§ Mr. Deputy Speaker (Mr. Michael J. Martin)
I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Act:
§ 2.9 pm
§ Mr. Charles Kennedy (Ross, Skye and Inverness, West)
On that happy note—from our point of view, and from that of those who share common interest with us in these matters—I am grateful for the opportunity to contribute to this debate, at not too great length, I hope, and to follow the distinguished Chairman of the Public Accounts Committee whom I congratulate on his speech. More important, I congratulate the right hon. Gentleman, his colleagues, the civil service and all the other staff on the excellent and—as is evident to anyone who has been to the Vote Office to collect the papers—the voluminous outpourings of the Public Accounts Committee.
The motion stands also in the name of my right hon. Friend the Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan), who is a long-serving and senior member of the PAC. On his behalf, I convey his apologies for not being present. Owing to arrangements made before the recess and before the change in the timing of our sittings, it is impossible for him to be present for the debate.
I shall address only the 42nd report, which deals with the Skye bridge in my constituency, and the Treasury memorandum in reply. I thank the Chairman of the Public Accounts Committee, who in the course of his duties has been courteous and concerned to deal directly with my constituents. They have, over many years, raised persistent financial, political and legal concerns about the entire contract.
The protesters welcomed—as I do—the PAC report and its scathing appraisal of the Government of the day and the sad and sorry background to the contract and to the difficulties that have resulted. Although the present Government inherited this mess—it was not of their making—at the end of my remarks I shall put one or two thoughts to the Minister, which I hope she will take on board. If she cannot reply today, perhaps she will explain after the debate what the Government see as the way forward.
The history of the contract goes back a long way. It covers the stewardships of Malcolm Rifkind, Ian Lang and Michael Forsyth as successive Secretaries of State, as well as that of the present incumbent of that office. The Public Accounts Committee rightly inquired into the background. The most telling conclusion of its generally damning report was that the terms on which the bridge was provided, including the real rate of return to equity investors in the project of 18.4 per cent. a year, were not "determined competitively." In a casino, 18.4 per cent. is a pretty good rate of return if it has not been determined competitively.
470 The Committee felt that it was not possible to be satisfied that the costs of the bridge were reasonable. It questioned whether value for money has been secured for the taxpayers as well as the toll payers who have to foot the bill. Anyone who has visited that part of the United Kingdom will know that it is a short crossing from the mainland at Kyle of Lochalsh to the south end of the Isle of Skye. The single toll fare for an average car with only the driver in it is in excess of £5. An astronomical burden is being placed on a fragile community whose members have low incomes compared with the national average. The bridge is an important gateway to the western isles of Scotland, which have an even more fragile economy. The charges applied to commercial vehicles are quite astronomical. That is the background to this vexed issue.
The Treasury minute was produced by the Scottish Office Development Department—which in this context sounds like a contradiction in terms. I do not believe in shooting the messenger, but I am concerned that the civil servants who advised Ian Lang, Malcolm Rifkind and Michael Forsyth are, in large measure, the same civil servants who are now advising the present Secretary of State. I am not surprised that many of them are not exactly volunteering to come forward with their hands up and admit that they made a complete and utter dog's breakfast of negotiating the contract—at such an advantageous rate to the developer and such a disadvantageous rate to my constituents and the users of the bridge.
The minute that the Scottish Office Development Department produced in response to the PAC report can at best be described as casual in the extreme. It says:The Department notes the Committee's comments. Given the low level of traffic, high dependency on tourist traffic and the novelty of the project"—note that word "novelty"—the Department could not have reasonably expected to secure guarantees. Provision had to be made in the contract to cover the possibility of a longer toll period, and tolls which might have exceeded the original target, although the Department was confident at the time of the negotiations that these eventualities would not arise.That is very reassuring. What the minute is saying in civil service speak is that the Department was making it up as it went along. This project was the forerunner of the private finance initiative programme for the United Kingdom as a whole. It is no wonder that we have ended up with the political and economic fiasco that has been the subject of so much of my in-tray for the past five years.
Not only is the question whether the taxpayer has been well served worthy of debate, but we have reason to question the National Audit Office figures on which the PAC report was based. Those figures were based on the developer's financial project model for the contract, yet the financial model differs substantially from the figures in the accounts of Skye Bridge Ltd.
The financial model shows the developer's input for 1991 as £12.3 million, whereas the audited accounts show the developer's contribution for 1991 as £0.6 million. In 1991–96, the financial model, which the NAO accepted, shows the developer's costs as £27.3 million, whereas the audited accounts show the costs for the same period as only £19.3 million. If the model overplays the developer's contribution, equally, it underplays the cost to the taxpayer. The model shows the taxpayers' contribution for 1991–96 as £10.6 million, whereas the actual contribution revealed in the accounts is £11.6 million.
471 It is not our function to question the accuracy of the NAO's figures. My argument is not with the NAO, but the fact that it has had to accept figures provided by the developer and has not apparently had access to or checked the audited accounts is cause for serious concern. The developer's version of the figures seems to have been seriously inaccurate. It is hardly surprising that all the apparent errors worked in the developer's favour.
The NAO, not surprisingly, is as confused as everyone else by the fog surrounding the funding of the Skye bridge contract. For example, figure 10 on page 45 of the audit report gives the construction costs as £20 million, whereas figure 13 on page 49 of the self-same report gives them as £27.3 million. This issue is riddled with difficulties, complexities, contradictions and confusions, so it is no wonder that the contract has led to the problems that are before the Scottish courts.
For years, I have pursued this issue with four Secretaries of State in the House, in the Scottish Grand Committee and in Adjournment debates. There is a serious case for the Treasury taking the matter by the scruff of the neck before Scottish devolution and before it becomes the remit of the Scottish Parliament, and conducting a properly independent examination of the entire financial background to the Skye bridge contract. The cost to the public purse is a damn disgrace, and this major scandal must be investigated.
I am not satisfied that I am consistently receiving information or the relevant answers to my questions from the institution of the Scottish Office—I am not referring to the Secretary of State personally. Moreover, the Treasury should have a searching look into the effect on the public purse before responsibility for the matter is passed to Edinburgh following devolution.
Skye Bridge Ltd—which is essentially the Bank of America—and its agents are allowed to recover £23.64 million in tolls over the lifetime of the contract. That is not as simple as it would seem—nothing is simple in this world. The toll revenue is counted in constant 1991 prices, discounted at 6 per cent. a year to a 1991 base year. That acts as a sort of negative form of compound interest. In year one—1991—£1,000 in tolls would count as £1,000 off the debt. If it is discounted by 6 per cent. each year, by year 10, the compounding effect would mean that £1,000 in tolls to count as only £573 off the accumulated debt. Therefore, a great deal more than £23.64 million in real terms would need to be taken to clear the debt, which is hanging like an albatross around the community's neck.
It gets worse. The cost of collecting the tolls is running at £750,000 per year. In other words, about £1.40 of the cost of each crossing is used to service the cost of collecting the toll. On present prices, over a 25-year period, that comes to the unbelievable figure of £18.75 million. As I have said, that is just to collect the tolls, not the value of them.
