Public Accounts

HC Deb 03 July 1986 vol 100 cc1218-63 6.29 pm

Sir Michael Shaw (Scarborough)

Perhaps we may now resume our quiet but thoughtful debate on the affairs of the Public Accounts Committee. It occurred to me, Mr. Deputy Speaker, that it might have been advantageous if we had been discussing a report of the Select Committee on Procedure, when we could have reflected on recent events.

I welcome, as does any member of the PAC, the opportunity to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and to thank him for the way in which he conducts our affairs, week after week, in a fair and thorough manner that gives us all the opportunity to ask questions and to formulate our reports.

The work of our Committee becomes more and more important. I was rather upset by the initial announcement of the debate, because it gave no indication of what we would discuss. However, I now welcome the way in which the motion for the debate was finally tabled on the Order Paper, because it indicated the scope of the debate and headlined the reports that we felt were most important. This debate also gives hon. Members who have a special interest, but who do not serve on the PAC, an opportunity to air their views.

The work of the Committee is so important that occasionally it should benefit from the wider audience of the Chamber — even if not so large an audience as we had momentarily a few minutes ago. As a general rule such debates falls within the province of Front-Bench spokesmen and members of the Committee, though we have tried to attract a larger audience. I welcome the fact that the motion has been tabled in a way that encourages hon. Members to participate. Unfortunately, most hon. Members look at the Order Paper, reach for a railway timetable and look up the times of the trains to their constituencies. That has always been so, and I am afraid that it will continue to be so. Nevertheless, it is important that these debates continue to be held.

In addition to commenting on individual reports, it is right that we should discuss the general work of the Committee and the impressions gained from our studies. There have been developments in our work and in the methodology of Departments that deserve close scrutiny and public comment. I wish to say a few words about the general nature of our work and to deal specifically with the Nexos report.

I suspect that many people think our work to be rather dull — certainly not glamorous, although I believe the word "sexy" is the current jargon. We certainly do not seek to hit the headlines, and I hope that that will always be so. Our work involves a great deal of reading and preparation.

Now that the Comptroller and Auditor General has been established in his new role under the 1983 act, together with a new and enlarged team, the complementary role of the PAC has never been more important. It is vital that there are not frequent changes in the membership of the Committee. If a subject arises that has been dealt with previously, it is helpful to have served on the Committee for some time and heard the arguments especially if the accounting officer was not involved previously. We are not easily beguiled by accounting officers if we have such experience. Therefore, when hon. Members join the PAC it is wise, as far as it is possible, for them to decide to stay with it for some considerable time. It is nice to see an old boy here this afternoon. The hon. Member for Fife, Central (Mr. Hamilton) spent many years on the PAC exercising his forceful mind on the issues before it.

My first comment on our work relates to the checking of the financial and value-for-money considerations involved in departmental decisions. If decisions are taken for political reasons we make no comment, even though we must be free to examine any financial and value-for-money considerations that may arise later. If, however, decisions are said to have been taken for financial or money-for-value reasons, we must determine whether those reasons are sound.

I believe that our scrutiny must be more searching than hitherto, and examples of that can be found in the reports. I give a warning to future accounting officers that if financial and value-for-money reasons are given as the basis for a decision, they must be fully justified. Certainly in one instance that reason crumbled under peremptory examination and a further investigation had to be made.

My second comment is on the lack of effective controls where Government money has been committed to projects. Too often there has been a lack of clarity in the programmes and responsibilities, or where nominee directors have been appointed their duties have not been properly considered and defined. The right hon. Member for Ashton-under-Lyne discussed that point in some detail. It is right that the Committee considered that matter, because a feeling has developed that to be a nominee director is a cushy job at the end of one's career. It is a tough, demanding and very responsible job, because many people and their money depend upon a nominee director carrying out his task properly.

The encouraging feature is that there are clear signs that the lessons brought out in our earlier inquiries and reports are being learnt. I am not saying that without the PAC, without our hearings and without our reports, no such progress would have been made in the Departments. I recognise that significant changes are taking place within the Departments. I am saying that without the extended role of the Comptroller and Auditor General and the close examination of the departmental accounting officers by the PAC, these changes would not have come about as quickly as they have done.

On the evidence given to us, several of the PAC's reports still disclose an acceptance of past shortcomings, but that is coupled with an assurance that lessons have been learnt and that things will he better in future. That is encouraging as far as it goes, but the PAC looks forward to future inquiries so that we will have facts that will fulfil the promises that have been made.

Nexos is an especially unhappy example that cost the taxpayer about £32 million. The company was formed in 1978. That is when the NEB decided to make equity investments in certain companies in certain sectors. I can do no better than quote from the main findings of the PAC. Paragraph (b) of the summary of main findings and conclusions reads: The principal reason for the failure of Nexos was that its management created a much larger organisation, with higher outgoings, than was justified by either sales or the amount of funding approved by NEB. Paragraph (d) states: NEB negotiated supply and marketing agreements with Nexos's main suppliers which were deficient in a number of important respects. Paragraph (f) is as follows: the investment by the NEB in the companies who were the main suppliers of Nexos created a potential conflict of interest". Paragraph (k) states: It is unacceptable that the C&AG was unable to investigate and report on the Nexos loss. This case reinforces the view expressed by previous Committees that all bodies in receipt of public funds should be accountable to Parliament through examination by the C&AG". I entirely agree with that. I return to paragraph (h), which reads: We strongly endorse the lessons on monitoring identified by the DTI. In the course of questioning Sir Brian Hayes during one of our sessions I put the matter to him directly. I asked Sir Brian—this is question 2966: One can only ask what lessons have been learned from this little incident? Sir Brian replied: A number of lesssons. The lesson that the present Government would draw is that this is not the sort of activity it is sensible to conduct, that in fact the National Enterprise Board's attempt to set up wholly in the public sector a new company to plug a gap which was believed to exist in the economy was a misguided one. But of course that is a matter of general policy and the fact is that the National Enterprise Board was operating in 1978 when this story began under another Government and under quite different policies. He continued: The second lesson is that the monitoring of a company and of an investment is a very difficult business which needs a large amount of attention and may not have attracted all the attention it needed from the National Enterprise Board for very understandable reasons during the difficult days of 1979 and 1980. The third lesson I would draw is that in general it is better that the people who monitor investments should not themselves be involved in the actual management of those investments. That leads me on directly to nominee directors. Initially, Nexos had as its first chairman the head of the NEB division responsible for monitoring the investments itself. It had also a member of his staff, who was also made a director. They later resigned. It seems, from all the evidence, that all the important decisions about the new company were taken by the NEB and not by the new company. It is no wonder that Sir Brian concluded: in general it is better that the people who monitor investments should not themselves be involved in the actual management of those investments. The oddest feature of all is that, having learnt that lesson, the DTI proceeded to put another £13 million into the company. It agreed to do so only after a new independent chairman and two new independent non-executive directors, who were not in any way connected with the NEB, were appointed. In answer to a question from the right hon. Member for Ashton-under-Lyne— this appears on page 102 of the report— Sir Brian replied: Ministers were also influenced"— that is in making further payment to Nexos— by the fact that they were informed at the meeting they had on 19 February that an independent chairman and two independent non-executive directors were being placed on the Board of Nexos and that these would be able to take a clearer view than had been possible up to that date of the management of Nexos itself and the problems it faced. It was in fact in the light of that knowledge that Ministers authorised the additional funds that were to be made available. The mysterious thing is that, having placed such faith in the appointment of an independent chairman and two additional non-executive directors, it appears from the evidence that we received that no advice was taken from them. In paragraph 24, our report modestly states: It is of concern, however, that in spite of the confidence placed by DTI in the new Nexos directors, their views seem, from the evidence received, never to have been sought with regard to subsequent events". That seems to be inexplicable. So far as one can see, events proceeded with the NEB still making all the major decisions, without the advice of the new directors, on whom the DTI had placed such faith, being taken in any way.

This sorry experience shows exactly how non-executive directors and outside directors who are brought in for special purposes should not be used. I hope that the lessons have been learnt. When we make these appointments, the conditions of service and the objectives must be clearly laid out and those who are appointed must be in a position to act to save taxpayers' money and to make the enterprises of which they have been made directors flourishing and prosperous for the future, rather than sinecures for those who have left their main jobs.

6.50 pm

Mr. George Park (Coventry, North-East)

I wish to comment on the first, the third and the 14th reports from the Public Accounts Committee. It may be my misfortune that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) touched on all three reports during his opening speech. It is the habit of members of the Public Accounts Committee to make their contributions in their own way. I doubt whether my slant will be the same as that of the Chairman.

The first report is entitled "Role and Responsibilities of Nominee Directors". There was, and probably still is, a general assumption, which I share, that nominee directors are appointed to bodies which receive public funds to see that such funds are put to good and proper use. If that is not the case, they should alert the body that appointed them. The report highlights the fact that their first responsibility is to the body to which they are appointed, and they have no duty to make regular reports to the Government unless that is written into their terms of reference. As the Chairman of the Public Accounts Committee said, the only instance of such a requirement is the Welsh Development Agency. For the remainder, reliance has been placed on informal chats with the accounting officer.

Prior to the De Lorean debacle, no written guidance was issued by the Treasury. The Treasury accepted that that was remiss of it, and it partly started a review to improve the instructions to nominee directors. One organisation which exists for the promotion of non-executive directors — PRONED — considers that independent reporting back by nominee directors is wrong in principle, and that all such reports should be made through the company chairman. I wonder what effect that would have had in the De Lorean case. I should think that it would not have had much effect. Today I received—as did the Chairman—a copy of the guidance note. It is a massive document. I shall refer to three parts of it. Paragraph 10 says: While the chairman of the company should provide the principal point of contact for discussion of the company's trading performance and strategy, the director may be asked by the department or NDPB about these matters, and also asked to express a view on Board appointments and management performance. Paragraph 11 states: the director should consider whether, given his fiduciary duties to the company, he is able to make the information available to the body. That is, the body that appointed him.

If this is not the case, and the development is deeply prejudicial to the body, the director must consider whether to resign. The point that I like best—I hope it will be insisted on—is in paragraph 13. I should like to think that the 100 nominee directors — that figure was mentioned earlier—and the bodies on which they sit will be advised of the new guidance and asked whether they are prepared to accept it. The paragraph says: the department or NDPB should seek an agreement"— the words "should seek an agreement" are underlined in the original— with the company on the role and activities of the nominee director, in particular in relation to monitoring and reporting, normally as a condition of providing financial assistance. I hope that measure will be implemented.

The third report is entitled "Sale of Government Shareholding in British Telecommunications plc.' In my view, and in the Committee's view, the major conclusion is that there are serious lessons to be learnt from the arrangements and results of this large sale of BT shares. The Committee recommends, in view of the Government's plans for further privatisation, that the Treasury, together with the Department of Trade and Industry and other Departments likely to be concerned with future sales, should thoroughly review the arrangements for and results of the sale. In other words, the Committee did not think that the proper value of BT was obtained.

That was not the first time that the Public Accounts Committee had drawn attention to the need to review the arrangements for selling off publicly-owned companies. In the 10th report in 1981–82, and the 17th report in 1983–84, the Committee recommended a review to minimise the risk of future sales allowing large profits to be made at the taxpayers' expense, and warned against too heavy a reliance on merchant bank advisers with an underwriting interest in the sale. Although the Treasury said that the Government's objective would be to obtain the best price, that objective was not reached.

In the run-up to the sale, the Government, as usual, did some window dressing. The method of accounting was changed from the historic cost convention, and BT ceased to charge supplementary depreciation. It shortened the estimated lives of a number of fixed assets and charged to revenue expenditure certain assets that previously had been capitalised. If that new method of accounting had been used in 1982–83, the reported profits for that year would have been £1,031 million instead of the stated amount of £365 million—a difference of £666 million.

The auditors said that the changes were necessary to reflect fairly the state of affairs of the business. I suppose it could also be said that it whetted appetites for an enhanced killing when the shares came to the market. The Department of Trade and Industry took advice from leading merchant bankers and stockbrokers, who approached the matter with all the caution of a fox approaching a hen coop—it can see a good meal but it does not want to get caught.

A phased sale was ruled out, and sale by tender would be appropriate only if demand was likely to exceed supply, and that was considered unlikely with BT shares. The issue was considered too large for a sale by tender. Finally, it was agreed that the shares should be sold by a fixed price offer, although the Treasury warned that that made the pricing decision crucial. However, that was only after it was further agreed that there should be a higher than normal commission. That cost £294 million — about three times the cost that would have applied elsewhere. Arrangements had to be made for selling some of the shares overseas. Ultimately, those shares were sold in America. They quickly returned to the United Kingdom market, no doubt making a quick buck in the process since the price was down by at least 4p or 5p. I know it can be said that that is a matter of hindsight. However, the Public Accounts Committee warned about it.

Once again, as in 1982–83, there are serious lessons to be learnt, such as expecting leading merchant bankers and stockbrokers to act as gamekeepers and poachers at the same time. At the third time of asking, will the Government take heed of the warnings of the Public Accounts Committee, or, in their haste to dispose of valuable public assets, will we see further feast days for the City?

The 14th report concerns the National Health Service and is entitled "Control of Nursing Manpower". The Committee found that the DHSS did not know whether there were too many or too few nursing staff in the United Kingdom as a whole. The DHSS believed that that was a question for local decision. That lack of knowledge did not stop the Department, in 1983, from imposing from the centre reductions in NHS manpower overall with a consequential reduction in the nursing work force. There was no mention of assessments being made of the effects of this reduction, althought we all know the position in our localities. Clearly, the decision was taken on the basis that, as the NHS work force accounted for 73.5 per cent. of its costs, they had to be contained within the limits set by Ministers, irrespective of the effects on manpower and patients.

The report of the Comptroller and Auditor General showed that there was an uneven distribution of nursing staff in health authorities, which ranged in 1983 from 696 per 100,000 population in the Oxford region to 928 per 100,000 in the North-East Thames region. We were told that these discrepancies would become evident during the reviews of the NHS management board, but no examples were available of any action taken, and, finally, once again, it was a matter for the regions and districts to solve within available resources. That was the nub of the question.

It was thought that there would be improvements as general managers settled in over the next three years, but, in its important evidence, the Royal College of Nursing was concerned whether the products of this greater efficiency brought by general managers would find their way back into direct patient care. Managers complain that there is no incentive to alter ratios of nursing staff when the products of any savings will simply be used to make up budget shortfalls. The Royal College of Nursing drew atttention to the fact that 35 per cent. of nurses in training do not qualify and there is a high wastage rate among those who do qualify —about 20 per cent. in the west midlands.

