§ 4.9 pm
§ Mr. John Maxton (Glasgow, Cathcart)
On a point of order, Madam Speaker. Although certain reports are listed in the motion, may we debate any reports of the Public Accounts Committee? For the sake of clarity, may we be sure that that is the case?
§ Madam Speaker
The hon. Gentlman and the House may debate all the reports listed on the Order Paper under the public accounts motion.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
I beg to move,That this House takes note of the 36th to 43rd Reports of the Committee of Public Accounts of Session 1990–91, of the 1st to 24th Reports of Session 1991–92, of the 1st to 11th Reports of Session 1992–93, and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on those Reports (Cm. 1725, 1784, 1798, 1819, 1865, 1856, 1949, 1998 and 2074), with particular reference to the following Reports:Thirty-sixth, Foreign and Commonwealth Office: Qualification of accounts, 1989–90;Thirty-seventh, Fraud and irregularities at defence establishments; Session 1991–92First, Sale of Rover Group to British Aerospace plc;Third Management of road maintenance;Twenty-second, PSA Services accounts 1990–91; Session 1992–93Seventh, Sale of the water authorities in England and Wales.This is the annual debate on reports of the Public Accounts Committee. Last year, we had 45 reports and this year we have 43. As usual, we have highlighted several of the reports in the motion, but others will, as usual, be mentioned in the debate. Of course, the debate is on all the reports–43 of them—that we prepared last year and were published. Almost every report could warrant a full debate on its own. In fact, on an estimates day when no suitable subject for debate could be found, we volunteered one of our many reports, and the debate ran for its entire length with a number of hon. Members being unable to be called. One of the problems is that the large number of reports tends to frighten some colleagues and, as a result, they do not take part in these important debates.
My first thanks must be to the Committee. It meets more often than any other Select Committee and it agrees many more reports. The pressure on hon. Members to digest the voluminous information is very great. My thanks, of course, also go to the Committee members and my particular thanks must go to Sir Michael Shaw, who was the senior Government Member for many years. The development of the Committee owes much to him. As a result of the general election, we lost a number of valuable Members, one of whom is the present Chairman of Ways and Means, but there were others, too, some who found their way to the other place and others who have played a part in other aspects of our public affairs.
As usual, the House is by no means full. I do not interpret that as a lack of concern about our work, but in some peculiar way we must regard it as a tribute to it. We know full well that if we failed to hold Departments to account and if we were felt to be failing in that crucial 1025 work, the House would fill immediately with demands for action by the Committee. I hope that, in this debate at any rate, we can show that we are fulfilling that role.
We have more information presented to us than at any previous time. We now have the departmental reports, and Andrew Likierman has shown how useful they can be. I hope that the departmental Select Committees will make use of them, as well as comment on the public expenditure White Paper as it applies to the Departments they cover. It is my constant concern to encourage them, for heaven's sake, to look at those matters for which they have some responsibility and say that, yes, they agree with everything that the Government are doing and so issue a new return. However, often they do not even look at them. There has been some improvement, but it has been very slow and much more is required.
The Public Accounts Committee normally takes its evidence from permanent secretaries, so we have a wider overview of senior civil servants than any other Committee of the House, or indeed most Back-Bench Members and even most members of the Government, because twice a week we see those people and we get to know their characteristics and assess their capabilities in the efficient use of public money. We do not bully or harangue them. In the main, we are impressed with their abilities, and we hope that our work assists them to improve the work of the Department as well as ensuring that the taxpayer gets a fair deal. That is what unites the Committee.
Politically, we are naturally partisan. However, we do not examine policy. However distasteful we may personally find the policy, our task is to assess the way in which the policy has been implemented and to see whether we have obtained value for money. As a result of that, all our reports are unanimous and, more important even than that, they are untainted by fudging to create a bogus consensus. They are direct and hard hitting, and they mean what they say.
The Committee and the National Audit Office have an excellent relationship. The Comptroller and Auditor General has complete discretion in selecting investigations. A regular discussion of the programme takes place in the Committee, and also takes into account suggestions made by members of the Committee.
We are pleased that the work of Sir John Bourn has been recognised and that he has acquired a United Nations audit role. The National Audit Office has produced information showing where it has obtained savings from its activities. Although the office gives illustrative figures, the most important aspect of its work is not the instances of mismanagement that it discovers but those that it prevents. The very existence of the National Audit Office, the Comptroller and Auditor General and the Public Accounts Committee only improves the situation as they find it, but prevents worse errors from being made because of the possibility that such errors will be uncovered by our work.
The Comptroller and Auditor-General for Northern Ireland, Dr. Jack, and his staff do valuable work. On Monday of this week I was able to see the construction of their new offices in Belfast, which should be ready by the summer of next year. The Committee also thanks John Beastall, the Treasury Officer of Accounts, and others who assist us with our work. I welcome the Financial Secretary 1026 to his new position, and look forward to his interest in value for money leading to a valuable dialogue with the Committee.
There is a heavy responsibility on those in public life to maintain and improve standards in the public service. We must do our best to overcome the dangers of a civil service that might consider itself from time to time undervalued. That brings me to the first point that I wish to make. The prime aspect of the control of expenditure is to eliminate or reduce to the absolute minimum the possibilities of fraud and the lack of probity within the civil service. That must be a continuing aspect of our work. Value for money and saving money are of enormous importance and are a major preoccupation of the Committee, but even more important are the standards in the public service. We pride ourselves naturally and rightly on our standards.
Many overseas visitors who have come from public accounts committees within the Commonwealth and others who have responsibility for overseeing public expenditure in other parts of the world have asked me and other members of the Committee, "How can we obtain the kind of standards that you have?" The most important aspect is prevention—stopping fraud arising in the first place. Once a civil service is rooted in corruption it is almost impossible to remove it. So prevention must be our first priority. The greatest peril is when a group within a unit colludes to defraud. The greatest protection that we have is the honest public servant who prevents fraud from arising. So, although it does not take much of our time, prevention must always be the most important aspect before us.
Looking at the major themes of the year, I shall concentrate on only four. The first issue is fraud and the need for probity in the civil service. The second is objectives and performance.
Years ago, we had problems when many of the Departments engaged on a programme and were unaware of the precise nature of what they were trying to achieve. We have established right from the beginning that when a programme is started, a clear statement of objectives is set out and a means of monitoring the progress of that programme and comparing objectives with achievements is established. Departments can thus see exactly what is trying to be achieved and are able ultimately to compare the objective with the achievement.
Most of the examples that I hear about when I go around and speak on these matters happily relate to a long time ago. The worst examples are those of the past, but we still have a number of bad examples and some way to go. Some aspects of that can be found in the advisory services to agriculture, the pollution inspectorate, the polytechnics and the safeguarding of jobs in Wales. I am sure that we shall hear more on that from some of my hon. Friends. I mention those only in outline and do not intend to go in to them in great detail.
The relationship between what Departments set out to achieve and what they actually achieve is important. I understand that not everything can be quantified, but one can attempt to quantify those programmes as closely as possible so that the final outcome is more clearly related to objectives.
We heard today about the London ambulance service. I regret to say that its problems are not untypical of some of the serious problems that we see with computerisation within the civil service. Help is available to Departments when they are computerised, and I fear that proper use of 1027 them has not been made. An extreme example, the like of which I hope never to see again, is that of the Foreign and Commonwealth Office and the Insolvency Service, to which I shall refer in greater detail.
My fourth theme is the role of non-departmental public bodies, and control over them. An increasing number of Government functions are being delegated from Departments to a wide range of non-departmental bodies, and such work is funded by grants or grants in aid, rather than direct expenditure borne on Bills. The general aim is to move away from that detailed departmental involvement with delivery of programmes and services and still maintain a broad oversight and overall control to bring management and accountability closer to the point of delivery.
Although that is fine in theory, some of those programmes have, unfortunately, failed wretchedly. I refer to two cases in particular, the first of which is the 23rd report—1991–92—on "Financial Management and Control in the National Rivers Authority", which involved the relocation of the authority's headquarters. It demonstrated bad management and repeated failures to observe the care required for the spending of public funds. Some £1 million of taxpayers' money was wasted. We criticised the hoard and the senior management of the authority for their failure to establish proper, effective management and monitoring arrangements. That should have been accompanied by regular reviews of progress and costs, but those were inadequate, and tendering and contracting arrangements were poorly controlled, with attendant risks of fraud and corruption.
Once control is lost in that way, one also loses control over how much fraud and corruption is taking place. In that case, a contract of £2.6 million was made available on the basis of a tender for a few thousand pounds, without competition. Those and other matters went to the heart of the authority's proper accountability for public funds. We called on both the authority and the Department of the Environment to strengthen systems of controls, clarify responsibilities and introduce a wide range of improvements without further delay.
We also criticised the severance payment to the former chief executive who had a key responsibility. His severance settlement was £125,000 for the loss of three of the five years of his contract, plus £2,350 for legal expenses, plus £1,057 for financial advice, plus his normal pension. Had it not been for the Comptroller and Auditor General being able to look at the accounts, we would never have found that out.
My colleagues will recall the unhappy occasion when evidence was given on the 11th report—1992–93—on the Development Board for Rural Wales. The terms approved by the Welsh Office and the Treasury for the early retirement of the board's former chief executive were substantially exceeded. Amounts were paid that went substantially beyond the normal retirement settlement terms without the knowledge of the Welsh Office—the sponsoring Department. Payment of £ 15,563 was made for untaken leave; records were inadequate and the sum went beyond the terms that had been approved by the Treasury.
There were also weaknesses in the Welsh Office's monitoring and control. We were not convinced that payment in lieu of notice was necessary. The former chief executive was also given consultative assignments worth 1028 up to £30,000. That is not the way to handle such matters. We were grateful to the Comptroller and Auditor General for uncovering the incident.
The Welsh Office was not aware that the board had acted beyond its authority. The board failed to consult the Welsh Office legal adviser or the Treasury solicitor over recovery action. Both cases underline the general lessons to be learnt about the oversight of non-departmental public bodies and the need for further clarification of the role of chairmen of boards and their chief executives.
The 37th report—1990–91—on fraud and irregularities at defence establishments is one of the reports highlighted on the Order Paper. The amount of expenditure at the Ministry of Defence was £1,800 million in 1989–90. Such expense is incurred locally at more than 3,000 defence establishments in the United Kingdom and overseas. That expenditure relates to items such as the local purchase of stores, minor works contracts, travel and subsistence claims, and general administration costs. In addition, there are stocks of equipment and stores worth £16 billion that are held at 50 major storage depots and hundreds of subsidiary storeholding units. If any irregularities occur, there is large scope for considerable losses.
Following the Committee's earlier report on fraudulent travel and subsistence, we expected an improvement in the controls of those large sums of money. A number of subsequent cases prompted the Comptroller and Auditor General to undertake a further examination. Paragraph 7 of the report states:the Department reported to the Treasury a total of 283 proven cases of fraud, excluding procurement fraud, perpetrated by civilian employees or Service personnel".We found the increased incidence of reported fraud disquieting.
In paragraph 11, we noted:the 1990–91 figures for theft of assets included the loss of computers and office equipment valued at some £500,000. There is a ready second-hand market for such equipment, the custody and movement of which needs to be tightly controlled. A key factor in preventing the loss of such equipment is site security, including a reliable system of checking vehicles and personnel leaving establishments.In paragraph 17, we say that an adequate separation of duties is needed. Such a separation is an essential feature of any accounting system. The National Audit Office found that there were weaknesses in this important area at many of the establishments visited and that such weaknesses had contributed to some of the recently reported fraud.
It is important that those in control are not the same people as those who carry out the tasks of security. We say:where it is not possible, for example in a small office, to arrange adequate separation of duties, it is, in our view, essential that the staff should be closely supervised and their work subject to frequent management checks.We say in paragraph 24:where it is established that a civilian member of staff has committed fraud or theft, the Department claims their policy is that dismissal will invariably follow unless there are exceptional circumstances.Nevertheless, we found that only 45 per cent. of those guilty of fraud were dismissed. Could 55 per cent. of them claim exceptional circumstances? We find it hard to reconcile the dismissal policy with the number of exceptions to it, now running at 55 per cent., and we have asked the Department to analyse the reasons for these 1029 exceptions and to review its guidance to line managers on the circumstances in which exceptions to the dismissal rule are appropriate.
The Treasury minute states that the Treasury is now issuing guidance to clarify the exceptional circumstances. Perhaps the Financial Secretary will comment on that later.
I come now to the most important of our reports, the 36th report for the Session 1990–91 on the Foreign and Commonwealth Office, "Qualification of Accounts, 1989–90". Between 1989 and 1990, the Foreign Office introduced a new computerised accounting system to make payments, record transactions and produce its four annual appropriation accounts. The system did not work properly and the final accounts which should have been signed in August were not produced until the end of November. They were based on ledgers that did not balance, and the Comptroller and Auditor General was unable to complete his audit and qualify his opinion on all four accounts.
This is such a serious matter that I must go into some detail. The situation is wholly exceptional. We say in our report that we agree with the Department that it made a mistake in believing that it could manage such a computerisation on its own. We were disturbed that it should have taken the Department so long to recognise that and to adopt a better standard of computer project management.
The old accounting system broke down irreparably; it did not have adequate back-up in case of failure. The Department acknowledges that, in retrospect, this had been a mistake and that it had been cavalier in not obtaining expert advice. The same story has been told on a number of occasions—a new computerised system is introduced and instead of having a back-up or a parallel operation in case things go wrong, none has been installed. It is essential to have two systems running side by side: the old system, which may not be good but which at least works, and the new system which it is hoped will replace it. After a certain amount of time it is possible to have confidence in the new system and to move over exclusively to it. Meanwhile, the old one is kept in operation. The Foreign and Commonwealth Office did not do that and we considered that a serious failure. It was unfortunate that the old system broke down at such an inopportune time, but we were concerned that the Department operated an aging system without back-up.
That experience underlines the necessity to provide alternative facilities to cover system failure and those facilities should continue to work should the need arise. Paragraph 18 of our report states:Since the old system had broken down, the Department had no option but to run their accounts entirely on the new system, even though it had not been fully tested and had known faults.Therefore, the old system had no back-up at all, and when the Department introduced a new system and the old system failed, it was completely caught out and had nothing on which to depend.
The matter is even worse because, as paragraph 19 states:From their attempts to reconcile the two systems it soon became evident to the Department that there were serious problems. Some payments had not been recorded on the new system while others had been posted two or three times.1030Incorrect opening balances were found on the new system; programming errors had allowed wrong or single entry postings; a large number of journal transfers had been made to the wrong month; and other transactions had not been recorded for several months.Paragraph 20 states:The Department were unable to produce their usual monthly trial balances … there was a difference of £485 million on the Parliamentary Grant account and a net £46 million across all votes on the Paymaster General account.Those are extremely serious matters, and in paragraph 21 we say:By early May 1990 it became apparent that the Book-keeping Section were unable to resolve the serious discrepancies between the two systems. Extra staff, including internal auditors, were drafted in to undertake a major exercise to reconcile the two systems and to rectify the errors made by the new software.As a result of all that, the Comptroller and Auditor General was unable to complete his audit. He considered that the Department had failed to maintain proper books of account and qualified his audit opinions accordingly. Paragraph 24 states:It was the most serious qualification of an appropriation account which the present Comptroller and Auditor General had made.In our conclusions, we say:We are alarmed at the catalogue of accounting errors that were made by the Department.As you know from your experience, Mr. Deputy Speaker, the Committee chooses its words very carefully and does not use such words lightly. I have never used words as strong as those in our report and I hope never to use such words again. I have kept them in reserve for disasters of the kind that we now face.
Of the accounting errors we say:Their gravity is illustrated by the size of the imbalances which were revealed, by the scale of the sums posted to 'dump accounts' and by the exceptional nature of the qualifications made by the Comptroller and Auditor General. We cannot do other than strongly criticise the Department's accounting arrangements.I am afraid that the matter does not end there, because we say in paragraph 30:In June 1990, while the cashier was on holiday, the Department found £8,000 cash and £23,000 cheques missing. These sums have been recovered; the cashier has since been found guilty of theft and has received three concurrent suspended sentences of one year's imprisonment. He has been summarily dismissed from the Department.We asked whether this fraud was due in any way to the breakdown of the old computer or to the introduction of the new one.Once control is lost, all things are possible, and only continuous control can make sure that such things do not happen. The Department could not say whether the fraud was due in any way to the breakdown of the old computer or the introduction of the new one and was unable to comment further.
We conclude:We note the Department's evidence that the theft in this case was attributable more to an abuse of trust than to any weakness in the system of control. However, we consider that inadequate controls create a climate which is conducive to fraud and thefts:Such controls need to operate effectively. There is more bad news for the House. At a critical time when there was an aging system on one hand and a new and untried system was being introduced on the other, the entire bookkeeping staff changed. Having inexperienced staff with limited training and insufficient guidance and supervision led to many additional errors and that was one of the underlying problems beyond that of software.
1031 When changing from a system that has its faults to one that one hopes will be effective, it is crucial to retain the staff who know how to operate at least one system and who know the figures that are being put in. To replace them all at the same time defies belief, but that is what happened. It did not happen in a far-flung part of the civil service empire—it happened in the Foreign and Commonwealth Office, one of the great Departments of State. We should be seriously concerned that this could ever happen.
In our conclusions, we use the word "astonished", which I have never used before and hope never to use again when we say:We are astonished that the Department should have allowed a complete turnover in book-keeping staff at the very time when major changes were taking place in their accounting systems, the more so since the new staff were given inadequate guidance and supervision. We consider it essential that departments should provide continuity of experience on accounts work, employ a sufficient number of qualified personnel and provide sound training, guidance and supervision.The Treasury minute that is the reply to the report says that the Foreign and Commonwealth Office has learnt and applied valuable lessons. I look forward to hearing how this is proceeding.
Another case involving computerisation was that of the Insolvency Service. To qualify the accounts of the Insolvency Service filled us with horror. It started to computerise, but did not even consider the use of the Central Computer and Telecommunications Agency. The CCTA, which is an advisory body working within the Whitehall machine, is well staffed and equipped, as know because I had quite a lot to do with it 20 years ago. It is the fount of a great deal of information and understanding about the essential problems that have to be faced when one computerises.
The Insolvency Service thought that it could go it alone rather than asking for advice. The imbalances that were found, the fraud and the over-payments were inevitable and the qualification of the account, which I hope that we will never see again, was the outcome. The Treasury minute tells us that the service has appointed a director of information technology and now discusses its requirements with the CCTA. Thank goodness for that, but it has come rather late.
Our first report in the Session 1991–92 was on the sale of Rover Group plc to British Aerospace plc. We had gone into this matter on a previous occasion. In 1975, the British Leyland Corporation, which was making heavy losses, was taken into public ownership. In August 1988, it was returned to the private sector by sale to British Aerospace for a price of £ 150 million, after a cash injection of £547 million in recognition of the company's debt and to support its investment programme. The report does not describe the sale of the Rover Group to British Aerospace because we had already fully described it in an earlier report when we took evidence from Sir Peter Gregson of the Department of Trade and Industry. The Select Committee on Trade and Industry went into the matter as well.
In this important report, we draw attention to the main lessons for privatisation in general that emerge from the sale, and make recommendations. The brevity of our report should not be taken to mean that we place anything but the greatest importance on our inquiries into this subject. We hope that the Treasury and other Departments 1032 will ensure that all future sales of public assets have regard to our recommendations. I hope that they will be used as a check list by those who sell public assets, to ensure that we get value for money and that sales are handled efficiently.
The first recommendation is:Anything other than full and open competition should be the exception. Should this not be possible, we would expect some limited form of competition to be arranged in order to establish a benchmark against which to test the price finally negotiated.The great advantage of these recommendations is that they result from our examination of the Comptroller and Auditor General. We have a great respect and admiration for the work of the National Audit Office and its staff. It has changed fundamentally, and you will know, Mr. Deputy Speaker, that the change has been to the enormous advantage of the House. We now have proper accountants and auditors who are held in respect by the highest organisations in the country, including the City of London and big private industries. We have people who produce results that are universally admired in the accountancy and auditing professions. When they produced these conclusions, we examined them and we added one or two of our own, and came up with this report, which sets out the tasks that have to be undertaken before selling public assets.
Our second recommendation was:"Before entering negotiations, we expect the selling department to make their own comprehensive valuation of the undertaking to be sold.That is elementary, but in so many cases, it did not happen
and all that seemed to matter was the price that would be got for the undertaking. That is a test, but the market may not be suitably placed and there may be undervaluation of the assets. There must be a longer-term assessment of the value and the price achieved should be as close to that as possible.
Thirdly we said:Specifically we expect departments, in making such valuations, to identify any land or other assets surplus to the needs of the main business. We recommend that such assets should be separately valued; in the case of property sites these values should reflect any higher figures appropriate to possible alternative uses to which the land might be put.Again, that is elementary, but, like other elementary precautions, it was not taken. We make that point and we set out these precautions in a form that everybody can understand. We continued:We also expect departments to consider whether the separate disposal of surplus assets, such as stocks and shares in other companies, may yield a higher return for the taxpayer than selling them with the main business.In situations where a department decides not to dispose of surplus assets ahead of the main sale because, for example, their future value is uncertain, we expect them to protect the taxpayer's interest by providing for the public purse to claw back any gains arising within a reasonable period subsequent to the privatisation.I am pleased to see that this, at least, is being undertaken in some cases. We continue:Where departments consider that to include clawback provisions within the terms of the sale might depress the price which the purchaser is prepared to pay, we expect them to assess where the balance of advantage to the taxpayer may lie before they make any binding commitment either way.We make a number of other recommendations that I am sure will be taken into account by Departments undertaking such an exercise. We continue:we expect departments to be forthcoming when fulfilling their obligations to keep the United Kingdom Parliament informed, and not simply to comply with the letter of the requirements. Information should not be provided piecemeal 1033 in scattered notes, but in a coherent statement. While the Department gave us an account of how Parliament was informed of this transaction, we cannot accept that the DTI discharged its duties in this regard in a helpful or effective manner. This must improve, in any future privatisations of other financial transactions.The transaction involved there was the sale of the Rover Group. In the next paragraph but one we recommendthat Departments do not subject themselves to time deadlines … which"—perhaps the appropriate word is "produce"—pressures to sell at a lower price than thatwhich they might have been able to achieve.
As the House knows, the Committee of Public Accounts does not examine policy, which has nothing to do with the Committee. The members of the Committee are concerned only with getting best value for the taxpayer. I am seriously worried about the pressure of time that causes assets to be sold at prices below those that might have been achievable.
When the Treasury makes its forecasts it takes account of what it is hoped to achieve by the privatisation or sale of public assets. That factor is built into its forecasts. The Treasury will ask a Department what it intends to achieve, and it will be told how much is expected to be obtained from the sale of a public asset or assets. That is then followed by the unexpected. We all know that the unexpected always happens. It is found that the market is not quite right because something has gone wrong and it is not possible to meet the timetable. In the normal course of events one would have a postponement and wait for a more suitable time. There would then be more time to make and implement the necessary arrangements.
The Treasury timetable, however, is inescapable. Certain things have to be obtained within a certain period or the Treasury's forecasts will be even more wrong than they usually are, which would be unforgiveable. So pressure will be on a Department to carry out the sale. That leads to the serious problem of sales at prices that are well below what otherwise might have been achievable. That greatly concerns the Committee.
It can be argued—we have advanced this argument in several of our reports in previous years—that the sale of public assets should be phased. After all, when the Government come to sell their gilts they do not sell on 1 January for however many billions of pounds are involved. Instead, they look to the Government broker and decide how much it is worth selling at a particular time given the state of the market. They are extremely knowledgeable about the state of the market. Unfortunately, they are not knowledgeable when it comes to privatisations. Instead of a phased approach, they try to get everything in one go. That is nonsense, and we have stated repeatedly and unanimously that it is something that must be considered. On one or two occasions the Treasury has listened to the argument, as have Departments, but not enough has been done or is being done.
We are told in the Treasury minute that the Government are considering further guidance on sales of public assets. I hope that it will include the points that the Committee has made.