Why does it cost so much? Surely, that figure knocks a huge hole in any repayment of the notional figure of £23.64 million. Can one assume, therefore, that £23.64 million is a net figure after operating costs have been taken into account?
Taking into account both those points, the Minister should ask the Treasury to estimate what will be collected in tolls before the net figure of £23.64 million, counted in constant 1991 terms and discounted at 6 per cent. a year, is cleared. Will it be £60 million or £70 million? We have never been given an accurate figure.
472 The toll takings should be made public. A few months ago the national Mod, the highlands and islands equivalent of the Eisteddfod in Wales, took place on the Isle of Skye. It is a huge cultural celebration and a major event in the Scottish calendar. As one would expect, there was a huge influx of people for that week. Out of interest, I wrote to the toll company to find out how much more was taken in tolls given the vast influx of people for that event at the end of the summer season. I received a courteous reply saying that the company does not reveal its figures. As the local Member of Parliament I am not allowed to know how much the company made out of that major national event. That is a disgrace. A few days ago, we were debating freedom of information. I look forward to that legislation because private companies such as the toll company, which have signed a deal with the Government of the day at a cost to the public purse, should not be immune from having to declare their profits and takings in the same way as any other company in a public position.
My constituents and the House have a right to know how much has been collected from the public purse and how much has been paid to the private developer. Currently, we only have estimates of how much is being taken in. We have every right to know.
The House will be pleased to know that I have now reached my final point. It concerns matters that are currently before the Court of Session in Scotland. I know that the Clerk to the Public Accounts Committee is concerned that we should not breach the sub judice rule. I can assure you, Mr. Deputy Speaker, and the Chairman of the PAC that I have no intention of doing that.
There is a case before the Court of Session now. It was heard on December 10 and 11. It involves one of my constituents questioning the legality of the toll regime. We are awaiting the final written judgment from the court, which is expected sooner rather than later. It is an interdict that has been brought in a Scottish court and, under Scots law, the sub judice provisions do not apply as it is not a criminal case and it has already been aired publicly in court. The only basis for applying the sub judice rule would be the basis of prejudice against the respondent, my constituent. I can place on record the fact that he has waived any right to such privilege and he is happy for me to discuss one or two aspects of the case.
There has been a civil disobedience campaign associated with the toll regime. My constituents have been subject to criminal prosecution on the basis of a toll order that was never published and an assignation statement that only ever appeared with a draft order and was completely inaccurate by the time the actual order was made. That cannot be right. The Secretary of State gave his written approval. The then Secretary of State wrote to me in December 1997:The assignation of rights to charge and collect tolls is contained in the Concession Agreement between the Secretary of State and Skye Bridge Tolls Limited, the concessionaire. The Secretary of State was aware of and agreed to the appointment of Miller … Joint Venture to collect tolls as part of the management and operation of the bridge.The tolls are collected by Miller Civil Engineering. That company—I have tabled written questions about this—is apparently registered as dormant at Companies house. It collects the tolls on behalf of MDJV, of which there is apparently no record at Companies house, on behalf of Skye Bridge Tolls Ltd, which is wholly owned 473 by the Bank of America. Clause 23 of the concession agreement states that there will be no change in the financial arrangements without the written consent of the Secretary of State. No written consent has ever been produced in public at any of the legal hearings that have been taking place in Edinburgh. One can only assume that it does not exist.
I shall now come to the nub of this sorry saga—which represents a ludicrous affront to public finance—to which the Public Accounts Committee draws attention in its report. Huge sums of public money went into the Skye bridge project. My constituents and others are now being forced to pay massive tolls against their wishes. In such circumstances, surely the public and Parliament have a right to know the truth about such vital matters as ownership. The previous Government placed out-of-date documents in the official records of Parliament without any amendment to show the change in ownership details. As a result, I believe that that Administration was guilty of downright deception.
The Scottish Office is continuing to maintain that everything is wholly above board, proper and correct, despite the change in ownership which was never properly notified, the fact that the document was never made available and the fact that the tolls are being collected by a company different from that specified by the Secretary of State at the time. That strikes me as entirely implausible.
As I have said, further complications are now coming to light over the legal trading status of Miller Civil Engineering and MDJV. As I have said, Miller Civil Engineering is registered as a dormant company and there is a further suggestion—I have raised this in another written question—that MDJV is not even registered for value added tax. It has been confirmed to me by the Department of Trade and Industry that Miller Civil Engineering Ltd did not trade on its own account—those are the words of the DTI—during the last financial year, but it seems able to operate the collection of tolls on the Skye bridge.
There are too many unanswered questions in this quagmire. I am grateful to the Chairman and the Committee for exposing the affair and for bringing the luminosity of truth to bear on some of the shortcomings behind it. However, I remain convinced—I commend this suggestion to the Minister—that, prior to this issue falling within the jurisdiction of the Scottish Parliament at Holyrood, we need the Treasury to instigate a complete and thorough overhaul and independent investigation of this entire sorry and shabby tale.
§ Maria Eagle (Liverpool, Garston)
I am grateful for an opportunity to speak in this debate. I congratulate the right hon. Member for Haltemprice and Howden (Mr. Davis), who has been the Chairman of the Public Accounts Committee for nearly two years, although it probably feels more like 10. When I spoke in this debate last year, I welcomed him to his job and wished him a long and distinguished tenure. I should like to reiterate that. The right hon. Gentleman's predecessor, my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), had an extremely long tenure and he remains one of those 474 Members who is most respected on issues of public accounts, public spending and holding the Executive to account. If the current incumbent continues in his current vigorous form, I hope that in due course, perhaps after 14 years, he will also be as well respected as my right hon. Friend the Member for Ashton-under-Lyne.
I do not wish to insult the right hon. Member for Haltemprice and Howden gratuitously. I also recognise and welcome the vigour that he has shown in all debates in the House on public accounts. He has also been very active in the devolution debate. In his speech today, he made some valid and thoughtful points on the future of the Public Accounts Committee and on the way in which the National Audit Office and the Comptroller and Auditor General will be able to operate in an environment in which public sector and Government institutional and auditing arrangements change fast. Who would dare to say that the Public Accounts Committee is backward-looking or retrospective in all its activities? The right hon. Member has clearly shown that it is not.
I add my voice to that of the right hon. Member for Haltemprice and Howden in congratulating the Comptroller and Auditor General and his staff at the National Audit Office on their year-round work. Without their efforts and dedication, the Committee could not be anywhere near as effective as it has generally been recognised to be. Undoubtedly, our ability to scrutinise the Executive and to examine public spending would be almost completely destroyed were we not able to count on their efforts.
Over the next few years, the CAG and his staff face a massive increase in their work load. However, there are some concerns about diminished access because of changes in constitutional arrangements, the advent of resource accounting and the necessity of meeting other auditing bodies and new public accounts committees to try to keep a grip on public sector auditing. All those changes will massively increase their work load. I wish them well in coping with it. I hope that they will receive the resources that are necessary to continue contributing towards achieving the public sector savings that can be made using their auditing expertise.