It is extremely difficult to attract qualified nurses back into the service they have left, due in part to the conditions of work and wages, the use of unpaid breaks as handover periods and the proportion of time spent on duties other than nursing, and in the mentally ill areas they see no future due to changed policies which discharge these patients into a community already constrained for resources.

These problems are known to exist, but the DHSS does not know how many nurses are attracted back into the service. The amount it does not know is astonishing. Despite the devolving of decisions to the regions and districts, the DHSS must accept final responsibility for standards of nursing care in England, because over the whole NHS there is significant scope, as the report says for the more efficient and effective deployment of nurses. There is room, too, in making the service more attractive, to retain those qualified nurses we have and to encourage others to join them. Only then will waiting lists be reduced and the service once again become one of which we can be proud.

It is clear from the reports of the Public Accounts Committee that there are many areas where money has been wasted, where it has not been used to the best advantage and where the true value of public assets has not been realised. The Government have a long way to go to remedy those faults.

7.3 pm

Sir Peter Hordern (Horsham)

I should like to join those hon. Members who have congratulated the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the Chairman of the Public Accounts Committee, on his leadership over a long period. He sets a fine example to us all. He is always extremely diligent and thorough in the way in which he takes witnesses through examinations. The Chairman's role has become more important, partly due to the change in the nature of the PAC from dealing strictly with accounting matters — when Departments have spent too much money or when there has been some peculiar aspect in their accounting—to being concerned much more with value for money. Subjective judgments must be and are made by the National Audit Office. It calls for much finer judgments and much more careful assessment than in the past. The right hon. Member for Ashton-under-Lyne brings to these matters great perspicuity, and he has the backing of us all.

There are a number of reports before us, and I shall consider only two. I have noticed, as one who has been a member of the PAC for some time, the way in which one topic after another repeats itself. Some of us who, I am afraid, have become old lags on the Committee have become somewhat world weary with the excuses made from time to time as the same topic appears before us in yet another version. We are always given optimistic accounts of how things have changed: "We have turned the corner; we have taken careful notice of the PAC's criticisms; we have covered all these aspects and I am glad to say that we are confident that the mistakes will not happen again." Yet within two or three years we are back, always with a different accounting officer, but with the same old story.

Some programmes are very wasteful compared with others. The hon. Member for Coventry, North-East (Mr. Park) referred to one programme and my hon. Friend the Member for Scarborough (Sir M. Shaw) referred to the Nexos programme. These are important matters. My hon. Friend said that Nexos cost about £32 million. Of course that is serious, but it is not so serious when compared with some of the programmes which continue to go wrong, year after year.

Why, when these programmes continue and severe losses continue to be suffered, do the Government — I am not especially concerned with their political nature — not take heed of the warnings and their many years of experience? The present practice is that the public expenditure programme is rolled forward every year for the next three years. This means, inescapably, that the same mistakes are likely to be made, unless a radical appreciation is made of each programme, one against another. This process is never undertaken, although to my certain knowledge, the matter has been raised year after year. I shall give two examples showing how things have gone wrong and why the Government should change their view of public expenditure and measure much more carefully one programme compared with another. Instead of trimming the edges of virtually every programme, they should ascertain whether one programme merits more attention than another.

I should like to pick up one point made by the hon. Member for Coventry, North-East on British Telecom and underwriting arrangements. The Government receive expert advice on underwriting matters, but I suspect that they will go to the same sort of people for advice as they have in the past. No doubt their judgment will be excellent, but I should remind the Government that we are about to enter a period of great competition in the City of London, and not before time. I believe that the hon. Member for Coventry, North-East mentioned a figure of £140 million —it may have been more—as the commission that had been paid.

At the end of October there is to be intense competition for commissions. I cannot understand why the Government should not put not only British Gas but the commission out to tender. Some large and important participants have appeared in the City of London recently who have considerable capital resources. If the experience in the United States is any experience at all, there will be considerable competition for that business. I hope and trust that the Government will take advantage of it. In my opinion there should be no underwriting at all. The Bank of England should underwrite the lot and then see what tenders there are for commission. As I understand it, there is now to be rather less privatisation than there was to be a few hours ago so perhaps the matter is not quite as important as it was.

I shall deal with two aspects of the reports: first, the common agricultural policy; and, secondly, torpedoes. There are important priorities which have now assumed greater importance. The National Health Service is one, arising partly from the need to reorganise it, but I believe that education, especially secondary education, has come to play a much more important role than previously. Any international comparison of secondary education, especially the middle and lower ranges, shows that a serious situation exists in the basic knowledge of the core subjects. The figures and evidence show that children in France and West Germany, for example, have substantially better results than we do.

Whatever the evidence—1 know that there may be dispute – I have no doubt that in a post-industrial society of the sort that we have we shall have to spend more to retain and attract better teachers into the profession. When I say this sort of thing, I am often asked where the resources will come from. I shall name two places. The first is the common agricultural policy and the second is a mundane thing called torpedoes.

The common agricultural policy now absorbs two thirds of the Community budget. In 1980 we contributed £600 million net to the Community. Since that time the wheat price has reduced in real terms by about I2 per cent., and one would think therefore not only that the cereal farmers have been efficient, which is certainly the case, but that their incomes have been stabilised. In fact, there has been a growth in productivity of nearly 30 per cent.

The supply of milk in the European community still exceeds demand, even after the imposition of the quota system, by 15 to 20 per cent. We now have the extraordinary situation that milk has been formed into mounds of butter so that it may be fed back to the cows at a fraction of the price that it costs to produce in the first place. That is the situation to which we have had to resort, and a more absurd system it would be impossible to imagine. However, there is a case for dairy farmers, because of the large number of them, and the fact that if they are all run out of business they will inevitably have to move towards the towns to find work.

In my belief, the same does not apply to the cereal farmer. In early 1985, 4 million tonnes of cereal were held in intervention. I understand that the fear of the Ministry of Agriculture, Fisheries and Food is that if by chance the cereal price is cut, which it has asked for, and if there is some form of social subvention, the United Kingdom might be a net financial loser if the income aid to poorer farmers were provided by the Community because, it is said, we have a large number of efficient cereal farmers who are very effective producers. What has to be pointed out is that the whole lot is subsidised, whether produced by large cereal farmers or by small cereal farmers. We would do the people of this country a great deal of good if we stopped producing cereals and started to import cereals from other countries. We would also do the Third world a great deal of good if we were to do that. The reality is that some of our millionaire cereal farmers— that is what some of them are—may not get as much of our taxpayers' money in subsidy as they do now if the system were to change.

I believe that the common agricultural policy is the worst feature of the European Community. I was in the United States a fortnight ago and trade experts said that what they resented most when talking to the European Community on trade matters was that we spend all our time talking about farm prices and steel, and we never talk about space, technology and things of the future. If the European Community does not get together and work towards a proper reform of the common agricultural policy, I believe that that policy will do more damage to the Community in the long run than anything else.

The torpedo programme appears to be the largest single waste of money that I have known over some years on the Public Accounts Committee. The report that we are considering identifies total expenditure up to the mid-1990s of £5,000 million on torpedoes. I start with this proposition, which is a comparatively simple one. If you, Mr. Deputy Speaker, had to ask your constituents what was the best way to spend £5,000 million, I do not know, but I do not think that you would choose to persuade them that spending it on torpedoes was the best and most efficacious way of using the money. We looked at this and found that the Sting Ray torpedo was started in 1969 after early development within the Ministry of Defence itself.

Mr. Peter Griffiths

I noticed the tense my hon. Friend used very closely. He said "we looked at this" as opposed to "we are looking at this". I thought that he might have added another sentence — "that if the Committee had been looking at it today it would have come to different conclusions."

Sir Peter Hordern

I shall deal with a little history first, because it is important. I shall certainly come to the present position and future prospects a little later.

The work continued on the Sting Ray project until 1976, when the programme had to be completely revised due to the emergence, we were told, of further technical problems. At that time the Ministry learnt that the United States was developing an improved version of its mark 46 torpedo, which offered a number of Sting Ray's characteristics for about half the cost, and with an earlier in-service date. I do not know whether this is known, because I do not think that we refer to it in our report, but at that time we bought some of those mark 46 torpedoes ourselves. In fact, we bought quite a number — over 1,000.

The Sting Ray project was reviewed in 1977 and again in 1978. Having possessed some of the American mark 46 torpedoes in some quantity, the Ministry of Defence, for some reason, must have been dissatisfied with them or felt that there was a better opportunity to develop a new range of torpedoes offering a much higher specification. I imagine that that must have been behind the Ministry's thoughts.

What happened was that the expenditure on Sting Ray reached £700 million, which was some £450 million higher than the estimated cost of purchasing the same requirement of the improved mark 46 torpedo. In 1980 we questioned the Ministry closely on the reasons for going ahead with Sting Ray, the estimated cost of which had now risen to £920 million, compared with £200 million for buying some improved mark 46 torpedoes from the United States. We asked the Ministry for further estimates of the cancellation cost and were told that it would amount to £161 million. The employment consequences of cancellation were estimated to be negligible.

The argument that is being put strongly by those who have defended the torpedo record is that of the disastrous effect on employment locally. I dare say that those arguments will be used again, but we were told something different, that the employment consequences of cancellation were estimated to be negligible.

The right hon. Member for Ashton-under-Lyne dealt with Spearfish, and I shall not follow him on that one. However, I remind the House that the Tigerfish torpedo has been under development for over 25 years and has cost about £1,000 million at constant 1984 prices. Up to March 1984 we had spent over £800 million on Sting Ray and Spearfish, neither of which was yet in full production in May last year. We reported that we remain concerned that the arrangements which have operated in the past have resulted in MOD bearing all the additional costs arising from failures while the main contractor appears not to have suffered any financial penalties and, in the case of Tigerfish, now has a further substantial contract which is partly to remedy deficiencies related to earlier contracts. I realise that the position is now different. We have taken as optimistic a view as we can, because the contracts that are now with Marconi are fixed-price contracts. However, the torpedoes that are available to us are not the only torpedoes available to the West. There are other torpedoes, too. To claim that because there is a fixed-price contract the taxpayer has good value does not have any validity. If one puts the price high enough on a fixed-price contract, the taxpayer still stands to lose. Therefore, I should like to refer to another matter.

It is of some consequence to look at the total amount of our expenditure on defence equipment purchase. My right hon. Friend the Secretary of State for Defence claimed great credit for that, and a great deal is due. In the defence debate at the beginning of this week he said: Our defence budget is running at a level about 20 per cent. higher in real terms than it was in 1979. That is not all. Within that much larger budget, equipment has risen from 40 per cent. to 45 per cent. We spend a higher proportion of our budget on equipment than everyone else in NATO. I do not doubt that that may be thought of as a positive achievement. We are spending a significant amount of money, but all that means is that the need to see that that money is being spent efficiently and effectively is all the greater. 01 course, my right hon. Friend was perfectly correct, and so was Sir Clive Whitmore, who came before us to tell us about the improvement in efficiency and competitiveness in drawing up contracts. I understand that the amount of competition for contracts is now well over 60 per cent. In fact, the witness before us said that it had gone up to 65 per cent. However, there remains a hefty 35 per cent. of business placed by the Ministry of Defence for which there is no competition.

In his speech at the beginning of the week, my right hon. Friend the Secretary of State also said: We are continuing to transfer resources from the tail to the teeth — for example, about two thirds of naval manpower is now in the front line. Naval support staff numbers have been cut by about 6,000 … Ten years ago, there were 79 civil servants to every 100 personnel in the regular forces; five years ago there were 69, and today the figure has come down to 53."—[Official Report, 30 June 1986; Vol. 100, c. 712.] Looking at that figure, I should have thought that it was a remarkable achievement, and there cannot be anything like so many people in the Ministry of Defence purchasing department as there were before. However, on looking at the public expenditure White Paper and at the question tabled by my hon. Friend the Member for Crawley (Mr. Soames) a few days ago, I notice that the number employed in the Ministry of Defence in 1986 in purchasing equipment is 36,500. That is a great number of people employed in that direction. It is important that the Government should ask themselves at the end of every year, "Is this the best possible use of our national resources? Are there not other priorities that are now beginning to assume greater importance than this one of buying equipment in the Ministry of Defence, in the way we do?"

It is important to underline our responsibilities in defence. As my right hon. Friend the Secretary of State said in the White Paper, our contribution falls into four areas: first, our independent strategic nuclear deterrent; secondly, the defence of the United Kingdom itself; thirdly, our land-air contribution to the European mainland; and fourthly, maritime operations in the eastern Atlantic and the Channel. In the defence White Paper my right hon. Friend said: We thus maintain a wider spectrum of capabilities than any other NATO ally except the United States and France. We provide 70 per cent. of the ready NATO maritime forces. That is a remarkable achievement for a country with considerably less productive capacity than the West Germans or the French. We must keep under consistent review whether our defence strategy is right to take on such large burdens, but even if it is accepted that that is always right, and we must continue, in all circumstances, to have such heavy responsibilities, is it necessarily right that we should seek to pursue those objectives while spending an enormous amount of money on one particular form of weapon that we make exclusively for ourselves? That is an important question, which the Ministry of Defence will have to look at closely.

I shall now look at the alternatives, because we have not heard much about them. I said that we already possess a substantial number of mark 46 torpedoes. I understand that those torpedoes are now also being bought by West Germany, France, Spain, Italy and most of the NATO countries, but I also understand — it may not be generally known—that the United Kingdom has done the work for both West Germany and the Netherlands on bringing up to date the mark 46 torpedo to what is called Mod. 5, although we have not done that for ourselves. That option should be examined.

The expenditure of £5,000 million is by no means a small amount. I understand that the Americans are now working on a mark 50 torpedo, which will not be available for another few years. The Government say in the Treasury minute: The cost and complexity of modern torpedoes is such that it is unlikely that any of the four European countries with a torpedo capability will attempt to proceed alone with the development of the next generation of weapons. I am glad to hear that that is so. The time has come to put a stop to the idea of our proceeding alone with the development of torpedoes. I see that the Americans are developing the new mark 50 torpedo. Why is it that we talk so much about co-operation and working with the Americans when we are not working with them on that torpedo? Why are we not doing that or insisting that they should take part in our torpedo programme? I decline to believe that the threat to this country posed by the Russian or any other navy is such that we must have our own distinctive torpedo programme compared with what is available to the United States. Why at least can we not get together with other NATO countries and thereby save a great deal of expense?

