§ Mr. Robert Sheldon (Ashton-under-Lyne)
I beg to move,That this House takes note of the 55th to 63rd Reports of the Committee of Public Accounts of Session 1992–93, of the 1st to 39th and 41st Reports of Session 1993–94, and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on these Reports (Cm 2419, Cm 2446, Cm 2492, Cm 2493, Cm 2555, Cm 2577, Cm 2602, Cm 2618 and Cm 2677) with particular reference to the following Reports:Session 1992–93Fifty-seventh, West Midlands Regional Health Authority: Regionally Managed Services Organisation;Sixty-third, Wessex Regional Health Authority: Regional Information Systems Plan;Session 1993–94Eighth, The Proper Conduct of Public Business;Sixteenth, The British Council Account, 1992–93;Seventeenth, Pergau Hydro-Electric Project;Twenty-third, Development Board for Rural Wales: Allocation and Sale of Housing and Car Leasing Scheme.Our last Public Accounts Committee debate took place at almost the same time last year, when 42 reports were included in the motion. This debate relates to 49 reports and nine Government replies. As usual, a few reports have been specified in the motion, although doubtless many others will be mentioned in the debate.
This has been another exceptionally busy and productive Session for the Committee, in which it will in due course have agreed more than 50 reports. The Committee's work continues to generate great interest. I am very much aware of the burden imposed on my right hon. and hon. Friends by the amount of time that they must devote to that work; it is a great responsibility, for the Committee meets more often than any other Select Committee. We welcome the new arrivals, as well as thanking those who have left. In particular, I welcome the right hon. Member for Ealing, Acton (Sir G. Young), who has become Financial Secretary to the Treasury following the departure of the right hon. Member for Loughborough (Mr. Dorrell), who has moved on.
The most valuable aspect of our reports is the fact that they are unanimous, and not concerned with policy issues. We do not examine policy; we examine certain issues in regard to which policy would deeply divide the Committee, but our task is to ask whether the implementation of that policy will produce value for money.
The Committee and the National Audit Office enjoy a very close relationship, which is fundamental and essential. Under the National Audit Act 1983, the Comptroller and Auditor General has complete discretion in choosing his investigations. It is vital that that remains the case: no one should be in a position to debar the Comptroller and Auditor General from examining any matter that he chooses. As a result of that Act, however, the Committee has the statutory power to suggest that certain matters should be included in the programme that the NAO undertakes. I was much impressed with the innovations in the way in which the NAO continues to do its work, which we see almost on a regular basis. That is greatly to the credit of Sir John Bourn and his team.
900 Bill Jack has retired as Comptroller and Auditor-General for Northern Ireland and I should like to pay tribute to his work in that job. Committee Members visited the new headquarters of the National Audit Office in Northern Ireland yesterday for the first time and we were impressed with what we saw. We now welcome John Dowdall to the job of CAG for Northern Ireland, although, of course, we knew him in his previous incarnation as Treasury Officer of Accounts there. We give our thanks to Tim Burr, who served us as Treasury Officer of Accounts and who has moved to become a director of the NAO, and to Ian Thomson, the second Treasury Officer of Accounts.
Accounting officers prepare assiduously for the Committee's evidence sessions. Hon. Members know full well the impact that the Public Accounts Committee has in these matters, the burden of the task that we impose on it, the way in which it must prepare assiduously for an investigation and the amount of time that it has to devote to it. That is all worth while in ensuring that public accountability is not only known, but frequently expressed.
I have highlighted the six reports in the motion. They led us to believe that the Committee should deal with a number of serious matters. I have said repeatedly that, in general, value-for-money matters concern the Committee only because questions of probity, accountability, fraud and corruption rarely come before it. When they do, however, they take precedence over everything else. Committee Members have always held that the most important aspect of our work is to preserve standards in public life which we have been fortunate enough to inherit over the years.
In the 1992 debate on the Public Accounts Committee's work of that year, I mentioned the importance of non-departmental public bodies. I drew attention to the fact that the Committee could not approve of the way in which a number of them were undertaking their work and I said that we might need to pursue the matter further.
In the 1993 debate, I said that the problem had become much more serious and that the Committee would be producing a report. I expressed the view that Committee Members felt great disquiet about certain aspects. In January 1994, we produced the eighth report on the proper conduct of public business, one of the most important reports undertaken by the PAC. It is of enormous importance because it shows the need to maintain the standards that we have come to expect over the years.
Committee Members discovered a situation that was rather different from what they had been used to. New people were taking up appointments as heads of non-departmental bodies with new responsibilities. Coming from outside the public service, they had not acquired the ethos within that service or its integrity, impartiality and objectivity, which Sir Robin Butler, in giving evidence to the Select Committee on the Treasury and Civil Service, thought was the hallmark of the civil service.
Plenty of people came into the civil service not to make money, but to serve their country and to do something for its future. We belittle their role at our great peril. It is most important that we regard their work, in the words of Lord Callaghan, as the bulwark of our constitution. They are the protectors of so many of our rights as they continue their work for Governments of different persuasions. 901 Throughout this century, our economic standards have declined in comparison with other countries, but our standards of public life must not decline. That is of enormous importance. I can only go back to the early years of this century, but my room in the Committee could have been the room that Gladstone knew in the last century. Over the doorway is the marvellous Victorian word "assiduity". It is a word which constantly haunts us, because we can never be sure that we are dealing with matters as fully and thoroughly as we need to.
One hundred and eighty-four countries are members of the United Nations, but how many of them are free from fraud and corruption? One thinks of the Scandinavian countries, Switzerland, Germany, Holland and one or two others. One can think of a dozen without too much difficulty, but then it becomes very hard. We are an unusual country in having the standards that we have come to expect and take for granted. It is crucial that we retain those standards, which is why I am placing great emphasis on the task before us.
The Treasury has a substantial role to play and produced a Treasury minute following our eighth report. It was not as satisfactory as it should have been. I suggest to the Financial Secretary that it should have said more, but I take comfort from the fact that what the Treasury did was better than what it said, because it set out to give the type of response that we wished. Of course, the Departments have gone further, and I shall deal with them later.
The task is to ensure economy, efficiency and effectiveness. Public money is very different from private money. People coming from outside can have difficulty in acquiring the standards that we take for granted and which we regard as essential.
I should like the accounts of all non-departmental public bodies to be audited by the National Audit Office, a body in which we all have supreme confidence. It is a tribute to that office that we all agree that it has the very highest standards; but it does not have the power to audit non-departmental public bodies. As second best, I should like the auditors of those bodies to be changed frequently. The National Audit Office's accounts are audited by a professional firm. We found nothing wrong with any of the auditors, but we change them every three or five years. If non-departmental public bodies are not to be audited by the NAO, they should have similar arrangements. One does not want too close a relationship between non-departmental public bodies and their auditors.
The question now is how to deal with the several thousands—the number depends on definition, but one could claim a much lower or higher figure—of non-departmental public bodies, quangos or whatever one likes to call them. Appointments to such bodies should at least be subject to some outside scrutiny, perhaps that of a Select Committee. I have no particular preference, but there needs to be some external observation of how appointments are made.
The relevant Secretary of State makes use of people whom he or she knows, but the numbers of appointees are now so large that, if he or she is using the very highest standards, it will be difficult to find people to fill all the posts. We are, therefore, forced to examine such appointments more closely. 902 I have already referred to the morale of the civil service. Many of us speak to groups of them and we know that their morale has declined and needs to be improved. At a time of what many people would call root and branch reform, civil servants may become anxious about their future. We need people with ability and integrity producing evidence-driven policies. It is important to ensure that the policies are evidence driven, and, for that to be done well, we need the civil service. Its morale is of enormous importance.
The work of the Public Accounts Committee is valuable partly because every one of the 450 or so reports that I have had the privilege of bringing before the House has been unanimous. That unanimity has not been fudged; it has been genuine, even on issues such as privatisation. That is because we look to the taxpayer. It is the taxpayer who makes our reports unanimous. So many things can divide us, but that, above all else, is what unites us—and that is how we proceed.
I shall deal with the eighth report first, because it brings in a number of aspects to which I want to draw attention. It deals with some matters that were examined in the previous Session of this Parliament. Paragraph 1 says:In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which have led to money being wasted or otherwise improperly spent. These… represent a departure from the standards of public conduct which have mainly been established during the past 140 years. This was the period following the publication of the Northcote and Trevelyan Report which condemned the nepotism, the incompetence and other defects of the Civil Service and brought about fundamental change. It is from that period that we acquired the principles and the standards which have come to be copied by some countries and admired by many more. It is our task to retain those standards.Paragraph 5 says thatwe consider that any failure to respect and care for public money would be a most important cause of a decline in the efficiency of public business.That is not simply a question of probity. Probity leads to efficiency, and we can never do without either. The report continues:But there is no reason why a proper concern for the sensible conduct of public business and care for the honest handling of public money should not be combined with effective programmes for promoting economy and efficiency.Our task is to achieve both of those together.
The Committee emphasised thatwe are not calling for any more detailed rules. Almost every case we have examined involved breaches of existing rules or guidance.Everything was laid down. We have inherited a splendid set of rules governing such matters. Of course, there is the question of selection, but that is a separate matter. The rules are there.
The Committee said that the framework for those rulesmust include effective systems of control and accountability and above all responsible attitudes on the part of those handling public money.
§ Mr. Barry Sheerman (Huddersfield)
I am sorry to interrupt my right hon. Friend, but before he moves off that subject, does he agree that the problem with accountability today is that the Government increasingly put such bodies more and more at arm's length, further and further away?
Even the Secretary of State and the Government lose control and lose their responsibility to the House for public money that is being spent in large amounts. I am 903 talking especially of the new universities which, as my right hon. Friend knows, have a degree of independence and autonomy that makes accountability difficult. Even the Secretary of State will agree that she has no powers to intervene, even when public moneys are obviously being misspent.
§ Mr. Sheldon
Of course my hon. Friend understands that we achieved something with regard to the university of Huddersfield; I shall refer to that briefly later. My hon. Friend is right; with many such bodies, the problem is to control them. It will be up to the Departments concerned to exercise what control they can. As I have said before, I should like there to be more of a relationship between the auditing function and the procedures carried out by the National Audit Office. That could be one method.
Those put in such a privileged position must fully accept the proper way in which such responsibilities are handled and must accept the standards of the public service in the work that they do.
§ Mr. Michael Stern (Bristol, North-West)
The right hon. Gentleman, to admirable effect, is going through much of the work done by the Committee during the year. Before he goes too far down the road of assuming that the areas at which we have looked are failings with non-departmental public bodies, in the context of the report to which he is referring, "The Proper Conduct of Public Business", will he agree that we have found some horrifying examples of mismanagement and misuse of public funds among the traditional civil service of Government Departments? It would give a wholly false picture of the work of the Committee and of the National Audit Office if we assumed that the failures at which we have looked were solely among non-departmental public bodies.
§ Mr. Sheldon
The hon. Gentleman's point is undoubtedly correct; I shall refer to the British Council, among other bodies that we examined. As I have said, most of our work has traditionally been of that kind and I hope that it will continue to be of that kind. It just happens that, this year, we came across a number of issues of a kind that we have not so commonly met. I hope that we shall be able to deal with them effectively and then get back to our normal task of looking at value for money; we shall deal with the issues as they come.
It is most essential to maintain honesty in the spending of public money and to ensure that traditional public sector values are not neglected in the effort to maximise economy and efficiency, which we want to see working together. We shall pay particular attention in our future examination of accounts and the implementation of programmes to the successful combination of the proper conduct of public business and the energetic pursuit of value for money. Those must go together.
We think that to assist us in that task, it would be helpful if the National Audit Office were able to examine and inspect all non-departmental public bodies and other organisations that receive the greater part of their income from central Government funds and to report the results to us.
Following on from that, I had a meeting last week with the Chancellor of the Exchequer, together with the Chairman of the Public Accounts Commission—the right 904 hon. Member for Horsham (Sir P. Hordern)—and the Comptroller and Auditor General. The meeting, which was of long standing, was intended to pursue the matter raised ever since the National Audit Act 1983—the right to pursue public money wherever it goes. At this stage, of course, we do not expect as much as that, although it may remain a long-term end. After all, that power exists in the United States.
What we want is to pursue the issue of a contractor in a competitive bid. If there are no competitive bids—for example, for building a submarine or a tank—because there is only one supplier, the National Audit Office has the power to investigate the costs when the contract has been completed, to assure itself that the costings have been properly worked out. In competitive bidding, the NAO does not have that right. The view is held that if there is competition, there is no need for such an investigation.
In practice, there are problems of collusion between a limited number of competing bidders and that matter concerns us. As I mentioned, greater powers exist in the United States. The European Court of Auditors has the power to come into a company at which we cannot look and it can insist on finding out where the money has been spent. The Audit Commission can follow that public money. The same powers exist in the United States, but we do not have those powers ourselves. We are not asking to see all the books; it would clearly be wrong for us to investigate all the accounts. We want the power to pursue the areas, which could be very limited, in which public money has been involved. We say that, in such matters, we should be on a par with the European Court of Auditors, the Audit Commission and the United States authorities.
The Chancellor of the Exchequer looked at the matter sympathetically and I am pleased that we had a response from him. He intends to consider the matter and we hope to get some movement here. At present, when there is a competitive tender for a road, for example, we have no means of knowing whether there has been collusion. That is a power which I think that we ought to have.
A more immediate matter, because we have dealt with it frequently in the House, has been the way in which Vickers Shipbuilding and Engineering Ltd. and Swan Hunter competed for the contract to supply landing platforms for helicopters. The Committee dealt with that in its 30th report and it concluded that the best bid was accepted. That was probably true, but the difficulty was that we were never able to prove it conclusively and there was great bitterness about that. We did not have the same access as the European Court of Auditors would have gained if it had been a European sum of money. We did not want to see the whole profitability of everything that those companies did, but we wanted to ensure that the bidding had been fair and that loss-leaders were not involved.
The Chancellor of the Exchequer, as I said, understood those arguments and the Committee hopes to hear something from him shortly. He will be consulting his colleagues to see how far he can go in that matter. Of course, we see a considerable response from the Treasury and elsewhere in the individual reports, and that may continue in other directions. 905 The Committee drew attention to certain matters relating to the Welsh Development Agency. One important abuse—there were a number of them—triggered the need to produce the eighth report on the proper conduct of public business in 1993–94.
Although some aspects of the matter were dealt with in our debate last year, I shall outline again some of the abuses. For example, paragraph (ix) shows how that public sector body decided on redundancy payments and then justified the payment of those redundancy schemes by considering schemes to which it did not belong. It justified the payments by saying that in one scheme people were allowed some benefit and in another people were allowed something else. It picked and chose the standards to apply. Of course, if one picks and chooses the standards to apply, one may end up with any solution that one wants. We strongly disapproved of that.
Paragraph (xv) shows that the WDA provided cars without drawing any distinction between cars used for official duties and cars used for private motoring, so the private motoring of senior employees was paid for by the taxpayer. Paragraph (xix) outlined the case of a Mr. Price, who had served only nine weeks as the international director before the Welsh Development Agency sent him home on eight weeks' gardening leave, as it called it. Tension arose between the chairman and that international director which ended up with a retirement package of £228,000, all because of a disagreement. That is not what the public sector should be about. The WDA went further and produced a legal agreement stating that the international director would lose money if he discussed that agreement.
One of the related matters that the Committee is bringing before the House is the secrecy element. We have seen a secrecy element in so many such cases, where money has been given by the chairman on the basis that if anything were subsequently disclosed, there would be a loss of money to the person receiving that payment. We have found out subsequently that 48 members of staff at the Welsh Development Agency received severance packages and had been required to give no disclosure of agreements. It is clearly wrong. This is taxpayers' money. We are here to protect the taxpayers' money and we find that such agreements would have been concealed from us if we had not had the advantage of the National Audit Office and the investigation before the Public Accounts Committee.
We then found that a Mr. Carignan, director of inward investments in North America, removed furniture amounting to more than £53,000, and the Welsh Development Agency received $15,000. The Committee's report states:We do not consider that agreement… represents good value for money".
I want now to refer to Mr. Smith, who was the director of marketing. He had a criminal conviction in the United States and there was laxity in checking his references. With regard to the appointment, I said at question 19 in the examination of witnesses in the 47th report:This points to very great laxity on very important matters. We are dealing with … considerable sums of public money.In reference to the commissioning by Mr. Smith of Shapes Model Agency, I said:This is an astonishing tale is it not? It refers to payments made to the Shapes Model Agency who had at one time had a licence under the Employment Agency Act but this had lapsed so they did 906 not any longer have it. It seems there was a failure to find out about the status of the Model Agency. Mr. Smith, on a Sunday, had 11 girls from the Model Agency up to his hotel to interview them to see whether they would be suitable for an advertising promotion that he had in mind. What happens in private industry does not concern us, but public money can never be used in this kind of way. Did you know anything about this beforehand?The reply was:No, I did not.That is a scandalous state of affairs. The sums of money are not the issue. What is crucially important is the way in which public money is treated. We felt very bad about what had happened.
The WDA also examined possible privatisation of aspects of its own work. As a Committee, it was not for us to comment on that. If that was Government policy, that would be something we would take for granted. However, we found that the WDA had decided on that course of action itself. Under Operation WIZARD, £308,000 was spent examining the possible privatisation of WDA work. Nothing was formally minuted by the board and the existence of the operation was not publicly revealed, even after it was decided to shelve that programme. As the programme was spread over several headings, it was very difficult to discover what had happened.
We state in paragraph 41 of the 47th report:We note that neither approval nor progress of Operation WIZARD was formally minuted by the Agency's Board and that its existence was not publicly revealed, even after it was shelved… We are concerned that not only was Parliament denied information, but that this Committee would have remained unaware of the project's existence had it not been for unofficial revelations from within the Agency.That is very important. By all means, let the Government decide to privatise what they wish. That is their prerogative. However, it is not the prerogative of people to spend public money outside the control of Government and then try to conceal it.
In this catalogue of errors and wrongdoings by the WDA, we referred to an incident in September 1987 involving Dr. Gwyn Jones. He was not chairman at that time, but he received a grant for the conversion of premises to eight craft workshops. A grant of £16,895 was paid after he became chairman of the WDA. A monitoring visit by the agency showed that there had been a change in use and the premises had been adapted for residential use. However, two years were to elapse before there was a clawback of £3,379.
We state in paragraph 35:It is clearly important that persons in high public office should ensure that circumstances do not arise which can give cause to any allegations of abuse of position. We consider therefore that Dr. Jones should have notified both of the proposed changes in use at the earliest possible opportunity.
I shall deal with matters relating to the West Midlands regional health authority as they are dealt with in the report. They are serious matters which require urgent consideration by everybody concerned.
§ Mrs. Teresa Gorman (Billericay)
For the benefit of those who are following the debate both inside and outside the House, may I ask how often the right hon. Gentleman's worthy deliberations actually lead to prosecutions which might stand as a warning to people who are cooking the books or otherwise misusing public money? It would be a comfort to the public to know that 907 at least some of their money is being regained from some of the bungling that the right hon. Gentleman so vividly describes.
§ Mr. Sheldon
There have been prosecutions. The hon. Lady is quite right. Most prosecutions take a long time. Several have not yet been finalised. One or two have been finalised, and I shall mention them. The papers are always given to the police in due course and matters are followed up wherever necessary.
I shall refer to the West Midlands regional health authority and our 57th report of 1992–93, and the shortcomings that we saw. I begin with paragraph 32. A consultancy service was arranged to advise the supplies branch of the West Midlands regional health authority. The authority had a supplies branch and it wanted a consultancy—there is nothing wrong in that. Many organisations have sections in which there is insufficient expertise and they therefore employ outside consultants. There has been a large increase in the use of consultants. The Comptroller and Auditor General is considering as a general issue how such appointments should be made; that is a sensible way to proceed.
There was no tender for the consultancy that was obtained. The Government have been strongly of the view that there should be competitive tendering wherever possible—a matter on which we fully agree. We said:First, it is unsatisfactory that there was no tender for this consultancy, which cost £2.5 million, and that the selection and appointment of the consultants was done outside the procedures laid down by the Regional Health Authority.We went on:Second, it is unacceptable that the Director of Regionally Managed Services, Mr. Watney, was able to avoid submitting the agreement to the Regional Health Authority for approval.It was not submitted for approval. We said:The omission was contrary to the Regional Health Authority's standing orders and is evidence of grave weaknesses in management and accountability.Third, it is unacceptable that there was no formal contract for the consultancy service since this left it in the hands of the consultants to decide what they would provide. Again, this omission was outside the Authority's standing orders.Mr. Watney put great effort into preparing the supplies branch for privatisation. We said:Fifth, we are astonished that the Director of Regionally Managed Services, Mr. Watney, was left to pursue his objective of privatising the Supplies Branch without the knowledge of the Regional Health Authority, which had no policy for such a privatisation, and without the knowledge of the Management Executive.That is a terrible thing to do—somebody going off on his own in such a matter. It is for the Government to make such decisions; it is not for somebody who incurs the expenditure of public money to undertake those examinations. We said that it wasunsatisfactory that Mr. Davies, Director of Finance of the Regional Health Authority should have been able to make a loan of £300,000 to a company in financial difficulties without reference to the Regional Health Authority for approval and in the face of advice from legal staff.That is a very serious matter. Later in the report, we note that theDirector of Regionally Managed Services, Mr. Watney, was allowed to leave on redundancy terms after five years service with the Authority, with an immediate pension of £6,462 a year and lump sums totalling £81,387. We consider these terms quite unjustifiable.908 The Carver review, which examined these matters, was set up to inquire into serious allegations of mismanagement. We said:We note that the Regional Health Authority and the Management Executive agree that Mr. Watney should have been dismissed not made redundant. We think it unsatisfactory that consideration was not given to dismissal at the proper time, and regard the Regional Health Authority's explanation that they did not have the full facts until later as further evidence of their failure to know about and control what their senior staff were doing in their name".That is a terrible indictment.