§ Mr. Maxton
My right hon. Friend will be aware that one privatisation to come before us will be the railways. It is possible that the coal industry and the water and 1034 sewerage industry in Scotland will also be privatised. Given what my right hon. Friend has said about sales of public assets, should the Committee of Public Accounts be examining the valuations that the Treasury is putting down, as it were, prior to any sale taking place, rather than retrospectively, which is often the case with the Committee?
§ Mr. Sheldon
It would be hard to tempt me into taking that course of action. The Committee is essentially an auditing body, and we shall examine matters in that way. We find out what has happened and then we are able to produce our reports. It should he appreciated that the reports have a future impact. Civil servants, or even the Minister, are aware that these matters will come before the Committee. We have examined every privatisation, of course. The Minister might not be quite so concerned as the Permanent Secretary, but it might be said that he will be vaguely aware of what is happening. We hope that the effect of our reports in future will be based on that process.
The third report is entitled "Management of Road Maintenance", something that we have had several goes at over the years. It has been a rather sad story. The introduction reads:The Department of Transport are responsible for expenditure of £440 million in 1991–92 on the capital maintenance of the national roads system. Their maintenance aim is to preserve the life of motorways and trunk roads in England at minimum cost, including delay costs, and to ensure roads are safe and are strong enough to carry the expected traffic.In 1984, the Department of Transport estimated that there were 70 miles of motorway to renew to keep pace with deterioration. In 1985, the backlog had increased and a new target was set of 80 miles. In 1990–91 the backlog was still great and a fresh target was set of 86 miles. It was decided for 1992–93 to employ consultants, and it was found that 100 miles of motorway should be renewed each year to keep pace with deterioration. The increase in trunk road maintenence was even greater.
The Department has had difficulity in obtaining a comprehensive and consistent picture of the condition of the road network. In 1988 it abandoned a national structural survey because of its unrealiability. It was only after consultants advised the Department in 1989 that it had a complete picture of road conditions. I find that surprising. Roads can he expected to deteriorate and there is surely a need to know which roads need to be repaired, which roads will disintegrate and how the system can be operated effectively. Paragraph 12 reads:We are concerned that the Department now face a situation where so much of the country's main roads network will continue to be closed for repair, with about one-third of every single lane or motorway expected to be coned off at some time in the next five years. We are disappointed that the Department have not been more successful in dealing with the growing backlog maintenance, and that the clearance of the backlog promised by the end of 1992–93 has now been extended by a further five years to 1997–98.Paragraph 13 states:We consider that the Department need to have better information on the condition of roads in order to deploy their funds most cost-effectively. We are concerned about the past inadequacies of the Department's data on road condition, and note that the national structural survey of the condition of roads had to be abandoned because the data provided by their agents were incomplete and inconsistent.In paragraph 15 we said: 1035We regard it as unsatisfactory that for the last six years the Department have consistently underestimated the levels of maintenance required because their traffic forecasts have been too low.Paragraph 16 reads:We note that the revised target of clearing the backlog in 1997–98 is based on the assumption that roads past the critical condition are expected to last as much as a further eight years before requiring reconstruction.This is a serious aspect of the report.
If a road has not been looked after properly, it becomes necessary to reconstruct it, and we are then faced with extremely heavy expenditure. That is what happens. If the Department is not aware of the conditions of roads it can be faced with the cost of reconstruction. The Committee reported:There are two main methods of road maintenance: reconstruction, which is the process of removing most or all of the materials past a critical condition and replacing them with new materials; and overlay, which involves putting a layer of blacktop or concrete over an existing road. Reconstruction is some three times more expensive than overlay".It should be said that the true cost are rather less than that. Again, it is a serious matter. If we do not know the condition of our roads, more of them will pass the critical condition. As a result, there will be extra expense. Paragraph 23 reads:We asked the Department why they had not adopted the information systems used by other countries instead of producing new systems themselves. The Department said that their planned information system is more elaborate and comprehensive than those used in other countries, and that it would be dangerous to introduce a tailor made and sophisticated computer system too hurriedly and without sufficient preparation.I hope that that is true.
The report continues:In view of the Department's evidence that reconstruction is much more expensive than overlay, we are concerned that the Department's planning and management of the maintenance programme has failed to prevent a significant proportion of the road network passing the critical condition which entails expensive reconstruction. We note the Department's assurance that roads approaching the critical condition will generally now be overlaid.We shall be watching that, because we have already had a number of goes with the Department of Transport on those matters.
The Committee says that it welcomes the useful results or lane rentals. We think that that has been a good idea. But the reality is that still one third of every single lane of motorway will be coned off at some time in the nest five years.
The Treasury, in its reply, accepts past inadequacies and points to a number of improvements. We look forward to hearing those.
§ Mr. David Nicholson (Taunton)
The study of the management of road maintenance was carried out before I became a member of the Committee, but on the M5 in my constituency, between Taunton and Wellington, repairs have proved to be inadequate a few years later and the process of coning and vastly expensive repair has had to be gone through again. I do not want to tempt the right hon. Gentleman into subjects that might be debated tomorrow, but my attention was drawn this very day to the vast cost of aggregates from, for example, the Mendips in Somerset, which are used for road repairs and the damage caused by heavy lorries, which I believe is estimated to be about 1 million times more than that caused by the average car. That may be something at which the Public Accounts 1036 Committee or other Committees of the House could look in terms of value for money for the taxpayer and the use of natural resources.
§ Mr. Sheldon
We have looked at some of those aspects on previous occasions, as you, Mr. Deputy Speaker, may recall. I am sure that we shall return to many of them. It is such a pity that, despite our efforts, so little has been done. Much more remains to be done and I hope that it will be.
§ Mr. John Home Robertson (East Lothian)
I am interested to hear what my right hon. Friend has had to say about the performance of the Department of Transport south of the border in relation to the maintenance of motorways and trunk roads. Has his Committee done any work on the situation north of the border where such matters are dealt with by the Scottish Office and, if so, does the Scottish Office perform any better or worse?
§ Mr. Sheldon
I regret that I cannot make a comparison. However, we shall be going further into the matters and we may be able to see whether there are any improvements north of the border.
§ Mr. Sheldon
We look forward to investigating that in due course.
I now come to the 22nd report of Session 1991–92 on PSA Services accounts 1990–91. On 1 April 1990, Government Departments were untied from PSA Services and became free to employ private sector companies to carry out their works services. In consequence, PSA Services had to involve all Departments for work undertaken on its behalf. It had to issue fresh invoices.
The report says:Difficulties experienced by PSA Services in introducing the new cost coding structure and inadequacies in the underlying records led to errors on customers' invoices. That, in turn, led the customers to delay or withhold payments. By the end of 1990–91 works expenditure totalling £65.6 million had not been accepted by departments and, with Treasury approval, it was charged by PSA Services to their own Appropriation Account. … Since there was no certainty that the sums making up this figure would ever be accepted by customers, the Comptroller and Auditor-General qualified his audit opinion.The number of qualifications that we are seeing is disturbing, and this one is more disturbing than most.
The report continues:PSA Services told us that the level of expenditure not accepted by customers had now been reduced to £22 million. It is a most serious matter that PSA Services' financial system should have broken down to the extent that they had to charge £65.6 million on their own Vote instead of being able to recover it from their customers. Moreover we find it unsatisfactory that, despite having had sufficient time to do so, PSA Services were so poorly prepared for what was clearly a major change in their status and procedures.PSA Services' inability to produce proper invoices is one of the fundamental aspects of proper management and control.
Paragraph 41 of the report says:We recognise that the present time is one of very considerable change not only in PSA Services but across government generally. There are new bodies, new financial systems and new people are being appointed to run them. We conclude therefore that, where the role of a department changes significantly"—that may happen to an increasing extent— 1037it is essential that there is adequate planning; that new systems are fully tested; that staff are given the necessary training and, above all, that there is effective management and supervision.Those changes have gone through now, but we think it important to refer to them at this stage.
The last of the reports to which I wish to make special reference is the seventh report of Session 1992–93 on the sale of the water authorities in England and Wales. The report says:In December 1989 the Government sold all its shares in the 10 water companies of England and Wales for net proceeds of £3.6 billion. The sale was complex and was undertaken against a very tight timetable.It is a pity that the question of timetables crops up again and again, but in this respect it is even more unfortunate, because the timetable was particularly complicated by the arrangements made in the 10 water companies. We point out:the Secretary of State had two distinct roles: first to ensure that the companies would be able to finance their functions and that customers were not disadvantaged; secondly, as seller of the companies, he had an objective to maximise proceeds.The report continues:First, the Department found themselves running out of time to conclude the negotiation for sale on satisfactory terms. By the time their final week was reached they had still not settled terms with the chairmen and the 10 new companies, who knew the deadline to which the Department were working. In this final week, the cash injection rose to £1.1 billion and the illustrative net proceeds fell from £5.7 billion to £4.4 billion. Secondly, the Department had not been able to set any benchmarks for what they were aiming to realise by the sale. They told us that the 'illustrative net proceeds' which they had calculated were not meant to imply that this much money could actually be raised.I am not sure what it was used for. What is the point of having illustrative net proceeds if use is not made of them? In the event, even that sum was not reached, since the final net proceeds were £3.6 billion against the illustrative net proceeds of £5.7 billion.
The report continues:Thirdly, the Department were understandably concerned to see that the companies started operations on a reasonable enough basis to finance their capital investment programmes. To assist them, the Department gave substantial benefits in the form of debt write off of £5.2 billion, cash injections of £1.5 billion and tax allowances of £7.7 billion. But they could not say to what degree these measures were reflected in the sale proceeds.The Committee recommends:consideration should be given to future cases for responsibilities for regulatory decisions and for selling to be located separately. This would enable the Departments concerned to demonstrate clearly to Parliament that both had received full attention.
§ Mr. Maxton
As a Scottish Member, I read that recommendation with considerable interest. I am aware that the Scottish Office is at least considering the possibility of selling off Scottish Water, which is at present run and owned by Scottish local authorities. How could the Scottish Office separate—within that Department or otherwise—the two functions of regulation and sale?
§ Mr. Sheldon
That should not be too difficult. I do not know the situation in Scotland, but in England the regulatory function is distinct from the administrative function, and the two can be handled separately. I refer to the Treasury minute: 1038The Government agrees with the Government's description of the arrangements in its first four conclusions, but does not accept that those arrangements gave rise to difficulties outlined in the fifth conclusion"—which relates to separating the functions.
If this debate had taken place five years ago, that minute might have been more convincing than I find it now. At that time, Chinese walls were held to be rather more valuable than they are today. Few people have faith in Chinese walls today. We know that the two functions interact, and that when they are within the same Department—with individuals meeting one another regularly, arranging the proper price and sale, and adhering to a time scale—it is right to separate the two functions of getting the best price and of disposing of the industry successfully.
I have spoken long enough. It has been a fruitful year. Given the matters that will come before us over the next 12 months, I shall be surprised if we have anything unworthy to report to the House. I hope that our activities will maintain some of the standards of public service that we should like to be evident.
§ Mr. Michael Shersby (Uxbridge)
The House has just listened to a remarkable overview of the work of the Public Accounts Committee by its Chairman, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I pay tribute again to his excellent chairmanship. One of the Committee's features is that it is perhaps the only Committee of the House that operates on a non-party political basis. All its members are united in their determination to deal with facts and to report objectively to the House.
I pay tribute also to two former members of the Committee who retired at the last general election. I refer to Sir Michael Shaw. the former Member for Scarborough, and to Mr. Michael Latham, the former Member for Rutland and Melton. Sir Michael served the Committee for many years with great distinction and made an enormous contribution to its deliberations. Mr. Latham will be remembered by all who served on the Committee for his special contribution in connection with the De Lorean inquiry.
The Committee's work results in a major saving of taxpayers' money. The National Audit Office estimates that in the three years from 1988 to 1991, an average of £200 million per annum was saved as a result of PAC recommendations based on NAO inquiries. In 1991–92, Government Departments accepted 95 per cent. of the Committee's recommendations. That record of work and achievement could well be emulated in other parts of Government service. We certainly feel that we have made a useful contribution, and the figures speak for themselves.
Our Chairman spoke to all the reports to which the motion refers, but I shall refer to only one or two. The first, for which I also have reserved some of the strongest comments that I have ever felt compelled to make in the House, concerns serious and disturbing matters that came before the Committee as a consequence of the qualification of the Foreign and Commonwealth Office's accounts for 1989–90 by the Comptroller and Auditor General.
As a result of the Foreign Office's computerised accounting system not working, final accounts that should have been signed in August were not produced. The accounts were based on ledgers that did not balance, and 1039 as a result the Comptroller and Auditor General was unable to complete his audit, and qualified his opinion on all four accounts.
How could that happen to the mighty and influential Foreign and Commonwealth Office, which sits at the very heart of Government service and whose influence spreads around the world? It happened because the Foreign Office replaced its six-year-old software with software that did not conform to the Central Computer and Telecommunications Agency's standard system of computer project management. The Foreign Office had not prescribed its own means of managing such projects and, most importantly, made that decision because those responsible thought that they could manage the project on their own—but they could not.
The Foreign Office intended to run the old and new systems in parallel, but the delayed delivery of the new system made that impossible. The old accounting system broke down irreparably and no adequate back-up system existed in case of failure. I suggest to right hon. and hon. Members that, if our secretaries behaved in that way when working on constituency business and did not maintain adequate back-ups, we would have some fairly harsh words to say to them.
The Foreign and Commonwealth Office representative told the Committee:This had been a mistake.While all that was happening, the Foreign Office allowed a complete turnover of the bookkeeping staff at the very time when continuity would have helped to avoid the catastrophes that occurred.
The PAC rarely uses strong language. The strongest word in its vocabulary was used by our Chairman, when he said that the PAC had been astonished. That is a strong word; I can think of stronger ones, but I shall not use them this evening. The final result was the most serious qualification of accounts since Sir John Bourn's appointment as Comptroller and Auditor General
When the Committee took evidence, I asked Sir Patrick Wright, permanent under-secretary, Foreign and Commonwealth Office—one of the most eminent of Whitehall mandarins—why the official responsible for selecting the Memory software system was not present to give evidence. Sir Patrick replied:I am not clear who that official was, I am afraid.I asked Sir Patrick whether he should not know. He replied that the present incumbent's predecessorhas retired from the service.He explained:I am afraid it is partly an aspect of Diplomatic Service careers that people move quite rapidly.They obviously moved very rapidly in that instance—and well out of sight of the Committee's inquiring eyes.
§ Mr. Richard Page (Hertfordshire, South-West)
Does my hon. Friend agree that many accounting officers miraculously retire before they are due to come before the Committee, leaving their successors to explain past deeds? Is that purely coincidental?
§ Mr. Shersby
It is not unknown for that to happen. If it happens again, the Committee should, if necessary, call the former, retired official to give evidence. We cannot have people spirited away into retirement, with the Committee left unable to question them.
I say this with all due respect to Sir Patrick Wright, but I was very surprised by the attitude taken by such a great 1040 man and by his lack of any real knowledge of what was going on down the line in his Department. I realise that, viewed from the lofty heights of the permanent under-secretary's office, the mundane business of keeping accounts and knowing who is responsible for making the system work may not seem very exciting stuff. In the private sector, however, such a responsibility would form a vital part of the work of any good managing director —which is what the permanent under-secretary is, in addition to his many other duties.
I hope that the same thing will not happen again. I remind the House that we pay our permanent secretaries pretty well to do their job. I note that Sir Patrick's salary is more than £100,000 a year. Surely the least that we can expect from the Foreign and Commonwealth Office is that it keeps its accounts properly.
I turn next to a situation that would border on farce were it not so serious. It concerns the Development Board for Rural Wales. The retirement settlement for the board's former chief executive is mentioned in the 11th report of the 1992–93 Session; it has already been referred to by the right hon. Member for Ashton-under-Lyne and involves one of the most scandalous episodes that I have encountered during my membership of the PAC.
When the chief executive accepted an offer of early retirement in December 1990, his retirement settlement —approved by the Welsh Office and the Treasury in February 1990—was exceeded. One of the payments that he received was the sum of £15,563 for untaken leave. Neither the Welsh Office nor the Treasury was able to justify giving that retrospective covering authority, and the Comptroller and Auditor General qualified the board's 1990–91 accounts accordingly.
However, when the PAC questioned the principal witness—none other than Sir Richard Lloyd-Jones—about that and related matters, we unravelled a chain of further irregular payments. At one moment I thought that they would never stop coming out of the woodwork. We discovered, for example, that the settlement included the capital cost of pension enhancement amounting to a further £180,000. There could be no doubt that the board had gone beyond the terms of the retirement package approved by the Treasury in making the payment for untaken leave.
We found the position all the more incredible when we discovered that the former chief executive had not even kept reliable leave records, and that it was impossible to check whether the amount that he had received related to leave actually taken. As we all know, such records are required to be kept in Government Departments, and clearly they should also be kept in sponsored agencies such as the Development Board for Rural Wales.
I tabled a parliamentary question for answer on 19 October to find out what action the Treasury had taken as a result of our report to draw to the attention of non-departmental bodies the rules governing untaken leave and the obtaining of prior approval from the Treasury Solicitor before agreements are made with employees. I am pleased to say that my right hon. Friend the Chief Secretary to the Treasury has confirmed, in a written answer, that non-departmental public bodies were reminded on 5 October of the need to ensure observance of the general principles of sound management and provisions relating to untaken leave. I hope that such bodies will keep that very much in mind in future, and that they will not need to be reminded again.
1041 Let us return to the retirement settlement, for the story is not yet finished. It seems clear that the settlement was reached by the chairman of the board, Mr. Glyn Davies. On taking office, Mr. Davies wanted to change the chief executive, who was then Dr. Skewis. He reached an agreement with Dr. Skewis on terms that went way beyond the package approved by the Welsh Office and the Treasury. It is true that Mr. Davies informed the board of his intention, but any discussion with board members was informal and no minutes of the decision were kept. The fact is that the board had not formally approved the terms and was told of them only after Dr. Skewis's retirement had been publicly announced.
To make matters worse, we discovered that the package included a consultancy assignment for Dr. Skewis of up to 150 days at £200 a day, without the precise scope of the work being defined at the outset. That is another £30,000. We we continued our investigation, more and more such items emerged from the woodwork. This is a disgraceful state of affairs—particularly as it is not the first time that the PAC has taken evidence from the Welsh Office on its monitoring of non-departmental public bodies. In 1987, we were highly critical of the way in which it had operated.
I put it to Sir Richard Lloyd-Jones that this was an unsatisfactory, indeed appalling, state of affairs. The permanent secretary readily acknowledged that monitoring and control arrangements were not effective. The Welsh Office even told the Committee that it could not give an unqualified assurance that it had adequate controls over the remuneration and terms and conditions of staff employed by non-departmental public bodies.
Sir Richard Lloyd-Jones is still in post and seems to be able to continue in post, despite a record of mismanagement of whose like I have never heard in the House. If the same thing had occurred in the private sector, it would have led to the instant dismissal of either the boss or senior officials in the enterprise concerned.
Sir Richard is not being paid tuppence-ha'penny a year to do his job. His current salary is £86,720. This is a serious matter, and I hope that my hon. Friend the Financial Secretary will tell the House what action the Treasury intends to take—not only in dealing with the question of mismanagement but in dealing with the officials who allow it to continue. It really is not good enough, and I feel that we are entitled to know what action will be taken.
§ Mr. Kim Howells (Pontypridd)
Did not the PAC identify one of the special problems affecting the Welsh Office—that Wales is administered through quangos? It is very difficult not simply to issue directives insisting that such quangos keep proper records but to prevent the inevitable consequence of running the Principality in such a way: jobs are done on the nod, through private agreements and understandings. Basically, the same people run all the quangos.
§ Mr. Shersby
That is interesting. I seem to remember a song that went something like this: "If you ever go to Wales, you will hear such funny tales." I am quite prepared to accept that in Wales matters are run very differently. Perhaps my hon. Friend the Financial Secretary will take that into consideration when he gives his heavyweight reply.
1042 The right hon. Member for Ashton-under-Lyne has mentioned the sale of the Rover group, and I shall do so only briefly. I think that the sale of Rover for £150 million gave us all cause for great concern, especially as the £150 million was not paid up until some months after the deal had been done. Many of us will remember that, over a long period, we tramped through the Division Lobbies voting tranche after tranche to the British Leyland Motor Corporation in its various guises. Over a long period, about £5 billion of public money was invested in that enterprise.
When Rover was eventually sold to British Aerospace, a first-class British company, I felt that at least Rover would be able to produce motor cars that the people of this country would be proud to drive once again. So it has proved to be. Rover is now a successful company, with a fine record of quality, and its cars are extremely popular. In selling the company, a contingent liability of about £1.5 billion was removed from the shoulders of the taxpayer. It was not, therefore, all bad news.
There were lessons to be learned from the sale of Rover, to which the Chairman referred, and it is right that they should be learned, but it is important to put the matter in perspective and to be thankful that we no longer have to grant huge sums of public money to a company that was not viable and which produced a poor product.
The Chairman referred to the possibility of a third of the motorway system being coned off for repairs. That is an appalling prospect, because expenditure on the road programme is at its highest for many years. It has always been my understanding that the citizens charter contained some assurance that we would not have to face the horrors of the epidemic of coning that has occurred on our motorways in recent years. I hope, therefore, that my hon. Friend the Financial Secretary will take to heart the words of the Chairman. That is a serious problem that every hon. Member is anxious to overcome.
The debate is of much importance to the House and to our constituents, because it gives members of the Public Accounts Committee and other hon. Members an opportunity to put on record our views, so that if future events show that our work had not been heeded, the necessary action can be taken. We can be modestly proud of our record that savings of more than £200 million a year have been made as a result of our work.
I pay tribute to Sir John Bourn and his colleagues at the National Audit Office for the splendid service that they provide to the Committee and to Mr. Beastall at the Treasury, whose wise advice often helps us to defuse a difficult situation.
§ Mr. Alan Williams (Swansea, West)
I, too, congratulate my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) on the way in which he performs his role as Chairman and on the way in which he manages to keep the goodwill of the Committee and to achieve consensus. In this Chamber, I shall later stretch consensus a little further than I would ever dare under his chairmanship. That, of course, is no criticism of you, Mr. Deputy Speaker. I am trying desperately to protect myself and my future.
1043 I pay tribute to the Comptroller and Auditor General for the work of the Audit Office. Without its detailed analysis, it would be impossible for us to carry out our investigations.
I repeat the criticism of the system that has been voiced by several hon. Members: it is frustrating when the incumbent at a Department whom we have questioned as part of our investigation is moved sideways or is prematurely retired before we can make further investigations. That has happened time and again. The hon. Member for Uxbridge (Mr. Shersby) mentioned the Welsh Office. The permanent secretary at the Welsh Office is due to appear before us again in December on yet another qualification of Welsh Office accounts. I understand that members of the Committee have initiated a sweep on whether he will appear.
It would be helpful if we could put in a little overtime and increase our productivity further to reduce the backlog of NAO reports and ensure that our investigations are more contemporaneous with its reports.
I shall ignore the rather racist innuendos of the hon. Member for Uxbridge about us Welsh and the way in which affairs are run in Wales, but sometimes even 'Welsh Members speculate about was going on in some of the nominated organisations.
To borrow words that our Chairman used about something of far greater financial magnitude, we had an astonishing session on the Development Board for Rural Wales. All members were incredulous about what they heard. We sat to discuss a £15,000 irregular payment authorised by the board's chairman in relation to holiday pay to get rid of a chief executive, but in the process of our sitting discovered a pension package that had not been revealed to anyone. Astonishingly, no one had costed it. I remember passing my calculator to my hon. Friend the Member for Pontypridd (Dr. Howells) and the hon. Member for Uxbridge supplementing some of my arithmetic. We costed the package at £120,000, at which point our Chairman rightly said that it would be helpful to ask the Welsh Office to give us a document showing the full costing.
It emerged that the £15.000 irregularity was the tip of the iceberg. The total package was worth much nearer £250,000—all to get rid of a chief executive who had served for 12 years. The new chairman had taken up his duties in April and, according to the permanent secretary. was determined that the chief executive should go. The chairman went to the Welsh Office in January and, without any attempt to cost what he was doing, set about negotiating any terms that would persuade the chief executive to go. The whole thing smacks of autocracy. He did not even inform the board of the details of the package that he had negotiated. He indicated that he was negotiating terms, but he informed the board of them only after the retirement had been announced and a package had been agreed.