I am sorry that I have spent so much time on this subject, but I believe that expenditure of £5,000 million over a very long period is expenditure that we can ill afford to ignore. If we do, it will merely mean that some other programme will be considered sacrosanct, and any suggestion that things can go on as they are because so much is being spent is a false economy. If the defence White Paper and the statements by my right hon. Friend the Secretary of State on the matter mean what they say, the expenditure on front end technology in defence equipment must be done more in conjunction with our NATO partners, whether in western Europe or in the United States.

In this area, this country can no longer afford to go it alone. When one compares the expenditure of that amount of money with the national priorities that we must have in a post-industrial society to see to it that young people are given the opportunity to he trained and taught in our schools to a higher standard, I for one have no doubt which is the higher priority.

7.29 pm

Mr. Michael Hancock (Portsmouth, South)

I should like to discuss two of the reports, both of which concern my constituency, and the employment prospects of the people living in the city of Portsmouth and the surrounding area. I should like to consider the torpedo question later, as Marconi is situated in the Portsmouth area and is the largest employer there. I therefore have a significant interest, if not in the history, in the future of torpedo development.

I wish to consider the implications and the saga behind the school of music. Eastney is in the heart of my constituency. For a long time it has been the ambition of the members of the city council, of all political parties, that Eastney should once again be used as a service establishment, hopefully as the school of music for the Royal Marines.

I am grateful to the Chairman of the Committee and to the other Committee Members for recounting what they see as the history of the problem. I should like to detail events again, as certain significant events occurred during the discussions on Eastney about which I do not believe the Public Accounts Committee was told the whole truth. In some instances the Committee was not given the correct and most up-to-date information. Because of that, the Ministry of Defence and the Public Accounts Committee have either sought to mislead the House or have inadvertently done so because of a lack of information.

The discussions within the MOD in 1982 came to fruition in the sense that a decision was taken that there would be a single defence school of music. At that time, Deal and Kneller hall were considered but Eastney was not. In 1982, three potential sites were examined. Eastney was then included and was found to be the cheapest option. The most expensive option considered was to continue the current system of a fragmented approach to military music.

In March 1983 plans were drawn up. Once again Portsmouth — Eastney — was included and Deal was excluded. Eastney was the only viable site. Deal was too expensive and Kneller hall was too small. In December 1983, the Secretary of State rejected that report out of hand. He wanted a site north of Birmingham to be considered and Redford barracks came into the reckoning. Deal was also brought back into the reckoning, following, we are led to believe, representations made by the local Member of Parliament who at that time shared Cabinet status with the then Secretary of State. One can only believe that he used considerable pressure because on two previous examinations Deal was considered not to be viable on several counts.

Following that investigation covering the whole country, it was reported in May 1984 that Eastney was once again the cheapest of the locations under consideration. On 18 July 1984, Deal was chosen, based on certain factors which included the wider ramifications of the decision.

The Public Accounts Committee considered the unemployment position in Deal and in Eastney in some detail at that time. It is interesting that the report refers only to Eastney and not to Portsmouth. The statistics quoted in the report suggest that the unemployment position in Deal was 16.1 per cent. and that in Eastney it was 12.1 per cent. The unemployment statistic for Portsmouth—not the travel-to-work area but simply for Portsmouth—was more than 14 per cent. The figures given were therefore inaccurate.

I can suggest several reasons why the figures were inaccurate. The figures quoted for Deal cover the Deal and Dover travel-to-work area. Portsmouth embraces a much wider travel-to-work area and includes areas which are more prosperous than the city and which are better in employment terms. At present, unemployment in the Portsmouth travel-to-work area is 12.5 per cent. Unemployment in the Dover travel-to-work area is 12.7 per cent. In 1984, when the report was produced, the travel-to-work area statistic for Portsmouth was 12.5 per cent. There was clearly a discrepancy in the figures. A like-for-like examination of the figures should have involved the unemployment rates in the two areas. In that event Portsmouth was undoubtedly worse off than Deal. The wider implications went further than a simple examination of the figures. The figures were misinterpreted.

There was also a problem over the married quarters. When this matter was actively considered in July, there were more than 1,000 empty married quarters in the Portsmouth area. The Minister's former companion in the MOD, the present Under-Secretary of State for the Armed Forces, answered a parliamentary question on 9 June and said that there are still 728 empty married service houses or flats available in the Portsmouth area.

The argument about accommodation does not hold water. Portsmouth was the primary site. Nevertheless, an amazing decision was taken. After three trawls through the system Eastney proved to be a viable, the cheapest, and most appropriate site. Yet, in the face of that, the ludicrous decision was taken that Deal should be the site.

A separate examination was made of the financial position. At that stage the comparisons in valuation were drawn to the attention of the Public Accounts Committee and the MOD. The figures quoted in the report suggest that at one stage the site valuation at Eastney was £800,000. It now appears that at some time during the discourse on the wider implications, by some magic coincidence, the attraction of Eastney became such that it rose in value from £800,000 to £5.5 million.

Mr. Peter Griffiths

I am grateful to the hon. Gentleman for giving way as we share an interest in the city of Portsmouth. Does he agree that these two figures—£800,000 and £5.5 million—are so different that it is reasonable to assume that no one of any seniority in Portsmouth city council would have given either of those figures to the Ministry of Defence, certainly not to the latter knowing that the policy of the city council was to attract the school of music and that such a figure could be used only to destroy Portsmouth's case?

Mr. Hancock

I could not agree more with the hon. Gentleman. I should like to take this opportunity to suggest how the position arose. At the same time as the Public Accounts Committee and someone within the MOD were told that the valuation had jumped so dramatically, the chief executive of Portsmouth city council wrote to the PSA which was acting on behalf of the Ministry of Defence. The letter states: Some land has already been released for residential development but following the news that the Joint School should not come to Portsmouth, we have taken the opportunity to look carefully again at the Barracks in order to assist you in arriving at a satisfactory answer for the future. I must say immediately that the City will expect full protection to be given to the Ancient Monuments, the Listed Buildings and the Conservation Area. I must also emphasise most strongly that proper attention must be paid to the general setting in which the monuments and buildings stand in addition to the general value of the Conservation Area. In particular the Parade Ground, with its surrounding buildings (the Officers' Houses, the Barrack Blocks and the Museum and HQ Block) form an essential feature of the Eastney area and the City Council now looks for firm proposals to bring these buildings up to a good condition and into a proper use. If modest parcels of land are to be sold off the City would be happy to discuss their best use. It talks about modest parcels of land being sold off.

When we exclude from Eastney the area about which the city council wrote to the Ministry of Defence, there is nothing left except very small parcels of land which would not raise even £800,000 if they were sold. That letter was written by the chief executive of Portsmouth city council. It was a follow-up to a letter sent to Lord Trefgarne, who was then the Under-Secretary of State for the Armed Forces. That letter was sent by the Conservative leader of the council, Councillor Ian Gibson, who set out the importance to the city of this site. He described its special setting close to the seafront and the conservation area with the buildings that offered opportunities for the city and the Ministry of Defence.

I have been a member of the city council since 1971, and I have been on the planning committee since 1976. During that time I cannot recall a time when an officer asked the planning committee or the political bosses of the city their opinion about the disposal of land at Eastney. It was never discussed because everybody took it for granted that the site was far too important to be sold for a massive housing estate or for any other purpose.

I pay tribute to the hon. Member for Portsmouth, North (Mr. Griffiths) and also to the leader of the council, Councillor Gibson, his predecessor Councillor Marshall and all the other councillors of all political persuasions whose driving ambition for Eastney has always been to bring hack the training centre of the Royal Marines band.

It is amazing that the report suggests that Portsmouth city council officers have made statements which would lead the House and the Ministry of Defence to believe that they had an asset worth £5.5 million. This week I spoke to the chief executive, the chief planning officer, the planning chairman and the leader of the council. They all deny right down the line that they have ever been involved in any negotiations at this level about the disposal of the site. Nobody in the city council has admitted giving that information to anybody at any level.

Perhaps if the doorkeeper at the civic hall were questioned it might turn out that he was the one who suggested that Eastney was to be a prime site for development. Perhaps Taylor Woodrow, when it was looking at other sites in Portsmouth, or Laing or Wimpey all suggested that this was the valuation of the site. I have yet to find anybody who can speak with the voice of authority in Portsmouth who had any part to play in making those statements. That casts grave doubts over the validity of that information given to the Committee by senior officers.

Let us look at the cost of building. In March 1985 the report suggested that the cost of building at Deal had risen from £5.8 million to £10.6 million. We were also told that the same rise in costs had occurred in Portsmouth. That ignored the fact that Portsmouth had 700 empty houses and that there would be no need to build married quarters. Those comparisons are incorrect, and once again we have been misled by people who seem to have reasons other than finding the most effective and efficient way of dealing with the problem of locating the Royal Marines school of music or the defence school of music.

I draw the attention of the House to the problems that we face in Portsmouth. The people there do not rush to complain that they have been treated badly, but in 1948 about 40,000 people were directly employed in Ministry of Defence work in Portsmouth. That has now dropped to 6,000 and the city has suffered badly because of the way in which successive Governments of all parties have continued to cut the defence commitment in the Portsmouth area. That has forced more and more people to find alternative work and that has proved difficult.

It has been difficult to get land released to attract other developments and one piece of land never discussed for development was Eastney. That was because the Ministry of Defence has always said that it had ambitions to use that site. As recently as a few weeks ago, the Ministry of Defence said again to the city council that it needs the land at Eastney and certainly the playing fields, because of its intention to relocate HMS Mercury. Wherever it takes place, that relocation will necessitate the Navy holding on to at least the playing fields at Eastney and they make up a large proportion of the land area there. That leads me to believe that if a reasonable decision is to be made about the school of music it must be in favour of Eastney.

The facts speak for themselves. Measured against every other location in the country Eastney is the cheapest site. It has the ready-made asset of married quarters and a large recreational facility with playing fields and swimming baths. In addition, the headquarters of the Royal Marines training unit is already there and for those reasons nothing should stand in its way.

I should like to draw the attention of the House to page 13 of the 11th report, in which Sir Clive Whitmore says: The Royal Marines are not particularly wedded to staying in Deal; they are living in buildings there which have not had a great deal of money spent on them in the way of maintenance. I am sure if you got a marine on his own he would say he was only too glad to get out of Deal. If that information is coming from the Marines and is put forward by the permanent secretary, surely the Marines should be given an opportunity to see which site they find most attractive. Neither the Royal Marines nor the Royal Navy has any commitment now in that part of Britain. The home of the Royal Navy is traditionally in Portsmouth and I envisage the Royal Marines school of music being based in Eastney. I urge any hon. Member who has any influence on this decision to come out strongly in favour of Eastney barracks being used.

Mr. Toby Jessel (Twickenham)

I apologise to the hon. Gentleman for being out of the Chamber at the start of the speech. Is he aware that the current reappraisal by the Ministry of Defence includes not only looking at the option for putting the whole of the so-called defence school of music in one place, but at the prospect of the three different services remaining in different places as at present?

Mr. Hancock

I am sure that the hon. Member Twickenham is speaking in defence of his own constituency interest and I appreciate his argument. I am suggesting that if we cannot have the defence school of music then at least we should have the Royal Marines school of music, because I am sure that the Marines would welcome the opportunity to go to that area.

The Chairman of the Public Accounts Committee should look carefully at the Government's response to his report which was published in April. On page 14, paragraph 64 says: The Department has however instructed the Property Services Agency to invite the chief planning officer in each of the areas to consult the chairman of his planning committee informally about the prospect of development of surplus land. Despite the time that has elapsed and the obvious importance of that decision, no such consultation has taken place. Once again the appropriate questions have not been asked and the House is expected to believe that the issues were looked at fairly and squarely. I do not believe that, and I suggest that many other hon. Members share my view.

Mr. Terry Davis (Birmingham, Hodge Hill)

Is the hon. Gentleman telling the House that the chief planning officer in Portsmouth has not even heard from the Property Services Agency?

Mr. Hancock

I am saying that the chairman of the planning committee in Portsmouth told the chief executive and the leader of the council yesterday that he still had not been consulted about these propositions. I have no knowledge about whether the planning officer himself has been consulted because I was unable to contact him yesterday. I imagine that, if he had been asked, his first step would have been to accede to the instruction and consult his chairman and, in time, I am sure that the chairman would have consulted his members. No such consultation has taken place. I can only surmise, as I am sure many other hon. Members will do, that Deal is still the favourite son because of other reasons which have still to be brought out. In spite of its great efforts, the Public Accounts Committee, regrettably, has still not got to that important question.

An hon. Member asked whether it was part of the Committee's duty to look at the political implications, and went on to suggest that it had a role to check that political decisions were made for the best financial reasons. I suggest that if, at the end of the day, Deal is still chosen it will be chosen because of political expediency. The job of the Public Accounts Committee will be to find out why it is chosen when the financial reasoning behind such a decision falls so short of the Committee's expectations of getting value for money.

It has been said that it is a national scandal that £5 billion has been spent on developing a torpedo. Every hon. Member would agree with that. It is a national scandal that we, as a maritime nation with a long history of naval warfare, can spend such a sum of money over 25 years. What do we get at the end of it? I spoke to Marconi today and was informed, with great pride, that the Tigerfish fired at the moored HMS Lowestoft, with a single hit, managed to sink it in less than 17 minutes. [HON. MEMBERS: "It was stationary".] That was no mean feat after 25 years of development and considering the amount of money that had been spent. We should be grateful that the torpedo sunk HMS Lowestoft—albeit that it was stationary at the time and in calm water. Another successful test led to the sinking of a tethered submarine by a Sting Ray torpedo which was dropped from a Nimrod. The submarine was unable to avoid it, but none the less the torpedo did its job. We should be grateful that, after such expenditure, we have had two major successes. At last we have a tried and tested system—successful at hitting stationary, moored vessels.

It is easy to score silly points and make people laugh, but the serious question is why £5 billion has been squandered over 25 years. If we could cry over spilt milk, we would have already drowned in the Chamber today.

Successive Governments have allowed such spending to go on. Some Governments threw the towel in at a late stage and suggested that others could take control. It was only at a late stage that Marconi was given the opportunity of being its own master in the development of these torpedoes. I am proud to say that Marconi is convinced that it has the matter under control and that the systems it is engaged upon are now working well and will be effective as armaments needed to defend this country. It is working within time and within cost, and, in its opinion, it is bang on target.