Finally, we say—and this is repeated in a number of our reports:It is unacceptable and disturbing that the Regional Health Authority agreed to a silence clause in connection with Mr. Davies' departure.Silence clauses are not for the public service to decide; they are for the House to decide. The Committee does not deny that a silence clause is justified in certain instances, but it is a feature of many of the things that are wrong. The silence of people is demanded in return for a sum of money; if people break the silence vow, some of the money is lost to them.
We said:We note the Regional Health Authority's view that this was not an issue that they had wished to air in public".I am not surprised by that.However we consider that such protection is unjustified for individuals in responsible public positions in relation to questions as to whether they have neglected those responsibilities.All that is deeply disturbing. I wish that we did not have this sort of thing. It diminishes the standing of the public service generally and the way in which we carry out our responsibilities. We want to return to the standards that we always expected, and I hope that that will come in due course.
§ Mr. Richard Burden (Birmingham, Northfield)
Does my right hon. Friend agree that one of the real tragedies of the West Midlands story is not only that some officers have had silence clauses and others have simply been overpaid, when perhaps they should have been dismissed, but that there are real human casualties in this whole affair?
In particular, one of the areas investigated by the Committee was the case of Qa Business Services, which went bust after 18 months. The Committee's deliberations show that that probably should have been foreseen. As a result of the company's going bust, a number of employees who were not responsible for that ended up losing not only their jobs but up to two thirds of their pension entitlement. They are still suffering today, and will do so into their old age.
In addressing these issues, it is important that we remember those human casualties, because, so far, no one—neither a Minister nor anyone else—has done anything for the pensioners of Qa Business Services and employees in other cases. They still stand to lose, and will lose in the future.
§ Mr. Sheldon
Unquestionably, there are repercussions in all these matters. When a health authority misuses its money, we must also think of those people covered by the arrangements of the hospital authority, and the way in which services have diminished as a result of money being wasted elsewhere. 909 I now turn to a deep unhappiness in this catalogue of cases, the Wessex case. I shall deal with only some of the criticisms made by the Public Accounts Committee; unfortunately, they are numerous. I quote paragraph 1 of the 63rd report of the current Session:In May 1984 the Wessex Regional Health Authority launched their regional information systems plan. This was intended to provide computer systems which would optimise the use of information to improve clinical and other health services. In April 1990, when the plan was abandoned, at least £43 million had been spent by the Regional Health Authority. District Health Authorities will also have spent money on the scheme, but it is not possible to identify how much.When we examined this case, one of the problems that we faced was that we were unable to find out the total expenditure involved; but, obviously, we knew that it was greater than the sums that were in front of us and which are mentioned in the report.
I shall deal with only the conclusions, because it would take too long to go through all the matters. We said:We consider it a matter of grave concern that, by the Management Executive's own admission, at least £20 million was wasted between the start of the regional information systems plan in 1984 and its abandonment in 1990.We continued:The evidence presented to us depicted Mr. Hoare"—the former regional general manager—as a man with a strong vision, and such a determination not to be deflected off course, that he presided over a series of actions incompatible with the proper handling of public money and without regard to clear evidence that the project was going badly wrong …We note with dismay that not only did the Regional Health Authority's management strenuously contest the auditors' criticisms, they were also able to conceal vital information from the Members of the Authority and from the Management Executive.The regional health authority involved Andersen Consulting—this is another issue—in appraising available computer software to run on the preferred bidder's systems. It had a preferred bidder, but it involved Andersen Consulting in appraising it. The report says:We note that subsequently, following a retendering exercise, the contract to supply core computer systems and software was awarded to Andersen Consulting at an inquorate meeting of the Authority.It overturned the previous decision, gave the contract to Andersen Consulting, which had been brought in to appraise the software, and did so at an inquorate meeting of the authority. The contract contained no quality conditions and no maximum price. We point out thatit is clearly wrong for somebody who is tendering for National Health Service business also to be advising the National Health Service as their consultant.On another issue, the report says:We are concerned that the Regional Health Authority allowed Mr. Tuffill, while on secondment from IBM, at the request of the Chairman of the Regional Health Authority to advise them on the purchase of an IBM computer for £3.3 million, at which time it could have been purchased for £0.5 million to £1 million less than the price paid. … We are also disturbed that the contract for the computer was signed by Mr. L. Wright, then Regional Treasurer, on the instructions of Mr. J. Hoare, then Regional General Manager, without reference to the Chairman or to the Authority and without competitive tendering, contrary to the Authority's standing orders.We feel that that is most serious.
Lastly, we say:It is also important in our view to ensure that all health service staff respect the fundamental principles of public business in this country, and are judged … by the standards of honesty, openness 910 and fair dealing that are expected in public life. Concern for these standards should play a large part in the selection, training and assessment of staff at all levels.
§ Mr. John Denham (Southampton, Itchen)
In the case of Wessex, does my right hon. Friend agree that it is a matter for great concern that, in addition to the information that has been revealed, the auditors sent a series of reports to the Secretary of State? The earliest was sent in February 1987. Successive Secretaries of State and the NHS management executive failed to act properly on those reports.
Is it not a matter of great concern not only that things went wrong in Wessex but that, despite the efforts of the audit service to bring those matters to the attention of Ministers and the NHS management executive, no effective action was taken until £20 million or more had been wasted?
§ Mr. Sheldon
I have expressed myself, and the Committee has expressed itself, as very worried about the relationship between the NHS management executive and the various health authorities. We come across that time and again. Only a few years ago, as a result of our complaint about a certain matter, the NHS management executive sent a circular to all 192 health authorities asking them how they behaved in a certain situation. The management executive received replies from only two thirds of the health authorities. One third did not even bother to answer. That was clearly very wrong. Things have improved a little since then, but not sufficiently. We have never been in a position to say that the NHS management executive had control over, or even knew, what was happening, as it ought to have done.
Our 16th report, on the British Council account 1992–93, deals with a serious matter that we have not come across before. It highlights not necessarily fraud but something wrong in the way in which matters were handled. As the report says:In December 1992 the British Council's banking section, having received seven fraudulent payment vouchers, paid a total of £520,072 into the overseas bank accounts of bogus suppliers. Other irregularities, including a fraud and an alleged fraud involving travel and subsistence claims, were also identified during the year, bringing total irregularities identified in 1992–93 to over £589,000.Such fraudulent payments are a serious matter. We found out that in June 1988 the British Council introduced an electronic transfer system within its banking section. It was used to pay invoices to overseas suppliers in foreign currencies and, in some cases, to pay United Kingdom suppliers in sterling.
In December 1992, the banking section received seven fraudulent payment vouchers and paid a total of £520,000 in foreign currency by electronic transfer into the overseas bank accounts of bogus suppliers. The supporting documents were fraudulent. They had been photocopied and in several cases the vouchers bore signatures that were not on the approved lists.
When the council came before us, it acknowledged that the fraud could have been assisted by a member of staff who was part of the conspiracy. It could also have been assisted by a temporary employee or possibly a contractor employed overnight. It told us that police inquiries were continuing, but had not established any connection whatever with a member of the council's staff—present or past, full time or part time. That is the answer to the hon. Member for Billericay (Mrs. Gorman). I understand 911 from the Treasury minute that some arrests have been made and I hope that others might be made as the investigation proceeds.
The report says:We are concerned that the Council failed to provide for an adequate separation of duties and so allowed a member of staff to defraud them of nearly £52,000.That is another issue entirely. The council did not have a proper separation of duties. It relied too much on one individual. Everyone in private business or public service knows that one can never do that. There must be proper control systems. We said:It is a serious matter that the perpetrator was allowed to check his own work as well as having the responsibility for controlling payments and accounting for them. We find it disturbing that an alleged fraud by another member of staff was discovered only after a change of staff and not through the operation of the Council's control arrangements … We note that the Council have taken disciplinary action against a number of their employees relating to the frauds which have taken place; and we note, in particular, that they have taken action against two members of their board of management. We regard such action as essential".The responsibility of those concerned for the areas of business in which the irregularities took place must be made clear.
I now come to the report on the Pergau hydro-electric project. It was a new type of report for us. We had never made such a report before. We saw in operation the safeguard of the accounting officer's right to appear before the Public Accounts Committee. Accounting officers always have the right to claim that they received a direction; that is a safeguard for them. Clearly, the Minister is in charge and can insist on a payment being made. Accounting officers know full well that they can come before the Public Accounts Committee and say that they did not agree with that expenditure but that it was imposed on them.
In my experience as a Minister and elsewhere, I have known of at least two other cases in which such a letter was sent to the relevant Minister. I suspect that there are many other occasions on which a permanent secretary decides that he must get a direction, but then realises that it will make his relationship with the Secretary of State or the Minister concerned very difficult, so such a disclaimer letter is never sent. There have been one or two cases, but never one at that level or one that came before the Public Accounts Committee in such a way.
We found out that in July 1991 the Secretary of State for Foreign and Commonwealth Affairs overruled the advice of the accounting officer of the Overseas Development Administration and instructed him to incur expenditure of up to £234 million from the aid programme on the Pergau hydro-electric project in Malaysia.
Our report continues:In view of the prospective size of the Pergau project,"—a very large sum of money was involved—we consider that it is essential that it should have been subject to a full economic appraisal. Although a number of desk studies had been previously undertaken, the appraisal visit lasted for only two days and an interim report on the project was made after only one day.Clearly, such an examination is not serious. One does not decide to spent £234 million during a two-day visit to Malaysia. Obviously, reaching the site would take much of the time.
912 We later found out the reasons. We said thatwe share the Administration's astonishment that the contract price should have been increased from £316 million to £397 million, ie by over 25 per cent only two weeks after the agreement between the two Prime Ministers had been reached.It appears that the ODA was not fully informed, but it should have been and it should have discovered how the valuation and the cost was moving along. We added:It is also unacceptable that this information was not available before the Government entered into what they regarded as a politically binding agreement.That is the important issue which should concern any accounting officer who appears before the PAC. We went on:In cases where Ministers over-rule officials on matters involving propriety and regularity, the papers are automatically sent to the Comptroller and Auditor General and such over-ruling would then be disclosed to this Committee."—that is right—Where such over-ruling concerns prudent and economical administration, efficiency and effectiveness, the Accounting Officer is not obliged to send the papers to the Comptroller and Auditor General, and the National Audit Office is made aware of the Ministerial direction only if it is conducting a relevant inquiry.We continued:We were concerned that the Committee of Public Accounts should always be in a position to know when, and in what terms, Ministers overruled their Accounting Officers on matters of prudent and economical administration.There may be very good political reasons, but we should know, so that we are able to distinguish between political reasons that do not involve us, and on which we should not comment, and other considerations on which we might want to comment.
The Committee concluded:We think it was right and in accordance with his responsibilities that the Accounting Officer advised Ministers that he would require a direction before spending money on this project. We accept that Ministers were given clear advice from their officials in February 1991 about the economics of the Pergau project; and were told that to support it would not be an effective use of the aid budget … We note that Ministers decided to provide aid because they did not wish to renege on an earlier commitment given by the Government at the highest level".We noted that the matter went from the Minister for Overseas Development to the Secretary of State for Foreign and Commonwealth Affairs and then to the Prime Minister. Our inquiries came to an end because political considerations that did not concern us were involved. The matter was then dealt with by the Select Committee on Foreign Affairs. We had carried out our task. Once an issue becomes a matter of policy, we leave it to others to involve themselves, if they so wish.
The 23rd report, "Development Board for Rural Wales: allocation and sale of housing and car leasing scheme", concerns the sort of subject that everyone can understand because many people have experience of it. The report states that, under the Development of Rural Wales Act 1976, the board hasa stock of 1,000 houses … The provision, letting and sale of houses in their … area …is currently a major function of the Board, yielding an annual income of around £2 million.The board is required to publish a summary of its rules for determining priority between applicants in the allocation of housing accommodation—like local authorities.
913 The report continues that the housing Actsalso require the Board to maintain a set of detailed rules which they have laid down to govern the procedures to be followed in allocating their houses. The Board must make these rules available for inspection by the public at their principal office".That is a normal and standard safeguard. We added:The Board published their rules for allocating houses in 1981 in response to the requirements of the Housing Act 1980.The board also had a secret list, however. One of the public rules was that people allocated houses had employment in or close to the town concerned. In a sample, the National Audit Office found that 22 per cent. of the people who were allocated houses did not meet the criteria in the published rules. They obtained their houses from the secret list. The National Audit Office estimates that 238 of the board's tenancies were allocated under the unpublished rules.
Time and again, things seem to have gone wrong. Once matters are in the open, people will do things right and that is very important. Once they are in the open, no one can defend the unjustifiable. Only when they are kept secret can things go wrong on such a scale. There is no excuse.
In the 13 years that the secret list existed, not one member of the board's staff raised its failure to comply with the housing Acts. It was clearly wrong to have a secret list for such a long period.
Paragraph 12 of the report states:Following his enquiries into a complaint by a member of the public into housing allocations made by the Board, the Ombudsman concluded that there had been gross maladministration by the Board in the allocation of housing. He also reported that the Board's Housing Officer had allocated a house to himself when he was not eligible for housing under the published rules"—he did so under the secret rules—and had allocated his ex-wife a house to which she was not entitled according to those rules.
§ Mr. Jonathan Evans (Brecon and Radnor)
I endorse the right hon. Gentleman's assertions throughout his speech that matters should be put out in the open. One thing concerns me about the report, however. The right hon. Gentleman said that the housing officer allocated a house to his wife. He will see from the report that it was noted that "no reference required" was marked on the wife's file. The right hon. Gentleman's Committee asked for further and better particulars. There is a note to that effect at the back of the report. Why did it not elicit the information that the wife was a prominent county councillor and the Liberal Democrat constituency secretary for the area?
§ Mr. Sheldon
Party political matters are not for the Public Accounts Committee. We are interested in the presence of a secret list and the fact that 22 per cent. of house allocations did not meet the published rules. We found not only that the housing officer had been allocated a house and subsequently had been allowed to transfer to a different property without submitting an application form under the board's rules, but that allocated tenants could insist on purchasing houses at a large discount. That is fairly normal, but 55 tenants who obtained houses under the secret list were given the advantage of being able to buy houses at large discounts—some of those involved were not even tenants at the time—amounting in total to £718,000. The Committee thought that that was clearly wrong.
914 We dealt with the question of essential cars. In view of the question from the hon. Member for Billericay, I shall say something about the discipline that was involved. The Welsh Office decided that the discipline of the staff of the board was a matter for the board itself, but the Committee expressed its surprise that, given the nature and the scale of the maladministration, neither review of the matter concluded that disciplinary action was warranted.
On the question of leasing, the arrangement was that essential users of cars contributed two sevenths of the cost of running of that car—a fairly standard practice—for private motoring. We noted thatwithout the approval of the Welsh Office the Board amended the scheme to reduce to one-seventh the contribution from their staff and to allow free motoring for three Directors.The civil service rules, which are set down for every Government Department, should have been followed, and we pointed out the weakness in financial control.
More recently, we had a report on the Welsh Office generally and we found out that only £180 million out of £480 million of road expenditure had a clear audit certificate—a terribly low proportion.
I now come to the situation at Huddersfield university, which I mention only to show how the Committee acted fairly quickly. We had one meeting and decided that an attempt to pay the vice-chancellor of Huddersfield university about £500,000 in a severance package went outside the standards that were set out. We said that the package appeared to be excessive and we agreed that the university may have exceeded its powers.
We took particular exception to a request by the university that the information on the matter should not be published "unless absolutely necessary." The Committee believes that it is absolutely necessary to disclose the matter. I was pleased that the university council reconsidered the matter; that shows that things can be put right if people know what is happening. The Universities Funding Council knew what was happening, as a result of the work of the National Audit Office, and took action to see that it was put right.
That is the message from our reports. Nobody in the House wants to see any sign of fraud or corruption, which diminishes all of us and diminishes us as a country. We want to see that matters are put right and to make sure that they do not happen again.
I now come to a rather happier situation, because I shall talk about what the Government have done. The initial reaction from the Treasury was not promising, but the Departments have been very good and have responded through the Treasury minute. However, we all know that the Treasury minute is not quite the same as a report being addressed to the Treasury itself.
We have seen that some major changes have taken place. First, the Treasury wrote to all Departments—the Committee was pleased that action was taken—drawing attention to the proper conduct of public business. It stressed that Departments should ensure that appropriate steps were taken to avoid similar problems arising in the future, and it used a checklist provided in the report by the Public Accounts Committee as the basis for writing to all Departments.
Guidance has been given on non-departmental public bodies, and the Treasury issued a new memorandum for accounting officers in March this year—soon after the Committee reported—which was designed to clarify the 915 specific responsibilities of the accounting officers of those bodies, and their relationships with the sponsored Departments. We received a copy of the memorandum from the Treasury.
In addition, the Treasury issued to principal finance officers detailed guidance on a code of best practice for members of non-departmental public bodies, and the Committee had no disagreement on that. That advice included guidance on the responsibilities of board members, the accountability of public funds and the declaration of financial interests by board members. The Treasury intends that the document be used as a model which public bodies should implement, with any modifications which may be necessary.
In response to the original Committee report on the Development Board for Rural Wales, the Welsh Office commissioned a full compliance review of all non-departmental public bodies, and there were a few that we were very unhappy about. The review evaluated the extent to which bodies were to comply with their financial memoranda and other regulations issued by the Treasury and the Welsh Office, and the Welsh Office is considering further notes of guidance.
The Department of Health produced new guidance on corporate governance in the national health service, which includes a code of conduct and a code of accountability. The Secretary of State for Health acknowledged in a letter to me on 11 April this year that those codes go some way towards addressing the concerns raised in recent reports on the West Midlands and Wessex health authorities.
There have been some substantial changes. The Civil Service College has introduced a course for newly appointed chief executives of agencies and board members of non-departmental bodies on the subject of public accountability, and that is very important. The college's programme includes the handling of public money, all aspects of public business, and so on. I welcome that and if our report did nothing else but promote such consultation on matters, I would be pleased.
We heard the Prime Minister yesterday going further and introducing a standing committee on those matters and others in an area much wider than that which the Public Accounts Committee was able to deal with. We must hope that the standing committee proceeds effectively; if the members of the Public Accounts Committee are asked to give evidence, we will do so.
I hope that we now may be able to put behind us some of the things that have gone wrong and I hope that we have learnt lessons from them. If we do that, the Committee can deal with the standard fare with which we are rightly used to dealing.
We must always take account of the fact that the proper conduct of public business comes first, but we must always insist that that proper conduct is there. I hope that matters such as I have mentioned do not come before us again.
§ 5.7 pm
§ Mr. Michael Shersby (Uxbridge)
This annual debate represents the mechanism whereby the Public Accounts Committee draws to the attention of the House matters that it considers to be of special importance and whereby, as a result of the Treasury giving consideration to our 916 recommendations, changes are made of the kind to which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) has just referred. Such changes can lead to our avoiding the mistakes of the past and to improving the economy and efficiency of the public service in future.
In answer to an intervention from my hon. Friend the Member for Brecon and Radnor (Mr. Evans), the right hon. Member for Ashton-under-Lyne made the point that it is the custom of the Public Accounts Committee to be non-political. I think that that is one of our strengths. The Committee comprises 15 hon. Members, including the Financial Secretary, who comes to the Committee once only, at the beginning of his term of office. The other 14 members work as a team in examining the evidence that is placed before us by the Comptroller and Auditor General and the National Audit Office. We deal with facts, not with opinions. We investigate those facts and try to unravel where things have gone wrong. Then we report to the House. Today, about 50 reports are before the House, and I doubt whether any hon. Member, except perhaps members of the Committee, has read all 50. It would certainly be a monumental task.
In this debate I want to concentrate on only one or two reports, and especially on the one to which our Chairman referred—that concerning the proper conduct of public business. The report was published on 17 January and attracted considerable attention in the media. It has also aroused a good deal of interest in the civil service.
The report is about a number of failures by officials in the public service and in non-departmental public bodies—in other words, by the civil servants whose job is to operate administrative and financial systems in Departments and other public bodies. Their failures have led to money being wasted or being otherwise improperly spent.
I believe, however, that the report must be seen in the perspective of total public expenditure of about £270 billion. In the vast majority of cases, the administrative and financial systems that are in place have assured proper control over the spending of public funds. That should always be remembered when we talk about failures.
In the past, as the report states, the Committee has dealt with a number of serious failures in the administrative and financial control systems in Departments and other bodies—failures that have led to a waste of taxpayers' money. This report was of special significance because it drew attention to the fact that there have recently been fundamental changes in the way in which Government Departments and public bodies such as the national health service carry out their work.