What emerged from the permanent secretary, which endorses the suspicion of autocracy, was that, although the chairman is paid for only two days a week, the new chairman does four or four and a half days a week. In fairness, that extra time is unpaid. Some members of the Committee expressed concern that that suggests someone wanting to have rather more hands-on control of the organisation than a two-day-a-week chairman should have. The chairman, in his previous manifestation as a councillor in Montgomeryshire, had sat on a committee 1044 that negotiated three retirement packages for senior retiring officials. One would have thought that he would be aware of some of the costs and risks involved. Someone told me that, amazingly, he has been reappointed, but I think that it is slightly early for that.
Sadly, at this point in my speech, consensus comes to an end. I shall now deal with an issue touched upon by my right hon. Friend the Member for Ashton-under-Lyne—the sale of the 10 water companies. I have never seen anything more akin to statutory theft than that sale, and I shall demonstrate that resemblance with some figures.
We had 10 water companies with an asset value of £34.5 billion, yet they were sold for £3.6 billion—that was 10 companies for the price of one. The permanent secretary confirmed to me in answer to a question that, if those same water companies with their assets as on that day had to be re-created, it would cost £34.5 billion, not the £3.6 billion which it cost to buy them.
Furthermore, as I shall prove, we have lost money on the operation; the deal was even worse than our report suggests. My right hon. Friend the Member for Ashton-under-Lyne has told the House that there was a £5 billion write-off of national loans fund money which was yielding 12.5 per cent. interest to the taxpayer. In writing that loan off, £625 million a year in income was lost to the taxpayer. Given the level of tariffs at the time, the write-off meant that, by definition, as the privatised companies were not paying that money to the Exchequer, they had a built-in £625 million profit before they even started. On the basis of such profits, the chairmen of the companies gave themselves productivity bonuses for earning extra money.
That was not the end of the matter. Next, there was a cash injection. Hard public cash—£1.5 billion in taxpayers' money—was given to those private companies. Again, that cost the taxpayer money. We lost the interest which we would have received on the loan. Then another £190 million a year was lost to the taxpayer. Between the cash injection and the write-off, we gave the companies unsolicited profits of £800 million, and in doing so we robbed the taxpayer of £800 million a year. That was not a once-and-for-all payment; it was £800 million a year in interest payments.
I shall follow the sequence through. We received only £3.6 billion for selling .the companies, and we are losing £800 million a year as a result of having sold them. Therefore, by the time the companies have been in private hands for four and a half years, all that the Government received—the proceeds of the sale of the water authorities—will have been lost.
The companies were given away for nothing—or rather, they were given away at a loss to the taxpayer. The loss on the written-off loan—the £800 million a year—will continue after four and a half years, so our national assets, our industries, as represented by the 10 water companies, were literally given away not for nothing but at a loss.
Those calculations do not take into account other aspects of the sale. As if what I have described were not enough, not only did we give the companies away but we then gave them £7.7 billion in tax allowances, when the shareholders had spent only £3.6 billion to buy the assets in the first place. The companies are receiving in tax allowances twice what it cost them to buy the industry. Those 10 companies will pay virtually no tax for the rest of the century.
Those 10 water companies were ours. They belonged to everyone here. Our companies were given away, and we 1045 are now making an on-going loss as a result. Moreover, we are allowing them to rip us off with their charges and profits, and allowing the chairmen of the boards to milk obscene salary increases at the expense of the consumer. All that is happening as a result of the private giveaway —or throwaway—monopolies. That is why I described the process as statutory theft, and I do not retract that description.
I wish that I could be kinder about the electricity industry, but I cannot. Electricity privatisation was the same but different. It was not statutory theft but an exercise in how to make the deprived owner pay the burglar's costs. The same initial pattern was observed. Sixteen billion pounds of taxpayers' assets—our assets—were sold for what the Government describe as £8 billion in proceeds.
One could be misled into thinking that that £8 billion in proceeds means that the new private owners, the shareholders, paid £8 billion for the £16 billion-worth of assets, but I am afraid that you, like me, Mr. Deputy Speaker, would be naive if you made that assumption. In fact, the shareholders paid only £5 billion; that is all that was raised. The shareholders got £16 billion-worth of assets for £5 billion. Guess where the other £3 billion came from.
§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. Will the right hon. Gentleman remind the House which Public Accounts Committee report covered the electricity industry? I do not recollect one. I may be wrong, but I should be grateful if the right hon. Gentleman would specify the report.
§ Mr. Williams
I was referring to the report on the electricity industry, Mr. Deputy Speaker. I understand that we are free to discuss—
§ Mr. Williams
It follows by implication, Mr. Deputy Speaker. The Committee has already carried out the investigation, and I am trying to demonstrate that what happened in one instance—
§ Mr. Deputy Speaker
Order. The right hon. Gentleman knows full well that the debate is to cover certain specific reports—a great number of them. He must refer to those reports; he must not anticipate the results of the Committee's current inquiries. The right hon. Gentleman has plenty of reports to choose from, and there is plenty of meat on them, so I urge him to stick to the reports before the House.
§ Mr. Williams
I am trying to draw an analogy, Mr. Deputy Speaker. I am trying to show that what happened once can happen again, despite the fact that there has been a National Audit Office report and a PAC report on water privatisation, both of which demonstrated the disregard for public assets. One case is a variation of the other and I am explaining that variation. The Committee must consider the detail, but what happened was that the Government created a notional, non-existent debt of £3 1046 billion which the companies had been made to pay back to the Treasury. However, that money did not come from shareholders; it came from us, as customers.
I am trying to explain that, whereas in one instance an industry was given away at what proved to be a net loss to the customers, in the other case—that of the electricity industry—there was a variation on the same system. The electricity industry was given away at a cost of £5 billion to the shareholders but at an on-going cost of £3 billion to us, the customers. That is reflected in the tariffs paid by every customer in the country. In both cases, the financial interests of the nation and the consumer have been ignored in the pursuit of dogmatic political objectives.
It is rather fascinating to note that not only the permanent secretaries who are so often responsible for the offences—if that is the appropriate term—that the PAC has to investigate but the Ministers who are the architects of the arrangements move on. In the case of both water and electricity privatisations, the perpetrators have either been promoted or elevated to the other place. In view of the facts that I have put before the House today regarding the ongoing loss that is being carried by the taxpayer, it seems to me and to many of my constituents that, instead of elevation, they should have faced incarceration.
§ Mr. Richard Page (Hertfordshire, South-West)
I must first apologise to the House and to my hon. Friend the Financial Secretary for the fact that I have unfortunately accepted a speaking engagement later this evening and so will not be present for the end of the debate. For weeks, the shadow of the Maastricht debate has been hovering over our timetable, and I was not sure when this debate would take place.
I add my thanks to our Chairman, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who chairs us with quiet determination. No matter how much we push and try, he always gets his own way, and it is one of the strengths of our Committee that he manages to ensure that we produce a report on which we are united. When we speak, we speak with one voice, even if we may not have extrapolated as much from our criticisms of aspects of the way in which the water companies were privatised as the right hon. Member for Swansea, West (Mr. Williams). The unanimity of our reports is our strength.
The Conservative Benches are remarkably empty. I should explain that quite a few members of the Committee have retired, some have been promoted, and one has even managed to become Chairman of Ways and Means. I urge the House not to regard the absence of my hon. Friends as indicative of a lack of interest.
§ Mr. Maxton
Is the hon. Gentleman honestly suggesting—perhaps there is a little of this on the Opposition Benches, too—that the only hon. Members who are interested in these debates are the members of the Public Accounts Committee? One would have thought that many more hon. Members on both sides of the House would be interested both in the accounting done by the PAC and in the general political points that are raised in the reports.
§ Mr. Page
I can only agree with the hon. Gentleman. The substance of the reports is absolutely fascinating, and I am surprised that our debates on them are not used by 1047 more hon. Members as a vehicle for making points, political or otherwise. The evidence is there. The baseline information is agreed, and I should have thought that many an hon. Member could make quite a few telling points on it. One need only look at the pile of papers beside me to realise that the source material for a filibuster is almost endless—although I do not propose to use the documents for that purpose tonight, Mr. Deputy Speaker.
I also appreciate greatly the work done by the National Audit Office under the guidance of Sir John Bourn. His consistently positive and helpful replies to our queries assist us in taking evidence.
I do not propose to mention any of the reports to which the motion particularly draws attention. I propose instead to refer to the evidence we took on the progress of the first executive agency—the Vehicle Inspection Agency. The Committee considered that matter with great interest because it was our first progress report in respect of a concept that has attracted a great deal of attention and intense interest—not least because of the number of activities that are going down the agency route.
It is another strength of our Committee that we do not simply make reports and leave it at that; we are constantly reassessing the position. We took the evidence on the agency in July and were able to draw comparisons between the evidence that we heard and the information contained in our 1987–88 report on heavy lorries. Those comparisons showed that there had been improvements—for example, in the weighing of heavy lorries.
The message of the evidence seemed to be that there was greater flexibility and a better, more consistently hands-on management approach. Let me give an example. To begin with, it took 2.5 days to process test applications. The time taken then dropped to 1.5 days, and I believe that the target is now one day. A similar message emerges from the number of axles per lane coming through each of the testing stations.
The hon. Member for Pontypridd (Dr. Howells) asked Mr. Brown, the new head of the agency, what was meant by the statement that the inspectorate intended to undertake a review of its grading structure to overcome the inflexibilities of the civil service code. Mr. Brown replied that the agency intended to do that because it felt that the code made the organisation more hierarchical than he would like and brought in artificial dividing lines between one grade and the other which did not necessarily equate to natural breakpoints in the vehicle inspectorate's organisational needs. That again points to flexibility and the ability to make changes far more quickly than previously seemed possible in the civil service.
We shall watch the changes with interest, and with the anxiety with which one watches anything new. The agency may have some way to go, but if all the agencies get off to as good a start, the idea will no doubt gain weight and momentum.
I am one of the members of the Committee who likes to try to paint a happy picture at times. To my mind, however, the next report to which I intend to refer—the 10th report on major defence projects—is an unhappy one. We are now faced with the point that I put to my hon. Friend the Member for Uxbridge (Mr. Shersby) concerning the change of accounting officer. For years we had the delights of Sir Peter Levene, who dealt with us with his customary skill and relaxed attitude and approach. He answered most questions by saying, "Yes. It is a problem but it was before my time and before my new system was 1048 introduced." Now, of course, before we have an opportunity to examine the effectiveness of his system and his changes, Dr. McIntosh has moved to the crease to try to defend and explain the actions not only of Sir Peter Levene but, because of the time that some Ministry of Defence projects take, of his predecessors.
The report contains parts that condemn the delay, procrastination, changed minds, dithering and unexplained gaps in decision making, all of which cost the taxpayer money and represent a lost opportunity not only for this country but for exports. The House knows that, if any company wants to sell a defence product, it must have the endorsement of being bought by the British armed forces. Overseas buyers will not buy a unique product, something that is made by one arms salesman or one arms company for defence purposes. They want the British Government's endorsement. Some of the time scales involved in the British Government giving their endorsement are sad and sorry tales. When we took evidence, I mentioned the saga of the advanced short-range air-to-air missile. I can only quote the PAC's conclusion. One must be a little careful because some of the topics involve confidentiality. However, the report shows that the PAC is concerned that it has taken 13 years for ASRAAM to enter full development.
There have been two competitions and delays for more than a year in deciding when and how to go to the next step. More frightening is the fact that, now that there is a new world order so that the immediate pressure is not upon us, it emerges that at a crucial point the Ministry of Defence was not pushing ahead in ordering the development of a missile that this country could have needed. On that point alone, the Ministry of Defence stands condemned.
A thread that runs through the MOD is its unsatisfactory speed in making decisions and in giving a clear sign whether it wants to go ahead with a certain project. A particular example has arisen in my constituency. A British company is not being allowed to quote in respect of the servicing of military helicopter engines that are to be shipped abroad instead. I find that exceedingly unsatisfactory.
My final point relates to ground that has already been trampled over. It relates to the No. 11 report on the retirement of the chief executive. I shall not recount the story, because that has already been done all too well. However, if hon. Members had been present and seen members of the Committee teasing out information, whether it be about overpayment in lieu of leave, a consultancy package, payment in lieu of notice, or the make-up of a pension package, they would have seen it all come out steadily bit by bit. It was just like a television courtroom drama. Undoubtedly, when the verdict was given, the man in the dock was guilty.
That is one reason why the work of the Public Accounts Committee is so valuable and should continue. You will know more than most people, Mr. Deputy Speaker, the value of the Public Accounts Committee. I look forward to it continuing its work for many years to come.
§ 6.4 pm
§ Dr. Kim Howells (Pontypridd)
I also reflect the gratitude of members of the Committee to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). He has been a superb Chairman during the past 1049 two sessions in which I have taken part. I also thank Sir John Bourn and the Treasury officials and their teams. They have provided us with superb back-up.
I should like to discuss the fifth report, entitled "Creating and Safeguarding Jobs in Wales". I do so because we are going through a time when, for those of us who represent Welsh constituencies, creating and safeguarding jobs has never been more important. The first paragraph of the report deals with the relative position of jobs in Wales and it sets the scene very well:Over the last 30 years unemployment in Wales has been consistently higher than the average for Great Britain. Successive Governments have placed considerable importance on tackling unemployment and creating and safeguarding jobs in Wales. The Welsh Office, the Welsh Development Agency … and the Development Board for Rural Wales spent about £200 million in 1990–91 on various schemes directly or indirectly aimed at creating and safeguarding jobs in Wales.That is a large sum and it proved a source of great concern among members of the Committee. We looked at it very carefully and tried to quantify as best we could exactly what that sum had returned to Wales in jobs. In other words, we tried to find out whether we were getting value for money. Right hon. and hon. Members have already said that that is the prime purpose of the Committee—are we getting value for taxpayers' money?
The Committee makes it clear that, in terms of the performance indicators, it is not easy to decide whether we are getting value for money in Wales. For example, passages of the report clearly show that we have in Wales a very poor statistical data base upon which to judge the success or failure of the various schemes of job creation that have been put forward. For example, the first page of the report also states:We consider it unsatisfactory that, despite the Welsh Office's undertaking in 1988 to improve the accuracy of the figures provided by the database for regional selective assistance, inaccuracies subsequently remained uncorrected.We have already heard much about some of the problems that have emerged in terms of the Welsh Office's job in monitoring its various functions and Departments. Calculations of success or failure rates throughout have been proved to be rather poor in the published report. For example, the first page further states:"We are concerned that a large percentage of regional selective assistance projects did not start … We are concerned that the jobs achieved on regional selective assistance projects were well below the forecast.That is of enormous importance. The report recommends, for example, that the Welsh Office should tighten up the process of appraising project applications in order to discourage applicants from making what it calls over-optimistic job forecasts. Perhaps nowhere in any of the reports is there a more prescient warning.
I should like Conservative Members to give some sign that they have read that recommendation. It should be extended to Ministers and to the Secretary of State for Wales, all of whom are very fond of quoting job projections which, in terms of their usefulness, are about as valuable as a ripped dap. For those who may not be familiar with it, "dap" is a term that Welsh people use when referring to a plimsoll. It is very difficult to call it anything else if one comes from south Wales.
§ Dr. Howells
Indeed, the job projections are about as useful as a wet echo.
The affliction of over-optimism, rightly condemned in the report, appears to have taken a grip on the Welsh Office during the dark ages when the Cathays Park fortress was presided over by Lord Crickhowell and Lord Walker. As Secretaries of State, they developed hype and repackaging to a fine art. When Peter Walker was Secretary of State, over-optimism became a religion. Anyone who dared to challenge it with more than a whisper of scepticism was accused of talking Wales down. Many of us have been accused of talking Wales down by showing a little scepticism.
I am sure that right hon. and hon. Members who are present know that Lord Walker has been appointed by the President of the Board of Trade to supervise the distribution of the as yet mysterious and unquantified barrel of aid to the coalfields to soften the impact of the pit closures. Most people in Wales believe that the appointment is designed to substitute with hype what cannot be provided by financial resources. Its brazenness makes Madonna look positively modest. I hope that the President of the Board of Trade will read the report before he dispatches Lord Walker and his wagon train to the north and the west of this troubled land.
The President will read on page vi that, despite the much heralded triumphs of Wales in attracting inward investment, which we all welcome and celebrate, there has been a risein the number of persons claiming unemployment benefits; a continual decline in the levels of employment in heavy industries; and relative to other economic regions in Great Britain there has been a higher proportion of people unavailable for work, a decline in the average wages for full-time workers and a continuing lower gross domestic product per head.I may add that the GDP is lower than that for any part of the United Kingdom except Northern Ireland.
To counter that gloom, the afflicted over-optimists—as they are described in the report—told the people of Wales that the various employment schemes administered by the Welsh Office, the Welsh Development Agency, the Development Board for Rural Wales and so on—job creation schemes themselves constituted a new and burgeoning industry in the Principality—had undoubtedly had abeneficial effect on the economic situation in Wales.However, as the report says, proving that assertion is less easy than boasting about it.
The report says:the forecasts and the figures for jobs achieved were always calculated in terms of gross jobs created and safeguarded without adjustment for various factors such as additionality, displacement and supplier effect. Therefore, the published figures almost always over-stated the net jobs.That is a serious charge, if ever there was one. It calls into question the veracity of a significant part of the Hollywood rags-to-riches success story which successive Ministers of the Welsh Office have attempted to project for the Welsh economy in the past 13 years. However, no one who lives in Wales regards that charge as surprising. We are glad that the report highlights it.
No one who witnesses the misery of high unemployment and low wages, from Holyhead to Newport and from Delyn to Pembroke dock, finds the charge surprising. We watch the very fabric of Wales being torn and strained by the substitution of hype for real action and we ask whether we are getting value for money from the sums expended on 1051 job creation in the Principality. It is not easy to find a reliable answer, for the simple reason that the Welsh Office fails to honour an undertaking that it gave in 1988 to the Public Accounts Committee to improve its systems of monitoring and measuring the results of its expenditure. The report says that "inaccuracies subsequently remained uncorrected". That is significantly the case in respect of regional selective assistance, which is vital for Wales and will become vital for other parts of the United Kingdom.
The report says,We note Regional Selective Assistance is one of the largest schemes operated by the Welsh Office and is expected to create or safeguard over 12,000 jobs each year. We are concerned that a large percentage of regional selective assistance projects did not start, and we endorse the Welsh Office's intention to identify the reasons why this was so.The Welsh Office should have been able to tell us why this was so, but it could not do so. We may well ask why. Perhaps we can explore the matter further. The report says:We are equally concerned that the jobs achieved on projects were well below the forecasts but note that the Welsh Office will secure a better understanding of the reasons for the shortfall in achievements when the evaluation study is completed. We recommend that, in addition, they should tighten up their process of appraising project applications in order to discourage applicants from making over-optmistic job forecasts".There is that phrase again—"over-optimistic job forecasts". We are a land cursed by this over-optimism, and that is the truth of it.
If I may for a moment mangle Antonio Gramsci's dictum, may I suggest that the Welsh Office Ministers should display a little morepessimism of the intellect and optimism of the spirit",rather than their version, which tends to be optimism of the intellect and, reflecting their dismal electoral results in Wales, pessimism of the spirit.
There is no doubt that evaluation exercises in job creation are expensive. We watch that carefully. We want to ensure that even evaluation exercises give value for money. Highly professional staff are required to carry them out. There may be people among us who would argue, "Spend the money even on failures, rather than endless evaluation exercises." That is a dangerous theory.
We have already heard about the non-departmental government bodies—the so-called quangos. They appear before the Committee and we realise that they seem to be answerable to no one at the moments when it matters most that they should be. It is all very well to drag them in. As my colleague on the Committee, the hon. Member for Hertfordshire, South-West (Mr. Page) said, mysteriously the guilty men have been retired or moved on. They have gone for some reason or other. They never step into the Public Accounts Committee. They seem to be outside the direct control and accountability of the Government.
We have heard the saga of the redundancy package of the chief executive of the Development Board for Rural Wales. As you know, Mr. Deputy Speaker, the Committee was captivated. It was absolutely extraordinary. We all sat there trying to do our bit. We were captivated as layer after layer, like an onion, was peeled away from one financial perk after another. The hon. Member for Hertfordshire, South-West out of modesty did not mention that in the end he said to the chief accounting officer, "Don't tell me you gave him a car as well." The chief accounting officer said yes. If I remember rightly, he could not confirm its colour.
1052 The problem is serious in a small country of 2.8 million people, which is ruled by quangos. Often, the administrative cadres which control the quangos are incestuous and self-sustaining. Small numbers of powerful families predominate and have their fingers in almost every pie in Wales. I have heard the kind of conversation that go on. Given the serious and pointed criticisms that we have heard this evening, it was frivolous of me to jot down such a conversation. It would run as follows: "OK, you be chairman of the tourist board and the water board this week. I'll be chairman of the Welsh language board and the broadcasting board next week and the week after, your son can take over the Welsh Ruritanian branch of the sports council and my son can be chief reporter on 'This Week in Westminster'."
Wherever we look, those people seem to run things. If we do not have checks and balances in such a society, we shall witness the Welsh Taffia continuing to thrive in the manner to which it has become accustomed—born to rule by means of mutual back scratching.
§ Mr. Shersby
The hon. Gentleman makes an important point. Not so many years ago, quango shooting was a popular pastime of my hon. Friends. Sir Philip Holland, the then hon. Member for Carlton in Nottinghamshire, made a successful name for himself through badgering the Government to get rid of those quangos. Over a period, many of them were disbanded. Listening to what the hon. Gentleman says about the position in Wales, it appears that the shooting may not have been too good there and that many of them have thrived despite Sir Philip's keen eye. I hope that my hon. Friend the Financial Secretary will say a word about that. It is an aspect of government in Wales that should be looked at.
§ Dr. Howells
I thank the hon. Gentleman for his pertinent intervention. The problem is that, while one is attempting to shoot those quangos, the Welsh Office is throwing grenades and appointing new quangos. There is no accountability in terms of who is appointed to quangos.
§ Mr. Roy Beggs (Antrim, East)
I trust that the hon. Gentleman will agree that, in any review of quangos within the United Kingdom, we would appreciate a thorough examination of the continuing growth of quangos to the total exclusion of elected representatives at any level in Northern Ireland.
§ Dr. Howells
I could not agree with the hon. Gentleman more. It is a serious question, which, I am glad to say, the Public Accounts Committee has tried to address. I hope that the point will be well noted by the Financial Secretary to the Treasury and that he will tell us what he thinks about the subject when he sums up.
The report is vital because we need to know the reasons behind the creation of those quangos. The Welsh Office, which appoints the quangos, is the branch of Government that has, in the past two weeks, signalled the end of another 1,000 mining jobs in Wales, a further slimdown in steel making, and the possible shake-up of as many as 3,000 jobs at the Driver and Vehicle Licensing Agency in Swansea and innumerable other jobs spread throughout the Principality.
§ Mr. Alan Williams
Does not my hon. Friend think that there is an odd poetry about that situation? The DVLC was brought to Wales in the late 1960s under a regional aid programme, and now 3,000 jobs will be up for sale. The 1053 contracts are to leave Wales and go to private purchasers in England. It would be interesting to work out what it cost to bring them in and compare it with what the Government hope to gain by selling them off again.
§ Dr. Howells
Absolutely. One of our reports on the great computer sagas—perhaps it was the Metropolitan police computer saga—said that cheap labour in the Philippines may programme the new police computer or put the physical records on the computer sheets. I hope that that does not happen to the DVLC jobs in Swansea.
We should be acutely aware of the need to ensure that the Welsh Office at least has the statistical gathering ability to identify and target successful job creation projects and to learn from its failure in other areas. That is at the heart of the report. I do not blame the civil servants in the Welsh Office, who have enough of a burden to carry anyway, if only the cruel jibes often aimed at the Welsh Office by its critics in Whitehall—allegations that it is second only to the Ministry of Defence in its ineptitude. I have heard it said that a posting to the Cathays Park fortress is the equivalent of a Wehrmacht officer being sent to the eastern front in 1943. I have always found Welsh Office staff helpful and efficient and, in private conversation, frustrated because they know full well the difference between the hype and the reality of claims made about job creation. No one is in a better position to know that.