We can only believe what we are told today. Surely the question to be asked is that raised by the hon. Member for Horsham (Sir P. Hordern) — why was it allowed to happen and drag on over such a long period? Successive Ministers of Defence could have stepped in and said, "Enough is enough." Why was the project not re-examined when we were told that an American torpedo was available, off the shelf, which could do the job that we wanted to be done, for half the price that we had already expended? Yet we continued to put good money after bad.

I wish Marconi well for the future. Many jobs in my constituency are tied up with Marconi and its developments. The PAC has a vital job to ensure that we never have a repetition of this situation. The roll-up procedure—the rolling on of policies over a three-year period — needs to be re-examined. Project analysis should be carried out to make sure that it is not cheaper to say no and start again from scratch rather than allow some projects to drag on.

I wish my colleagues well and I hope, at long last, that the Royal Navy has the weapons that it needs. I hope that the House will consider future similar projects carefully. This is a national scandal because that vast sum of money could have gone on many other much needed projects which are dear to hon. Members. Let us have the Royal Marines school of music at Eastney, if not the defence school of music, and let us give a proper lead in the way in which defence contracts are controlled.

7.55 pm

Mr. Michael Latham (Rutland and Melton)

I intend to follow most of the points which have just been made by the hon. Member for Portsmouth, South (Mr. Hancock).

One of the problems in a debate of this kind—apart from the fact that we are considering things which have occurred in the past—is that everybody starts by paying a tribute to everyone else and saying how hard they have worked. It can easily become a back-slapping operation. Nobody will pay more of a tribute than I do to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who does a marvellous job.

The point of this exercise is not just to say how hard we have all worked but to try to leave in the Minister's mind and those of his officials the fact that we do not want to hear the same things when we are back here again in 12 months. My hon. Friend the Member for Horsham (Sir P. Hordern) said that we tend to do just that. The hon. Member for Fife, Central (Mr. Hamilton), who served on the Committee for many years, must have heard these points being made over and over again—scandalous examples of waste, mismanagement and taxpayers' money going down the drain.

I shall deal first with the defence school of music. I am especially glad to see my hon. Friend the Member for Twickenham (Mr. Jessel) in the Chamber because he has worked so hard on this matter. My hon. Friend put a memorandum to the Committee and attended the meeting of the Committee when it took evidence on the matter. I listened to the discussions and took part in the questioning of the accounting officer, Sir Clive Whitmore. I have no axe to grind in the matter—none of the three places in question is in my constituency—and I began to wonder how we could possibly get into this extraordinary position. I do not think I have ever heard a worse performance before the Committee than that of the accounting officer, the permanent secretary. It was absolutely dreadful, not because he is not a brilliant man—of course he is—but because he had no satisfactory case to make.

I honestly thought that the Ministry of Defence had been making up the figures as it went along. It was only as a result of a question that I asked that the Ministry discovered that it had made a significant miscalculation in the figures it had given to the Committee. If that question had not been asked, perhaps we would have never known that the Ministry had made serious factual errors. That is all revealed in appendix 2 of the report. It is extraordinary that the Ministry could come before the Committee in that state.

We also had the important testimony of the Treasury officer of accounts, Mr. Judd. At the end of the discussion I asked: Mr. Judd, you have read the papers, you have heard all the evidence. Are the Treasury really happy with all these figures? Mr. Judd, an extremely honest and capable official, replied: No, I cannot say that we are happy with the figures shown in the paper. The proposition has never actually been put to us. It may need to be put to us if the expenditure remains as high as it appears to be now. At that stage we shall of course want to look at the figures which are then current as a result of the reappraisal that Sir Clive is telling you about. In questions 518 and 519 the permanent under-secretary admitted that the Property Services Agency, which is to an extent responsible for this ramshackle state of affairs, had not even decided whether it wanted a new building at Deal or to renovate the existing one. How could it possibly have done any costings on that basis with which it could appear before the Committee or before the House?

When such a state of affairs exists—when there are totally unsatisfactory costings which completely fall apart under examination by the National Audit Office and subsequently by the PAC — it reflects poorly on the Ministry. I hope that my hon. Friend on the Treasury Bench will make it absolutely clear that such a situation will never occur again, with figures of such an unsatisfactory nature being put to the National Audit Office.

The hon. Member for Portsmouth, South made a perfectly proper defence of the situation in his constituency, and I expect my hon. Friend the Member for Portsmouth, North (Mr. Griffiths), if he catches your eye, Mr. Deputy Speaker, will do the same. The Committee's job is not to judge between any of these sites or indeed to decide, as my hon. Friend the Member for Twickenham would doubtless say, that the situation should remain as it is. That would be a perfectly proper view for my hon. Friend to take in view of his constituency interest. We simply want the most cost-effective solution, and we have not yet seen any figures to give us any indication of what that might be.

There is a lot of merger mania in the Ministry of Defence. There are examples of that in my constituency and I have questions about it on today's Order Paper. The MOD wants to merge the Royal Army Veterinary Corps' dog training school with Royal Air Force Newton's operation. They are similar in the sense that they both employ dogs, but not in any other respect since the purposes and training of the dogs are completely different. I have referred that to the National Audit Office because I am not satisfied with the costings. I believe that they will fall apart when they are properly examined. I understand that an internal report has been prepared on this matter—I have not yet read it, but I have seen a copy of it—which suggests that the figures are far less satisfactory than they had originally appeared to be. One of the questions on the Order Paper this afternoon deals with that, but I have not yet had a response to it.

In another example from my constituency the MOD wants, in effect, to take substantial operations away from RAF North Luffenham and to move them to RAF Henlow. I shall need a great deal of convincing that the upfront expenditure, which is tremendously heavy, will be commensurate with the so-called gains from the merger. I strongly suspect that that will not be so, and I have already seen Ministers to tell them so. If the performance on the defence school of music is anything to judge by, the way in which these matters are worked out in the MOD is pathetic, and we must keep a careful watch on that.

Several hon. Members have addressed the important matter of torpedoes. This has been — I use the words "has been" in deference to my hon. Friend the Member for Portsmouth, North, who has twice intervened to point out that this is a past matter—a shameful story. If anybody is in any doubt about that, they should look at the back evidence of the transcripts in the report. I commend to the House the extremely informative question 2106 in which both the reply from Mr. Peters, the deputy accounting officer, and my question are heavily asterisked for exclusions. I state: The purpose of torpedoes, obviously, is to sink the enemy's warships but you have only ever used Tigerfish twice ^*** in the Falklands War. In the whole of its history it seems to me to have an absolutely appalling record. In the period June to September 1983 even then only ^*** per cent. of the weapon firings were successful. The question continues in the same vein.

I want to he satisfied on that matter. Marconi has put forward publicity saying that the corner has been turned.

I do not mix my metaphors in that regard because the torpedoes are supposed to work properly. If that is so, thank heavens for that. We must wish the company well in future. The PAC must ask how it can be that all that money has been wasted over so long when most of the time the programme was under the direct control of the MOD? I ask myself, who took responsibility, who was to blame and what happened to them? I suspect that the answer is that nobody took responsibility, nobody was found who was to blame and they got promoted.

Mr. Willie W. Hamilton

They are probably in the House of Lords.

Mr. Latham

They may, indeed, be in the House of Lords. That is the deficiency in our accountability system. The accounting officer changes, the Secretary of State changes and the Government change, but the impetus of the bureaucracy continues and increasing sums are wasted until at the end of the day we have spent £5,000 million on a torpedo the history of which I cannot relate because a whole load of asterisks delete what happened in the Falklands war.

Mr. Hamilton

The hon. Gentleman will concede that the PAC decides what will be sidelined and what not. Presumably he was a party to the sidelining about which he is complaining?

Mr. Latham

The hon. Gentleman must not misinterpret or misquote me. I am not complaining about the sidelining. It was agreed by the PAC. We were told that it was in the interests of national security and one must accept that. I am merely pointing out that there was sidelining. Those of us on the Committee know what was behind the sidelining. The Chairman said: Paragraph 2.4 is really quite an appalling paragraph; one of the worst that we have seen. Indeed it was. Members of the Committee know that that was an appalling position. We are glad to have assurances that matters are now improving and that Marconi has them under control.

The more I see of the Committee—I have served on it for only three years, unlike some others who have served longer — and the more I see of the work of the Comptroller and Auditor General and the National Audit Office, the more convinced I am that it is absolutely essential for the country. One thing about the NAO and, indeed, the reports of the PAC is that they set the fear of god into the mandarins in Whitehall. There is nothing that a permanent secretary less enjoys than appearing before the PAC to answer a ropey case, such as that of the defence school of music, and Parliament must capitalise on that. It should not really be necessary because we should get all that information from Ministers on the Floor of the House. However, it must be done by the detailed case work of the NAO and PAC, to which the NAO reports.

For many years, literally billions of pounds have been wasted, and that has come to light in the PAC's reports. When we return in 12 months I have no doubt that we shall talk about more deplorable situations because that happens all the time. The job of my hon. Friend the Minister is to ensure that there are a great many fewer such cases as the years go by.

8.6 pm

Mr. Willie W. Hamilton (Fife, Central)

It is a pleasure to follow the hon. Member for Rutland and Melton (Mr. Latham). When the PAC was dealing with the defence school of music I sat in and listened to his forthright condemnation of the position. The House and the country may look on him as a kindly inoffensive-looking hon. Member, but he is a brutal and fearsome interrogator. I would not like to be an accounting officer in any Department, knowing that he would cross-examine me. He is no mincer of words and he has a tongue like a whiplash. Long may he continue in the duties he is performing on behalf of taxpayers. I associate all the other members of the Committee with that.

My right hon. Friend the Member for Ashton-Under-Lyme (Mr. Sheldon), who is Chairman of the PAC, is too little appreciated by the House and the nation for the services that he and the Committee perform for taxpayers. When we talked about televising the House I thought that it would be better first to experiment with televising the PAC. At least it does not go on Cook's tours, but stays at Westminster and its work is all the more effective for that. All the other Select Committees wander round Japan, and, while they do not have many trips to Iceland, they are attracted to Miami and Hong Kong. The PAC remains here, which is partly why its reports are as damning as they are.

The hon. Gentleman speculated about what has happened to those responsible for the colossal waste of money. Nothing has happened to them. They have probably been promoted. There is a case for examining the possibility of surcharging Ministers and civil servants for their crass inefficiency, their crass negligence and their crass incompetence in the same way as we surcharge local councillors. Local councillors are surcharged and even suspended from holding public office for a period of years if they are discovered to be mis-spending public money, yet top, highly paid civil servants and Ministers go scot free although they have perpetrated extravagances which are peanuts compared with the sums that local councillors handle.

I shall not spend too much time on torpedos. Every hon. Member who has spoken has criticised Marconi. The hon. Member for Portsmouth, North (Mr. Griffiths) is in a minority of one in the House when he seeks to defend Marconi. For years, Marconi has enjoyed a dripping roast from the Ministry of Defence. Whatever its mistakes and whatever rubbish it may produce, it never loses a penny. It is never penalised for any wrong that it has done. The taxpayer foots the bill every time.

I was amused by the comments of the hon. Member for Rutland and Melton—I am glad that he has stayed—who was forthright about the torpedos. Remember that they will cost the taxpayer £5,000 million until the middle of the 1990s, at 1984 prices, so by that time the cost in cash terms will be substantially higher. That works out at about £400 per household in the United Kingdom for three torpedos—one little bit of our defence effort. The hon. Member for Rutland and Melton said that two of the shots were fired in the Falklands. They both missed, or were not fired in anger. The hon. Gentleman said in Question 2108 of the minutes of evidence: They certainly did not sink a ship. They cost £5,000 million and they missed.

The Government always lecture us about getting value for money. We spent all that taxpayers' money. I must say to my constituents, "You must put your hand in your pockets to defend the country from the wicked Soviet people. If we spend £5,000 million on three torpedos that do not work, that is too bad. That is the run of bad luck that we have had."

I wish to say a kindly word about the hon. Member for Horsham (Sir P. Hordern) in his absence, although it is invidious to single him out. The hon. Member for Scarborough (Sir. M. Shaw) has been a noble worker in the cause for many years on the Public Accounts Committee. The hon. Member for Horsham made a valid point that must be considered by the Government. When I was a member of the Public Accounts Committee, we talked about Sting Ray. The Committee adopted a chauvinistic attitude to supporting Marconi because it was a British firm. We did not wish to have much to do with the American mark 46 torpedo, even though it was half the cost. We were told that it did not do the job.

Mr. Peter Griffiths

That is right. It did not do the job.

Mr. Hamilton

What are our torpedoes doing? They are missing. The two which were fired in the Falklands did nothing. We have constantly talked about NATO cooperation in defence procurement. Britain simply can no longer afford to go it alone in the provision of such equipment. I do not know what good will come of this debate. I suspect not very much. That is the sad thing about such debates. We all get worked up, and if there was a Division tonight on the torpedo project there would be a massive vote against proceeding along this line. But there is no Division and we shall all be going home soon for the summer recess. The Government carefully time these debates at the fag end of a session on a Thursday night, with no vote, when they know that the House will be thinly attended and there will be no great headlines in the newspapers tomorrow about the £5,000 million paid for something which did not work. It will be about Gatting and the test match rather than about £5,000 million wasted.

Mr. Peter Griffiths

Would the hon. Gentleman not continually repeat that £5,000 million has been spent? Less than half that has been spent. That is the total cost of the complete programmes, and of the torpedoes that we shall get.

Mr. Hamilton

I was just about to make that point. I have just asked my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) whether there is a figure to show, if the clock was to stop now, how much taxpayers' money has already been taken. The figures I quoted were figures given in the Public Accounts Committee's report, which show that £5,000 million will be spent by the mid-1990s at 1984 prices. In question 2093, the hon. Member for Horsham asked: Can you tell us now what you think Sting Ray is going to cost the country altogether? The answer referred to the figure in appendix 1 on page 2 of a secret report, so I do not know what that figure is. The hon. Member for Horsham continued in Question 2095: Can you tell me what the original estimate was when the project was first started? Mr. Levene replied: I can take you back to May 1981 … The total cost of completion then was estimated at £920 million at 1980 prices. Mr. Levene expanded his answer. I wish the Hansard reporters to get this correct, because it is an astounding statement: We then come into the rather strange vagaries of Government accounting, to which I have started to become accustomed"— this was the great wizard boy, Mr. Levene, just beginning to get accustomed to the strange vagaries of Government accounting— where we are not in fact dealing entirely with real money. In other words—to try to simplify it—if the development cost was completed in 1981 and cost in real money terms £250 million, when we then uprate it to 1984–85 we get a figure of £602 million. This does not actually mean that it cost us £602 million, it means that if you bring all the cost levels up to the same level, in other words the 1985 level, you get a figure which was in real terms paid out at £250 million suddenly becoming £602 million. I have over-simplified it. There I had better leave it. The House will have gathered the gist of what he said. Mr. Levene said that Government accounting was so strange that he was only just beginning to grasp what it was all about. This is how we run our defence services.