The Committee has pointed out that the growth in the number of non-departmental public bodies is intended to improve the provision of public services, by greater delegation of responsibility, by streamlining and by a more entrepreneurial approach to the work. Still, at a time of change like this, the PAC took the view that it is important to ensure that proper standards are maintained in the conduct of public business.
§ Mr. Sheerman
Were not the remarks by the Chairman of the PAC directed to the fact that many of the people on these bodies seem to be spending taxpayers' money as though it were their own? If that represents the 917 entrepreneurial culture to which the hon. Gentleman refers, is it not another step down the slippery slope that leads to lower standards and a lack of accountability?
§ Mr. Shersby
If most Departments and non-departmental public bodies were doing that, the hon. Gentleman would certainly be right. My point was that the failures reported by the PAC must be seen against the whole background of public administration in this country.
We have drawn attention to the view expressed by some people that the drive for efficiency and economy must be held back to some extent because of the need to take care with public money. Others have argued that if economy and efficiency are to be pursued vigorously, traditional standards must be relaxed. But the PAC has firmly rejected both claims—that will be of interest to the hon. Member for Huddersfield (Mr. Sheerman). The Committee takes the view that the first approach is often urged by those who do not want to accept the challenge of securing beneficial change; and the second is advanced by those who do not want to be bothered to observe the right standards of public stewardship. I hope that the hon. Member for Huddersfield feels reassured by that.
The Committee has stated unequivocally that any failure to respect or care for public money would be a most important cause of decline in the efficiency of public business. The Committee goes on to inform the House that, in future, it will pay particular attention to the examination of accounts and the implementation of programmes, and to a successful combination of the proper conduct of public business with the energetic pursuit of value for money. The hon. Member for Huddersfield will agree that those objectives are exactly right.
So why, from time to time, are there worrying failures, resulting from inadequate financial controls, by officials in the public service? The PAC has identified a number of key issues that provide some good answers to that question. First, inadequate internal accounting systems and controls lead to waste and a risk of fraud and theft. That is exemplified in the case of the British Council, which the Chairman described. Government Departments and public bodies must ensure from the outset that proper financial systems are in place and are properly applied.
The failure to ensure that financial procedures and controls are adapted in line with major changes in the organisation of business is the second key element. There can be no doubt that procedures need revising from time to time to ensure their continuing relevance and reliability, especially at times of major change.
Another extremely important point identified by the Committee is the fact that the use of inexperienced staff who lack financial training and expertise can result in a failure to secure adequate controls, particularly at a lime of change. The Committee believes it vital that care be taken to provide staff with the requisite financial skills, to ensure that those responsible for securing big changes in accounting systems are suitably experienced.
A regular complaint of the PAC has been that poor monitoring of expenditure on capital projects leads to overspend and waste. Any hon. Member who has served on the Committee knows that to be a continuing worry. Again and again over the years the Committee has drawn attention in our annual debates to the need for attention to be paid to major capital projects, and to the need for 918 those concerned with them to have specific financial and project management skills and experience. It is simply not possible for officials to deal with huge projects involving large sums of money unless they have both the skills and the training necessary to use them. We have emphasised that projects should not be embarked on unless such skills are available and used.
The report draws attention, too, to some fairly elementary requirements, including the need to check bills before they are paid. That sounds pretty basic, but it is necessary to check whether goods and services have been provided before bills are paid. In some public departments, that has not always happened, and the problem has gone on for a long time.
A failure to pursue money that is owed is another worrying feature that shows up in the public service. The House will agree that there must be adequate arrangements to ensure that moneys owed are properly monitored and pursued.
The payment of grants on the basis of insufficient evidence of entitlement has also concerned the PAC in the past year. We think that that is a worrying trend, and that proper procedures must be put in place and applied so that entitlement to grant aid is clearly established and documented before any payment is made.
As the Chairman said in his wide-ranging speech, in the past few years the Committee has become increasingly concerned about incidents involving the provision of redundancy benefits. In several cases, the delegated powers given to public bodies have been exceeded. The hon. Member for Huddersfield was temporarily out of the Chamber when the Chairman referred to the very disturbing case of Huddersfield university. There, I think, is a good example, in which the legal powers that that university has may have been exceeded. We stress in our report that such powers should not be exceeded in making provision for redundancy and other benefits.
§ Mr. Sheerman
I thank the hon. Gentleman for his remarks and apologise to the House for the fact that I had to slip out of the Chamber for a few moments and miss the remarks of my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), particularly on Huddersfield university. Is not the real problem exemplified by the crisis in my constituency that it was not a case of fraud and theft—and no one is alleging that it was—but a case of people using public money as though it were their own and of a public institution severing contracts using a secrecy clause, about which I agree with my right hon. Friend, to make people clam up and limit their ability to speak openly and say that there is a problem?
As a former member of the Committee, I hope that it will tackle the problem of so many public institutions with public money. Some of those institutions ensure the secrecy of the people who leave by an extra payment. That is at the heart of the problem at Huddersfield and also of many of the problems to which the Chairman drew our attention.
§ Mr. Shersby
The hon. Gentleman will, of course, know the details of what happened in Huddersfield—as, indeed, do I. I agree that the so-called "secrecy clause" is not a feature of public life that we should support. But there are many universities around the country in which the governing bodies have acted with the utmost propriety and probity, and I do not think that one should conclude 919 from the Huddersfield case that such things are going on all around the country because obviously they are not. As the hon. Gentleman will readily agree, the whole question of ex gratia payments is difficult. It calls for the judgment of those concerned to be absolutely right. But it also means that they must act within the legal powers delegated to them, which are clear and which, I believe, are observed in the vast majority of cases.
So often in our debates we spend a great deal of our time re-telling the detail of the individual cases that have caused us concern. The Chairman dealt with a number of those very effectively. Despite those particular cases, I believe that there can be no doubt whatever that the British civil service is still the envy of the world and that the high standards set by dedicated accounting officers deserve the thanks and congratulations of the House and of all the members of the PAC.
As a Member of that Committee I have the greatest possible admiration for the work of people such as, for example—I stress "for example"—Sir Michael Partridge, the permanent under-secretary at the Department of Social Security, who is dealing with highly complex matters. He and his colleagues have demonstrated to the Committee how well they are doing their job. We have been also been impressed by Mrs. Valerie Strachan, who now heads Her Majesty's Customs and Excise. I think that she is the first woman ever to have headed that department, and she does so with considerable distinction.
Then there is the infinite courtesy and expertise deployed by Sir Anthony Battishill, chairman of the board of the Inland Revenue, in answering our questions and making it clear to the PAC that the Inland Revenue is moving with the times in the quality of service that it hopes to provide to individual taxpayers. I am sure that I speak on behalf of every hon. Member when I say that we hope that that quality service becomes a fact very quickly indeed. There are many other distinguished public officials to whom we have every reason to be grateful for the work that they do but who are too numerous to mention by name in the debate.
I am told that the report on the proper conduct of public business has had a great impact on the civil service. I am glad to know that, because the Committee has been obliged to refer to some of the failures—all of them serious—in that and in other reports. I believe that it is for the permanent under-secretaries, who are the accounting officers of the great Departments of State, to ensure that the lessons are learnt from the mistakes and failures referred to in the report, and that arrangements for all levels of delegated authority are tightened up and a higher standard secured.
Ministers must be informed at the earliest possible time when it is discovered that things are going wrong so that corrective action can be taken in good time. I believe that that is very important and that that message should go out to those who, quite rightly and properly, are concerned with ensuring that high standards are retained in the public service.
I refer now to the 58th report of the Public Accounts Committee, dealing with the Department of Social Security and the Benefits Agency, entitled "Combating Organised Fraud". The report describes attempts by groups of criminals to defraud the benefits system. That is a serious problem and is estimated to cost at least 920 £1 billion. The value of payments under investigation in September 1992 was £ 61.4 million. That fraud was both individual and organised. Methods used by criminals engaged in organised fraud included making multiple claims for benefit; using false or stolen identity documents; stealing order books, payable orders and girocheques; counterfeiting and altering such payable instruments; and buying order books from legitimate beneficiaries, subsequently encashing the orders as they fall due for payment.
What a litany of criminal activity that is. Criminal elements are being attracted to the huge sums of money that are paid out as a result of the very generous social security system that this country has, whatever individual views we might hold about the merits of one benefit or another. Amounts recovered have increased from £100 million five years ago to a current total of £500 million. That is encouraging. It is very good indeed and the Department deserves to be complimented for the action that it has taken.
I do believe, however, that the time may now have come to consider the possibility of introducing an identity card bearing a photograph to enable the Department to fight that large-scale criminal activity. If benefits were paid only where the beneficiary's fingerprint matched that held on the national social security computer, it is possible that fraudulent claims could be virtually eliminated. Although many people who are interested in civil liberties—many hon. Members may have reservations about the introduction of such a system, which are quite understandable—we must look at the waste and the criminal activity that results in the fraudulent loss of £1 billion. I believe that the technology is available. If it were to be used, the social security budget would be much better able to meet the claims of the people who desperately need help. That is, after all, one of our principal concerns as Members of the House.
The report on the proper conduct of public business has in some ways been the flagship of the Committee's deliberations this year. Looking at the matter in perspective, one must recognise that, although there have been some serious failures, we still have a very fine public service. We have very fine accounting officers, people who are totally dedicated to their job. I saw that yesterday when, with the Chairman and two other members of Committee, I visited the Northern Ireland Audit Office and spoke with the Comptroller and Auditor General and his staff. We were all deeply impressed with the high standards that are operating in Northern Ireland, and I take this opportunity to record that and say how much we appreciate what it is doing to ensure high standards in the conduct of public business in the Province.
§ Mr. Robert Maclennan (Caithness and Sutherland)
It is a pleasure to follow the hon. Member for Uxbridge (Mr. Shersby). I rather appreciated the innovation of his commending certain accounting officers who impressed the Committee; although the levels that those officers have reached have been publicly recognised in the honours system and their degree and rank is the same, we—as members of the Committee—know very well that some are more equal than others. That has been especially true in the period that we are discussing. 921 I think it fair to say that no period during the 14 years for which I have been a member of the PAC has been more disturbing than the one that we are considering. I think that my fellow members share my feeling, and that, in large part, that feeling moved us to issue the unprecedented eighth report. Like both the Committee's Chairman, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), and the hon. Member for Uxbridge (Mr. Shersby), I want to focus principally on that report. Because of the welcome comprehensiveness of the Chairman's speech, in which he described a number of the relevant reports in detail, I shall not need to speak at length.
I read the comments of Simon Jenkins in The Times today with a mixture of amusement and dismay. He suggested that the House of Commons was to be largely ignored in our constitutional processes, describing it as an "appendix" of the system which grumbled occasionally, and he argued that the House of Lords had more clout. He may have been seeking more to amuse than to analyse, but the Committee does not simply amuse itself in considering issues and responding to them; nor are our findings generally ignored.
I believe that the response of the public sector is also evident—that efforts are made to tighten up procedures, that our exhortations do not fall on deaf ears and that practices are modified and adapted according to our recommendations. I commend our Committee's work to Simon Jenkins, and submit that, in some modest measure, his comments undermine the institution of the House of Commons, which—for all its shortcomings, to which I am never slow to draw attention—is the basis of our democracy.
As I have said, the period that we are discussing is a disturbing one, and I find the Government's reply to the eighth report particularly disquieting. The Chairman expressed a belief that the Government might take more action than is suggested by their Treasury minute in response to our findings; but the Government's reply itself suggests a degree of complacency—indeed, almost a rejection of the report's findings—that I do not consider worthy of the Treasury.
I do not imagine that the incumbent Minister had anything to do with the wording of that response, and I hope that—notwithstanding the inevitability of Ministers' defending the language of government collectively—he will not feel it necessary to embrace its wording too closely. In the atmosphere of this of all weeks, it would not be suitable for the findings of a serious and unprecedented report to be disregarded so cavalierly.
I acknowledge the truth of what Ministers, including the Prime Minister, have said this week—that Britain's ethics in public life are the envy of the world. President Mitterrand of France and President Berlusconi of Italy would doubtless marvel at the tumultuous reaction of our press and other media to the issues of "cash for questions" and corrupt quangocrats that have been displayed this week: we can almost hear them saying, "How we wish that our problems were of the same order of magnitude." The Government, however, cannot offer that as an excuse for the seriousness—in both cash terms and moral terms—of the intromissions of behaviour uncovered in the Committee's reports. Standards are indeed slipping, and I am afraid that they are slipping because the Government 922 have not been sufficiently strong in defending them. That is why it is important for the Minister to disavow the Treasury minute.
Most startling of all, in my view, was paragraph 90 of the Government's response to the eighth report. It states:The Government rejects the inference which has been drawn from the report that the failings identified are in some way the result of the changes in the way in which departments and public bodies carry out their work.The Committee did not draw such an inference; it was not an inference at all, but was stated as a finding. Let me quote a number of sentences in different paragraphs of the report, which make it quite clear what we were doing.
We stated that the failings to which we referred, and to which the report bore eloquent testimony,represent a departure from the standards of public conduct which have mainly been established during the past 140 years.In the next paragraph, we said:There have recently been fundamental changes in the way in which government departments and public bodies such as those in the NHS carry out their work.We went on to say:But at a time of change it is important to ensure that proper standards are maintained in the conduct of public business.In paragraph 6, we stated:At such a time it is even more essential to maintain honesty in the spending of public money and to ensure that traditional public sector values are not neglected in the effort to maximise economy and efficiency.
I do not think that any member of the Committee was in any doubt about what had been happening: we were dealing with a new situation, the very novelty of which made it imperative for us to collate the findings of a number of reports and to present general conclusions and recommendations, going to the length of drawing up particular advices. I am pleased to learn that they have been circulated to all Departments.
Let it not rest as a canard on the record that the Committee merely "drew an inference"; that conclusion was the core of our recommendation. I think it quite likely that we shall see similar cases in the future, but I hope that our report will lessen their number and seriousness.
Let me remind the Minister briefly of another report that has not been specified in the debate or the motion, although it is covered by the group that we are considering. The sale of the Scottish Bus Group was influenced by the fact that confused lines of accountability and responsibility existed between the group and the Scottish Office. The Government acknowledge that fact in their reply to the 21st report.
Wessex regional health authority wasted tens of thousands of pounds on a computer system that did not. work because the systems for checking expenditure between the authority, the national health service executive and the Department of Health were inadequate. The Government appear to accept that finding in their reply to the 63rd report.
The Development Board for Rural Wales, a quango working under the Welsh Office, was able to amend the details of its car leasing scheme without the knowledge or approval of the Welsh Office and in a manner which violated the agreement between them. Under the amended scheme, cars were leased as perks rather than as necessities. In their reply to the 23rd report, the Government accept that that represented a failure of accountability and management. 923 In effect, the Government's response is a denial that the failings that Committee Members have identified in the reports represent a trend of declining standards. That response is astonishing. These are not isolated incidents. Time and again, we have discovered serious failings in management and accounting procedures which appear to flow directly from changes in organisation brought about by Government policy. They cannot be excused as the effects of change, because change is constant; nor are they merely teething problems because few were accidental, occurred in a short period or were isolated in time.
The problems are not acute, but chronic. If we are to avoid institutionalised corruption, the Government must accept a new public ethic and that ethic must reflect standards which many hon. Members have taken for granted as being characteristic of British administration. An Opposition Member intervened earlier to express the view—and I agree with it— that the atmosphere in some non-departmental public bodies suggests that a new "get what you can, do what you want" culture exists. Perhaps it is too strong, although I think not, to describe it as the venality of Departments, which are fearful of challenging the new agencies or, at least, insensitive to the problem lest they might appear disloyal to the programme of reform.
No progress will be made until the Government at least recognise that there is something wrong and that these are more than just a few little local difficulties. Paragraph 90 of the response to the eighth report contains even more nonsense. It states:the cases which have been identified have to be looked at against a background of progressive improvement in the efficiency with which public services are being delivered.
Are the Government saying that it is acceptable to sacrifice the highest ethical standards in the interests of efficiency? I think not, but viewed by itself paragraph 90 could be seen as a nod and a wink to the people in the quangos. It could be said that the Government are whispering, "It's all right, boys—do what you want, so long as you get results." That sort of logic produced Watergate in the United States of America, allows the French system of administration to crumble and undermines democracy in Italy. We are nowhere near those positions and I began my speech by making that clear, but insensitivity, reflected in that sort of logic, could lead us in that direction. That is why we take this issue so seriously.
The eighth report states clearly thatthere is no reason why a proper concern for the sensible conduct of public business and care for the honest handling of public money should not be combined with effective programmes for promoting economy and efficiency.That issue crosses party lines and can be generally accepted as the basis of public life.
Public services are run with public money in the public interest. Public interest demands both efficiency in the delivery of the service and the proper use of the money which funds those services, but one cannot have efficiency of service if directors use the money for their own benefit, as occurred in the case of the Welsh Development Agency, or, unchecked by the Government, as hobby horses for their grandiose plans, as was the case with the Wessex health authority.
924 The Public Accounts Committee is one of the oldest—indeed, I believe that it is the oldest—and most senior Committees of the House. Since its foundation by Gladstone, it has enjoyed a uniquely privileged position in the mechanisms of oversight. Committee members have been able to draw on the National Audit Office's considerable resources and our abilities have been greatly strengthened by the National Audit Act 1983, for which the Government can take some credit. It enables us to consider issues in detail and with an authority with which few other Committees are able to compete.
Committee Members take their role seriously and we expect the Government to consider our reports with equal seriousness. I fear that it is possible that the Minister may attack my speech later, but he should at least be able to say that the Government take the PAC report seriously, that our recommendations have elicited action and that serious failings are being dealt with according to our prescription.
I acknowledge all of that, but in the eighth report we also requested that the Comptroller and Auditor General be given the power to investigate all non-departmental bodies and other organisations which derive the greater part of their income from central Government funds. If the Minister does not accept that recommendation or confirm that it is being given serious consideration, any statement that he may make about the attention that the Government pay to the Committee's recommendations will be seriously diminished.
The recommendation is a necessary extension of the remit of the Comptroller and Auditor General. The trend established by the Government is firmly in the direction of enlarging the number and authority of non-departmental public bodies. If the Government refuse to give the Comptroller and Auditor General the authority freely to investigate activities that were previously carried out by Departments under their scrutiny, they will seriously limit the effectiveness of the National Audit Office and the Public Accounts Committee. Permission will have to be sought on a case-by-case basis from the Department concerned, and such a process limits the effectiveness of the inquiry.
In many cases, it cannot be known in advance where it would be appropriate to look for information. The ability of the National Audit Office to decide for itself has turned up some of the more striking cases of maladministration that we have had to consider. The Minister should allude to that issue, which is one of the most important in our reports. In the world in which we live and in the week in which Lord Nolan, a Law Lord, has been appointed to consider standards of public conduct, it is not appropriate that Ministers should be in a position to say which matters should be open to scrutiny and which should not. The whole point of the National Audit Office's independent oversight is to enable it to go where it wants, to go where the Administration would prefer it not to go, and to examine what the Administration might prefer to remain hidden. The Prime Minister said in the House only yesterday that if any Minister has been guilty of wrong doing—
§ Mr. Richard Page (Hertfordshire, South-West)
I have served on the Public Accounts Committee for a few years. The hon. Gentleman says that certain matters cannot be 925 investigated by the Public Accounts Committee because they are not within its remit. Has he any evidence for that allegation, or is he just trailing a kite?
§ Mr. Maclennan
I am referring to the recommendation of the eighth report. Paragraph 7 on page vi states:We shall … be paying particular attention in our future examination of accounts and the implementation of programmes to the successful combination of the proper conduct of public business with the energetic pursuit of value for money.The following sentence contains the most important point. It states:To assist us in this task, it would be helpful if the National Audit Office were enabled to examine and inspect all non-departmental public bodies and other organisations which receive the greater part of their income from central government funds, and to report the results to us.
§ Mr. Maclennan
Before I give way again, perhaps it would be sensible to refer directly to the Government's reply to that point. They state:The Government has considered the Committee's view that it would be helpful if the Comptroller and Auditor General … was able to examine and inspect all non-departmental public bodies … and other organisations which receive the greater part of their income from central Government funds. The National Audit Act 1983 already provides the C&AG with the access to bodies whose members are appointed by or on behalf of the Crown and which receive more than half their income in any year from public funds. The C&AG also has access to a wide range of public bodies by agreement of the sponsor department. The Government will consider on a case by case basis the need for the C&AG to examine any other body. The C&AG, as departments' auditor, is of course able to examine the way in which departments exercise their control over all NDPBs.Because of the apparent doubt about what I have been saying, I felt it necessary to spell out those points in some detail. However, the hon. Member for Bristol, North-West (Mr. Stern), who is also a member of the PAC and, if I may use the Chairman's word, an assiduous one, will know that many non-departmental public bodies do not fall into the category that I have. described.
