further delay the Government will not hesitate to look again at the project's cost-effectiveness.

The right hon. Gentleman, in common with my hon. Friend the Member for Northampton, South (Mr. Morris) and others, raised the question of the endyear carry-over of cash limits. I know that this, again, is a matter in which the right hon. Gentleman was deeply interested when he was Chief Secretary, even though, despite his interest, he was unable at that stage to give birth to any scheme. It is, of course, a highly complex matter.

In the light of the Committee's comments, the Government are considering the possibility of introducing a scheme for carry-over of unspent funds. We certainly agree—I do not think that anybody could disagree—that there are managerial attractions in the scheme, but we must also consider whether we can afford the additional spending that would almost certainly result in the following year. There is no point in deluding ourselves about this; there would be additional spending. It is impossible to put a precise figure on it, but it could be substantial.

I am extremely sorry if the Treasury misinterpreted the Committee's suggestion in paragraphs 21 and 22 of its report that the Government might consider whether, for certain limited categories of expenditure, a less censorious attitude to occasional overspending might be an acceptable development. I am very glad that that misinterpretion was cleared up by the right hon. Member for Heywood and Royton making it absolutely clear that the Committee, as ever, is at one with the Treasury in our determination that cash limits should and must he a firm and effective control over public spending.

I turn to another point raised by the right hon. Gentleman, and, indeed, echoed by his right hon. Friend the Member for Ashton-under-Lyne—namely, private finance for the nationalised industries. The right hon. Member for Heywood and Royton asked whether I could clarify the Government's position. A very full statement of our approach was given in the Treasury minute. Although no two cases are the same, we have tried to say as much as usefully can be said on general issues. As I believe the right hon. Gentleman recognises, there was a good deal of common ground between the Public Accounts Committee and the Government on this.

An interesting sideline, or oblique view, on the complexity of this problem was provided by the speech of the hon. Member for Dunfermline (Mr. Douglas). Although he was concerned about the consequences of the privatisation of the BNOC he also pointed out vividly the difficulties that arise when industrial firms are owned by the State. I believe that in taking a decision we must consider all the dimensions, many of which the hon. Gentleman mentioned. But we are hopeful that we can make progress in this direction.

Mr. Douglas

On the specific question of the BNOC, it has been reported that the Government's proposals would involve a higher charge for capital on the BNOC if "Granny" bonds or some other scheme were used. How does the Minister reconcile that with the actuality?

Mr. Lawson

I am sorry that I do not have sufficient time to go into this. I hope that the hon. Gentleman has not confused two different things—the privatisation of the BNOC, and the issue of revenue bonds. I think that he will have to see the details of the scheme in due course and make his own judgment.

The right hon. Members for Heywood and Royton and for Ashton-under-Lyne—it is nice to see them, as ever, ad idem, singing in close harmony even though they are a few Benches apart now—both referred to the black economy. As the Treasury minute indicates, the Inland Revenue fully recognises the importance of tackling this problem. Attention is being given to identifying those areas of the black economy which would most repay attention and to devising the most effective means of dealing with them. The black economy is by no means a single monolithic and homogeneous phenomenon. It includes many different and various types of tax evasion by many various and different types of people, and they all call for different approaches from the Administration.

For example, moonlighting, which I suppose in terms of total quantity is the biggest example, is especially difficult to deal with, partly because of the relatively small size of each case and partly because of the lack of information. The question of the scope of the Revenue's existing enforcement powers, to which the PAC also referred, is currently under examination by a committee under the chairmanship of Lord Keith, and it would not be appropriate to comment on that aspect at present.

The Revenue has had considerable success in recent years in improving its effectiveness in dealing with evasion. The changed system of accounts examination in the business area is more effective than the old system and the special offices have looked at a number of areas which were previously untouched. The amount collected in investigation work has risen from about £22 million in 1976 to about £91 million in 1979—more than a fourfold increase over a period when the total revenue collected increased by only about 80 per cent. That is some sign of a serious and successful attempt to get to grips with this problem.

The right hon. Member for Heywood and Royton asked me when we can expect the results of Lord Keith's review. As I said in a written answer—which the right hon. Gentleman may have missed—to my hon. and learned Friend the Member for Denbigh (Mr. Morgan) on 13 January, Lord Keith expects his committee's inquiry to take about two years. That is an inevitable reflection of the complexity of the subject and the need for the most thorough treatment of it. The right hon. Gentleman, I think, said that we had given a large task to Lord Keith; now he knows how long Lord Keith expects that task to take.

I turn now to the specific questions that the right hon. Gentleman asked me about the role of the Comptroller and Auditor General, and in particular about the report to which the right hon. Gentleman is about to give birth, early in March, on this matter. I entirely share the right hon. Gentleman's hope that there will be an opportunity to debate that important report. If necessary, I will gladly use what little influence I may have with the Leader of the House to make that possible within the present Session.

I have to be a little more cautious about the right hon. Gentleman's request for legislation. First, we have to know what changes the PAC will recommend and we must have a chance to make up our minds about them and to gauge, following the debate that I hope we shall have, the opinion of the House. Secondly, we must be cautious because space in the next Session's legislative programme is even less in my gift than debating time in the present Session. However, I shall certainly draw those matters to the attention of the appropriate authorities.