For example, they know about some of the dubious triumphs claimed by Welsh Ministers for jobs created by inward investment. A brief example from the report is contained in a passage involving an exchange between me and Ian Rooks, executive director of marketing in the Welsh Development Agency. I said:I have the most important jet engine refurbishment plant in Great Britain in my constituency. It used to be owned by British Airways and has lately been taken over by General Electric of America. Is that takeover by General Electric going to be defined as inward investment?Mr. Rooks answered,Yes, it is.I said:But no new jobs have been created.Mr. Rooks replied:That is correct. We use the same definitions as laid down by the IBB.I asked the Library what IBB stood for and a helpful research assistant said that it means the Invest in Britain Bureau, which is a quango that we have not had up before us yet, but I hope that we will.
§ Dr. Howells
I am sorry to hear that.
Mr. Rooks then said:There is a standard approach by all regions throughout the UK in measuring inward investment and that, according to the criteria, is a legitimate inward investment for Wales.I said:Presumably it comes within the definition of safeguarding jobs, does it?Mr. Rooks answered,Yes it does.I said:But no new jobs are created.He said:Not in the short term; there may be, we do not know.I said: 1054There may be layoffs as well of course.He replied:Correct. At the moment we are just regarding it as an acquisition.I find that extraordinary. If the people of Wales are to have confidence in those paid to create and safeguard jobs in the Principality, they should not be subjected to such double-speak—perhaps we should call it Walker-speak, after its prime exponent. In a less complicated language, such statistical exercises might more accurately be termed "cooking the books". That is the last thing that Wales requires in its effort to stave off the spectre of mass unemployment hanging over it.
§ Mr. Barry Jones (Alyn and Deeside)
Does my hon. Friend remember how, in the last Parliament, Lord Walker, as he is now, told the Chamber that Wales's unemployment problems were over and that we could happily look foward to a future in banking and banking services? Significantly, when the recession made itself known to us in Wales, Lord Walker decided to leave office and is now under what we might call "House arrest" in another place.
§ Dr. Howells
If Lord Walker is under house arrest, I beg it is a comfortable one. However, my hon. Friend made an important point.
Still less do the people of Wales require any cooking of the books in respect of training and enterprise councils —also covered by the report—or in relation to the provision of training, retraining and upskilling generally. As the report makes clear, it is a serious on-going problem in Wales. I quote Mr. Phillip Head, the chief executive of the Welsh Development Agency, who gave evidence during the inquiry:I should like to see a position where certainly training provision is there for the unemployed and for the school leavers, but I should also like to see some sense of upskilling for those in work because as you quite rightly point out Wales is at the bottom of the wage league in the UK. We are changing our own actions and our own strategies towards trying to attract what I would call more added value investment, another glib phrase economists use I am afraid though I think it sums it up. That will include skill availability. In some of the surveys I have seen, skill availability or the lack of its is mentioned as a constraint by companies but not necessarily as a constraint to expansion at the moment. It is a coming problem.For too long, Wales has been held up as some sort of unmitigated triumph for hands-on interventionist government. It deserves that accolade in some respects. It has certainly provided a temporary home for a series of refugees from Thatcherism, despite efforts to plant fanatic Thatcherite agents like Mr. Nicholas Bennett in office to keep an eye on some of his less dry colleagues.
However, the proof of the Government's pudding is in the eating. At present Wales is eating little more than dust. Statistically and organisationally, the business of job creation and protection in Wales must be reviewed with a degree of energy and commitment which, until now, has been significantly lacking in some crucial respects. If the Welsh Office as now organised and administered is not up to the job, we must have an elected and accountable Welsh assembly that is.
The matter cannot be allowed to slide. The confusion of the maze of agencies claiming to be in the job creation business must be straightened out and a clear referral system for potential investors and employers devised. Geographically, Wales is on the periphery of Europe and 1055 must live off the talents, skills and professionalism of its work force. We require clarity of language and statistics, not Walker-speak or creative accounting. To continue with those policies will be to continue to court economic suicide.
§ Mr. Barry Jones (Alyn and Deeside)
My remarks relate largely to Command Paper 2074, the Treasury minute and, particularly, the fifth report on creating and safeguarding jobs in Wales. The context in which we discuss the report is as follows: the number of people out of work in Wales is 129,000, 3,000 of them in my constituency; so far this year, there have been 4,500 actions for mortgage repossession in Wales; the coal industry faces oblivion; the steel industry fears short-time working; the aerospace industry is questioning its long-term future; 1,800 businesses have already failed this year; the construction industry is on its knees; and, importantly, the Government are instituting a review of assisted area status in Great Britain, under which Wales is certain to lose some of its development area status.
It is fair to put the discussion into context by stating that a Labour Administration set up the Welsh Development Agency and that a Labour Administration created the Department of State—the Welsh Office. They created the office of the Secretary of State and transferred from London to Cardiff the important powers contained in sections 7 and 8 of the Industry Act 1972.
We heard a superb, magisterial speech from my right hon. Friend the Chairman of the Public Accounts Committee. It was a privilege to hear his unrivalled exposition. Right hon. and hon. Members have levelled harsh and justified criticism of matters related to the Development Board for Rural Wales. I hope that the organisation is picked up and shaken vigorously. There is a smugness and complacency at its heart. In some ways it is good, but in many ways bad, that its headquarters are a long way from both London and Cardiff. Those at the top should consider their position in relation to the board and recent decisions. I say that with some sadness as I helped to handle the legislation that created the Development Board for Rural Wales long ago when there were Labour Administrations.
My hon. Friend the Member for Pontypridd (Dr. Howells) mentioned training. Paragraph 76 on page 17 of the Treasury minute relates to training in Wales. There is considerable complacency at the Welsh Office. The Committee said that it wanted a review of the skills and training needs for Wales at the earliest opportunity. The response in paragraph 76 is far from urgent. Those of us who follow such matters in Wales know that nothing substantive is being done about them by Her Majesty's Government or the Secretary of State for Wales.
I can give examples from my constituency of the predicament that we face in Wales. We had three great companies: British Steel, British Aerospace and Courtaulds. Each company had a large, quite famous and very successful apprentice and training school. Courtaulds left the district, and there is now no apprentice school. The one at British Steel, arguably among the finest in the world, now barely merits the name. Sadly, the apprentice and training school of one of Europe's greatest aerospace factories, the Broughton works—which has 4,000 staff—has recently closed in all but name.
1056 Decisions as serious as those three on the future of our industries in north-east Wales ensure that there will he a serious problem throughout Wales in the next century. The skills required to enable our industries to compete will no longer exist. I do not like the Government's response which is contained in the Treasury minute and I urge the Department to consider the matter urgently.
My hon. Friend the Member for Pontypridd made some shrewd remarks on safeguarding and creating jobs in Wales. I am not at all sure that the Welsh Office is capable of responding to the strictures, advice and prodding of the Public Accounts Committee. Jobs are one of the most important issues facing Wales and are critical for the next century.
I should like to offer an example of why I believe all is not well, despite the detailed investigations of the Committee. One week ago, when the Secretary of State for Wales was winding up the debate on the future of the coal industry, he said:In one day we lost 8,000 jobs at Shotton steel works. This Government created the Deeside industrial park, which now provides 10,000 jobs."—[Official Report, 21 October 1992; Vol. 212, c. 527–28.]The right hon. Gentleman is head of the Welsh Office and hence the political head of Wales. I should like to explain why I am far from sure that the Welsh Office will do what the Committee wants it to do while the right hon. Gentleman is its political head.
My local knowledge enables me to say that the Government did not create Deeside industrial park: Mr Callaghan's Government did. And 8,000 jobs were not lost in a day: they were lost between Christmas 1979 and Easter 1980. Nor were 10,000 jobs created—possibly 5,000 have been. We welcome every new job, of course, but this story shows why the PAC has criticised the Welsh Office in the past for exaggerating.
The political head of the Welsh Office last week gave forth in this Chamber—I am sure unintentionally—a series of major inaccuracies that no member of a British Cabinet should ever have uttered. When I rose to attempt to correct the right hon. Gentleman, he would not give way to me.
§ Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)
Does the hon. Gentleman agree that it is not altogether surprising that the Secretary of State should make such remarks when he was not even consulted about the pit closures in Wales?
§ Mr. Jones
I am sure that that welcome intervention was wholly in order. We are talking about the safeguarding of jobs in Wales. We are desperately worried about the future of our coal mining industry, and we are angry about and disappointed by the contribution of the Secretary of State. It appears that he was not consulted about the proposed death of, for instance, the Point of Ayr colliery. Precious, highly skilled jobs in the mining industry in Wales are at stake. Other collieries in south Wales can probably find more persuasive advocates in other right hon. and hon. Members, but I speak about that particular colliery because it is but a few miles from my constituency.
The Secretary of State for Wales appears to have allowed himself to be pushed around by the President of the Board of Trade, and I suspect that he did not fight hard in that informal group of Ministers for the collieries of south Wales. He appears to have gone along with the 1057 closures. In those last few hours, it seems that British Coal and the President of the Board of Trade and his civil servants decided to add Point of Ayr colliery to the list because not enough of a fight had been put up in the informal meeting of Ministers. The Secretary of State was treated like a tea boy, as some of my hon. Friends have already said. He did not defend the pits and he has not delivered the goods. We must all work with him to save our pits and we hope to remove Point of Ayr from the list.
It is also clear from the PAC report that the Welsh Office database was not good enough. I hope that the Secretary of State will take that matter in hand. I hope, too, that he will stop making glib, irresponsible and unjustifiable statements to the House. I fervently hope that he will find it within himself to apologise.
§ Mr. John Maxton (Glasgow, Cathcart)
I congratulate the Chairman and the whole Committee on the work that they do in producing these excellent reports. Many years ago I was a member of the Committee under the chairmanship of Joel Barnett and of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). Two reports stand out in my memory: the major report on De Lorean, and the investigation into the closure and sale of Hamilton college. The latter was a test case for the Committee to which I could bring expert knowledge, because I used to lecture at the college before the Government closed it.
It is, however, a pity that so many reports are being taken together and that so few Members appear to be interested in them. I do not know about the Conservative party, but my party is on a one-line Whip. I do not know whether I should say this, but Members tend to go elsewhere when they are on a one-line Whip, assuming that the business of the House is unimportant. It is nevertheless absurd that we should debate 43 reports by the PAC in one evening. The control of public finance is one of the most important jobs of any legislature.
As my hon. Friend the Member for Pontypridd (Dr. Howells) said, all this comes about because of our over-centralised legislature, which is dominated by the Executive. Only when we decentralise power to the nations of Wales and Scotland and to the regions will we have legislatures that can properly consider these matters and scrutinise public finance in the way that we need.
I intend to limit my remarks to just two reports, the report on the sale of the water authorities in England and Wales and the report on the condition of Scottish housing. In an earlier exchange that I had with the hon. Member for Hertfordshire, South-West (Mr. Page) we agreed that this was an opportunity to raise political points arising out of the reports. I am therefore surprised that the Scottish National party, which has made great play of the possible sale of water in Scotland—it is to be the party's next great political issue—is not represented here this evening. Nor are some of my own colleagues who are members of an organisation known as Scotland United. [Interruption.] I was not of course talking about my hon. Friends the Members for Glasgow, Rutherglen (Mr. McAvoy) and for Carrick, Cumnock and Doon Valley (Mr. Foulkes).
The members of Scotland United have claimed that they will raise great issues relating to Scotland on every 1058 possible occasion, yet none of them is present to discuss the sale of water in England and Wales, which presents the opportunity to see what happened there and to make valid political points about what might happen if a similar sale takes place in Scotland. We should always remember that, when water was sold in England and Wales, it was not sold in Scotland. In Scotland, it is still owned and run by the Scottish regional and islands councils. It remains a local government function.
The ownership of water in Scotland, and certainly in the Strathclyde region, involves some of the most beautiful countryside not just in Scotland, but in Britain and even in the world. These facilities belong to the people of those regions, and the Government have no mandate whatever to sell water to private companies. Before any hon. Member says that that makes me a nationalist, let me say that the Government have no mandate because water privatisation was not in the manifesto that they placed before the Scottish people at the recent general election. There was not a single reference to that, and just before the election Ministers assured us that they had no intention of going down that road.
Within weeks of managing to cling on to his job by his fingertips, the Secretary of State for Scotland announced that he was looking at that possibility. Why? The reasons are the same as those given for selling off water in England and Wales and some of them are given in the report.
One of the Government's reasons for selling water in England and Wales was that it was a local government function. The Government want to introduce a new single-tier form of local government in Scotland and believe that, by selling water, they can finance that reform and achieve their desired structure of small, weak local councils which are unable to stand up to central Government. There is the same need to finance water and sewerage developments in Scotland as there was in England and Wales, and that is driving the Government down the road towards privatisation.
EC regulations mean that higher standards are required from our water authorities. Perhaps we are trying harder to meet those standards than some of our fellow members of the EC, but as is shown the PAC report and the report which I am grateful to the Convention of Scottish Local Authorities for sending me on the sale of water in England and Wales, it is not necessary to put water and sewerage services into private hands in order to finance the necessary developments. That is clearly shown in the reports.
§ Mr. George Foulkes (Carrick, Cumnock and Doon Valley)
In his excellent contribution, my hon. Friend mentions that the proposal to privatise water was not included in the Conservative party's Scottish manifesto. Has he read the results of the interesting poll published in the Glasgow Herald showing that only 4 per cent. of Scottish people are in favour of the privatisation of water and that only 7 per cent. of Tory voters there are in favour? Even if the Tories are interested only in self-preservation, they might have a rethink on the issue.
§ Mr. Maxton
I am aware, Mr. Deputy Speaker, that you are beginning to get slightly edgy. I agree with my hon. Friend and I read that opinion poll. Rightly, the people of Scotland have made it clear that they do not want privatisation.
1059 However, reforms and developments of Scotland's water supply and sewerage system are needed. In Strathclyde large amounts of sewage are still dumped in the sea, and although at the moment there appears to be no risk to Strathclyde, we do not want dumping to continue.
Privatisation is not necessary for development and some of the questions in Committee asked by my hon. Friends, especially by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis), bore that out.
The Scottish National party and the organisation that now calls itself Scottish Militant Labour suggest that somehow we do not pay for water now but will pa;y for it if it is privatised. Water is currently paid for through the poll tax and in the near future it will be paid for through the council tax. We must accept that in future we shall have to pay more for our water and sewerage systems to ensure that necessary developments are carried out. Investment is essential, but there is no need to privatise.
An interesting feature of the report is that all the arguments advanced about water privatisation in England and Wales were to the effect that it would allow companies to enter the market and raise share capital which would then be used to recapitalise and invest in the industry. What happened? First, the evidence in the report shows that 61 per cent. of investment in water in England and Wales since privatisation has come from the consumers by way of increased prices. The money has not been raised by loans or by new share sales. I agree that the water companies have borrowed money for investment, but there is no reason not to give Scottish regions greater power to borrow money to carry out the necessary investment.
Almost none of the money that was raised for improvements in England and Wales has come from increasing the share capital, even though the share value has increased enormously. I accept that to meet Scottish needs price increases might be necessary, but that will happen whatever way the Government decide to proceed. Scottish needs could also be financed by giving Scottish local authorities a green dowry equivalent to that given by the Government to the new privatised companies in England and Wales. We have heard about a £5 billion write-off and a £1.5 billion cash gift.
Privatisation would have too many drawbacks, the Scottish people do not want it, and it would be little or no benefit to the Scottish people. We do not want Scottish water and sewerage services run by private companies which are interested only in profit. We do not want them to have our land—and I emphasise that it is our land. I am a ratepayer in Strathclyde, and the land around Loch Katrine is owned as much by me as by every other ratepayer and taxpayer in the region. We do not want that land to be given away to private companies which will then sell it to developers who may ruin some of our most beautiful landscapes. Scotland does not want laws that will allow the new companies to cut off people's water supply. Scottish local authorities currently have no such rights, and such cuts would give rise to health risks and social dangers.
I hope that the Secretary of State for Scotland and his financial and political advisers have read the PAC report. His advisers will tell him that water privatisation in Scotland is not the answer, that it is not wanted by the Scottish people, and that it is not the way forward.
1060 I have some criticisms of the report on the condition of Scottish housing which I thought was over-reliant on the word of Scottish Ministers, because the Committee had allowed itself to be taken in by what they were saying. For example, it says:We questioned the Department on the reliability of their information on house condition, the reasons for shortcomings in their information, how they intended to improve their information and what action they intended to take to monitor progress in house condition.The Department agreed that comparatively little information was available on the condition of the housing stock in Scotland. They explained that they were actively seeking more information and that the picture was becoming clearer all the time. … they were conducting a national house condition survey of the sort which had been conducted regularly in England, Wales and Northern Ireland.Reading that, one would wonder who had been in charge of the condition of Scottish housing for the past 13 years. The answer is, of course, the Conservative party and the officials of the Scottish Office. If one read that, one would also think that, out of the blue, those people had suddenly become aware that there was a need to know about the condition of Scottish housing. One would believe that nobody had ever raised the subject before, and then along came these forward-looking civil servants and Ministers who said, "We need to know more about Scottish housing than we do. It is not in the state in which it should be."
The simple fact is that, in every housing debate that I can remember since I came to the House, and in every debate on a Scottish housing Bill—many have been before the House—a Labour Member, whether it was me or somebody else, has tabled an amendment, and spoken to it, suggesting that we have a house condition survey in Scotland. Time and again, to the point of tedium, I have made that point.
§ Mr. Maxton
I can do without my hon. Friend saying, "Hear, hear."
Although we may have made that point, we have consistently been ignored by Ministers. "Ignored" is too weak a word: we were mocked. We were told that it was nonsense and that we did not need a house condition survey in Scotland, because they had all the information anyway. Therefore, we presented them with the facts and told them about the number of houses suffering from damp, those that needed rewiring and those that needed major redevelopment. Again, Ministers said that the figures came from local authorities and were grossly exaggerated, the Scottish Office is saying that there are not enough figures about unsatisfactory housing in Scotland.
§ The Parliamentary Under-Secretary of State for Scotland (Lord James Douglas-Hamilton)
Will the hon. Gentleman accept that, as soon as this came up in the last Parliament, when I first became Minister, I said that the matter was under review? Will he also accept that the figures have increased because many local authorities, on our recommendation, have been carrying out local house condition surveys? This is to be warmly welcomed and will lead to action.
§ Mr. Maxton
The first major house condition survey —that by Glasgow district council—was carried out without any help from the Scottish Office. It was almost actively discouraging the council because it knew what would come out and that what it would cost to get 1061 Glasgow's housing back into proper condition would be millions more than it would make available. There is a smugness in the words of the Scottish Office about the house condition survey.
When the Minister came to his job, I welcomed him, and I admit that he has done a better job than most of his predecessors, although that is not a great compliment. However, his predecessors told me that there could not be a house condition survey and that they did not have the true facts.
In paragraph 4 of its report, the Committee says:Prime responsibility for the condition of Scottish houses rests with their owners. Local authorities, in addition to their responsibilities for the housing stock which they own, also have the major responsibility for implementing housing legislation in their areas. The Department's role is indirect. They exercise influence and control over the housing sector by a variety of means".I do not accept that the Scottish Office played an indirect role in the condition of housing in Scotland over the past 12 years and the present crisis in housing. Instead, its role is central and direct because, over that time, it has been cutting the funding of local government housing in such a way as to make it impossible for local authorities to carry out their function of ensuring the good condition of Scottish housing.
Eleven years ago, the housing support grant was £228 million and the general fund contribution provided a further £100 million. This financial year, the two of them will contribute £49 million. Since 1979, £1.5 billion of direct Government support for Scotland has been lost. These are cash figures. In real terms, the facts are even more catastrophic.
In 1979, 40 per cent. of housing costs came from rent, 39 per cent. from housing support grant, and 14 per cent. from rate fund contribution. This year, 93 per cent. comes from rent, 7 per cent. from housing support grant, and less than 1 per cent. from the general fund contribution. Thus, the Government's cutting of housing support in Scotland makes a direct contribution to the decline in the condition of Scottish housing, including the increased number of houses suffering from dampness, with all the ill health that that can lead to, and the increased number of houses that need rewiring, replumbing and redevelopment. That is not an indirect role; it is a direct role.
Capital allocations have also played their part in the condition of Scottish housing. Again, the Department has a direct role in this. The capital allocation has been cut again and again. I take the point made by my hon. Friends who represent English constituencies, that they want the capital receipts from the sale of council houses released to be used in housing. In Scotland, those receipts have always been used, but there has been a net receipt. In other words, there is a gross capital allocation, but local authorities are then told that they will have to sell a certain number of council houses and are given a net allocation. Far from benefiting from what other sales might take place, they find that they do not have the money that they require. It is ludicrous that this year eight local authorities in Scotland—Berwickshire, North-East Fife, East Lothian, West Lothian, East Kilbride, Hamilton, Perth and Kinross and Orkney—are required to sell more council houses for more money than the Government will allow them to use for building and redevelopment.
1062 The role of the Scottish Office when it comes to the condition of housing in Scotland is not an indirect one. The Scottish Office is largely responsible for the fact that the condition of Scottish housing has declined over the past 13 years. A massive job needs to be done in either rebuilding our housing stock or redeveloping it, and it can be done only when the Government are prepared to make proper public financing available. I hope that the Government have read the report and will take account of it.
§ Mr. Terry Davis (Birmingham, Hodge Hill)
First, I join my colleagues who are members of the Public Accounts Committee in expressing appreciation of the work of Sir John Bourn, the Comptroller and Auditor General. We have paid tribute to his work—the whole House is indebted to him—but we should pay tribute also to the other people who work in the National Audit Office. Altogether, about 900 work there. We know that Sir John and the other senior people at the NAO serve the PAC and the entire House extremely well, but we should not forget that there are others who do important work but do not undertake the perhaps glamorous value-for-money studies. There are those who undertake the vital work of checking the Government's accounts to ensure that they can be certified as correct. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said, during the past year, these staff have brought to light some extremely worrying examples of the misuse of taxpayers' money. I pay tribute to all those who work in the NAO.
I join my right hon. and hon. Friends in expressing appreciation of the contribution made to the work of the PAC by five Conservative Members who served on it over the past few years. The hon. Member for Northampton, South (Mr. Morris) went on to become a Deputy Speaker. The hon. Member for Beaconsfield (Mr. Smith) has gone to sort out the Conservative party. The three other Government supporters who were members of the Committee retired from the House at the general election. The hon. Member for Beaconsfield will be welcomed back on the Committee when he feels that his time has come at Conservative party headquarters.
The three Government supporters who were members of the Committee and who left the House at the general election were Michael Latham, Sir Michael Shaw and Sir Ian Stewart. They all made valuable contributions to the Committee's work. I mention Sir Ian Stewart in particular, because he came to the Committee as a former Treasury Minister. He served on the Committee for only about 12 months, but he made an extremely valuable contribution during that period.
Like other members of the Committee, I pay tribute to the contribution to its work by our Chairman, my right hon Friend the Member for Ashton-under-Lyne. He brings to the Committee nearly 30 years of experience in the House and makes a unique contribution as a former Treasury Minister. We all benefit from his deft chairmanship and the kindness with which he keeps us in order and tells us when our time is up in Committee.
My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) left the Committee some years ago. He, too, is missed. I welcome his interest in the debate, and he is right to draw attention to the fact that we are trying to debate many reports. As I have said before, too many 1063 reports are before us during these debates and we find that we cannot do justice to the work of the Committee and to the Departments whose work and inefficiencies we examine. We should have more frequent debates so that we can concentrate, for example, on a group of reports that concern a particular Department. I hope that that will be taken into account by those who determine such matters.
My right hon. Friend the Member for Ashton-under-Lyne reminded the House that there are four themes to the work of the Committee during the past year. The first and perhaps most important theme has been to focus on the detection of fraud and the maintenance of high standards in the public service. We are concerned not only with honesty, because during the past year we have come across one or two cases—as my right hon. Friend said, one or two is too many—of dishonesty and fraud. When examining the complete range of Government activities, however, we came across few examples of fraud in the expenditure of taxpayers' money.