§ Mr. Stern
I do not wish to quarrel with the hon. Gentleman but I remind him of an earlier remark which, I hope, on reflection he will accept was somewhat misleading. He said that certain bodies were not open to scrutiny. The purpose of the recommendation in the eighth report is that such bodies should be open to scrutiny by the National Audit Office. I entirely agree with that. However, he left the House with the impression that those bodies not subject to scrutiny by the National Audit Office were not subject to any scrutiny. That is untrue. Those not subject to scrutiny by the National Audit Office frequently come under the purview of the Audit Commission or private auditors. It is wholly incorrect to suggest that they are secretive bodies that the Government are trying to hide.
§ Mr. Maclennan
I should regret it if any words of mine unravelled what was a unanimous report and recommendation. We have made a powerful argument; it is one which the Government accepted and one to which I, at least, adhere. The House and our constitution proceed with incremental changes, and I can understand that we might have to fight for the right to follow public money wherever it goes. The Chairman raised that point in his important speech. I agree with him about the objective 926 and the means. We may have to be satisfied with less than full-hearted acceptance of the American principle, but that the principle is one that we should embrace I have no doubt. It falls to the Government, not to the Committee or to the House, to defend the exclusion of the National Audit Office.
§ Mr. Sheldon
I think that I can clarify the matter. During the very useful visit to the Chancellor of the Exchequer, we pointed out that it was attempted in the National Audit Act 1983 but that 11 years had passed since then. Perhaps some of the anxieties that might have been present then had been put to rest by the way in which the National Audit Office has developed, and the Public Accounts Committee has gone along with it. He accepted that the changes had gone smoothly and expressed some sympathy with our aspirations. It was too early for him to reach a conclusion in time for today's debate, but we hope some progress will be made.
§ Mr. Maclennan
They are very encouraging words from the Chairman and we look forward to glimmers of hope from the Minister, reflecting the views of the Treasury. I have detained the House long enough on this point but it is important. I hope that the Government will show their attachment to the principle that we have outlined.
§ Mr. John Horam (Orpington)
For many years we have recognised the fact that at the heart of Parliament's concerns is the control of Government spending. That was never more so than now when, for 1994–95, the Government are spending about £291 billion, which is rather more than 43 per cent. of the country's gross domestic product.
Equally, the role of the Public Accounts Committee, the National Audit Office and the Comptroller and Auditor General is central to Parliament's historic concern. I like the phrase that the NAO used in its annual report. It said:The NAO's goal is helping the nation spend wisely".That was rather felicitously put. In fact, the NAO can boast a remarkable record over the past two or three years. It claims in its annual report to have saved no less than £266 million of public money in the past year, which adds up to more than £700 million-worth of savings over the past three years.
As has already been pointed out, three or four successive Conservative Governments have made major improvements in the way in which public spending is controlled and managed. I am thinking of market testing, competitive tendering, the next steps agencies and the successive changes in the way in which the Government have examined the public expenditure round. The latest development is the introduction this year of accrual accounting, which will mean a big change in the way in which the Government examine their internal accounts. In addition, there have been changes in the way that the Treasury conducts its internal audits. I understand that the Department of Health has undertaken a similar examination of how effective and efficient its own procedures are.
Indeed, the next steps agencies, or non-departmental public bodies—whatever jargon one wishes to use—have been a remarkable success story. My right hon. Friend the Financial Secretary will be aware of a recent independent 927 report by Price Waterhouse which examined how effective the agencies had been, most recently in 1994. It concluded:Their drive to achieve better public services has been genuinely successful.It pointed out that agencies are good value for money for the taxpayer in that they have reduced costs and improved management but that they have also led to improvements for the consumer and ordinary citizen in the form of better public service. They have undoubtedly led to improvements in staff morale by giving civil servants and others working in the agencies more control over their own environments, and the ability to run the show as they prefer. In all those respects the agencies have an excellent track record, which is proved by the independent analysis that I mentioned. The Government can say that, in their management of public spending, there is a genuine success story to relate.
Of course, that does not attract the same kind of publicity as other policies of the past 15 years, such as privatisation and the reform of the trade unions. None the less, it is on a par with those, at the centre of the way in which a Government should effectively conduct their affairs. The Government can take legitimate pride in what has been done.
However, I am sorry to say that although the Government's record in controlling public spending has been good, as I have outlined, Parliament's record in scrutinising Government has not been so good. The major change, which has already been mentioned, was brought about by the National Audit Act 1983, which altered the basis for the activities of the National Audit Office and the Comptroller and Auditor General and, significantly, led to the new "value for money" exercises.
The Act led to a major improvement in the role and workings of the Public Accounts Committee. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon), its Chairman, can take considerable credit for his assiduous approach, which has meant a better attendance record, and more reports scrutinised each year. All that has genuinely led to a greater interest in such matters, and to much greater activity by the Committee, partly as a result of the right hon. Gentleman's efforts but also, as he would agree, because of the 1983 reforms.
However, other parts of Parliament's scrutiny of public spending have not worked out so well. For example, over the past 15 years the departmental Select Committees have been created, and part of their remit is to examine expenditure within their Departments and the way in which the business of their Departments is conducted. With few exceptions—the Defence Select Committee has examined such matters carefully from time to time—they have failed to do that. They continually scrutinise aspects of policy, but expenditure does not seem to come within their remit—possibly because they feel that that is the responsibility of the PAC alone. However, that has never been so. The Committees have always been able to examine expenditure, just as the PAC has.
Parliament itself has not improved its methods of examining public expenditure. Before the unified Budget, as hon. Members will recall, we used to have separate debates on public expenditure at this time of year, in October or November, followed by the Budget debates in March or April. Now that has all been rolled into one, 928 and we do not have the single-minded analysis of public expenditure that we had in the past. The Budget debate is almost the only time during the parliamentary year when Parliament addresses itself to the central issues of how the Government are spending money—this year's figure is no less than £291 billion—and how they are raising the taxes to pay for it. To use jargon that may be more familiar in Europe, there is a "democratic deficit" in the way in which Parliament scrutinises the business of Government expenditure.
The Public Accounts Committee itself can sometimes be rather counter-productive in that respect. As we know, it homes in on errors and irregularities—and rightly so. It does so in a way that is often highly exposed. The television cameras are brought in and the matter becomes news. Other hon. Members and journalists comment on it, sometimes distorting the information or getting it completely wrong. The most famous example was when ITN's "News at 10" implied that the Queen had somehow pocketed some of the money from the sale of tickets to look round Buckingham palace, because the broadcasters had mixed up revenue and profit, in a rather elementary way. The impression created was wholly out of kilter with what we had said in the report.
I imagine that a permanent secretary or chief executive appearing in front of the Committee must find it all rather daunting. If he is a cautious man, as many civil servants are, he will ask himself, "Why should I take risks with this dreadful Committee, and all that may flow from that? Isn't it better to play safe, and not change anything?" That could make the civil service, which is already rather risk-averse, even more so.
Danger arises if we do not balance our criticisms—I am sure that they are wholly justified, and I have never known a member of the Committee hold back on a criticism—with praise where praise is due. We must recognise that civil servants are trying to push through a wider view of controlling expenditure, and that that will sometimes lead to mistakes. If one does not make mistakes, one will never make anything, and sometimes risks are necessary and justified when trying to control the leviathan of public expenditure. We should bear that in mind as we read reports.
Another worrying element in the way in which the Public Accounts Committee conducts its affairs is the fact that sometimes its reports become unduly politicised. Clearly, all of us in the Chamber are politicians, and we must accept that occasionally such things happen, but sometimes they go too far.
For example, I was disappointed that when we produced the famous eighth report—which has been discussed at such length—on "The Proper Conduct of Public Business", at the next Prime Minister's Question Time the then Leader of the Opposition brought it out in that heavily adversarial point-scoring atmosphere as an example of what was going wrong with the Government. He gave the impression that there had been a dramatic decline in standards, all because of the new methods that the Government were introducing. He implied, in particular, that the non-departmental public bodies were somehow the cause of that decline in public standards.
Yet that was not what the Committee said; it said nothing of the kind. As my hon. Friend the Member for Bristol, North-West (Mr. Stern) said earlier, the Committee was just as critical of errors and irregularities in traditional civil service Departments as in the 929 non-departmental public bodies. In the evidence on which the report was based there were as many criticisms of traditional Departments as of the new bodies. There was no evidence that the new bodies were any worse than traditional Departments.
We did not make comparisons with the past. We did not say that things were worse than they were five or 10 years ago. There was no evidence whatever that the number of irregularities, or examples of overspending or misspending, that we found had escalated during the period under consideration. We simply said that clearly there had been some errors, difficulties and problems in both types of body—in fact, in all types of Government activity. We did not say that things were worse than they had been; we made the point almost as a warning that in the drive towards efficiency and greater economy in public spending, we should not allow our standards to drop. It was a shot across the bows, meaning, "Don't throw out the baby with the bath water. Keep standards as high as we recognise that they have been."
I am glad that the hon. Member for Caithness and Sutherland (Mr. Maclennan) recognised that fact, although in other respects he implied the reverse. He seemed to be doing what the former Leader of the Opposition did, and dramatising the idea that Committee had said that there had been a fall in standards. The Committee did not say that; it issued a warning that, as the drive for economy and efficiency, rightly, went ahead, there should not be a fall in standards. That would be the consensus among members of the Committee.
§ Mr. Mike Hall (Warrington, South)
Does the hon. Gentleman agree that the report refers to a decline in standards over the past l40 years? That was in the opening paragraph.
§ Mr. Horam
No, the report clearly says that some of the incidents that have taken place represent a decline, but equally that similar incidents took place over the previous four or five years, before the report was produced. Those examples are evidence that standards are not being maintained in those instances. The report does not say, as the hon. Member for Warrington, South (Mr. Hall) will see if he reads it carefully, that there has been an overall decline. We have no evidence about the number of such incidents. I disagree with the hon. Gentleman in that respect. The report simply says that certain things have happened wrongly in particular Departments and that they represent the sort of things that should not happen again. We are in some danger, especially in the present atmosphere, of acting in a way that is genuinely counter-productive in terms of trying to get economy, efficiency and greater control of public expenditure—aims that the Government are trying to achieve through the measures that I have outlined.
There are two or three points of our procedures at which the Committee and the National Audit Office might look to see whether we can improve them. For example, it could consider whether to interpret its remit rather more widely. Many audit companies in the private sector, such as Coopers and Lybrand Deloitte and Arthur Andersen, have looked as management consultants at strategic issues 930 of financial control because they have seen from their audit work the problems that may arise in a private sector organisation and they have seen ways in which matters could be improved. Obviously, value-for-money exercises are an example of that to some extent because the idea of one may be thrown up by an audit on a Department. I should like to take that further and to see whether such organisations could suggest ways, based on their audit experience and findings, in which Departments could improve their methods to achieve greater efficiency.
Coopers and Lybrand Deloitte, for example, recently went over the Department of Health, as hon. Members may have seen in the press, and came to the conclusion that no less than one fifth of the £282 million a year that the Department spent on pay and salaries was wasted money, and that there was a waste of public money in terms of duplication, unnecessary checking arid committees meeting without any real purpose. That is the sort of exercise that the NAO could suggest to Departments. The NAO would not necessarily carry out the exercise itself; the work could be done by a private audit company. Substantial sums of public money are simply disappearing through waste and the NAO should be encouraged to go into those matters more fundamentally. That would be a valuable thing to do.
The Committee Chairman, the right hon. Member for Ashton-under-Lyne, will be aware of my next point from his long experience of such matters. He will have looked at what happens in Public Accounts Committees in other countries. In New Zealand and Australia, for example, they have tended to break away from our rather formulaic approach of having in front of us the permanent secretary and chief accounting officer, whom we then cross-examine on the basis of an NAO report. Often, for example, the New Zealand and Australian Committees have had a second or third bite at the cherry. They have called in another officer, who may be relevant to the particular inquiry, and have investigated him as well. They have often taken a month or more over one report. It is worth investigating whether we should do that.
Similarly, the New Zealand and Australian Committees have sometimes spent a lot less time on other reports. They have sometimes, for example, decided to eschew investigating witnesses. They have simply had discussions among the members of the Committee on three or four reports that they deem to be less important or controversial than others. They have looked at them quietly, decided what they want to say about them and then issued their response. Is there a case for varying our procedures in view of what happens in other countries? We might then be able to concentrate more on what matters rather than adopting the rather straightforward approach of simply having a report and then an examination of witnesses, who are only the permanent secretary or the chief accounting officer.
The relationship between the Public Accounts Committee and the departmental Select Committees is also worthy of further thought. As the right hon. Member for Ashton-under Lyne will be aware, the Select Committee on Procedure considered that point in the 1989–90 Session and pointed out that there was an overlap which the House could consider. It may be sensible for some of the Select Committees to take greater account of public expenditure questions in their deliberations. 931 As the right hon. Member for Ashton-under-Lyne pointed out, we have produced no fewer than 49 reports, which we are considering in this debate. That is a huge number—the average Select Committee produces three or four reports a year. There is a huge discrepancy in the number of reports from the various Committees. I am sure that some of the departmental Select Committees, such as the Select Committee on Defence, could take on board some of the points at which we have looked and could examine, for example, the permanent secretary, rather than us having to do all that work. That would enable us to concentrate on especially important issues, particularly if we have to do more work on non-departmental public bodies.
§ Mr. Maclennan
I suggest to the hon. Gentleman that, on the whole, the existing arrangements work rather well. I draw his attention to the example of the work done by the PAC some years ago on the Stingray defence procurement issue. The PAC looked closely at the matter and expressed great scepticism about the expenditure incurred. We criticised the delays, but we recognised that we could not analyse the strategic arguments for purchasing Stingray. We felt that we had to pass that task to the defence experts—our colleagues on the Select Committee on Defence. That division of labour works pretty well.
§ Mr. Horam
The hon. Member for Caithness and Sutherland is suggesting working together. He has an advantage over me because I was not in the House when that report was considered. We considered specific expenditure aspects and left it to the Defence Select Committee to look at the strategic aspects. Something similar happened with the Pergau dam issue. Both the Select Committee on Foreign Affairs and the PAC had a bite at the cherry. I am arguing that perhaps we should do that more often and that we should not fiercely grasp all expenditure issues to our own bosom. We should let other Committees look at expenditure issues from time to time, which might lead to more fruitful consequences. Those are merely suggestions to carry the work of the Committee forward.
In my experience, the past 10 years or so in the history of the PAC have been valuable. The Committee has revived. Previously, it was hard to get a quorum and the Committee's work was not as well regarded as it is today. Our work, especially as a major Committee in the House, will be even more important in the future for the reasons that hon. Members of all parties have addressed in this debate. Therefore, I wish more power to the PAC.
§ Mr. Alan Williams (Swansea, West)
I very much enjoyed the speech by the hon. Member for Orpington (Mr. Horam) and I thought that his constructive observations were typical of the attitude that prevails within the Public Accounts Committee, where there is a general wish to see the Committee working as effectively as it can. However, I am sure he appreciates that his good idea about more in-depth analysis and about calling further witnesses runs contrary to the problem that we are rather inundated with reports. I enjoyed what he said and the Committee may well want to look at his ideas—I am 932 sure that the Chairman, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) will—and to consider some of the points at our meetings.
It is important that we keep reiterating what the Committee's role is. There has recently been an unfortunate misunderstanding. It is felt that in some way the Committee is a general parliamentary troubleshooter, so if anything crops up, people ask whether they can refer it to the PAC or ask why it has not been looked at by the PAC. One example is the Al Yamamah deal. We have all been inundated with telephone calls about that. My right hon. Friend the Chairman will, I suspect, confirm that among the £20 billion involved in the contract, a minimal amount was within our remit. As he and Sir Michael Shaw pointed out, the Committee considered the public money. Other expenditure is not within our remit; we do not have that power. It is just as well for everyone to understand that. We do not have the power to look into private money. It may save us all some time answering our telephones if we can get that message across. Indeed, that message may also be passed on by the Treasury Minister to one or two of his colleagues who made comments about a rather wider interpretation of the report produced by the Chairman and Sir Michael Shaw in the context of Al Yamamah.
It is typical of the problems of the House of Commons that here we are with one day's debate on 49 reports, many of which, as I am sure all of us would agree, deserve considerable attention in their own right. It is impossible to do full justice to so many reports in such a debate. The report on the conduct of public business—I do not intend to dwell on it—has been a catalyst for the way in which Government and people outside Parliament have looked at the role of accountability. It is the first time that the Committee moved from specific into general analysis, drawing on its wider experience. I congratulate the Chairman on initiating that move and I congratulate all members of the Committee, especially—this is not meant to be patronising—those Conservative members of the Committee because, after 14 or 15 or years in Government, inevitably, everything we look at involves their Administration. Therefore, one recognises that for them it is a more sensitive issue than it is for us. However, the easy unanimity with which we endorsed that report was encouraging.
I was delighted at the positive action taken by the Government. The Chairman mentioned the check list and I think that that check list is good. Indeed, yesterday's announcement by the Prime Minister was helpful because the quangos and the civil service are to be within the remit of the standing body to be created. I am sure that our report will be part of the essential background reading for the members of that body when it starts its studies. I welcome the creation of that body and its forthcoming report. It is important that, every now and then, we stop, and that observations and assessments of how effective we are and how well we are or are not doing our jobs are made by people who are perhaps at arm's length from Parliament.
I do not want to talk about the issues surrounding the Pergau dam because they have been trampled over substantially and in so far as they needed mentioning, the Chairman dealt effectively with some of the key points. However, what came as a surprise to me—it may not have surprised my colleagues—having been in the House a little while, was that I did not realise the limitations in 933 the effectiveness of an accounting officer's letter. I had presumed, like various Opposition and Conservative Members who have been in government in different offices, that the accounting officer's letter was automatically looked at and referred to by the Comptroller and Auditor General. Many of us and certainly many people outside the House were surprised to find that, in fact, it is only in the context of fraud and impropriety that there is any automatic reference to the CAG.
I am sure that we all welcome the Government's positive response to our feeling that the letter should be an early warning which is drawn as rapidly as possible to the attention of the CAG so that the Public Accounts Committee can consider issues of wastefulness and uneconomic use of resources when an accounting officer's letter has been considered relevant. Indeed, it is conceivable that had the new system, which I hope will apply, operated at the time of the Pergau decision-making, the existence of the accounting officer's letter may have brought matters to the attention of the House and focused the attention of Ministers earlier on the confusion that arose and that was revealed in the Foreign Affairs Select Committee about the relationship between arms and aid in the deal.
I observed last year—hon. Members have at various times made the point—that the job and role of Parliament has been altered by the structural changes that have taken place in the machinery of Government. It is not our job as Committee members to discuss whether the policy was right or wrong. All that we can consider is whether it has made our job easier or more difficult and whether it has made the role of the National Audit Office more or less effective. There is little doubt that the proliferation of accounting units, even right down now to hospital trusts, has made it more burdensome for the National Audit Office at step one to carry out its job. At one time, there was a single department in which a relatively simple audit could take place. Now, to follow through the implications of certain decisions, one may have to go to a dozen agencies or health authorities.
There is little doubt that the structural changes have created some difficulties. The hon. Member for Orpington said that he felt that the agencies were a good influence. I am sure that there are good and bad points to them. I have one of the biggest agencies in the city which I have the honour to represent—the Driver and Vehicle Licensing Agency. The information and technology division of the DVOIT has just been hived off. I am afraid that my experience has been somewhat different from the hon. Gentleman's because I have witnessed a fall in morale there. That is due to uncertainty, because, all too often, such hiving off is seen as the first step towards complete privatisation. In fact, that has already happened to DVOIT. I hope that now its future has been settled, morale will improve.
The other factor that has made a difference was also dealt with by my right hon. Friend the Member for Ashton-under-Lyne. Contracting out and privatisation mean that public money, which a year before could have been followed right through by the National Audit Office, can no longer be followed, although it is still being spent in the same amounts, possibly by the same people and, possibly, for the same purposes. We have lost our right as Parliament to monitor the way in which that money is 934 used. It must be recognised that we have fewer rights even than the Audit Commission, which monitors activities in relation to local authority spending.
I intend to be brief in dealing with my other points, but before hon. Members become optimistic, I would add that that is a statement in relativity. As a Celt, my brevity may be different from the wishful brevity of some of my colleagues. My right hon. Friend referred to some of the problems that we encountered. We discovered a Welsh WIZARD in the Welsh Development Agency, and we had problems in the west midlands, where management were manoeuvring circumstances for privatisations. We have to bear in mind the fact that, if we are going down the privatisation route, desirable as in many cases management buy-outs may be, they also present dangers and temptations. Therefore, they must be monitored closely to ensure that there is no conflict of interest or that no circumstances arise in which the price is unduly favourable to those wishing to buy.
The Scottish Bus Group, about which the hon. Member for Caithness and Sutherland (Mr. Maclennan) will be more aware than I because of his Scottish links, was sold for £90 million. However, just a couple of years before privatisation, the group had a profit of £9 million. By the time of privatisation, its profit was £500,000. There may be very good reasons for that, but it is disturbing that the Scottish local authority bus services operating alongside the group experienced exactly the opposite: the local authority bus services were becoming increasingly viable in what seemed to be the same market context.
Although I cannot speak for everyone, many of us were concerned about the group's privatisation and particularly about Citylink. Two years before privatisation, Citylink made a profit of £900,000. By the time of privatisation in 1990, that profit had turned into an £800,000 loss. On privatisation, there was in effect a £1.5 million cash injection in that the Government wrote off that much debt. The company was sold for £265,000 and three years later it was sold for £5.1 million.