The hon. Member for Horsham (Sir P. Hordern) talked about the colossal sums which defy the unerstanding of the ordinary citizen. It becomes meaningless to talk about thousands of millions of pounds. The hon. Gentleman said that, when we are dealing with that quantity of money, we must rapidly reach the stage when we should urgently re-examine our national priorities. That exercise is taking place in the Cabinet and in the Star Chamber, where the battle is being fought as to how we should decide on the level of public expenditure, and how much we should reduce it in order to cut taxation in the forthcoming Budget.

My right hon. Friend also mentioned the 14th report, on the control of nursing manpower. The cost of nursing and midwifery staff constitutes a high proportion of the National Health Service expenditure. The 1983–84 figures, quoted in the report, were £3.5 billion or 45 per cent. of the total staff costs, and 34 per cent. of the revenue expenditure of the NHS, excluding family practitioner services expenditure. In 1983, the total number of nurses and midwives was about 397,000 whole-time equivalents. The Government make great play of the fact that there has been a substantial increase in numbers since they took power, and I accept that there has been an increase. However, no one seems to know whether the overall number is too great or too small. The Government imply that, if the number of nurses is increased, the service must automatically improve. On the face of it, that might be a reasonable proposition, but no one knows whether that figure is too large or too small for present needs.

The issue is further complicated by the great regional variations, as the figures quoted by by right hon. Friend show. There is an enormous variation in the number of nurses per 100.000 of population between Oxford and one of the Thames areas. However, the difference between Oxford and Scotland is even greater. There are 696 nursing staff per 100,000 of population in the Oxford region, as compared with 1,100 in Scotland. There seems to be no simple reason for that. At any rate, no one in the Department could give simple or clear reasons for the disparities.

However, some points that emerge from the report must concern the Government, the House and the country. The Royal College of Nursing said that 35 per cent. of trainee nurses do not qualify. I have gone into the matter in some detail, and many reasons emerge as to why girls leave their training before completion or why they fail to qualify. Of the 65 per cent. who qualify, a high proportion leave the NHS after their expensive training. Again, there are many reasons for that, but there is no doubt that it means a considerable waste of public money.

Another undeniable fact is that demographic trends are likely to reduce the numbers of young women entering the nursing profession, which will mean that within a measurable period there will be a shortage of nurses in the Health Service. What comes across loud and clear from the report is that the Government's claim, that an overall increase in nursing staff provides unquestioned proof that the service is doing well, is far from the truth.

The community nursing services include district nurses, health visitors, midwives, community nursing for mentally ill and handicapped people, school nursing and other specialist nursing services. It is difficult to know whether, at any time or in any place, the numbers quoted are adequate or whether they are surplus to requirements. As long ago as 1972, the DHSS provided several yardsticks by which this might be measured. The general guide, although not a hard and fast rule, is one health visitor for every 4,300 people and one district nurse for every 2,500 to 4,000 people. Those yardsticks are still used. Had we used them in September 1983, 65 per cent. of all health authorities in England would have failed to meet the health visitor target, and 80 per cent. would have failed to meet the district nurse target.

When the DHSS was questioned about this, it took the view, and still does, that such complex problems are best left to the local health authorities, which are aware of the problems in their areas. That is a sensible proposition, and I do not complain about it.

In March 1985, the DHSS set up a review team to study the matter. Perhaps the Minister can tell us what progress has been made. A written answer was given to my hon. Friend the Member for Wolverhampton, North-East (Mrs. Short) relating to the membership of the review team. Can the Minister give us an idea as to the timetable for the review, and when the House can see the report?

The problems of community care, in numbers and expense, are daily becoming more acute. Since the Government now consider that the 1972 yardsticks are out-of-date and irrelevant, the DHSS should withdraw those guidelines—the Committee made this point—and make it clear that health authorities should not be hound by them. If the local health authorities are to control their problems, those 1972 yardsticks should be ignored, and if the Government are prepared to pay, they should get the staff if they can.

I have paid enough tributes to the PAC, but I shall make a final point on the Health Service generally, and this report in particular. The Committee, perhaps properly, does not see fit to go into the pay and conditions of nurses, doctors and other staff.

I suggest that it might examine the personnel memorandum PM(86)17 issued on behalf of the DHSS concerning Arrangements for remuneration and conditions of service of the new managers in the National Health Service. I need not labour the point too much, but all these general managers are now promised an incentive bonus which will be gauged by the speed with which they can close hospitals. That is one of the criteria laid down. Another is the speed with which they can get people out of hospital to community-based provision, which is what is happening now. Thousands of men and women, usually mental patients, are being discharged from mental hospital into the community apparently so that taxpayers' money can be saved by closing those hospitals, and the mentally ill or mentally disabled are then thrown on to the community, which simply does not have the staff, money or wherewithal to look after them. This is creating an increasingly serious problem. I think that the Public Accounts Committee would do well to have a good look at that new contractual agreement with the Department.

I end by quoting something that appeared in The London Standard only last Tuesday: A Government Minister has pledged more consultation with parents and relatives before homes and hospitals are closed and thousands of mentally ill people are 'dumped' in the community. That followed a lobby of Parliament by the National Society for Mentally Handicapped People in Residential Care and a meeting with Baroness Trumpington, the Minister responsible for services to the mentally handicapped. The chairman of that society said: We have stressed to the Minister that the possible closure programme is turning into a national scandal … Assurances she is receiving from health authorities that parents and relatives of mentally handicapped people are being consulted are just not true. Baroness Trumpington promised that she would go back and make sure that consultation would take place in the future before those patients are 'dumped' on the community.

I hope that the PAC will have another look at that, but above all keep up the excellent work that it has done, especially so far as torpedoes are concerned, and I wish the hon. Member for Rutland and Melton (Mr. Latham) good health, good fortune and increased vigour.

8.33 pm

Mr. Phillip Oppenheim (Amber Valley)

I want to talk about the sad, sorry and rather shabby case of Nexos, and I will do my utmost not to ramble on for half an hour or so.

I first came across Nexos when editing an information technology report in 1980. In 1982, I conducted investigations for that report into Nexos. More recently I am pleased to say that the sad subject of Nexos has been the subject of a Public Accounts Committee report.

What was Nexos? Nexos was set up by the last Labour Government as the United Kingdom answer to IBM—a fairly ambitious project, I think it would be agreed. Unfortunately, this rather ambitious project went bust ingloriously in 1982 at a cost to the taxpayer of close on £40 million. In between those two dates, expensive salesmen were head-hunted by an overpriced headhunting agency to run Nexos.

During its brief and inglorious career Nexos consistently succeeded in making substantially larger losses than its total turnover. Indeed, its most successful venture was in importing and distributing large amounts of Japanese-made office equipment. One of the biggest problems was that it concluded a series of totally untenable deals with other companies, usually involving its ending up buying expensive equipment through middlemen. In fact, Nexos was such a totally unmitigated disaster that most people in the information technology industry were amazed that it lasted as long as it did.

What were the main reasons that Nexos ended up such a disaster? First and foremost, I believe that the whole concept of an information technology company dreamed up by politicians and civil servants was almost inevitably doomed to failure from the word go. After all, if it had been a viable project, surely private industry would have done the job itself.

The second problem was that the National Enterprise Board insisted that Nexos make deals with NEB-backed companies. I will talk briefly about only three of these deals. First was the deal with Logica VTS to supply Nexos with word processors. Normally, if a company agrees to market another company's products, that company does not pay the producing company a fee for marketing those products. On the contrary, the producing company is almost invariably delighted that some company is actually there to market its products, but not so with Logica VTS and Nexos.

The NEB first made Logica VTS invest a sum of more than £1 million in Logica's development costs. There were no time limits imposed on Logica VTS as to how long it could take to produce the word processor. When it finally did so, far later than the initial estimate, the word processor did not at first work. It was an extraordinary state of affairs, and Nexos had absolutely no redress either from Logica or from the NEB.

A second agreement was made between another NEB-backed company, Systene, and Nexos. Again, the Systene computer that it was meant to be supplying to Nexos was late and did not work when it arrived. Fortunately, the Nexos management had included a clause in the contract insisting on substantial penalties if the Systene computer was not delivered on time. Unfortunately, the NEB stepped in and pevented Nexos from taking Systene to court to get damages from that company because, of course, Systene was another NEB-backed company.

Perhaps the worst of a pretty poor series of deals that Nexos had foisted on to it by the civil servants at the NEB was the deal with Muirhead Office Systems Limited. Through this deal, Muirhead was to act as a middleman to buy Japanese facs machines which Nexos was then forced to buy at an inflated price from Muirhead. In fact, Nexos could have gone to any one of a large number of Japanese facsimile machine manufacturers and bought similar—indeed better—machines at far cheaper prices, but, no, the NEB insisted that Nexos went to Muirhead Office Systems Limited and bought the machines from it, acting as a middleman importer of Japanese machines and insisted that it paid an inflated price for the facs machines. Nexos was clearly from the word go tied by the NEB into a series of ludicrous, untenable commercial deals.

The third reason for Nexos's problems was that almost invariably the deals were concluded on a totally uncommercial basis. One of the main tenets of the NEB deals seemed to be that almost invariably they were the cost-plus type of deal, quite uncommercial but typical, unfortunately, of the way that Governments operated in the 1970s.

The fourth reason why I believe Nexos went bust was because much of the management was totally incompetent. This led, for example, to vast over-ordering of equipment. At one point, the Nexos management ordered more facsimile machines from Muirhead than the whole of the British market could have absorbed in a year—clearly a poor commercial decision.

The fifth reason for the failure of Nexos involved muddled lines of communications and limited management control. One example of that will suffice. In 1981, when the Government were weighing up whether to wind up Nexos or to try to keep it going a little longer in the hope of finding a buyer, the Nexos management, realising the untenability and uncommercial nature of the deals into which it had been tied by the NEB, tried to contact the then Secretary of State for Industry to tell him that there was absolutely no point in committing further Government money to the company until the nature of those deals had been sorted out by the NEB.

Unfortunately, the NEB, in its wisdom, refused to pass on the management's views to the Secretary of State, and the Nexos management was eventually forced to send a message round by hand to the Secretary of State at the House. Unfortunately again, that message was ignored. I suppose that one's first reaction might be to blame the then Secretary of State for Industry, but I believe that he was blameless, and I shall say why.

The whole idea of asking a senior Minister, who is obviously extraordinarily busy, to act as a non-executive director of 30 or 40 hare-brained NEB companies is nonsense. We cannot expect Ministers and civil servants—most of whom have no business experience whatever—to make such judgments and decisions. Even if they had the time, they would not he qualified to make them. Sadly, the NEB, or the British Technology Group as it had by then become, could not even inter the corpse of Nexos in 1982–83 without making a series of monumental cock-ups and splashing around yet more public money with glorious abandon. When it became clear, in 1981–82, that Nexos simply could not survive, it was decided to sell off the company.

Heads of agreement were at one point signed with a major British office equipment company, Gestetner. However, unfortunately, the NEB decided at the last moment, after the heads of agreement had been signed, to pull out of the deal. It then decided to sell off various parts of Nexos to a variety of other organisations. The way that those divisions was sold off is beyond belief. For example, it gave the marketing rights for the Logica VTS word processor, which was by now working, back to Logica for nothing, even though Nexos has invested £1 million in Logica VTS to develop the word processor in the first place.

The marketing rights for the stock of Ricoh Japanese word processors were given to a consortium of ex-Nexos service engineers, although a far higher sum could have been raised by disposing of them openly on the market. Indeed, I understand that most of those word processors ended up unsold, rotting in a warehouse in Swindon. Finally, and possibly most amazingly, a stock of about 1,000 Japanese facsimile machines, over-ordered by Nexos from Muirhead Office Systems Limited—for which it had paid in excess of £1 million—was sold back to the middleman importer, Muirhead Office Systems Limited, for £1. Thus, 1,000 machines which were worth more than £1 million were sold for just £1. Muirhead said, "Thank you very much," and proceeded to sell off the machines for between £1,000 and £1,500 apiece.

As a final act of bureaucratic backside covering, the chairman of the BTG, as the NEB had by then become, totally denied that the sale had taken place and threatened legal action against anyone who said that it had. However, the PAC report revealed that that sale had taken place and that the machines were sold for £1.

What are the lessons to be learned from the Nexos fiasco? The obvious lesson is that civil servants and politicians cannot set up viable industries, and will inevitably end up wasting taxpayers' money if they try to do so. That is not to say that there is not some role for Government. This Government have led the world in their pump-priming help for the electronics industry and others, and in creating the conditions in which new businesses can spring up and prosper. But sadly that is not a lesson that has yet been taken on board by Opposition leaders.

I understand that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) has committed his party, if it ever gets back into government, to setting up not another NEB but, this time, a British enterprise board. Clearly the lessons of history have not been learnt in some quarters.

8.44 pm

Mr. Peter Griffiths (Portsmouth, North)

I am not an excitable man, and I do not often intervene in the speeches of other hon. Members. I prefer to let them say what they have to say and then to make my speech. The fact that I have intervened four times today should not be taken to mean that I am in any way critical of the PAC or of its members. Indeed, I pay tribute to them for the excellent work that they did over the defence school of music. As the hon. Member for Portsmouth, South (Mr. Hancock) pointed out, the Committee's report makes it crystal clear that, at each stage of the investigations into the costings for a defence school of music, Eastney was the cheapest option, and if it was decided not to go ahead with such a school but to retain separate service schools, the cheapest option for the Royal Marines was to leave unsatisfactory accommodation at Deal and to go to vacant accommodation at Eastney in Portsmouth.