We must have regard, too, to the efficiency and effectiveness of public expenditure, and twice a week we review examples of that. We examine instances where public money has been wasted or misspent. It is a scarce resource and there are instances when it could have been spent in a much better way. My right hon. and hon. Friends and I wish not to reduce public expenditure but to spend public money in a more effective way. Every £1,000 that is wasted by civil servants is £1,000 less that can be spent on social services, which my right hon. and hon. Friends and I want to expand and improve.
Although the Committee does not consider the merits of policy decisions, it examines the way in which those decisions have been implemented. That is the second theme of the Committee's work. As I have already said, we review far too many examples of inefficiency and the ineffective use of the taxpayers' money. We do not review policy decisions, but there are instances when politics are much involved in our work. My right hon. Friend the Member for Ashton-under-Lyne referred to several examples of privatisation and the Committee's criticism of the way in which that policy has been implemented.
One of the Committee's reports focused on the sale of the Rover Group. We criticised, rightly, the way in which the sale was conducted. It is important to remind the House that it was not conducted by civil servants. It was a classic case of a Minister who had a hands-on attitude. The then Secretary of State for Trade and Industry—it was not the Board of Trade, and I believe that the right hon. Gentleman preferred to describe it as the enterprise Department—conducted negotiations, if they can be called that, with British Aerospace about its acquisition or takeover of the Rover Group. We were represented by the wrong man. We would have been much better off if we had been represented by British Aerospace's negotiators. They took our representative—the Secretary of State, our so-called salesman—to the cleaners. Instead of being sold, the Rover Group was given away.
I draw attention to one detail in the report on the sale of the Rover Group that shows the way in which the sale, if that is how it can be described, was conducted. In one paragraph we point out that the negotiations were conducted on the basis of profit forecasts in respect of the Rover Group. We learned from a confidential memorandum from the Comptroller and Auditor General that there was a wide range of profit forecasts. The then Secretary of 1064 State and his assistants at the Department took the lowest forecast and used that as the basis for the valuation of the Rover Group. No one in his right mind would do that when selling a company. Throughout his questioning by the Select Committee on Trade and Industry—the then Secretary of State declined to appear before the PAC—
§ Mr. Sheldon
I am grateful to my hon. Friend for allowing me to intervene. It is important that we get the facts on the record. The then Secretary of State did not decline to appear before the Committee. He thought that it was not normal to be invited and therefore he did not expect to appear. I wrote to him to point out that, although a peer of the realm is not required to appear before the PAC or any other Select Committee, I should be astonished if anyone with responsibilities for the handling of public money ever refused to attend the PAC. We have powers to call to the Committee virtually anybody who has such responsibilities.
§ Mr. Davis
I am grateful to my right hon. Friend for having put flesh on the bones of what I was saying. We did not try to require a peer of the realm to appear before us, but we did suggest that it might be helpful if he did so, in order to discuss the result of negotiations with us, especially as he publicly criticised the National Audit Office report. However, he preferred not to attend the Committee. It is not too much to say that he did not want to attend the Committee.
From the details of the negotiations, it was clear that the Secretary of State had used the lowest forecast for the profits of the Rover Group as a basis for its valuation. One might expect someone selling a company to use the highest forecast for profits, not the lowest. One might expect the person trying to buy the company to want to base the valuation on the lowest forecast. That is why I say that the taxpayer had a bad deal. It was the taxpayers' assets that were given away.
As my right hon. Friend said, the third theme of our work during the past year has been computerisation and the apparent inability of almost any Government Department to get it right. A succession of Government Departments told the Public Accounts Committee that their problems were all due to the computer. Anyone would think that the computer was a divine institution, some piece of mysterious equipment which struck at random, rather than a piece of technology which does what people tell it to do.
Civil servant after civil servant, permanent secretary after permanent secretary, accounting officer after accounting officer, seemed to believe that to say that something was the fault of the computer was sufficient defence or explanation of what had gone wrong in a Department. The classic case was the accounting officer from Foreign and Commonwealth Office, Sir Patrick Wright, the permanent secretary at the time.
My right hon. Friend has explained in detail how that project went so disastrously wrong. My impression was that, at the beginning of the session with the Public Accounts Committee, Sir Patrick Wright could not understand why he was there. I had the strong impression that he did not think that it was important that the accounts of the Foreign and Commonwealth Office could not be certified by the Comptroller and Auditor General as accurate, that there was a possibility—I put it no higher than that—of fraud. He did not think that that was a 1065 matter that required his attention as the permanent secretary at the Foreign and Commonwealth Office. However, I think that he changed his mind as a result of his appearance before us.
I notice that the Treasury minute in response to the Committee's report says that the accounting officer, Sir Patrick Wright, gave new written instructions to finance staff in March 1991 requiring them to inform him immediately of problems that might prejudice the maintenance of proper accounts. I welcome that belated action by the permanent secretary at the Foreign and Commonwealth Office. It is clear that such action was the result of his appearance before the Public Accounts Committee, because he came before us on 4 March and that instruction was written during March. Therefore, I have no doubt about the connection between those two events.
Connected with the point about computerisation is the constant employment of outside consultants. If the Government have failed miserably to undertake com-puterisation, they also seem to have great difficulty in finding competent consultants to help them with computerisation. In the case of the Foreign and Commonwealth Office, the blame does not entirely attach to the accounting officer, because an expensive firm of outside consultants, Price Waterhouse no less, was employed. But it got it wrong. The new system did not work. The account that we were given of the work of those consultants was incredible.
I want to make it clear that I am not criticising one section of the Government. There is one group of people about whom I have heard no criticism in the past 12 months, and that is the group employed at the Government centre for information systems. They are supposed to be the Government's experts on computerisation. My complaint is that far too often, as in the case of the Foreign and Commonwealth Office, those Government experts are ignored.
Time and again, permanent secretaries seem to try to want to re-invent the wheel. Instead of going to the people employed in the Treasury who know about these things, they try to do it themselves with the assistance of outside consultants at great expense. It costs more to employ consultants than the experts working for the Treasury, and the results are hardly encouraging, certainly in the case of the Foreign and Commonwealth Office and the Insolvency Service, which also thought that it could do it alone.
The Government seem to be cutting back the welfare state for people on low incomes or with no income at all, while running a welfare state for consultants.
These reports also show an amateurish approach to administration. When my right hon. Friend talks about the need to maintain high public standards, he is referring not only to the standards of integrity and honesty, but to the standards of administration—efficiency and effective-ness. Time and again, we read criticisms in National Audit Office reports of the way in which Departments such as the Foreign and Commonwealth Office have handled these important matters.
I do not want it to be thought that we are concerned only with the Foreign and Commonwealth Office. That other major Department of State, the Home Office, came out of our discussion about the allocation of police 1066 manpower very badly. We were discussing value for money from the provincial police forces. The Home Office controls the number of police officers who can be employed by any police authority.
It is not open to the members of a police authority— elected councillors from the district councils covered by the police authority and some magistrates—to decide, in consultation with the chief constable, how many police officers it should employ and then face local taxpayers to defend the increase in taxes required to pay for extra police officers. That is a proper matter for political argument and debate and an entirely proper matter for local democracy, but it is not open to the police authority to make such decisions. It cannot employ any more officers than it is allowed to employ by the Home Office. I cannot think of any other public service where a Government Department specifies the maximum that can be employed by a local body, whether it be a local council or any other appointed body. I can think of no other group which is controlled in such a way.
I do not understand why we need such restrictions to be imposed on police authorities made up of local people who understand the needs of local areas and who should be able to decide, on the basis of locally expressed opinion, that it is a sufficiently high priority to improve and increase the number of police officers in the area and be answerable to the local electorate. The local electorate, too, are rendered incapable of making a decision because Big Brother, the Home Office, controls the number of police officers employed by each police authority in the provinces.
When we examined the matter in detail with the Home Office and Her Majesty's inspectorate of constabulary, we were told that, having decided on the size of the cake, extra slices were given to those areas where there were already, according to their calculations, more than enough police officers. At the same time, other police authorities, such as the West Midlands, which were desperately undermanned, were not allowed to employ as many as they wanted.
Conservative and Labour members of police authorities, who agreed unanimously, on the advice of the chief constable, on the number of extra police officers that they would employ, were thwarted by the Home Office which, meanwhile, was giving extra police officers to other parts of the country which, according to its own statistics, were overmanned with police officers. It was incredible. We were told that the then Home Secretary was pleased because his constituency happened to be in one of those areas. I leave that comment, which is on the record, to rest where it is for others to read.
Therefore, the Home Office too is a most amateurish organisation. It does not seem to have learnt anything since it came before us a few years ago to explain why there were such long delays in the issuing of passports and told us that the number of passports was affected by international difficulties and said that, for example, riots in Tiananmen square could affect the number of people who applied for British passports to go abroad. I think that it was a Conservative member of the Committee who asked whether it was really thought that people who would otherwise have gone to Peking would go to Brighton and therefore would not need a passport. It was ridiculous. Administration in the Home Office is still at that level.
I come now to the most important theme of the past 12 months—the way in which some agencies have behaved. My right hon. Friend drew attention to reports highly 1067 critical of two of the new-fangled quangos—the National Rivers Authority and the Development Board for Rural Wales, which shared similar problems. The NRA clearly had poor control of contracting arrangements, particularly in respect of the relocation of its offices to Bristol. That project involved awarding a contract to an outside company—another firm of consultants—to advise the NRA on relocation and to assist it in the tender process. National Audit Office figures showed that £1 million of the project's £2.65 million cost was wasted. The Committee expressed concern at that evidence of inadequate and poorly controlled tendering and contracting arrangements.
The Treasury minute appears to accept the Committee's conclusion, saying that the NRA has established an internal inquiry, informed the police, and tightened up its procedures—but that is shutting the stable door after the horse has bolted. What happened to the people who wasted £1 million of taxpayers' money?
The NRA's chief executive was made the scapegoat for that debacle, but the PAC concluded that the board and senior management together should bear the responsibility, and be reminded of their duty to exercise proper care in the stewardship of public funds.
The NRA is not alone. Last year, the Committee's 42nd report found that the national health service's purchasing control was deplorable, to put it mildly. It pointed out that the same topic had been investigated by the Committee in 1984, when it was said that the health service's organisational weaknesses in supplies procurement would have to be overcome if the benefits of greater co-ordinated purchasing could be enjoyed. Seven years later, a new Comptroller and Auditor General found that significant weaknesses in NHS supplies activities remained.
What happened during those seven years? So often, we receive bland Treasury minutes giving assurances that action has been taken, everything will be all right in future, and that the problem will never arise again. In the NHS example that I cite, the situation remained almost as bad as seven years previously. Sometimes, we should take the assurances of Treasury Ministers with a big pinch of salt —especially as the same Government remained in power throughout those seven years, when it appears that little was done by Ministers or civil servants.
The Committee's hearing on that matter was in May 1991, and the Treasury minute was able to report the establishment in October 1991 of a new body—the NHS Supplies Authority—to deal with national health service purchasing and supplies. Clearly, that was the result of the PAC hearing. I welcome that new body, and I hope that it will be more successful than its predecessors. That experience proves the weakness of Government purchasing—whether it be in the National Rivers Authority or the NHS.
I return to the NRA, and refer to the departure of its chief executive "by mutual agreement." He did not resign, but received a golden handshake of £125,000. It is hardly surprising that the Committee regarded the financial terms on which that executive left as generous and open to question.
Nor was that experience unique. As other hon. Members mentioned, the report on the Development Board for Rural Wales revealed an even worse situation. That board's chief executive left because he was not able to get on with the DRBW's chairman. It may be fairer to say that the chairman could not get on with his chief 1068 executive, because no criticism was made of his performance. The chairman had obviously taken dead against him, and went to the Welsh Office to have his chief executive paid off.
I am concerned about the way in which that matter was handled, and the waste of taxpayers' money, in disregarding proper consideration of the proper amount to pay. A payment was made in lieu of notice that was wholly unjustified, and payment was made for leave not taken. However, it is clear that those responsible for calculating that sum started at the bottom of the page, decided how much money to pay as a sweetner—so that the chief executive would leave smiling and not shouting—and devised a way of justifying the bottom-line figure. Because the National Audit Office staff picked up on £15,000 that had been paid irregularly and without proper authority, the PAC set out on the trail that led to it teasing out the £150,000 given as a golden handshake, so that the board's chairman could have as chief executive someone he could get on with.
The Treasury minute published in October this year states:The Treasury has issued new guidance reminding departments of the need to put in place arrangements designed to ensure that non-departmental public bodies do not make irregular payments and do not act beyond their authority.When the Financial Secretary replies, I hope that he will say—for reasons I shall explain shortly—when that guidance was issued. The Treasury minute added:There is no entitlement to payment in lieu of leave for staff subject to Civil Service conditions of service, which includes staff in departments, Agencies and most controlled fringe bodies … The Treasury has reminded departments of these conditions.Paragraph 155 of the minute states:Payments in lieu of notice should be made only where it has not been feasible for the employer to give the employee appropriate notice of termination of employment or to allow him or her to work until the end of the period of notice.I hope that the Financial Secretary has made a note of the minute, because I shall be returning to it in the light of a report issued yesterday by the Comptroller and Auditor General.
We cannot debate the details of the report tonight, but I very much hope that it will be the subject of a PAC hearing in the months to come. It is an important report, although it arose from the unglamorous work involved in certifying the accounts of West Midlands regional health authority. It is a sequel to other reports that we are debating: in the opening paragraphs, the Comptroller and Auditor General refers to the earlier PAC report on the Development Board for Rural Wales.
The health authority report discusses the awarding of yet another contract to consultants. Originally, the contract was expected to cost £2.5 million; we now know that the total cost was £4 million—more than half as much again as the contract awarded by the National Rivers Authority. The contract was awarded by the director of regionally managed services at the health authority. The Comptroller and Auditor General and his staff found that the director did not follow the proper procedures for awarding a contract to a firm of consultants.
Members of the Public Accounts Committee have been here before: we have heard similar tales about the National Rivers Authority. The auditors found that the director had shown 1069cavalier disregard for the standards of conduct expected from public officers",and concluded thatthe contract was improperly entered into".The House will be interested to learn that the £4 million cost of the contract included expenses, over a single year, of £350,000. That included the cost of houses leased in London for executives and their wives; the use of aircraft to take executives to work; and, in the words of the auditors, lavish entertainment. The report does not, of course, tell us who was entertained by whom and for what purpose. No doubt my colleagues on the PAC will be anxious to establish that at a future hearing; there are many more questions to be asked. Tonight, however, I simply wish to draw hon. Members' attention to the fact that we have yet another scandal on our hands. Yet another contract has been improperly entered into; yet more money has been squandered on lavish entertainment—if I may use the strong language employed by the auditors. And, yet again, a resignation is involved.
The director of regionally managed services at West Midlands health authority left the employ of the national health service in June 1991. As the report reveals, he did not simply leave; he resigned. He was not sacked; nor did he leave according to mutual agreement. He resigned, which might indeed be considered the honourable thing to do—but he then received a severance payment. Again, my colleagues on the PAC will point out that we have been here before. This time, the sum involved was £62,000, including £20,142 for redundancy.
I do not understand how someone can resign, and then receive compensation for redundancy. According to the calculation, however, that director received £20,142 in redundancy compensation, plus £12,876 in lieu of notice. He was paid as though he had been dismissed—unfairly dismissed, perhaps—or declared redundant and paid in lieu of notice. Despite the Treasury minute, £12,876 of public money was spent in that way.
It did not stop there, however. A total of £28,982 was classed as a "special payment"—compensation for an earlier error in the calculation of the pension that the director had been led to expect. It is not the director's fault that the health authority told him that he would receive a higher pension than the one to which he was entitled, and I do not criticise him at all. This was another blunder by the health authority.
According to the Comptroller and Auditor General, a total of £41,500 has been overpaid, without approval by the Department of Health. Again, my hon. Friends will say that we have been here before: other severance payments have been made on the authority of the chairmen and directors of the boards of agencies. Money is paid out so that people can be got rid of quietly. Sometimes it is seen as hush money or a sweetener; sometimes it is spent simply to get rid of a nasty problem quickly. But—although it is paid without proper approval or authority—no one else has resigned; at least, no one had done so by 3 pm today. As far as we can establish, no member of West Midlands regional health authority has been dismissed for a blunder that has cost the taxpayer and the national health service money.
It does not stop there. The Comptroller and Auditor General tells us that, for an entirely different reason, the regional director of finance has also resigned. He has 1070 resigned because South Birmingham health authority ran up a deficit of £10.5 million, with a continuing overspend of £5.4 million. Now the regional health authority has had to bail out South Birmingham to the tune of £16 million.
That director of finance resigned on 7 September 1992. I emphasise that date. It was in July 1992 that we issued a report referring to severance payments, which has led to the issuing this month of a Treasury minute that states that people should not be paid in lieu of notice; yet the director of finance was given six months' pay in lieu of notice, as though he had been declared redundant. Moreover, he was given two months' pay for untaken leave in the current year and in previous years. We keep hearing the same story. My hon. Friend the Member for Pontypridd (Dr. Howells), who raised the question of company cars, will want to know that the director of finance has also been allowed to keep his car for six months.
We must conclude that the same thing is happening in places other than the National Rivers Authority and the Development Board for Rural Wales. Other parts of Government, other agencies and sections of Departments, are wasting the taxpayers' money in identical ways. What worries me is the examples of which we do not know. Is this just the tip of the iceberg? How many other people are receiving unjustified payments in lieu of notice? How many other people are being allowed to keep their company cars after resigning under a cloud? How many other people are being given money for leave that they have not taken in previous years? In spite of the issuing of Treasury minutes on a date that the Financial Secretary will give us later, such practices seem to be widespread.
What emerges from all the reports—including one that is still to come before the Committee—is this. At a time when thousands are losing their jobs as a result of genuine redundancy and through no fault of their own and are receiving pitiful sums in compensation or no compensation at all, as a result of changes introduced by the Government in the calculation of such payments—the recipient must have worked for his employer for two years —and at a time when people who lose their jobs are put on the dole and must worry about their mortgage repayments, others are receiving big golden handshakes. There is one policy for those who are well off, and another for those who are not.
People who have not been genuinely made redundant receive thousands of pounds of taxpayers' money to which they are not entitled. The Government are running a gravy train for directors and senior managers.
§ .49 pm
§ Mr. Tim Smith (Beaconsfield)
As the hon. Member for Birmingham, Hodge Hill (Mr. Davis) said, I was privileged to serve as a member of the Public Accounts Committee for most of the last Parliament. I should like to endorse what he said about our colleagues who retired from the House, and therefore from the Committee—Michael Latham, Sir Michael Shaw and Sir Ian Stewart, who all served on the Committee with much distinction, some for a long time.
I apologise for not being present at the beginning of the debate. Like other members of the Committee, I pay tribute to the Chairman of the Committee, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who has served as Chairman for, I think, nine years. It is impossible to think of a replacement for him. He does a splendid job 1071 and, in my recollection, only once in the last Parliament failed to chair a sitting of the Committee, which usually sits twice a week and considers many reports.
One of the themes of the debate has been the importance of finance and regularity audit. The Committee's report on the Development Board for Rural Wales is a classic of its kind. It should be read by every accounting officer on his appointment. The guidelines to accounting officers should direct them to read the report so that they understand, beyond doubt, what is meant by regularity and the importance that the House attaches to all payments being properly approved and regularised.
That was the most scandalous example of irregular payments to come before the Committee in the last Parliament, but as the hon. Member for Hodge Hill pointed out, there have been many other examples. He mentioned recent examples involving the national health service. One of the changes that were made as a result of the Committee's reports was the establishment of the NHS Supplies Authority in October 1991. Judging from the report that was published yesterday, to which the hon. Member for Hodge Hill referred in detail, there is still a strong case for investigating purchasing in the national health service.
I hope that the Committee will consider the report that was published yesterday, because, although I do not want to give all the details, a constituent of mine is in a position to supply goods to the NHS at a price considerably lower than that prevailing at the moment. He has had considerable difficulty in persuading the supplies authority of the value of his proposal. I shall take that up with the chief executive of the NHS, Duncan Nichol, but if I do not make any progress, I shall certainly send the details to the Comptroller and Auditor General, because that aspect of purchasing must be fully investigated, especially given the close relationship between those responsible for purchasing and the very large suppliers. Some of the companies are very large suppliers and, because the NHS has a virtual monopoly, they are almost totally dependent on the NHS for contracts. That is why that aspect of supply must be scrutinised carefully. The first lesson that needs to be learned from the reports is the importance of financial and regularity audit, especially regularity.
I was reminded of the report on Scottish housing by the speech of the hon. Member for Glasgow, Cathcart (Mr. Maxton). He obviously has personal knowledge that I do not have, and he gave his view of the condition of Scottish housing. I was struck by the Scottish Office's lack of information on which to base any decisions. There are 700,000 council houses in Scotland. My questions in the committee established that, between 1985 and 1990, 287,000 were improved. In a memorandum sent to the Committee subsequent to the inquiry, further information was given to the effect that, in the five-year period up to 1984–85, another 186,000 houses were improved and, in 1990–91, 72,000 houses were improved. That makes a total of about 500,000 houses, from a total local authority housing stock of 700,000. It appears that the vast majority of council houses in Scotland have been improved in the past 13 years. That does not accord with the description given by the hon. Member for Cathcart, but we never received a satisfactory answer to the questions.
I believe that the situation may be rather different from the one that the hon. Member for Cathcart described. I was sorry that he felt it necessary to criticise the 1072 Committee's report, particularly in respect of what I thought was the factual description of the indirect responsibility of the Scottish Office.
I want to mention the Committee's report on the privatisation of water. I well recall the questions that were asked by the right hon. Member for Swansea, West (Mr. Williams). As it was just before the election, I thought it right that he should be given considerable latitude, but simply to extrapolate the total value of the assets is not a sensible way of valuing a company. There are two different valuations of assets—the net book value, which was £8.7 billion in historic cost terms, and the value in current cost terms of £34.5 billion, which the right hon. Gentleman compared with the sales proceeds. Paragraph 29 of the report says:he accounting value of assets is not a reflection of the underlying value of a company and investors will base their value of a company on the expected stream of future dividends.That is exactly what happened and, in the circumstances, the sale produced a reasonable deal for the taxpayer.
§ The Financial Secretary to the Treasury (Mr. Stephen Dorrell)
Will my hon. Friend draw the attention of the House to the Committee's conclusion:we recognise that for the water companies to have been sold for a figure approaching the replacement cost of their assets, the price of water would have needed to be raised to a very high level"?We did not hear about that finding from the right hon. Member for Swansea, West (Mr. Williams).
§ Mr. Smith
Absolutely. The Committee said that the Departmenthad sold assets worth £34.5 billion at current values for net proceeds of £3.6 billion. The Department explained that they were not selling assets, which had no marketable value, but an industry which had an income flow which had a value on the open market.I entirely agree with my hon. Friend the Financial Secretary.
The right hon. Member for Swansea, West suggested that it did not matter whether the water industry was in the public or private sector, because if it were in the public sector, it would still be able to borrow. Of course it could do so but, if it did, it would find itself—because that borrowing is in addition to the public sector borrowing requirement—in competition with all the other Departments that are lining up at the door of the Treasury, no doubt at this moment, pleading their case for increased public expenditure. The virtue of transferring the water authorities to the private sector—this will apply equally to Scotland—is that they are able to go to the market for their increased borrowing. In the end, somebody must pay, either the taxpayer or the customer—the right hon. Gentleman conceded that. There are limited resources available in the public sector, whereas if the companies go to the market, as they have, they are able to obtain the substantial amounts of capital that they need to make environmental improvements and to invest.
I want, finally, to mention the process of audit in the public sector, the role of the National Audit Office and the role of the Public Accounts Committee, because in my five years as a member of the Committee a number of improvements were made. I shall give the House one example of those improvements. Five years ago, the Treasury minutes tended not to be very specific. They did not necessarily deal with every recommendation of the Committee. Now, the Treasury minutes set out the 1073 recommendations of the Committee and the Government's response. That is an important part of the process.