I finish my preliminary thanks by saying that the Committee would be much less effective than it is were it not for its Clerk and his staff. I thank them and congratulate them on the work that they did for us in the previous Session.
I support the Chairman's comments on increasing access to information on public money. I know of no reason why Parliament, the National Audit Office and its auditor, the Comptroller and Auditor General, should not be able to follow public money raised by Parliament regardless of where it is spent. Achieving such tracking would be Committee members' nirvana and is our desired end result. I realise that practical considerations and changing institutional arrangements mean that achieving that goal is not possible, but it is our aspiration. I should welcome any suggestions on increasing access. I believe that the Government have been particularly open to such suggestions.
There is nothing like transparency—or a Public Accounts Committee—to make people wonder whether their spending arrangements and spending supervision are in order. I should therefore welcome any further action taken by the Government to increase access. The 475 Chairman mentioned the Legal Aid Board and the Housing Corporation. There is no reason why such organisations should not be audited by the Comptroller and Auditor General.
I am happy to be participating in my second annual public accounts debate. Earlier today, while considering what to say in the debate, I wondered why our Committee has an annual debate, as not all Select Committees have that privilege. I suppose that our annual debate demonstrates the Committee's seniority and prestige in the House. It demonstrates also the historical importance of Parliament's role of scrutinising public spending and supply. Our annual debate also gives hon. Members, such as the hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy), an opportunity to make very detailed, prescient comments on matters such as the Skye bridge. It allows us to examine a specific matter closely, which the House is usually unable to do. That is the value of our annual debate, which I hope will continue.
Our annual debate also reflects the prestige of the Committee and of its work. One role of all Back Benchers, regardless of which party they belong to at a particular time, includes asking questions about how well we hold the Executive to account. When I say "the Executive", I do not mean only Ministers. I realise that many of our constituents think of the Executive as the Government and think of Cabinet Ministers, but one should not—especially when one is a member of the PAC—think of the Government in that way. The Committee deals not with Ministers but with accounting officers; we deal with Whitehall, not Downing street. When I think of the Executive, I tend to picture the "permanent" Executive rather than the "transient" Executive, which is the Government—although our current Government will be less transient than most.
We should consider the effect that the PAC can have on Whitehall. Committee members realise that the civil service and Whitehall accounting officers often feel nervous about appearing before the PAC, as we have often been told that they have such feelings. People are often concerned about having to appear at an evidence-taking session. We often receive feedback saying that we have perhaps been tough on Mr. X or Miss Y, who thought that we were a bit unfair. However, Committee members sometimes have to ask themselves a few uncomfortable questions. How well does the Committee perform? How well do we manage to promote the role of all hon. Members in scrutinising public spending? Are we doing well enough? Are there ways in which we can improve our performance?
The CAG and the PAC are very good at dealing with specific issues, such as fraud and propriety in spending—which are the Committee's bread-and-butter tasks. The Chairman mentioned the report on the Amman embassy scandal. It was scandalous that an official wrongly gave the PAC the assurances that we were given. However, the case demonstrated the fact that Whitehall generally resists dealing with the findings in the PAC's reports. I think that such inaction is not a vast conspiracy to ignore Parliament, but arises from Whitehall's culture of the permanent Executive, as opposed to the transient culture of politicians and Governments.
Whitehall accepts the vast majority of the PAC's recommendations. Therefore, why do some Committee members—I am certainly one of them—think that 476 Whitehall does not always act on our recommendations? The Amman embassy report provides one example of inaction. I should like briefly to consider why that might be. However, I should first apologise to the Ministry of Defence, because I shall be using it as an example.
As I said, there is a culture of permanence in the civil service. Those who staff its senior ranks generally depend for career advancement not on Ministers, who come and go, but on one another, on the Whitehall network and on conventions on seniority. I should not say it depends on Buggins's turn, although I just did. One gets the feeling that senior civil servants' advancement does not depend on Ministers, which is perhaps a good thing and is often regarded as a strength. It is good that civil servants, including senior civil servants, and advisers can give their advice without fear or favour, but it can also be a weakness.
Civil servants must deal with a different culture and think about a different hierarchy. They have a different way of ensuring that they get on in life, which means that they do not always listen to Ministers or act quickly on the instructions of Ministers, who come and go. Whitehall sticks together and resists attacks from outside. The more senior staff become, the more they depend on one another for advancement.
The right hon. Member for Haltemprice and Howden mentioned the Committee's report this Session on a major Ministry of Defence project. Although I realise that the report is not part of today's motion, it revealed—not for the first time in defence procurement—a startling picture of chronic overspending, very poor control of contracts and lengthening delays in bringing contracts to fruition. It is not a new problem, which has been outlined also in previous reports on major projects. The Ministry of Defence is a chronic overspender and shows chronic poor management. The reports that we have had from it during my time on the Committee suggest that it resists criticism from the PAC. It never seems to improve. Our 51st report, on the MOD appropriation accounts, showed poor day-to-day management.
It should be a matter of shame to have to come before the PAC when accounts have been qualified. That should be avoided at all costs by any self-respecting accounting officer, but the MOD regularly comes before the Committee. It has overspent its appropriation accounts in five of the past 10 years. When there are excess votes, they are from the MOD more often than not. It sometimes even overspends its excess votes.
The 51st report highlighted many significant day-to-day issues, illustrating the fact that the Ministry seems not to have a grip on its spending. One increase in spending that should have required Treasury authority—the decontamination of an MOD site at Waltham Abbey—went ahead without the Ministry following the rules to secure that authority. Another reason for the accounts being qualified was that the MOD was unable to account for the day-to-day payment of its military personnel. Suspense accounts had to be closed because they could not be balanced, resulting in £40 million having to be written off. The new account established as a replacement was out of control within weeks and could not be balanced, leading to another write-off of £19.5 million. Almost every time the MOD comes before the Committee, we see its failure to control its spending.
477 When we question them, representatives of the Ministry do not like to admit that they have done anything wrong. They tend to resist questioning that suggests that they should be fairly humble and should look for a way to improve. The major projects report—which should not be mentioned in the debate, but I am the second person to refer to it—is illustrative. It quotes some of the criticisms that the PAC made 100 years ago. The complaints that have been made over the past few years are in the same vein. The Ministry believes that it is too important to have to worry too much about controlling its expenditure. It is dealing with the defence of the realm, after all. The Committee is not as effective as we would like. We can congratulate ourselves on being effective in some ways, but we have not managed to change the culture of the MOD and make the civil servants and accounting officers understand that appropriation accounts are not targets to be aimed at, but absolute limits to be kept. As I have tried to illustrate, the problems go wider than just appropriation accounts.
We produced a report on the sale of the married quarters dealing with the amazing phenomenon of a Ministry selling houses for vastly less than they were worth—£77 million to £136 million less than a cautious valuation. There was no competition and they were sold in a job lot to one outfit—Annington Homes, as I recall. They were not properly sold, because the Ministry managed to retain liability not only to repair the properties—imagine selling a house and still having to repair it—but to pay rent on the properties that were vacant but not declared surplus. Having sold the properties, the Ministry took long leases back on them. What is the point of doing that? Even in a big project in which a job lot of houses was sold, the Ministry showed itself unable to consider properly the matter of accounting for public money and ensuring that we get value for it.
