Comptroller and Auditor General

HC Deb 30 November 1981 vol 14 cc39-112

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Budgen.]

Mr. Speaker

I have a ruling to make before we turn to the subject of today's debate. As the House is aware, both the papers which it now intends to discuss address themselves to proposals that would involve legislation, and any debate from which reference to these proposals was excluded would be incomplete. I am therefore willing to exercise the discretion granted to me by Standing Order No. 16 and to permit incidental reference to matters requiring legislative remedy. "Incidental" is a term that will be interpreted with sympathy.

It also happens that part of the content of a Bill that is at present before the House will be relevant to the debate, and the question of anticipation therefore arises. The House will recall that a similar situation arose in the debate on the first Supply Day this Session. I therefore now repeat the ruling that I gave on 12 November, that it would be wrong, in my view, for any right hon. or hon. Member to attempt today to canvass in detail the provisions of the Local Government Finance Bill", but that Subject to that restriction, a wide debate is possible."—[Official Report, 12 November 1981; Vol. 12, c. 672.]

4.36 pm

Mr. Joel Barnett (Heywood and Royton)

I hope that the House will forgive me if I begin by paying tribute to a few people who have been especially helpful in producing an excellent report.

First, I thank my colleagues on the Public Accounts Committee who have worked almost beyond the call of duty to enable us to produce this report. I am proud to be the chairman of such a hard-working Committee, and I am grateful to my colleagues for helping to produce the report.

Secondly, I am sure that my colleagues would like me to thank our Clerk, Helen Irwin, who did a wonderful job and gave the help required by the Committee to draft this report. We are all grateful to her. She deserves the highest commendation for the work she did.

I should also like to thank the Comptroller and Auditor General, Sir Douglas Henley. Although he is not responsible for the report, and disagrees with some parts of it, he was nevertheless of great help to us on both this and many other occasions.

Finally, I thank all the witnesses who gave oral and written evidence that was extremely helpful to us. I particularly have in mind the three Members of the House who gave evidence. As always, the right hon. Member for Taunton (Mr. du Cann) gave useful evidence. I think of the excellent work that he did as chairman of the Public Accounts Committee and of the Treasury and Civil Service Committee. I know how much work the right hon. Gentleman has done on this important subject. I thank also my hon. Friends the Members for Norwich, South (Mr. Garrett) and Nottingham, West (Mr. English), both of whom have been of enormous help to the Committee in drafting this report.

The role of the Comptroller and Auditor General is not a party political question, but it is very much a House of Commons issue. I hope that it will be clear that the Public Accounts Committee went into the subject in some depth, but I regret to say that we have had what can only be described as an appalling and shameful response from the Treasury. The Treasury has not simply rejected our recommendations, but has replied to a carefully argued case in a negative and utterly inadequate way. Indeed, the response is negative and inadequate even by Treasury standards.

The objectives of the Treasury and of the Public Accounts Committee are the same. We all want value for money, efficiency and effectiveness in the auditing of public spending. I agree with the three "guiding principles", as they are called by the Treasury, in paragraphs 3, 4 and 5 of the White Paper. Paragraph 3 states: The first is the principle of Ministerial responsibility to Parliament". Pargraph 4 states: The second principle is the need for high standards of financial stewardship and prudence in handling public money. Paragraph 5 states: The third principle derives from the evidence that standards of audit, both external and internal, of Government Departments require improvement. The White Paper might have added that those principles apply to private industry, but there is no doubt that they should have the support of the House. I agree with the principles, but there are major differences about how we achieve their objectives. I know that the Financial Secretary was not responsible for drafting the Treasury reply, so it is possible that he might disagree with it, but I regret the Treasury's failure to concede the essential, central principle of our report, which is the need for true parliamentary accountability in the spending of public money.

We all know that "Ministerial responsibility to Parliament"—the first of the guiding principles—is no substitute for real parliamentary accountability. It is a red herring. No one wishes to diminish ministerial responsibility to Parliament, but the Treasury must know that that does not provide for "parliamentary accountability" in the spending of public money in any sense of the words. Parliamentary accountability plus the independence of the auditors and the need to improve efficiency and effectiveness in the public audit service were, to use the Treasury words, our "guiding principles". With those principles in mind, I wish to deal with the main parts of the report, including the local authority audit section.

I begin with the area in which there is virtual agreement between the Government and the PAC on the nature of the audit, although I know that even here the Government agree only, as they say in paragraph 7, with "most" of our report. First, we recommended legislation. In paragraph 2.20, quoting what the Government said in their Green Paper, the report states: 'The Government believe that any new statutory framework for the C & AG's operations should provide for his continuing examination of value-for-money in the expenditure of public funds and for him to report to Parliament as appropriate on the results of his examination in this field'. That was the Government's view in their Green Paper. I agree with what the Government say in paragraph 6 of the White Paper that, even without legislation, the Comptroller and Auditor General is not and has not been inhibited from further improving the value-for-money and efficiency examination that he has carried out. The House and the PAC would be concerned if obstacles were put in his way. The best way to be sure that that does not happen is to put the matter on a statutory basis.

I hope that I am not unduly critical of the Government when I say that they do not wish to introduce legislation because—as this is a House of Commons issue—the final shape of the legislation would rest with the House, not with the Treasury. If that is unfair, the Minister can easily put the matter right by telling us that the Government meant what they said in paragraph 6 of the report—that they are keeping the matter under review. We know that those are words normally taken from the Treasury shelf when they do not propose to do anything. If my fears are unfounded, the Minister can put the matter right by telling us today that, as we have a light legislative Session—perhaps even lighter now—he will recommend the introduction of legislation to deal with our proposals.

Although the Government do not say so in paragraph 6, I assume that the word "most" is used, even in this aspect of the report, because of the Public Accounts Committee's views in paragraphs 2.17 and 2.18 that there should be earlier publication of Appropriation Accounts if the House of Commons is to have meaningful control over Supply. In that respect, I welcome the interim report of the Procedure Committee. The Minister will correct me if my assumption is wrong, but I believe that the PAC and the House would prefer it if the Minister told us straight that he did not wish the House to have real control over Supply and would prefer that billions of pounds continued to be granted to the Executive on the nod, as as been the case for centuries. That would be preferable to the arguments that are customarily put forward. I hope that the Minister can tell us today—especially as we have such an independent-minded new Financial Secretary—that things are different now and that I am wrong in my assumption about the Government's attitude towards the sort of reform proposed in our report.

I turn now to the main question on the range of the audit, including the local authority audit. Our recommendations stem from the guiding principle of parliamentary accountability. Therefore, we believe that it is essential that the Comptroller and Auditor General, reporting through the PAC to the House of Commons, should audit or have access to all bodies in receipt of money voted by Parliament. I should have thought that was an unexceptionable principle that the Financial Secretary could support.

Our recommendations to meet that basic objective are summarised in paragraph 8.10 of the report. The objectives are attacked by the Treasury with what I can only describe as more red herrings in paragraph 8 of the White Paper, which states: The Government agree that an essential part of the role of the C & AG is to ensure accountability to Parliament for public money, but as mentioned above, they wish to see more, not less, involvement of the private sector in the audit of public spending, and to avoid over-loading the C & AG. We on the Public Accounts Committee made it clear that we welcomed the involvement of private auditors. That cannot and must not detract from the primary objective of parliamentary accountability, to which the Government pay lip service in this section of their response, only to be followed in the next paragraph by a repetition of the other red herring about ministerial responsibility. It must be said that parliamentary accountability does not detract from ministerial responsibility. It helps to make true ministerial responsibility possible if we have parliamentary accountability of the kind that we recommend. Perhaps that is why the Treasury rejects our recommendations. The Treasury says that it prefers the Monopolies and Mergers Commission to deal with matters affecting the nationalised industries and other public corporations. It says that it would welcome a PAC examination, but with the Comptroller and Auditor General having access only to the reports submitted by the MMC and the Department. In other words, there would be no access to the accounts of bodies in receipt of substantial sums of money voted by the House of Commons.

I believe that it is worth repeating what we said in paragraph 4.11 of the report: Parliament has no means of satisfying itself that ministerial intervention in the running of the industries is soundly based. The only satisfactory means of giving Parliament that assurance, we believe, is to give the C & AG access to the books and records of the nationalised industries. I hope that the House will agree with that statement. However, it must be emphasised that the MMC is concerned not with the monitoring of ministerial involvement, but with carrying out efficiency investigations and then only at ministerial request.

I have seen the speech of Mr. Glyn England, the chairman of the Central Electricity Generating Board. He was complimentary about the investigation undertaken by the MMC, but not about ministerial involvement. In his speech on 20 October, he said: No Minister at any time discussed the conclusions of the report with me … Ministers, but their action or inaction, in my view threw away a considerable part of the benefit that might have been derived from the £600,000 or £700,000 spent in all on this investigation, partly by the electricity consumer and partly by the taxpayer.

Mr. Tam Dalyell (West Lothian)

Would my right hon. Friend make it absolutely clear that the Public Accounts Committee would welcome greater access to the books of British Leyland in respect of public funds?

Mr. Barnett

The PAC made it crystal clear that wherever public funds are spent, although it is not always necessary for the Comptroller and Auditor General to audit them, it is essential that access to accounts is available, or there is no proper accountability to Parliament. The issue is not whether there should be private or public auditors—that is a red herring-but whether there should be parliamentary accountability. Without access, there is no way in which that can be achieved. It is not easy for the PAC or the House to be satisfied about the competence of ministerial involvement—or inaction—in the handling of large sums of public money.

Apart from those considerations, if the MMC is to be the answer, I think it worth while to quote from section 11 of the Competition Act 1980 which requires the MMC to exclude from their investigation and report consideration of—

1. (a) any question relating to the appropriateness of any financial obligations it guidance as to financial objectives (however expressed) imposed on or given to the person in question by or under any enactment, or otherwise by a Minister".

In those circumstances, it is nonsense to suggest that the MMC is the answer to parliamentary accountability.

Paragraph 13 of the Treasury reply deals with the National Enterprise Board and the prospects for cooperation. It states: The prospects for such co-operation would be impaired if the C & AG were to be given access to the books and records of the NEB". That statement wholly ignores everything in the report by and evidence to the PAC. We answered that statement in advance. I am astonished that it should have been made. In paragraph 4.17 the PAC states: The C&AG and this Committee have long experience of dealing, we believe satisfactorily, and in confidence, with commercially sensitive matters, both in relation to the activities of Government departments and elsewhere. This was acknowledged by the witnesses from the industries. The Nationalised Industries' Chairmen's Group also admitted that such fears were largely hypothetical … We are not persuaded that the 'susceptibility of the possible commercial partners to wholly unsubstantiated or unsubstantial fears' should be regarded as a reason to deny the C&AG access to the books of the nationalised industries. Although we answered the Treasury statement in advance, it still gave that weak and inadequate reply. Paragraph 21 of the Treasury reply virtually repeats the argument.

The Treasury believes that the private sector interest might shy away. If that private sector interest, directly or indirectly, is taking public money voted by the House, it should be accountable to Parliament. There is no way to do that other than that suggested by the PAC. It worries me that the Treasury reply appears to favour reducing the amount of intervention by the Comptroller and Auditor General, who already audits the National Research Development Corporation, which is to be amalgamated with the NEB. I want an assurance from the Financial Secretary that the Treasury is not planning to remove the new body from the ambit of the Comptroller and Auditor General.

As regards the local authority audit in England and Wales, the PAC, in paragraph 5.28, stated: The central argument for amalgamating the two bodies"— the district audit service and the Exchequer and Audit Department— relates to Parliament's legitimate interest in local authorities' expenditure of centrally voted money. That is one important reason why the PAC recommends amalgamation with the office of the Comptroller and Auditor General. It would then report to Parliament on general matters arising out of audits of local authorities.

It is equally important that the auditors should be independent of the Government and that there should be an integrated public audit service. The PAC is conscious of the constitutional difficulties. It understands the concern of local authorities about their independence, and has gone to great lengths in its recommendation to take account of that concern, which I believe to be misplaced. I hope that, on reflection, local authorities will recognise that the Committee's proposals give much greater independence than the present system and are infinitely better than the proposals in part III of the proposed Local Government Finance Bill. I shall not refer to that in detail, as I am not sure that it will be introduced.

I shall list the safeguards and improvements that the PAC included in its recommendations to take account of the genuine and understandable concern of local authorities about their constitutional position. First, responsibility for the appointment of approved auditors would be transferred from the Secretary of State to the chief inspector of local government external audit. That would be an improvement.

Secondly, the chief inspector would continue to make reports on matters arising from the audit.

Thirdly, the Comptroller and Auditor General said that he would not report on the affairs of individual local authorities. Indeed, he suggested that legislation should specifically preclude him from so doing. The PAC would support that to emphasise all the more clearly that it has no wish to become involved in the constitutional issue between local authorities and the central Government.

Fourthly, under the PAC's proposals, local authorities would continue to be accountable to their electorate.

Fifthly, there would be a strong, integrated local government audit service. That is essential, but it does not rule out the use of private firms, provided that the auditors have the necessary experience to do the job. My experience, confirmed by others, indicates that the only way to gain that experience is by taking auditors from the public sector.

The PAC proposals are not only better than the present system, but are infinitely better than the proposals for an audit commission in the Local Government Finance Bill. That Bill would provide greater powers for the Executive vis-a-vis the local authorities. It would give the Executive power to appoint the commission, its chairman and deputy chairman, to prescribe the scale of fees and to direct specific audit. At the same time, there would not be the parliamentary accountability recommended by the PAC. All in all, that is much worse than the proposals that I believe should be acceptable to the House in due course.

What worries me about the Secretary of State's proposals in the Bill and some of his earlier actions is that, by use of the power of ordering an audit against the wishes of the local authority, he is in grave danger of making a political football of auditors. That worries me considerably. Many local authorities are mistaken in their view about audits. They misinterpret and misunderstand what they are all about—the need for greater efficiency, value for money and effectiveness in public spending. However, those three principles do not necessarily mean cuts in public expenditure, which is the present interpretation. Under any given level of public expenditure there is need for value for money and efficiency in spending it.

By imposing auditors on local authorities against their wishes, as has been done, the Secretary of State will be doing great harm to the auditing profession by turning it into a party political football. I hope that he will think again about imposing auditors on local authorities which do not wish to have them. However, I hope that local authorities will welcome good auditors—private and public—who are only too ready to help them to get better value for money at any given level of public expenditure.

I make a plea to the Government about legislation on the audits of local authorities, as anywhere else. It is wrong to put such legislation in a Bill that is politically highly controversial. It is not a party political issue; it is House of Commons issue. It is now possible that we shall not have a Local Government Finance Bill. It would make it easier if the Government had a separate Bill dealing with what is essentially not a party political issue, but one of getting the best value for money, which both sides of the House want.

I hope that the local authorities will now appreciate the good sense of our proposals. The reason why the local authorities dislike them is that, astonishing as it seemed to us when we were taking the evidence, they were confused between parliamentary accountability and interference by the Executive. It was obvious from their replies that they did not appreciate that the Comptroller and Auditor General was not part of the Executive. They assumed that he was. That distinction will be much clearer if our proposals in the latter part of our report are accepted.

We recommended that there should be a national audit office. The status of its head is summarised in paragraphs 8.11 to 8.21. Again, this point stems from the fundamental issue of parliamentary accountability and the need not only for a national audit office responsible for audit or access to information wherever public funds are voted by the House of Commons, but for that national audit office to have a head directly responsible to Parliament. The Comptroller and Auditor General is appointed by the Queen on the advice of the Prime Minister of the day, so local authorities have felt that he was not independent, but in practice he has always seen himself as independent and has acted accordingly. Therefore, in practice he is independent of the Executive.

However, as we saw with the local authorities, it is vital that the Comptroller and Auditor General should be seen to be independent of the Executive. That is why the head and staff of a national audit office should be responsible to Parliament so that the Comptroller and Auditor General can truly be seen to be completely independent of the Executive.

I hope that the Treasury will accept that it is wrong for the Executive to be able to decide the size of the national audit office, its staff, their salaries and the appointment of its head. I hope that the Treasury and the House will accept our recommendations.

I hope that the House will strongly press the Government to accept the Public Accounts Committee's report, not on party political grounds. All Governments have resisted the extension and reform of parliamentary accountability. Past Governments have undoubtedly done so. I hope that future Governments will be an improvement on what has gone on in the past. As the Treasury has done today, Governments will always put up hurdles, as in the White Paper. Canute-like, they will try to stem the tide of parliamentary opinion.

This matter is of paramount interest to the House of Commons. There should be real accountability to us, not to the Executive. I urge the House to give all possible support to this vital report, which was approved 'unanimously by members of all parties represented on the Public Accounts Committee. Whatever happens, I am confident that eventually the report will be the basis of much overdue reform. I commend it to the House.

5.8 pm

The Financial Secretary to the Treasury (Mr. Nicholas Ridley)

rose—

Mr. Dalyell

On a point of order, Mr. Deputy Speaker. If the Treasury Minister is to speak at this stage of the debate, does it mean that those of us who hope to catch your eye, and wish to make points that far more properly should be answered by the Treasury, with due respect to the Under-Secretary of State for the Environment, will receive answers from the Department of the Environment? Some of us wish to raise substantial issues that can be answered only by a Treasury Minister. In every previous public accounts debate, a Treasury Minister has answered. What is to be the procedure on this occasion?

Mr. Deputy Speaker (Mr. Ernest Armstrong)

That is not a matter for me. If the Minister has risen and wishes to be called, I shall call him.

Mr. Ridley

Further to that point of order, Mr. Deputy Speaker. It might be for the convenience of the House if I were to speak now in response to the opening speech of the right hon. Member for Heywood and Royton (Mr. Barnett). I think that that is what he prefers, especially as my hon. Friend the Under-Secretary of State for the Environment will be available to address the House if he should catch your eye later, Mr. Deputy Speaker. He can deal with all further points that are made by hon. Members.

Mr. Dalyell

With due respect, I am afraid that with the problems, for example of the financing of British Leyland, there are matters that can be answered only by the Treasury, to which some of us have had the courtesy to give notice, through the Scottish Office, that we wish to raise them. With due respect to the Under-Secretary it is unfair on him, apart from anything else, to expect him to answer on financial issues affecting British Leyland.

Mr. Michael English (Nottingham, West)

Further to that point of order, Mr. Deputy Speaker. This debate is about the audit of public money, of which, large though it may be, local authorities account for only the smaller portion. We are concerned with bodies such as the National Health Service, which are not local authorities, and the public money given to private companies, which are not local authorities. We are concerned with all the ways in which public money is spent. Local authorities are only a part of that. It would not be feasible for a Minister from the Department of the Environment to reply on all the issues that concern the Treasury.

Mr. Michael Morris (Northampton, South)

Further to that point of order, Mr. Deputy Speaker. Perhaps I could be of assistance on this point. We can take our precendent from what happens with Northern Ireland business. Normally hon. Members contribute from both sides of the House and the wind-up is done by two or three members of the Government. If the Financial Secretary is rising only to introduce the Government's response and is then intending to reply to the whole debate, that would be acceptable to me. However, if this is to be his only contribution, hon. Members' time is being greatly wasted.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. Decisions about how the Government handle a debate are not a matter for me. I do not want to continue this debate. These are not real points of order because they are not matters with which I can deal.

Mr. Robin F. Cook (Edinburgh, Central)

Further to that point of order, Mr. Deputy Speaker. I fully appreciate your point but a Minister from the Treasury is present and can respond to the genuine and obvious concern of the House. I can understand that at this stage the Financial Secretary may wish to amplify the contents of the White Paper—the House would like that amplification—but it is essential that the points that will be made during the debate should be answered by a Treasury Minister. It is wrong that the points relating to the PAC report and all the wide areas that are covered in it should be responded to by a Minister from the Department of the Environment. There are many precedents in previous PAC debates for the Financial Secretary to intervene at an early stage in the debate and then to obtain the leave of the House to reply later. If we follow that procedure, it might then be possible to meet the wish of the Financial Secretary to respond now and it would also meet the proper and legitimate desire of the House to have a response from a Treasury Minister at the end of the debate.

Mr. John Garrett (Norwich, South)

Further to that point of order, Mr. Deputy Speaker. This debate concerns financial control by the House of Commons over the Executive and it is essential that a Treasury Minister replies to it. That control is part of the responsibility of the Treasury, although I hope to show that it has dominated the Comptroller and Auditor General in recent years in exercising it. For a junior Minister from the Department of the Environment to reply to the debate on the basis of what is a small and less constitutionally important part of the debate is an outrage..

Dr. Jeremy Bray (Motherwell and Wishaw)

Further to the points of order, Mr. Deputy Speaker, could not the Financial Secretary say now that he will seek to intervene later in the debate?

Mr. Ridley

As always, I am happy to comply with the wishes of the House, and I recognise that this is a matter for the House. Equally, the House will accept that there are here some important issues concerning local authorities, and I should have thought that it would be more sensible and convenient for my hon. Friend the Under-Secretary of State for the Environment to talk about the Government's proposals for local authorities. My hon. Friend will, therefore, be happy to respond to all the matters that are raised during the debate concerning local authorities and, if the House wishes me to intervene again at the end of the debate, I shall, of course, be happy to do so. However, I warn hon. Members that Ministers will take up even more of the time of the House. We remain in their hands as to what we do. [HON. MEMBERS: "Five minutes now and twenty minutes at the end."] I have a certain amount to say.

There is greater interest now in the audit and it has been a subject of steadily growing interest in the House, not because of any doubts or fears about the probity or accuracy of the Comptroller and Auditor General, but because of the need to seek value for money, or efficiency auditing. While there may be room for disagreement about some of the Committee's proposals, the House owes a debt of gratitude to the right hon. Member for Heywood and Royton, its chairman, for the energy and enthusiasm that he and his Committee brought to the collection of evidence in the preparation of the report. We owe a similar debt of gratitude to those many people who contributed written and oral evidence to the PAC inquiry. It was of a very high quality.

Audits will be fully effective only to those who want them so to be. The public audit system will not have its maximum impact unless the nature and importance of its work is appreciated by Parliament and the general public. Scarcely a week goes by without the national or the accountancy press offering informed comment on current or prospective developments on the public audit, which is largely due to the work of the right hon. Gentleman and his predecessors. Here, I pay tribute to my right hon. Friend the Member for Taunton (Mr. du Cann), one of the most distinguished of the right hon. Gentleman's predecessors, and the members of their Committees. We should not forget the contribution of other Select Committees to the subject, including the General Sub-Committee of the Expenditure Committee, of which the hon. Member for Nottingham, West (Mr. English) was Chairman, and of which I had the privilege of being a member.