As the hour is late, I shall not pursue that point, other than to make a suggestion, with due modesty, to the Committee. The Committee carefully examines the costings of programmes and the way in which they may have been overrun, but it may not always question those who offer the best estimates about the basis of them. For example, the report says that the Committee was told that the best estimate that the Ministry of Defence could offer was that the value of the site at Eastney, which had once been valued at £800,000, could be revalued at £5.5 million because of its improved development potential.

It would have been highly desirable if a member of that Committee had then asked who had said that, or who had provided those figures. As my colleague, the hon. Member for Portsmouth, South has said—he is a member of the district council — no one on the council will admit to having produced such figures. The only possible way that the figure of £5.5 million could have been reached is if, by some stretch of the imagination, the whole of the existing Royal Marines barracks, the parade ground and everything else had been cleared, and the whole thing had been available as a prime housing site overlooking the Solent. Only under those totally inconceivable conditions could that figure have been valid.

However, the cause of my great excitement today has been the 28th report of the PAC on the torpedo programme. When the programme was originally published, I became somewhat agitated. I pressed the Ministers responsible at the Ministry of Defence urgently to contact their colleagues in the Treasury so that there would be a vigorous Treasury response. There was a Treasury response; it was modestly vigorous, although nothing like as vigorous as I might have wished.

During my interventions today, I wanted to point out something. The date of the Committee's report is 15 July 1985. In other words, it was published a year ago. The Committee took evidence during the session 1984–85, so it must be a document of historical significance rather than of immediate significance for today, if the subject matter under consideration is a continuing programme. If, as in the sale of a particular company, an event took place in the past, comments today might be even more valid than those made two or three years ago. In the torpedo programme, the situation now is completely different from that when the report was made and published, and certainly different from that which existed when the evidence was being taken.

In my intervention to the hon. Member for Fife, Central (Mr. Hamilton) I made a point that I would like to have made as well to the hon. Member for Portsmouth, South, who fell into the same trap of saying that £5 billion had been spent. In fact, rather less than half that money has been spent. That £5 billion is the total cost of three programmes running through to the middle of the next decade providing us with the equipment that we need.

In any production programme, whether one is making torpedoes or sprockets, in the early days a great deal of money will be spent, but there will not be many torpedoes or sprockets. It is only at the end of the programme, when the production process is under way, that results are shown. Therefore, it is unfair to talk about £5 billion having been spent, and even worse to say that it has been wasted. At the end of the day, we shall have the weapons.

I accept that it can be argued that £5 billion is too much to be spent on three torpedoes. I do not know how one decides the appropriate amount. Torpedoes, in the terms used in this document, are nothing like those which members of the public tend to have in their minds when they think in such terms. They picture a world war 2 film, with torpedoes fired from submarines, or an old Swordfish airborne torpedo. None of these weapons bears any resemblance to those at all, and as one looks further through the programme from Tigerfish to Sting Ray and Spearfish, so the difference becomes ever greater. It is wrong to suggest that we are simply modestly updating something that already exists. It is equally wrong to suggest that there have been, or that there are, any American alternatives to the torpedoes that are discussed in this programme, and available in sufficient quantities when they are required and operationally successful.

The report is concerned with three torpedoes, of which the first is Tigerfish. This was the one that, at the end of its deliberations, the Committee felt was the greatest story of disaster. So it was, in its early days. The programme was begun and designed in house by the Ministry of Defence. When, in 1972, the Ministry could not produce a heavyweight torpedo, matters were passed on to Marconi. Marconi inherited not a programme but a project, together with a systems of subcontracting that was byzantine, involving, as the report points out, "several hundred contracts". Those contracts had been placed not by Marconi with firms with which it wanted to deal but by the Ministry of Defence, and left to Marconi. Even British Leyland, at its worst, with all its subcontracting in the west midlands, did not have to deal with 200 contractors that it did not choose itself. No one could run a programme satisfactorily in that way. It is a remarkable achievement that Marconi Underwater Systems has managed to produce a workable torpedo from this project.

We have already heard about the sinking of the Lowestoft, but I remind the House that before the exercise using the warhead against the Lowestoft, there was a fringe trial in an American range off Florida. Some 50 Tigerfish torpedoes were fired, of which 49 ran and targetted 100 per cent. successfully. I know that the Chamber is not full, but I challenge any hon. Member with knowledge of defence equipment to tell me of any existing torpedo of that complexity with a higher level of successful firing. That is evidence of what we have now. The sinking of the Lowestoft was merely an example of firepower. It was not intended to prove that one could hit a tethered ship.

The programme with which I have been involved the longest is that for the lightweight torpedo Sting Ray, which is dropped from a helicopter or aircraft. I took to see my hon. Friend the Minister a group of trade union representatives from Marconi, who were pressing for the adoption of Sting Ray. It is now a fully developed weapon. It bears no resemblance to the American airborne mark 46 torpedo. The American torpedo is less accurate, has a shorter range, is grossly noisy, is easily distracted by defences and does not have so powerful a warhead. I do not know at what point the comparison is being made with that torpedo, but it is a grossly unfair comparison.

There has also been reference to the sinking of a submarine by a Sting Ray. It is true that the submarine was stationary, but it was in shallow water, and an air drop into shallow water is the most difficult task that one can present such a torpedo. It was brilliantly successful.

Finally, there is the Spearfish. It is the largest of the projects and was only in the early stages of development when the Committee began its deliberations. The report says that the Committee did not know whether the torpedo will be on time. I put it on the record that, as from today, Spearfish is ahead of target and it is expected that the costs will be well within those budgeted for by the prime contractors.

I make such a fuss not because of the total cost of the torpedo programme but because the Committee spoke about overseas sales. At the moment, the United States navy, which does not have a heavy-weight torpedo, is looking around the world to find one. The prime contender, as my hon. Friend the Under-Secretary of State for Defence said only yesterday, is the Tigerfish. Why should we rubbish one of our products, which the Americans cannot match, just when they are considering it? It beggars belief that we should do so.

Sales of Sting Ray are also likely to be damaged if people continue to criticise the weapon using outdated evidence. There are potential sales in South America and Australasia, and actual sales in Asia. This is evidence of what can be done. There is no doubt that these programmes are successful, and will be successful.

Should there be any suggestion that any of the programmes should now be abandoned, the theory that there will be no employment implications is no longer true. If Sting Ray were to be abandoned now, that brand new plant at Neston would be valueless and the workers there would become unemployed. What may have been true a year ago, or two years ago, is no longer true. This country has a torpedo programme that has come to fruition. Marconi Underwater Systems has done this country proud. We should be grateful. It would be helpful if hon. Members did their best to ensure that we get overseas sales for our fine weapons, because that is the potential which is available to us now.

8.59 pm

Mr. Toby Jessel (Twickenham)

Neither you, Mr. Deputy Speaker, nor the House will be much surprised when I say that I intend to speak on the implications of the 11th report of the Public Accounts Committee for the defence school of music, so-called.

In just under three weeks British military bands will march through the streets of London on the joyous occasion of the wedding of HRH Prince Andrew and Miss Sarah Ferguson. Army bands will play, as they always do, a magnificent part in the glory and majesty of the royal procession. That procession will pass in Whitehall the splendid equestrian statue of HRH the Duke of Cambridge, the son of Queen Victoria, commander-in-chief of the British Army in the mid-19th century. He decided that the standard of British Army bands in the Crimean war was so abysmal that he would set up a band training scheme for the Army. He bought the country house which was formerly occupied by the great painter, Sir Godfrey Kneller, in Whitton, beside Twickenham, and there set up the Royal Military School of Music at Kneller hall, where it has flourished ever since for 128 years.

During that time Kneller hall has become the pride of Twickenham, the pride of the Army and the pride of Britain. The hands that are trained there are the envy of the world. In an Adjournment debate that I initiated on 25 October 1983 I said: They have a high standard of excellence. They lift the spirits of the nation. Who does not feel uplifted by the sight and sound of a British Army hand on one of our royal or state occasions? They are without doubt one of our finest traditions." —[Official Report, 25 October 1983; Vol. 47, c. 259.] In paragraphs 2 and 3 of appendix 1, in a memorandum that I sent to the Public Accounts Committee, I wrote: These exceptional standards, as part of the traditional British scene, help to attract visitors whose spending generates employment and income and yields tax to the Government. Thus the military, traditional, musical and sentiment aspects of Kneller Hall also confer some economic benefits, which cannot be measured, but which should not be overlooked by a financial committee. These assets should not be put at risk unless there is a substantial and certain cost saving with guaranteed upholding of standards. Yet that is what is at risk.

Two years ago, in July 1984, my right hon. Friend the Member for Henley (Mr. Heseltine) announced that Kneller hall would close. His announcement is contained in annex 1 of the 11th report of the Public Accounts Committee. It says: A period of consultation will now begin on plans to establish the new Defence School of Music at Deal, with an intended completion date there in about 1988". That decision, and the way in which it was taken, is the subject of the 11th report of the Public Accounts Committee.

It is a remarkable report. I pay tribute to the Committee, its Chairman, the hon. Members who served on it and its officers. I was deeply impressed when, on 4 December, as my hon. Friend the Member for Rutland and Melton (Mr. Latham) said, I witnessed the work of the Committee when it interviewed Sir Clive Whitmore, the accounting officer at the Ministry of Defence. I was deeply impressed by the penetrating questions that were put by the Chairman, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), by my hon. Friends the Members for Scarborough (Sir M. Shaw), for Rutland and Melton and for Uxbridge (Mr. Shersby) and by the hon. Member for Workington (Mr. Campbell-Savours). They had mastered a complicated subject matter.

Considering the huge work load that the Public Accounts Committee carries, it was a very impressive performance by the Committee. It was completely on the ball. Its report is very thorough. It seems to me that if it can produce reports of this kind the Public Accounts Committee is working just as the House and country would wish it to work.

The decision of my right hon. Friend the Member for Henley has aroused deep feeling in both my constituency and in neighbouring constituencies. Kneller hall is greatly cherished. As I said in the Army debate on 30 January, 5,000 people attend the best of the summer concerts, and 3,000 to 4,000 people attend the smaller ones. Those people are drawn from all over west London.

The band from Kneller hall performs at schools, for old people, on civic occasions and in local high streets for Christmas shopping crowds. Kneller hall itself is a listed building, standing on the only hill in the area, and flies the Union Jack. It is a profoundly British institution, part of our heritage, and people love it. It is not surprising that 18,679 people from my constituency and neighbouring ones signed a petition that I presented, first to the Prime Minister in January, and then to the Secretary of State in March.

Nor is it surprising that the views of people in west London were echoed by right hon. and hon. Members when no fewer than 164 Conservative Members signed early-day motion 397, which refers to the excellent report of the PAC and expresses the hope that band training will long continue to flourish at Kneller Hall, Twickenham for the Army, and for the Royal Marines at Deal and the Royal Air Force at Uxbridge.

The views of the House and of residents of west London were endorsed in a debate in the House of Lords on 5 February, when five peers—Earl Cathcart, Lord Mulley, the Earl of Cork and Orrery, Lord Westbury and Lord Graham spoke strongly in favour of retaining Kneller hall as the Royal Military School of Music. No one spoke against that, although Lord Trefgarne, who replied for the Government, spoke in somewhat guarded terms—

Sir Michael Shaw

Surprise, surprise.

Mr. Jessel

Quite, but I always want to be polite—even about those with whom I disagree.

Kneller hall is greatly beloved of the Army and respected in the music world. The great conductor Sir Charles Groves, who recently was a guest conductor at Kneller hall, is a stalwart supporter.

The PAC said in paragraph 19 of its report: We are gravely disquieted that the MOD should have decided on a DSM at Deal, which could have entailed expenditure of around £10 million, and would inevitably cause considerable disruption to the present arrangements for training Service musicians, before carrying out a full investment appraisal. It then said in paragraph 22: we have no confidence that the appraisals carried out to date provide justification for the MOD's decision. In this connection we welcome the Treasury's firm statement that they are not happy with the MOD's figures. We trust that they will scrutinise any MOD submissions on this subject very closely. Following the publication of that report, I wrote to the Chief Secretary to the Treasury drawing his attention to that passage. I asked him to confirm that the Treasury will continue to make its views known to the MOD. He replied on 6 March: I can, therefore, assure you that the Treasury views will most certainly be made known and that the request in paragraph 26(iv) of the PAC report will be met. The decision of my right hon. Friend the Member for Henley was not only unsound financially, as the PAC report shows, but lacked sentiment and soul. He failed to allow for the strength of feeling in Whitton, Twickenham and the whole of west London. The reappraisal deals with costs, but I hope that the Government, having originally ignored costs, will not make the opposite error of assuming that costs are the only factor. It should consider not only costs, but the strength of feeling to which I have referred.

The importance of Kneller hall is not confined to Twickenham and neigbouring constituencies. It is of importance to the entire country, which values the high standards of military bands. I hope profoundly that my right hon. Friend the Secretary of State for Defence will decide to save Kneller hall not merely for the next three years, which is what has been decided so far, but thereafter to save it permanently, so that for generations to come the glorious sounds of the finest military bands in the world will continue to reverberate throughout the nation.

9.10 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

As usual, our annual debate about the work of the Public Accounts Committee has been poorly attended. Unusually, we have heard several contributions this afternoon and evening from hon. Members who are not members of the Committee. I cannot remember hearing so many stimulating and interesting speeches from hon. Members on both sides of the House who are not members of the Committee on matters about which they have special knowledge, either for constituency reasons or, in the case of the hon. Member for Amber Valley (Mr. Oppenheim), for reasons that attach to previous work before coming to this place. The debate has been especially stimulating and interesting for that reason.

A regular feature of this annual debate are the tributes which are paid by hon. Members on both sides of the House to the Chairman and members of the PAC. It is not a matter of ritual to reiterate our appreciation. The fact is that they undertake work which is often unpublicised, and which is certainly unglamorous. It is especially important, however, as the Committee acts as the watchdog of the House over Government Departments. I associate myself with the tributes which have been paid to the members of the Committee, and especially those directed to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon).

As my right hon. Friend explained, the work of the Comptroller and Auditor General and the National Audit Office has several facets. First, it is intended to prevent corruption, and it is fair to say that there is nothing in the reports before us that identifies corruption. Secondly, their work is designed to seek to obtain value for money. It was disturbing when my right hon. Friend the Member for Ashton-under-Lyne told the House that the NAO has been able to devote only one third of its time, instead of one half, to projects involving the test of value for money, as distinct from ensuring that the accounts are accurate. I hope that the NAO will be assisted by the Government to recruit enough staff to change the present imbalance.