I do not want just to be unpleasant to the Ministry of Defence. I want to move to another Department to consider whether Departments learn from their mistakes when faced with a value-for-money report from the NAO and scrutiny from the PAC. Is there an identifiable change in their subsequent behaviour? Do they listen to us, learn and make changes? To illustrate that, I shall consider the NHS executive and its information technology procurement.
I am sorry to hear that my right hon. Friend the Member for Swansea, West (Mr. Williams) cannot speak today. He made the analogy of standing up and walking into a brick wall and asked what would be thought if someone picked themselves up and did it again. Would the casual onlooker think that they were mad or drunk? The NHS executive did that three times on IT procurement with the Wessex health authority, then on the hospital information support systems and, perhaps most notorious of all, on the Read codes.
The report on that was particularly interesting. The issue is of great importance to the future of the NHS. The system will enable medical records and records of treatment to be put on computer—preferably on a common system throughout the NHS. One has only to outline that to realise what a vast undertaking it is and what a difficult job it might be. The codes are ways of classifying particular treatments, outcomes or other items 478 that should be in health records. They have to be common and everyone who might access the system has to understand it and be able to use it.
The Committee's 62nd report, on the purchase of the Read codes by the NHS executive and the management of the NHS centre for coding and classification which deals with them, is damning. Some £32 million has been spent so far on developing a system about which many of us who examined the evidence are dubious. I do not have confidence that Read version 3 will ever work. It has not yet been implemented. To our knowledge, it has been trialled in 12 NHS units. I have no evidence that version 3 has suddenly spread beyond that into general use. If that happened, it would cost many millions of pounds more to implement across the NHS.
The report is damning not just because of the £32 million that has been spent without any business case being made for the development of the codes. The money has been spent with no clear development plan or time scales. There was also a clear conflict of interest, because Dr. Read, who developed the codes, was paid to hand over the copyright and was then appointed to run the NHS outfit that would develop them, while his private company had sole rights to sell them. Dr. Read has been estimated to have made about £8 million so far, although I do not know how accurate that press report was.
The NHS executive had already suffered two seriously embarrassing reports from the Committee on IT procurement, but it got itself into a similar problem, if not a worse one, on the same issue. Since the publication of the report, the NHS executive has sought to justify its position, despite the clear worries in the NHS and among those who follow such issues in the computing world that Read codes will never work. Has the NHS executive taken that on board and learnt from the report? Do Departments ever accept that too much money has been spent on a system that will not work, and decide to bite the bullet and abandon it in favour of something else? So far, as far as we are aware, the NHS is continuing to develop the Read codes.
Mr. Alan Williams
Is that point not emphasised by the fact that, several times during the Committee's sitting, the NHS executive witness said that there had been no conflict of interest, whereas Dr. Read himself said that there had been a conflict of interest?
§ Maria Eagle
My right hon. Friend has a very good memory. He is right to say that there was a contradiction in the evidence. As the hon. Member for Ross, Skye and Inverness, West pointed out, Whitehall can sometimes produce obstructive responses to our reports. Although the people who took decisions and gave advice are defensive of their actions, and do not want to admit that they were wrong, if the Committee is to be effective and produce improvements, they sometimes have to do so. I hope that, next year, problems will be identified and people will say, "Mea culpa," promise to put things right and then do so. I do not blame Ministers of any party; it is the culture of Whitehall to say, "We are running this. We rather resent you looking too closely at it and, if you criticise us, we shall defend ourselves."
I hope that the Government will encourage Whitehall and its permanent staff to be less uptight and more objective and to make sure that the lessons that the PAC 479 and the National Audit Office can bring to the implementation of public policy and spending public money are well learned, so that we all benefit.
§ Mr. Richard Page (South-West Hertfordshire)
I took the precaution of looking at the Hansard reports of the last few annual debates on public accounts, including my own immortal words. I discovered that, almost every year, I started my speech by saying how disappointing it was that so few people had attended the debate. This year, I have to alter my start line because there are a few more of us. I hope that that trend continues, because it is a significant debate that sends an important message to the mandarins in Whitehall.
I start by welcoming the Minister to her new position. She has moved from small businesses to big businesses. I can tell her that the problems are the same; it is just the amount of money that is different, and it will be more dramatic if she gets things right—or indeed, if she gets them wrong.
Before dealing with the report, I thank my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the PAC, for guiding our Committee through the previous year. He has a contrasting style to his predecessor, but all roads lead to Rome and I am glad to say that the Committee produced some hard-hitting and effective reports with unanimity. Ever since I have been on the Committee, 100 per cent. of the Committee has endorsed its reports. I was first on the Committee in 1987 and I believe that our unanimity gives us strength. United we stand and divided we fall. We must make sure that, whenever possible, our reports are 100 per cent. endorsed.
I also thank the PAC staff—led by Ken Brown—who have always provided an effective and efficient service, for which we are exceedingly grateful.
My few words will follow in the footsteps of my right hon. Friend the Chairman. Obviously, that is a wise and sensible thing to do. It also involves a degree of crawling in that I hope that I shall be called to speak in the Committee earlier rather than later, so that all my ideas and questions will not have been taken by others. However, I mildly disagree with the hon. Member for Liverpool, Garston (Maria Eagle) in that, although I wish my right hon. Friend the Member for Haltemprice and Howden every success, I would be quite happy if his tenure were for only three years, but time will tell.
Of course, the Committee would not be able to function without the work of the Comptroller and Auditor General, Sir John Bourn, and his highly professional staff in the National Audit Office. I have every respect for their skills and for the way in which they report their findings to the Committee. Their skill and expertise are recognised by many countries throughout the world, who call on the National Audit Office for help and advice.
The Committee needs to recognise that the reports that come before us are the product of a long process of investigation and the result of negotiations between the Department, public body or agency under scrutiny. Naturally, those bodies are not anxious to be severely criticised and usually argue, as I know from experience, for potentially damaging comments or statements to be reworded by what could be described as a process of plea bargaining. That sometimes makes the task of reading the 480 NAO reports rather like the old art of Kremlinology: one has to be able to read between the lines to find out where there have been disputes. I am not complaining about that. It is part of what makes being a member of the Public Accounts Committee a little more challenging and makes one work a little harder.
Today, I shall concentrate more on the way in which the PAC operates than on the reports themselves, as I believe that there is room for advancement. I promise the House that there has been no collusion between myself and my right hon. Friend the Chairman, except on one small aspect, which I shall raise at the end of my speech.
I am concerned about the questions and potential conflicts that are posed by the Government's rushed devolution measures. Already, many regard the establishment of a Scottish Parliament as a stepping stone to Scottish separation. It is important that national sentiment is not allowed to block access by the NAO and PAC to how the money has been employed. The hon. Member for Garston said that we should have the power to follow wherever the money goes, and I am greatly concerned that shutters will be brought down to stop us doing that.