In some ways today I appear as poacher turned gamekeeper, although not, I hope, in the words of the right hon. Member for Heywood and Royton "Canute-like" in my attitude. I also echo the Committee's report on the retirement of Sir Douglas Henley, the previous Comptroller. I support the Committee's tribute to Sir Douglas and particularly endorse its comments on his influence, on the morale and effectiveness of the Exchequer and Audit Department and, more generally, on its public standing.

There are two main areas where the Government differ with the Committee—on the audit arrangements for local authorities and nationalised industries. The right hon. Gentleman accused the Treasury of outbidding its usual negativeness, but I hope that he will accept that there are many areas where we agree. I do not want to underline those areas now, in the interests of saving time. The House has asked me to respond later and I do not wish to take up too much time now. It was agreed by the House that matters relating to local authorities should be answered by my hon. Friend the Under-Secretary of State for the Environment and I shall therefore widen my remarks now and deal with other matters at the end of the debate.

I shall say a word about nationalised industries now because I can add to the knowledge of the House. I know that the right hon. Gentleman will probably not like what I have to say. The Government, having accepted the need to increase the amount of efficiency auditing in the public sector, should demonstrate that they are prepared to take steps to achieve that. In the White Paper we promised a further statement on improving the external scrutiny of nationalised industries' efficiency. We made it clear that we fully share the PAC's concern about the need to promote the efficiency of that sector. That is particularly true where competitive pressures are weak or absent. However, we are not convinced that it would be fruitful to replace the Monopolies and Mergers Commission as the appropriate body to undertake efficiency investigations so soon after its inception.

As recently as last year, Parliament legislated to give the commission new powers to investigate the industries, and it has made a promising start in using them. In the four studies completed since the beginning of 1980 into the inner London letter post, the Severn-Trent water authority, the CEGB and British Rail commuter services, it successfully identified areas of weakness in the industries' operations. In the Government's view, as was explained in the Government's reply to the PAC, the right course is to build on the existing structure, not to supplant it.

The Government have therefore decided on a number of steps to strengthen and supplement the role of the commission. There will be an increase in the scale of the commission's operations, the intention being to increase the number of references so that there will be up to six in each year. Each nationalised industry will have at least one major reference every four years, but no individual part of an industry will normally be referred more than once every four years. The commission's membership and staffing will be strengthened to deal with the increased work load. The Government will announce a programme of references annually for the year ahead. There will be more effective follow-up, which is crucial if we are to get the best out of the commission's reports. Although it is primarily for the industries to act on the reports' findings, the Government are strengthening the procedure for follow-up action.

We intend to encourage the commission to identify priorities in its recommendations, to quantify its proposals as far as that is feasible and to make specific recommendations for action to implement them. The reports will, of course, continue to be published, but in the interests of accountability to Parliament a statement of the industries' responses to the reports will be made normally within three or four months of publication. This will be followed by a further statement on progress after 12 months. Thus, the Monopolies and Mergers Commission in its strengthened form will remain the main instrument for the external scrutiny of these industries.

The Commission is not the only external body with a potential contribution to make. In the private sector good use is often made of the skills and expertise of management consultants. They have also been used in the nationalised industries to good effect on occasions, on the initiatives of either the Government or the industries. The Government believe that greater use could be made of such consultants where that would be appropriate and cost-effective.

These measures will supplement the Government's more general policies to encourage efficiency—notably the introduction of greater competition into the industries wherever possible. This is a difficult area where there are no panaceas. We shall continue to learn from our experience and to build on it in future.

Mr. Joel Barnett

The hon. Gentleman has talked about the strengthening of the MMC. In what way does that deal with the points that the Committee and I made about parliamentary accountability?

Mr. Ridley

The right hon. Gentleman has asked me to make a second speech in the debate to deal with the issues that are raised. I should have been happy to have responded to the arguments about parliamentary accountability at this stage, but as he asked me to restrict myself now to the remarks that I should make before the debate proceeds any further, he will not blame me if I deal with the issues raised during the debate at the end of the debate, which I shall be happy to do.

The views on the Government's White Paper and the related proposals for reform of local authority audit in England and Wales and for efficiency auditing of nationalised industries are based on careful consideration of the PAC's report and the evidence that it received. We think that these are the right prescriptions. In putting them forward we are not seeking to close the debate about the future of public audit.

I agree with the right hon. Member for Heywood and Royton that these are not party political issues. One has only to compare the conclusions of the present PAC with those of its predecessors, or with those of some of the distinguished bodies and individuals who gave evidence to it, to realise that there are genuine differences of opinion on these issues that are not confined to party lines.

In any debate in which there is room for honest differences of opinion there is also room for changes of mind. The Government have taken a clear position on most of the issues that are dealt with in the report but our minds are not closed. We want to hear the views of the House and hence we shall be listening to what is said in the debate. We shall want to take account before long of the relevant developments, such as the report of the Select Committee on the Treasury and Civil Service on efficiency and effectiveness in the Civil Service and the second stage of the Procedure Committee's inquiry into the House's control of public expenditure.

I see the evolution of parliamentary opinion about the public audit system as a continuous process. I hope that the debate will be a significant milestone in that process. We shall be listening to what right hon. and hon. Members have to say.

5.25 pm

Mr. Tam Dalyell (West Lothian)

I served three Chairmen on the Public Accounts Committee—my right hon. Friend the Member for Huyton (Sir H. Wilson), Lord Houghton of Sowerby and Lord Boyd-Carpenter. With the exception of the leadership of the Opposition, the chairmanship of the PAC is perhaps the most important Parliamentary task that can be assigned to an Opposition Member, and certainly the most constructive. My right hon. Friend the Member for Heywood and Royton (Mr. Barnett) is high in this honourable tradition. As a nonmember of the PAC, I think that we all owe a genuine debt to those of our colleagues on both sides of the House who give up a great deal of time in this most important work.

The purpose of my speech is to relate the work of the PAC and the comptroller's report to the public expenditure aspects of Leyland Vehicles and the issues arising out of its letter of intent to dispose of assets, rights and order books, largely created by taxpayers' money and local authority expenditure, to private interests.

Paragraph 4.2 on page xxiii raises the issue of Leyland accountability and puts Leyland in the category of enterprises that are publicly owned and set up with finance provided by Parliament. It quotes the Comptroller and Auditor General as saying: from time to time they have received further Exchequer funds as public dividend capital, loans, grants and subsidies; and in certain cases substantial Exchequer advances have been written off in capital reconstructions approved by Parliament. That encapsulates my argument that, in discussing the reconstruction of Leyland vehicles, no British Government, be they Conservative, Thatcherite or anything else, can pass by on the other side of the road like the biblical Levite and claim "Closures are nothing to do with us, they are management decisions." The Comptroller and Auditor General reinforces that argument. He continued: Apart from providing funds directly, Parliament has also sanctioned guarantees (express or otherwise) for finance which the industries raise commercially or from European Community institutions. Industries which have repaid all Exchequer capital still owe the strength of their trading position to Parliament's backing and the state remains the effective shareholder. As the House knows, in difficulty it is to Parliament that Leyland has looked in the past for assistance.

On these general grounds, I would allow the Comptroller and Auditor General access to the books at his discretion wherever the trail of public money may lead him. That is why I interrupted my right hon. Friend the Member for Heywood and Royton to ask him to make it crystal clear that that was the view of the PAC.

As a matter of urgency the Comptroller and Auditor General should be invited to follow the scent of public funds, local authority and taxpayer to whatever corner of Britain it may lead, to Europe, America or Asia Minor, by which I mean in particular Turkey—indeed, to wherever the trail may lead him.

The Nationalised Industries' Chairmen's Group has argued that the inspection of the industries' operations by the Comptroller and Auditor General would pose a threat to their commercial freedom of action and that it would be positively inefficient to involve the comptroller, whose staff would merely second-guess their commercial decisions, be an additional burden on their staffs and necessitate additional documentation of decisions to guard against post-event criticism.

If we are talking about the normal run of day-to-day decision making, there is a respectable case to be made against so-called meddling by the comptroller. I do not agree with that case, but at least it is an arguable point of view. Perhaps it was a pity—I do not know whether my right hon. Friend the Member for Heywood and Royton and the right hon. Member for Taunton (Mr. du Cann) will agree—that Sir Frank Tribe did not persuade Hugh Gaitskell, when he was Chancellor, that the comptroller should have free and complete access to the nationalised industries' books. In those days there was a shortage of skilled personnel and no one foresaw the scale of the problem. Hindsight is always an advantage, but if we are confronted not by day-to-day commercial decisions but by decisions of closure and partial closure and selling and possible rip-off of whole manufacturing units, and if we are concerned with the deindustrialisation of part of Britain—and I cite the tractor assembly line at Bathgate as an example—it is of paramount importance that the comptroller should be able to pursue the destination of public money wherever he and the audit department may follow the scent of any trail that they pick up.

I refer specifically to paragraph 11 of Cmnd. 8323,—"The Role of the Comptroller and Auditor General". My right hon. Friend the Member for Heywood and Royton quoted some of it, but for coherence perhaps I shall be excused if I read the whole of the paragraph: As the auditor of the accounts of the sponsor Departments, the C & AG has access to reports submitted by the MMC, and by the industries' auditors to the responsible Ministers. He can report on any inadequacies in the monitoring and control arrangements, and in the scope or validity of the information available to those Departments. The Government would welcome PAC examination, on the basis of reports by the C & AG, of Departments' exercise of their responsibilities in this area. But they do not think the case has been made out for the further step, at this stage of development of arrangements for efficiency audit of the industries, of involving the C & AG directly in the industries' affairs. They note that to extend his role in the way envisaged by the PAC would result in a substantial increase in the work of the C & AG and his Department in a novel area. That was part of the reason given by Sir Frank Tribe many years ago.

But if it can be proved, for example, that the Scottish Office, the Department of Industry or the Treasury did not know, say, the identity or background of the firm to which the tractor line at Leyland was to be sold, that paragraph is inadequate. If the Department does not have the information on the files and if the comptroller does not have access to the company—in this case, British Leyland—Parliament has no source of information. If Parliament has no source of information, how is the money from public funds to be monitored?

I rest a great deal of my case on the importance of being able to monitor these funds.

The immediate Leyland example provides a classic justification for the comptroller's view, reproduced in page xxix of the Committee's report: We should concentrate on the systems of control and of assessment by the industries according to their varying circumstances and also their relations with Government. That echoes and reinforces a good deal of the case made by my right hon. Friend the Member for Heywood and Royton.

It is not only Bathgate which concerns right hon. and hon. Members. We have before us the horrific example of what happened at Linwood. Millions of pounds of public money have been poured into Rootes and subsequent owners of that plant. There is no reason to disbelieve the allegations that we read in the press that £200 million or more was the book value of what went under the hammer at Linwood. My hon. Friend the Member for Midlothian (Mr. Eadie) will remember that little more than £10 million was realised.

My hon. Friend the Member for Edinburgh, Central (Mr. Cook) knows a great deal about this. He has been involved in the Bathgate case, and he knows that some of us wish to do everything possible to try to avoid at Bathgate a repetition of what happened to public money at Linwood.

The House will forgive me if I sketch in the background. It was the old British Motor Corporation which came to Bathgate at the instance of the Macmillan Cabinet. If I may be forgiven one short personal reminiscence, I remember going to Birmingham to try to persuade the ancillary manufacturers—Wilmot-Breedon, Rubery Owen, Hardy Spicer, Fisher Ludlow and Lucas—to set up ancillary industries in Central Scotland. At the end of the meeting, I was invited to lunch by the old autocratic boss of Austin, Sir George Harriman, and, when the others had gone and only Alec Issigonis was left, he said to me "You are a young man. I am an old man. I want you always to remember that we never wanted to go to Bathgate. We never wanted to leave the Midlands. It was a Cabinet decision. The Cabinet forced us to do this".

I mention that because there is an obligation on a Conservative Cabinet or on any other to recognise that it has some responsibility in the matter, albeit that the philosophy of the Financial Secretary is light years away from the philosophy of the Conservative Cabinet which made the decision on regional policy grounds to bring the motor industry to Scotland. I do not want to be blasphemous about it, but I wonder sometimes what Edward Boyle, Reginald Maudling or some other members of that Cabinet would think of some of the recent decisions which have raised these issues and created such unemployment in the region.

Mr. Alex Eadie (Midlothian)

Harold Macmillan.

Mr. Dalyell

Yes, and Harold Macmillan.

Mr. Peter Hordern (Horsham and Crawley)

On a point of order, Mr. Deputy Speaker. Has this contribution anything to do with the role of the Comptroller and Auditor General, which is the subject of the debate? The hon. Member for West Lothian (Mr. Dalyell) is not a member of the Public Accounts Committee. I do not mind if he talks about contemporary matters, but he is now going deeply into history and talking about Harold Macmillan in 1958 and 1959. It has nothing to do with the debate.

Mr. Deputy Speaker

Mr. Speaker made a statement at the beginning of the debate. The hon. Member for West Lothian (Mr. Dalyell) has referred to the report. In fact, he is in order.

Mr. Eadie

Government supporters are trying to muzzle us.

Mr. Dalyell

I think that my contribution to the debate has everything to do with the destination of public money. However, I appreciate that other hon. Members wish to speak, and I shall be as brief as possible. I might point out that in the past 18 months I have spoken only once before and I have not therefore taken up much of the time of the House.

To establish the extent of the public money involved, I asked the Secretary of State for Industry to give a rough estimate of the public funds expended on Leyland in the Bathgate area. He replied: This information is not available except at disproportionate cost. It is likely that even if the information were readily available, it would be subject to the well established rules on commercial confidentiality."—[Official Report, 25 November 1981, Vol. 13, c. 386.] That being so, perhaps I may be allowed to help the House to discover what the information is. Over a five-year period, from 1976 to 1981, £5 million has been spent on machine tool purchase for the tractor component machining. That is in just five years, and it leaves out the very considerable sums spent before. Assuming a depreciation rate of 12½ per cent. per annum, the net book value of these machine tools is now at least £1,488,000. If the tractor line is now sold off complete with associated machines, it is unlikely that the undepreciated portion of the cost of these machine tools will be realised as part of the sale.

Those figures do not include revenue costs related to the individual machines. Nor do the figures take account of any regional development grants claimed against capital outlay.

Design and development costs related purely to tractor Improvements, with the notable exceptions of gear box and four-wheel drive, have been estimated at £1,170,000. Jig and tool costs and production engineering costs for the same projects have been estimated at £170,000 and £31,000 respectively. These costs are extremely conservatively estimated and do not include projects of a number of ancillary departments, plant engineering industrial engineering—

Mr. William Hamilton (Fife, Central)

On a point of order, Mr. Deputy Speaker. I do not usually rise on points of order on these matters, but this is an extremely important debate on an extremely important subject that occupied many hon. Members on the Public Accounts Committee for a long time. The speech of my hon. Friend the Member for West Lothian (Mr. Dalyell) would possibly be desirable in an Adjournment debate for which he could ballot. To use the time in this debate is a gross abuse of the House.

Mr. Deputy Speaker

I am listening carefully to the hon. Gentleman. The debate on public accounts is wide and deals with the expenditure of public money. If the hon. Gentleman gets out of order, I shall call him to order.

Mr. Hordern

Further to that point of order, Mr. Deputy Speaker. The position, with the greatest respect, is surely somewhat different. This debate is concerned with the role of the Comptroller and Auditor General. It has nothing to do with a report of the Comptroller and Auditor General. I submit that this debate, which is of extreme importance, should be kept within the confines of the Public Accounts Committee report on the role of the Comptroller and Auditor General, which is the subject of the debate. The speech of the hon. Member for West Lothian (Mr. Dalyell) cannot be interpreted in any way as referring either to the subject matter of the report or to the nature of the debate itself.

Mr. Deputy Speaker

I remind the House and the hon. Gentleman that the motion before the House is on the Adjournment of the House. It is an Adjournment debate, although the subject has been indicated. It is for hon. Members to use their judgment in their speeches.

Mr. Dalyell

It is pretty rich when I am told by the hon. Member for Horsham and Crawley (Mr. Hordern) that this matter is not important at a time when unemployment rates among our people are 20 per cent. or more. There are many constituencies with high unemployment rates. It is a bit much when the hon. Gentleman, representing a constituency in lush Sussex, tries to cut short my speech.

Mr. Hordern

Further to the point of order, Mr. Deputy Speaker. It is clear that the hon. Gentleman has no intention whatever of referring to the report that is the subject of the debate. He now wishes to introduce a point about unemployment in his constituency. That is understandable, but it surely cannot be allowed to happen in a debate of this nature which is extremely important and which concerns only the role of the Comptroller and Auditor General.

Mr. Deputy Speaker

Many hon. Members wish to make a contribution. I hope that the hon. Member for West Lothian (Mr. Dalyell) will proceed quickly.

Mr. Dalyell

I shall be as brief as possible, but my whole argument is that the Comptroller and Auditor General should have access to follow public money wherever it leads in relation to Leyland. There is considerable public money involved. I shall not deal further with regional development grants, but I shall deal with local authority grants. To save time. I shall cut short what I wish to say.

The cost of the drains, roads, sewage works, tunnels, whole communities, as at Blackburn, school buildings and 120 acres of the Whitehill estate, at the direct instigation of the Board of Trade, amounts, according to Mr. David Morrison, the clerk of the West Lothian district council, to at least £5 million or more at 1960 prices. I shall save the House the detail and take it as read, but the amount is considerable. Those who contributed most to British Leyland at Bathgate are the British taxpayer and the people of the area. The proposal that the tractor line and the company's associated rights be sold should be the subject of a Public Accounts Committee investigation, using the comptroller.

I do not wish to cast aspersions on a particular firm. I refer simply to an article on a farm-run tractor factory in "Big Farm Management" which gives a favourable impression of the firm of Marshall and Sons of Gainsborough, Lincolnshire. I speak no ill of the firm but the decision was taken without the knowledge of the Government.

My right hon. Friend the Member for Glasgow, Craigton (Mr. Millan) will remember that on 19 November the Secretary of State for Scotland was interrupted while referring to the work that had been done by the Government on the specific issue of Leyland. It has to be remembered that a great deal of public money is involved in Leyland. The answer by the Secretary of State for Scotland, when asked if he had seen the managing director of Leyland Vehicles, was whoever the other person was—Mr. Andrews was it?"—[Official Report, 19 November 1981; Vol. 13, c. 445.] It was then revealed that the Secretary of State had, indeed, met Sir Michael Edwardes but that this was four of five years ago.

That is very different from the work done by the Secretary of State for Scotland in a Labour Government. He knew all about the Linwood position. Ministers know that I do not indulge in abuse or "yah-boo" politics. By not contacting Leyland, not getting this information and not talking to the Leyland management, Scottish Office Ministers were in dereliction of their duty. That is the kindest thing that can be said.

I do not know what hardware the firm of Marshall and Sons of Gainsborough wants. I do not know how much it wants to take in its order books. It seems clear, however, that it will not take on semi-automated volume tractor production. It is madness to give this equipment away or to flog it off, as some would say, to foreigners, when it is so badly needed to create employment in Britain. We are haunted by the spectre of public money and Linwood. United States and Continental companies came bidding for 1,000 items. Millions of pounds worth were sold at knockdown prices. British industry was said to have called it the "sale of the century". A 1,600 ton steel press was sold for a pitiful £200,000. Buyers said that it would cost £1 million new. If that is not a matter for the Comptroller and Auditor General, I do not know what is.

The lesson from Linwood for Bathgate is that where a nationally owned tractor production line has been built up with State funds the State has a right and a duty to participate in any decision making to withdraw and to use those public funds for a different purpose. If we are to look sensibly at what was or was not contained in the corporate plan of 1979 or 1980, the truth can be discerned only if the Comptroller and Auditor General is allowed to look at the books. This, in a sense—

Mr. William Hamilton

Get on with it.

Mr. Speaker

Order. I think that the hon. Gentleman is trying the patience of the whole House. He is not insensitive to the feeling of the House. He has been here too long for that.

Mr. Dalyell

I may not be insensitive to the feeling of the House, but I am extremely sensitive to the feeling in my constituency.

Mr. Speaker

So are all hon. Members. We would not be here if we were not sensitive. The hon. Gentleman should bear in mind what I say.

Mr. Dalyell

In Central Scotland there is rumour and counter-rumour and allegation and counter-allegation about recent or not so recent senior executives of Leyland Vehicles and their involvement in the sale. This is not just tittle-tattle. It stems from the distressed fury of men who feel that their livelihood and the livelihood of their youngsters in Central Scotland is being sold for a mess of pottage behind their backs. In reality, this horrible atmosphere can be exorcised, or the sinister allegations confirmed, only by a detailed and painstaking study of the financial arrangements of who gains and who stands to lose. The only people who can do this are the Comptroller and Auditor General and his staff. That is why access is so vital. That is why, in the real world, what happens as a result of this debate is important.

Let us not delude ourselves that such cases can be properly scrutinised under the cloak of parliamentary privilege on the Floor of the House of Commons. If I were to name names associated in Central Scotland with what is seen as commercial treachery to Leyland Vehicles and the charge of packaging up parts of Leyland prepared for privatisation, I would be challenged to repeat the statements outside the House, and I would feel morally obliged to do so. In that case writs could fly. But, on the other hand rumours unscotched, allegations unanswered, abscesses undrained, fester and fester. Forget not that one of the biggest cheers at Thursday's mass meeting came for the proposition of Jimmy Swan, the convener of shop stewards, that they should act as Lee Jeans and not Linwood. The resolution was: We the trade unions at Leyland Vehicles Limited plant, Bathgate, confirm our intention to resist the proposed restructuring of Leyland Vehicles and any transfer of work, machines or materials from the Bathgate plant. The AUEW combine motion is worded even more strongly. That is the seriousness of the situation.

I can understand why there is the feeling that a plant stripped of design and development potential for new vehicles is doomed. Certainly the same situation, as I understand it from my hon. Friends the Members for Wolverhampton, North-East (Mrs. Short) and Wolverhampton, South-East (Mr. Edwards), is likely to apply at Guy motors.

Much of this complaint depends on what can only be called the musical chairs that have gone on in the past in the management of Leyland. I do not know any instrument that we have in Britain, other than the Comptroller and Auditor-General, that can look at this dispassionately, without bandying names around and without getting into slur and counter-slur that may be unjustified. But I speak with great vehemence because I do not like the atmosphere that is developing. There are feelings about management men who seem to have popped up out of the blue yesterday—here today and gone tomorrow—and ephemeral decision making in a great national industry.

We are looking for a full, frank and fearless statement, by the Comptroller and Auditor General, if necessary, about people, because, bluntly—I do not normally talk in such language in the House—Central Scotland wants to know whether a trough exists, and if it exists, whose snout is in it.