It is a fact that the PAC, assisted by the Comptroller and Auditor General and his staff, has found much inefficiency in several Government Departments. We must all be concerned about what has been uncovered. My hon. Friend the Member for Coventry, North-East (Mr. Park) said that the PAC has identified many instances where money has been wasted. I suppose that the most serious allegations, at least in scale, have concerned the torpedo programme. We have been told that the programme will cost £5 billion by the mid-1990s, and my right hon. Friend the Member for Ashton-under-Lyne asked what we shall get for that expenditure. The relevant report tells us that we have obtained "poor value for money". Those are the precise words that appear in the report.

The hon. Member for Horsham (Sir P. Hordern), who has great experience in these matters, told the House that in his opinion it was the largest single waste of money that he has ever seen. I regard that charge as being extremely serious. The hon. Gentleman asked, for example, whether we should continue to bear the burden of the programme. The truth is that we do not know how much money has been spent or wasted on it. As I have said, the total cost will amount to £5 billion by the mid-1990s, and the hon. Member for Portsmouth, North (Mr. Griffiths) told us that less than £5 billion has been spent at present. I think he said that half that amount has been expended.

However, we do not know exactly how much has been spent, let alone how much has been wasted. This information has been blanked out in the PAC's report. I refer especially to the answer to question 2108 from the hon. Member for Rutland and Melton (Mr. Latham). The question was asked and an answer was received. The Members of the PAC may have that information, but the rest of us are not aware how much money has been spent on the programme.

Only the hon. Member for Portsmouth, North seemed to disagree with the suggestion that the torpedoes do not work. However, not even he tried to suggest that all the money had been spent wisely and nothing had been wasted. He seemed to accept that there were grounds for criticising the Ministry of Defence, if not Marconi. What has happened to civil servants in the Ministry of Defence who are responsible for what the hon. Member for Horsham described as the largest single waste of money he has ever seen? That is a serious matter. Ministers have changed from time to time, but the waste of money has continued under Governments of both political parties. However, civil servants do not change that often. The question must be asked: what is being done about those civil servants who are responsible for waste of money on that scale?

The hon. Member for Amber Valley dealt in some detail with Nexos. I thought that his contribution was interesting. There is a lot to learn from his experience and comments about the reasons for the failure of Nexos, even though I would not agree with the hon. Gentleman's political views. He agreed that there had been incompetent management at Nexos. He said that the National Enterprise Board had been largely responsible for insisting that Nexos should make a series of poor deals with other NEB-backed companies. He also told us that a large measure of responsibility rested with the NEB.

The hon. Gentleman drew the conclusion that no Government, no politician and no civil servant should ever attempt to set up new companies or new industries. That is where I part company with the hon. Gentleman. On that basis, no industrialist or business man would ever set up a new company or industry, because it is not unknown for business men, industrialists or merchant bankers to make mistakes and to have failures. I disagree most strongly with the hon. Gentleman's conclusion, but I am concerned about some of the information that he put before the House.

It seemed, from what the hon. Gentleman said, that there were grounds for criticising the civil servants at the National Enterprise Board who were responsible for dealing with Nexos, and perhaps those in the Department of Trade and Industry. That also came from the report of the Public Accounts Committee. The people at the top of the company lost their jobs. From what we have read between the lines of the report from the Public Accounts Committee, I suspect that many people employed at Nexos also lost their jobs when it was wound up and split up. But what happened to the civil servants who were partly responsible for that failure—those who decided to "drip feed" Nexos, as the Public Accounts Committee put it? What has been done as a result of those examples of inefficiency in the Civil Service?

The hon. Member for Scarborough (Sir M. Shaw) made two other points about the Nexos report. First, the hon. Gentleman argued that there were grounds for criticism of the relationship between the Government and Government-appointed non-executive directors on the Nexos board. Similarly, he said that there were lessons to be learnt from the contents of the report on nominee directors — an investigation which arose from the De Lorean case.

It is clear from the Treasury response to the Public Accounts Committee report, and from the contribution of my right hon. Friend the Member for Ashton-under-Lyne, that the Government have responded by issuing a new guidance to nominee directors as a result of the PAC report. It is interesting to see in the report that many of those nominee directors are former civil servants. I hope that those civil servants responsible for the torpedo project and Nexos have not been appointed nominee directors by any of those NDPBs.

But what about the other directors? As I understand it from the report introduced this evening by my right hon. Friend the Member for Ashton-under-Lyne, the directors of British Leyland and Rolls-Royce are not included on the list of nominee directors. The Treasury seems to regard them as special directors, for reasons which I do not understand, although I have read the report several times.

The Government have a shareholding of nearly 100 per cent. in both British Leyland and Rolls-Royce. What guidance is given to the directors? We are told, it seems that the directors are appointed by a self-perpetuating elite. The chairman of BL, the chairman of Rolls-Royce and existing directors scout about for people they think will be good, congenial directors, and then make recommendations to the shareholders—the Government — for endorsement at some annual general meeting. That is not good enough.

I hope that at some time in the future the Public Accounts Committee will go on to consider the relationship between the Government and those directors who are not covered by the report about nominee directors. What are the duties and responsibilities of these other directors who deal with much bigger companies and enterprises in important industries compared with the directors who are the subject of the report? What is the relationship between those directors and the Department of Trade and Industry? We should be told.

The hon. Member for Scarborough made a second point in relation to the Nexos report. He argued, rightly, that political considerations had been involved in the decision to establish Nexos and that political lessons should be learnt from that experience. Again, the lessons will vary according to one's political views.

The Nexos report is not the only one that we need to read with political views in mind. As my hon. Friend the Member for Coventry, North-East made clear, political considerations were involved in the way in which the sale of Government shareholdings in British Telecom was handled. That sale was strongly criticised by my right hon. Friend the Member for Ashton-under-Lyne, who asked why there was such a rush to sell everything at once, because that was bound to depress the price and affect the income received by the taxpayers through the Government. My right hon. Friend argued that the Government had not received as much money as they could have done from the sale, and that the taxpayers had lost. He asked several times: why was there a rush? The answer — which perhaps we should not expect the Chairman of the PAC to give us—is "political reasons". The Government had to rush through the sale of BT to finance their deficit. The whole of the Government's strategy on public expenditure and income is based on the sale of assets. The Government rushed the sale — regardless of getting the best possible price for BT—for political reasons.

That brings me to the report on the proposed defence school of music, the implications of which are the most disturbing of all these reports. The hon. Member for Twickenham (Mr. Jessel) questioned the fundamental decision on the amalgamation of three existing schools of music. I think that he will be pleased to learn that the Treasury has agreed that that fundamental decision will be reviewed. It has said also that there will be other investigations, reconsiderations and reappraisals of the economics of where the merged school will be located.

My right hon. Friend the Member for Ashton-under-Lyne told us that if there was to be a merger of those schools of music, it was clear that Eastney was the best site and that Deal was less suitable and more expensive than Eastney. Then why was Deal chosen as a site by the Ministry of Defence? The hon. Member for Rutland and Melton told us that the paper was the "least convincing" one he had seen in all his time on the PAC.

The hon. Member for Scarborough went as far, or further, in the examination of Sir Clive Whitmore. It is important to put on record what the hon. Gentleman said: Reading this document one gets the clear impression, which has been borne out by your answers so far, that the decisions were not made on financial grounds and that after the decisions had been made, then a financial investigation was carried out in the hope that perhaps the decision already taken could be justified. Having read that report, I think that the way in which the hon. Gentleman put that point was justified. That is the impression one gets from the wriggling that went on in trying to answer the Committee's questions.

The PAC concluded that it viewed the decision with "grave disquiet". It reminded me of some of the decisions I saw when I worked as an auditor. Decisions were taken for non-commercial reasons and then an economic justification was prepared. Not surprisingly, the results did not match the economic justification, and eventually the chickens came home to roost. If people had said at the beginning that they were taking the decision for noncommercial reasons, there would have been much less criticism and no blame would have been attached to it.

It sounds as though this decision may be more serious. The hon. Member for Portsmouth, South (Mr. Hancock) made a series of serious allegations, and there are some serious points to be answered by the Financial Secretary, or perhaps by the Government on a later occasion.

The question is whether the decision was taken for political reasons. My right hon. Friend the Member for Ashton-under-Lyne told the House that Deal was included on the list only as a result of representations by the right hon. and learned Member for Dover (Mr. Rees) who, at the time, was Chief Secretary to the Treasury. But the question raised by the allegations of the hon. Member for Portsmouth, South is whether there might be some other reason for the decision having been taken — a reason which would be regarded by everyone in the House as being even more serious. I am not clear how we will he assured that there has not been an example of the sort of corruption that we all fear to find in the public service. The Financial Secretary owes the House a statement on how the Government intend to proceed to ensure that the public interest has not been betrayed.

It is clear from the report that both inefficiency and political considerations have been involved in the control of nursing manpower. My right hon. Friend the Member for Ashton-under-Lyne and my hon. Friends the Members for Coventry, North-East and for Fife, Central (Mr. Hamilton) fastened on to that report and explained how the Department of Health and Social Security imposed centralised controls over the numbers of staff being employed in the National Health Service without knowing whether the right numbers of nurses were being employed in the first place and, indeed, without knowing whether they needed to increase the number of nurses. Obviously that is a matter of political consideration. It is clear that, by any managerial test, it was a grossly inefficient decision to take.

I end on a point with which I began. The prospect of an examination by the hon. Member for Rutland and Melton may frighten permanent secretaries, as my hon. Friend the Member for Fife, Central suggested. The reports of the Public Accounts Committee may be as damning as my hon. Friend called them. However, as my hon. Friend asked, what has happened to the people who were responsible for this waste of money? What happened as a result of the 1980 report by the Public Accounts Committee on the torpedo programme? What has happened as a result of the latest report published a year ago? We should be told whether civil servants are expected to be accountable for their inefficiency.

9.27 pm

The Financial Secretary to the Treasury (Mr. Norman Lamont)

I have to confess that this is the first time that I have had the pleasure of attending a debate on reports of the Public Accounts Committee. I am slightly embarrassed to make that admission, because it is only a few months ago that I was standing here admitting that it was the first time that I had attended a debate on the Army. The response then was much the same as it is now. I thought that I should make that admission before going on to make any ritual noises about how sad it is that more hon. Members have not joined in the debate. However, I agree with the hon. Member for Birmingham, Hodge Hill (Mr. Davies) that one of the interesting things about the debate is the number of Members who are not members of the Public Accounts Committee who have participated and contributed to the debate.

I now find, rather suddenly, that I am a member of the Public Accounts Committee. I thank the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for writing to me no less, and inviting me to attend the sessions of the Public Accounts Committee. As a good Conservative I have sought precedents in this matter, and I believe that that has not happened much in the past. I shall certainly bear his kind invitation in mind.

Being a stranger to these debates, I was somewhat puzzled when, as the right hon. Member for Ashton-under-Lyne was finishing his speech, the Chamber filled up with about 50 hon. Members, all of whom appeared deeply concerned about the defence school of music. I found it a puzzling phenomenon. However, it later became clear why they had arrived.

Even if I have not attended these debates before, as a Minister I am certainly extremely aware, and have always been aware, of the effectiveness of the Public Accounts Committee and of the importance of its recommendations. I can certainly say to the right hon. Member for Ashton-under-Lyne that its recommendations have a considerable impact on Departments and Ministers.

My hon. Friend the Member for Rutland and Melton (Mr. Latham) said that the Public Accounts Committee struck terror only into mandarins. I can assure him that it strikes terror not only into mandarins. It has a far wider impact than that.

My hon. Friend made an outstanding speech. I think that everybody who was here to hear it will agree with that. We became a little alarmed at the force of my hon. Friend's attack on back slapping. I thought that he was going to go in for a bit of back stabbing, instead of back slapping, such was the vitriol of his attack. I became a little alarmed about the friendship that seemed to be growing up between the hon. Member for Fife, Central (Mr. Hamilton) and my hon. Friend. It seemed as though, in his mellowing and ripening years, he felt that he had found a good successor on the Public Accounts Committee, but I can assure the hon. Member for Fife, Central that, having known my hon. Friend for some 25 years, despite his acid remarks, he is a very nice person, although he is an effective member of the Public Accounts Committee.

I think that everybody is agreed that the function of the Public Accounts Committee is of enormous importance. Obviously it is a matter of public interest that the influence and scope of the Committee should be increased, as it has been increasing. There is one measure, which perhaps is not adequate, of how that has been happening, and that is the number of reports coming from the Committee. In the current session the Committee has already passed the 1984–85 total of 38 reports. Of course, it is not just the quantity of reports that matters, but it shows that the area of accountability and the ability of the Committee, supported by the National Audit Office, has been widening, which is a welcome development.

As a newcomer to the debate, I pay tribute to the right hon. Member for Ashton-under-Lyne for his work as Chairman of the Committee. Even in the short time that I have been in the Treasury, seeing the paperwork, and having access to all the papers that go before the Committee, I know that it is a demanding job, and that it is one to which the right hon. Gentleman has given an enormous amount of care and dedicated attention. The House is very much in debt to him for the way in which he has done that.

The dilemma for a person in my position responding to the debate is normally the difficulty of having to reply to so many different subjects with which the Financial Secretary is unconnected. Perhaps my problem is different. I am slightly embarrassed at the extent to which I have been in the Departments that are connected with the reports. I am relieved to say that, as far as I can see, in none of them have I had direct, intimate and immediate involvement, but I have been skirmishing around them.

Two defence subjects have been raised in the debate. One is simple and one is complicated. The simple one is torpedoes and the complicated one is the defence school of music. I feel that I have been extremely close to that, first by being in the Ministry of Defence, and secondly by being a parliamentary neighbour of my hon. Friend the Member for Twickenham (Mr. Jessel).

This may be only the 11th report, but it must be at least my hon. Friend's 12th speech on the defence school of music. I pay tribute to the tremendous campaign and assiduity of my hon. Friend in his determination to see the school in his constituency retained. Although I am his neighbour, I confess that I have never had the pleasure of visiting the Kneller hall school of music. Alas, I have found that in public life it is sometimes necessary to angle, even in public, for invitations, and I look forward—

Mr. Jessel

My right hon. Friend will be extremely welcome to visit Kneller hall, provided that the Government take the right decision.

Mr. Lamont

That seems to be a somewhat conditional response. It does not fit very well with my hon. Friend's normally very generous, open and spontaneous nature.