I understand that, under the Barnett formula, there is considerable financial support for Scotland—above the average amount per head that applies in England. If those extra sums of money are allowed to continue, the NAO should be allowed to follow the financial trail. I should also emphasise that the skills and ability that have been built up by the NAO over the years should not lightly be put to one side in a misplaced enthusiasm to have everything under Scottish control.
My first main point regarding the operation of the Committee concerns the way in which reports are brought before the Committee. I believe that, when we consider a report, the accounting officer responsible for that report should be there to answer questions. How many times has the Committee found that, within seconds of a report hitting the desk, the accounting officer has either moved or retired to Chichester to tend his roses? I believe that all retired accounting officers go there and the new man sits in front of us and says with much sucking of teeth, "I agree with you. It is a deplorable situation. However, I am new to the job and that is what I will do to put it right." We, being a lot of softies, say, "It is not his fault, is it? We can't be hard on him." Therefore, we tend to be too kind and forgiving.
I believe that it should be the norm and the custom and not an exception to call former accounting officers back to be examined on their records in their Departments or agencies. There should be no hiding place or escape route if commitments given in the past to the Public Accounts Committee in good faith are not honoured. We are entitled to question those responsible for the implementation of those policies.
I wish to refer to my concerns regarding what I call the fire-and-forget principle on which the Committee operates. There are varying degrees of noise, lightning flashes and smoke when a National Audit Office report is published and is followed by the Public Accounts Committee inquiry. It is then usually followed by a period—perhaps years—of deafening silence. We have no idea of what is going on, or of whether the recommendations have been implemented. We have no idea whether they have been successful or not. All too 481 often the matters are revisited years later by the Committee, and we find that little has been done to alter the way in which the Department has been tackling those problems.
One of the advantages, or disadvantages, of serving on the Committee for some 10 years, as I have—I know that the right hon. Member for Swansea, West (Mr. Williams) has served even longer—is that one sees the same problems coming around time and time again. As an example, the House should consider the difficulties faced by the Child Support Agency in collecting maintenance payments from absent parents. The subject will be familiar to all right hon. and hon. Members, as we have all had surgeries full of people complaining about the way in which the CSA has operated.
Successive chief executives and accounting officers of the CSA explained to us how they would deal with the backlog of cases, incorrect assessments and appeals. The message consistently was that the problem was being solved. Unfortunately, as the PAC work in the early months of 1998 revealed, the situation has not significantly improved since the earlier days of the CSA work. Now, the Department of Social Security, the CSA and—more importantly—taxpayers are having to face writing off much of the uncollected arrears accumulated during the previous and present Parliaments. That is the penalty that we are paying for the insufficient attention that has been paid to the Committee's reports. We heard assurances during our last examination, but I have serious doubts that we shall find the situation improved at all in the future.
It is possible to cite several other examples. We looked several months ago at the problems that the same Department was facing over the transfer of data from the old computer system for national insurance contributions to the new one. There had been technical difficulties with that in earlier stages. Like other members of the Committee, I was sceptical about the likelihood of the target date for completion of the operation being met, as it was less than two months away. We were assured by the witness that the target would be met but, within weeks, it was announced that the completion date had had to be put back—at a cost of many millions of pounds.
It is not in the public interest for the PAC to be offered what I can describe only as a hopeful statement about solving a problem. It would be far better to tell us the facts and the odds that a solution will not be forthcoming. In turn, that would enable the Government and the Minister involved to do something about the problem.
The Committee took the unusual step in its last report—on the procurement of major Ministry of Defence projects—of producing a summary of previous reports, going back over decades, to show that the same mistakes were being made time and time again. It appears that the Ministry of Defence has been quite happy just to proceed as if the reports had no relevance. This time, we have been told that the smart procurement initiative will solve the problems of cost overruns and delays before major projects enter service. I hope I that am wrong, but I am cynical. I will not be holding my breath about this matter.
§ Mr. Clifton-Brown
I wonder whether I might put to my hon. Friend a suggestion that will cause ripples 482 throughout Whitehall. Does he think that an accounting officer who has been in charge of such a gross financial mismanagement ought to be subject to no further preferment?
§ Mr. Page
I would not want to fire such an Exocet until I was thoroughly satisfied that the situation was completely and utterly in the hands of that particular accounting officer. There may have been the beneficial and guiding hand of a Minister behind him which has prevented certain things from happening. Tempting as my hon. Friend's suggestion might be, I would want to make sure that we were targeting a genuine wrongdoer, rather than someone who has been put into a set of circumstances that may not be completely of his own doing.
There have been times when senior civil servants have admitted that mistakes have been made. The Committee had the classic example this year of a serious case in the British embassy in Amman. Having been reassured by the former permanent under-secretary of state at the Foreign Office that new, tighter proceedings would mean that such a thing could never happen again, within a short time we had a second example of embezzlement, which caused a great many red faces in the Department.
I shall draw my remarks to a close, although the wealth of material is such that one could filibuster about the PAC and its activities for hours on end. However, I wish to touch on the various references to the situation within the EU at the moment, the discussions about fraud and the problem, which is occupying the headlines, of the hundreds of millions of pounds that have been misappropriated. I find it most peculiar that the European Parliament can elect Commissioners one by one, but can sack them only en bloc. That seems to me to be a crazy situation. Surely the Parliament should be able to direct its fire on one or two particular Commissioners if they seem to be failing in their particular tasks.
The Committee Chairman mentioned the need for an EU anti-fraud squad, and I should be more than happy to endorse that. However, it does not go far enough, and more is needed. The European Court of Auditors signs off the accounts and points out if there has been a fraud, but it goes no further. It does not have a value-for-money aspect. Our National Audit Office, and our forms of government accounting, took a step forward in 1983 when we introduced value for money and the examination of the three criteria of economy, effectiveness and efficiency. Since then, we have seen how the Government can spend money in a more effective way, which benefits the taxpayer.
The one slight collusion between myself and my right hon. Friend the Member for Haltemprice and Howden is to ask whether we should recommend that we go over to Brussels and visit the European Court of Auditors to talk to people. That would do two things—first, we could give them some of the benefit of our experiences, and secondly, we could learn about some of their problems, which would help us, in turn, to see that we, as a nation, spend EU money more effectively.
I believe that the Committee has worked hard and diligently through the year, and I have no doubt that it will have plenty to do in the year to come.
§ 3.9 pm
§ Jane Griffiths (Reading, East)
Thank you, Mr. Deputy Speaker, for allowing me to speak in this first debate on our new Thursdays. I join others in paying tribute to the Chairman of the Committee, the Clerk and all his staff, and pay particular tribute to the Chairman for the way in which he has guided and helped us all over the past year and more.
Yesterday, during a debate initiated by my hon. Friend the Member for Thurrock (Mr. Mackinlay) on Select Committee reform, requests were made for more time for debates on reports of Select Committees on the Floor of the House. A number of speakers emphasised the importance of such debates to scrutiny of the Executive. That makes me all the more pleased to speak in today's debate.