The situation is as it was put by a small contractor, Andrew MacFarlane, in West Lothian, when he said: With the present situation of the tractor line at Leyland, it looks to us as if it is me employing eight men trying to take over Wimpey. I quote briefly a piece of work that was done in the Library for me: None of the reference books on companies which we keep in the Library has any information about Marshall and Sons of Gainsborough, Lincolnshire. However, after checking"—

Mr. English

On a point of order, Mr. Speaker. I know that matters can be difficult on an Adjournment debate and I realise that my hon. Friend the Member for West Lothian (Mr. Dalyell) is under the stress of emotion about a constituency case. However, if he cannot raise his head from the particular to the general—which is what we are discussing; we are trying to reform something decided in 1866 about the audit of many things and not just one thing now—I hope that you, Mr. Speaker, will find some means of ensuring that we may avoid having to hear what is contained in the vast amount of paper in his right hand.

Mr. Speaker

I am sure that the hon. Member for West Lothian (Mr. Dalyell) would not dream of submitting to us all that he has in his hand. He knows, as the House knows, that it is on a technicality that we say that we shall debate a matter on the Adjournment. But the whole House has in mind the report that it wants to discuss. It is unreasonable and unfair not to allow the House to discuss what it has met today to discuss.

Mr. Dalyell

I shall abbreviate my speech, Mr. Speaker.

I put the argument that only the Comptroller and Auditor General with the resources that are available to him, can look at a case such as this, in which there has been no public advertisement, and no bidding, and where the ingredient of public money is so great. In the Financial Times the chairman of Marshalls, Mr. Charles Nickerson, is quoted as saying: I only heard through a Turkish company that Leyland might be interested in selling. It is intolerable that more should be known about the future of British Leyland at Bathgate in Ankara or Istanbul than in Edinburgh. Indeed, many of us would like the Comptroller and Auditor General to unravel the whole labyrinthine story of how Britain is now importing a light tractor designed at Bathgate from Turkey and to go into the whole question—

Mr. Hordern

On a point of order, Mr. Speaker. I apologise for troubling the House again with a further point of order, because we have discussed this matter before. It raises a serious issue. The Public Accounts Committee has spent a good deal of time in preparing the report about the role of the Comptroller and Auditor General, and other Committees, too, have spent a great deal of time on the matter. The Treasury has gone to the extent of issuing a White Paper. That is what this debate is about. This is probably the only opportunity that the House will have to debate the matter.

We understand that there are to be two speeches from the Treasury Bench in reply to the debate. Quite rightly, the House has accepted that. It is a matter of not just the particular but a more general application as to whether a debate of this nature should be taken up so largely with what are no doubt important but essentially constituency matters of a great technicality which have no bearing on this debate.

My point of order is important. If an hon. Member can intervene at this length on what is essentially a constituency matter that has nothing to do with the general nature of the debate, debates in this House stand in danger of being substantially abused. That would cause great damage to the power of the House in discussing relevant and important matters.

Mr. Speaker

I am much obliged to the hon. Member for Horsham and Crawley (Mr. Hordern). I do not disagree with his point. If this course were pursued by everyone, obviously I should have to give careful consideration as to how I could protect the rights of the House when the House has declared its intention. As the hon. Member for West Lothian (Mr. Dalyell) has already taken up 35 minutes, he will already have stopped some hon. Members from having an opportunity to put their points of view.

Mr. Dalyell

If I had not been interrupted, Mr. Speaker, I would have finished my speech by now. In deference to your wishes, Mr. Speaker, I shall conclude.

The issue is the central issue of the pursuit of public money when it comes to the privatisation and the offering for sale of assets that were created by public finance, by regional policy and by resources that are totally different, very often at knock-down prices. [Interruption.] If my hon. Friends agree about that, I hope that they will support a thorough investigation by the Comptroller and Auditor General taking as a case history of privatisation the events that are happening at Leyland at Bathgate.

Mr. William Hamilton

That was a great abuse of our procedure.

5.59 pm

Mr. Edward du Cann (Taunton)

I am glad to come back to the main subject of this debate, but I hope that it will be of assistance to the hon. Member for West Lothian (Mr. Dalyell) if I say that although I cannot follow his remarks in regard to the detail of the points that he has raised, I agree with his theme and the thrust of his argument. I hope that I shall demonstrate that. I also agree with him most warmly in the tribute that he paid to his right hon. Friend the Member for Heywood and Royton (Mr. Barnett). I am glad to be the first speaker from the Government Back Benches to associate myself with that tribute to him and his colleagues on the Public Accounts Committee, who have worked, as is their habit, long and tirelessly. Their report is of first-class value.

I strongly agree with the right hon. Gentleman that this is by no means a party matter; it is a House of Commons matter and nothing else. The whole House is concerned about two issues—first, that public money is well spent and, secondly, that there should be full accountability. That is what unites hon. Members in all parts of the House.

Your ruling, Mr. Speaker, for which we were grateful at the inception of the debate, enables me to remark that the Exchequer and Audit Departments Act 1866, which established our State audit body and the uniform system of accounting for Government Departments, is obsolete. Alas, that cannot be gainsaid.

My hon. Friend the Financial Secretary, a man of prescient wisdom and breadth of view, made an important remark during his short address when he said that the Treasury is open minded about these matters. So be it; that is fine. I hope to leave him in no doubt of my own opinion. It is not a matter of argument but a matter of obvious fact that the whole business of Government over the years has changed—not merely in scale but in type and style—vastly and irretrievably, and in a way which was never contemplated—nor could it have been—115 years ago when the 1866 Act was passed.

The ordinary remit of the Comptroller and Auditor General today covers only about half of British public expenditure. My hon. Friend has an important announcement to make today about the evaluation of the nationalised industries' work in future. However, I do not believe that what he said was in any way an answer to the criticism contained in the Public Accounts Committee report. The nationalised industries are not accountable in any way to public audit, and they should be.

I dare say that Labour Members reflect that there is a bitter irony here because the whole purpose of nationalisation, as I understood it, was to make the nationalised industries more accountable to the public. That is exactly what has not happened. Leaving that argument aside, industries that account for one tenth of our national production, and one fifth of the total fixed investment in Britain's economy, ought to be fully accountable to public audit.

What my hon. Friend suggested today as a step forward is in no way a replacement for the ideas suggested by the Public Accounts Committee. Public accountability should be complementary to investigation by the Monopolies and Mergers Commission.

It is not only the nationalised industries that are not accountable to public audit. The universities are not accountable. In considering the agonies that the universities are experiencing today—forced on them, some may say, too harshly as a new financial discipline—it could be said that if they had had that discipline in the past, their present position might not be so uncomfortable.

The universities are not accountable, and the same point applies to a large number of public agencies. Private spenders of State—taxpayers'—funds are not accountable either. That is the point that the hon. Member for West Lothian was trying so hard to bring to our attention.

More types of public expenditure in Britain escape constitutional audit than in any comparable country of the free world. That is a state of affairs of which hon. Members should be heartily ashamed. It is no wonder that the Expenditure Committee—reference has been made to the part played by the hon. Member for Nottingham, West (Mr. English) in the past, and to the part now being played by my hon. Friend the Financial Secretary—observed some while ago that by comparison with other countries our system of public audit is out of date. That is the charge made by a most important Select Committee—commented on and largely endorsed by the Procedure Committee, and repeated directly and indirectly by the Public Accounts Committee, under the leadership of the right hon. Member for Heywood and Royton, and by successive Public Accounts Committees—to which the Government must respond.

I may be an optimist but I expect the Government, as the trustee of the taxpayer and his resources, to exercise a special competence in their expenditures and a special carefulness in being a leader and innovator in the techniques of control and evaluation. There is a precedent in the 1866 Act which, 115 years ago, established our nation, our Government and our Parliament as an international pace-setter and example. It has already been remarked that the Act has been much acclaimed over the years and much followed throughout the Commonwealth. Why is Britain no longer a pace-setter and an example to the world?

I remember the rejoicing on each side of the House in January 1978, nearly four years ago, when the right hon. Member for Chesterfield (Mr. Varley) announced—no doubt under the direction of the Labour Cabinet of the day—that there would be an inquiry into the role of the Comptroller and Auditor General. We all thought—I believe with good reason—that we were making progress. How disappointing it has been that the period of gestation was so long and that the eventual result was stillborn.

I know that the Financial Secretary could have no personal responsibility for the White Paper, which is a timid, trivial and disappointing document. It is an opportunity ignored and wasted and a wholly negative response to the Public Accounts Committee's proposals. It is offensive to Parliament that the response to constructive proposals, made in all seriousness by senior Back Bench Members over many years, should be so unimaginative. The Government should not be the arbiter. Decisions in the matter should be more for Parliament—the people's representatives—than for the Executive, which inevitably has a vested interest in the status quo, and in as little serious examination of its expenditures as it can reasonably get away with.

I come to the text of the White Paper itself and the three so-called "guiding principles" to which the right hon. Member for Heywood and Royton made reference. On the face of it, they may be thought to be unexceptionable, or even meritorious. In the mouth of a contemporary British Government, they owe too little to reality. Let us consider them seriatim.

Paragraph 3 says that the first principle is of "Ministerial responsibility to Parliament". It continues: This constitutional convention does not fit all cases neatly"— that is a masterpiece of understatement— but remains the only effective means by which Parliament can hold to account those to whom money is voted. That is simply not true. It is not true in a dozen respects that I could demonstrate, but I shall mention only one. The establishment of the new departmentally related Select Committees has shown that it is not true. The way in which nationalised industry heads, for example, can be called before those Select Committees and questioned about expenditure of moneys shows that it is not true.

We need to broaden the extent of the remit of the Comptroller and Auditor General. The principle, surely, must be that Parliament must be able to follow all expenditure that it has voted. That expenditure must be verifiable and capable of evaluation. Those who are trusted with public money, whoever they may be, must be held accountable for its prudent expenditure. Furthermore, what they do must at all times be visible.

The second so-called principle refers to high standards of financial stewardship and prudence in handling public money". That is made to appear the norm. I shall come back to that in a moment. The rest of the paragraph, as the right hon. Gentleman said, is something of an Aunt Sally. There is no dispute about the competence of private audit. How could there be? The audit profession in the United Kingdom is probably the finest in the world. As far as I know, no suggestion has ever been made about the exclusivity of public audit. I go further, and say that the public and the private are, and should always be, complementary. They have much to learn from each other. That is surely common sense.

I come back to the boast at the beginning of the paragraph about the so-called principle of standards of financial stewardship and prudence. I do not know whether hon. Gentlemen have had time to look at the memorandum of the Comptroller and Auditor General on internal audit. Here I pay tribute to Sir Douglas Henley. I had the pleasure of working with him. He is an outstanding public servant and the PAC was entirely right to pay special tribute to him for all he, as leader of a devoted team in the Exchequer and Audit Department, has done.

The memorandum on internal audit was written in the most measured and careful language. One would almost need the Oxford Civil Service dictionary to translate it into the vernacular. Let me give some examples from the memorandum. The first is where it talks about standards of prudence in looking after public money. It says that the computer audit capability throughout the Government service is substandard. Let me give another example. There are only 47 accountants looking at internal audit in 11 Departments. Let us look at another item. The following Departments employ only a single accountant on internal audits—the old CSD, the Foreign and Commonwealth Office, the Overseas Development Administration, the Stationery Office, Industry and Trade, the COI, and the Welsh Office. Yet the White Paper speaks of high standards of financial stewardship and prudence in handling public money". The way in which we go about our financial affairs in Government is a joke and a scandal—nothing less. I take up the point made by the hon. Member for West Lothian. When has the House of Commons had a report about the way in which the vast sums that are given to private industry have turned out in the end? When have we had a report on that subject? If we have the highest standards of prudent and careful management, why do we need Sir Derek Rayner and his team, working part-time with a small staff, discovering so many examples of wasteful expenditure or items that could be dealt with in a better fashion?

The House may reflect, as I do, on the fact that at a time when Government are spending 10 per cent. more in real terms than was spent at the time of the cuts made by the right hon. Member for Leeds, East (Mr. Healey) when he was Chancellor of the Exchequer, there is more than usual need for vigilence about the way the Goverment are spending money. If the central failure of the Government, whom I strongly support, has been their inability to bring public expenditure under proper control, it is astonishing that they have not found a tool to enable them to do the job better.

The suggestion that the Exchequer and Audit Department cannot take on more work seems to me to be an insult to that conscientious and capable Department. Of course, that is not true either. In any case, if extra capacity is needed—I do not recommend it—it would not be difficult for the Exchequer and Audit Department to reduce or abandon its non-United Kingdom audits. The need to develop the science and scope of audit, and particularly value for money, to which the right hon. Gentleman referred, is patent, not only to serious students of government but to the public at large. I do not believe that there is a subject in which the public are more interested.

The conclusion of the White Paper that there is no need for modern legislation is so disappointing as to shock. I say plainly—and leave my hon. Friend, in response to his invitation, in no doubt about my view—that it is unacceptable. The matter simply cannot be allowed to rest where it is. I am in no doubt that the continuous development of the Exchequer and Audit Department, staffed with a range of skills that enable it to inquire on terms of equality with those whose accounts it audits, following and evaluating public expenditure wherever it may be made, is an essential tool of Parliament and a substantial aid to better and more effective Government. Parliament must insist on nothing less. That is our plain and inescapable duty.

For the last several years I have argued a simple point both in the House and outside. The primary duty of us parliamentarians, irrespective of party, is not—repeat "not", as they say in the Navy—to assist the Government of the day to get their legislation. It is to submit the actions of the Executive to a continuous thorough and searching examination for and on behalf of those whom we are privileged to represent in this place. To do that we need two things: the opportunity and the knowledge. We are making some progress in this regard. It has been slow, but it has been sure.

We will have more open government. We will have full public accountability. This Parliament began with splendid high hopes on both sides for constitutional reform and constitutional improvement in that regard. We have begun a journey that the majority of us are determined to complete, and at any rate to make good progress. I greatly look forward to the future encouragement and help of the Treasury—whose ally we are—of Government—whose ally, again, we are; certainly we are the friend of all those who seek higher standards—and, not least, the help and encouragement of my hon. Friend the Financial Secretary of the Treasury.

6.18 pm

Mr. John Garrett (Norwich, South)

It is quite wrong that this debate is on the Adjournment and not on a motion to express an opinion about the Public Accounts Committee's report on the role of the Comptroller and Auditor General. The reason is that the Government know that there is overwhelming support for the reforms proposed in the report. They have now been commended to the House by three Select Committees in four years, and there is little, if any, opposition to them in the House. A vote would force the Government to muster their majority against the wishes of the House, to their great embarrassment. That is why the debate has taken this form.

Another irony is that the hapless Treasury Minister—it is interesting that a Treasury Minister is replying to this debate, and not the Leader of the House—who has had to refuse the PAC's demand for increased power and accountability to Parliament is none other than the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who was a member of the Expenditure Committee that in 1977 unanimously proposed most of the reforms set out in the report. How can we account for such a change? I look forward to the Minister's explanation—that is why he should speak. I hope that he has not abandoned his belief in the need to strengthen Parliament simply because he has secured preferment.

Treasury civil servants oppose the reforms. They always have, and therefore the Treasury Bench opposes the reforms. It says much for the power of our Parliament that we cannot overthrow the Treasury's will on a matter that concerns the machinery and procedure of Parliament. We must seem to outsiders to be Members of a supine and spineless Parliament, unable to retrieve its historic rights over Government expenditure.

The history of this matter—one of great constitutional importance reaching into the heart of the power and authority of Parliament—shows that over the past 100 years our State audit system has been steadily weakened by the encroachment of the Treasury. We have allowed the rights and duties of the House to exercise scrutiny over the Executive to wither. Our system of State audit has become enfeebled.

The textbooks say that the machinery of the Public Accounts Committee and the Exchequer and Audit Department headed by the Comptroller and Auditor General is one of the glories of our constitution and that those are the watchdog on State spending, directed by the senior Committee of Parliament. The reality is very different, as the Public Accounts Committee report shows. The time is now overdue for the House to take control of our audit system and to develop it to the point where its scrutiny reaches every corner of public expenditure.

I pay tribute to the present chairman and members of the Public Accounts Committee for the way in which they have examined the arguments and proved their validity. Their unanimous report is a landmark in parliamentary and public accountability. It deserves more than the brush-off that it has received from the Government. It tells us much about the power of Government in relation to the power of Parliament that it can be brushed off in this way.

It is now 15 years since this matter was put on our agenda. In 1966 Dr. E. L. Normanton, a former member of the Exchequer and Audit Department, wrote a masterly comparative study of State audit. It is called "The Accountability and Audit of Government." In it, he showed that ours is the weakest State audit in the Western world. I was pleased to hear the right hon. Member for Taunton (Mr. du Cann) quote Dr. Normanton although he did not acknowledge the source.

Dr. Normanton said: At least in legal form, powers of executive direction could scarcely be more complete and they are incomparably more so than in any other Western country. He pointed out that virtually half of the public expenditure is not scrutinised by the State audit system. Everywhere, except in the United Kingdom, there appears to have been a strongly-held view that uses of all Government funds ought to be investigated, irrespective of where and by whom they were spent; this principle might be expressed as `no grant or subsidy without accountability!

Mr. du Cann

If I was quoting Dr. Normanton I am sorry to say that I was unaware of doing so. I am familiar with his writings and have no wish to claim some observation of his as mine. I apologise to Dr. Normanton if I have paid him some unintentional discourtesy.

Mr. Garrett

All students of audit unwittingly quote Dr. Normanton from time to time.

Dr. Normanton pointed out that our Comptroller and Auditor General was under more direction from the Government than any other State auditor. Our comptroller is nominated by the Government, not Parliament. The form of the accounts that he audits is decided by the Government, not Parliament—they are particularly uninformative. The numbers and grades of our audit staff are decided by the Government, not Parliament, and for generations our auditors have been recruited as A-level school leavers when the auditors of other countries were qualified graduates or postgraduates: our auditors were of a status quite inferior to that of the officials whose decisions they were auditing. He pointed out that our audit was still concerned with financial regularity—whether the books balanced—rather than with the efficiency and effectiveness of State spending, when other auditors had moved far beyond book-keeping and into studies of the management and effectiveness of the spenders of State funds.

In 1973 my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and I repeated and developed these arguments in a pamphlet and called for a thorough study of the audit system in this country. As far as I know the weaknesses in our system were not drawn directly to the attention of the House until I referred to them in 1975 and later. I was told that some of my earlier speeches were thought to be in bad form because they upset the even tenor of the Public Accounts Committee debates of those days.

The more I studied the matter, the more I became aware that the failures in our system hinged on a single question—to whom does the auditor report? Is he a servant of the House, operating at the direction of the PAC to ensure value for public expenditure, is he an instrument of the Treasury, or is he independent of both and, if so, why?

I pursued the matter back to the origins of the Exchequer and Audit Departments Act and tried to establish what was in Mr. Gladstone's mind when he and his colleagues instituted this pioneering attempt at parliamentary control. The answer was remarkably clear. The 1866 Act said: Every appropriation account shall be examined by the Comptroller and Auditor General on behalf of the House of Commons". After its Second Reading, the 1866 Act was referred to the Public Accounts Committee for its Committee stage. The comptroller of the day suggested that the Act should say that the audit should be conducted according to rules laid down by the House of Commons. The Treasury official in evidence agreed that that was the intent but said that there was no need to say so in the Act. In other words, even in 1866 the Treasury slipped the Public Accounts Committee a fast one.

Select Committees and Comptrollers and Auditors General referred to the comptroller as an Officer of the House in 1903, 1912, 1932 and 1946. In the Second Reading debate of the Exchequer and Audit Departments Act an interesting passage was uttered by the Financial Secretary to the Treasury. How different from the words uttered by the Financial Secretary today. He said: these … accounts shall be audited … officially and formally on behalf of this House, so that the responsibility of this House over them through its officer, the Auditor-General, is, as it were, signalised by statute … As the House is aware, the salary of the Comptroller and Auditor-General is paid, not out of Votes, but out of the Consolidated Fund, and that is done in order to mark the exceptional independence, freedom and dignity of the position of this great officer of the House of Commons."—[Official Report, 5 August 1921; Vol. 145, c. 1886.] The lesson from history is clear. The comptroller was intended to be not only a servant of the House but an Officer of the House, albeit as a result of a Crown appointment. That was in the 1860s. By 1978 the position had changed. In 1978 the Treasury said in a memorandum to the Expenditure Committee: The CAG's relationship with Parliament derives from the fact that most of his reports are presented to Parliament and he has by long practice established a close link with the Public Accounts Committee at which his formal status is that of witness. By that time the comptroller had changed from being an Officer of the House into nothing more than a witness to the Public Accounts Committee with close links to the PAC. How is that for a constitutional change?

The year before the comptroller had said to the Committee: I am, of course, totally independent even of Parliament. He said that his independence was not prejudiced by the Civil Service Department controlling the numbers and grades of his staff or by the Treasury controlling the form of the accounts. He quoted a note about my Department which said: My Department is independent of all other public departments, including the Treasury but it is at the same time an important instrument of the Treasury … the harmonious action and mutual support of the two Departments are essential to efficient financial administration. Note that now the Exchequer and Audit Department operates in "harmonious and mutual support" of the Treasury, not of Parliament. The late Mr. Gladstone must be rotating in his grave.

The Expenditure Committee went into this confused matter further and concluded that by comparison with other countries, our system of public audit is out of date. Its recommendations anticipated those that we are discussing—that the Comptroller and Auditor General and the Exchequer and Audit Department should become part of the parliamentary staff, that on principle the comptroller should be able to audit any account into which public money went, that it should be empowered to carry out audits of management efficiency and effectiveness of all that it audited financially, that it should recruit staff capable of carrying out those extended audits and that it should take over the staff of local authority auditors.

The Government's reply to the report was that the comptroller should not be subject to directions from any quarter in the exercise of his duties although, in future, the Chairman of the Public Accounts Committee would be consulted on the appointment of a comptroller. None of the other recommendations were considered acceptable.

Mr. English

My hon. Friend has correctly quoted the Government's reply. Does he recollect that the Government's reply failed to point out section 3(1) of the Exchequer and Audit Departments Act 1921, which gives the Treasury power to direct the Comptroller and Auditor General?

Mr. Garrett

My hon. Friend is quite correct. The Expenditure Committee that my hon. Friend the Member for Nottingham, West (Mr. English) chaired was stung to reply that the comptroller's position was contrary to a proper constitutional principle that the auditor of the Executive should be independent of it. The Procedure Committee of 1978 repeated the recommendations of the Expenditure Committee for reform of our audit system. The Public Accounts Committee has repeated them. There have been three major reports by three Committees in four years, all unanimous and all demanding parliamentary control of our State audit, yet all have been received with a point blank refusal. So much for parliamentary control of the Executive.