There is a natural tendency for the Committee to focus on past events and I make no complaint about that, because it is inevitable. However, there has sometimes been a tendency to concentrate on ascribing blame to people and trying to attach responsibility to individuals. Although that is important, it is not the most important element. The most important element, and the object of the whole exercise, should surely be to learn lessons for the future and to ensure that they are fully understood and implemented. In that respect, there is some room for improvement.
I understand that one reason why it sometimes takes a long time for a National Audit Office report to be published is that the NAO people have to obtain the agreement of a Department on the contents of the report —by that, I mean the facts. It is not acceptable for an accounting officer to come to the PAC and dispute the facts. Those facts must be agreed between the NAO and the Department before the report is published. Clearly, that is to the advantage of the Committee.
The difficulty is that reports tend to be a mixture of fact and judgment. I suppose in theory it is possible to split those two aspects, but in practice that is difficult. Nevertheless, I believe that it would be an improvement if there were some separation between the facts—the history of a matter—and the conclusions reached, especially the NAO's recommendations for future change. Those recommendations should be set out more clearly, and the PAC should focus more clearly upon them in drawing up its recommendations. That would be one way of ensuring that the Government were not let off the hook in implementing the recommendations.
I endorse what the hon. Member for Hodge Hill said about the work of the National Audit Office. Over the 10 years since the National Audit Act 1983, the work has been transformed out of all recognition. The 900 staff to whom the hon. Gentleman referred do a fine job, but there is never any room for complacency, and we should examine ways in which the system could be further improved.
In that context, I mention a report published recently by Certified Trust, part of the Chartered Association of Certified Accountants. The report, which was written by Andrew Likierman and Alison Taylor is about Government departmental reports. That valuable study examines both the departmental reports published over the past two years and the uses to which those reports were put by Select Committees.
A couple of years ago, before the reports before us were published, when the PAC was asked for its view it said, not surprisingly, that such reports should be like an annual report—a report to Parliament by the Department accounting for the way in which it had spent the sum of money voted by Parliament. The PAC said that in that context it would be appropriate to include the appropriation accounts in the report. There are tiny difficulties in doing that and it has not happened. Perhaps that does not matter, but clearly there is a slight dilemma over what the role of the reports should be.
1074 The question is whether the reports should be backward-looking or forward-looking. Should they be an account by Departments of what they have achieved over the past year, how they have measured up to their aims and objectives and whether they have met their performance targets? On the other hand, such reports are now in effect what used to be the public expenditure White Paper, so they set out the Department's public spending plans for the forthcoming year.
The role of the Treasury in all that raises an important and interesting question, especially about the extent to which the Treasury should influence the reports. If the Treasury had no influence over them, there would be no consistency from one report to another.
§ Mr. Sheldon
I referred to Andrew Likierman and the valuable report which he produced, and I also said that it was the role of the Select Committees to undertake a proper examination of those matters as, indeed, it was their proper duty to undertake an examination of the public expenditure White Paper. The fact is that that has been done only to a very limited extent. I teased the Committees, as I have often done, by saying that, if they were happy with expenditure on the issues that concerned them, they should say so. They should say that there is nothing to object to in what the Government have in mind. That is such a ludicrous proposition that it makes it clear that the Committees are failing in some of the important tasks that they should undertake. We must take such matters into account, too.
§ Mr. Smith
I am delighted to hear the right hon. Gentleman say that. When we consider the basic purpose of the departmental Select Committees, our starting point should be the reports. The great advantage of such reports over the traditional public expenditure White Paper is that Departments are now required to set out clearly their aims and objectives, the resources committed to pursuing them and performance indicators to measure how far those objectives have been achieved. I agree with the right hon. Member for Ashton-under-Lyne that every Select Committee should take evidence on the reports from the permanent secretary—and from customers and clients of the Department, too, to establish whether they are getting a good deal.
I understand that unfortunately, this year, because of the intervention of the general election, many of the 1992 reports which were published six months ago have not been examined by the Select Committees. I hope that that will be put right, or if not, I hope that next year the reports will be examined by the relevant Select Committee. Some Committees have a good record, but one or two, which are mentioned in the report, have never considered the spending plans of their Departments. I believe that it is important that they do so. Such consideration is complementary to the work of the PAC.
The PAC performs an invaluable service, but it is not in a position to examine public expenditure overall. It is clear from the debate that Parliament has a vital role to play.
§ 8.7 pm
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
Thank you, Madam Deputy Speaker, for giving me the opportunity to participate in the debate; I have been 1075 waiting for about four hours to do so. My speech will not be over-long, but I shall not rush, either, because I have some points to make.
I am delighted to associate myself with what has been said about the work of the members of the Public Accounts Committee, especially my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). I disagree somewhat with my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton). who said that the Committee somehow let the Scottish officials off the hook. From what I read, it appeared that the officials got the third degree from some of the members of the Committee.
The hon. Member for Beaconsfield (Mr. Smith) mentioned the length of service of my right hon. Friend the Member for Ashton-under-Lyne as chairman of the PAC. It is ironic that the Tory party vice-chairman should congratulate my right hon. Friend on the length of his service, because a similar length of service is not possible for Conservative members of Select Committees. No doubt the hon. Member for Beaconsfield was a supporter of the vindictive removal of the hon. Member for Macclesfield (Mr. Winterton) from the Select Committee on Health on the spurious basis that he had served for longer than two periods.
The PAC's fifth report is about "The Condition of Scottish Housing". Paragraph 3(ii) of the introduction and summary of conclusions and recommendations says:We consider that the Department need better information on the condition of housing in Scotland".That has been mentioned by more than one hon. Member. I support what my hon. Friend the Member for Cathcart said about the fact that councils and a whole range of organisations in Scotland pressed Scottish Office Ministers for many years to conduct a survey. The Scottish Office point blank refused to do so. The hidden agenda was that the Scottish Office did not want the full extent of Scotland's needs to be exposed to public scrutiny, because that would put pressure on Scottish Office Ministers to supply the resources to meet those needs.
It is ironic that paragraph 3(iv) says:We are glad to note the Department's decision to launch a national house condition survey and their intention to conduct further such surveys every five years".We welcome the conversion of Scottish Office Ministers—in particular the Under-Secretary of State for Scotland, the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton)—although during the time that it has taken to convince them, there has been suffering throughout Scotland.
My hon. Friend the Member for Cathcart mentioned the fact that the report says that the Department's role is indirect in relation to the support—or, rather, the non-support—of Scottish housing. The report says that the Department exercisesinfluence and control over the housing sector by a variety of means".It exercises complete control in its function of limiting net capital expenditure by local authorities. It dictates the agenda of the district councils which are the housing authorities in Scotland.
In one respect, I disagree with my hon. Friend the Member for Cathcart about the conversion of Scottish Office officials. One of the main purposes of a national housing survey would be to try to tackle the curse of dampness in council housing in Scotland. At paragraph 1076 109 on page 11 of the report, Mr. Michael Latham, the former hon. Member for Rutland and Melton, is reported as follows:I have worked in the building industry for 25 years and these points here are well known in the industry. Why is there such a large number … of units in Scotland, I suspect many of them relatively new units, built in the last 20–25 years which are subject to damp penetration?Here is someone who has knowledge of the building industry making a point about bad design in Scotland causing problems of damp penetration.
At paragraph 113, Mr. Latham asks the officials:Are the local authorities coming to you in Scotland saying, 'Listen, we have a terrible problem of damp penetration of council houses in the west of Scotland which have been built in the last 20–25 years. We must have more resources to tackle this'? Do they ask you that?Dr. McCrone replied:Yes, they do and we take that into account in determining the housing allocations; that is one of the main factors which we consider.Yet that allocation has fallen in every single year since the Conservative Government came to office.
On page 14 of the report, my right hon. Friend the Member for Swansea, West (Mr. Williams) makes that point—and we are certainly grateful for the support of Welsh Members on this matter. My right hon. Friend said:With the worst weather conditions anywhere in Europe, with evidence that shows that housing was deteriorating more rapidly than similarly aged housing in England, we actually have a reduction of about £2.4 billion in central funding towards the expenditure of the local authority.Between 1979 and 1989, the Government deducted from central Government support to housing authorities capital receipts from the sale of council housing. When they were asked where the money would otherwise have come from, they replied that it would have come from the Secretary of State's block allocation.
Council housing in Scotland—in particular, the west of Scotland—has terrible problems of damp penetration. The Government constantly criticise councils for the number of void properties that they have, failing to take into account the fact that many of those properties are void because they suffer from dampness and the councils do not have the resources to tackle the problem, cure the dampness and put the houses back in the pool for letting. Greenhill court in Rutherglen—a systems-built block with flat roofs, built in the 1970s—has had nothing but problems with dampness and rain penetration since day one, yet under the capital allocation of Glasgow district council, the tenants have no chance of getting anything done to the block.
To its credit, Scottish Homes showed an interest at one stage, but that plan fell through, and while Scottish Homes is under pressure with its capital programme, there is no way that it can tackle the problems of Greenhill court. We are talking about expenditure and support coming from central Government to local government. The people in Greenhill court in my constituency are in a similar position to people throughout Scotland: there does not seem to be any hope of the Government's supporting them and coming across with the resources to tackle their housing problem.
Let me refer to the 16th report of the PAC on the control and monitoring of pollution and the review of the pollution inspectorate. On page vi, the report states:We note with interest the Inspectorate's approach of requiring industry to take a proactive role and exercise greater self regulation in pollution control, whilst continuing to 1077 recognise the particular difficulties that may be faced by small businesses struggling to meet the higher demands of integrated pollution control.That is a reasonable statement to make.
The Rutherglen part of my constituency contains the site of a former chemical works set up in the 1830s or 1840s —White's chemical works—which continued to operate until 1970, some 140 years later. There is no doubt that it created local employment: my grandfather, my father, my brother, several uncles and a whole stack of cousins worked there. It produced chromium. I was brought up only 200 or 300 yards from that place.
It is amazing how people's perceptions of what is acceptable change. A matter of 150 yd from the chromium works, the burns and streams ran all sorts of different colours because of the chemical discharge from the factory. Nobody thought anything of it. If that happened now, everyone would be up in arms, trying to get something done about it. We could have done with this inspectorates-type approach in Rutherglen between 1830 and 1970. A result of that company's existence was the indiscriminate dumping of toxic chromium waste throughout large areas of Cambuslang, Rutherglen and south Glasgow. The company simply sent out its lorries and dumped the chromium waste anywhere that it could. We are now discovering it on sites adjacent to schools, playing fields, housing schemes and the spectators' area of a local junior football stadium. A nursing home in Rutherglen has been found to have been built on a site where White's dumped toxic chromium waste. It is a big problem in my constituency.
People are even more frightened and confused because the medical world cannot seem to get its act together and come up with a definitive answer to people's fears. The dangerous chromium, we are told, is hexavelent chromium. But another school of thought says that that dangerous chromium is unsafe only to those working with it in unprotected conditions, while a third school of thought says that it is dangerous outside—on the sites that I mentioned, for example—only if the wind disturbs the top layer and spreads the dust over the surrounding area. Nevertheless, there is a seemingly high incidence of cancer-related illnesses in the Cambuslang and Rutherglen area. It is worth remembering that, 25 to 30 years ago, workers were being told to work with asbestos dust, and that there was nothing wrong with it, whereas we now know the problems that it causes. Hexavelent chromium is in the same category.
White's, which changed its name, first to British Chrome and Chemicals and then to Albright and Wilson, left Rutherglen in 1970. For 140 years, it used the community, making its profits out of the area. It has left us with a potential toxic waste time bomb. I am not one for scaremongering, and one must always listen to experts and get their advice—although I do not have complete faith in the experts—but the fact remains that people fear the consequences of that industrial waste. I have been asking the local district council to pursue the legal liabilities of the former companies and demand that they contribute to cleaning up that waste.
§ Mr. David Marshall (Glasgow, Shettleston)
I congratulate my hon. Friend on the job that he has done in dealing with this problem for the past two years. Does 1078 he agree that, in addition to his constituency, the problem is a matter of great concern in Carmyle in my constituency, immediately adjoining his constituency, and in the east end of the city of Glasgow? Does he agree further that the devastation that was caused by the de-industrialisation of the city cannot be tackled adequately by the district council unless the Scottish Office gives additional adequate resources to deal with that worrying and serious problem?
§ Mr. McAvoy
I am grateful to my hon. Friend for that intervention. I can certainly confirm that the problem exists in Carmyle and other parts of east Glasgow. The lorries went as far as they could to dump the waste.
I was about to refer to resources because, at the end of the day, that is what this matter is about. There are various points of view. There is the expert view that one can cover up the hexavelent chromium and another view that it should be transported out of the area. The problem is where it is to be dumped. Whatever response is required, it needs money.
Clearly, Glasgow district council and Strathclyde regional council do not have the sums available to tackle that problem. To be fair to the Under-Secretary of State for Scotland, the hon. Member for Eastwood (Mr. Stewart), he came to the constituency, looked at the situation and managed to come up with about £70,000 to try to make the site safe, but the overall problem is still to be addressed. Resources are still to be made available to the local council. I can rely on the support of my hon. Friend the Member for Glasgow, Shettleston (Mr. Marshall) and Scottish Members of all persuasions to try to persuade the Government that the people of the surrounding areas should not pay the price of 140 years of industrial exploitation.
§ Mr. Rhodri Morgan (Cardiff, West)
I shall refer to some of the points that have been raised mostly by Opposition Members, as the debate has generally been much better attended by the Opposition. I was glad to hear the contribution of my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) because—
§ Mr. Nicholas Brown (Newcastle upon Tyne, East)
Perhaps my hon. Friend will observe that there is nobody sitting on the Conservative Back Benches.
§ Mr. Morgan
My hon. Friend is right, but when I started my sentence there was one Conservative Member present, and he has just re-emerged to make what I said true again.
My hon. Friend the Member for Hodge Hill at least managed to divert attention away from shenanigans in Welsh non-departmental public bodies and indicated that shenanigans are also going on in west midlands public bodies. It is not a matter of feeling proud about that; it is a matter of showing that the system is still failing and that, as soon as the Public Accounts Committee manages to shut a stable door in Wales, another one opens in the west midlands and another team of horses escapes. It is possible that, at the next PAC meeting, that stable door will be shut after those horses are stolen in the west midlands as well. That reinforces the need for a Public Accounts Committee and for an effective control mechanism, even if it always does its work after the wastage has taken place, after the mis-spend has taken place, after the value for money has 1079 not been achieved, and after the regularity standards that we as hon. Members representing our taxpayers have a right to expect have not been followed.
I wish to raise some points which will extend the scope of debate beyond Wales because we have given Welsh public bodies a fair old going over because they received a fair old going over in the reports. Some of the points that have been raised have universal United Kingdom significance. I have been very interested to see how the National Audit Office does its work. I am not a member of the Public Accounts Committee, but I have an economic brief and a general economic interest, but it strikes me that the National Audit Office has a difficult job, and it is probably getting more difficult all the time because of the increasing number of public bodies and the diverse way in which they are expected to be audited.
Public bodies divide themselves into three categories. Fortunately, the third category is very small. There are public bodies—quangos—which are audited, nice, plain and simple, by the National Audit Office on behalf of Parliament. They can bring matters straight to the attention of the Public Accounts Committee if they want to. There is a significant and rapidly increasing number of public bodies which are not audited by the NAO but which have private auditors in respect of which the NAO Comptroller and Auditor General—the personal title that we tend to use on such matters—has a reserve power of audit, as well as the Peat Marwicks, the Ernst Youngs and so on.
The NAO can act over and above the private auditor. The private auditor can call the comptroller's attention to what the private auditor is unhappy about, and then of course the comptroller can draw the PAC's attention to it. That is a rapidly increasing class of quango—privately audited, but with reserve powers to the Comptroller and Auditor General.
There is a third category of Government quango in respect of which the Comptroller and Auditor General does not have that reserve power. Therefore, there is a very weak form, if any form, of parliamentary accountability. Some of those bodies are very small and have insignificant budgets so that lack of accountability probably does not matter, but one or two of them are quite big. The one that interests me is the Cardiff Bay development corporation, which is certainly the big daddy of those quangos which do not have either the primary duty of auditor laid on the Comptroller arid Auditor General or even that reserve, long-stop power to read the books and records and have matters drawn to their attention by the private auditor so that they can bring them to the attention of the PAC.
Cardiff Bay development corporation has an annual budget of £33 million, which possibly will rise sharply if the Bill that we discussed last night completes its stages in another place and comes back to this House at some point in the spring of next year. If the corporation were to get permission to spend a great deal more money on civil engineering works, the famous barrage that we discussed last night, it would be in an even more unique position than it is now because it would have the power to spend perhaps £50 million or £60 million a year, and still without very much parliamentary accountability.
It is possible to say that the corporation has the other kind of parliamentary accountability and that the Comptroller and Auditor General can do the value-for-money audit, but then that can be done to all public bodies, anyway. We are talking about the prorietary duty 1080 which at the moment cannot be done. At least that is how I interpret the report on public bodies and of course the famous Treasury note which was issued on Thursday. That Treasury minute was in response to the now notorious Development Board for Rural Wales's access payments to the retiring chief executive, a saga which has been referred to half a dozen times already and will no doubt be referred to by the Financial Secretary.
It was very interesting to read through all the papers to the final page, then to the final page of the final paper, and then the final paragraph of the final paper to find out what the Treasury's proposals are on how to shut the stable door after the team of horses has been stolen in the case of the Development Board for Rural Wales. It is worth while to draw the attention of the House to paragraph 161 of Command Paper 2074—the Treasury minute on the first of the 11 reports from the Public Accounts Committee.
The final paragraph deals with the PAC's consultation, after the Development Board for Rural Wales's chief executive's retirement fiasco. The conclusion was:it is most important that the Comptroller and Auditor General is able to identify control weaknesses of this type and bring them directly to the attention of Parliament as he did in this case.We can certainly say that again, particularly after what my hon. Friend the Member for Hodge Hill said about the follow-on saga in the west midlands.
What was the Government's reply? I am glad that the Financial Secretary will hear this. They said:in the case of executive non-departmental public bodiesin other words, quangos—where he"—the Comptroller and Auditor General—is not the auditor, the Government believes that the C & AG should have rights of access to the body's papers and records so that he may bring to Parliament's attention, whenever he considers it appropriate, any material departures from the requirements of regularity and propriety.We can certainly say that again.
The paper continues:The rights are frequently provided by statute.That is the category denoted under the letter Y in "Public Bodies 1991". The provision of those rights by statute is the long-stop power of the Comptroller and Auditor General to audit the quango, even though it is privately audited. The paper continues:Sponsor departments will seek to secure such rights in cases where they do not exist at present.That was last week. The Treasury said that it would provide the right to audit in examples where the right does not exist at present.
I have gone through "Public Bodies 1991". It is a copious volume which is available to everyone in Parliament. It is about 100 pages long. It lists every Government quango. There are three significant bodies which the Comptroller and Auditor General does not have the reserve right to audit, let alone the primary ability to do so. The first and largest body is Cardiff Bay development corporation. That is the one which bothers me, because the Government seek to give it enhanced powers and massively to increase its resources.
The second body is the Commonwealth Development Corporation. I presume that it comes under the Foreign and Commonwealth Office. Considerable reference has already been made tonight to that Department's slapdash attitude to accountability.
The third body is, rather sadly, a new one. The Laganside development corporation is the Belfast 1081 equivalent of the Cardiff Bay development corporation. At least so far it has a small budget of £6 million a year. The Comptroller and Auditor General has no duty of audit or reserve right of supplementary audit of the regularity and propriety of that body, forgetting for the moment the value-for-money audits which the Comptroller and Auditor General can initiate. Such audits are paid for by Parliament's vote, not the vote of the quango. They are not part of the annual expenses of that quango.
We expect the Financial Secretary to tell us how the sponsor Departments—the Welsh Office, the Northern Ireland Office and the Foreign Office—intend to remedy a problem which the Government have allowed to creep in, how soon they intend to do so, and in what way. Will it be done by an amendment to the statute, an exchange of letters, or what? The parliamentary accountability of the three quangos that I have mentioned has been reduced and the National Audit Office is not the primary auditor of others, although obviously it has a reserve right to audit them.
I hope that the Financial Secretary will deal with the three quangos to which I referred. He will have general support from the House if he proposes some fairly rapid-fire action to amend the statutes. I also hope that he will give an undertaking that if the Government set up any more quangos they will build into the statute provision that the Comptroller and Auditor General has either the primary or at least the reserve right of access.
The examples that I have described serve to reinforce Parliament's belief that continuous vigilance is needed to detect mis-spending by Government quangos. We still have that problem in Britain. Our voters expect us to watch out for examples of mis-spending.
My worries extend to bodies which are quangos in all but name but are not listed in "Public Bodies 1991". Unfortunately, it is up to not Parliament but the Government to decide what is a quango and what is not. For example, what is a training and enterprise council? Is it a quango? TECs use taxpayers' money and not much else, but the Government say that they are not quangos. The Government say that TECs work on contract, are private companies limited by guarantee and that the Secretary of State does not appoint the chairman or woman, so TECs are not quangos. Therefore, TECs are not listed in "Public Bodies 1991" and we cannot find out what their auditing arrangements are.
Training and enterprise councils are brand new. There are 82 of them in England and Wales and eight or nine local enterprise companies in Scotland. What are the auditing arrangements for them? How does the Comptroller and Auditor General discover potential mis-spending? How does Parliament find out about it? How do we find out whether the auditing arrangements are adequate to make the information available to the Public Accounts Committee or directly to the House?
What are the Government ashamed of? Why do not they include the TECs and LECs in "Public Bodies 1991"? Those bodies are 100 per cent. dependent on taxpayers' money so they should be in that book so that any member of the public can read it and know how much the chairman is paid, who the auditor is, and how to obtain an annual report. I could then find out how my taxpayers' money is spent on those new bodies.
1082 NHS trusts are not listed in "Public Bodies 1991". There is a long list of NHS bodies, but the trusts are not included. We have been told through leaks in a newspaper today to expect a large wave of trust hospitals in Wales. At present we have only one trust. It is a pseudo health authority opt-out. So far in Wales, no hospital has opted out. Therefore, there is not a great problem at present, but shortly there will be.
We do not know the auditing arrangements for trust hospitals. They are obscure. The Government do not want to put trust hospitals into "Public Bodies 1991". This time their excuse is different. It is not that the Secretary of State does not appoint the chairman or woman—the excuse that the Government used for the TECs. The chairman or woman of the trust is appointed by the Secretary of State. Only last Thursday, in the debate on the health of the nation, the Secretary of State for Health was proud enough to say:The trusts are unequivocally accountable to me, as Secretary of State, and there are effective mechanisms for monitoring their work."—[Official Report, 22 October 1992; Vol. 212, c. 595.]If she is so proud that she appoints the chairs of all these trusts, why is she so ashamed of their structure that she does not include them in "Public Bodies 1991" or, presumably, "Public Bodies 1992"?
How are Members of Parliament and ordinary taxpayers supposed to find out information if the Government hide the new bodies from the standard work which the Cabinet Office issues every year, which is supposed to be a compendium of public information on bodies which spend the money of taxpayers and no one else? Occasionally, 2 or 3 per cent. of the budget may be from receipts, so their budgets are not all taxpayers' money, but overwhelmingly the bodies spend public money.
Are grant-maintained schools quangos? In the eyes of the Government, they are not: one will not find them in "Public Bodies 1991". There is a dangerous continuous erosion of parliamentary accountability through the audit work of the Comptroller and Auditor General and the accessibility of accounts to the Public Accounts Committee or any Member of Parliament. Something is going on, and Opposition Members are extremely worried about it. Such changes make it far more difficult for the fiddles and shenanigans that have been mentioned tonight to be detected. Some of the examples have been through the mill of the Public Accounts Committee. Some are so far merely Comptroller and Auditor General reports which will no doubt come along later.