We must ask whether it is just conceivable that the Government were had in respect of that operation. suppose the Government would console themselves with the thought that while they made only £90 million when they sold the group, in respect of a company which was sold for 1p, that 1p proved to be one of their best pieces of expenditure because, in finally releasing all the companies within the group into the private sector, the Government opened access to the surpluses in the pension fund. The Government may feel that what they lost on the privatisation swings, they gained on the pension roundabout, because although they made only £90 million selling the whole group, they had the £150 million from the pension fund which was in surplus.
Committee members will remember that we had to work to obtain that figure. We were told in the report that the pension fund was £75 million. However, when one of my colleagues asked whether that figure had been revised, he was told that it was something above £100 million. When I asked precisely how far it was above £100 million, we discovered that the £75 million had become £150 million. From the Government's point of view, that was 1p well spent.
I am referring to some of the minor reports which are important to the people involved. With regard to the sale of the trust ports, I am sorry that the hon. Member for Gillingham (Mr. Couchman) is not present because he 935 raised questions on behalf of his constituents during the hearing. There was also a management buy-out in respect of the trust ports. Once again, there was a strange situation.
Medway was privatised for £13.2 million. That was the yield to the Government. However, within a short while, the managing director had made £12 million selling his shares to the Mersey Docks and Harbour Company, which, incidentally, is partly owned by the Government. The Government bought back some of the shares they had sold at a knock-down price.
Charterhouse Development made three times as much as the Government by selling its shares for more than £35 million. Something was drastically wrong somewhere in the way in which the company was evaluated. Although I am not sure where matters stand in terms of the legal representations being made by the work force, we can observe what happened. A short time after the company was privatised, half the work force no longer worked for Medway. Under the deal, they were required to sell back their shares at an enforced price. They had to sell their shares back for £2.40 only to see them sell a short time later for £37. One can understand that there is bitterness among those ex-employees. Perhaps we can understand why they sought legal retribution.
When we asked how the share price could rise from £2.40 to £37 if the Government had got the privatisation right, the permanent secretary told us that that reflected the increased profitability. I examined the increased profitability. Profitability had risen 50 per cent., but a 50 per cent. increase in profitability does not explain a 15-fold increase in the market value of the shares.
I want briefly to refer to two important points relating to law and order and to reports which did not receive much consideration. The first refers to the Insolvency Service executive agency. Hon. Members, in particular the hon. Member for Bristol, North-West (Mr. Stern), whose background in accounting has been a great asset to the Committee, will appreciate the significance of the role of the agency and the Insolvency Service in identifying people who should be dismissed as directors and barred from being directors.
When we examined the service, we discovered that at a time when insolvencies had trebled, the number of staff had increased by only 25 per cent. As a result, there was a backlog. It was impossible for the disqualification unit to handle the sheer volume of work it faced. That was reflected in cases in respect of which receivers had identified unfit conduct. Over a period of six years, we found that while the receivers had referred to the disqualification unit in 1987 one in three of the cases in respect of which there was unfit conduct, in 1988 that became one in five; in 1989 it became one in seven; in 1990 it became one in nine; in 1991 it became one in 10 and in 1992 it became one in 22. As I said at the time, Britain had become seven times safer for the corrupt director.
However, the problem is more important than that. The hon. Member for Gillingham raised the very important point that there is no method of ensuring, even when directors are disqualified, that they relinquish their other directorships. In addition to finding that corrupt directors have a much greater chance of getting away with it, it is 936 clear that even if they do not get away with it, no one has been following up to ensure that they get rid of the directorships that they are supposed to get rid of.
Committee members and I put it to the chief executive that if unfit directors continue to operate, they are a danger to other businesses, suppliers and customers, and that that is an undue risk for the public. The chief executive recognised that point. However, despite that clear collapse of the agency's ability to monitor those unfit to be directors, the department was being denied the extra manpower it needed in the context, to make a minor political point, of a Government who continue to talk about law and order.
§ Mr. Stern
I am listening with great interest, and I agree with the right hon. Gentleman. My recollection of our discussion of that point in Committee is that the Committee could not conclude whether the obvious failing was the fault of inadequate staffing or of inadequate legislation in the first place.
§ Mr. Williams
Inadequate legislation might have been an element, but, as it emerged in questioning, the problem was a lack of resources. The hon. Gentleman might recall exchanges in which, in essence, officials were challenged with, "Are you asking the Department for the extra manpower that you need? How much extra manpower do you need?" They admitted that they had not made even as assessment. They made the point that if extra manpower is needed, that is a job for Ministers, not them.
The next matter is literally a one-point dip into the report on organised Department of Social Security fraud. We are not talking about the person who fiddles the odd voucher. We are talking about crooks, big money, counterfeiting, and the theft of mailbags—that is, big organised crime. There is an organised fraud branch. In discussions, it emerged that three quarters of such fraud takes place in London and that, for every member of the fraud branch in London, there was a saving of £350,000 which would otherwise have been defrauded. When asked how much it cost to employ someone to save that £350,000, we were told, on average, £20,000. Many of us might naively think that there is an obvious logical next step from that.
I shall read a couple of the permanent secretary's answers. I said:That means in London … he is saving £1/3 million, £350,000.The permanent secretary said, "That is right." He was then asked about taking on extra manpower, and he said:However there is a limit to which you can put more and more staff into that and you cannot just do it just on cost effectiveness criteria otherwise the size of the Civil Service would be twice what it is now.I must admit that if it is cost-effective, it does not cause me great worry. I went on to ask:As long as it was cost effective that would not matter, would it?The permanent secretary said, "Yes, it would." I said:Why? Why would it? As long as it was giving the taxpayer back more than it was costing, why would it matter?His answer was:no Government has ever proceeded on the basis that you simply staff the Civil Service on the grounds of how much money you can recover.It was one of the saddest interviews we had.
§ Mr. John Austin-Walker (Woolwich)
On a point of order, Madam Deputy Speaker. I wish to raise an urgent 937 issue which relates to courtesy to hon. Members and which might impinge upon hon. Members' rights. Several hon. Members and noble members of the other place were assembled in the Parliament street building at a meeting which I called to hear the European representative of the Kurdistan workers party.
On his way to that meeting, between Westminster station and Parliament street, the speaker was arrested by about a dozen police officers. He is currently at Charing Cross police station. My noble Friends Baroness Gould and Lord Avebury are currently at Charing Cross police station to ascertain on what grounds he was arrested.
Could you use your offices, Madam Deputy Speaker, to ensure that no action is taken to deport that gentleman until we have an opportunity of questioning responsible Ministers in the Foreign and Commonwealth Office and the Home Office? Will you urgently investigate the matter?
§ Madam Deputy Speaker (Dame Janet Fookes)
If the hon. Member for Woolwich (Mr. Austin-Walker) is alleging, as I rather think that he is, a breach of privilege, his course of action is clear: he must write to Madam Speaker privately without delay and inquire whether investigations can be made. Apart from that, I am unable to act.
§ Mr. Richard Page (Hertfordshire, South-West)
They say that it is a sign of either old age or enjoyment if time flies by rather quickly. It seems only a few months since our previous annual Public Accounts Committee debate. It therefore comes as a shock and surprise to find that it is exactly a year and a day since we considered the excitements of the previous year.
Once more, several excitements are worthy of note, comment and, indeed, censure. At this time of feeding frenzy, which seems to have gripped Westminster for the past week or so, it is important to keep a balance and a perspective. Although a book of horrors has been opened by the National Audit Office during the year, I put it to the House and to the country that a veritable library has been assembled during the year through the good practices and good offices of the civil service. That service has been satisfactorily delivered and standards have been achieved that are envied throughout the civilised world.
I pay tribute to the National Audit Office not only for its work in supporting members of the Committee but for its day courses for members of the Committee, which allow them to find out how a report is worked through the system and how it carries out its investigations. That understanding helps us when we have to examine an accounting officer.
I express my appreciation of the delicate way in which the Chairman of the Committee guided us through the year and helped us to produce unanimous reports. He ensured that we did not stray into commenting on policy, with all the chaos and confusion that would have followed. He kept us focused on examination of the effectiveness of policy implementation and value for money.
Much of the debate has focused on the past year. The recently created executive agencies are becoming more of a regular feature of our debates. As reforms advance, the boundary between public and private "becomes open 938 country", to quote the speech of my right hon. Friend the Prime Minister at the European policy forum in July, enabling the Government to investigate how to obtain the best deal for the taxpayer's money. A responsibility goes with that freedom, and that responsibility has been accepted by the House.
We examined the impact of executive agency status on the Vehicle Inspectorate. We produced a progress report, and undoubtedly a substantial stride forward has been taken—an initial endorsement of the Government's moves to that form of decentralisation—but one swallow does not make a summer, and other matters must be examined.
The Driver and Vehicle Licensing Agency, to which the right hon. Member for Swansea, West (Mr. Williams) referred, is a case in point. Its change in attitude can be seen in the conclusion to our 34th report, which states thatalthough the Agency had not been wholly ignorant of customers' needs previously, the survey carried out for the Agency in 1992 was the first systematic attempt to consult the motoring public directly.Of course, the report, like most of our reports, makes criticisms, but it acknowledges the agency's new willingness to give better service to the public.
In respect of telephone inquiries, we commented:We note that the Agency acknowledge their discontent with the present system".
Indeed, organisational changes already made in the agency enabled it to deal with some 1.2 million calls from members of the public between April and July this year–20 per cent. more than in the previous year.
An examination of the accuracy of the agency's records reveals that quality is already improving with the increased use of computerised packages. The Department of Transport acknowledges that it does not have a sophisticated system for targets in place, but it is working on improving the process and taking account of customers' views on service quality. All that moves us forward. I should like to believe that we shall see a continual improvement in the service and value for money that the agency process can achieve.
The introduction of competition and choice into public services brings with it the requirement of accountability. It is timely and helpful that the Committee has produced its eighth report on the proper conduct of public business—a matter that the Chairman of the Committee went into at great length, as did the hon. Member for Caithness and Sutherland (Mr. Maclennan).
It would be presumptuous to say that the report is the definitive work—that the advice is set in tablets of stone—but it is a good working document for those who move executive agencies into the sometimes murky water of the commercial world. Indeed, the Treasury has reacted to our report by producing a code of best practice for board members, which is helpful support in charting the way forward for those who serve on such bodies.
I listened carefully to what the hon. Member for Caithness and Sutherland said about accountability. He talked about slipping standards, a Watergate environment, chronic conditions and a general and increasing malaise. His analysis was not only gloomy but faulty.
I take a slightly brighter view of the future. I believe that the creation of agency status will provide something that we have not had for some time. Anyone who runs a business, or anyone who knows about operating in the real world, will know that if one can ring-fence an activity 939 and then examine closely what is going on inside that ring-fenced activity, one can achieve a higher standard of quality, better value for money and better accountability.
It is easier to track and report on an agency's activity than on one that is submerged in a vast Department. How often do members of the Public Accounts Committee feel that we get to the bottom of a Ministry of Defence report on what has happened and where the money has gone? Of course, standards must be maintained, and I shall be the first to insist on that. Our eighth report is a valuable guide and a valuable step towards achieving that goal.
It is perhaps appropriate to move on to one or two of the excitements that have enlivened our year. The first was the 17th report on the Pergau hydro-electric scheme, which produced much media comment—and much of it inaccurate. I will not go through the whole unhappy saga word for word, except to show how one initial small mistake can start a chain of events. Just as a dislodged pebble will start an avalanche, the initial misinterpretation by the Overseas Development Administration and the consortium of United Kingdom companies involved in the project of a firm contract proposal with indicative costs started the chain of events.
The position of the construction company is thatan application for ATP was submitted by"—the consortium—in November 1988, giving indicative costs. This was not a 'firm contract proposal' and it was only on 31 March 1989 that the consortium was in a position to provide an estimate based on detailed specification, design and costing work.However, the National Audit Office report says that it was a firm contract proposal.
It is still not fully clear how that has emerged, but, obviously, the two ODA officials who spent all of two days examining the firm contract proposal of only £316 million set the pebble in motion because they gave the project the green light, despite the consortium's submission of the real firm proposal of £397 million some two weeks later. That was after the meeting between the Prime Minister of Malaysia and the Prime Minister of the United Kingdom, which was too late; the rest, as they say, is history. One redeeming feature, from which I take comfort, is that exports to Malaysia were some £226 million in 1986, but £635 million in 1992. That is a small consolation for some of the difficulties that were caused.
Last year, I trailed the saga of the Wessex regional health authority, which had not completed all its stages. That task is now complete. The report has the dubious honour of being the highest pile of paper on my desk for any project. I gained comfort from the fact that the Government abolished regional health authorities two weeks before the report was published.
I was most disturbed by the discovery of the confidential auditor's report alongside the public one. I must thank a certain trade periodical for finding out about the confidential report. When we asked for it, we found that there was nothing confidential in it; all it did was shade and hide the blushes of some of the people involved. It was unfair that section 30 of the Local Government Act 1992 was used in such a way, and I am grateful that the Committee was able to remove the fig leaf behind which people were trying to hide.
940 The Chairman of the Committee touched on the report, which makes sorry reading. Despite two previous warnings from the auditors in 1987 and 1989, the regional health authority ploughed on. The executive members of the board failed in their duty. We rightly criticised the regional health authority and the management executive for allowing the board members to be kept at arm's length for more than three and a half years over the mismanagement of the project.
There was a fundamental conflict between the regional health authority and Integrated Systems Ltd. when the health authority appointed a director of that company to act as the regional information systems manager. That is one way of getting to the heart of it. The Public Accounts Committee regarded it as a matter of grave concern that at least £20 million was wasted between the start of the regional information systems plan in 1984 and its abandonment in 1990.
The Public Accounts Committee carries out a valuable task. It complements the National Audit Office, and the work that it produces is of a very high standard. I should like to think that the Committee acts on information fearlessly and freely without party bias. I shall take into account what the right hon. Member for Swansea, West (Mr. Williams) said about the difficulties that obviously arise when party politics start to rear their head. I pay tribute to the Chairman of the Committee. I appreciate that he ensures that the Committee investigates only the effectiveness of the implementation of policy and value for money.
I shall conclude, as I did last year, by offering another little trailer. This year, I shall trail the story of a development corporation's brainchild. It was only a small stone turned up by the Public Accounts Committee, but again a stone seems to have started an avalanche. I refer to Merseyside development corporation's Grand Regatta Columbus and Fanfare for a New World concert. The corporation's chairman had the bright idea of laying on an opera extravaganza in a yet-to-be-opened Merseyside dock to help to promote the area. The event was described in press releases asprobably the greatest line-up of singers ever seen in the UK".Whether the unique culture of Liverpool was ready for it appears not to have been considered. Evaluation of the financial viability of the event took just five weeks. It was supposed to break even. From that initial mistaken calculation, the burden fell on the taxpayer.
It is symptomatic of the way in which events were driven by Merseyside development corporation that the deal, under which the taxpayer picked up the £400,000 debt, was signed after midnight on the day of the concert. Undoubtedly, more details will emerge next year. I shall be fascinated to receive the response to the report and to debate it next year.
Tonight's speeches have pointed to some errors, which we must keep in perspective. Much good work is done within our civil service, but I am sure that there will be enough to occupy us again next year and another catalogue of excitement.
§ 7.1 pm
§ Mr. Denzil Davies (Llanelli)
The hon. Member for Hertfordshire, South-West (Mr. Page) said that the Public 941 Accounts Committee had had an exciting year. As one excited member of the PAC, perhaps I can give a few impressions.
It is difficult to go through 49 reports, even briefly. I hope that I will not distort the facts: impressions are impressions.
My first impression is that a substantial amount of public money seems to be spent on computers and computer systems by Government Departments, quangos, next steps agencies, health authorities, non-departmental public bodies and the like. I gained the impression from our work that there was little concern for value for money when Departments or quangos embarked on the installation of a computer system. I suppose that everyone has to have a computer these days. There was little analysis as far as I could see.
The problem is that the people who take the decisions are people of my generation who know nothing about computers and therefore have to bring in computer consultants or salesmen. The computer salesman is like a double glazing salesman. He obviously knows everything about the product and his client knows nothing. Newer, better and more powerful systems are added on and the cost escalates. Once the system has been installed, no one seems to ask whether it is cheaper, more efficient or more user-friendly. Many computer systems are inflexible, as we have seen with the Child Support Agency and other agencies. No one asks whether the body has obtained value for money. The whole business just goes on and on.
When the Chief Secretary takes his knife to public expenditure, as all Chief Secretaries must, he should have a look at the vast sums of money channelled into computing systems and into the firms that instal them.
My second impression is that a substantial amount of public money has been paid to senior managers and administrators in what are called termination payments. This matter has been referred to already in the debate and it is perhaps more serious than the computing problems. It does not seem to matter whether the individual involved has done his job badly or should have been discharged or disciplined or whether there has been a breach of contract. Once it has been determined by other senior managers that one or more senior manager or administrator is to leave, an army of accountants, auditors and pension consultants descend and work out vast figures to pay to the unfortunate person who has to leave.
The payments are described variously as compensation payments, ex gratia payments, termination payments, redundancy packages, accelerated pension payments or enhanced pension payments. I never know quite where the money comes from, but it comes from all directions. Some of it certainly comes from the pensions industry.
On top of those payments, people are offered the opportunity to purchase at a low price the accoutrements of power such as the motor car, the visual display unit, the computer or whatever else they used in their office. In many cases, the lucky people leaving with enhanced payments are then offered a consultancy. So they do exactly the same work for the organisation that in effect dismissed them and paid them a lot of money. That is the impression that I received from listening to many of the exchanges in the Committee.
Leaving aside the cost of making payments to members of the public salariat, it is my impression that the law of contract has been turned on its head. I spent some time 942 years ago learning the basic principles of the law of contract, which are fairly simple. If one party to a contract breaks that contract and the other party suffers damage, the party who breaks the contract has to pay damages to the party who suffers from the breach of contract. It is a simple elementary proposition. However, the law of contract in many of the cases to which I listened was different. The person who broke the contract received money from the person who was damaged as a result of the breach of contract.
I do not know where the law of contract has gone wrong in employment within the public salariat and, indeed, private industry. I shall give a few examples to highlight the point. First, as we have been told, the regional general manager of Wessex regional health authority, sadly, was responsible in the main for losing at least £20 million of public money. In consequence of that, it seems, he received £111,000 in his pocket. On top of that, he had to pay only £750 for a desk and a pedestal, two bookshelves, a VDU table, a fax machine, an answering machine, a word processor which was apparently obsolete, a pocket organiser and a lamp. He received all that for £750 on top of the £111,000 even though he was responsible for losing £20 million of taxpayers' money.
The second instance from Wessex regional health authority was the case of Ms Storrs. She was a good employee; we made no criticism of her. She did her work well—so well that there was no work left for her to do under her contract. Her contract could be terminated by either side with three months' notice. Her work came to an end. She could have been given three months' notice, but Wessex health authority paid her £78,000. It was described as an ex gratia payment. It is nice to be paid that amount of money. The health authority was probably a good employer, but I find it extraordinary that a public body dealing with health, facing all the pressures on public expenditure and the need to channel as much money as possible to the care of patients, should pay such a sum when the person had been paid fully under her contract of employment.
§ Mr. Stern
Does the right hon. Gentleman agree that perhaps one of the most sinister aspects—I use that word advisedly—of the overpayment, as it turned out to be, to Ms Storrs was that it seemed to be intended to buy her non-participation in any future activity of the health service, when she was dismissed for having done her job so well that she had worked herself out of a job?
§ Mr. Davies
That seems to have been the case. If it had been the intention to debar her from competing with the health service, perhaps that should have been written into her contract. Such business arrangements can be made. The £78,000 was described as that very strange animal, the ex gratia payment.
The director of finance of South Birmingham health authority, who probably should have been sacked, was paid £27,000 before he left and the chief executive—who, according to the report, clearly should have been dismissed—received £33,000. Those are relatively small sums. There is no legal basis for making such payments, yet an authority is writing the cheques and using public money in that way with no legal authority. 943 I shall leave aside the Welsh Development Agency, as enough has been said about Celtic institutions. I merely point out that such problems occur in other parts of the country as well.
The director of regional management services at the West Midlands regional health authority should also have been dismissed, and could have been for what he did. He was given an immediate accelerated pension of £6,462 a year and a lump sum of £81,387. That was quite unnecessary. It was a cavalier and irresponsible way of dealing with public money.
Finally, the deputy regional managing director of West Midlands regional health authority received £42,000 for resigning, which takes me back to the basic principles of contract law. I do not see how one can be paid if one walks off the job. If a builder contracts to do a job and wilfully walks off the building site, thereby breaking the contract, I would not expect the employer—as described in the contract—to pay the builder for breaking the contract. Yet, that gentleman was ostentatiously described in a press release as having resigned. Because he resigned and broke his contract, he received £42,000.
Years ago, a private steel firm moved from the west midlands to my constituency. It closed down in the early 1980s and 1,500 steelworkers lost their jobs. They never got anything like those sums in redundancy and they did nothing wrong. The most that any of them received was £3,000 for 25 to 30 years' service. They produced wealth rather than merely distributing other people's, but they received very little, yet the Public Accounts Committee finds that vast sums of money are paid to people who do not produce wealth, although they do important jobs, and who have, sadly, done something wrong.