Of course, the Exchequer and Audit Department has changed over the years. Its recruits are now graduates and not school leavers. However, that is because of a general change in recruitment to the executive grades in the Civil Service. The auditors, once in, are still the inferiors in grade to those whose decisions are being audited. All of them now have to study for qualifications in accounting, but that is not enough. To examine management effectiveness we need engineers, economists, masters of business administration and management consultants—not accountants. Accountancy education in Britain is far too narrow for such a task.

The scope of the audit has been widened into value for money and efficiency, but it still rarely examines the effectiveness of policy. It still covers only 60 per cent. of public expenditure. The Government's statement of 28 July on local authority audit rejected parliamentary control of the district audit and instead proposed to hand much more control over to private accountants. The Government had already reduced the number of staff by 100.

Parliamentary control of audit is in the Stone Age compared with the general accounting office in the United States of America or the Cour des Comptes in France. The Chairman of the Public Accounts Committee is now consulted on the appointment of the comptroller, but the new comptroller was still appointed from the ranks of the Civil Service. Why was the job not advertised? The job was not publicly advertised, yet such a post should be advertised. When the Treasury heard that the Chairman of the Public Accounts Committee was to be consulted about the appointment of the comptroller, it quickly parachuted in a civil servant from another Department to be deputy comptroller. In that way, if the worst happened, and a powerful figure from business or consulting became comptroller, it would have its man in the number two position.

As the Public Accounts Committee report says, the Government's Green Paper on the role of the comptroller did not tackle fundamental questions about the need for satisfactory accountability to Parliament in relation to public expenditure. The solution proposed in the report to those difficulties is constitutionally correct and embodies a substantial advance in the public accountability of the Executive. It clears up a lot of the confusion that has grown up round the role and purpose of audit and redresses the tilted balance between Parliament and Government.

The report establishes that the comptroller should examine not only financial regularity but the efficiency of Departments and the effectiveness of spending programme in meeting policy goals. It proposes legislation to establish the principle that the comptroller should audit, or have access to, the books of all bodies in receipt of money voted by Parliament. That is a basic democratic requirement. Most importantly, it proposes a national audit office reporting to a national audit commission consisting of hon. Members. The head of the national audit office should be an Officer of the House appointed on a motion to be proposed by the Chairman of the Public Accounts Committee. Those recommendations clearly establish the primacy of the House in the scrutiny of public expenditure and are extremely valuable and important.

The Government's reply makes it quite clear that the recommendations will not be implemented, despite what the Financial Secretary said and despite his weasel words about being willing to listen. The recommendations will not be implemented by the Government. Suddenly, the Government have discovered that there is no pressing need for change. They say that accountability to Parliament cannot be created by simply changing the auditing arrangements. The answer to that is "Oh, yes it can, when accountability to Parliament is prevented by the existing auditing arrangements." The Government do not accept the need for an examination of the management of bodies in receipt of public money which at present escape public audit. They say that that might upset private companies and that the Monopolies and Mergers Commission can always look at nationalised industries.

Above all, the Government will not wear the extension of the powers of the House to take over our State audit. They say that independence is one of the essential attributes of an auditor. However, we all know that our auditor is not truly independent. For example, the Government have now withdrawn their offer to allow control of the staff in the Exchequer and Audit Department to pass to the House of Commons Commission. The situation has worsened since the Government's reply, with the abolition of the Civil Service Department. Control of the comptroller's staff has now returned to the Treasury.

It is outrageous that the staff required to investigate the management of public funds should be paid and controlled by the Treasury. It is wrong for the Government to make appointments to the post of Comptroller and Auditor General. In addition, it is wrong for the Treasury to decide the scope of the audit. The Government's reply is an insult to Parliament and a direct challenge to it. Treasury Ministers and the Leader of the House are acting in dereliction of their duty to Parliament by disregarding that. This question—although apparently a technical one of narrow interest—is central to parliamentary surveillance and control of the Executive.

It is a black day when the rights of Parliament are overridden by a Government that pay lip service to the idea of greater democratic control and then wilfully block its implementation. But the issue will not rest. It will rise again. The Treasury and Civil Service Committee must examine this issue in its current study of the efficiency of government. The Procedure Committee, in its study of Supply, must return to this issue. The next Government will implement these reforms, which, I am glad to note, are Labour Party policy. Those reforms are essential to parliamentary democracy and to the full exercise of public accountability.

From the late fourteenth century onwards, hon. Members have stood in their places and demanded the right to examine the Crown's spending. A Parliament is not truly free until it can ensure that that demand is acceded to. Today we repeat it. Not today, but before too long, we shall take the power that is rightfully ours.

6.37 pm

Mr. Michael Shaw (Scarborough)

As several hon. Members wish to speak, I shall try to keep my remarks brief. As a member of the Public Accounts Committee, I must thank the right hon. Member for Heywood and Royton (Mr. Barnett) for the way that he chaired the Committee.

We started with several differences of opinion. We discussed every issue at considerable length and in great depth. However, I am glad to say—as hon. Members will have noted—that we ultimately reached a united decision. I entirely endorse the remarks that the right hon. Gentleman made when he submitted the report to the House. At the outset, the first special report states: the statutory framework for public audit in the United Kingdom has remained the same for over a century. It is fairly obvious to all hon. Members that much has happened since the framework was established as regards the extent of the Government's financial involvement in all aspects of our economic and social life and the techniques and modern requirements of present audit standards. It is generally agreed—except apparently by the Government—that changes must be made. The institution of the Comptroller and Auditor General and the Exchequer and Audit Department was once commonly used as a model for other countries to follow, but, I am sorry to say that public auditors in other countries have made considerable advances compared with the state in which we find ourselves.

The Public Accounts Committee, in its report, recommended that a national audit office be set up. Indeed, the hon. Member for Norwich, South (Mr. Garrett) made that point. That would enable all aspects of public audit to be brought within the ambit of one authority. The Comptroller and Auditor General would become the head of this authority, and he and the national audit office would be entirely independent, subject to certain powers of direction from the House of Commons that would have to be carefully worked out.

Certain important questions arise from this proposal, particularly as the Government's answers to them are clearly at variance with those of the Public Accounts Committee.

First, who should appoint the Comptroller and Auditor General? The Government are in favour of continuing his appointment by letters patent on the advice of the Prime Minister, just as they do now after consultation with the chairman of the Public Accounts Committee. On the other hand, the Public Accounts Committee favours his appointment by letters patent on the recommendation of the House of Commons.

In practice, I do not believe that either system will produce a greatly differing result, provided that proper safeguards are continued for the independence of the Comptroller and Auditor General. However, in principle I certainly prefer the PAC solution. At present, the Government select on the advice of the Civil Service, yet the chief task of the Comptroller and Auditor General will, and must, always be the audit of Government and of the Civil Service on behalf of the House of Commons. The PAC solution must clearly be right, but I doubt whether the Government or the Civil Service will part easily with the right to make such an important appointment. Having said that, I believe that that change will sooner or later—I hope sooner—have to be made.

Secondly, how far will the Comptroller and Auditor General's right to inquiry and information extend? The conclusion reached by the PAC is given in paragraph 8.8 of its recommendations: We recommend that new legislation should establish the principle that the C & AG should either audit, or have access to the books of all bodies in receipt of money voted by Parliament". The Government believe that in defining the range of activities of the C & AG account should be taken of the principle and extent of ministerial responsibility to Parliament. That will not do. I agree that such account should be taken on board, but surely the range of the Comptroller and Auditor General's activities must be defined by the Votes authorised by Parliament rather than by ministerial responsibility.

Mr. English

Of course, the PAC recommendation, with which I fully agree, limits the present powers, because the Comptroller and Auditor General, if so ordered by the Treasury, can audit anyone's accounts "whether …. or not" they involve the expenditure of public money. "Whether …. or not" is the exact phrase in section 3(1) of the 1921 Act.

Mr. Shaw

I am obliged to the hon. Gentleman, who has taken a deep interest in these matters for many years. I still believe that the proposals that have been put forward by the PAC—limiting the powers in that respect but extending them in others and placing the authority firmly where it should lie—are right.

The third question relates to the appropriate audit arrangements for local authorities. Can such arrangements be made within the framework of a national audit office? I admit that at the outset of our discussions I strongly felt that they could not. It is no secret that considerable argument and discussion took place on this point. However, I believe that the proposals that we finally devised and have put forward in our report now meet the objections that were made in evidence before us. I agree with them.

Local government audit arrangments should not be in the hands of a Department of the central Government. Similarly, they should not rest with the local authorities. Simply to merge the district audit service with the Exchequer and Audit Department would, I believe, be widely and unacceptably misunderstood. Our report states: The local authority Associations clearly regard any involvement by the C & AC; in local authority audit as equivalent to increased interference by central government". Thus, we propose that, although the Comptroller and Auditor General should be head of a national audit office, the office itself should be in two parts: one, under the Chief Inspector for Local Government External Audit, responsible for the audit of local authorities, comprising at the outset all the present staff of the district audit service and the audit inspectorate, and the other responsible for the audit of the central Government.

The appointment of the chief inspector, as well as his duties in connection with the individual audits, will not in any way come under the authority of the Comptroller and Auditor General. I should be happy if the local government external auditor were appointed in the same way as the Comptroller and Auditor General. That is a personal view, and I am happy to accept the recommendation in the PAC report.

The Government's White Paper, in paragraph 6, states: It remains the Government's view that it would be useful to introduce legislation to provide an up-to-date prescription of the C & AG's functions. But this is not a pressing need. I beg to differ with the Government. I believe that it is a pressing need. It should not be allowed to disappear from our deliberations and decisions. It is so easy to debate a matter of this sort after a report has been submitted and then to tuck it away in the files and do nothing further.

If we have a slight delay, further experience will, of course, be gained—for example, in the use of the Monopolies and Mergers Commission—but I believe that that experience will be limited. I certainly believe that it will not justify any undue delay in taking steps to fulfil the objectives that we have put forward in our report. Those of us who have studied this matter in great detail, and have supported in full the report that has been placed before the House, are convinced that action should be taken at an early date to implement that report.

6.50 pm

Dr. Jeremy Bray (Motherwell and Wishaw)

The hon. Member for Scarborough (Mr. Shaw) has echoed the words with which my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) opened the debate in deploring the appalling and inadequate reply from the Treasury to the PAC report. The hon. Member spoke from experience and detailed knowledge of local authority audits. I wish to deal especially with the overlap, such as it is—there is a common interest—between the work of the PAC and other Select Committees.

The background is outlined graphically in paragraph 1.6 of the PAC report, which reads: A Minister often does not have the information he reasonably needs in order to control the public expenditure for which he is responsible … the form of public expenditure is often not sufficiently tested … it is not possible to assess accurately in advance what a change in policy is actually going to cost … Nor is there any clear or satisfactory way of establishing the cost or value of resources being employed". If that is the state of affairs with which we are faced, the problem extends far beyond that of audit. Because it extends beyond audit, many Committees of the House are concerned with the problem of effectiveness and efficiency in Government. The first responsibility must rest in the Department with the line managers and the Minister. Secondly, there is a responsibility at the centre of Government, in the Treasury, the Cabinet Office—which now houses the dismembered elements of the Civil Service Department along with the Treasury—in the Central Policy Review Staff, in the Rayner group or wherever it may be. The very diversity and change at the centre inspires no confidence that we have yet got the answer right in terms of a central review within Government.

Thirdly and finally, there is the responsibility of Parliament, which we must all bear. I wholeheartedly support all the proposals in the PAC report, especially the proposal for the national audit office and the nature and scope of its work.

The PAC report distinguishes, in the work of that office and the work of the Comptroller and Auditor General, between the financial and regulatory audit and the value-for-money and effectiveness audits, and supports the extension of the Comptroller and Auditor General's work in the latter area. In the Treasury and Civil Service Sub-Committee we are carrying out an investigation into the methods of reviewing effectiveness and efficiency in Government. I cannot anticipate what our conclusions will be, but the PAC report and the Green Paper that preceded it refer to the work of the Select Committee. Perhaps it is appropriate to deal with some of those matters now.

In the Green Paper the Government remark that the extension of the Comptroller and Auditor General's activities into matters of value for money would take him 'a long way from his traditional role of conducting an audit-based examination of ways in which money has been spent and could take him into fields primarily the concern of Select Committees other than the PAC. It would put at risk the traditionally non-partisan character of examination by the PAC of matters in the C & AG's reports. Such a move could compromise the independence of the C & AG and pose a threat to the smooth working of the arrangements for his access to Departmental files' There is the rub. The idea of Select Committees other than the PAC being able to raise matters by one means or another which the national audit office must pursue, with that national audit office having access to files within Departments in the same way as the Comptroller and Auditor General, is something that the Treasury is unwilling to concede and which the House must wring out of it.

The former Comptroller and Auditor General, Sir Douglas Henley, objected to the extension of the influence over him to the House, whether by appointment or by the reference of matters from other Select Committees. He considered that if the Comptroller and Auditor General were appointed by the House directions taken from the House would interfere with the independence of the audit, because they would prevent the C & AG from allocating his staff resources in the manner he considered correct and would oblige him to take staff away from work he considered essential in order to investigate matters which the House had directed him to examine. Furthermore, if the C & AG were to become an Officer of the House, it might be that other Select Committees than PAC would seek to exert pressure on the C & AG to examine a particular matter. This could involve the C & AG in investigations of policy matters and threaten the non-political nature of his audit. I am glad to say that the PAC report takes that bull by the horns and says forthrightly in paragraph 7.27: It may be that in the future other Select Committees than this one might wish to ask the head of the national audit office to investigate a particular matter, especially if the range of his audit is extended as we suggest, and if some of his value-for-money audits extend into an assessment of the effectiveness of particular programmes. That is true.

If in carrying out such investigations into value for money in pursuit of questions raised in other Select Committees the problem of access to files arose, again the PAC report is quite explicit. It says in paragraph 2.25 that for the purposes of such audit the C & AG should have the same full access to departmental papers as he enjoys for his financial and regularity audit. That opens up the perspective of matters being raised by Select Committees which, by one means or another, the national audit office then investigates in detail within Departments. It is wholly reasonable that, to keep the matter in a reasonably orderly framework, the request to the national audit office to consider matters about value for money should be made by the PAC.

The Treasury should realise that the Select Committees work closely and effectively together. If, for example, the Treasury and Civil Service Select Committee, after appropriate consultation with the PAC, were to ask that the national audit office undertake an investigation into a question of effectiveness, I cannot imagine that the PAC would put difficulties in the way. Likewise, it is appropriate that when the national audit office reports back the report will come to the PAC and then be passed on to the Select Committee that raised the matter in the first place.

If such questions are raised, in order to keep a reasonable control of the flow of work it would be necessary to limit the number of inquiries or the amount of staff available for such work, but that comes wholly within the sort of working arrangements that the House can work out for itself through the channels that exist for communication between the Select Committees.

The bulk of the work of Select Committees other than the PAC does not require the detailed investigation into the files upon which the national audit office will base its work. Most of our work in the Treasury and Civil Service Select Committee deals with matters that are entirely within the public domain. They are questions of the analysis and design of policy. We must question Department officials, the Chancellor of the Exchequer and perhaps other Ministers about the way in which they see the arguments underlying the policy.

However, some matters of fundamental importance arise from time to time which require more detailed investigation into Departments and which do not fall wholly within the present framework of the Comptroller and Auditor General. An important current issue is the computerisation of the Inland Revenue. Within the technical work being undertaken by the Inland Revenue, we have a fixing of the freedom within which the House can reform the pattern of taxation during the next 10 or 15 years. Because of the skeletons in the cupboard concerning the Swansea motor licensing department, the Government are taking extreme precautions to ensure that the computerisation is, technically, a success. I believe that it will be. There are three layers of consultants reporting on the system and on each other to ensure that no disasters are built into the system.

The House, however, requires certain questions to be answered satisfactorily. For example, what will be the cost of moving to a self-assessment system? What will be the various possibilities if the rating system is abolished and the local authorities have some freedom to vary the rates of local income tax? It is a question not simply of what is possible, but of how much flexibility is being built into the system. That cannot be brought to light in one or two hours of questioning the chairman of the Board of Inland Revenue. It requires a technical investigation which the national audit office, with the growing emphasis on systems audit, could undertake. I give that as one example, but I am sure that many others will occur to hon. Members.

I do not envisage any difficulty in following the PAC's proposals in relation to the impact of work on other Select Committees or in the way that they could use the facilities of the PAC in its relations with the national audit office.

The Financial Secretary announced the scope of the Monopolies and Mergers Commission in its review of nationalised industries. The obvious question is the sensitivity of the nationalised industries, and especially their chairmen, in an atmosphere in which the Government find it difficult to appoint such chairmen—not only because of salary but because of the conditions of service with their exposure to attack which is a part of the responsibility attached to great nationalised industries.

Some of the chairmen face real problems. They cannot be resolved by balking the issue of the national audit office. That proposal must stand. The solution to the problems lies in another direction. First, parliamentary review sets the problems of nationalised industries in context. Nationalised industries are not simply hauled over the coals in isolation. The Treasury and the sponsoring Departments are held to account by the Select Committees, whether the Treasury, the Department of Industry, the Department of Transport or any other. They ensure that nationalised industries are reviewed in context. Surely that is what the chairmen want.

Another part of the solution lies in the extension to the nationalised industries of the succession planning that is about to be introduced within the Civil Service. I am sure that Sir Derek Ezra will not object to my referring to a matter we discussed privately. He has served the National Coal Board for 34 years. They have been distinguished years of service. I asked him whether he thought it would have been a good idea had he spent five of those years in the Treasury. His immediate response was that he would have preferred to have spent five years with his customers. He is a good salesman. He agreed that had he spent some time in the Treasury it would have made a difference to his relations with it.

If there were to be proper succession planning in the public sector, it would be possible to appoint most chairmen of nationalised industries from within those industries. It would be possible to give them sufficient experience elsewhere in the public sector, as well as in the private sector, to ensure that there was no lack of candidates. That is a digression, but I mention it because it is the sort of argument that the House can bring to bear through the diverse interests of its various Committees in tackling the real problems faced not only in public Departments but in the nationalised industries. Because of the very strength of the House, its traditions and its command of the lines of communication, I hope that the Government and the Treasury will think again and will accept in full the recommendations of the PAC.

7.5 pm

Mr. Peter Hordern (Horsham and Crawley)

I was interested in the remarks of the hon. Member for Motherwell and Wishaw (Dr. Bray), especially those relating to the Inland Revenue computer. Like so many other computer programmes, it appears to be receding ever further into the distance.

I was also interested in the observation of the hon. Member for Norwich, South (Mr. Garrett) that it is official Labour Party policy that the report of the Committee chaired by the right hon. Member for Heywood and Royton (Mr. Barnett) should be implemented. That is the only part of the Labour Party programme that I can commend to my constituents. The tragedy is that the more definite the proposals, the less likely they are to be carried forward. Whatever the composition of the next Government—I sincerely trust and believe that it will be a Conservative Administration—history has shown that the Treasury is no respecter of reports of Select Committees, least of all those which cover its own ground.

I pay tribute to the right hon. Member for Heywood and Royton, without whom the report would not have been published. When the Treasury published its Green Paper asking, in an academic manner, for comments, it had no idea that the PAC would produce a serious document containing proposals that required debate in the Chamber. That has happened. The Treasury's reply is contained in the White Paper. I know that my hon. Friend the Financial Secretary was not responsible for it. It is the worst apology for a Government response that I have ever seen.

I understand these matters. The Treasury does not want any further power to leave its hands. The idea that Members of Parliament should have some control over the Executive is far from the Treasury's thoughts. That would apply to the Treasury under every possible Administration. I envisage further debates on the matter. I hope that it will not be thought that, because my right hon. and hon. Friends and I support the Government, we are not fully behind the report.

I do not find the Treasury response unsatisfactory simply as a reaction to a full and excellent report. Nor is it unsatisfactory simply because it is not prepared to allow accountability to Parliament. A much more serious charge is that the Treasury is not prepared to ensure that moneys voted by Parliament are effectively spent—and I do not mean properly spent. It would be impossible to be a member of the PAC without realising, year after year, that the evidence that comes before it shows that public expenditure is out of control.

The position has assumed ever greater importance as time goes on because of the growing extent and scope of the public sector, whereas the power to control it remains much the same as it was in Mr. Gladstone's day. Therefore, I hope that this debate will be regarded as a proper and continuing contribution on the role of the Comptroller and Auditor General in particular and on the control of public expenditure in general.

I have no doubt that the present role of the Comptroller and Auditor General needs revising because his work is essentially much the same, at least in statutory terms, as it was in the 1866 and in 1921 legislation. We found that the present role of the Comptroller and Auditor General needed to be extended not only from our own experience, but from the evidence given to us by such people as the Australian comptroller and auditor general on the value-for-money audit. My remarks will be confined to what is comprised by the value-for-money audit.

Our experience of the Committee is that, even when we discuss financial audit, the questions about value for money always rise. It is inevitable that they should. It is inescapable that they will arise more often after the Comptroller and Auditor General's report on such matters as the internal audit system of the Civil Service and staff inspections by the Civil Service Department.

I have been a member of the Public Accounts Committee for some time. I regret to say that, far from becoming inured to the criticisms of Departments made by the Comptroller and Auditor General over successive years, I become more shocked at the lack of control by the Executive over their own service. Therefore, I remind the House of the findings of the Comptroller and Auditor General about almost the only form of internal check by the Departments over their expenditure.

The Comptroller and Auditor General found that 28 small Departments and some other Government bodies had no internal audit. He also found that there was a general lack of professionalism and that 60 per cent. of all internal auditors are executive officer or clerical grade staff assigned to tours of duty of three years or less, much too short a time to be adequately trained.

The only other method of controlling departmental expenditure and ensuring that it is properly controlled is that of staff inspections. Fortunately, the Comptroller and Auditor General has also reported on that matter. He said that there were 560 staff inspectors to inspect the activities of 548,000 non-industrial civil servants who were supposed to carry out their inspections in a three-year cycle. The Civil Service Department reviewed the staff inspection returns and discovered that it would take between seven and 28 years for the inspectors to complete their cycles in some Departments. Inspections were concerned not with whether the work needed to be done but with whether the numbers were appropriate for the work that was done.