In my short speech, I shall concentrate on two reports: the 61st, "Getting Value for Money in Privatisations", and the 27th, "Measures to Combat Housing Benefit Fraud". My hon. Friend the Member for Liverpool, Garston (Maria Eagle), both here and in the Committee, has used the "banging your head against a wall" analogy, and that is certainly my experience as a member of the Committee. One learns that banging one's head against the wall hurts, and that not doing so does not hurt; the problem is getting others to understand that, and to stop banging their heads—and, inevitably, ours—against the wall.
That brings me to the 61st report, which identified a number of key lessons to be learnt in the selling of public assets. The Government welcomed that in a Treasury minute, and it is to be hoped that we and they learn from past experience when it comes to the sale of shares in the Commonwealth Development Corporation, National Air Traffic Services and Belfast port. Otherwise, the public will lose out.
Billions of pounds of public money were lost as a result of the failure to follow the PAC's recommendations in regard to selling shares in stages. That has already been mentioned today. In 1986 and 1987, the Department of Trade and Industry and the Department of Transport sold British Airways and the British Airports Authority. When the PAC reviewed the sale in 1987–88, it recommended that Departments should consider the phased sale by tranche that was used successfully in the sale of British Aerospace and Associated British Ports. As we have seen, the Government did not learn that lesson. In 1990, the DTI sold the regional electricity companies. Reviewing those sales in 1992–93, the Committee regretted that a phased sale had not been undertaken. I am not discussing the merits or otherwise of privatisation, because that is not the Committee's brief; I am talking about the effects of it.
It seemed that someone had learned that banging one's head against a wall hurts. In 1991, only 60 per cent. of PowerGen and National Power was sold by the DTI. In 1996–97, the report on the sale of the remaining 40 per cent., which had taken place in 1995, revealed that an additional £2.3 billion had been realised because not all the shares had been sold in 1991. Some lessons have been learnt; but a National Audit Office report published on 16 December last year, which the Committee has yet to consider, reveals that the sale of Railtrack in May 1996 would have raised an extra £600 million if 20 per cent. of the shares had been retained and sold later. We all know that the sale of Railtrack was governed by more than the concept of raising 484 money. It is likely that the taxpayer lost millions if not billions of pounds, because other factors were involved—but perhaps that is more head-banging.
How are Departments to be induced, encouraged or instructed to learn the lessons, and to implement the findings that the PAC worked so hard to obtain? The Treasury minute in response to the 61st report says:The Treasury will ensure that the lessons set out in this report are drawn to the attention of all departments involved in sales and reflected in guidance for departments.That is good, but how do we ensure that the guidance is followed? I suggest to my hon. Friend the Minister that, as well as guidance for Departments, there should be a checklist outlining the procedure that should be followed when a sale is made, and the issues that should be considered at each stage. That would allow future sales to be audited better. Departments would have to provide evidence that they had considered all relevant matters at each stage, and give reasons for decisions that were made.
I agree with my Conservative colleagues on the Committee that, all too often, the official appearing before it had nothing to do with the process that is being reviewed. If a checklist were introduced and could be monitored, it would be possible to ensure that guidance had been followed; otherwise, we would want to know the reason why. That should minimise the wasting of public money.
In the 27th report, on measures to combat housing benefit fraud, the issue was examined for the second time in seven years. It was revealed that more than £900 million had been lost as a result of fraud. The Department of Social Security was not even able to show whether fraud was on the increase, and could not provide all the information that was needed about types of fraud, including landlord fraud, and about variations at regional and local level. That essential information simply was not available. The absence of such reliable information should cast doubt on decisions made by the Department to invest in anti-fraud work. If it did not have the information that it needed, how could it be sure that its investment was targeted correctly?
The Government have committed themselves to reducing fraud in public finances. That commitment is intended to produce a welfare state that is fit for the new millennium that we shall enter in less than 12 months. An important part of the fight to reduce poverty and welfare dependency is the battle against fraud, which is founded on three principles. The first is fairness, and the restoration of public confidence in a social security system that ensures that benefits go to those who need them rather than those who seek to profit at the expense of the needy. The second is responsibility: fraud is anti-social, and that is contrary to responsible citizenship. Government assistance to the drive against fraud is the right expression of responsible citizenship. The third is honesty—ensuring public confidence in a social security system that deals effectively with those who act dishonestly.
The PAC has a crucial role to play in all that. Admittedly, it will involve taking a backward look, but the information is there, because of the work of the National Audit Office. The Committee can also seek and receive assurances that past mistakes and bad practice will not be repeated.
What we have not secured, over many years, is a cast-iron guarantee of the implementation of those assurances. Officials come and go, and it seems that, if a 485 new official does not do what the last one recommended, there are few sanctions, and there is little opportunity for the Government to act.
The Social Security Administration (Fraud) Act 1997 was a big step, perhaps the biggest that any Government have taken in the fight to reduce housing benefit fraud. I am sure that all members of the Committee, and other hon. Members, welcome the strong new powers given to the DSS and local authorities to tackle such fraud. The PAC rightly noted that those who design benefit systemshave to strike the right balance between addressing different needs equitably and fairly on the one hand and simplicity and security on the other. However, the present system does not find the right balance.The Government are undertaking a fundamental review of housing benefit and its relationship to housing policy. I urge Ministers to note document HC 164 1997/98—also called "Measures to Combat Housing Benefit Fraud"—and the subsequent 27th report of the PAC as part of the process.
Like other Committee members, I welcome the establishment of the benefit fraud inspectorate, and its aim to drive up standards in anti-fraud work by inspecting individual local authorities. I am not aware of any local authority that has been inspected that regards the process as anything but helpful. It is right and proper that, following inspectorate action, all local authorities are required to provide the Secretary of State with action plans.
It is also right that, if the Secretary of State considers that a local authority has failed to respond sufficiently to the inspectorate's recommendations, or has failed to carry out its action plan, he or she can decide to issue directions to that authority. If that authority does not respond to the directions, there are powers to impose subsidy sanctions, or, in extreme cases, compulsory outsourcing of benefit delivery services—I think that that is privatisation. In addition, both the inspectorate's sharing of lessons that have been learnt in its inspection with other authorities and the exchange of good practices can only be helpful in the fight against housing benefit fraud.
In October, the Government statistical service published the results from the 1997–98 national housing benefit accuracy review. Although the report was welcome, the results made gloomy reading. The main findings were that, on average, 16 per cent. of housing benefit claimants receive incorrect payments; that includes both under and over-payments. The cost of that to the taxpayer is £840 million a year.
There are several ways in which that £840 million a year is lost—official error, claimant error, mildly suspected fraud, strongly suspected fraud—and that is only the money lost that we know about. Prevention is the key to cutting benefit fraud.
I am pleased to note that 85 local authorities are improving the standard of initial evidence that is gathered at the start of housing benefit claims—it seems self-evident that, if a claim looks dodgy, officers should not go any further with it—through the new verification framework. It is also welcome that £200,000 of Government money is being used to pilot a new initiative where local authorities will, for the first time, I believe, be able to use Department of Social Security solicitors to prosecute housing benefit fraudsters.