I am sure that the Financial Secretary to the Treasury reads our reports assiduously. He sits there looking very interested in our debate. If the Chief Secretary were to take up that knife, perhaps he should start with the higher echelons of the public salariat and leave the poor, the disabled and the unemployed for the time being.
§ Mr. Michael Stern (Bristol, North-West)
It is a pleasure to follow the right hon. Member for Llanelli (Mr. Davies), not least because he referred to some circumstances that we considered in the Public Accounts Committee in the past year—cases of people leaving their employment with substantial payments. I want to refer to such circumstances more obliquely, but, before doing so, I must return us to the main theme of the debate—our eighth report, on the proper conduct of public business.
Some hon. Members, especially those on the Opposition Benches, sought to draw from that report inferences of a decline in the work and standards of the public service, caused by applying the standards that apply in private enterprise. I draw the opposite conclusion. I spent most of my life advising businesses before I came to the House and I conclude from so many of the examples listed tonight that no private business could measure down to the standards that we have seen apply in the public service. In so many of the examples, it was not a case of the public sector declining to the level 944 of the private sector, but of the public sector failing to reach standards that would be regarded as automatic in the private sector.
If some of the examples of gross mismanagement and sheer carelessness with other people's money that can be quoted from our reports had been applied in the private sector, the organisations would swiftly have gone bankrupt. It is more likely, however, that they would never have had sums of money of such a size to play with in the first place.
One of the more horrifying reports that we produced in the past year, which has not been mentioned to any great extent in the debate, was that on the Department of Employment Field system. It was an example of a computer system being installed—the right hon. Member for Llanelli mentioned that subject.
We concluded in our report thatalthough the Department spent £48 million on the Field System, most TECsfor which it was intended, were using it only in part or not at all. It was developed in some ivory tower somewhere, and bore no relation to what the potential users wanted. We formed the conclusion, and were right to do so, that the system could not be regarded as any sort of success, even a partial one.
We were given evidence that if the training and enterprise councils had been fully in existence at the time that the Department decided to press ahead with the system, after much consideration, the TECs would never have asked for it and, given its subsequent lack of success, we cannot really blame them, can we?
The full horrors of the Field system and its total failure were not merely the decision to go ahead with a system that no one wanted, but concerned the management of the project. Even if it was a wrong 'un and no one wanted it, the system did not need to cost £48 million of taxpayers' money that would otherwise have been spent on training people to gain employment opportunities.
We concluded that a significant part of the expenditure was totally wasted. It was not even remotely referrable to the project under consideration. In addition, the haphazard way in which the Department engaged consultants to set up the system left us questioning whether the £11 million out of £48 million spent on employment consultants to develop the system was largely a complete waste of money. I have no doubt that the money was of great benefit to the consultancies, but certainly not to the public weal.
That is an example of management within the Department that could be said to have broken every rule that a junior Master of Business Administration student would have imbibed before being released into the business world.
I question whether, when we compare private and public sector standards in the management of public money, we should not start from the premise that we have seen examples in which the public sector has totally failed to measure up to standards that would be set automatically in the private sector. That has occurred not just in one Department or in the management of specific sums of money in a brand-new project. Reference has been made 945 to the South Birmingham health authority. In our conclusions, the Committee stated its concern at theRegional Chairman's finding that there had been obfuscation on the part of the South Birmingham Health Authority in the manner in which they had supplied information to the Region about their increasing deficit."Obfuscation" is a long word which most people would prefer to shorten to "lying". Deliberately wrong information was passed by the management of the South Birmingham health authority to the regional authority. The regional authority's management of South Birmingham was sufficiently distant that it did not notice, and the members of staff concerned were allowed to get away with it. That is not a decline in public sector standards to those of the private sector; that is the application of standards which would be applied only—if at all—in the course of a systematic fraud, whether in public or private sector management. Frankly, those standards must be wholly deplored and the Committee was rightly charged with rooting them out.
The problems of South Birmingham were not just those of appalling management, because there is another lesson which we can learn from South Birmingham and which is too infrequently applied in the public sector. Where there is inadequate accounting or communication between one department and another in a substantial private company, it is recognised that it is the job of one section of the company not to try to do down another section of the company. If one section has gained money at the expense of another, it is the job of the management to point out and rectify that inadequate distribution of resources within the company.
That is apparently not the case in the public sector as applied in South Birmingham, because its accounting system was so inadequate that it was failing to bill other sectors, health authorities and trusts for money that was legitimately due to South Birmingham. Not surprisingly, the authority was running into a huge deficit and, in the end, a number of people lost their jobs. We rightly criticised South Birmingham for that failure, in accounting, but should not we look also at the other health authorities and trusts that were getting services from South Birmingham, were not getting a bill for those services and were keeping quiet about it?
Should we not expect standards within the health service management which would be applied in any substantial company? After all, the health service is the biggest business in Europe in terms of the resources that it uses and the number of people whom it employs. A similar point also came up when we were looking at the Property Services Agency.
Should it not be axiomatic that the job of the public service is not to try to do down other parts of the public service, but to achieve value for money? Value for money seems to have been furthest from the minds of the public sector management involved in the two examples to which I have referred.
Value for money is not just a matter of seeing how little can be spent to achieve a certain effect. It is also a matter of measuring the effect that is achieved by a certain level of expenditure. That point was brought home to us when we were looking at—among other things—the construction of the helicopter landing platform. I agree with the Committee's conclusion that, in terms of public expenditure, the award of the contract through competition was done to achieve the contract at the 946 minimum level of public expenditure appropriate to the circumstances. But we indicated in our report that we would wish to return to the matter.
The Committee also found it necessary to question whether, as a result of that competitive process, the public ended up getting value for money. It was noticeable that the definition of what the public were buying with that money was changing continually as the price went down. It was originally intended that we have a single ship which was designed to achieve a certain purpose. But, by the time the cost had been pared and, as the accounting officer concerned said, the "gold-plated taps" had been eliminated from the costing, we ended up with—I shall not hesitate to quote what I said in Committee—a ship which cannot defend itself, which relies on other warships for protection, which has to waddle along in pursuit of those escorts at two thirds of their speed, which has a radar signature which was originally considered dangerous.If it is the job of the Public Accounts Committee to consider value for money, I question whether we sometimes have sufficient resources on our own arid without reference to other Committees to arrive at such a conclusion. In a case such as the helicopter landing platform, I would have hoped to have a reassurance at the end of our inquiry that the ship that we were buying with public money was still capable of fulfilling its original purpose. I did not get that reassurance, and nor did the Committee. That is why we indicated that we would wish to return to the subject.
As the work of the Committee develops—as it has developed over the years—we may well need to look more at what the Government are trying to buy with the money they spend, as well as whether they are spending that money most efficiently.
The final report to which I wish to refer is one that the Chairman referred to and which, in a way, typifies the worst examples of public management. I refer to the report into the British Council. We found in a very small organisation—particularly compared with some of the organisations that the Committee looked at—a series of management mistakes involving basic accounting techniques. I speak as an accountant. Accountancy is not everybody's cup of tea and what to me is basic would not be regarded as such by other people.
The inability of the British Council to distinguish between what was a payment and what was a grant was so basic to the mismanagement of that body as to leave the Committee calling into question whether the organisation is capable of managing public money from within the resources that the public granted it to manage that money.
In other words, should we look at organisations such as the British Council and say to them that they are not capable of reaching the standards that we expect for the management of public money? They have proved that they are not capable of reaching those standards. Therefore, should the Committee recommend to the Government that they take the responsibility for the management of public money away from the accounting officers of such bodies and give it to someone more capable of exercising that responsibility? The question asked in the eighth report was whether we, as a Public Accounts Committee, could contribute to reversing the decline in the public sector which we were noting in far too many cases. We produced our report as guidance for the head of the civil service, not just on how to avoid the 947 list of mistakes that we had catalogued but to tell him that we, as a Committee of Parliament, expected better of his work than we had so far seen.
I should like to add a personal note that derives from my experience outside the House. The right hon. Member for Llanelli referred to the circumstances in which a number of senior public servants had left their posts and asked whether the Committee, or the head of the civil service, as the man ultimately responsible, could do anything to stem the tide of payments to people for so-called inadequate services. I believe that there is something we can do, but it will not happen until the House and the PAC have been shown more than one example of an accounting officer, confronted by the sort of mismanagement that has been described today, being required to clear his or her desk and walk. That may already have happened; we may investigate such a case next year. But until it is seen to happen and until we are prepared to apply to public servants the sanctions that are applied routinely in the private sector, we shall not attain the standards of the management of public money that Parliament is entitled to demand.
§ Mr. Mike Hall (Warrington, South)
The debate takes place against a backdrop of growing public concern about the conduct of public life, from which we may conclude that there must be concern about how individuals in public life conduct themselves.
"The proper conduct of public business", the important report published by the PAC on 27 January, reported to Parliament a series of failures in administrative and financial systems and controls in Government and public bodies. This is where I take issue with the hon. Member for Orpington (Mr. Horam), in whose speech I intervened, in an attempt to draw his attention to paragraph 1 of the report. I do not apologise for quoting it again:In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which has led to money being wasted or otherwise improperly spent. These failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years.It is important that the Government respond positively to the criticisms in the report and that they reassure Parliament that they take it seriously and deal with its criticisms constructively.
Clearly, the report deals with incompetence, with fraud and with corruption in a series of Ministries, Government agencies and quangos. It is a catastrophic catalogue of public money being wasted or improperly spent. It demonstrates the Government's failure to ensure sound financial management and probity in a large number of cases.
I firmly believe that the Government are ultimately responsible for Departments, Government agencies, next steps agencies and non-departmental public bodies: the buck stops with the Government, so if these criticisms are valid, they must take responsibility and act on them.
The bottom line is the straightforward fact that the British taxpayer has paid dear for the failings outlined in the eighth report of the PAC. There are startling examples of failings—failures of financial control, failures in the stewardship of public money, and failures, when public 948 assets have been sold, to get value for money. It is deed a staggering catalogue of mistakes and failures, affecting the Foreign and Commonwealth Office, the Department of Employment, the Ministry of Defence, the Welsh Office, the Property Services Agency, the Insolvency Service, the National Rivers Authority, Wessex regional health authority, the West Midlands regional health authority, the national health service management executive and the new town development corporations—to name but a few.
I wish to discuss two other reports by the PAC, the ninth report, published on 19 January and entitled "Grant Maintained Schools: Financial Control", and the 23rd report, published on 21 April and concerning the sale of the Scottish Bus Group. I should also like to refer to the minutes of evidence taken on the Merseyside development corporation's Grand Regatta Columbus and Fanfare for a New World concert. This matter has already been mentioned by the hon. Member for Hertfordshire, South-West (Mr. Page), and I should like later to allude to some of his remarks.
On 14 August 1992, the Fanfare for a New World concert took place in Liverpool, in conjunction with the grand regatta. Those two events cost the public and private purse £1.1 million and were, from start to finish, a financial fiasco. When we took evidence on the episode, we were told that it was the brainchild of the chairman of the Merseyside development corporation, Sir Desmond Pitcher. It turned out to be a rather expensive brainchild for the taxpayer.
On 3 March 1992, the Merseyside task force gave contingent approval for the Merseyside development corporation to spend up to £400,000—£250,000 to be spent on the regatta and up to £150,000 on the concert. The letter of approval from the Merseyside task force included the following sentence:My colleagues have been reassured by your estimate that the maximum possible contribution in the worst case scenario would be a £400,000 cost to the public purse.However, as the PAC report states, before this approval was sought and given, the Merseyside development corporation had already started to spend money on the project, to the tune of £15,000. That was the start of the slippery slope which eventually led to the loss of £1.1 million.
Perhaps the event that concerns me most was the one that took place on 12 July 1992, when the draft budget was produced for the concert, showing that it would lose £187,840. The letter of approval signed on 3 March 1992 said:I shall be grateful if you will ensure that we are informed if it seems likely that additional funds will be required for these projects".So we might have expected the Merseyside development corporation to tell the Department of the Environment on 12 July 1992 that the project was going to lose money, and that it would cut its losses by cancelling the concert. The corporation did neither; it went ahead. Some time in July 1992, it actually signed a binding legal agreement to pay the cost of television coverage of the concert, amounting to £50,000 out of the estimated total cost of £150,000.
When the PAC sought evidence as to why the project, with such huge losses becoming apparent, was not cancelled, the explanation given to the Committee was that, because the Department of the Environment had 949 sanctioned expenditure of £150,000, losses would amount not to £187,000 but to £37,000—a more manageable sum. The corporation omitted to mention the expenditure of an additional £50,000 from outside the budget estimate.
To make matters worse, on 7 August 1992, a week before the concert was due to take place, the Merseyside development corporation—I would be astonished if, by that time, with the information at its disposal, it had not realised that money was going to be lost—signed over the liability of the concert to a shelf company with a share value of £2 and no assets.
When the concert took place on 14 August—and lost money—the losses were transferred to the private company and away from the Merseyside development corporation. If that move was not bad enough, on the eve of the concert, the Merseyside development corporation was faced with the fact that if it did not put more money into the concert it would be cancelled. So it put in £90,000 of public money to sponsor the event and bought £60,000-worth of tickets to ensure that people would be there when it took place. That was additional expenditure.
It was said clearly in the letter of 3 March that if there was any additional expenditure, the Department of the Environment should be informed. The Merseyside development corporation did not do that. The concert went ahead and made a loss of £223,000 to the company, Carroll Promotion Ltd. The concert made a loss of some £419,000. The Grand Regatta Columbus lost £426,000. When all that is added up, the loss comes to £1.1 million of public and private money, because of one event. That is a complete waste of taxpayers' money.
Just to make matters worse, £90,000 was spent on hospitality for the regatta. That is an abuse of public expenditure and cannot be condoned in any way. The PAC has not yet reported on that matter, so I will not draw any conclusions, but the minutes of evidence are on the record for people to see, and they beg serious questions about public accountability, public service, incompetence and waste.
It is surprising to note that the chairman of the Merseyside development corporation is still in post. I find that absolutely astonishing when the Government's response to the PAC's eighth report says:The fundamental purpose of the Government's programme of reform is to strengthen the management of the public sector so that waste is reduced and those who manage public services are more accountable for their actions. The Government fully agrees with the Committee's view that effective programmes for economy and efficiency must be combined with a proper concern for the sensible conduct of public business and care for the honest handling of public money.I should like to see how the Government will fit that response to the way in which the Merseyside development corporation conducted its affairs over the Fanfare for a New World.
The sale of Scottish Bus was mentioned by my right hon. Friend the Member for Swansea, West (Mr. Williams). It is another example of the PAC being concerned to get value for money. We are not concerned with the politics of the matter or the decisions taken by the Government to sell Scottish Bus; they are irrelevant in this case. The most important thing for the PAC is to gain value for money.
The decision to sell Scottish Bus was taken in 1988. Then, its value was £118.1 million. It was making, as we have heard, a profit of £9 million a year. Immediately 950 prior to the sale, those profits had gone down to £0.5 million, whereas, as my right hon. Friend said, the profits of the local authority passenger transport companies had gone up from £1 million to £4 million. The only change in circumstances was that the Government had decided to sell Scottish Bus. More importantly, they had decided that a mnagement buy-out would be preferred.
One could be forgiven for saying that there would be a conflict of interest in that activity. The more profitable an organisation is, the more the individuals in charge of that organisation would have to pay for it. One would assume that if the profitability of Scottish Bus went down, the sale price would also come down. It may well have been in the interest of the management of Scottish Bus to ensure that it traded to a level where they could purchase it at a more favourable rate.
The Scottish Office says that it does not see a conflict in the decision to sell Scottish Bus with a preference towards a management buy-out. If Government assets are sold anywhere else, they must put into the enterprise management who are independent of their decision to sell via a management buy-out. There should be senior managers who are independent and are not interested in the outcome of the sale, to ensure that the public get good value for money.
The acid test for that has already been referred to—the sale of Citylink. It was making a profit of more than £900,000 at the time of the decision to sell, and went into the red by £800,000. It was given an injection of cash of £1.5 million immediately prior to its sale and generated income to the Government of £265,000. It was sold three years later for £5.1 million. That was referred to by my right hon. Friend the Member for Swansea, West. But what my right hon. Friend did not say is that if the Government had included a clawback clause in the sale of Citylink, they would have benefited from the profitability of an onward sale. That omission has cost the taxpayer a great deal of money.
Eventually, the project was valued at £118.1 million. By the time the PAC report was published in April, the Treasury had received only £79.4 million of the proceeds of the sale and was expected to receive another £8.7 million, which brings the benefit to the Treasury to £88.1 million—a massive reduction from the £118 million that was foreseen in 1988. The taxpayer has not had value for money.
One of the important aspects of the sale is that, out of the £88 million that the Treasury expects to receive, £56.4 million will be from a pre-sale dividend, which will not be available unless the company is to be sold. It has generated a sales income to the Treasury of £31.7 million. I feel that the Government should consider that more closely.
My hon. Friends mentioned the fact that the sale will enable the Government to get £150 million into the Treasury from the surplus pension fund. I suspect that that was the main motivating factor behind the sale. I am very critical of the way in which that pension fund is treated. The sale of Scottish Bus emphasises once again that the Government are prepared to sell public assets at knockdown prices, which cost the taxpayer and the Revenue money. That seems to characterise a whole range of privatisation issues and has been repeated in that sale. 951 My final point relates to grant-maintained schools' financial control, which is dealt with in the ninth report of the Public Accounts Committee 1993–94, published on 19 January. Two aspects of the report cause me concern. The evidence received by the PAC shows quite clearly that schools that initially opted out to become grant maintained—the first tranche only—have received preferential treatment in the way in which they received their maintenance grant. The PAC clearly established, from evidence given by the permanent secretary at the Department for Education, that there was a concept called "double funding".
Paragraph 22 says that the Department for Educationhave not calculated the central services element of annual maintenance grant so as to reflect accurately local education authorities' delegation of central services to schools. Consequently, some double funding has occurred.The PAC found that the existing arrangements showed that the local authorities involved in those schools had lost out to the tune of £13.6 million. There was a central funding element. Approximately 16 per cent. of the budget was paid to the grant-maintained schools. The school budgets were greatly devolved from the centre, from county hall, and increased to something like 93 per cent. of the overall budget. The existing traditional or historic funding of 16 per cent. remained. That concept was confirmed to the Committee by the then permanent secretary at the Department for Education, Sir Geoffrey Holland. He did not disagree with our findings that double funding had taken place.
The PAC, knowing full well that an immediate removal of that double funding would put schools at a disadvantage, called for it to be removed over two years. I am disappointed at the response from the Treasury minute, which says that it disputes the PAC's view and claims that the central services charges were calculated properly and that there was no double funding. I should like a commitment from the Financial Secretary to the Treasury that the Government are prepared to look again at that aspect of the PAC report on grant-maintained schools.
The second aspect of the report about grant-maintained schools that concerns me relates to the activities of the Grant Maintained School Centre Ltd. That organisation, which is funded by central Government, is there to provide schools that have already achieved grant-maintained status with information, advice and services. In 1992–93, it received £577,000 in public money.
The centre shares its headquarters in 36 Great Smith street with Choice in Education, which runs the Grant Maintained Schools Foundation. The two organisations are actively involved in the promotion of the concept of grant-maintained schools in advising schools that are considering their approach to the balloting of parents on whether grant-maintained status is right for those schools. They are, therefore, part of a quasi-political organisation that is involved in promoting a particular view.
The PAC was informed in evidence that, in February 1993, the Department for Education undertook an internal evaluation of the centre's activities. That evaluation pointed to a risk that grant money might have financed non-eligible functions. In other words, an internal report clearly indicated that money voted by Parliament was 952 being spent for a purpose not intended in the Vote. The problem was that a single accounting system was being applied to three organisations, from which staff, office and rent costs would have to be found. It was impossible to disaggregate the three budgets.
I accept that officials from the Department for Education have visited the Grant Maintained School Centre Ltd. and sorted out the problem; I also accept that, at the time, it was not possible to say that money voted by Parliament had been used for such purposes. However, this is an example of cross-subsidy, in which Government money was used for quasi-political activities. It is important for non-departmental public bodies to have clear guidelines, so that such instances cannot be repeated.
The PAC has pointed out that the Property Services Agency charged itself £65.6 million because it was unable to recover the money from its customers—whom I suspect to have been Government organisations and agencies. It has also found that the Department of Employment made doubtful and incorrect payments to training providers, including training and enterprise councils, amounting to £79.5 million.
Wessex regional health authority, we learn, wasted £20 million on an information system that was eventually abandoned. West Midlands regional health authority wasted £10 million of public money; and, as the hon. Member for Bristol, North-West (Mr. Stern) pointed out, the Department of Employment invested £48 million in a redundant Field system.
I suspect that the reason behind that was that the Government had decided that training should be taken away from the regional employment departments and given to agencies and training and enterprise councils. Bureaucrats in the regional offices probably decided that they wanted some control over what was going on in the TECs, and tried to set up a computer system that would involve them in the accounting methods used by TECs; the TECs, however, saw through it and did not use the system. As a result, £48 million was wasted—as was the £11 million spent on consultancy fees, which was strongly criticised.