Therefore, even now there has never been an examination of what the Civil Service does or whether what it does needs to be done. The Civil Service Department has an absolutely superhuman task to monitor the Department's manpower. It employs altogether just 55 staff to monitor Departments' manpower. The branch in the Civil Service Department that covers the DHSS, which employs 98,000 people, as well as the Inland Revenue, which employs 80,000, consisted of a principal and four staff. Yet those are the only checks—that is to say, the internal audit system and staff inspections. Plainly that is inadequate.

I wish that that was the only part of the criticism that our Committee found it right to dwell upon, but with regard to the role of the Comptroller and Auditor General it is said in our report—it is a peculiar absence that the Treasury White Paper does nothing to counter—that the Comptroller and Auditor General has no right to inspect the work of the health authorities. The National Health Service is the largest employer in the country. Furthermore, not only has he no right of access to the National Health Service, but there is no form of staff inspection to see what people are doing in the National Health Service.

For example, no examination is made by the Department of the extraordinary disparities between one region and another. We found that in March this year there were no statistics for what different groups there were in the National Health Service beyond 1979, so that the Department does not know who is being employed or for what purpose much before 15 months ago. Civil Service staffing and efficiency is not under proper control.

Another reason why the role of the Comptroller and Auditor General should be considerably widened is the growth in the size of the public service. Twenty years ago 1.5 million people were employed in local government. At the last count in June last year there were 2.5 million, a prodigious increase. In education, for example, the number of people who neither lecture nor teach fulltime was 81,000 in 1960 and 201,000 in 1980. The number of people who neither lecture nor teach parttime in the education service was 90,000 in 1960 and, at the last count, 483,000, rather larger than the combined defence forces that are available to us. At the same time the numbers employed in manufacturing have declined from 8.4 million in 1960 to 6.7 million in 1980. What happens in that cycle is that the cost of maintaining extra people in the public sector, no matter how valuable their contributions, falls largely upon the private sector.

I received an answer to a question that I put down recently that shows that, although labour costs in manufacturing industry in terms of pence per hour increased from 58p to 349p between 1968 and 1980, the element of labour costs in manufacturing industry for wages and salaries has declined over the years from 91 per cent. to 82 per cent. The extra cost of statutory national insurance contributions and others is by far the largest element of the increase in other costs. The result of that must be that those people are having to pay contributions not only for their own insurance or unemployment but for the considerable increase in the size of the public sector.

Whether or not something is done about the role of the Comptroller and Auditor General, I do not believe that we can continue for long a system that allows the public service to grow at such a rate without any investigation of what it is doing, what function it performs or whether what it does could be done better by some other means. That is almost unique. I know of no other country in which such a state of affairs is allowed to continue.

In the United States, as the House knows, the General Accounting Office can look into every part of the United States public sector and 40 per cent. of its work is produced for members of the Congress. It employs over 5,000 highly qualified people who are able not only to investigate whether money has been properly spent but whether it has been effectively spent and must be spent by an agency in a particular way.

I ask hon. Members to recall the circumstances in which some of our Ministries were set up. Perhaps it was right to do so, but the Ministry of Technology, in which the hon. Member for Motherwell and Wishaw was a Minister, was set up by the right hon. Member for Huyton (Sir H. Wilson) in the jet heat of his white-hot technology just before the 1964 election. It is easy to set up Ministries, but it is extraordinarily difficult to check their activities, to see what they do and to find out whether what they do is necessary. None of us can say, rightly or wrongly, whether a Ministry should exist, because we are not qualified to do so. However, there is no mechanism of any sort to assess what the Departments are doing. We are told that the Department of the Environment has taken two years to produce a system called MINIS, which has at long last come up with a job description for everyone in the Department of the Environment. That is now being commended as a breakthrough that might apply to other Departments.

The United States Government are abolishing the Departments of Education and Energy. That does not mean that education or energy will be outcast or abolished. It was long felt in the United States that education was properly handled by the States and that there was no reason why a Government Department should preside over it. In this country local authorities are responsible for handling education, and the University Grants Committee handles the expenditure on higher education. The United States Government are abolishing the Department of Energy because they have decontrolled the price of energy and they see no reason why there should still be a Federal function.

We have decontrolled the price of energy, at least in the sense that it needs to be controlled by the Department of Energy. The multifarious activities of that Department should be closely examined. I do not know whether the Exchequer and Audit Department is the right body to do so, but, given the size of the public sector, there should be a serious examination of what is happening.

Our report refers to the nationalised industries. My hon. Friend the Financial Secretary mentioned the Monopolies and Mergers Commission. As I understand it, there are to be six references a year to the commission, and on that basis each industry will be referred every four years. I am glad that my hon. Friend said that private consultants would be called in to co-operate. Recent reports of the commission deal with the Severn-Trent water authority and the Southern region of British Rail, but I have observed no action whatever on those reports. If the reports are to concern only comparatively small, though important, aspects of nationalised industries, that simply will not do.

In any case, it will not do to have the commission examining on an ad hoc basis the activities of the nationalised industries, for all the good reasons that the right hon. Member for Heywood and Royton deployed. We need a continuing survey of the activities of all the nationalised industries, which could be done more effectively by the Exchequer and Audit Department. Today, many public companies have shareholders' representatives on the board. That sort of activity—the company audit—should be carried out by the Exchequer and Audit Department on a continuing basis. The same is true of the water authorities.

Regarding local authorities, there is no value-for-money audit and, as the House knows, among the local authorities the most prodigious waste of expenditure occurs, and there are no means by which it can he measured. That must be a good reason for allowing the national audit office to have control over the function.

An economic debate is continuing at present on whether more money should be printed and whether the economy should be primed. That view avoids the scope that exists for making our existing public services work better than they do. There are two points to note about the composition of the public sector: first, its size and continuing growth; and, secondly, as we have observed in virtually every report, its inefficiency.

To obtain real economic growth, there is not a much better test than the one that Swift commended a long time ago. Where one can make two blades of grass grow where only one grew before, there will be economic growth. The scope for growing grass in the public sector is enormous. Public expenditure is now of such a size as to demand a more effective means of supervising and controlling it. We are still trying to administer and control public expenditure by the means that were available to Mr. Gladstone—by counting candle ends. The most serious defect in the economy today is the failure to measure and control public expenditure. One substantial contribution to right that defect is the report that we are debating, which, regrettably, the Government have so far failed to answer convincingly.

7.16 pm

Mr. Michael English (Nottingham, West)

First, I congratulate my hon. Friend the Member for Norwich, South (Mr. Garrett) for raising this matter in the Sub-Committee that I chaired six years ago. It is an interesting thought that after six years we are still in much the same position as we were when he raised it. In microcosm, the subject of this debate is very much an illustration of what is wrong with our system of government.

After a few years, the Expenditure Committee produced a report. The Financial Secretary, with whom I sympathise, participated in drawing up that report on the Civil Service. There were other controversial aspects of the report, but there was hardly any controversy about one point. The hon. Member for Cirencester and Tewkesbury (Mr.Ridley), my hon. Friend the Member for Norwich, South and other hon. Members were unanimous on the recommendations on the audit. That is interesting, because we are told that one of the things that is wrong in our country is the swing between the two major parties. If the hon. Member for Cirencester and Tewkesbury and my hon. Friend the Member for Norwich, South can agree, there cannot be many hon. Members who would not agree. In this debate so far, no one has disagreed, except the moderate absentees who protested earlier that the two major parties hogged publicity. In this case, they are not concerned about the audit and the effect of spending public money.

Sir Albert Costain (Folkestone and Hythe)

In the many debates on public accounts that have taken place, does the hon. Gentleman ever remember Liberal Members being present?

Mr. English

No; but to be fair to the Liberals, it was not them, but another group, who said that it did not like the Liberal Party representing it on matters of broadcasting publicity. As soon as that occasion passed, that group also ceased to be present.

I come back to the Expenditure Committee report. We then said that the Exchequer and Audit Departments Acts should be amended. That does not seem to be an unreasonable recommendation. The principal Act was passed in 1866, and it was last revised—in a way to make the Treasury more powerful—in 1921, 60 years ago. I see no reason why, in two generations, there should not be a modest amendment.

On one occasion I asked a Clerk of the House, who was trained in the law, to list some of the totally obsolete statements in the 1866 Act. These were not matters of principle. They were merely matters that needed revision. The list was extremely long. There is no possibility of doubt that the two Acts need amendment, even if the same principles were retained. However, the Financial Secretary is forced to tell us that the Government are still considering whether to amend the 1866 and 1921 Acts and want to wait for the Select Committee on the Treasury and Civil Service and the Procedure Committee.

In July 1977 the Expenditure Committee made its recommendation. It took until March 1978 for that recommendation to be met with a negative reply. In this instance we must blame the Treasury, because they were two successive Governments of two different parties. We must blame those who drafted the replies rather than those who merely signed them or as well as those who signed them.

In July 1978—this was rather quicker than the Government's reply to the Expenditure Committee—the Procedure Committee supported the Expenditure Committee. By April 1979 we still had not heard anything. The PAC, under the chairmanship of the right hon. Member for Taunton (Mr. du Cann), produced a report. In March 1980 there finally appeared a Green Paper. That Green Paper has been subject to investigation by the PAC. The report was produced in February 1981, and in July 1981 it was still being said that the Government had yet to make up their minds about amending these outdated and archaic Acts.

That illustrates the slow and inefficient processes of our Government. If they are not inefficient, the slowness is deliberate.

Mr. John Garrett

Of course it is.

Mr. English

My hon. Friend says that it is deliberate. For the moment I shall suggest that there is inefficiency. I do not understand how it has been possible for some statements to have been drafted by civil servants and signed by Ministers. I do not include the Financial Secretary. Paragraph 25 of the White Paper "The Role of the Comptroller and Auditor General" states that the PAC's proposals are not liked because There are as good reasons in the public sector as in the private sector for regarding independence as one of the essential attributes of an auditor. I understand that in the private sector auditors are appointed by shareholders. That is usually done on the recommendation of the board of directors. The nearest thing that the Government have to a shareholder is the House of Commons. There is no real suggestion that that statement has ever been compared with the reality that it is supposed to represent. If the person who drafted that sentence had even considered the nature of the independence of an auditor under the Companies Acts, he would not have suggested the sentence in the first place.

The district auditors, whom we have been talking about in relation to local government, are civil servants in the Department of the Environment. That is all that they are. The Comptroller and Auditor-General has legal limitations placed upon him. He must investigate any account that the Treasury instructs him to investigate. I have checked that with an eminent lawyer. The subject of the investigation could be the local cricket club if the Treasury so directed. The Comptroller and Auditor-General is not limited, provided that the Treasury decides that he is not limited. However, there are distinct limitations when one considers the situation in reverse. The Expenditure Committee, like the PAC, said that the principle should be that the Exchequer and Audit Department may audit any accounts into which public money goes. I stress "may". No one is suggesting that the entirety of public expenditure—perhaps 30 per cent. of the United Kingdom's gross national product—should be audited by the Comptroller and Auditor General in one fell swoop.

Let us consider the permissive power. In the United States the powers of the states are limited by the federal constitution. They are limited by law. However, if the federal Government give money to a state, it is assumed as of right that if the General Accounting Office of the United States wants to investigate what happened to that federal money—whether it was misspent corruptly or by inefficiency—it may do so.

In many states the powers of local authorities are protected by the state constitution. Yet if federal money is given to local authorities through the states, the General Accounting Office may say "San Francisco has spent this badly." Why should it not do so?

My right hon. Friend the Member for Heywood and Royton (Mr. Barnett), introducing the debate, said that our local authorities are confused. At one moment they do not want an increase in the powers of the Secretary of State. At another moment they seem to wish him to keep his power to audit them instead of making that an independent process. They seem not to know what they want. However, it seems clear that they do not want the Secretary of State of the House of Commons to say "You did not spend that money very wisely." Even if there were no power or sanction except the power or sanction of publicity, they would seem not to wish that. That is true also of Her Majesty's Government.

As I have said, other than inefficiency, the possibility is deliberation and intent. Why has the slow process that I have described been allowed to continue? For what possible reason is there an intense desire on the part of the machinery of government to prevent an investigation into how public money is spent?

When we criticise civil servants, we are often told that our criticism is grossly unfair. It is said that we should not be criticising them because they are responsible to Parliament. In this instance we said "Fine". All the committees that have considered this issue have said "Excellent. We believe that the function of audit should be directly responsible to Parliament." Different reports differ in detail, but in principle every report has stated that the function of auditing public expenditure should be controlled not by the Treasury, which is the direct master of public expenditure within the Government, but by an independent body.

There is tremendous resistance to that idea. The Civil Service and the Government say that it is unfair to criticise those who are responsible to Parliament. We say "You should be responsible to Parliament", and there is strong objection.

I have given almost total endorsement to every word that my right hon. Friend the Member for Heywood and Royton and his Committee have said. I share their remarks about Sir Douglas Henley. When he took over in 1975, the rules of intake were changed for the first time so that graduates were recruited and were required to become accountants. My hon. Friend the Member for Norwich, South rightly said that other disciplines should be represented as well as accountancy. At least the former Comptroller and Auditor General can be said to have improved an appallingly bad situation in which auditors were supposed to be clerks and those in charge of the Civil Service were supposed to have first-class, usually Oxbridge, honours degrees.

Some additions can be made to the report. In mentioning them I do not intend to detract from it, and they are not intended as alternatives to the matters in the report.

One of the results of the 1866 Act was to unite the functions of the Comptroller General with those of the Auditor General. We all know what "audit" means in Britain. It usually means what is more technically known as post-audit—the audit of the expenditure of money after it has been spent.

Another aspect is the pre-audit function. The Comptroller aspect of the Comptroller and Auditor General is to authorise expenditure from the Consolidated Fund on the ground that that is in accordance with law. I suspect that that has been even more eroded than the post-auditing functions. We now have, for example, a remarkable creation called the Contingencies Fund, which is 2 per cent. of Supply on a rolling basis, so that it can be far more. Out of the Contingencies Fund, without the authority of Parliament, everything from making a Lord Chancellor's robes to constructing an atomic bomb has been done. Its present maximum limit is more than £2 billion at any one moment, but more than that can go through it in a year, and sometimes has. This vast sum of money needs control, and I hope that any new Procedure Committee that is set up will look at it.

The Public Accounts Committee stresses voted money, especially in the text drafted by the former Comptroller and Auditor General. That is natural enough, because that is the Committee's remit. In all the other reports we have been careful to say "public money", as have most right hon. and hon. Members who have contributed to the debate. We used the phrase "public money" deliberately. These days, "money voted by Parliament" represents only a proportion of the total of public expenditure.

There can be no doubt that where the bulk of the expenditure of any organisation is the taxpayer's money, it should be capable of being looked at. It can be such money and not necessarily technically voted as a matter of Supply. I shall not go into these technicalities, but I hope that when my right hon. Friend the Member for Heywood and Royton is considering these issues, he will realise that he ought to be more expansive and more of an empire builder and not limit himself too much in this regard.

A topic that has not been mentioned adequately is the audit of the Comptroller and Auditor General. In paragraph 25 of the White Paper we are told a remarkable fact: There are as good reasons in the public sector as in the private sector for regarding independence as one of the essential attributes of an auditor. We have heard how the Comptroller and Auditor General is usually a civil servant. He is a civil servant because he is underpaid for the job. He is paid about one quarter or even less of what the senior partner in any one of our six big accountancy firms gets. It is not possible to get an accountant of the calibre required, because he is paid only about one quarter or one fifth of the sum that he can get doing a similar job for multinational companies.

I do not suggest that the Comptroller and Auditor General should always be an accountant, but it is not possible to get people of the calibre required at the present rate of pay, which is one insidious reason why we have always got civil servants from the Treasury and taken them into this job.

That is only one way in which control over the audit is exercised. Apart from the legal restrictions embodied in the 1921 Act and the details that we have mentioned, the last is the audit of the Comptroller and Auditor General himself. Who audits the auditor is very important. In my view, if we set up a national audit office, or some office under the House of Commons, we should give a contract to one of the big firms of accountants—perhaps changing every five or 10 years—to audit that office. That is important, because its principal function would be to beef up the office and to say "These are the latest ideas in the world of auditing multinational companies and countries, and we suggest that you might consider improvement in this way." It is not done at the moment.

I ask the House to guess who audits our present auditor. The answer is the Treasury. The Treasury appoints him, and the Treasury controls the pay and grading of his staff. What is more, I suggested in a memorandum to the Public Accounts Committee that this was a breach of the law.

Let me explain what happened. The Green Paper incredibly did not mention this. When the Treasury drafted its document, presumably it did not know who audited the Comptroller and Auditor General. Incidentally, it did not know of section 3(3) of the 1921 Act requiring the Treasury's decision to be final. At least it did not mention it to the Expenditure Committee, so I presume in charity that it did not know. In charity, we must also suppose that the Treasury did not know who audited the Comptroller and Auditor General.

In paragraph 27 of my memorandum to the PAC I said: The full flavour of this almost incredible omission from the Green Paper will only be understood when it is realised that the Green Paper makes no mention of who audits the C & AG and the E & AD. It would appear that the C & AG is legally required to audit his own accounts"— that is the law— and he did so until 1889. This was obviously somewhat unsatisfactory, as the PAC pointed out. The Public Accounts Committee pointed it out in the nineteenth century. Thereafter the Auditor of the Civil List was associated with the Comptroller and Auditor General in auditing the Exchequer and Audit Department accounts. At that time the auditor of the Civil List was a totally separate individual. There was obviously no particular reason against this (given that the law had not been changed) but then, under the 1921 E & AD, the Assistant Comptroller and Auditor's post was abolished. The Assistant Comptroller and Auditor was the auditor of the Civil List. The Assistant Comptroller and Auditor had been the Accounting Officer but thereafter the Comptroller and Auditor General became the accounting officer of the Exchequer and Audit Department. I am sure that right hon. and hon. Members are getting as confused as I was when I was writing the memorandum. He (the Comptroller and Auditor General) then, from 1922 onwards, ceased to certify his department's accounts. This seems to be a breach of the law. No one has done anything about it. It is interesting to note that this was spotted by a Public Accounts Committee in the nineteenth century. If that does not illustrate what is wrong with our system of audit and if that does not illustrate what this debate is about, I do not know what will. If that does not illustrate what is wrong with the way in which the country is governed, I do not know what will. It was noticed in 1889. We are now in 1981, and still nothing has been done about it. The only person who audits the auditor is the Permanent Secretary to the Treasury—incidentally, not even one of his Ministers.

The Permanent Secretary to the Treasury, the Accounting Officer who supposedly has to report to the Comptroller and Auditor General, is the auditor to whom the Comptroller and Auditor General has to report. If that does not need altering, I do not know what does. If we still get a reply which does not even mention this aspect of the matter—it is known, because it is in the evidence—presumably drafted by a civil servant responsible to that self-same Permanent Secretary, I ask: did a Minister cut it out of a Civil Service draft or did a civil servant deliberately not tell his Minister? In any case, how can we rely on such a circular system of audit where the auditor is responsible to the head of the Civil Service which he is supposed to be auditing; where no one is responsible to anyone?

We have heard a great deal, even from the former Comptroller and Auditor General, about the independence of the Comptroller and Auditor General and how his function will be infringed if he is placed under the control of the House. My colleagues and I suggested, for example, that it could be under the House of Commons Commission.

Let me say who makes up the Commission, because not everyone who reads this debate will know. The House of Commons Commission consists of the Speaker of the House, an impartial figure, one Minister, the Leader of the House, one Opposition Front Bencher, the Shadow Leader of the House, and three Back Benchers—one Conservative, one Labour and one from a minor party—in this case, the Liberal Party. It is difficult, in this day and age, to find any political grouping that is more impartial. That is what we suggested.

We are now told that there must not be a system of audit where even a Committee can ask what should be audited. This, we are told, would infringe the auditor's role. That is not true in a court of law. No one suggests that a judge is dependent upon the man who brings the case before him. Judges are independent, because they can be sacked only on the authority of both Houses of Parliament. The Comptroller and Auditor General can be sacked only on the authority of both Houses of Parliament. One can, however, ask a judge to say whether one is right or wrong.

It is possible for those who think they have been wronged in law to ask the judge to say whether that is so. An individual, an hon. Member or a Committee of the House, cannot go to the Comptroller and Auditor General. This is, however, possible in the case of a Treasury Minister or Treasury civil servant because the Act says so. It is like a court of law being allowed to consider something only if the Government say so. That is not a system of law that we would like. It is not a system of audit that we should have.

7.51 pm

Sir Albert Costain (Folkestone and Hythe)

I wonder whether it is realised how much literature we are discussing. I am holding eight or nine volumes of reports consisting of about 2,000 pages. I spent this weekend trying to study them.

I should like to join those who have congratulated the Chairman of the Public Accounts Committee, who faces a difficult job in a Committee consisting of many awkward Members who have nevertheless managed to produce a unanimous report. The report has produced a Gilbert and Sullivan situation. The Minister is technically a member of the Committee. He did not submit a minority report, which means he has brought a report against his own report which is reported on.

The report of the Treasury is the most perfect example of "Yes, Minister" ever produced outside the BBC. I congratulate the Minister on agreeing with his own Green Paper. That is good. At least it agrees with something if only with itself.

I have served on the Public Accounts Committee for a number of years. I have always felt that it is wrong—this is brought out in the evidence of Sir Derek Rayner—that the Public Accounts Committee is always prosecuting. It is always looking for faults. It would be better if it looked for things to praise as much as for things to fault. The Committee is always looking for faults because the purpose of Comptroller and Audit General system is basically to draw attention to those matters where he considers that a Government Department has not carried out its work satisfactorily or spent money satisfactorily.

There is some confusion over the role and responsibilities of the Comptroller and Auditor General. I was impressed by the speech of my hon. Friend the Member for Scarborough (Mr. Shaw), who, with his auditor's mind, was able to spell out the process in great detail. The thought occurred to me that the confusion is partly a matter of communication. There is tremendous resistance in the nationalised industries to interference by Parliament. One wonders what hon. Members mean when they talk about Parliament. Some consider that they are Parliament. Some consider that the Committees are Parliament. Some consider that the Government are Parliament. That is one of the problems.

I perceive one of the difficulties put forward by the Treasury—it must be given a bit of credit occasionally. It is the difficulty of getting top level industrialists to run a nationalised industry, with all the difficulties involved, if they consider that a bunch of amateurs in the House is interfering with day-to-day operations. The Chairman of the PAC knows the resistance that I showed during our informal debates on this matter. I like to look upon hon. Members as shareholders. Although shareholders look at accounts, they do not look at management accounts. There is an enormous difference between management accounts and shareholders' accounts. The nationalised industries, when they object to interference, have in mind probably that Parliament wants to interfere in management accounts. My answer is that we do not want to interfere in management accounts. We want to interfere in balance sheets and trading accounts—a different story. There is a tendency, even in Government Committees, to feel that Parliament is interfering. We have small Committees containing experts, some of whom talk longer than others.