486 The commitment to put in place training from April 1999 to improve the skills of fraud investigators is welcome, but—here is another warning from the Public Accounts Committee:Fear of detection can be an effective deterrent against committing fraud, but only if it is backed up by sufficient prosecutions and effective penalties. Yet the level of prosecutions by local authorities is incredibly low, at under 1 per cent. of detected frauds, and suspected fraudsters have a 99 per cent. chance of getting off Scot free.It is like saying, "Mr. Fraudster, come here. There is a coffer of public money for you. Just take what you want." Can my right hon. Friends on the Treasury Bench assure me that the Government are willing to commit the resources that are necessary to ensure that 99 per cent. of fraudsters do not get off scot free?
I take great encouragement from the fact that we are having the debate and from the way in which the House's business has been arranged on this new Thursday. I hope that, as the House considers further modernisation of its working practices, hon. Members on both sides of the House will have further and increased opportunity to debate Select Committee reports and thereby question and hold to account the Government of the day, based on cross-party findings and reports.
§ Mr. Charles Wardle (Bexhill and Battle)
It is clear from what has been said in the debate that there is agreement among hon. Members on both sides of the House that both the volume and incisive quality of the National Audit Office case load that is served up to the Committee by its excellent Committee Clerk are formidable. So is the chairmanship of the Committee by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis). Not one of us on the Committee failed to find himself on the receiving end of a little yellow piece of paper when we were in danger of over-running our allotted time. On that paper were the words, "One minute", so it was fun this afternoon to return the compliment in kind to the Chairman.
It would be worth drawing the House's attention to a wide range of subjects, but I should like to make some general comments first and then to focus on a few specific reports.
My first comment has already been headlined by the Committee Chairman and others, and I make no apology for repeating it for emphasis. There is a continuing pressing requirement for an extension of the Comptroller and Auditor General's remit to allow him access for audit purposes to sectors of public expenditure that he cannot currently examine.
If he is to be fully effective in his responsibilities and to present a complete picture of how taxpayers' money is being spent, the CAG needs not only access to non-departmental public bodies that are audited by private firms which are appointed by the relevant Secretary of State, but access, without hindrance or hassle, to private companies that take on work that is contracted out by central Government and paid for by the taxpayer.
The CAG should be able to pursue his investigations in local spending bodies, public sector companies, recipients of Government and EU grants, housing associations and many other such organisations. It should be a standard condition of all Government contracts that the CAG has the right to inspect the contractor's books where he considers it necessary.
487 My second observation is about the ability of the Public Accounts Committee to question consultants or professional advisers, along with the relevant accounting officer, when taking evidence. I believe that several Committee colleagues would agree that we could have done a better job probing where the use of public funds may have gone awry if we had been able to question such consultants.
I understand that merchant bank advisers or consultants may appear before the Committee in the near future. I hope that the Minister, whom I congratulate on her appointment to the Treasury, will agree that it could improve accountability if we could vet some of the consultants and advisers.
My third general observation is a small, but, I hope, constructive criticism about appropriation accounts. All too often, the format of those accounts is anything but user friendly to anyone but professional accountants and a few officials in the know. As they are public documents, it would be helpful if the accounts were presented in a less obscure fashion.
My fourth observation is a word of praise for the chief accountancy adviser to the Treasury and his resource accounting team. That has been touched on by the Chairman and others today, but it is worth emphasising.
The Committee's 67th report provides detailed evidence from the chief accountancy adviser of the basis on which financial management in Whitehall can be modernised. I hope that the House will keep in mind the key advantages that the Treasury plans to deliver when Whitehall switches to resource accounting. I am delighted that the Government are continuing the work on resource accounting that was begun by the previous Government.
There should be better management information about costs and assets, greater scope to control working capital and cash flow, a chance to focus on outputs as well as inputs and a more switched-on approach to financial control systems. That should empower middle-management ranks in the civil service as well as senior officials if it is used properly.
The hon. Member for Liverpool, Garston (Maria Eagle) spoke about Whitehall culture being difficult to change. If there is one initiative that will bring about welcome changes in the Whitehall management culture, it is resource accounting. It will enable the Government of the day to allocate resources in the public expenditure round more rationally if they so choose.
It is sometimes said that some members of the Committee, myself included, are readier to criticise witnesses than to praise them. I hope that my praise for the resource accounting team shows that credit is given where credit is due. I am sure that colleagues would agree that there have been other instances during the previous Session when witnesses have been warmly commended. Her Majesty's Coastguard is one example that comes to mind. However, it has to be said that the preponderance of NAO reports that are considered by the Committee draw attention to cock-ups, confusion, inaction and inefficiency. It is right that we should give vent to our criticism where it is intended to be constructive.
The Committee report that leaps out for attention and is highly topical, bearing in mind this week's debate in Strasbourg, is the 35th report, which is on the 1996 annual report of the European Court of Auditors. I could not find a Treasury minute responding to that report, but this 488 week's protests from Members of the European Parliament, although they proved to be in vain today, rightly put Jacques Santer and his commissioners in the dock for many of the same reasons that prompted the Committee to condemn the EC's hopelessly inept and corrupt financial performance in the previous year. For several years, the Court of Auditors has been unable to provide a positive assurance on the legality and regularity of Community payments. The Public Accounts Committee endorsed the damning verdict from the Comptroller and Auditor General that the European Commission still has a long way to go before it attains the quality of financial reporting expected as the norm for Government accounts in this country.
The Committee expressed concern about, among other things, the high level of unnecessary expenditure resulting from the failure of common agriculture policy regulations to take account of movements in world market prices. It was also worried that the systems for ensuring that recovery of customs duties payable to the European Commission did not operate effectively, and about the high level of errors and delays in structural fund payments.
In short, the Committee drew attention to a complete shambles at the Commission. Although total expenditure in 1996 was a relatively modest £57 billion, the House cannot ignore the Commission's transparent ambition, following hard on the introduction of the single currency and European monetary union, first to harmonise EU taxation and then to ensure that the greater part of taxation is raised at the federal centre rather than within member states. Therefore, it is fundamentally important that we make known such criticisms of the administration in Brussels.
Sometimes the European sickness of chronic maladministration, highlighted this week in Strasbourg, affects the United Kingdom directly. The Committee's 52nd report revealed that the Intervention Board Agency, which accounts to Parliament for the £4.2 billion gross cost of implementing CAP measures in this country, could not reconcile transactions of £30 million on its accounts, and that it had spent almost £11 million—a figure that beggars belief—on consultants in a failed attempt to balance its books. However, no one at the agency felt the need to resign to atone for those shortcomings.
The 33rd report, into the Crown Prosecution Service, revealed a similar determination on the part of its then director to shrug off responsibility for the failure to establish a computer system to keep track of cases across the service. In spite of a virtuoso performance of self-advocacy before the Committee, the director lost her job shortly afterwards. I do not think that that was down to the Committee directly, but at least there was some action in that case.
No such fate befell the permanent secretary at the Foreign Office or his director of resources, who feature in the 34th report. Unfortunately for them, as we heard earlier, they had to explain away a horror story involving a false payments scam at the British embassy in Amman, Jordan. That was barely a year after the permanent secretary's predecessor had blandly assured the Committee that financial controls in Amman were all hunky-dory, even though the embassy had been taken for an embarrassing ride in connection with bogus pension payments. I do not think that anyone ever got to the bottom of that scam.