We are seeing a serious breakdown in financial control at the heart of Government, in Government agencies and in quangos. I hope that the responses from spokesmen on both sides of the House will lead us to a point at which we are able to ensure that the Government take responsibility for what goes on in their Departments, agencies and quangos, and that the conduct of public business is carried out properly, ethically and with the probity that we would all consider right and proper.
Perhaps we could start by saying that members of quangos should be accountable in some way and that when they are found to have wasted public money they should be subject to surcharges similar to those levied on members of local authorities when they lose public money in a similar way. We should also introduce some openness in the way in which members of quangos are appointed.
I was very disappointed by the references made to my late right hon. and learned Friend the Member for Monklands, East, John Smith, who raised the eighth PAC report on the Floor of the House. He asked the Prime Minister for a positive response. I do not think that he tried to make the report into something that it was not. The most disappointing event of that day was the Prime Minister's comment that there had been no breakdown in 953 the way in which public business had been conducted, contrary to the findings of the Committee. He said that the report was merely a useful checklist, which actually justified the Government's approach to the way in which they were running their business.
I do not think that that response was helpful, in the context of trying to improve the public's perception of the way in which those in public life conduct business on their behalf. I hope that today's debate will lead to a massive improvement in the way in which public money is spent.
§ Dr. Tony Wright (Cannock and Burntwood)
I feel a bit like an intruder: I think that I am the only non-member of the PAC who has spoken so far. That is unfortunate, because the Committee's work is supremely valuable to the House of Commons, and every hon. Member should take an interest in its proceedings.
I pay tribute to the Committee for all its work on behalf of the rest of us. It does an outstanding job; it has done a particularly outstanding job in the past year or so, and will be seen to have contributed greatly to the development and improvement of British public administration. Well done, and thank you; I hope that Committee members will not mind if, for a few minutes, I join what seems to be a private conversation.
As other hon. Members have said, the eighth report is clearly the one that history will remember, although all the reports are memorable. I am sorry to quote a sentence that has already been quoted, but history will of course remember that the Committee stated:These failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years.When the history of the period is written, that sentence will provide at least a footnote—possibly more. It will be seen to encapsulate the history of what was happening to the organisation of public services during a particularly important time.
I have been reading some of the memoranda that Sir Charles Trevelyan was bunging off to Gladstone 140 years ago, on the theme that we must clean up British public services and the civil service and eradicate patronage. The PAC's language is not quite in the same vein —how could it be?—but there is nevertheless a parallel between what was said then and what the PAC has felt obliged to say in the 1990s. It is saying, as Sir Charles Trevelyan said to William Gladstone all those years ago, that a problem exists that must be addressed in the interests of the integrity of British public service.
I note that in recent days the Government have been saying—because of the difficulties that they have run into—that they have, after all, been excessively zealous in monitoring the whole area. As has already been pointed out, however, the story is not quite like that. When the report appeared, the immediate official response was "What problem? There is no problem; do not make a fuss." Now we are told by the Chairman of the Committee— and I take some reassurance from this—that all kinds of things have been happening within Government.
In a sense, that makes matters both better and worse. It improves matters in that the Government have clearly been activated by the findings and verdict of the PAC; the bad aspect is that the Government should want publicly 954 to maintain the pretence that there is no problem. There clearly is a problem, as evidenced by the Government's own behaviour. It has been a little misleading of the Government in recent days to claim credit for having introduced the National Audit Act 1983, the foundation of the modern audit system. It was not like that at all. When the Public Accounts Committee produced a special report saying, basically, that wherever public money goes, public audit should go too, the Government did not like it. The previous Chairman of the PAC described the Government's reaction as "almost wholly negative."
Vast numbers of hon. Members got very cross during a debate at the time. Almost 300 of them signed an early-day motion and eventually, through the medium of a private Member's Bill and under the auspices of the person who now sails under the illustrious name of Lord St. John of Fawsley, the 1983 Act was passed. For the Government to claim that it was their Act and that they wanted this zealous audit of public bodies is not true. Perhaps obfuscation is the word that we could use to describe the way in which the Government have talked about the matter.
The Select Committee on the Parliamentary Commissioner for Administration, the Public Accounts Committee's sister Committee, published a major report analogous to the PAC's 1981 report. It said that the ombudsman should be able to go wherever public administration goes, that the framework in which the ombudsman operates should be changed and that there should be at least an annual debate on the work of the parliamentary officer.
Again, the Government's response has been wholly negative. They say that those changes do not need to be introduced and that there should not be a debate. This, however, is a House of Commons matter and a parliamentary matter. It should go beyond the normal exchanges between the parties. Parliament is asserting itself against the Executive. That is what the issues are and should be all about.
It is impossible to understand that historic sentence from the eighth report without recognising the sort of changes in public services that have produced that verdict. Again, the Government cannot have it both ways. They tell us that they have engineered "a revolution" in public services. They claim that they have transformed the nature of public services. They say how right they are and make claims about increased efficiency and performance. They say that they have brought a particular model to the operation of public services. The Government wanted a revolution in the way in which the state and state services are run. They have been pursuing that policy, but they must accept that it has led to the most acute problems in relation to accountability.
If one fragments public services and disaggregates the state, if one devolves responsibility right down the line, if one sets up a contract culture and magical flexibility on, for instance, pay and patient arrangements, one will see, if one is not careful, the more unpleasant consequences of that flexibility. There will be a lack of control and a lack of accountability. When they make their claims about the revolution in public services, the Government must be serious about the implications for accountability of their actions. In every revolution, whether we like it or not, there are casualties and in a sense we have been hearing about those casualties this afternoon and reading about them in the PAC's reports. 955 My principle is a simple one. In any organisation or reorganisation of public services, accountability must follow. The more one fragments and disaggregates services, the more pressing becomes the problem of accountability. One cannot do it in the old way. One must find new techniques of accountability to match new techniques of organisation. That is the essential principle that the PAC is trying to underline.
§ Mr. Page
I do not know what experience the hon. Gentleman has of business, but I promise him that a smaller activity that is ring-fenced is much easier to audit and investigate for misdemeanours than a large conglomerate, where things can so easily get lost. That has been shown time and time again in the PAC reports. For years, the Committee has heard those various criticisms. I suggest that, of course, there are dangers, but there are also benefits and those dangers can be quantified and monitored. The chances of getting caught by going through the agency and abusing the agency system are so much greater that that would be a tremendous deterrent.
§ Dr. Wright
I thank the hon. Gentleman for making that point. I am not sure that he quite understood the point that I was making, which seemed to contain an elementary truth. Hon. Members are required not to pronounce on our liking or disliking for what is being done but to recognise that the more one shifts power around the system—the thrust of what the Government are doing in relation to public service —the more one must ensure that accountability follows. That unifying principle should keep us all on the same side.
§ Mr. Shersby
There is accountability and there must continue to be accountability, but that will happen only if officials and people monitoring the work of disaggregated bodies do their stuff. They have the skills and ability to monitor what is going on and to watch what is going on. Systems are in place to achieve that but the skills are required.
§ Dr. Wright
I am grateful to the hon Gentleman for that intervention. If one considers the work on the accountability of these bodies, a rather different picture begins to emerge. I and other people conducted a study recently into the matter. It tried to assemble and to apply an index of accountability in relation to extra-governmental organisations, as we call them. We found that there are 5,000 of these bodies compared with 1,300 executive quangos. We can argue about the figures but it is important to consider how accountable those bodies are because their accountability will be a factor in some of the problems that they will experience.
I shall not give all the results of the study, but let me list some of the accountability criteria involved. Were the members liable to surcharge, as members of local authorities are—an important discipline? Were they subject to an ombudsman's investigation and scrutiny? Was there effective external public audit? Did they have, again like local authorities, monitoring officers to keep an eye on what was going on? Do the public have a right to inspect a register of member's interests? Did the public have the right to attend board or committee meetings, to inspect the minutes of meetings and to see policy papers 956 or documents from meetings? Were bodies required to produce annual reports, to publish annual reports and annual accounts and to meet the public?
I wish there were time to go through the list of extra-governmental organisations in the study and to show how deficient they are in those respects. We heard earlier about the urban development corporation. Under almost all the headings, the answer was no. That is not sensible. It is not democratic. There is a lack of the mechanisms that are liable to produce an avoidance of the sort of problems that we have heard about this afternoon.
Mr. John Plummer, funded by the Joseph Rowntree trust, published a survey on quangos and accountability a matter of days ago. His verdict was as follows:In terms of accountability, the quangos are operating with ill-defined, contradictory and opaque principles. Procedures vary widely without obvious reason.He examined in detail training and enterprise councils, housing associations and national health service trusts and found a complete mess with regard to accountability.
We should remember the Charles Trevelyan warnings about the dangers of patronage when considering the appointment process. It is an elementary truth that if one sets up an appointive state, which is essentially what has happened—for good reasons for bad—one needs appointees, and good ones, to run the various bodies. The fact is that many have not been very good, perhaps because good ones were in short supply. Unless we tackle the nature of the appointments system, we shall have to face the consequences of patronage that were discussed 150 years ago.
Let me cite the example from the west midlands with which I am fairly familiar. A major reason why the west midlands story continued so long and generated so much scandal was that the chairman of the West Midlands regional health authority was the friend of a Minister. He had been appointed as a ministerial placeman and it became impossible to remove him. Indeed, the more he was attacked, the more he was protected. The same is true of Ministers—they cannot be got rid of when they get too awful because it is too embarrassing to get rid of them. That was precisely what happened in the west midlands. Someone whose maladministration was at the root of so many problems could not be removed because he was a ministerial friend, the president of the university Conservative association and various other things. Patronage is bad in democratic terms but also in terms of efficiency. When the scandal was compounded by a pay-off of £10,000 for having brought the whole region to the point of catastrophe, people rightly ask what on earth is going on.
In response to a point made a few moments ago, I believe that there is a sense in which at bottom much will always depend on the sheer good sense, honesty and probity of the people involved. Here, too, there is a difficulty. There is a good deal of evidence to suggest that the culture within public services has changed considerably as a consequence of the public service revolution brought about by the Government. The strongest defence against corruption of all kinds is honest people with a sense of professional pride and service. If we undermine and corrode that defence we shall be led into the problems of which we have had an inkling today. The Government's actions have caused precisely that erosion. They have destabilised the traditional and 957 professional culture within public services, which was the best guarantee of honest dealings and probity and all that we consider so important.
I add one more element to the picture. Another characteristic of the bodies that we are debating is the lack of external accountability, or certainly the lack of external democratic and local accountability. There has, rightly, been an obsession with upward financial accountability, accountability from the centre. We are now told that the Government are strengthening accountability even more because of the PAC report. However, some of the best discipline arises when people are publicly and democratically accountable to users and electors. In so far as the Government have removed those dimensions of accountability from the services, they have made it all too easy to forget responsibility.
I conclude with an article that I stumbled on the other day. It was written in 1938 by Sir Ivor Jennings, a leading authority in the early part of the century and the leading expert on public administration. Interestingly enough, the article was entitled "Corruption and Public Services". He noted the way in which increasingly, even then, public administration was moving from the old uniform structures to the new structures of boards. He wanted to sound a warning and that warning must be compounded now. He said:If it is desired to set up commissions for public services or committees for public control of private enterprise, it is essential that they should be co-ordinated with the general system of administration so as to share in the tradition of the civil service and the democratic control that maintains it.They were wise words 50 or more years ago and they are echoed by those of the PAC report. The tragedy is that in the intervening period, and especially in the past decade and a half, we have not put in place the structures of accountability to match the changes in public administration. We are now paying the price.
§ Mr. John Denham (Southampton, Itchen)
I shall not detain the House for long. I have followed the Wessex regional health service story almost since I was elected in 1992 when the first and rather bowdlerised version of a district auditor's report on Wessex was published. I have a few final observations to make because this is perhaps the last debate to refer to the sorry Wessex saga and what it can teach us about standards of conduct in public life and the responsibility of Government and Ministers towards public bodies such as health authorities when things start to go wrong.
I shall not repeat the information about the Wessex saga which is already in the public domain, but it is worth noting that, if it had not been for the determination of the Public Accounts Committee, much of that information about Wessex would still be confidential. A major report in two sections by the district auditor would have remained confidential, had it not been obtained in part by journals such as Computer Weekly and The Independent and thus been drawn to the attention of the PAC which, having seen it, insisted on publishing it. The information in the report should have been made public from the outset and the Ministers who had seen it should have moved heaven and earth to make it public. I thank the PAC for doing so.
958 I now develop a theme which was touched on in the PAC report on Wessex but not dealt with in great detail. That is the failure of successive Secretaries of State and the national health service management executive to respond to early warnings about what was happening in Wessex. The PAC concluded:It is unacceptable…that, although a series of auditors' reports were presented to the Management Executive and the Secretary of State between February 1987 and August 1989 detailing what had gone wrong in the implementation of the project, it was not abandoned by the Regional Health Authority until 1990".As far as I know, the PAC did not consider the auditors' reports in detail. What was in them and how reasonable was the failure of successive Secretaries of State to act?
The tender for the RISP contract—the regional information systems plan—in Wessex was awarded in August or September 1986. The first audit report was sent to the Secretary of State as early as February 1987. In essence, that report revealed the major issues that were to be at the centre of the Public Accounts Committee investigation when it took place in 1993. The report described for the Secretary of State the role of Arthur Andersen, which was involved both in evaluating the contract and in tendering for the contract—a practice highlighted as wrong in procedure and in practice. That report, dated February 1987, also showed that the contract had been let at an inquorate meeting of the authority.
Having had that information, did the Secretary of State respond to the auditors? The auditors had said that it should be considered whether there was sufficient justification for not accepting a different contract that had been recommended by consultants, and also that the propriety of affording one competitor access to the evaluation data should be examined. The Secretary of State had been asked to consider whether a retendering exercise should be undertaken, and even whether authorisation existed for the letting of the contract. Yet despite those matters having been drawn to the attention of the relevant Minister in 1987, nothing effective happened.
In August 1987 the health service auditor found it necessary to issue a second interim report before the closing of accounts for the year 1986–87. That report,which also went to the Secretary of State, had no fewer than four different sections highlighting concerns about financial management in Wessex.
The first, headed "Financial Control over Regional Information Systems Plan", revealed that the health authority was short of about £8.3 million to carry out the project. The auditor expressed his concern at the "escalating costs" of the project. The arrangements for financial control were examined, and the auditor wrote to the Secretary of State:I conclude that I am unable to establish the costs of the RISP development up to April 1986".
The second paper in the same report criticised the recruitment of staff and the use of contract staff in connection with the development of the project. The third report to be sent to the Secretary of State criticised the engagement and control of management consultants. The fourth criticised in some detail the purchase of computers.
If the first interim report was not sufficient to set alarm bells ringing in the Secretary of State's office, surely the second report should have done so. Yet it appears that no effective action was taken. Why not? For all the wrong reasons. For the Government and for IBM, the major 959 computer company, RISP was a flagship project, and it was more important to keep that flagship sailing than to examine the criticisms being received from the auditors. The whole undertaking was driven by an assumption that the project must succeed, no matter what the cost to the public.
It was also unfortunate for Wessex and for the Government that Sir Leonard Peach was head of the national health service management executive at that time. He was a secondee to that post from IBM—but IBM was the major contractor in the Wessex RISP project. I referred to Sir Leonard in an Adjournment debate on the subject and he wrote to me, quite reasonably, saying that as head of the management executive he was required to take no part in any decision-making relating to IBM contracts and had at all times signed the appropriate disclaimers. That should be placed on the record, although there is no independent record of it because when the NHS management executive moved to Leeds all the papers were thrown away; I have been told in writing that there is no record of any disclaimers having been signed and we shall take that at what is said.
Given the failure of the NHS management executive to respond to the audit reports that it was receiving, it was surely unfortunate for the Government that that body must have been disabled by the fact that its chief executive could play no part in examining what had been happening in the major IBM contract in Wessex. He could have nothing to do with it. The person at the top of the organisation, who should have been driving through Wessex's books in 1987 and 1988 to try to stop the waste of money, could play no part in any such attempt. We must recognise that that was a direct consequence of the Government's decision to bring people from the major contracting firms as secondees into that part of the control structure of the national health service.
The accounts were duly qualified again in 1987. The next phase was in 1988, when a further audit report was sent to the Secretary of State. We have to conclude that by that time the auditor had given up sending copies of the reports to the health authority, because it clearly did not intend to do anything about them. The next report was sent to the Secretary of State alone, in November 1988.
That report foreshadowed the major issues involved in the second aspect of the RISP disaster —the privatisation of the in-house computer operation in Wessex to a company called CFM. In 1988 the Secretary of State was told that the procedure adopted by Wessex had serious shortcomings. That must have been so, to justify a one-off confidential report to the Secretary of State. There was no proper work specification and no demonstration that value for money was being obtained; the parameters of the work were vague and non-specific; arrangements regarding the provision of capital funding had not been determined. I could go on to detail a further four or five aspects of what was wrong with the arrangements.
Is there any evidence that the Secretary of State responded to the report? I am afraid not—or at least, the Secretary of State did not respond effectively. Yet it was the privatisation of the in-house computer operation that created the situation in which a private company was in effect writing its own bills to the health authority for work that it was determining itself. That formed the major second plank of the criticism by the PAC.
960 Even in August 1990, two years later, we find that when the contract came to be renegotiated with the privatised computer operation, Wessex failed to negotiate a satisfactory new contract, despite all the apparent attention by the management executive.
There is an interesting sidelight on those events. By August 1990—indeed, by the time of the first report in 1988—Sir Robin Buchanan, who is now chair of the NHS supplies authority, was chair of the Wessex regional health authority. I find it significant that the Secretary of State received a report criticising Sir Robin's renegotiation of the second contract before he was appointed as chair of the NHS supplies authority. The PAC took no view on whether Sir Robin was an appropriate person to be the chair of that authority. None the less, it criticised him quite sharply for his failure to get a grip on the RISP project at an early stage. I wonder whether, had the audit reports been made public at that time, Sir Robin would have been appointed to the supplies authority.
It may simply be an unfortunate coincidence that Sir Robin is a prominent member of the Conservative party. Perhaps it is only people of a malicious turn of mind who believe that his political links protected him from proper scrutiny. However, if the Government are criticised in that manner, it is they who have invited such criticism.
Finally, the response of the Treasury to the Wessex report, together with other Government statements, encourage us to believe that throughout the history of the RISP saga the NHS management executive and successive Secretaries of State struggled manfully for control over the errant health authority, but, despite having done their best, regrettably failed. However, the record does not sustain that view: it clearly suggests that Ministers were more than prepared to shelter behind the words of the health authority in concealing the disaster taking place in Wessex.
I shall cite two examples from the parliamentary record. On 15 May 1987 the Minister then responsible, now the Lord President of the Council, answered a question from my hon. Friend the Member for Cynon Valley (Mrs. Clwyd) about the tendering procedure. He said:I understand from the regional health authority that the tendering companies were selected under the EC-GATT arrangements.
By 15 May 1987, the Secretary of State had received an audit report which, in my view, made it crystal clear that EC-GATT arrangements had not been followed. How was it, then, that the Minister told the House that they had been followed? To quote those magic words,I understand from the regional health authority".—[Official Report, 15 May 1987; Vol. 116, c. 431.]In other words, to give a frankly misleading impression to the House the Minister chose to use assurances of which I am told that there are no written records, but only verbal assurances, to contradict the audit report that he had received.
In January 1988, my hon. Friend the Member for Leyton (Mr. Cohen) asked the Secretary of State:if he will indicate the extent and the reasons for the overspend by the Wessex regional health authority on its computer system".The Minister replied:I have been assured by officers of Wessex regional health authority"—961 those wonderful words again—that their computer programme is not overspent".— [Official Report, 6 January 1988; Vol. 124, c. 199.]Again, that may not have been factually untrue. However, the Secretary of State had received the report of November 1988 telling him that the programme was in great financial difficulties and that a further £8.8 million, which had not yet been identified, would be required to carry out the programme. Ministers have been all too willing to shelter behind the words of the health authority to prevent Parliament or anyone else wishing to ask questions from knowing what was going on.
It is a sorry story. Many of the issues to which hon. Members have referred today have occurred in quangos and in other bodies at arm's length from Government and the audit service has picked up what has gone wrong. Wessex provides a well-documented case in which successive Ministers were regularly informed about what was going on, but failed to act. To my mind, that makes that situation worse than any of the others to which hon. Members have referred today.
That failure has led to a great and unnecessary delay in acting to improve the procedures in the health service. The Public Accounts Committee noted with reference to events that took place in 1986:We are concerned that…the Regional Health Authority…involved Andersen Consulting in appraising available computer software to run on the preferred bidder's systems. We note that subsequently…the contract…was awarded to Andersen Consulting at an inquorate meeting of the Authority".We commented that the management executive accepted the Committee's concerns. The Treasury response stated that a new model of public procurement procedures was available for general use in early 1994. It took the Public Accounts Committee to publish the audit report in 1993 to get the NHS management executive to produce new guidelines for 1994. Ministers knew what had gone wrong in Wessex since February 1987. The fact is that no action was taken for six years to tighten up the procurement of computers until the PAC published its report. That is utterly unacceptable.