I was at first pleased to note that politics was kept out of the debate. Then, lo and behold, the expected happened and we heard the speech of the hon. Member for West Lothian (Mr. Dalyell) who, I am glad to see, has entered the Chamber. The hon. Gentleman considered properly that he had a positive constituency matter that he felt obliged to ventilate. The hon. Gentleman used his skill and knowledge of the procedure of the House to make the point. As soon as he made his remarks, my reaction was that he had broken down the whole point of the debate. He dealt with the matter as Parliament would deal with a tatty Government Department.

It is the view of most hon. Members, I believe, that the Public Accounts Committee and the Comptroller and Auditor General are carrying out a business transaction that introduces the commercial side.

Another problem that I have raised on a number of occasions—it is not yet solved—is that we take evidence only from the Accounting Officer, who has to collect the data and bring them before the Committee. We never take evidence from those who take the blame. Any system of controlling, auditing or reporting to the House must involve those who have been affected, considered or criticised, who should have the opportunity, in law, of defending themselves. As more Committees expect the Accounting Officer to attend, it will become more difficult for the officer to run his Department. In that case we must consider the problems and consider whether there should be a No. 2 who should be almost a public relations officer to Parliament, so that these people can have access to the Departments.

If we are to get this across properly to the nationalised industries, we must find a formula whereby we do not interfere with management. Equally, if they are making big losses, I relate that position to a company which is having a bad time and is having to take a very big overdraft. I talk from personal experience. Any company which has gone through a difficult time has to go to a bank for a very large overdraft, in the same way as nationalised industries come to this House for cash.

The moment that a company asks a bank for additional finance, the bank generally puts in its own firm of auditors. Exactly the same should be happening with the nationalised industries. The Treasury, in its wisdom or otherwise, may decide that it would not be right to have a continuous inspection of the management accounts by the Comptroller and Auditor General, but should the industry require additional finance because it is making serious losses it is up to the Treasury to agree that the industry should allow the Comptroller and Auditor General, as a representative of Parliament, to go into the company.

Finally, I wish to define further what we mean by Parliament. It is easy to say—as it is about democracy—that Parliament must control this and that. We have to make up our minds what we mean when we say what Parliament must do. The question of what the Comptroller and Auditor General should be instructed to audit should not be left to any one individual, because he is not Parliament. It should be the responsibility of the Committee concerned. There ought to be an almost unanimous vote on that Committee that a particular subject is one for which the Comptroller and Auditor General should be told to defer his normal duties to concentrate on it.

As we get near to a general election—and nobody can doubt that the next general election will be a very tough party fight—the danger is that there will be a tendency for these Committees, the Public Accounts Committee included, to instruct the Comptroller and Auditor General to put out data with which they want to make a special party political point. Once we reach that stage, the Civil Service will lose all respect for this House and for Members of Parliament. As with the whole of civilisation, if one side does not have respect for the other, it will not work. If one side does not have respect for the other, some sort of dictatorship takes over—the last thing that we want.

The Government must think again. Their response has been most disappointing. They have been conned in some way. This is a matter of extreme urgency. They are fortunate that there will not be a vote on this matter because I for one, for the first time in my life, would have voted against my own Government. I do not think that they are taking matters seriously enough.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. For the convenience of those waiting to speak, I should say that I understand that the winding-up speeches in this important debate will start at 9.10 pm.

8.4 pm

Mr. Dick Douglas (Dunfermline)

I was extremely interested in the remarks of the hon. Member for Folkestone and Hythe (Sir A. Costain) about Gilbert and Sullivan. I was reminded that the D'Oyly Carte company is in difficulties, partly because it has failed to move with the times and bring its presentation up to date. Much of that type of argument pertains to the Government's response to the Public Accounts Committee report.

The Government said in paragraph 55 of the Green Paper: The Government will consider the question in the light of comments on this Green Paper. Apart from the Public Accounts Committee report, from whom else have the Government received comments on the Green Paper? What body in the country, if any, would support and recommend the view and the response which the Government have given to the Public Accounts Committee in their White Paper?

The White Paper is paternalistic and patronising. While the Green Paper looked at changes, the White Paper, in response to the Public Accounts Committee report, seems to take the view that little change is necessary, and that what change there should be or can be will require to wait some time. I take it that this is a rejection of the main thrust of the Public Accounts Committee's report, with little supporting argument in the White Paper.

The objectionable thing in the White Paper is that it is not bolstered in any way with an effective argument against the views put forward by the PAC. As one would expect, there is some general agreement as to the nature of the audit to be performed by the Comptroller and Auditor General. However, there is profound disagreement in relation to the range of the audit.

We repeat the principle that the Comptroller and Auditor General should either audit or have access to the books of all bodies in receipt of money voted by Parliament. That is a general democratic principle. It is substantiated a fortiori by the growth, range and nature of public expenditure.

That argument goes to public confidence and the manner by which public revenues are being deployed. Unless this House makes plain its support for that general principle, it will cease to perform an educative function in relation to the electors. That is an important consideration about what we do as a forum.

Although I do not wholly accept some of the points made by my hon. Friend the Member for West Lothian (Mr. Dalyell), I have a great deal of sympathy for his general assertions. If public money is put into private or public concerns, the public have a right to insist that there will be some arbiter who can go down the line to look at the efficacy of that public expenditure not just in bald accountancy terms. That is part of the educative function that we ought to be performing, not only through the Public Accounts Committee but through other Select Committees.

That view is perhaps stronger on the part of an opposition party which wants to expand public sector expenditure. We must take that on board perhaps much more than the Government party, although I am happy to have the support of Conservative Members, who may have a different view of the end that they seek in wanting to go down the line. They may want to restrict public expenditure; therefore, they argue about going down the line and examining it. Nevertheless, we want to expand it and we have to take that on board.

A very narrow issue about Scottish local authorities has raised its head. I say quite boldly that, although we shade the issue and make no recommendations about it in Scottish terms, the state of auditing on the part of Scottish local authorities is amateurish. I say that notwithstanding the good record of Scottish accountants, because there is nothing in the auditing of Scottish local authorities that would allow the Secretary of State to say that one authority is behaving better than another in terms of social work or education. That may be because a large part of the auditing in Scotland is carried on not by a Government body but by the private sector. A value-for-money type of audit is almost non-existent.

If we consider nationalised industries, we can see the danger. The hon. Member for Folkestone and Hythe touched on that because of his private industry knowledge. If an industry operates and is 90 per cent. correct, it is a tremendous success. If it is 55 per cent. correct, it is a success. However, if public money is invested, the public expectation is that it will be 100 per cent. successful. That is the danger, and I can understand why the nationalised industries, in particular the chairman of the BNOC, have a great fear that the Comptroller and Auditor General, by having access to their accounts, will go down the line and second-guess them. Sir Douglas Henley, the previous Comptroller and Auditor General, took the view that that was not in his mind. Something has to be done to remove that fear, not only from the nationalised industries, but perhaps from private sector firms.

I do not intend to take much time because many of the points that I would have raised have been covered. The important aspect is to ensure the legal and practical independence of the Comptroller and Auditor General. I recognise that, in terms of how the system has worked in the past, the Comptroller and Auditor General could hold the aura of independence because of the manner in which he was appointed and in the difficulties and near impossibility of dismissing him. However, in the past one could take the view that he had too close a relationship with the Treasury—a cosier relationship.

If the Comptroller and Auditor General were pressed on how he would ensure his independence, two views seemed to be forthcoming in terms of the Act. The first was that his personal departmental integrity ensured his independence. If the argument were to be taken a step further and he was asked how he would guarantee that in terms of practicality, it would not be a distortion to say that he must return to Parliament. In finality, the House would ensure his independence. That is what the PAC's recommendation argued for—that the Comptroller and Auditor General's practical and legal independence should be related to the House.

I do not suggest that there are no dangers in that. I can see danger if the Comptroller and Auditor General felt that he would have imposed remits of a highly political nature, because public expenditure is rightly a highly political exercise. However, if one persists with the current arrangement, one runs into far more difficulties in terms of educating the public.

I return to the point I made about the role of the House. If the public are asked to give revenues, they have a right to know that the form for evaluating the effectiveness of the revenues will rest with the House of Commons and will not be a cosy relationship between the Comptroller and the Treasury which could obfuscate the issue. That has to be made plain.

I hope that we shall get a better response from the Treasury Minister when he replies and that he will reflect on the arguments advanced. I concur with the views expressed by my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) about the work of the PAC. I do not think that any Public Accounts Committee in the world has worked as hard. I say that as a junior member who has been driven hard by my right hon. Friend. I hope that the public will benefit if and when the Government respond much more positively to the report than they have done so far.

8.15 pm

Mr. Michael Morris (Northampton, South)

In the time that I have been a Member of Parliament I have not listened to a debate where there have been so many measured speeches from all sides of the House about what hon. Members believe to be the central function of their role. Nor have I listened to a debate that has centred around a response that is probably the tawdriest from any Government in my seven and a half years in the House. Equally, I am conscious as you must be, Mr. Deputy Speaker, that there is one voice that is not here today. It is appropriate that we should reflect on the one person who is missing—the late hon. Member for Croydon, Morth-West, Mr. Robert Taylor. I know that he would have taken part today and that his contribution would have added to the power of our argument.

As we debate the role of the Comptroller and Auditor General I reflect, with some sadness, over the status of the debate; held in an empty Chamber and with a response from two junior members of the Government. I hasten to say that is no personal reflection on either of them and I hope that they will both proceed to higher and greater things. However, it is a sad reflection that the Chancellor of the Exchequer, the Chief Secretary to the Treasury or a member of the Cabinet is not here. Secondly, I note with some surprise that the Secretary of State for the Environment put in a paper to us yet cannot attend the debate.

I have considered the range of debate and shall only touch on two areas. I take some sustenance from Sir Derek Rayner's letter of 21 November 1980 to Sir Douglas Henley when he commented on the outline document that Sir Douglas Henley produced. At appendix III, subparagraph (c) he said: As for priority, you will not be surprised to hear that I would in principle place greater emphasis on sorting out Parliament's relationship with local authorities and nationalised industries, which consume so much of the nation's resources, than on the audit of Whitehall. That is not to say that I regard Whitehall as perfect, but that I think that there may be less cause there for public disaffection, lack of confidence and cynicism than there is in the areas"— and he goes on to relate paragraphs referring to the nationalised industries and local government.

I ask my right hon. Friend on the Front Bench, who is providing the accountability for the nationalised industries? Is it the Ministers? You know as well as I do, Mr. Deputy Speaker, that if I put down a question about a nationalised industry it would be ruled out of order by the Table Office because the Ministers would claim that they have no direct responsibility. Is it the non-executive directors on the nationalised industries' boards? It may be, but it is not obvious to the outside world that the non-executive directors are standing up and challenging the actions of their individual boards. I cannot remember the last time that one of them resigned. Is it the annual reports? I urge hon. Members who are not familiar with the reports of the nationalised industries to look at them and see what they can glean from them.

No, we were told in the opening remarks and by the White Paper that the answer lies with the Monopolies and Mergers Commission. Reference has been made to the four reports under the Competition Act that have been undertaken. It would help the House if we considered what happened to those reports.

One of the reports was on the Central Electricity Generating Board, as an hon. Member has already commented, and given the chairman's views. We have a statement in the form of a written answer for that. In other words, there was a planted question and a statement, but no debate or further question. There was the report into the supply of water services—the Severn-Trent report. There was an oral statement and that seemed to be the end of that issue. That is not a short report of two, four or 20 pages; it is a report of about 480 pages. What has been the result of it? There does not seem to have been any action on its recommendations. There do not seem to have been major changes of policy arising from that inquiry.

My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) referred to the report on the British Railways commuter services. I cannot find any statement in the parliamentary papers relating to that. I cannot even find a planted question about it.

There was, indeed, a short debate on the London letter post. It was one of the debates on the motion for the Adjournment of the House for the Summer Recess. Obviously, some hon. Member was upset about the letter post.

If the whole of the Government's armoury for dealing with the nationalised industries rests on the activities of the Monopolies and Mergers Commission it is little wonder that we face some of the difficulties that now exist.

The Government put forward, as a central plank of their policy, the reduction of inflation, yet we find that from October 1976 to October 1981—a longer time than the Government have been in office—nationalised industry prices rose by 93.3 per cent., private sector prices by 82 per cent., and the RPI by 85.7 per cent.

That is damning enough but what do we find when we look at the performance of the Conservative Government—a Government whom I wholeheartedly support? From October 1979 to October 1981, private sector prices have risen by 24 per cent., the RPI has risen by 28.9 per cent., and prices of goods mainly produced by the nationalised industries have risen by 44.9 per cent.

Clearly, the Monopolies and Mergers Commission route does not provide the answer to the problem of parliamentary control of the nationalised industries. We are told that this method is to be strengthened and that we are now to have six reports, but my hon. Friend the Member for Horsham and Crawley was right in saying that that is totally inadequate.

In the area of local government, the Government's response is confused. Hon. Members in all parties—certainly those hon. Members who have been in local government—have recognised that in recent years the district audit service has become unsatisfactory. Most hon. Members, if not all, would agree that the Government need to have some control over the total volume of local government expenditure. Every hon. Member would like us to get better value for money, and to know what sort of value for money we are getting. But the Government's proposals for an audit commission—I choose my words carefully—are a dictation to local authorities as to who should audit their accounts. That is not the right way forward.

The chief inspector of local government and the advisory committee produce a report which goes some way towards analysing what has been happening. The tragedy is that it is not laid before Parliament. As far as I know, the Government have no proposals to lay it before Parliament. We need a change in the mechanism to ensure that whoever produces that report on the totality of local government performance should lay it before Parliament, so that hon. Members can follow their particular interests and ask questions about the sectors in which they are most interested.

With regard to the water authorities the Government are proposing in the White Paper that there should be a change to private auditors, yet in paragraph 5.39 on page xliv of the First Special Report from the Committee of Public Accounts, my colleagues and I state: One may regard the present arrangements for audit and accountability of water authorities either as extremely thorough, since they provide two distinct methods for their accountability, or as so complicated and ambiguous as to raise doubts about to whom, and for what, the authorities are accountable. If we were to audit hon. Members' views of the water authorities, I suspect that there would be an almost unanimous view that the authorities were not accountable to anybody and that their performance was poor. If my hon. Friend the Under-Secretary of State for the Environment had so much faith in his proposals, why did he have to send in special auditors in the last financial year in order to drop the water rate?

My hon. Friend the Member for Horsham and Crawley also referred to the National Health Service. The Government's response in the White Paper shows a complete lack of understanding of what is happening in the NHS today. The Government have proposed that there should be a reduction in the number of civil servants, yet 25,000 extra people were recruited to the NHS last year. That shows a complete lack of control and audit in that service.

It is sad that the debate has had to be on a White Paper which shows a very inadequate reaction from the Government. It is a very inward-looking and defensive reaction. It has probably been put forward so that the Government may have a quiet life. We should have had a more outward-looking document. What is wrong with Parliament as a whole monitoring the total expenditure of public funds? That is what I should like the Minister to tell me. What is wrong with Parliament instructing the Comptroller and Auditor General on occasions to look at a particular subject area that is worrying a cross-section of the House?

I sincerely urge the Minister to report to the Chancellor of the Exchequer that the House wants reform. The Government have not provided it, and the opportunity has been lost. I do not envy the Chancellor the task, which is a major one. But he and every member of the Cabinet should read the report of the debate. I hope that someone in the Cabinet Office will ensure that it is read. If members of the Cabinet are serious about controlling public expenditure, this is where it starts and this is where it should finish.

8.27 pm

Mr. Allan Roberts (Bootle)

This evening Conservative Members have been behaving towards their Government somewhat in the way in which Henry VIII behaved towards his various wives. While vowing undying love for them, he was having the scaffolds erected. Conservative Members have been criticising the Government for making a party matter out of what should not be a party matter. There is no doubt that the Government's response to the report of the Public Accounts Committee has made the issue a party matter.

One of the significant and controversial aspects of the debate, as the hon. Member for Northampton, South (Mr. Morris) said, relates to local government audit and to the difference between the recommendations of the Public Accounts Committee and the actions of the Government—and especially those of the Secretary of State for the Environment, who disagrees totally with the recommendations of the PAC. By any yardstick, the Secretary of State for the Environment must be seen as less authoritative and more overtly political than one of Parliament's all-party Committees.

The Public Accounts Committee, acting on what it considered to be in the best interests of taxpayers and ratepayers, strongly recommended that most audits of the public sector should be made by the Comptroller and Auditor General, and that to that end the district auditor services—which, by and large, audit local government at present—should be incorporated into the Comptroller and Auditor General's Department. The Committee's recommendation was strongly in favour of local government auditor services being provided by the district auditor service.

On the other hand, the Secretary of State for the Environment, seemingly throwing caution to the wind and with his usual recklessness, ignores the best interests of taxpayers and ratepayers and, for what I can only describe as doctrinal, dogmatic and political reasons, is setting about privatising the district auditor service. The White Paper states: The Government see an important role in local authority audit for auditors with private sector experience". In advance of new regulations, legislation, or even this debate, the Secretary of State has already started enforcing privatisation of the district auditor service. In the Local Government Act 1972, local authorities were given the opportunity to choose whether they had a district auditor service or private auditors to audit their accounts. Overwhelmingly, Conservative, Labour and Liberal authorities opted to appoint district auditors.

The Secretary of State for the Environment, without consultation, is now sacking district auditors in the hope of eventually appointing private auditors to audit local authorities' accounts. Where that is happening, there are serious consequences for ratepayers and electors. I shall give an example in which I was involved during the past few weeks.

The Sefton metropolitan district council—a Conservative-controlled council which covers my constituency—sent out a highly political leaflet which was paid for by the Sefton ratepayers and signed, not by an officer of the authority but by one of the leading councillors on that authority. I and another local government ratepayer in the Sefton metropolitan district wrote to the district auditor about the leaflet, claiming—I believe with justification—that it was ultra vires. The district auditor was requested by us, as electors, to investigate this ultra vires action by the Sefton council. Mr. Harriss, the district auditor, said that he could not act because the Secretary of State for the Environment had sacked the district auditor. He could no longer act on representations from electors in the metropolitan borough of Sefton. He said that the district auditor had been sacked four months ago and that a private auditor had not been and was not likely to be appointed for another six months. That has happened in 14 cases, including Derby and Tower Hamlets which are taking the Secretary of State for the Environment to the High Court. So in my area, as well as in 14 other areas, local ratepayers and electors are left without any recourse to an auditor of any kind to investigate any overspending and ultra vires actions. This is intolerable, particularly when it involves a Government who claim to be interested in controlling and maintaining public expenditure and acting in the interests of ratepayers.

This action by the Secretary of State for the Environment has undermined 50 years of local government statutes giving local authorities the right to choose their auditors. That has been allowed in law since at least the Local Government Act 1933. What is the point of Parliament passing laws if the Secretary of State ignores them?

This is not an academic or legal debating point. It affects, in a most arbitrary manner, the rights of local government electors in a number of ways. Section 159 (3) of the Local Government Act 1972 provides: If the audit"— of a local authority— is conducted by a district auditor, any local government elector for any area to which those accounts relate, or any representative of his, may attend before the auditor and make objections to any of those accounts". If we get rid of the district auditor, the right of electors or their representatives to appear before the district auditor and make objections and representations disappears. In the case of an approved, private auditor, any such local government elector as is referred to … may make an application to the Secretary of State requesting him to direct a district auditor to hold an extraordinary audit of the accounts under section 165 below". An extraordinary audit or an investigation of some suspected misconduct or ultra vires spending by a local authority, after representations from the electors, depends entirely on whether there is a private auditor, who would exist only at the whim of the Secretary of State for the Environment. The Secretary of State is a politician who might become involved in political skullduggery, particularly if he were less scrupulous than the present incumbent. That is most serious. There is an example of that in the case that the London borough of Bromley has brought against the GLC, claiming that the fare cuts on London transport were illegal and that the supplementary rate was also illegal. Many of Bromley's ratepayers are angry at what the borough is doing and wish to make representations to the district auditor, because the London borough of Bromley's decision to take the GLC to court was taken contrary to its own standing orders. Bromley has breached its own standing orders by not referring the matter to its finance and scrutiny committee.

A law report inThe Times of 28 November headed "Party ban possible", about the case of Regina v. Rushmoor borough council, ex parte Crawford, stated: However, the order had been contrary to the standing orders of the council and was ultra vires. Accordingly an order of certiorari would be made to quash the resolution of the council. The London borough of Bromley has acted in the same way as the Rushmoor borough council. It has taken the GLC to court without fulfilling the obligations of its standing orders. Therefore, it has acted illegally. Many ratepayers and electors in Bromley wish to make representations to the district auditor demanding that an inquiry be made into the illegal spending of money in taking action against the GLC. If the privatisation proposed in the White Paper goes ahead, it will not be possible make such representations to the district auditor. Matters will have to be referred to the Secretary of State for the Environment, and he can hardly be described as an impartial observer or arbiter in this matter.

The district auditor has the power to summon council officers before him to give evidence on oath about their conduct. That is an essential safeguard for electors and for councillors, who are elected members of the local authority, to ensure that the policies of the local authority and its work are carried out properly. That power is used only in exceptional cases, but it has recently been used in an inquiry before a district auditor, and it will be used again as long as the district auditor services are there and privatisation has not taken place.

The professional status and accountability of the district auditor service are far superior to those of private auditors. The tests applied to public sector auditors are much wider than those applied to private auditors. The 1973 code of practice for local government auditors sets out all the objectives that such auditors must keep in mind. They are wider and more demanding than those which apply to any other auditors, private or public, whose duties are laid down by law.

Another major advantage is that district auditors must submit all their findings to the Chief Inspector of Audits. The chief inspector, collecting all the information from district auditors throughout the country, makes an annual report on the basis of the facts given to him by the district auditors about the general conduct and well-being of local government. These are concerned not only with illegalities but with bad management and other bad practices.

Last year, for example, the chief inspector's report highlighted the fact that too many councils were keeping empty residential properties in their ownership for too long. It produced an authoritative criticism of the scandal of empty houses and homeless families. With approved private auditors, there would not be that facility and there would not be a report before Parliament from the Chief Inspector of Audits. That is another reason why the privatisation which the Secretary of State for the Environment is pushing through should be rejected.

The Government and the Secretary of State for the Environment are taking away my electors' rights. They are overriding successive Acts of Parliament. With the current Secretary of State, there is no point in having electors or Parliament. It is strange that a Minister who claims to be committed to controlling local government expenditure and to wanting more efficiency in local government should be hell-bent on destroying the only independent control available to electors to call councillors independently to account for the money that they spend.