It is always a race against time when as parliamentarians we seek to ensure that money is spent properly and that the proper backsides are kicked when we find examples of money not being spent properly. The continuing desire of the Government to privatise the responsibility to audit and distance us from it by evolving new, funny-money forms of public body to spend taxpayers' money is worrying. We nevertheless have to vote the money. We have to face our constituents and be able to say, "Yes, we are sure that the money is spent responsibly, even though sometimes we do not like the way in which it is spent." Whatever one's party, one has to face one's constituents and say that Parliament fulfils its traditional job, which goes back 1,000 years, of checking how the Executive spend the money that they raise from the taxpayer.
1083 We shall seek promises from the Government tonight on the implementation of paragraph 161 of Command Paper 2074, which originated with the report on the departure of the chief executive of the Development Board for Rural Wales.
As the spread of new bodies which can spend taxpayers' money in ways which make it difficult for people to scrutinise continues, one could say that there is a competition between the whistle blower, the Member of Parliament, the office shredder and the desire to hide behind new technologies such as paper that cannot be photocopied and the numbered issue of photocopiers. Those are the techniques that people in public bodies, as in private industry, use to stop information being made available to the public and to prevent Members of Parliament and the Public Accounts Committee, through the National Audit Office, from obtaining the information that we need to check mis-spending.
In future, we may see an evolution. It has already occurred within the national health service, where a huge row is going on about whether whistle blowers should be able to give examples of patient care being adversely affected. The Government have sought to enshrine the right of the whistle blower to bring information to hon. Members or the chief executive of the NHS if nurses are worried about the erosion of patient care.
Members of Parliament must safeguard the position by saying that, if the Government are trying to put all that information in the shredder so that nobody can find out about it, we want copies of it before it goes in the shredder. Perhaps the National Audit Office should evolve in that direction so that, if people within an organisation think that money is being mis-spent, hon. Members should invite them to write to us or, if they do not know who their Member of Parliament is, to the Comptroller and Auditor General.
If they do not know how to do that, they should put the information in a brown envelope, drop it off in the district office of the NAO in Newcastle, Cardiff or wherever, and let the NAO deal with it. That information must be allowed out before the shredder destroys it within the organisation. I believe that we shall see a gradual evolution in that direction. I am sure that it will happen on a colossal scale in the health service as more trusts are formed. We need access to that information before it is destroyed.
Pages 25 and 26 of the 5th report, "Creating and Safeguarding Jobs in Wales", contains a mini-example of what happens when whistleblowing occurs. I am not a member of the Public Accounts Committee, but I am involved in the saga. During the Christmas recess last year, a whistleblower approached me with information to the effect that the chairman of the Welsh Development Agency had profited from a grant from the agency. One never knows when one receives whistleblowing information by telephone whether to believe it and one tries to find out whether one is being spun a line or whether the information is true.
I telephoned the House of Commons Library and asked the staff to find out who were the recipients of grants under the rural conversion grants scheme of the Welsh Development Agency three or four years ago, because the whistleblower had not given that information. The Library asked the WDA to provide it with a list, which is referred to on page 26 of the 5th report under point 23 of the schedule of questions put by my right hon. Friend the 1084 Member for Swansea, West (Mr. Williams) on 19 February to the WDA, to which the agency replied subsequently. It says:The request from the House of Commons Library"—my request—mentioned in item 14 above was discussed in a telephone conversation between the Chief Executive and Mr. Derek Jones—Head of Industry Policy Division, Welsh Office on 31 December 1991.That was about a day after I had made the request to the Library, having nothing better to do in the recess between Christmas and the new year.
Bells were now ringing within the WDA, whose worried staff thought that they had better tell the Welsh Office in case there was a problem. The report goes on to say that Mr. Jones from the industry policy division of the Welsh Office, wrote to the chief executive of the WDA on 2 January 1992 asking for information on the grant. It says:The Chief Executive replied to Mr. Derek Jones in a letter dated 9 January 1992 confirming the date of the original application"—of the conversion grant—date of provisional approval, amount of grant, date of payment and the purpose of the grant".That is referred to as being provided in annex 7, although, for various reasons of confidentiality, annex 7 is not in the report.
One of the questions asked by my right hon. Friend the Member for Swansea, West was:On what date was there an indication to Dr. Jones that a refund might be required?Interestingly, the report then says:Dr. Jones raised the issue of change of use and clawback with the Chief Executive in November 1991.That was a month before I made my request for information through the Library.He wrote to the Chief Executive on 25 November 1991 confirming the proposed change of use of the second floor of the property to residential and requesting details of repayments that might be due to the Agency".Again, we have not seen that letter. It is contained in annex 5, which is not attached to the report.
I now have to try to work out what was going on in the agency at that time. Is it believable that, by a strange coincidence, one month earlier than the Library asked for the information, Dr. Jones had volunteered to repay the grant? Alternatively, was it decided to backdate the request, knowing how dreadful it would be to have to admit that it was only because the whistleblower had come to me, I had gone to the Library, the Library had gone to the WDA, and the WDA had felt obliged to say that the information showed that Dr. Jones had obtained a grant from the agency while he was chairman and that therefore it had better make it look better by predating a letter saying that in November—one month before I made my request—he had initiated the procedure to repay the grant?
I could be wrong and, obviously, whether I made a fair presumption or whether there was another explanation will emerge eventually. It is extremely odd—indeed, it beggars belief—that when, on 9 January 1992, the chief executive, Mr. Phillip Head, replied to Derek Jones, the head of the industry policy division, confirming the date of the original application by Dr. Jones, the date of the original approval, the amount of grant, the date of payment and the purpose of the grant, it did not refer to the fact that, on 25 November—six weeks before—Dr. Jones had already initiated the procedure for repaying part of the grant.
1085 Surely a competent chief executive of the WDA would have pointed that out and not just stated the amount, date and purpose of the grant. He would also have mentioned the fact that the procedure for repaying the grant had already been started. It is difficult to put those two items together without seeing an element of falsifying the November date. I could be wrong because there might be other explanations, but the letter from Mr. Head to Derek Jones is baffling. That he should omit to say that Dr. Jones had, one month previously, initiated the procedure for repaying the rural conversion grant to which he was no longer entitled is odd.
I use that simply as an example of the race between Members of Parliament doing their job in terms of seeing that there is no mis-spending, the regularity and proprietary standards which taxpayers have every right to expect from us, and how the Government continually try to privatise the responsibility for spending taxpayers' money, to erode the Government's responsibility and that of parliamentarians, the PAC and the Comptroller and Auditor General to get at the information that they need to keep up standards of regularity and propriety in the spending of public money which we all have a right to expect.
§ Mr. Mike Hall (Warrington, South)
I apologise to the House for not being present at the start of the debate—I had urgent business in my constituency. I am sorry that I missed the opening speech of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who was my Member of Parliament. I was born and bred in Ashton-under-Lyne, my family still live there and I have great ties with my right hon. Friend's constituency.
I wish to add my thanks to the National Audit Office and the Comptroller and Auditor General for the excellent report that they provided to the Public Accounts Committee. I have been involved in local government for 13 years and have been impressed with the reports that I received from my local authority. However, the reports received by the Public Accounts Committee are absolutely superb, and its staff and those who contribute to the compilation of the reports deserve the thanks of the House. They make my job as a new member of the Committee that much easier.
When I first became a Member, I made a vow to do the same as I had done in local government and to try to find out how the finances of central Government worked. I tried to do that 13 years ago with my local authority and I had great difficulty in keeping up with events. First, there was the revenue support grant, then there was the block grant, then grant-related expenditure assessment and then standard spending assessment.
I hope that my service on the Public Accounts Committee will help me to understand how the Government work and are financed. Since being appointed to the Committee on 9 June, the experience that I have gained has been valuable and has shown me the practical ways in which the Government work. It has also shown me how the Committee oversees Government expenditure to discover whether value for money is obtained and whether the money is spent correctly.
1086 We are discussing a number of reports today. I shall refer to four or five of them, draw a thread through them all and reach a conclusion. The 19th annual report deals with the sale of the skills training agencies. That report highlighted the fact that in 1984 the book value of those training agencies was £100 million. When one reads the report, it is difficult to discover the sum for which the training agencies were sold. When the Financial Secretary responds to the debate, will he say how much the Government have received so far from the sale of those agencies? Because of the work of the Public Accounts Committee, a clawback clause was introduced in relation to the sales. Will the Financial Secretary say how much clawback money has accrued to the Treasury in the one year that the system has been in operation?
The House deserves an answer to another question relating to the report. A Treasury minute refers to the fact that not all the bidders for the agencies were given the full details. The Treasury states that that deficiency has been corrected, but why was that practice allowed at the time of the sales of those agencies?
The conclusion of the 20th annual report—1990–91—on financial control of employment training and youth training programmes was unacceptable. I find it alarming that, when the report was considered, the Public Accounts Committee was told that 70 per cent. of the training and enterprise councils examined had effective financial controls. One must conclude that 30 per cent. did not have effective internal financial controls. Why was that defective system allowed to continue for so long and what has been done since to remedy that problem?
One of the problems identified in the report was that the attendance records of those on the schemes were not maintained properly and were inadequately related to the appropriate Departments. As a result, incorrect payments wer made to a number of organisations. I read with astonishment that one of the reasons the Department of Employment gave for those problems was that the country was in a recession. I was amazed that the word "recession" was used in a Government publication, as we had been told that the recession was nearly over and we were merely waiting for the election of a Conservative Government on 9 April to end it.
We are still in the depths of the recession—there seems to be no end to it. What measures have been taken to remove such features from the training and enterprise councils so that they can account for the number of people placed on training courses?
Another aspect of the report requires detailed scrutiny by the Treasury. The overpayments that have been made need to be recovered. The report states that recovery procedures are under way, but the Treasury minute states that the training and enterprise councils are resisting recovery of overpayment. Will the Financial Secretary to the Treasury say whether that dilemma is being resolved by the Treasury, and how much has been recovered so far?
I have a constituency interest in the 22nd report on the Property Services Agency accounts for 1990–91. My constituency contains both Burtonwood air base and a large PSA complex situated on the other side of Burtonwood road.
I read the report with interest, because I was told that Bovis had been brought in to smarten up the management arrangements for the PSA. That struck me as strange, as I have just bought a house built by Bovis in the vicinity of 1087 Burtonwood air base. I am sure that there is no connection between that and the role played by Bovis in trying to improve arrangements within the agency.
The report identifies the fact that the PSA was poorly prepared for privatisation—that is an understatement. The report shows that the PSA took a shambolic approach to accounting. The report said that impropriety could flourish and would be difficult to detect. The Treasury has dismissed that claim and has stated that there was no impropriety. Why is it so certain that that is true? That is a strong statement to make and should be backed up with a thorough analysis of the accounting system of the PSA.
The report also showed that the outstanding debt in 1990–91 was £56.6 million. Precisely how much of the outstanding debt has been recovered? The report also stated that the debt owed by United States' forces to the Property Services Agency had increased beyond the agency's limit. How much of that debt remains unpaid and how much has passed on to the Ministry of Defence as part of the book-keeping exercise?
I am concerned that the report into the PSA has revealed incompetency and poor management—probably as a way to depress the price of that valuable Government asset prior to privatisation. There may be a repetition of the follies that other privatisations have brought in terms of value for money for the taxpayer.
The 23rd report deals with the Department of the Environment and financial management control In the National Rivers Authority. The issue has been raised by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) and other hon. Members. My hon. Friend said that the contract for the relocation of the headquarters in Bristol cost £2.65 million, of which £1 million of taxpayers' money was wasted.
I come from a local government background. Had a local authority been that incompetent in managing one of its contracts, it would not have been given a £125,000 golden handshake but would have been taken to the local ombudsman and no doubt to the courts, and been surcharged for the waste of money. What has happened in the NRA is an absolute disgrace. The NRA took no notice of the guidance issued to it on competitive tendering. Any tender worth more than £2 million should have been the subject of competitive tendering. On this occasion, it was not. I want to know whether the promised revised financial memorandum has been rewritten and issued to Government quangos so that there will be no repeat of the horror stories that we have heard this evening.
Another illuminating point from the report is that, but for the work of the Comptroller and the Auditor General, this waste of public money would not have been brought to light. That raises questions about open government and about the validity of the citizens charter. It also means that the House must have powers to investigate non-governmental organisations so that we can be assured that quangos are subject to some semblance of democratic control by the House.
All these reports were considered by the PAC before I became a member of it. I am impressed by their detail. just as I have been impressed by the reports that the Committee has considered since I joined it. I now look forward to the PAC looking into the sale of PowerGen and National Power to determine whether it brought value for money to the British taxpayer. Fiddlers Ferry power station, owned by PowerGen, is in my constituency. Its decision to import 4 million tonnes of low sulphur coal through the docks at 1088 Liverpool has meant that Parkside colliery in the constituency of my hon. Friend the Member for St. Helens, North (Mr. Evans) has been closed. That will mean an increased trade deficit and more environmental pollution, and 800 more people will be out of work, at great cost to the Exchequer and the local taxpayer. I look forward to the investigation.
§ 9 pm
§ Mr. Nicholas Brown (Newcastle upon Tyne, East)
I should like to begin by holding an immediate vote of confidence in the Government on a show of hands, but unfortunately the rules of the House prevent that: not a single Conservative Back Bencher being present. So instead I had better discuss the reports of the Public Accounts Committee.
The guillotined Third Reading debate on the Cardiff Bay Barrage Bill took place yesterday, but that has not deterred the Welsh group of Labour Members of Parliament from seizing every parliamentary opportunity to raise matters of importance to Wales, on which I congratulate them. I also congratulate my hon. Friends the Members for Glasgow, Rutherglen (Mr. McAvoy), for Glasgow, Cathcart (Mr. Maxton) and for Glasgow, Shettleston (Mr. Marshall) on managing to discuss matters pertaining to the Scottish economy, the Scottish environment and Scottish housing.
I echo the tribute paid by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), the Chairman of the PAC. Every hon. Member who has spoken has paid similar tributes to the Chairman. I am well aware that his chairmanship is not only widely respected in all parts of the House but lends enormous authority to these reports.
As the Chairman has rightly pointed out, there are certain key themes and Departments that step forward into the limelight every year as a result of the Committee's work. Issues such as out-and-out fraud have been brought to the House's attention again today, just as they have been in previous years. Likewise, further losses to the Exchequer through the undervaluation of assets sold in the Government's privatisation programme are a recurring theme, in spite of the assurances we were given in previous years by previous Financial Secretaries in response to previous criticism by the Public Accounts Committee.
There is absolutely nothing new in the discovery of the failure properly to invest in highway construction. That costs the taxpayer much more in the medium term because of maintenance and repair costs. That point is underscored again by today's debate. Yet there is no evidence that the Government intend to stop taking a short-term view of these matters. Indeed, if they ever do take infrastructure and capital investment more seriously, that will only be because it is one of the few economic policies that they have not yet tried.
These reports highlight the affairs of the Ministry of Defence and of the Northern Ireland Office. Before dealing with those two recurring themes, however, I should like to refer to two reports that clearly require comment. The first of them is an astonishing report—the 36th, dealing with the qualification of accounts for the Foreign and Commonwealth Office. It has attracted a full and thorough response from the Treasury. That is not in the least 1089 surprising. The Treasury official who compiled the minute responding to the report must have had mixed views about the whole sorry episode.
The PAC report refers to inadequate controls whichcreate a climate which is conducive to fraud and theft … the Department's problems may have heightened the risk of irregularities remaining undetected.The Treasury boldly responds thus, in minute 13:The Government has noted the Committee's comment".The PAC further comments:We are alarmed at the catalogue of accounting errors made by the Department. We cannot do other than strongly criticise the Department's accounting arrangements".Those are tough words and, to emphasise the point, the Committee says:We wish to underline the seriousness with which we view the Department's failings.There is further criticism of the failure properly to control suspension accounts, of which 535 have been identified. The report is one of the most remarkable to be presented to the House and, as the Chairman of the Committee said in opening the debate, it is wholly exceptional.
The report reveals that the theory of Government Departments being publicly accountable for money voted to them by Parliament has been completely breached. That is an extraordinary serious matter. The report suggests a mess of incompetence and error. Nobody suggests that the mess was engineered deliberately, but all sorts of unworthy thoughts will be harboured if the matter is not put right so thoroughly and comprehensively that in future the Department will be completely beyond criticism.
I was not reassured to hear that senior civil servants from the Foreign and Commonwealth Office approach the Committee with a relaxed attitude to these matters. The Opposition do not adopt a relaxed approach to them and the issue should not be allowed to drift. In future debates, we shall seek assurances from the Executive that the matter has been brought to a conclusion that is satisfactory to the Public Accounts Committee.
On a much smaller scale, although one has the impression that it was not for the want of trying, is the subject of the 11th report which deals with the retirement of the former chief executive of the Development Board for Rural Wales. The retirement settlement was generous, but its original terms were exceeded and the qualification of the accounts for the DBRW led the Committee initially to discover that the lucky retiring chief executive had been given a payment of about £15,000 as compensation for untaken leave, and that the payment had not been authorised by the Welsh Office or the Treasury. It later transpired that there were no reliable records from which to quantify the untaken leave even if a payment had been agreed.
The PAC later discovered that the capital cost of pension enhancements for this gentleman had been £180,000; that the eventual retirement package included a consultancy assignment of up to 150 days at £200 a day; and that the precise scope of the work to be undertaken had never been defined. That is an elastic meaning of the word "retirement". Some of my constituents would be willing to undertake the work at a cheaper rate. Given the Government's belief in competition, perhaps such consultants should be put out to tender. One wonders how many similar stories, perhaps not quite as gross, are to be 1090 found in other non-departmental bodies. I hope that this case is exceptional, but I harbour the suspicion that it is not.
I agree with my hon. Friend the Member for Cardiff, West (Mr. Morgan) who stressed the need for real powers for the auditing authorities when dealing with undemocratic and unaccountable bodies such as the wretched development corporation in Tyne and Wear and the one that I have mentioned in Wales, because they behave as if public money was a piece of property of which they alone had charge. The report gives rise to legitimate questions. Who appointed the chairman, Mr. Glyn Davies, and what responsibility for this series of events is taken by the person who appointed the chairman? How was the chairman chosen, and what are his qualities? What happens to Mr. Glyn Davies and his board when they do something like this? My hon. Friend the Member for Alyn and Deeside (Mr. Jones) is right to say that these events are a great sorrow. They cannot be left unaddressed.
Seven of the reports deal with the Ministry of Defence. Hon. Members who have participated in these debates in the past will know that the Ministry's affairs are a recurring theme—I am tempted to say a recurring sorrow —in the Public Accounts Committee. The 37th report, about which the Chairman of the Committee spoke, deals with fraud and irregularities. That report builds on the earlier work of the 20th report of the PAC, produced in 1987–88 and debated in the House in 1988. Worryingly, the Committee is still reporting to the House that it is concerned about the level of fraud and theft at the Ministry of Defence.
For example, some £500,000 worth of computer and office equipment was stolen in 1991 and the National Audit Office found weaknesses in each of the establishments that it visited and in the way in which establishment procedures were being applied. Despite everything that was said in 1987–88 and the reassurances of the then Financial Secretary, the House is still being told of poor supervision. Furthermore, the Committee feels that the Department has failed to ensure that lessons arising from fraud cases are properly and widely learned. That is probably as damning a report as the Committee can put in front of us.
Astonishingly, we are told that although it is the stated policy of the Ministry of Defence invariably to dismiss civilians guilty of fraud, the level of excepton to this policy is 55 per cent. How can it be an exception if over half the people found guilty of fraud are not fired? That is unacceptable to the Committee and to the Opposition. I do not know what special circumstances pertain in each and every one of these cases, but if it is supposed to be the stated policy of the Ministry of Defence invariably to dismiss civilians found guilty of fraud, 55 per cent. of such cases as exceptions is a little high and worthy of further inquiry.
I do not know what the Financial Secretary has to do to prompt such further inquiry, but I urge him to do it. In the seven years since 1984–85, the Ministry of Defence discovered 388 cases of fraud, resulting in a loss to the Exchequer of £3,338,000. That is quite a lot of money and many of us think that such resources could be better used elsewhere.
My hon. Friend the Member for Cathcart was right to express alarm, on behalf of Scotland, about the future of the water industry. He based his fears on the report about the privatisation of water in England and Wales. The 1091 shortcomings of the Government's privatisation pro-gramme are a continuing feature of these debates. In particular, the losses to the Exchequer occasioned by the underselling of assets, usually land, have been highlighted time and time again. My hon. Friend the Member for Warrington, South (Mr. Hall), in his excellent contribution, referred first to that point. Had he been here previously, he would have known that his fears, expressed as a new Member of Parliament, have been echoed in debates on just about every other report on privatisation.
In 1988, we discussed the privatisation of Rolls-Royce and the critical Public Accounts Committee report, which concluded:Departments should ensure that tax payers' interests are protected as effectively as future shareholders' interests".I strongly agree with that, yet we have had similar arguments over the privatisation of the royal ordnance factories, and now over the sale of the Rover Group and of the water authorities.
I strongly endorse the views expressed about the Rover Group by my hon. Friend the Member for Hodge Hill, which very much reflected my view of the matter. The key point, which emerges again and again, is that we must protect the public purse and the interest of the taxpayer when valuing the assets of public concerns that are being privatised. I also strongly support the points made by the Committee in its report on the Rover Group and I hope, as the Chairman has said, that its recommendations will become a check list for the future if the Government are to proceed with further privatisation measures.
The Committee wisely says that it is the pressure of time, the working to fixed deadlines, that puts the privatiser at a disadvantage when negotiating with potential new owners. It is clear that the Government's ideological commitment to privatisation transcends responsibility to the public purse. It is indefensible that privatisation seems always to involve a loss to the Exchequer on land values. My right hon. Friend the Member for Swansea, West (Mr. Williams) referred to the report on the water industry and described the arrangements as statutory theft. He is right.
I move on, as I am sure the Financial Secretary is anticipating me to do—everyone who has followed the debate knows that I will—to the report on the privatisation of Harland and Wolff. First, I shall refer to the privatisation itself and, secondly, to the scandalous set of circumstances that relate to the procurement and eventual debacle of AOR1. These matters are referred to in the PAC's seventh report.
We are told that the net cost to the taxpayer of the privatisation of Harland and Wolff was £625 million, including the writing off of interest-free loans of £422.5 million and the Government's shareholding, which we are told was worth £4.6 million for this valuable piece of property. The Committee states:We … are disturbed that the close relationship between the Department"—that is the Northern Ireland Office—and the company"—meaning Harland and Wolff—and other monitoring provisions were insufficient to prevent serious weaknesses in financial management in the company.A number of us have been making the same point since the mid-1980s. It gives me little comfort to see confirmed what many of us suspected was the position.
The report continues: 1092We have not been satisfied that the extent of the Department's abatement of their adviser's valuation of the Harland and Wolff land and buildings was justified in the interests of the taxpayer.Again, we have the recurrent issue of property values and privatisation. It appears in the report from which I have quoted, as it does in every other PAC report that deals with privatisation. The report concludes:While it can only be a matter of judgment as to whether the objectives of the privatisation were achieved at the lowest cost to the taxpayer, the changes to the terms of the Heads of Agreement which were later negotiated were, in our view, costly. It is likely that Harland and Wolff's record of poor trading performance while in public ownership not only deterred potential buyers but also influenced adversely, from the taxpayer's point of view, the amount which it was necessary for the Government to offer to achieve the sale.That is a condemnatory report.
The PAC reports also on the scandal surrounding AOR1. It states:We are pleased that the Department secured a complete break from the ongoing financial risks associated with the AOR contract but concerned that the cost of achieving this was high".Why should there be any financial risks associated with the AOR contract? The contract was supposed to involve private competition between Swan Hunter and Harland and Wolff, which would act as if it were a private company, even though we know that it was not. Its approach to the competition was supposed to he hands-off. It was meant to be acting under the same constraints that apply in the private sector.