The right hon. Gentleman and other hon. Members also discussed the problems of Rolls-Royce. The monitoring arrangements establibed by the Government need to strike a balance—this was mentioned by the hon. Member for Dunfermline—between the Government's need to discharge their responsibilities as the sole shareholder of the company and their desire not to encroach on the day-to-day management authority of the board, which is expected to carry out its duties in a commercial way and, as far as possible, to act like the board of a privately owned company established under the Companies Acts. Nevertheless, action has been taken to ensure that, among other things, the Government are kept fully informed about the company's exchange rate assumptions.

Rolls-Royce, as a matter of policy, is covering itself forward in the foreign exchange market. The chairman of Rolls-Royce explained the difficulties with which companies are faced in making decisions of this sort in the evidence that he gave to the PAC. There had been a different situation hitherto and there was no forward exchange cover. The fact that such cover now exists may make a considerable difference. The arguments advanced by the PAC and by hon. Members during the debate have been and will be well taken both by the Department's concerned and by the company.

Mr. Michael Morris

May we have an assurance that the same degree of surveillance will be available for British Leyland's corporate plan?

Mr. Lawson

I shall draw my hon. Friend's remarks to the attention of my right hon. Friend the Secretary of State for Industry. If my hon. Friend has recovered from that response, I shall turn to another of the pertinent points that he made—namely, the taxation of earnings from offshore employment, principally by those engaged in North Sea activities.

The PAC commented in its eighth report that to a significant extent PAYE was not being applied properly to North Sea earnings. My hon. Friend echoed that and expressed some concern. I am glad to be able to tell him that since the report was made there have been two important and favourable developments. First, the Inland Revenue has been successful in the courts in establishing the obligation of employers, especially foreign—based employers, who operate PAYE.

Secondly, with the co-operation of the oil industry, the Inland Revenue last year carried out a survey of employment in the North Sea. The result of the survey is still being analysed. However, it is alrady clear that the tax loss in this area has been substantially reduced since 1978, when the original estimates that formed the basis of the Committee's report were made. In view of these developments, we do not consider that there is a pressing need for legislation along the lines suggested by the Committee. I assure hon. Members that we shall continue to keep the position under careful review.

I come towards the end of my remarks and the end of a long, full, but worthwhile debate. I turn to the passionate constituency argument which was advanced by the hon. Member for South Ayrshire (Mr. Foulkes), which was devoted to Stonefield Vehicles. As he knows, the future of the company is in the hands of the receiver. However, if a viable proposition is put to the receiver by a suitable private sector interest that would revive operations in Cumnock, the Government will be glad to consider its eligibility for the normal range of financial support.

Mr. Foulkes

It was good of the Financial Secretary to reply to my constituency interest in what has been a long debate. Of course, he has said nothing new. What he said was said by the Minister in the Adjournment debate that I raised on the subject. In the light of changed circumstances, especially the Government's change in attitude towards BL and a number of similar instances, is the Financial Secretary able to give me a simple assurance that he will take the issue back to his colleagues and that, together, they will reconsider it to ascertain whether the Government can act more positively instead of taking a passive role and waiting to see whether someone comes forward? That is no more than asking him to return to his colleagues. If he is able to give that assurance, it will be a small ray of hope.

Mr. Lawson

I appreciate what the hon. Gentleman has said. I cannot give him the assurance that he has asked for in quite those terms. Although there was not a Minister from the Scottish Office on the Front Bench when he referred to this matter, there was a Scottish Whip on the Front Bench. The hon. Gentleman can be sure that the message has been carried to those of my colleagues who have direct responsibility for this matter. I am sure that the hon. Gentleman's eloquence has not fallen on deaf ears. It remains to be seen whether it has fallen on fertile or stony ground.

I see that the hon. Member for Kingston upon Hull, East (Mr. Prescott) is fixing me with his beady eye. He is a great expert on the underwater training school at Fort William. He spoke very knowledgeably and at some length about it. As the hon. Gentleman knows, it is a matter for the Manpower Services Commission, which is the responsibility of the Department of Employment. I understand that the hon. Gentleman has been pursuing the issue with the Department of Employment. I am sure that he will continue to do so. It is the right way of dealing with it.

Mr. Prescott

I agree that it is the responsibility of the Departent of Employment and of the Manpower Services Commission. However, in its reply to the Public Accounts Committee the Treasury said that it was not satisfied with the terms of the previous contract. Is it making any attempt to ensure that the new cotract, which is now being negotiated, will be different?

Mr. Lawson

The Treasury and the Department of Employment are not unaware of what has happened. They will seek to ensure that any new contract that is signed is made on a satisfactory basis. At present, I understand that the MSC is continuing its discussions with the industry on the basis that the industry itself will take over the financial and management responsibilities for the underwater training centre. Compensation for the existing contract—another matter that the hon. Member raised—would arise only if the centre were closed. That is a hypothetical point and it would not be right to say anything now.

The debate has covered a lot of ground. I am conscious that I have not been able to cover all the ground, which in itself was less than that covered by the reports that the right hon. Member for Heywood and Royton has proudly resting on his knee. It has been a very good debate. Once again, I congratulate the right hon. Gentleman and his colleagues on having instigated the debate and on havng fulfilled the function with which they were charged under our constitution in a most admirable and thorough way.

Question put and agreed to.

Resolved. That this House takes note of the Eighth, Ninth, and Eleventh to Thirty-Fifth Reports from the Committee of Public Accounts in the last Session of Parliament, and of the Treasury Minutes and the Northern Ireland Depertment of Finance Memorandum on those Reports and on the Fifth, Sixth, Seventh and Tenth Reports presented in the last Session of Parliament (Cmnd. 7925, 7962, 7992, 8066, 8067 and 8125).

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