As a result of the privatisation of the audit services, extraordinary audits, which the district auditor has the power to call, will be allowed only after a request to the Secretary of State and will be based on his political discretion. If the functions vested in the Secretary of State are administered with the usual Heseltine impartiality, only the councils which disagree politically with the Minister are likely to find themselves in the dock. That is regrettable. I hope that the Government will turn their backs on the proposals in their White Paper.

8.41 pm

The Under-Secretary of State for the Environment (Mr. Giles Shaw)

I do not wish to attempt to wind up the debate. It is appropriate for my hon. Friend the Financial Secretary to the Treasury to reply to the debate, but I hope that the House will allow me to intervene briefly to respond to the remarks by the hon. Member for Bootle (Mr. Roberts) and my hon. Friend the Member for Northampton, South (Mr. Morris). In evidence to the Committee and in the Local Government Finance Bill there is a proposal for an audit commission, but we do not in any sense seek to remove from local government the right of independent audit.

I remind the hon. Member for Bootle that local authorities can select a private sector auditor from the list approved by the Secretary of State. In the proposal for an audit commission there is a further degree of independence and a further removal of the process of local authority audit from the district audit. About 500 staff, currently of the Department of the Environment, will be employed by the audit commission, many of the members of which will be drawn from local authorities. The Secretary of State explained that to the Public Accounts Committee. Independence is preserved in what is afoot.

I take the point made by the hon. Member for Bootle and my hon. Friend the Member for Northampton, South that the objective of the audit commission should be to enhance the efficiency of the local government audit and to preserve its independence. Our difficulties in representations by the PAC relate to whether Parliament or ministerial responsibility to Parliament is appropriate when considering the efficiency with which local authorities spend their money.

One does not always follow completely the writ of the money in relation to the ultimate consumer. We have to accept ministerial and constitutional responsibility so that local authorities are and are seen to be independent.

The hon. Member for West Lothian (Mr. Dalyell) said that one should examine each part of local authority spending to see whether it is justifiable. That is far too great an interference with local government independence. The hon. Member for Bootle should feel reassured that the audit commission is not intended to remove local authorities' freedom. Indeed, it is intended to increase the independence attaching to the present system.

8.44 pm

Mr. Bruce George (Walsall, South)

In deference to my colleagues I shall make my speech with uncharacteristic brevity and take no more than eight minutes.

We are discussing a House of Commons issue. I hope that hon. Members recognise that we have a great deal more power than we are prepared to exercise on issues of such importance. If we get together, the Executive is compelled to take notice. This is an example of all parties combining on the issue of the importance of the House of Commons. If one looks at the power of the House of Commons in the context of a continuum—on the one hand with the Congress of the United States and on the other the Supreme Soviet—I suspect that in many respects, the House of Commons is nearer to the Supreme Soviet model of impotence than to the Congress of the United States.

I shall relate my remarks to the role of the Comptroller and Auditor General and the Public Accounts Committee as they have evolved over 120 years. I very much endorse the prescription for the future as seen by the Public Accounts Committee. The need to reform the procedures of the House was seen in the 1860s and led to the creation of the Public Accounts Committee. As Mr. Gladstone said: This is the final squaring of the circle of parliamentary accountability. Perhaps he was right and perhaps then, there was the final squaring of the circle. However, circumstances have changed since then. We have become a democratic nation and the role of Government has increased immeasurably. Yet we are ripe for a new reform and a new extension of the power of the Public Accounts Committee. After the Committee has laboured away for a considerable time and produced an excellent report, the Government's response has been grossly unsatisfactory.

Defence is one area of activity of the Public Accounts Committee and the Comptroller and Auditor General. When the Public Accounts Committee started its work in the 1860s, defence was the most important item of expenditure. Although defence still occupies an important part of its investigations, the percentage of defence expenditure has diminished in terms of total Government expenditure. Therefore, the investigations of the Public Accounts Committee have diminished in that sphere.

When the Government came into office they made a very important decision to expand the Select Committee system. Many hon. Members hoped that this would signify a new era of parliamentary power and control. Our hopes have been dashed, because the Government's opportunity to be seen in retrospect as a reforming Government has been lost because of their wilful refusal to embrace the sensible recommendations of the Public Accounts Committee. The right hon. Member for Chelmsford (Mr. St. John-Stevas), who instigated the initial reforms has been given his marching orders, but we must serve notice, as House of Commons men, that reform must come. One of the major reforms must be to increase the power of the Public Accounts Committee to bring the Comptroller and Auditor General within the orbit of parliamentary control and not to allow him to be another agent of what is, in effect, an internal audit by the Government. We do not want to usurp the Government's responsibility to make decisions but we are as legislators, empowered to ensure parliamentary accountability of the Executive. That can be done in a policy sense and, certainly, in the sense of securing financial accountability. We secure such accountability extremely badly.

Our predecessors took their role much more seriously. During several periods in our history, many hon. Members have ensured that financial accountability was secured and that in the past, Parliament had powers of taxation, Supply and Appropriation. It is only in the last 100 years that this parliamentary power has been eroded to the point where, now, we function imperfectly in the area of granting Supply and Appropriation. One writer said that in the practical sense, the House has no power of the purse any more. The Procedure Committee has spoken about the myth of effective control by Parliament. We can examine the role of Congress, which has the General Accounting Office. We can examine the committee structure of Congress and then see how far we have to go before we have the right to call ourselves a democratic legislature.

When the Comptroller and Auditor General first began operating alongside the Public Accounts Committee, the bulk of Government expenditure was spent by the War Office, the Admiralty and the Board of Ordnance. In its first report in 1862, the Public Accounts Committee examined defence. In its second report it examined defence. In 1863, it made one report and made a follow-up of its previous year's recommendations. In 1864 the Public Accounts Committee made only one report. In 1865, it made one report, on Navy Estimates. The War Office was most unco-operative. It was an alliance of the Public Accounts Committee, the Comptroller and Auditor General and the Treasury that secured from the War Office co-operation with the Public Accounts Committee and, for a while, parliamentary accountability. It is ironic that the Treasury, which was so important in expanding parliamentary power in 1887—in its epoch-making inquiry into the price of ribbon, which was important to the Public Accounts Committee—is now being obstructive.

The Public Accounts Committee and the Comptroller and Auditor General rightly deserve a high reputation, but in many ways—like Britain—it is a high reputation that they have been living on for a long time. Circumstances have changed and there is a need to square more circles, to use Gladstone's famous expression.

The weight of evidence is overwhelming. I compliment my hon. Friend the Member for Norwich, South (Mr. Garrett) on his excellent speech. He has written on this subject before and we owe him a considerable debt for the depth of his analysis. He mentioned Dr. Normanton's study and the various Select Committees and bodies outside the House that had urged a change in the way in which the Public Accounts Committee and the Comptroller and Auditor General operate. We need a fundamental change and not the tinkering that the Government propose. As the Public Accounts Committee has said, we need a legislative change. Over the past 100 years, the Committee has evolved away from a fine financial regulatory audit towards a new approach of value for money and an efficiency audit. Let us allow legislation to recognise the change in the practices and functions of the Public Accounts Committee and let legislation extend the Committee's functions and powers.

As many hon. Members have said, it is important that the Comptroller and Auditor General should be more accountable to the House. Indeed, there should be a proper external audit, dominated by this Chamber. We should not simply have a form of internal audit, as we have now, under another name. I should like the present Select Committee system to be integrated more successfully with the Public Accounts Committee. At present liaison is very limited. Members of Select Committees should, perhaps, be able to participate in inquiries and vice versa.

I am a member of the Defence Committee and one member of the Exchequer and Audit Department has been seconded to us. The old Defence and External Affairs Sub-Committee had two members of the Exchequer and Audit Department seconded to it. The expertise within the Exchequer and Audit Department should be better incorporated into the new Select Committee system. Indeed, that Department should be expanded. The General Accounting Office in the United States of America operates with far more staff, who are well qualified and there are many people with managerial experience. For example, Dr. Normanton points out that there are 22 engineers. That is the breadth of experience that should be incorporated into the office led by the Comptroller and Auditor General.

I must compliment the members of the Public Accounts Committee, who do a lot of work away from the public gaze without much publicity. They work hard and should be given far more support in terms of personal staff. The Defence Committee has four and a half full-time staff and, therefore, I look with some envy at the Department's 650 full-time staff. Nevertheless, their role is broader than that of one committee. Some of their expertise should be transplanted into the existing Select Committee system.

Therefore, the Comptroller and Auditor General should be made more accountable to Parliament. As the Committee said in one of its recent reports; We are clear that significant changes in the arrangements for and in the quality of public audit are required. I hope that the Government will listen belatedly to the plea, not only of the Public Accounts Committee and other Select Committees, but of almost all hon. Members. The time has come for real accountability. We have delegated a major task to a major Committee, which has unanimously concluded that its powers and functions should be expanded. I hope that the Government will not resist that view, but will read the report of the debate and return soon with an endorsement of many more of the excellent report's recommendations than they have been prepared to endorse so far.

8.55 pm

Mr. Barry Sheerman (Huddersfield, East)

I shall seek to persuade the House that brevity and Celtic origins can go together by briefly rattling through what was intended to be a longer speech. However, at least another of my hon. Friends who was a member of the Public Accounts Committee is waiting to speak. I shall therefore be brief.

I am the newest recruit to the PAC from the Labour Benches, an appointment that I viewed with gratitude. I have not yet served my apprenticeship, but I have quickly learnt about the value of the PAC and its relationship with the Comptroller and Auditor General. Although I can take no credit for the report now before us, I can tell the House that, having read it thoroughly during the few weeks that I have been a member of the Committee, I give it all the endorsement that I possibly can.

In a previous incarnation, I looked at the theory of the PAC and its relationship with the Comptroller and Auditor General, and I was horrified to discover just what a constitutional fiction the PAC was. That fiction has been perpetuated for many years. One is reminded of Bagehot's distinction between the efficient and the dignified parts of the constitution. In many ways, what we have seen is a slide from the efficient part of the constitution to the dignified. The report is surely an attempt to put the PAC and the Comptroller and Auditor General at the heart of parliamentary control over the nation's finances.

Some hon. Members may ask "Why should this matter?" One does not have to follow my hon. Friend the Member for Norwich, South (Mr. Garrett), who has much expertise in this matter, to point out that this has been an interesting debate. There is a wealth of experience on the issue on both sides of the House, and any student of the English constitution would do well to read the speeches that have been made.

The centre of our existence as a parliamentary democracy is the control of Government through finance, through scrutiny of Government expenditure and Votes on what that expenditure should be. That is at the heart of the English constitution. It is how our parliamentary democracy works. This important report from the PAC offers a unique opportunity to do something quite fundamental, not only about the PAC but about the nature of Parliament itself.

There has been a steady erosion over the years to the extent that the concept of being a parliamentarian has been reduced to that of a lickspittle. I believe that that is a seventeenth century word, but it is appropriate. As parliamentarians, we have become lickspittles to Government and civil servants. Some of us have even become lickspittles to constituency party activists, but that is a matter for debate on another day. A constitutional parliamentary democracy is too precious to allow Members of Parliament to become lickspittles for too long.

This is a unique occasion in that there has not been a word of disunity among hon. Members who have taken part in the debate. They have all unreservedly given the report their backing. It must have all-party support. Equally, it must be implemented by the Government if they really believe in the control of State power.

Some people think that Labour Members would like to see the growth of State power but not its control. Nothing could be further from the truth. By and large, we believe in the creation of greater State power to invest in private industry. If we consider our competitors in Japan, the United States of America and West Germany, that process is inevitable. Would it not be more important if at some time we built into Parliament a proper method of checking Government expenditure wherever it flows?

It is not a question merely of the difference between the present Government and the Opposition. It is not a question of an inevitable tendency for the complexity of the public and private sectors to become more complex. If that is the case, there is responsibility on both sides of the House to ensure that we have the mechanism by which that expenditure can be checked efficiently.

We are faced today with serious issues. I shall cut out the middle part of my speech and say only that, coming as a freshman to the Committee, I was appalled at the other side of the relationship between the PAC and the Comptroller and Auditor General and the control of expenditure. How is it that we, as busy Members of Parliament and members of this great Committee, have no back-up or resources? We did an important job in the Committee. One week we were taking evidence from ICL and another week we were taking evidence from such Departments as Defence and Social Services. Yet we had no extra research or secretarial help. Surely in a modern legislature in the late twentieth century a group of men and women doing such a job should be properly serviced by at least one economist, a researcher and a secretary. That would make most modern legislators laugh, but I believe that it must, and inevitably will, come.

9.2 pm

Mr. William Hamiton (Fife, Central)

I have attended many debates on Select Committee reports and I have never listened to a debate in which there has been such unanimous hostility to the Government on both sides of the House. Every hon. Member who has spoken from Conservative Benches, Labour Benches or other Benches—the "other Benches" have been singularly empty—has condemned hook, line and sinker the Government's response to this important report. It is deplorable that a debate of such enormous constitutional importance should have been attended by so few Members.

If I may be personal and reminisce, we have in the Labour Party a radical wing that wishes to turn Government inside out. The report that we are now discussing goes far along that path. My hon. Friend the Member for Edinburgh, Central (Mr. Cook), who will wind up the debate for the Opposition, is the only Member taking part in the debate who claims to be on that radical wing of the party. It is distressing, and I hope that it will not recur. I hope that my hon. Friend will convey that view to the other hon. Members on the radical wing.

Mr. Andrew F. Bennett (Stockport, North)

What about my hon. Friend the Member for Norwich, South (Mr. Garrett)?

Mr. Hamilton

My hon. Friend the Member for Norwich, South (Mr. Garrett) made one of the best speeches—if not the best, certainly the most important—from the Back Benches. I exclude him from my general condemnation.

We face two problems. The first is how best to ensure that all those who spend taxpayers' money can be fully accountable to the House. Secondly, we must ensure that when Select Committees—I deliberately use the plural—make reports and recommendations to the House the Government shall not thwart the obvious will of the House. The Government are engaged in that exercise. They have a different view from that of the Select Committee which produced a unanimous all-party report after considerable work and discussion.

The report is radical. It has been rejected out of hand by the Government. They have not only rejected the report but have ensured that the House will not vote on it. They are behaving as an elected dictatorship. They are saying that, whatever we say and whatever the unanimity in the House, they will reject the report. They intend to prevent the House from reaching a conclusion that would put them under the control of the House. That, by definition, automatically means a dictatorship.

All Governments, when they produce their reasons for rejection, enunciate three principles, one of which is that of ministerial responsibility to Parliament. All hon. Members know that Ministers do not tell lies, do they? They sometimes do not tell the whole truth, which is not very different from telling an untruth. We could quote the nuclear rearmament that the Labour Government undertook secretly. The Conservative Government did the same. The House never gets the whole truth from ministerial accountability only. We must devise other machinery in Committee to investigate, challenge and question in depth civil servants and Ministers. Even then we cannot be sure that we shall get the truth. Governments are, by nature, secretive. The whole tenor of the debate is designed to prise open the secret coffers of Government Departments and make them accountable to the House. Nowhere is that more important than in the financial sector.

In its report, the PAC has devised new machinery. We are trying to control a modern Government with a 115-year-old vehicle. The Government say "Leave it alone. It is not doing badly. We want a comfortable ride. If we have modern machinery it may be less comfortable, so we recommend no change." Do the Government believe that they can convince the House and the country that everything is all right with control of public expenditure? Let them initiate another debate soon on the report with a free vote. If they do not do so, I hope that the Opposition will. We shall then test opinion in the House and the country. I think that I know what the answer will be.

9.8 pm

Mr. Robin F. Cook (Edinburgh, Central)

I join in the general tribute that has been paid to my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), the Chairman of the Public Accounts Committee, for his work in bringing the report before the House. I also pay tribute to the members of the Committee who assisted in that work and who have ably contributed to our debate today.

As has been said by more than one hon. Member, this subject is not a party matter. That has been displayed in two separate ways. First, it has been clearly demonstrated that it is not a party matter for those hon. Members who stomp around the country advising the nation of the destructive impact of the conflict of the two-party system. Until three minutes past nine the House was not favoured with a single hon. Member on the Benches occupied by the alliance parties. It has not been favoured with any words of wisdom by any hon. Member from those parties on the important matter of how the House should amend the legislation of a Liberal Government.

Secondly, the debate has clearly demonstrated that this is not a party matter because there was a wide area of agreement between the two parties, whose conflict is allegedly tearing our political system apart. There was only one discordant voice in the whole debate and that was the voice from the Treasury Minister at the Dispatch Box. Everyone else criticised the White Paper that has been produced by the Treasury. It has been described by hon. Members as timid, tawdry, appalling and miserable.

Those epithets are not surprising when we bear in mind that the debate is the outcome of several reports laid before the House—the report of the Expenditure Committee 1977, the Procedure Committee 1978 and two separate reports by the Public Accounts Committee, one in 1979 and the other earlier this year. They provide the House with a bulky weight of evidence and argument, all along the same lines and with the same evidence of need for reform of the role of the Comptroller and Auditor General.

Against that burden of evidence and weight of argument, we have to set aside the eight pages of this paltry White Paper that was published on 28 July. The House will appreciate at once why it was published on 28 July. That was two days before the House rose for the long recess. I do not make a party point of this because the Treasury, under both Governments, has been guilty of the same practice of producing papers that it knows are inadequate and will result in criticism two days before the House rises and disappears, in the hope that while we are away, we will forget the paper that was offered to the House before we left.

When we look at the White Paper and remember that it is allegedly the product of a consultation procedure, we are entitled to ask exactly what opinion on the part of the Treasury or view that the Treasury held was changed during that consultation period. If we lay that White Paper against the Green Paper, it is difficult to spot the change.

It is obvious that the White Paper has not been influenced in one whit by the report prepared by my right hon. Friend the Member for Heywood and Royton and his colleagues on the Public Accounts Committee because every one of the Committee's recommendations is rejected by the White Paper, albeit in a much more succinct form than was argued in the Committee's report. According to the White Paper the Treasury appear to continue to take the view that there is no pressing need for new legislation to amend the 1866 Act. My hon. Friend the Member for Norwich, South (Mr. Garrett) said that anyone intervening in a debate on audit inevitably quotes from Dr. Normanton. Therefore, I shall get over my quote and refer to the striking and ironic sentence in the paper that he published last year in which he said: Seldom has a set of official and constitutional practices been so praised for so many years as the Act of 1866. It is difficult to believe that an Act that was laid down 115 years ago, when the scope of Government activities was more constricted than now, can provide an adequate framework for the audit and control of the financial affairs of the Government in 1981.

My hon. Friend the Member for Dunfermline (Mr. Douglas) said that because the Opposition are committed to expanding public expenditure we should be particularly committed to increasing the forms of control and scrutiny of public expenditure. That is a fair point. However, we are also entitled to say that the diffidence of the present Government about strengthening the powers of the Comptroller and Auditor General is striking when it comes from a Government who came to power on the pledge that they would control public expenditure.

We know what the reality turned out to be. As the Government cut expenditure on goods and services and as the recession deepened, they discovered that they had higher transfer payments than before, so ironically, after two and a half years of such cuts, public expenditure is higher than the level that the Government inherited. Given that commitment, it is remarkable that they should have rejected every one of the proposals to strengthen the scrutiny and efficiency of public expenditure.

In its final paragraph the Green Paper stated that the Treasury view was that it would be inappropriate to legislate until there was a consensus about the shape of legislation. We are entitled to say after this debate and after the three reports of the three different Select Committees that there is a consensus. Unfortunately, it is a consensus that does not embrace the Treasury. Outside the Treasury there is a consensus that change is required urgently. It revolves around three areas that have been touched upon in the debate. First, there is a consensus that there needs to be a change in the relationship between the Comptroller and Auditor General and Parliament. The White Paper rejects that on the ground that the Comptroller and Auditor General must be independent.

No hon. Member would deny that the Comptroller and Auditor General must be independent of the Treasury. However, it is fair to qualify that by saying that some hon. Members are doubtful whether the Comptroller and Auditor General is independent of the Treasury. I refer in particular to the striking speech of my hon. Friend the Member for Norwich, South. I acquit him of the infelicitous praise that he received from my hon. Friend the Member for Walsall, South (Mr. George), who suggested that he had made the speech before. My hon. Friend the Member for Norwich, South has not made the speech before but he has ploughed this furrow many times and tonight we were privileged to have a distillation of the thoughts that he has acquired in several years' investigation of the matter.

As my hon. Friend pointed out, not only tonight but on previous occasions, the Treasury has the prerogative of ensuring the appointment of the senior member of the Exchequer and Audit Department, the Comptroller and Auditor General. On 13 out of 14 occasions the man who has been appointed has been a senior Treasury official. No doubt senior Treasury officials have their strengths. Those who achieve high office in that mighty Department are people of distinction, ability and aptitude. Nevertheless, it is difficult not to note that when the Prime Minister took office and decided that she needed someone to carry out what was basically an efficiency and effectiveness audit of the public sector, she did not say "Send me a senior Treasury official". She said "Send me someone from Marks & Spencer". When the post of head of her "Think Tank" became vacant, again she did not say "Send me a senior Treasury official". She said "Send me someone from ICI".

The House must ponder and ask itself why the Executive, when faced with a key post that it regards as vital in maintaining the efficiency and effectiveness of the public sector, should send to outside experts while the House is asked to accept a person from the Executive as the watchdog to assist it in its scrutiny of the Executive's expenditure. So long as the post is treated as an out-station of the Treasury empire, it is a temptation for both parties to regard each other as natural allies. The phrase "natural allies" appeared many times when witnesses were examined on the matter by Select Committees over the past few years. There is no doubt that the case has been made in reports and in this debate that the Comptroller and Auditor General should be more clearly independent of the Treasury than he has sometimes appeared to be over the past few decades.

Although it is clearly desirable that the chief auditor should be independent of the Executive whom he audits, it does not necessarily follow that he must have the same independence of Parliament. He is there to assist Parliament in its scrutiny of public expenditure. While it may be undesirable for him to have too close a relationship with Parliament and undesirable that he should be under direction from the Public Accounts Committee, the obvious factor remains that someone, somewhere, has to appoint him. Given that someone has to take a decision on the appointment of the Comptroller and Auditor-General, I agree with the Public Accounts Committee's report that that body should be the PAC rather than the Executive, operating through the Treasury, with however much consultation of the head of the Public Accounts Committee or anyone else. The decision should be within Parliament's remit because the person occupies an office that is of vital significance to Parliament in carrying out its major constitutional task of scrutinising the Executive.