I declare immediately a constituency interest. The whole of Tyneside would be astonished if I did not. During the period of which I am talking, about 4,800 shipyard workers lost their jobs on Tyneside. About 2,000 were in that position as a direct result of what happened over AOR1, or HMS De Lorean as it is now known, but that is going back to the past. Ultimately, the Government placed the contract with Harland and Wolff. Before that happened, I wrote to the Prime Minister to express my fears. I stated:there is widespread fear on Tyneside that like is not being compared with like, and that Harland and Wolff enjoy an unfair advantage because of the substantial state subsidy that it receives.I went on:, "If the type 23 frigates are to be able to play their full part in Britain's defence, it is vital that the first AOR arrives securely and on time.Hon. Members will not be surprised to learn that I received an assurance from the then Prime Minister. On 24 April 1986 she wrote to me:an undertaking was given to the Swan Hunter buy-out team before privatisation that the Harland and Wolff bid would be unsubsidised"—unsubsidized—and comprehensively costed … You may therefore rest assured that, in deciding to award the contract for AOR 01 to Harland and Wolff, the Secretary of State for Defence is satisfied that the terms of the undertaking have been met. I might add that he prefers the tender on grounds of design … and delivery, as well as cost and contract terms".Four points are made—that the AOR1 tender is unsubsidised; that it has been comprehensively costed; that the design is preferred; that the delivery date is preferred. The design, as those who know the industry are well aware, has turned out to be one of the great disasters of the century. There is now a real chance that the Ministry of Defence will take delivery of AOR2, built on Tyneside by Swan Hunter, before AOR1 eventually limps into service. Why is the Public Accounts Committee so relieved 1093 that this unsubsidised and comprehensively costed contract has been escaped from, yet tells us that the cost of that escape route was so expensive?
The whole disgraceful episode is probably one of the worst piece, of procurement decision making that has ever come before the House. On such occasions, people ask whether anyone will be punished for what has happened. Yes, people are being punished for what has happened. On Tyneside, 2,000 shipyard workers have been thoroughly punished for what has happened, but they were not the guilty people who brought about this farce. They are just the people who have to pay the price.
The third report on the management of road maintenance caught my eye, not just because of the outrageous conclusion that the Public Accounts Committee has been forced to draw, but because I remember discussing all this way back in 1988, and I remember the assurances that the then Financial Secretary gave to the House.
I am sure that back in 1988 the then Financial Secretary did not tell the House that about one third of every single lane of motorway can be expected to be coned off at some time in the next five years. Nor do I recall his saying that the clearance of the backlog promised by the end of 1992–93 is now to be extended by a further five years to 1997–98. Those are points made by the Public Accounts Committee.
The Public Accounts Committee says that it is concerned about the past inadequacies of the Department's data on road condition, a point made in 1988, and notes that the national structural survey of the condition of roads had to be abandoned because the data provided by its agents were incomplete and inconsistent.
The Public Accounts Committee says that for the past six years the Department has consistently underestimated the levels of maintenance required because its traffic forecasts have been too low, and that the revised target for clearing the backlog in 1997–98 is based on the assumption that roads past the critical condition are expected to last for as much as a further eight years before requiring reconstruction. Perhaps most damaging of all, the report says:In view of the Department's evidence that reconstruction is much more expensive than overlay, we are concerned that the Department's planning and management of the maintenance programme has failed to prevent a significant proportion of the road network passing the critical condition which entails expensive reconstruction.All those points were made in the House in 1988 or, at least, similar points were made in 1988. Yet here we are again having another warning from the Public Accounts Committee, re-echoing everything that that the Government should have addressed some five years ago.
The hon. Member for Uxbridge (Mr. Shersby), in the context of accountants and civil servants answering the Public Accounts Committee, said that it was always the successor who had to account to the Committee for the misdeeds or failings of his predecessor. The hon. Gentleman made the attractive suggestion that former civil servants responsible for previous misdemeanours should be caled before the Committee—but pointed out that they may be retired, too far away, or otherwise unavailable. I wonder whether the same might apply to a former Financial Secretary who assured the House that so 1094 many matters were under consideration. We would not have to look far for him; he has not yet retired but is the current Chancellor of the Exchequer.
The Opposition are experiencing some difficulty in getting the Chancellor to appear before the House. The hon. Member for Uxbridge may have suggested a new route. However, if we start holding the Chancellor accountable for his past as well as present misdeeds, we may find ourselves in an even longer running saga than the Cardiff Bay Barrage Bill.
I regret that only three Conservative Members participated in the debate, but my right hon. and hon. Friends made good use of the time available to them. I entertain the unworthy suspicion—the third tonight—that the Government are trying to undermine any debate of Treasury and economic affairs on the Floor of the House. We all understand why. I serve notice on the Financial Secretary that, if he hopes to claw back the rights of the House in his Budget and public spending round reforms, he will face what the Prime Minister would call not inconsiderable resistance.
Some of the PAC reports deal with shortcomings in public administration, and are all the more authoritative because of the all party consensus that underpins them. It is important to place them in context, and to remember that they cover the post-Thatcher era—or, more accurately, the post-Thatcher error.
A review of the economy since the right hon. Member for Huntingdon (Mr. Major) became Prime Minister shows that it has been continually shrinking. Output has fallen 3 per cent.—some £20 billion. My hon. Friend the Member for Pontypridd (Dr. Howells) referred to over-optimistic Conservative job forecasts. In truth, unemployment has risen from 1.62 million to 2.8 million, and the President of the Board of Trade is planning to make unemployment increase even faster.
Public sector debt has risen from 27 per cent. of gross domestic product to 40 per cent., and is rising—with the cost of the Government's mistakes being passed on to future generations. Manufacturing investment has fallen from £3.1 billion to £2.3 billion, construction orders are down 25 per cent., and property transactions have fallen 20 per cent.—with 70,000 fewer transactions per quarter than when the right hon. Member for Huntingdon became Prime Minister.
Is it any wonder that some Conservative Members pine for the return of their former leader? At least they knew where they stood with her. Time after time in PAC debates. I have heard the Committee's Chairman make the point that the nation is living off its capital, and that inevitably a price will have to be paid for that. The Government's response has been a failure to invest in our decaying public sector infrastructure and to hold back public sector pay—unfairly punishing public sector workers for the Government's own errors and artificially restraining the economy.
The Government have not even achieved their overall objective of cutting public spending. This year's extra 4 per cent. is almost entirely due to the public expenditure costs —mostly state benefits—incurred by the Conservative Government's recession. Does the Financial Secretary still believe that the Government will balance the budget over the cycle?
The last time that I asked the hon. Gentleman that question, he said that he stood by the Red Book—the source of the Government's growth forecast of 2 per cent.
1095 for 1992–93. The City's consensus is that the economy will shrink by three quarters of 1 per cent. The Government promised the electorate growth of 3.25 per cent. in 1993–94, but the optimistic City view is growth of 1.75 per cent.
The point made by the Chairman of the PAC about our failure as a nation to invest in our future has never been more important and valid. We need a growth strategy; we needed a growth strategy two years ago. Now, and for years to come, the British people must pay the price of the Government's recent errors.
§ The Financial Secretary to the Treasury (Mr. Stephen Dorrell)
Not the least of my right hon. Friend the Prime Minister's achievements seems to have been to turn the hon. Member for Newcastle upon Tyne, East (Mr. Brown) into a Thatcherite. [Interruption.] With due deference to my hon. Friend the Member for Harrow, West (Mr. Hughes), I am not sure that I would have predicted such a consequence when my right hon. Friend became Prime Minister.
I join my hon. Friends, and one or two Opposition Members, in paying tribute to former members of the PAC. I particularly mention Michael Latham, who was my parliamentary neighbour in Leicestershire and a good friend to me, especially during my early years in the House; Michael Shaw, who was well known to all my hon. Friends as a stalwart Conservative; and Ian Stewart, who was not only a stalwart of our Back Benches but a distinguished Treasury Minister. I am sure that the PAC will be the poorer for the departure of all three.
The Chairman of the PAC, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), pointed out that PAC debates are often low key. Although he implied that he might have preferred a better attendance for today's debate—a theme picked up by one or two other speakers— he also rightly observed that, in a sense, it was a sign of success that the debate had not elicited enormous excitement. If there had been a deep-seated problem of fraud or dishonesty in the public service, there would have been much more interest in the PAC reports and the parliamentary debate about them. It is a tribute not only to the PAC's work but to the honesty and quality of the vast majority of our public servants that the PAC carries out its task, and reports to the House, in a relatively low-key fashion and in an atmosphere that is not charged with great political electricity. We all welcome that, although we might like some of the detailed work that goes into the report to be paraded to a slightly fuller House.
Let me also pay tribute to the work of the right hon. Member for Ashton-under-Lyne. Earlier some hon. Members taunted me, saying that my predecessors had promised this or avoided that and had passed on quickly enough to leave me to pick up the tab. One of my most distinguished predecessors, however, acts as my chief torturer in his role as Chairman of the PAC, and sits on the Opposition Benches. The right hon. Member for Ashton-under-Lyne gets through a tremendous work load, and it is a tribute to his chairmanship that the PAC continues to work as successfully and smoothly as it does.
The history of the PAC and the effectiveness of its current operations act as a real discipline in Whitehall. The threat of PAC examination is ever present in the minds of civil servants contemplating particular actions and the 1096 evolution of policy. Several hon. Members have today pointed out that, when the PAC examines a witness, it is often examining the witness who has followed into office the person responsible for the very misdemeanour that the Committee is examining. That, however, is to miss the main point of the benefit that the PAC brings, as a quality check within the public service: effective deterrence. There can be few more eloquent witnesses to the effectiveness of the deterrence theory than the work of the PAC and the feeling—which pervades the senior ranks of the civil service and, indeed, ministerial ranks—that it is worth taking considerable care to avoid appearing to give an account of oneself to the PAC in hostile circumstances.
My hon. Friend the Member for Uxbridge (Mr. Shersby) drew attention to the estimate that the Public Accounts Committee delivers considerable savings of £200 million a year in public expenditure. That is a further measure of its success, and I am happy to give credit for the substantial contribution that it and the Comptroller and Auditor General make.
I should like to say a few words about the role of the Treasury. There is an overriding need to ensure regularity and propriety in public expenditure. Parliament has traditionally looked to the Treasury to play a leading role in ensuring that money is spent only in ways that are approved by Parliament and properly accounted for. That was the basis of many of the speeches that we heard in the debate. Individual transactions are the responsibility of the Departments concerned, but the Treasury continues to play a key role in keeping the rules of Government accounting up to date and in ensuring that new instructions are issued where they are warranted. I shall refer to one or two of those rules later.
Another essential Treasury role is to promote the importance of value for money. That role is often misunderstood, but I regard it as being one of the most important functions of Treasury Ministers. Mr. Gladstone commented on the appointment of one of my predecessors as Financial Secretary in 1877 by saying of him—he had something that I do not have—Stanley is clever, but can an heir to the Earldom of Derby descend to the saving of candle-ends, which is very much the measure of a good Secretary to the Treasury?That was the first time that the phrase that has become famous and associated with the mandarins of Great George street—the saving of candle ends—appeared. The Treasury is no longer concerned solely with candle ends.
§ Mr. Dorrell
Perhaps the up-to-date version is ensuring that light bulbs perform to the end of their natural life. Where possible, we buy the long-life version that is preferred by the Department of the Environment.
The Treasury maintains strict control over public expenditure aggregates but has increasingly delegated responsibility for individual items of expenditure to Departments and, through them, to other public bodies.
In the 1990s, our task is to carry the process further, building on financial management, next steps and citizens charter initiatives to develop what my right hon. Friend the Chancellor of the Exchequer described as more strategic forms of control by delegating responsibility, as far as possible, to the point of service delivery. By that means, we can best assure the taxpayer of high-quality expenditure, good value for money, conventional financial disciplines and the securing of propriety in public service.
1097 The aim of the strategic management approach is to secure a sustained improvement in the quality of public services in terms of value for money per pound spent throughout the public sector within available resources, for the benefit of taxpayers, customers and staff.
Our approach recognises that, in promoting value for money, it is not for the Treasury to do Departments' jobs for them. In some cases, it may be appropriate to provide uniform general guidance across Government, but ensuring that taxpayers' money is well spent is the responsibility of every public servant, and we must create a culture where that is clearly understood to be part of the core responsibility of every public servant rather than something that is imposed from outside and from Great George street.
The Government are determined to secure a sustained improvement in the quality of public services and to maintain our objective of reducing the share of national income that is taken by the public sector. In 1989, when my right hon. Friend the Prime Minister was Chief Secretary to the Treasury, he said that value for money was not an arcane fetish of Treasury Ministers and officials but an absolute obligation that public service managers owed to the taxpayers whose money was compulsorily extracted for spending on public programmes. My right hon. Friend was right; that is the core responsibility of the Treasury.
I shall pick up a theme developed by the right hon. Member for Ashton-under-Lyne and my hon. Friend the Member for Beaconsfield (Mr. Smith)—the importance, in the evolving strategic approach to the management of the public sector, of fixing targets and management accountability systems which define objectives in both output terms and financial terms, and then holding the executive to account for the delivery unit by unit of those targets and objectives.
It has been accepted for a generation that that is the key to good management in the private sector and we seek to introduce that discipline into the public sector. The key to good management is setting targets and setting milestones along the road to the achievement of those targets.
The right hon. Member for Ashton-under-Lyne referred to the importance of setting those performance targets, improving management systems and developing corporate planning systems. For the reasons which I have already given, I am keen to see those factors developed. With regard to the next steps agencies and the non-departmental public bodies—which I shall call quangos, because that is easier—we have made it clear that we expect key targets covering financial performance, efficiency and quality of service to be agreed and announced in advance of the period that they are intended to cover.
Treasury guidance on the preparation of agency reports and accounts requires that the extent to which the key performance targets have been met are set out in a body's annual report. The importance of annual reports has been mentioned during the debate, both because they set out objectives for the future and because they report on the extent to which the reporting body in question has been able to meet its objectives in the past. That is an objective which we have clearly in our sights, and I regard it as an essential discipline of good management.
§ Dr. Howells
Like many right hon. and hon. Members, I am glad to hear that statement, but will the Minister tell us what resources will be allocated to policing those directives and instructions? We have heard about such directives before, but they have not been backed up with any real resources.
§ Mr. Dorrell
In a real sense, I regard the answer to the question, "What level of resources will be bound up in the new, better-managed public services from 1993–94?" as, "£245 billion a year." I regard the process not as an extra, but as something at the core of public sector management. Public sector management without those disciplines is bad, out-of-date management. Setting those objectives and holding the public sector to account to deliver them are at the core of what public sector management is about.
§ Mr. Dorrell
Of course it is true that any manager in any organisation, whether in the public or the private sector, needs to ensure that he has the management information necessary to deliver efficient management of the unit for which he is responsible. That is why I have stressed that good management in the public as well as the private sector involves setting targets and holding managers to account for delivering them—insisting that the manager of the unit is accountable for the delivery of measured targets and measured milestones along the road to those targets.
§ Mr. Alan Williams
Does the Financial Secretary accept that one of the absurdities of the rivers authority case is that the man who was in charge was an ex-Cabinet Minister who had himself set the targets in Wales but, as soon as he was in charge of the quango, he wasted £1 million by ignoring them?
§ Mr. Dorrell
Of course it is important that the targets that are set for every Government organisation serve the wider public purpose and the interests of those to whom that organisation is accountable. The important thing is to ensure that the targets are set and are clear and that there is an accountability mechanism to test whether the unit delivers those targets. That is the objective, and it is the test that I invite the PAC to apply, because it is at the core of good management.
§ Mr. Terry Davis
But who will do what if the PAC finds that the accounting officer has not set targets?
§ Mr. Dorrell
I am conscious of the fact that there is a series of specific reports on managements that have not delivered against their objectives and I am anxious to deal with them.
§ Mr. Dorrell
I have set out what seems to me to be a proper standard to apply in the management of the public sector. If the PAC examines a unit and finds that, against that standard, targets should have been set but were not, that is a legitimate subject of criticism. I do not see how the 1099 management of any organisation can be effectively delivered if the managers do not know the objectives to which their organisation is supposed to be directed.
The decisions on appropriate performance targets for agencies and non-departmental public bodies should normally be taken in the context of the corporate planning cycle. The Treasury is encouraging Departments, agencies and the NDPBs to develop their planning process as a management tool. We recognise, however, that strategic and corporate plans should reflect the needs of the organisation and that no single model is suitable for application to every public body.
Reference has been made more than once during the debate to the proper control of money spent by NDPBs. The bodies are set up, usually by statute, with the deliberate intention that they should operate at arm's length from Government. That does not mean, however, that the standards of control over their use of public money should be any less rigorous. The key point is that the responsibilities and the authority of all managers should be clearly set out, and the Treasury is working to ensure that that happens.
That clearly did not happen to the extent that we would all have wished in the case which has perhaps detained the House most—that of the Development Board for Rural Wales. The amounts of money involved were relatively small in the wider public expenditure context but, by any definition, that was a sorry tale of mismanagement, which was recognised as such by the relevant Department. Action has been taken to ensure that the lapses that were revealed by the PAC's work are being addressed. The Treasury has recently written to departmental accounting officers drawing their attention to the need for strict compliance with the terms and conditions under which grant-in-aid payments are made.
There is also the question of the responsibility of board members of the NDPBs. About a quarter of the total of nearly 1,500 NDPBs have a board of equivalent responsible organisation. The responsibilities of those boards vary greatly, so it falls to the sponsoring Department to issue definitive guidance to each NDPB within its sphere of responsibility. In the context of the Welsh board, the Welsh Office has already written to its NDPBs ensuring that that definitive guidance is available to them.
§ Mr. Tim Smith
On that point, which arose during our inquiry into the Development Board for Rural Wales, is my hon. Friend satisfied that, every time some one is appointed as a board member of one of those quangos, his full responsibilities are explained to him?
§ Mr. Dorrell
I certainly agree with my hon. Friend that it should be part of good discipline to ensure that that happens. I have given the figures to the House. There are 1,500 of those bodies. I cannot personally undertake the training of every new member of a board. However, I agree with my hon. Friend that, when they join the board, new board members should be told the responsibilities and the purpose that they are taking on.
§ Mr. Dorrell
I shall give way once more, but I should then proceed, as I have been asked several questions.
§ Mr. Dorrell
The answer is yes. [HON. MEMBERS: "Why?"] Because my right hon. Friend the Secretary of State for Wales believes that, despite that lapse which the chairman concerned has recognised, he is the best man to carry out that responsibility.
§ Mr. Shersby
Will my hon. Friend tell the House why the permanent secretary of the Welsh Office is still in office?
§ Mr. Dorrell
Although I have acknowledged that that tale is a very sorry saga of mismanagement, it is also important to be clear about the extent of the ultimate financial cost, because the—[interruption] I make absolutely no apology for the mismanagement that took place, but the impropriety—that is to say, the payment which was not cleared through the appropriate channels, as the Committee's report makes clear—was the £15,000-odd payment for holiday back pay. There were a series of other inadequacies in the arrangements, but I do not believe—this is clearly the judgment that has also been reached by my right hon. Friend the Secretary of State on the appointment of the chairman—that that mismanagement, that lapse, was by itself a reason for a change of personnel at the top.
I now refer to the points that the right hon. Member for Ashton-under-Lyne made about fraud in defence establishments. He was absolutely right to stress the importance of rooting out fraud in order to maintain our traditional high standards of honesty within the public service. He described that as not taking the majority of the Committee's time but being perhaps the most important individual element of the Committee's work. The right hon. Gentleman and the hon. Member for Newcastle upon Tyne, East stressed the obvious absurdity of asserting that there is an invariable policy of dismissing employees found guilty of fraud and then, when asking how many have actually been dismissed, being told that it is 45 per cent., which means that the exceptions constitute the majority of actual cases.
The right hon. Gentleman asked me what has happened to follow up that report and revelation. I am advised that, following the PAC's criticism of the Ministry of Defence for the high proportion of cases involving civilians in which the policy of invariable dismissal was not enforced, the Department has issued fresh internal instructions. They restate the policy of dismissal and identify factors which in future will not be accepted in mitigation, the implication being that in the past they have been accepted in circumstances where in future they will not be. Such circumstances are listed as ignorance of regulations, the claim or plea that it is custom and practice, the suggestion that the amount involved was relatively low, and previous long and good service. Those claims have been made in the past to justify continuance in office. We have made it clear that that is no longer acceptable.
§ Mr. Sheldon
That is obviously a very important matter. Once custom and practice is allowed as a reason for not dismissing a person, of course that tendency can spread. Before one knows where one is, one is in a South American situation.
§ Mr. Dorrell
That is precisely why custom and practice is listed as a reason for dismissing. We shall not allow it as 1101 the basis of a plea of mitigation. I entirely agree with my distinguished predecessor, the right hon. Member for Ashton-under-Lyne.
There was a clear failure in the Foreign and Commonwealth Office in 1989–90. Several hon. Members stressed that the report on that failure was perhaps the most serious of the batch of reports in terms of its effect on the morale and prestige of the Department. They said that it was the most threatening report of the batch. While I stress that the breakdown revealed in the PAC report on the Foreign and Commonwealth Office was extremely serious, it is important that the House should know the ultimate outcome of the final reconciliation of the accounts of the Foreign Office.
Once all the figures had been traced to the satisfaction of the Comptroller and Auditor General, it emerged that, far from money going astray—as it undoubtedly could have done as a result of inadequate control—the books were finally made to balance with a remaining balancing item of £149,000 credit rather than debit. So the public have the assurance that, although the disciplines were not as they should have been on that occasion, there was no evidence on the surface of a major cost to public funds.
More importantly, the managers involved learned the lessons of the failures of financial discipline which were revealed. That is why there has been a substantial tightening up of project management in the Foreign Office. It now gives us the undertaking that it uses the preferred systems recommended by the CCTA, to which several hon. Members referred. Management control has been strengthened by the appointment of an additional assistant head of the finance department to supervise accounts work.
Several hon. Members, including the Chairman of the Public Accounts Committee, stressed that continuity had been improved by replacing mobile diplomatic staff with home civil servants when diplomatic staff are posted overseas. That programme has been reinforced following the recent relocation of accounts work from central London to Hounslow Park. The Foreign Office recognises, as indeed the Treasury and the Government recognise, that the lapse in the accounts was extremely regrettable and must under no circumstances be allowed to happen again.
In the time available, I shall take the case of Rover as an example to illustrate a more general principle. I was asked several times during the debate to ensure that we learned the lessons of previous privatisation experience. I entirely agree with the proposition that the Government 1102 and, indeed, the House must learn the lessons of previous privatisation experience. Let us remember all the lessons, not just a selection of them.
Let us remember that, in the Rover case, privatisation delivered the public sector from a £1.6 billion contingent liability. In the three years after privatisation, Rover returned consistent profits, exports increased from 29 per cent. of its output to 50 per cent. and productivity increased from 18 cars per employee to 35 cars. That is all part of the lessons of privatisation. I am strongly in favour of learning lessons, but I am in favour of learning all lessons, not simply a selection of them.
There are other procedural lessons from earlier privatisations. One lesson is the need for maximum competition when we sell undertakings. The Government have always taken the view, and they continue to take the view wherever it is practical and consistent with sound objectives, that full and open competition maximises the value for the taxpayer. That remains our policy for both trade sales and flotations, but the Government do not rule out proceeding with sales where there is limited competition or where the balance of interests suggests that the Government's objectives will best be served by a more limited negotiation. The purpose of privatisation is twofold: first and foremost, to secure an improvement in performance; and secondly, as part of securing improved performance, to ensure that we deliver the best value to taxpayers on the sale of the assets.
I commend the PAC for its work. It has once again revealed lapses which we need to remedy and its continued work is a continued guarantee to the taxpayer both of value for money and financial probity in the public services.
§ Question put and agreed to.
§ That this House takes note of the 36th to 43rd Reports of the Committee of Public Accounts of Session 1990–91, of the 1st to 24th Reports of Session 1991–92, of the 1st to 11 th Reports of Session 1992–93, and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on those Reports (Cm. 1725, 1784, 1798, 1819, 1865, 1856, 1949, 1998 and 2074), with particular reference to the following Reports:
§ Session 1990–91
- Thirty-sixth, Foreign and Commonwealth Office: Qualification of accounts, 1989–90;
- Thirty-seventh, Fraud and irregularities at defence establishments;
§ Session 1991–92
- First, Sale of Rover Group to British Aerospace plc;
- Third Management of road maintenance;
- Twenty-second, PSA Services accounts 1990–91;
§ Session 1992–93
- Seventh, Sale of the water authorities in England and Wales.