I agree with the hon. Member for Hodge Hill that serious issues have been raised in the report and in the debate. The central and obvious point is that the Government have accepted the Committee's recommendations and taken its points extremely seriously. Because of that, the decision is being reconsidered and a fresh and full evaluation of the best way to proceed is now being undertaken. As my hon. Friend the Member for Twickenham stressed, that evaluation, which includes the use of professional accountants outside the Department, will include the option of leaving the present schools where they are. I can assure my hon. Friend that the Treasury will have to be satisfied about the finances of the chosen solution. The reassessment is not yet completed, but my right hon. Friend the Secretary of State for Defence will announce the decision as soon as possible.

The hon. Member for Portsmouth, South (Mr. Hancock) raised a serious point. I do not think that the hon. Member for Hodge Hill chose to follow that up, but he would agree that that point was serious. The hon. Member for Portsmouth, South asked whether there had been contact with Portsmouth council about the valuation of the land. It was made clear in Sir Clive Whitmore's evidence to the Committee, on page 11 of the report, that the PSA had been asked by the MOD and had informally consulted city council officials. That is, it had consulted not members of the council, but city council officials. That is what happened.

The hon. Member for Portsmouth, South—who has explained the reasons for his absence from the Chamber to me—referred to the differential unemployment rate. It is true to say that unemployment in Deal was higher than in Eastney, although not higher than in Portsmouth as a whole. The hon. Member for Hodge Hill asked why Deal was chosen. As I understand the position, when the former Secretary of State considered the matter, one of the factors that he took into consideration was the number of defence establishments in the Southampton-Portsmouth area. That is one of the reasons why he wanted to look elsewhere and why, with his well-known passion for devolution and regional development, he wanted to look for a site in the north of England. However, when no suitable site could be found there, the decision was made in favour of Deal.

The employment position was considered, on the ground that although the investment appraisal favoured Eastney, it was only just so. My right hon. Friend the former Secretary of State felt that when one took into account the employment position, the balance was swung in favour of Deal.

Mr. Terry Davis

As the Financial Secretary to the Treasury appears to have concluded his remarks about that report, may I press him further on that point? I did not choose to pursue the issue raised by the hon. Member for Portsmouth, South (Mr. Hancock), as the Financial Secretary said. I do not have the intimate knowledge of that subject that the hon. Member for Portsmouth, South has. However, he made several allegations about the dubious nature of the valuation of land, and that was endorsed by the hon. Member for Portsmouth, North. The hon. Gentleman questioned whether anyone had given misinformation about the value of the land. He also commented on what had not happened since the Treasury minute was issued.

The whole thing leaves a lingering smell. I am not criticising the right hon. and learned Member for Dover (Mr. Rees). Even the former Chief Secretary to the Treasury is entitled to press his constituency interests, but the House should be assured that there is nothing more serious here at a lower level in some branches of the Civil Service. I am not saying that there was any truth in the allegations, but they were serious and should be investigated. We cannot leave the matter in this way.

Mr. Lamont

I shall certainly follow up other things that were said by the hon. Member for Portsmouth, South. I felt it right to comment on some of the things that he said even though the hon. Member for Hodge Hill had not pressed them, because I felt they were important. I hope that no aspersions will be cast on the actions or motives of my right hon. and learned Friend the Member for Dover (Mr. Rees). I know that the hon. Member for Birmingham, Hodge Hill did not do that. I knew that I would be responding to this debate, and when I inquired, one of the things that I was told immediately was that when my right hon. and learned Friend the Member for Dover was Chief Secretary he asked that he should play no part in the Treasury on any decisions taken on this matter, because he wished to be free to press his constituency interests.

Mr. Terry Davis

I have already made it clear that I am not raising any questions about the former Chief Secretary, for whom I have a high personal regard. The allegations made by the hon. Member for Portsmouth, South deserve to be answered. They cannot be answered now from the Dispatch Box by the Minister, who had no notice of those questions, and I do not expect him to deal with them now. I am asking him for an assurance that those allegations will be investigated by the appropriate people.

Mr. Lamont

I had hoped and thought that I had given that impression. If I did not, I now give the undertaking that I will look into the matters.

I shall now move from the subject of the defence school of music to another subject that was raised by the right hon. Member for Ashton-under-Lyne and by the hon. Member for Coventry, North-East (Mr. Park). I think that it was also touched on by my hon. Friend the Member for Scarborough (Sir M. Shaw) when he talked about Nexos. It is the whole question of nominee directors, which has arisen out of a few cases. I say a few, but that is not to say that they are not important cases, because they include the De Lorean case and the Nexos case, in which the argument has been advanced that where the taxpayer is investing money it is right that he should be represented by nominee directors.

As the right hon. Member for Ashton-under-Lyne said, we have issued a revised and expanded guidance note on the appointment of nominee directors. Copies of that were sent to the Committee. I am sorry that the right hon. Gentleman received one only today. I understood that it was sent yesterday, and while I appreciate that that is short notice, I had a choice of either sending it at short notice or delaying it until after this debate and opting for a comfortable life. I thought that it was a good thing that it should be available for the benefit of the Committee. I hope that when the right hon. Gentleman has had an opportunity to study the note in greater detail he will find that it meets many of the anxieties put forward by the Committee.

The prime responsibility for appraising projects and for monitoring lies with the sponsoring Department, the agencies or the non-departmental public bodies concerned. One has to strike a balance between commercial freedom and accountability. The guidelines we have issued do not mean that the funds invested in a commercial business will always be protected by a nominee director. The Department or the non-departmental public body will have to consider in each case whether the appointment of a nominee director is appropriate, bearing in mind the size and nature of the investment. The guidance note draws a distinction between large listed companies, where perhaps the Government have a residual shareholding following privatisation, and companies which are having funds invested in pursuit of regional or inward investment policies or for selective assistance.

In the former case — residual shareholding in the large company — detailed monitoring is not usually required. The role of the nominee director in such a company is to keep a general eye on the value of the Government's investments. He may be concerned with things like the golden share. Careful monitoring is certainly required when it comes to companies where money has been invested in pursuit of regional or inward investment policies. In this case the nominee director may be required to strengthen the board and to provide certain skills.

The hon. Member for Walthamstow (Mr. Deakins) put his finger on one of the points of concern to the Committee. The director of a company, as we are all aware, cannot just represent an interest, and a nominee director has the same responsibilities as any other director of a company. The problem that we face is how to reconcile what the PAC wants with the obligations that are placed by law on directors. We have reached the conclusion that, where assistance is provided, there should be agreement between the company and the Government, agency or sponsoring Department about the degree of monitoring and the freedom of the director to report back.

The hon. Gentleman asked whether companies would be free to decide not to accept the financial assistance offered on such terms. The answer is yes. People will be asked whether they wish to accept the terms on which this monitoring will take place.

My hon. Friend the Member for Scarborough identified the problem of a conflict of interests. I agree that one can have a conflict of interest if a director is the person responsible for deciding on assistance within a Department or within a Government agency. That is not a desirable situation, and in my view it should only occur exceptionally. When such conflicts arise, we intend that the appointment should require the agreement of the permanent secretary as well.

Another question which has been raised in the debate concerns nursing manpower and whether there is a formula for the right number of nurses for a complex organisation such as the National Health Service. The Government believe that this is a matter for the health authorities in the context of their own needs and strategies. When one reflects on the problem, one realises the degree of nursing for a given standard of medical care can vary in different parts of the country, because of morbidity rates, the pattern of services and the cluster of mental illness and mental handicap hospitals in certain areas. The sheer mathematics of a formula for the entire country does not make a great deal of sense.

It is right, however, that within a region there should be a formula, and one ought to be able to make an assessment within each region. A short time ago we did not have a formula in any region for making an assessment of the right number of nurses. Although we have not reached the position whereby each regional health authority has such a formula, we are moving to the situation where most of the health authorities have one or are planning to adopt one. That is the way the Government see it, rather than having an overall formula for the country.

The hon. Member for Fife, Central asked when the Cumberlege report would be available. I am afraid that the only information that I have is that it will be available later this year. I shall find out whether I can get anything more precise, and if so I shall communicate it to the hon. Gentleman.

A certain amount of time was taken up with the privatisation of British Telecom. A question was raised concerning the basis for the accounts and why we have moved from current cost accounting to historic cost accounting prior to privatisation. I am sure that many hon. Members will recognise that there are strong reasons why one needs to have current cost accounting in nationalised industries, where often there is heavy investment in old assets. In contrast, current cost accounting has not been generally adopted by the private sector. The policy that we followed at the time of privatisation was to have accounts on both bases available because we were aware that investors would want to have the type of accounts that are most commonly used in the private sector.

The right hon. Member for Ashton-under-Lyne asked whether we could not have accomplished the sale of equity on a bit-by-bit basis. I was not sure whether he was not advocating drip feeding of the type condemned when applied to Nexos. We have looked at the matter, but phasing of sales is not favoured because, leaving aside the fact that the political objective of privatisation would not be achieved, there is a problem of the overhang of the stock on the market.

The right hon. Gentleman contrasted the position of the gilts market with that of the equity market on privatisation. With respect, there is a difference between the two markets. Although it would be a simplification to say that gilts are much alike and although it would be wrong to say that there is no room for relative price movements, it is a fact that the overhang of stock in one particular company tends to have an effect on the prices of that one company rather than on the wider market, which is the effect of a tap stock on the gilt market. The effect of phasing would have been adverse on the price.

The hon. Member for Coventry, North-East talked about the terms of privatisation, the fat cats in the City and the commissions that are being earned. Sometimes one hears that the Government are driving a hard bargain on commissions and privatisation. Following the British Telecom sales there have been some secondary sales, including Cable and Wireless, British Aerospace and Britoil, in which the commissions have certainly been lower than those negotiated for BT.

We want to negotiate a good price and the best and keenest commission that we can possibly get, but the BT sale was the biggest share offering ever, and when arguing over commissions we had to bear in mind the natural anxiety about whether the issue of the share could be guaranteed to be a success. Obviously that was a major factor in the negotiations of the commission.

The hon. Members for Fife, Central, for Hodge Hill and for Portsmouth, South and my hon. Friends the Members for Portsmouth, North (Mr. Griffiths) and for Rutland and Melton rightly talked about the torpedo programme. No one could disagree with the general dismay at the problems that have been encountered in the development of Tigerfish, and no one could quarrel with the fact that it has been expensive and that there has been a long delay. It is the function of the PAC to identify that and to investigate why it has happened. But I agree a little with my hon. Friend the Member for Portsmouth, North. We must identify the cost overruns and where things have gone wrong, but it is wrong to imply, even if a project has had cost overruns and things have gone wrong, that a weapons system which we are desperately anxious to export is not working when it is working. The hon. Member for Portsmouth, South went somewhat far in his condemnation of the Tigerfish torpedo. It has been successfully tested and the Royal Navy has professed itself well satisfied with the results of the test.

The hon. Gentleman seemed to think it rather odd that a torpedo should be tested on a stationary ship. I am not sure what other sort of ship it could be tested on. Perhaps it is a new version of scrap and build, which is, I know, a way in which people always like to aid the shipbuilding industry. It seems rather odd to think of having a moving ship with men on it in order to test our weapons. The Royal Navy has professed itself well satisfied with the Tigerfish torpedo. The new development incorporates some of the technology in the Sting Ray torpedo, which was the point made by my hon. Friend for Portsmouth, North. As a number of foreign countries have the torpedo and we are anxious to export more, I think we ought not to be ashamed to say that those who have bought it have a good product. The right hon. Member for Ashton-under-Lyne and the hon. Member for Fife, Central are right, of course. It is a matter of enormous concern that we have had the problems that we have in the development of this torpedo.

Some of the points raised go back a long way, to the early 1970s and, in terms of the price and contractural arrangement, we have a very different situation today. All the contracts now are fixed-price contracts—that applies to Tigerfish, Spearfish and Sting Ray. It is true that we do not have a prime contractor for all three torpedoes. There is a prime contractor for Tigerfish, for the weapons handling system and for the torpedo. The problem is that Sting Ray is fired from several different platforms — helicopters, aircraft and ships—and one cannot have a prime contractor that covers the lot. The Ministry of Defence said that it would consider whether the prime contractorship could he widened in the case of the Spearfish contract. That is being considered. No decision has been made on it. It was felt that it would not be commercially right to disrupt the existing fixed-price contract to go for primary contractorship across the board.

Various hon. Members raised the question of competition for torpedos in future. It is intended that when Spearfish has finished its development there should be a contract for production. I assure my hon. Friend the Member for Rutland and Melton that there will be some vigorous competition at the subcontract level. Three quarters of Sting Ray will be subcontracted and two thirds of that three quarters is being placed by competition. I am assured that companies outside the GEC group are filling a large part of that. I think that there is a real prospect for competition there.

The hon. Member for Fyfe, Central raised the question of collaboration on a future generation of torpedoes. I entirely agree with him. This is the logical way to go. His logic applies not only to torpedoes, but to many other weapons systems.

Mr. Terry Davis

The Minister has not answered the important question about what happened to the civil servants who were responsible for the waste of money on the torpedo programme and also partly responsible for the waste of money on Nexos. If the Minister does not know the answer, will he find out and write to me?

Mr. Lamont

I am willing to write to the hon. Gentleman. When I was a Minister at the Ministry of Defence, I can well remember that I asked exactly the question that the hon. Gentleman has put to me. Trying to find out which civil servants dealt with a programme stretching over 25 years is a pretty difficult and lengthy thing to do. I assure the hon. Gentleman that people's performance is taken into account, but it would be wrong to think that only a very small group of people are connected with the project. It would be quite wrong also to think that all the fault lies with civil servants. As a number of my hon. Friends and Opposition Members have indicated, much of the fault lies also with British industry.

The method adopted in the debate, of concentrating on about six subjects, has proved extremely worth while and has targeted the debate most usefully. I therefore thank all those hon. Members who have participated in it.

Question put and agreed to.

Resolved, That this House takes note of the 26th to 38th Reports from the Committee of Public Accounts of Session 1984–85, of the 1st to 14th and 16th to 18th Reports of Session 1985–86 and of the Treasury Minutes on those Reports (Cmnd. 9696, 9743, 9755, 9776 and 9808), with particular reference to the following Reports:—

1984–85:	28th	The torpedo programme
1985–86:	1st	Role and responsibilities of nominee directors
	3rd	Sale of Government shareholding in British Telecommunications plc
	8th	Nexos
	11th	Proposed Defence School of Music
	14th	Nursing Manpower.