The second major area in which we can perceive, on the basis of the report and of tonight's debate, a consensus for change is the range of the Comptroller and Auditor General's remit. When the 1866 Act was passed public expenditure was £39 million in a full year. Virtually all of it came within the scope of the comptroller. Within the next couple of years public expenditure will reach £139 billion and barely half of that sum will come within the comptroller's scope. It is plainly unsatisfactory that a new tranche of public expenditure should have sprung up which is outwith the direct audit control of the comptroller. In many instances it is outwith also a right of access to the papers to examine how the money was spent.

If I had a criticism of the Green Paper and the White Paper which I had to choose as my most concerning criticism of those documents, it would be that the Green and White Papers appear to suggest that the Treasury is not seized of the unsatisfactory nature of the position whereby the public sector's chief auditor does not have access to the way in which half of our public expenditure is spent.

It is clear that there are many paradoxes in respect of the nationalised industries. It is perhaps necessary to remind ourselves that none of the nationalised industries was envisaged, with the possible exception of the Post Office, at the time of the 1866 Act. The technology in which many of the nationalised industries trade was not envisaged in 1866.

It is illogical that some of the nationalised industries are subject to the comptroller's remit as a result of historic accident while others are outside it. It is clear from the Green Paper that the NEB is outside the comptroller's scope. He does not have access to its accounts. On the other hand, the Scottish and Welsh Development Agencies, which operate at a regional level, and carry out similar functions to the NEB, are subject to the comptroller's auditing. They took over advance factories and industrial estates which were previously audited by the comptroller. His remit ran with the new bodies that inherited those functions.

It is absurd that we should have part of the public sector's intervention in industry subject to the comptroller by historical accident while another and greater part of it is outside his scope because there is no such historical accident. One is entitled to ask who is charged with carrying out an independent efficiency and effectiveness audit of the nationalised industries. Private auditors do not check financial probity. That is made clear in the Green Paper, which states: like the audit of a private company"— the audit of a nationalised industry— is designed to ensure that the accounts provide a 'true and fair view' and is not concerned with questions of efficiency. Who is concerned with "questions of efficiency"? As I understand the argument that is advanced by the Treasury, the answer to that question is the Monopolies and Mergers Commission. It appears to regard that as a satisfactory answer.

I am bound to say that I do not, for a number of reasons. My first reason is that I take grave exception to the suggestion in the White Paper that the commission will be adequate because the comptroller has access to the reports of the commission. We all have access to its reports. We can all obtain them from the Vote Office. It borders on being contemptuous of the role of the watchdog of public expenditure, the role of the comptroller, to suggest that it is sufficient for him to obtain from HMSO the commission's report.

I am dissatisfied also because it is plain that Parliament plays little if any part in deciding who should be investigated by the Monopolies and Mergers Commission. The position is stated succinctly—one might say with brutal frankness—in the Green Paper which states: The MMC will mount its studies as and when the Secretary of State for Trade requests it to do so". That is a perfectly candid statement of reality, and there is no position in that statement for an intervention by Parliament saying "Here there is an area which needs investigation," or "Here there is a nationalised industry or part of the public sector where we need an efficiency and effectiveness audit."

My hon. Friend the Member for West Lothian (Mr. Dalyell) did not appear to gain entire unanimity with his intervention, but I believe that he touched on a genuine problem. There is real concern that in the Bathgate plant there has been an investment of public money of which the outcome is most unsatisfactory. There are even allegations circulating in the area that there has been financial impropriety on the part of some of those involved in what went on at Bathgate. I do not take sides in these allegations. It would be wrong of me to comment on them without seeing any evidence. But I have to ask the House, who can investigate these allegations? To whom can we turn and say "Investigate this investment of public money and find out what is happening to it"? It is plain that it would be impossible for the Comptroller and Auditor General to answer those questions adequately unless he had access to the books and to the accounts over the years. There we have one example where access to the books is required.

In this area, again my prejudice lies very much with the report of the PAC, but I enter two caveats. We should distinguish sharply between those bodies that are accountable only to the electorate through this place and those other bodies such as local authorities that are directly elected and therefore have a direct accountability to their own electorates. It is not necessary for them also to be held accountable to the electorate through Parliament. Being a national institution, Parliament is necessarily more remote and less immediate to its electorate than are local authorities.

Mr. Douglas

That does not follow.

Mr. Cook

My hon. Friend the Member for Dunfermline is not entirely persuaded of that argument. It is fair to say that we often are tempted to feel that we are more in touch with our electorates than are some others whom we could name.

Mr. Douglas

Equally.

Mr. Cook

In the search to maintain this all-party unity, I shall agree with my hon. Friend's formulation that we are equally in touch with our electorates. Nevertheless, the local authorities are equally in touch with their electorates and equally accountable to them.

Mr. Hordern

Is not the point about local authorities that they all receive considerable contributions from the Government in the form of rate support grant, and is not the principle that any public money devoted to whatever cause should be capable of investigation by the Comptroller and Auditor General?

Mr. Cook

If we are honest with ourselves, we recognise that the reason why local authorities depend so substantially on the rate support grant is that Government after Government have been unable to find a sufficiently wide tax base to give local authorities so that they could finance their own activities. Ideally, the spending power of local authorities should be coincident with their tax raising powers. So long as we are unable to solve that conundrum, simply because we have to make up the shortfall, we do not have the right to meddle in the internal affairs of local authorities.

I do not deny that there is a role for more efficiency and effectiveness audits of local authorities, but if we attempt to achieve that effectiveness audit through an official operating in a closer relationship to Parliament and therefore to the Government, it will be resented by the local authorities. No hon. Member need be in any doubt about the extent to which that would be resented. It would be resented all the more strongly coming at the end of a period in which there has been a dramatic and serious erosion of freedom by the Government, making it more difficult to sell to local authorities the more modest erosion of freedom contemplated in the PAC report.

Mr. Joel Barnett

I do not accuse my hon. Friend of not reading the report and the evidence taken by the Committee, because I know how assiduous an hon. Member he is. He must know that we were very conscious of precisely this problem and had no wish to meddle in the affairs of local authorities. Legislation would be required that specified that the Comptroller and Auditor General was not able to report on individual local authorities. I said that in my opening remarks. We were conscious of the problem and went out of our way to try to convince the local authority associations and all local authorities how different our proposals were from the audit commission where the Secretary of State—the Executive—would have considerable powers of the kind that my hon. Friend does not want to see. Nor do we.

Mr. Cook

My right hon. Friend is correct. However, I think that my right hon. Friend will admit that he has failed to persuade the local authority associations of that view. My hon. Friend the Member for Dunfermline appears to regard that as a matter for some hilarity.

Mr. Douglas

rose—

Mr. English

rose—

Mr. Cook

I shall give way to my hon. Friend the Member for Dunfermline, since I have obviously misconstrued what he was attempting to convey to the House. I shall give way in a few seconds, if he will permit me to reach the end of the sentence, which will provide a suitable punctuation remark forHansard to allow him to intervene. If I have misunderstood my hon. Friend, I am happy to give way, but I also hope to let the Government reply.

Mr. Douglas

I am grateful to my hon. Friend, who, I think, has misinterpreted what the Public Accounts Committee had in mind. When we took evidence, we were well aware that in the minds of local authorities—I am talking of English local authorities—there was a view that, because we talked about Parliament, we were so closely related to the Executive that this would mean Executive interference. We bent over more than backwards to try to overcome the difficulty. My hon. Friend is unfairly and perhaps inadvertently substantiating the view that prevailed among local authorities that we tried to remove.

Mr. Cook

I should not wish inadvertently to mislead the local authorities or anyone else. The point I was making when my hon. Friend intervened was that even those efforts failed to persuade the local authority associations.

Mr. Douglas

These are early days.

Mr. Cook

My hon. Friend says that these are early days. The Association of Metropolitan Authorities, having considered two different proposals, decided that it did not like the PAC proposal. There is no doubt that the proposal in the PAC report, which would create a national audit service, giving direct accountability to Parliament of the auditor responsible for the efficiency and effectiveness of local authorities, is resented and would be resented by local authorities. There is no point in any hon. Member trying to deny that.

Mr. Michael Morris

Does the hon. Gentleman not think that there is something strange in a situation where the Chief Inspector of Audits prepares an annual report of two thirds of the finance which is voted by Parliament and that report is not even laid before the House and hon. Members have no facility to question anyone about it?

Mr. Cook

I put again to the hon. Gentleman what I said in reply to an earlier intervention. The two thirds of money from the central Government is the result of hon. Members lamentably failing to find a way of resolving the tax base of local authorities. That is relevant. I have served on local authorities. I do not know how many members of the PAC have served on local authorities. Nothing is more likely to cause resentment within local authorities than the suggestion that Parliament should ultimately be in charge of an efficiency and effectiveness audit of local authorities.

I leave one area where I have been unable wholly to satisfy my hon. Friends of my resolve and enthusiasm for what they have put before the House and turn to matters where I find myself in happier harmony. My hon. Friend the Member for Norwich, South has been involved in these issues for many years. I am prepared to accept that we differ on the matter. I am not prepared to accept the formulation that he is right and I am wrong. We shall have to agree to differ.

A third area where there is consensus that change is required relates to the balance of work carried out by the Comptroller and Auditor General. There is a repeated refrain through the different reports on this matter which have been submitted to the House—in particular, the latest report by the PAC—that there is too heavy an emphasis on auditing for the sake of financial regularity to check financial probity and insufficient emphasis on auditing to carry out efficiency and effectiveness audits. If any hon. Member is in doubt about the imbalance in this regard, I invite him to consult the evidence taken by the Select Committee on the Treasury and Civil Service in its study of efficiency and effectiveness in the Civil Service when it had the Comptroller and Auditor General before it.

From that evidence it emerges that two thirds of the work of the Exchequer and Audit Department is concerned with financial regularity. That compares and constrasts with a proportion in the General Accounting Office in America of only 10 per cent. which is spent on financial regularity. Moreover, even when we turn to that one third which is spent on checking efficiency, we find that a very small proportion is actually spent on checking effectiveness. Indeed, when asked how many effectiveness studies were going on at present, Sir Douglas Henley replied: I have to say half a dozen in the last year or two, perhaps. That is hardly the correct balance that we want to see in the main watchdog carrying out the scrutiny of public expenditure. One has to add that it is perhaps not surprising that we have that imbalance, given the nature of the rather narrow range of talents assembled within the Exchequer and Audit Department. We do not have the statisticians, engineers, computer technicians and social scientists that are available to the General Accounting Office in America. We have—it is partly the legacy of control of staffing by the Treasury—an emphasis on generalists rather than gathering a rich variety of specialist talents.

I found it particularly distressing that the Comptroller and Auditor General appeared to find it difficult to accept the importance, if he were to carry out the efficiency and effectiveness role, of involving outside assistance. When asked how many people with experience outside his department were currently working in the Exchequer and Audit Department, he replied that there may be the odd person. When asked whether consultants were employed, he responded that the Department was beginning to use a consultant or two. Then he immediately qualified that by adding: it is essential, if you use consultants, to keep them under very close control"— as though one were dealing with some dangerous animal that might run amok within a well-ordered department.

There is general agreement on both sides of the House that this balance of work and the input from outside expertise needs to change. I am doubtful whether we shall change that balance without new legislation which redefines the role of the Comptroller and Auditor General.

I do not accept that the need for that legislation is not pressing. We all know why the Treasury decided that the need for legislation was not pressing. It is the reason why we are debating this matter on a motion for the Adjournment. There is a consensus for change. If a Bill were brought forward by the Government, it would be liable to be amended by that consensus. Therefore, rather than risk that the Bill might get out of hand whilst in the House of Commons, the Treasury has decided that it is safer to do nothing. That is the instinctual preference of a bureaucracy in all circumstances. Clearly, on this occasion, bureaucracy has triumphed within the present administration.

However, I share the view of a number of hon. Members who have spoken in the debate that this would be only a delay. I believe that the House will not indefinitely tolerate a situation in which it is denied the opportunity for change.

The struggle of Parliament to win control of Supply lies at the heart of the emergence of the Commons as the prime institution of our system of government. It is one of the rich paradoxes that, having fought so hard to win the right to control Supply, in modern times we have taken so little interest in exercising that right. Moreover, in a century in which we have shown least interest in controlling Supply, we have also witnessed the fastest growth of Supply.

This is not simply a matter of finding more efficient accounting methods. It is a major constitutional issue. The Public Accounts Committee should be congratulated on bringing that major constitutional issue before the House. The Government richly deserve the criticism which has been heaped upon them in the debate for responding to the report with a paltry White Paper which dodges each of the main issues raised by three Select Committees over the past five years.

9.40 pm

Mr. Ridley

Hon. Members asked me to speak again at the end of the debate, and I hope that the House will give me leave to do so. I can go straight to the subject of the debate, because the courtesies to the right hon. Member for Heywood and Royton (Mr. Barnett) and other such matters were dealt with in what I said earlier.

Before dealing with the main theme of the debate, I should like to touch on some of the not less important but perhaps more peripheral points. The right hon. Gentleman referred to the National Enterprise Board and the National Research Development Corporation. I accept that he would have every reason to show concern if, by amalgamating those two bodies, the Comptroller and Auditor General were eliminated from auditing either of them. That is a view with which I have great sympathy. But we are dealing with hypotheses. First, the Government have not decided whether to do it, and, secondly, legislation would be required. That would give the House an opportunity to raise those points if the Government took a decision which the House did not like. I hope that the right hon. Gentleman's mind will be eased to some extent by what I have said.

The hon. Members for Norwich, South (Mr. Garrett) and for Edinburgh, Central (Mr. Cook) and my hon. Friend the Member for Scarborough (Mr. Shaw) mentioned the independence of the Comptroller and Auditor General and wondered who should be responsible for appointing him. I think that the House could find common ground in insisting that he be independent. I insist that he really is independent of the Government and of the Treasury, although technically he is appointed on the recommendation of the Prime Minister. As hon. Members know, the Chairman of the Public Accounts Committee is consulted about such an appointment. That seems to me the essential point here.

I thought that the hon. Member for Edinburgh, Central put the matter rather differently from the PAC when he suggested that it should not be possible for the PAC to give directions to the Comptroller and Auditor General, and that Parliament should simply appoint him. That is much more acceptable to the Government as a concept. It is the idea that in some way the PAC would control or direct the Comptroller and Auditor General that the Government are not prepared to accept, because it would compromise his independence.

Mr. Joel Barnett

Is the Minister saying that the Government would be prepared for the House of Commons to recommend who should be the head of the national audit office, but that that would leave the head of the national audit office with no direction from any source so that he could decide, without any recommendation from the House of Commons, whom he should audit?

Mr. Ridley

I did not say that we would be prepared immediately to agree to that. I said that the formulation of the hon. Member for Edinburgh, Central was much more acceptable to the Government than that in the PAC report.

The hon. Member for Nottingham, West (Mr. English) asked who should audit the Comptroller and Auditor General. I do not find anything about that in the PAC report. It is not a matter about which the House appears to feel strongly. If anyone has a better way than the present one and can suggest who could better audit the Comptroller and Auditor General—

Mr. English

rose—

Mr. Ridley

I have very little time and a lot to say. I suggest that, if such a way could be put forward, the Government would be flexible. It is not something to which the Government would strongly object. It is a question to which we have to find a better answer, if there is one.

Legislation was mentioned by many hon. Members, including my right hon. Friend the Member for Taunton (Mr. du Cann) and the hon. Member for Nottingham, West (Mr. English). The Government have not abandoned legislation. I give two examples where, were there to be any change in those matters, legislation would be required. These deal with the question of who would appoint the Comptroller and Auditor General and who would audit him. So the House should reach a decision about what is desirable in that respect.

On the wider questions, it is equally certain that it would be wiser to agree about what we should do before bringing in legislation. [HON. MEMBERS: "We do."]

That brings me to my complaint about the suggestion that there is consensus in the House except among Ministers. Yet Ministers are Members of the House. We must make sure that what is proposed at least achieves reasonable support in all quarters of the House, including the Government. The Government have every right to hold a strong view on the matter.

Mr. English

rose—

Mr. Ridley

I shall not give way, because I have very little time.

There is another difficulty. We have a rather crowded timetable, contrary to what my right hon. Friend the Member for Taunton suggested. We shall be busy this Session. But, if and when we know exactly what should be done on these matters, the Government will in no way resist the suggestion that there should be legislation. The idea that we could legislate before examining all these matters in depth is absurd. Indeed, the purpose of this debate is to discuss them and to make clear the views of the House. That will become more apparent when I come to the main theme of the debate, which is that the powers or the scope of the Comptroller and Auditor General should be extended wherever public money reaches.

Nowadays I agree, as many right hon. and hon. Gentlemen said, that public money reaches those parts of the economy that other money does not seem to reach. The Government made it clear in their response in the White Paper that the doctrine of ministerial responsibility was important, not for the reason that hon. Gentlemen seem to have given, that ministerial responsibility is in some way a substitute for proper auditing or efficiency auditing, but because we have to examine what Ministers can do about any spending item. The hon. Member for West Lothian (Mr. Dalyell) gave an extreme example. If aid is given to Turkey there is no way in which the comptroller can investigate how that aid is spent by the Turks. Nor can any Minister be hauled over the coals or seek to justify what use the Turks make of that money. Let me give another extreme example. We spend money on paying the national insurance pension, but we are not expected to justify how a pensioner spends his or her pension money.

Many of the grants to industry under section 7 of the Industry Act do not specify the purpose for which that money shall be spent. The money is given to a company. Provided that the company does not breach the terms of the grant, there is no ministerial responsibility for how the money is spent by the company.

That is also true with local authorities. The rate support grant is given to local authorities and there is no ministerial responsibility for whether the grant is spent wisely of badly. Ministers cannot be hauled before Parliament to justify what they have done with such a grant. By statute Ministers expressly are not responsible for the day-to-day management of nationalised industries.

The responsibility of Ministers to pay out money ceases with their statutory obligations. They have a reponsibility to ensure that the money is paid to certain persons, that certain conditions are applied and that certain statutory obligations and rules are followed. They must also ensure that there is no fraud or error. However, to investigate that one needs only to investigate the Ministry, not the purpose for which the money was paid.

My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) referred to the National Health Service. The National Health Service and Government Departments are different because Ministers accept full responsibility for the discharge of the efficiency of the service and the Departments. Ministers are responsible neither for our nationalised industries nor for how local authorities spend their money.

Hon. Members complain about the so-called evil body called the Treasury. Blame has been heaped on the Treasury White Paper, and my hon. Friend the Member for Folkestone and Hythe (Sir A. Costain) made some amusing remarks about it. The Treasury is responsible for public expenditure but it does not have control over the spending in the sense that we are discussing, any more than Ministers have control. Parliament does not have such control because it has legislated to transfer the responsibility of such classes of spending away from ministerial control to the control of others. In the case of local authorities Parliament has transferred responsibility to local elected councillors and in the case of nationalised industries to people charged by statute with running them.

When I was a member of the Expenditure Committee I put my name to the report on the subject. I wanted to ensure that the Committee's recommendations did not extend to seeking control of money for which Ministers were not responsible. I believed that that was right. I still believe it to be right. The proposed strange encroachment into that power seems to me to be misplaced in view of what I understand the Committee to mean.

Mr. Joel Barnett

If Ministers have no responsibilities in these matters, why have the Government taken the power to ask the Monopolies and Mergers Commission to investigate?

Mr. Ridley

The Office of Fair Trading is responsible for ensuring that competition is effective throughout the economy. Where there is no competition and certain monopolies are involved, the Government take responsibility for ensuring that efficiency is practised in other ways. That is the basis of using the MMC in the nationalised industries. It is a sensible basis.

Mr. Hordern

My hon. Friend mentioned my remarks about the Health Service. Legislation has provided that the administration of the Health Service should be given to regional authorities. The point at issue is whether the Comptroller and Auditor General should have access to the accounts of the regional authorities. At present he has no access. If the spending of taxpayers' money is not accessible to the comptroller, there can be no guarantee to the House in respect of regional health authorities' expenditure. That is the point that my hon. Friend should answer.

Mr. Ridley

The Comptroller and Auditor General can gain entry to the National Health Service.

Mr. Hordern

No.

Mr. Ridley

I believe that he can. If I am wrong, I shall apologise.

Mr. English

rose—

Mr. Ridley

I turn to a further reinforcement of the argument. The Public Accounts Committee, the comptroller and Ministers have evolved in the past 100 years, a unique relationship in the control of financial auditing in the public sector. I do not need to spell it out.

Mr. John Garrett

It is out of date.

Mr. Ridley

I agree that it is out of date and should be extended to efficiency auditing. None of us disagrees about that. Disagreement—such as it is—is about extending the scope; it is not about the need for efficiency auditing. The scope could not be widened without, in some cases—this is an important point—invading the privacy or preserves of others, where they have every right to keep matters to themselves.

How can the efficiency audit be carried out when we are not responsible for taking action? The point about the relationship between the Public Accounts Committee, the Government and the Comptroller and Auditor General is that Ministers can take remedial action if something is wrong. If something is found to be inefficient or wrong in a local authority or nationalised industry, Ministers cannot take action. Does the Public Accounts Committee believe that it would be right to bring the chairman of a nationalised industry to the Bar of the House to ask him why he had not done this or that? What sanction do we have when we have devolved responsibility? The right hon. Member for Heywood and Royton revealed such ideas. His idea was that Ministers should be asked why they had intervened in the affairs of nationalised industries. That is a very strange thought as regards the function of an auditor.

The hon. Member for West Lothian (Mr. Dalyell) raised—properly, from his constituency point of view—the problem of unemployment that had resulted from the closures of Bathgate and Linwood in Scotland. However, he let the cat out of the bag, and for those who had to listen to the hon. Gentleman it was a very long cat. One cannot get the Comptroller and Auditor General to pursue political problems when there is no political responsibility.

My hon. Friend the Member for Folkestone and Hythe was right. He immediately spotted the weakness in the hon. Gentleman's connection between the comptroller and events in Bathgate and Linwood. There is no ministerial responsibility for the money once it has passed from the Government to the firm concerned. By making his remarks overtly political, the hon. Gentleman pointed up the immediate difficulty in the arguments put forward by the right hon. Member for Heywood and Royton and the Public Accounts Committee. We have no managerial responsibility in the nationalised industries. Local authorities have elected councillors who rightly have views about what should be done. Indeed, I agreed with the remarks made by the hon. Member for Edinburgh, Central. Therefore, the Government believe that it would be wiser to consider the difficulties that I have put forward. We have enough to do to extend efficiency auditing in the public sector under the control of the Comptroller and Auditor General and the PAC—

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.