The lesson from Wessex is that nothing changes unless the spotlight of publicity is shone on one of the problems. If the spotlight of publicity is not on it, or if misleading answers can be given to perfectly proper questions, nothing will happen. That is the real lesson of Wessex and I have yet to be convinced that that lesson has been learnt.
§ Ms Dawn Primarolo (Bristol, South)
I thank my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) for his full explanation at the beginning of the debate and I pay tribute to his work and to the work of the members of the Public Accounts Committee. I welcome the Financial Secretary to the debate. I understand that this is his first debate on the PAC reports, as it is mine. He has had three months to consider the reports; I have had but three hours. However, I feel that in sitting through this interesting and educational debate, I have learnt a great deal already about the pathways of public money and about the odd cul-de-sac into which it finds its way.
This afternoon, we heard explanations of what went on in the Welsh Development Agency. We have heard about its rather interesting and obscure redundancy payment schemes, its car leasing schemes and its eight-month 962 gardening leave schemes, which seemed immensely attractive at about 6.30 pm. We heard about the difficulty in getting information from various bodies, about the scandalous state of affairs with the emergence of the Welsh WIZARD and about the disappearance of £800,000 in privatisation discussions.
We heard again about the West Midlands regional health authority and about Wessex regional health authority. My hon. Friend the Member for Southampton, Itchen (Mr. Denham) has done a great deal to bring into the spotlight for consideration the concerns about public money and where it is going. Millions of pounds of patient care money was frittered away in ways that have been wholly condemned by hon. Members of all parties.
The problem speaks volumes about the changes in the national health service, with the development of the new accounting units and the difficulty of keeping track of all those units. The British Medical Journal of 22 January this year drew two conclusions from the Committee's findings. The first was:the NHS should review its reliance on outside consultants, the most obvious beneficiaries of the changes"—in other words, the most obvious people to have gained from the public purse. The second conclusion was:management buy outs clearly carry the danger that those participating will give priority to their own interests over those of the NHS. The two points are linked and lead to a more general conclusion. To the extent that the NHS hives off activities by contracting out managerial functions, there is a risk that it may undermine its own esprit de corps.The public sector ethos is an elusive ethos, which can too easily be damaged and destroyed in the changing system.
We heard about the fraudulent payments in the British Council, about the Pergau dam proposal and spending, about the role of the accounting officers and about the lack of flagging up of the accounting officer's letters to warn that there were problems beyond fraud. I welcome the Government's proposal to change the way in which those letters are interpreted.
We heard about the Development Board for Rural Wales, with the interesting allocation of tenancy rights, the secret hiving off of money and the maladministration. As the hon. Member for Uxbridge (Mr. Shersby) pointed out, the Committee has produced 49 reports, a huge amount of work, detailing time and again the problems being experienced with the accountability of public money.
The hon. Member for Orpington (Mr. Horam) made some interesting and important points about the present and future roles of the PAC in scrutinising the spending of public money. I hope that his points and all the other contributions will be taken up. My right hon. Friend the Member for Swansea, West (Mr. Williams) pointed out the structural problems that now exist in pursuing public money into the places that it funds.
There were the problems of the Scottish Buses experience and the trust ports. My right hon. Friend the Member for Llanelli (Mr. Davies) was right to be fascinated by computers and the apparent obsession with them in all those contracts. I was interested in his interpretation of contract law and to hear that it would appear in many cases that those who broke the contracts were those who received the compensation. My hon. Friend the Member for Warrington, South (Mr. Hall) again returned to the question of public accountability and 963 how we ensure that that money is accountable, a point that was echoed powerfully by my hon. Friend the Member for Cannock and Burntwood (Dr. Wright).
The reports culminate in the excellent proposals in the report "The Proper Conduct of Public Business". Let us not be misled. The report tells us in the first paragraph:In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which have led to money being wasted or otherwise improperly spent. These failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years.The late leader of the Labour party raised those points in the House of Commons and they have been misrepresented in some respects in this debate. The report said:These failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years.That departure has occurred because of the structural changes. It seems that the pursuing and understanding of those changes centre around the expansion of quangos, the next steps agencies and privatisation and contractorisation. I am not going to enter into a debate this evening about whether it is right or wrong that those organisations exist. We have made clear the view of the Labour party. Today's debate is about how the fragmentation of so much of the structure of Government has led to a lack of accountability and how we can continue to ensure that public money is accountable.
With the proliferation of accounting units, it is now very difficult for the Public Accounts Committee, for the National Audit Office and for the Comptroller and Auditor General to ensure that that money is always accountable. Parliament needs to address itself to the questions raised in the reports about how we now ensure not only that the Government take note of the proposals but that public money can always be seen and how it is spent can always be known.
The hon. Member for Bristol, North-West (Mr. Stern) made some interesting observations about the standards of public accountability and the ability of the public sector to run institutions, and compared public—unfavourably—with private. I was interested in how he could manage that because there are no direct comparisons between the rigorousness of assessments of public and private institutions, considering how private institutions run themselves. Indeed, the PAC does not have the right to follow the spending of public money through the contracting process into private companies. In the spirit of the debate this evening, we need to look again at those proposals and the remit of the Committee.
If public money is to be accountable, the organisations which have that public money need to be accountable and need to be called to account by the House. The Public Accounts Committee reports, 49 of them, demonstrate clearly that that is not the case. The eighth report, "The Proper Conduct of Public Business", shows how we can begin that process. It catalogues inadequate financial controls, failure to comply with rules, inadequate stewardship of public money and assets and failure to provide value for money. That is a catalogue of shame and disaster. I hope that the Government will take on 964 board the recommendations and ensure the proper conduct of public business and the proper accountability of public money.
§ The Financial Secretary to the Treasury (Sir George Young)
I begin by welcoming the hon. Member for Bristol, South (Ms Primarolo) to her new position and by commending the speed with which she mastered her brief. I must say, however, that the last two or three minutes of her speech did not carry me and, I suspect, my colleagues wholly with her.
It has been a good debate, broadly free from partisan remarks. It shows that the House can meet on common ground and debate how it can best protect taxpayers' money and promote the highest standards in public service.
Let me begin by adding my thanks to those of others for the dedicated efforts of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) and his colleagues on the Public Accounts Committee during the past year. This month marks the 30th anniversary of three members of the Committee as Members of Parliament—an observation which says much about the personal expertise of the Committee. The right hon. Gentleman has been closely associated with the Committee for much of that period and in his 11th year as Chairman, he has brought great wisdom and experience—not least as a Treasury Minister—to its work.
It is greatly to the credit of the right hon. Gentleman and his Committee that the PAC probably enjoys greater respect, not only in Parliament, but in the country as a whole, than it has ever done in its long and distinguished history. That that respect is shared by the Government is demonstrated by the fact that, according to the latest National Audit Office annual report, the Government accepted 95 per cent. of the Committee's recommendations last year. In addition to thanking the Committee Members, perhaps I could also thank the hon. Member for Birmingham, Hodge Hill (Mr. Davis), who stepped down earlier in the year after eight years of conspicuous—sometimes very conspicuous—service.
The achievements of the Committee are, of course, founded on the work of the Comptroller and Auditor General and his staff at the NAO. The Government wholly support the work of the Comptroller and Auditor General. Strong, independent auditors, serving a strong and independent Public Accounts Committee are essential to the maintenance of proper standards of public administration in this country. The Government recognise the key role played by the PAC in setting those standards and in seeing that they are adhered to. The Government pledge themselves to playing their full part in maintaining the integrity of standards in public service.
The NAO reports that the Government pay most attention to the critical reports. But I shall mention in passing today's report, which compliments the Treasury on its effectiveness in the recent sale of BT shares.
I have not served on the PAC before, nor, I confess, have I taken part in its debates. However, as a former spending Minister, I am familiar with its work. I used to have responsibility for the Property Services Agency [Interruption.]—one of the regular suspects rounded up by the PAC and asked to account for itself. Now, as a 965 Treasury Minister, I am grateful for the savings of £229 million made last year as a result of the NAO's value-for-money reports.
No one should believe that the issues that we have debated today are new. I asked for details of the PAC's past work and I found, in 1889, that the Committee was complaining about the absence of competitive tendering for the celebration of the Jubilee of Queen Victoria's reign! My predecessor made an excuse, which I fear may have irritated the Committee, that,as a rule, these things have to be done in a very great hurry".As a Jubilee celebration is, by definition, a predictable event, it seemed a rather weak reply. I hope to do better as I respond to today's debate.
The right hon. Member for Ashton-under-Lyne mentioned silence clauses, and the point was picked up by other hon. Members. Like them, I deprecate the kind of silence clause that we have heard about today. In the case of the Welsh Development Agency, such undertakings are no longer required when a member of staff leaves. In addition, the national health service executive has agreed with the conclusion that such clauses are unjustified and the NHS is now issuing guidance.
The point raised by the right hon. Member for Ashton-under-Lyne about secrecy leads to a more general point about openness. That ties in with comments made by the hon. Member for Cannock and Burntwood (Dr. Wright). Openness is a key weapon on the part of the Public Accounts Committee and the Government in deterring, preventing and detecting abuse. Secrecy must play no part in the role of non-departmental public bodies.
The code of best practice for board members states that public bodies and their boards must at all times comply with all reasonable requests for information from Parliament, from users of services and from individual citizens. Each year, the annual report should provide a full description of the board's activities and state the extent to which key strategic objectives and financial and other performance targets have been met. It should list the names of the current members of the board and some senior staff and provide details of their remuneration. I agree with much that was said about openness.
The right hon. Member for Ashton-under-Lyne said that the losses that are incurred are not impersonal losses with no losers. We heard about people who may have lost their pensions and there was inevitably a knock-on effect for those affected in the NHS. We have not been talking about victimless incidents.
Another general theme mentioned by the right hon. Member for Ashton-under-Lyne which was referred to by other hon. Members, including the hon. Member for Caithness and Sutherland (Mr. Maclennan), related to access. As the House is probably aware, the Comptroller and Auditor General is the statutory auditor of all Government Departments, executive agencies and trading funds. He is also the auditor of half the executive NDPBs and he has inspection rights in respect of all those where he is not the auditor.
The CAG is the auditor of almost all advisory NDPBs and of the summarised accounts of the entire NHS. The National Audit Office can carry out value-for-money studies at all Departments, all executive agencies, all trading funds and all NDPBs, throughout the NHS, the 966 universities and grant-maintained schools. The NAO has inspection rights in universities and grant-maintained schools.
In addition, the National Audit Act 1983 provides the CAG with a statutory right of access to any other public body whose members are appointed by, or on behalf of, the Crown and which receives more than half its income in any year from public funds.
Access to a wide range of other bodies, including many in the private sector, has been arranged by agreement with the sponsor Department. As the Government have emphasised, the need for the CAG to have access to any other body will be considered on a case-by-case basis.
As was mentioned in the debate, the right hon. Member for Ashton-under-Lyne and my right hon. Friend the Member for Horsham (Sir P. Hordern) have recently discussed with the Chancellor of the Exchequer the question of NAO access in contracting-out cases. The guidance issued by the Treasury and the Cabinet Office states unequivocally that satisfactory arrangements for NAO access must be made when services are contracted out. However, of course, the Government will give the most careful consideration to any specific recommendations that the Committee might make on the subject of NAO access.
§ Mr. Maclennan
Would not it be more appropriate for the assumption to be that the NAO has a right to intervene and to oversee the spending by NDPBs unless, perhaps, that particular NDPB seeks exemption from, as a result of a ministerial intervention, giving grounds in the public interest?
§ Sir George Young
As the hon. Gentleman is aware, the Government's view is that at the moment there is no need to extend the statutory right of access and I have been through the position as we see it. However, we recognise that that is a subject on which there are strong feelings on both sides of the House. As I have just said, we will give careful consideration to any specific recommendations from the Committee relating to NAO access. I cannot say more than that at this stage.
§ Mr. Sheldon
I am not sure what that means. Does it mean that the NAO will not have access until the PAC considers the matter? Obviously the first step in an investigation is taken by the NAO itself. Until it has information, it cannot say what is missing or what is not missing. If there is a competitive situation in which collusion is suspected, we are talking about a very important safeguard for the NAO. I do not believe that the private sector needs to be worried about these matters. After all, such practice is common in the defence industries, which are only too happy to tender for business knowing full well the consequences. A similar acceptance would arise in a wider area.
§ Sir George Young
I am grateful to the right hon. Gentleman and I have seen the record of the meeting that he had with my right hon. and learned Friend the Chancellor where those points were rehearsed. We would like to reflect on the points made at that meeting and see how best we can respond. I hope that the right hon. Gentleman will understand that there is not much more that I can say at this stage.
I refer now to the detailed points raised by the right hon. Member for Ashton-under-Lyne and others. Clearly, the situation in the West Midlands regional health 967 authority described in the PAC report was wholly unacceptable. The Department of Health accepted that all areas of the NHS should be publicly accountable and subject to review of their performance. All those in the NHS concerned with the expenditure of public money should be aware of their responsibilities and the need for strict propriety.
My right hon. Friend the Secretary of State for Health has published codes of conduct and accountability which set out a framework against which the conduct of public business in the NHS can and will be judged. Those codes of conduct have been adopted by all NHS boards in England.
The hon. Member for Southampton, Itchen (Mr. Denham) raised several detailed issues about Wessex regional health authority. If I may, I would like to reply to him in writing. However, the very thorough investigation by the PAC followed that of the district auditor which was undertaken at the request of Wessex regional health authority. The PAC report welcomed the action taken by the NHS executive and the RHA. That action will ensure that the lessons have been learnt across the NHS and that the events which the PAC rightly criticised do not recur.
As I have just said, codes of conduct and a code of accountability have been implemented. Among other things, that requires a clearer definition of the functions of chairmen and non-executive board members of health authorities and NHS trusts. National health service boards are required to establish audit and remuneration and terms of service committees. Board directors are required to declare any private interests that are material or relevant to NHS business.
With regard to the British Council, there was a different incident as "a criminal gang", to use the PAC phrase, was involved. My hon. Friend the Member for Billericay (Mrs. Gorman) asked what happened. In that case, as I believe the Committee will know, eight people have been charged and a trial has been set for January 1995.
New enhanced control mechanisms are now in place in the British Council, new financially qualified and experienced staff have been recruited, and a new audit committee has been established. The delayed programmes were in sectors that were funded by the council's own revenue-earning activities. It is a little harsh to move to the judgment which was suggested by my hon. Friend the Member for Bristol, North-West (Mr. Stern)—the ultimate sanction of having the system removed—but I notice that that is an ultimate deterrent to be used only when everything else has failed.
A judicial review of the legality of expenditure on the Pergau dam is set for 9 and 10 November. The important point that arose is that of ministerial directions to officials. The Government have accepted the Committee's recommendation in its report on Pergau that in future, where such a direction is issued to overrule official advice on matters of economy, efficiency and effectiveness, the accounting officer will pass the relevant papers to the Comptroller and Auditor General without undue delay. The Treasury memorandum on the responsibilities of an accounting officer is being amended to reflect that.
968 On rural Wales, I was grateful for the kind words following the issue by the Treasury of guidance to all Departments covering expenditure on staff benefits in NDPBs and the need for arrangements to ensure that NDPBs do not act beyond their delegated authority.
My hon. Friend the Member for Uxbridge (Mr. Shersby) put the debate in context by reminding us that most of the money that is spent is spent legitimately and properly and that one should not get the matter out of perspective. He also drew attention to the eighth report, to which I shall return. It made sense for the PAC to stand back and see whether it could identify some of the common themes that had emerged from its reports and use its influence to identify those themes, promote them and publish them to make sure that we learnt lessons from its experience. I am grateful to my hon. Friend for his kind words about people at the senior levels of Customs and Excise and the Inland Revenue.
I listened with respect to the hon. Member for Caithness and Sutherland, as I always do, but he overstated his case. I listened to the quotations from the eighth report and I have read it again. I could not find the causality between reforms and failure which he asserted. Other members of the Committee were also unable to trace that causality. I defend with vigour my new Department, which said that it rejected the inference which has been drawn from the report, because I do not think that the report directly comes to that conclusion.
My hon. Friend the Member for Orpington (Mr. Horam) stressed the benefits of the programme for next steps agencies in terms of improved efficiency and job satisfaction. He made several helpful suggestions about how the House of Commons itself might more closely monitor the Executive—suggestions on which it would be imprudent for me to comment.
My hon. Friend the Member for Hertfordshire, South-West (Mr. Page) again stressed that, by comparison with other countries, our standards are of the highest. He also commented on the improvements in performance in some next steps agencies.
I share the views of the right hon. Member for Llanelli (Mr. Davies) about computers. There can be no excuse for treating investment in computers any differently from any other capital expenditure. There must be value for money and so on. On termination settlements, on which the right hon. Gentleman commented, detailed guidance has now been issued to health authorities and to NHS trusts on the principles and procedures to apply when considering severance payments to senior managers. That underlines the importance of having due regard to probity and value for money. Trusts have also been asked as an interim measure to provide a quarterly return to the NHS executive setting out the termination payments that they have made.
My hon. Friend the Member for Bristol, North-West again made the point that some private sector institutions could not have survived the scale of loss that parts of the public sector have survived, because they would have gone out of business. He also made the valid point that one should not assume always that the public sector has higher standards than the private sector. What he said on that subject was particularly relevant.
On the Field system, we accept that mistakes were made in the management of the project. The Department has learnt the lessons. The Government's view was there 969 was no practical alternative but to proceed with the project, because without it the training and enterprise councils' ability to manage public money would have been jeopardised.
On Scottish Buses, which was raised by the hon. Member for Warrington, South (Mr. Hall), the Department was satisfied that the price received for the Scottish Bus Group companies accurately reflected their market value at the time of sale. The reduction in SBG profits during the pre-sale period was the result of declining economic activity and extreme vulnerability to competition in a deregulated market.
On grant-maintained schools, the Treasury minute, I hope, responded positively to the PAC's recommendations. The National Audit Office's report recognised that the Department for Education and individual schools had approached the change in status and the new financial regime with a large measure of success.
The hon. Member for Cannock and Burntwood, who apologised for intervening as an outsider, made a thoughtful speech with which I profoundly disagreed. It is easier to monitor public expenditure in a disaggregated system than in an aggregated system. If individual outputs are specified, put out to competitive tendering and retendered every three years, it is easier to keep track of what is going on than if it is within one simple aggregated system. I ask the hon. Gentleman to consider the next steps agencies. They set out and publish specific targets for their performance. They report on their perfonnance. There are annual reports, and accounts are presented to Parliament. The accounts are audited by the NAO. The chief executives are accounting officers who are summoned to give evidence before the PAC. That is greater accountability than when it was all lost within one Department. The present system can lead to greater openness, greater transparency and greater value for money.
Finally, I turn to what was the most interesting report, the eighth report on the proper conduct of public business—a highly topical subject. Only seven paragraphs long, the report provides the right focus for the debate about the Government's public sector reforms.
The case is sometimes made by our critics that we cannot maintain the ethos and integrity which are traditionally associated with the public service if we somehow contaminate that culture with that of the private sector. It is sometimes argued that the entrepreneurial flair of the competition-driven private sector can have no place in the public sector. I wholly refute that. What we want, and what we can achieve, is the best of both cultures, and I believe that the Public Accounts Committee endorses that approach.
970 Paragraph 5 of the report, which was much quoted, says thatthere is no reason why a proper concern for the sensible conduct of public business and care for the honest handling of public money should not be combined with effective programmes for promoting economy and efficiency.Indeed, the Committee goes on to say in the next paragraph:We believe it is important that the drive to provide improved services at reduced cost should be sustained and that this drive should not be stifled by unnecessary bureaucracy.
That is what the Government have been doing. Improved value for money is at the heart of our programme of reform to strengthen public management. It has involved the next steps executive agencies, the White Paper "Competing for Quality", the citizens charter and the civil service White Paper. The programme is not confined to central Government. In local government, compulsory competitive tendering is providing a powerful stimulus to improve services.
A range of private sector disciplines is being successfully transplanted into the public sector, giving it fresh vigour and testing and improving performance by using competition, franchising and better management information systems.
However—and this is my last word—being more entrepreneurial does not mean, and must not mean, abandoning proper standards of conduct. The Government will not tolerate "wide-boy" practices in public sector bodies, and there is no room for complacency. It is for those reasons that I welcome the reports listed in the motion. Through them, the Committee has reassured hon. Members of the need and justification for the better management of public services, to which the Government are committed. I commend the motion to the House.
Resolved,That this House takes note of the 55th to 63rd Reports of the Committee of Public Accounts of Session 1992–93, of the 1st to 39th and 41st Reports of Session 1993–94, and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on these Reports (Cm 2419, Cm 2446, Cm 2492, Cm 2493, Cm 2555, Cm 2577, Cm 2602, Cm 2618 and Cm 2677) with particular reference to the following Reports:Session 1992–93Fifty-seventh, West Midlands Regional Health Authority: Regionally Managed Services Organisation;Sixty-third, Wessex Regional Health Authority: Regional Information Systems Plan;Session 1993–94Eighth, The Proper Conduct of Public Business;Sixteenth, The British Council Account, 1992–93;Seventeenth, Pergau Hydro-Electric Project;Twenty-third, Development Board for Rural Wales: Allocation and Sale of Housing and Car Leasing Scheme.