489 The Committee hearing with the accounting officer from the Foreign and Commonwealth Office, Sir John Kerr, attracted some defensive letters to the press from old FCO hands, but those letters made their authors sound fearfully old fashioned. I am pleased to say that a video of the session in which the Committee took evidence from the permanent secretary—I nearly said of its interrogation of him—is now used as a case study by the Civil Service College.
I should add that, to his credit, Sir John Kerr—for whom I have the highest personal regard—has sought to rid the Foreign Office of its previous rather haughty indifference to the need for professional financial management by appointing a squad of qualified accountants and young executive types with masters degrees in business administration. They have replaced the amateur generalists who, after two weeks' training, were traditionally put in charge of the books. I am sure that those changes are to be welcomed. They will help remind our diplomats that, although they do an absolutely excellent job for the United Kingdom abroad, they incur an expense for taxpayers whenever they represent our country.
The 43rd report showed that the taxpayer was treated much more shabbily, both in the scale of the rip-off and in terms of barefaced greed, by the privatisation of Belfast international airport. In a management buy-out, a team of civil servants were able to pay £32.7 million for the airport. Just two years later, they sold it at a profit of £74 million, with no clawback for the taxpayer. As I said in Committee at the time, I am all for people getting rich through hard work, but the group gained more than £3 million a month during its brief ownership of the airport. That was a cynical exercise in profiteering, over which there were scarcely any checks. Given the rather terse official response to the Committee's criticisms of that case, I am sorry to say that it was difficult to judge whether lessons essential to the taxpayer's future wellbeing had been learned.
Finally, I turn to the 37th report on contingent liabilities in the dependent territories. The Foreign Office's responsibilities for governance, disaster preparedness, risk management and financial controls are diverse, and it cannot be easy to maintain improvements. However, the most pressing concern is drug trafficking. The Committee was told that 30 per cent. of the cocaine reaching the UK comes via the Caribbean. The United Nations estimates that 400 tonnes of cocaine destined for the United States and Europe transits the Caribbean.
The Foreign Office, with the help of the National Criminal Intelligence Service, and two Royal Navy frigates, is helping the five Caribbean dependent territories to resist drug trafficking but, ominously, Sir John Kerr told the Committee that the fight against drugs is taken less seriously in some independent Caribbean countries than in the dependent territories.
Among the former British colonies and protectorates in the Caribbean, Belize—formerly British Honduras—became especially vulnerable to drugs transhipment after the British defence forces withdrew in 1994. As other countries in the region have begun to tighten their efforts against narcotics, there is no doubt that traffickers exploit 490 Belize, which is a convenient back door to the cocaine route to the United States via Mexico, Jamaica or the Cayman Islands.
As the United States Drug Enforcement Administration has confirmed, Belize has a long unprotected coast line, large tracts of rainforest and unpopulated areas that facilitate the movement of much of the south American cocaine trade to the United States market. I hope that a future NAO report will consider the effectiveness with which British taxpayers' money is deployed to help resist drug trafficking in the wider Caribbean area and not just in the dependent territories.
There is no doubt that there is growing public awareness and interest in clearer accountability from those who spend taxpayers' money. Demands on the National Audit Office will undoubtedly grow but I am sure that it will respond well to the challenge. Whitehall will face inescapably greater pressure to reform and modernise its financial and management controls. That reform is long overdue, and can only be a good thing.
§ Mr. Christopher Leslie (Shipley)
In 1799, a Tory Prime Minister, William Pitt the Younger, introduced income tax in this country, in part to fund the Napoleonic war. The Inland Revenue has commemorated that momentous innovation with an exhibition at Somerset house, although I am sorry to say that tomorrow is the last day on which it will be open to the public.
Some people may say that we should not celebrate the invention of income tax. People may call me eccentric, but I resent paying my income tax least of all the bills that come through my door because, as a Member of Parliament, I have a fairly good idea about where my income tax is spent. It is spent on schools, hospitals, social housing, transport and all the other vital public services without which we would all be a lot poorer.
After about 200 years of income tax, it is important that we recognise that the main public sector safety valve ensuring that taxpayers' money is spent efficiently and effectively and that it achieves value for money is the Public Accounts Committee, working in co-operation with the National Audit Office.
I was privileged to serve on the Public Accounts Committee until November last year, when I moved on to pastures new. The Committee certainly provided me with a great education in how government works, where money is spent and problems can occur and what solutions might be available. I join other hon. Members in paying tribute and thanks to the staff of the PAC as well as to Sir John Bourn, the Comptroller and Auditor General and the other staff of the National Audit Office for all their excellent advice and assistance in the previous Session. I also pay tribute to the chairman of the PAC, the right hon. Member for Haltemprice and Howden (Mr. Davis), for all his help and assistance and for his impressive scrutiny and his collegiate approach throughout our non-partisan hearings.
About a tonne of reports must have been produced from the many hearings. The evidence is on the Table, which is weighed down by the bulk of blue paper that the Committee approved, often paragraph by paragraph, in many of our sittings. So we have worked hard. I cannot go into all of the reports, but I will focus my attention on some of the most important findings of the past year. Unsurprisingly, most relate to privatisations, to which other hon. Members have referred.
491 The findings on water privatisation have not been mentioned. A year ago, the PAC heard evidence from the Office of Water Services into the regulation of the quality of services for customers. We questioned Mr. Ian Byatt, the Director General of Water Services, about his duty to secure the proper financing by water companies of quality water and sewerage functions and the fact that that depends on getting the privatised companies to give priority to reinvestment in the utility's infrastructure. Clearly, Ofwat regarded the main trade-off as finding ways to get money to the customer, by ensuring that prices were reduced, or to get companies to spend their resources on infrastructure, the drainage network and so forth.
Those are not the only options for those companies, which are making a large profit. In that hearing, we learned that massive dividends were paid out to shareholders. The profits were leaking out of the water companies. Rather than being reinvested in better-quality services, the money was going to the shareholder. Two interesting statistics came out during the hearing. More than two thirds of the total pre-tax profits of the water companies go out of the industry into dividends, so it is not reinvesting as much as it should be. That has meant that, on average, nearly a quarter of the typical customer's bill has gone straight to finance dividend payments.
The PAC's 36th report concluded that dividend payments were at an unacceptable and unsustainable level, potentially putting at risk investment and the quality of services to customers. Therefore, we recommended that Ofwat, in particular, should consider instituting further safeguards to protect customers.
Ofwat has responded fairly well, by reiterating its belief in RPI minus X as a regulatory system and saying thatdividend policy should be transparent and must not put at risk the companies' ability to discharge their functions".We must reconsider, though, how better to ensure that price cuts and infrastructure investments are achieved as a matter of priority and that profits are not put before the services that need to be provided to the customer.
The other privatisation inquiry that stands out most clearly in my mind was that into the railway rolling stock companies. I do not know whether hon. Members saw on the news yesterday that a baseball hit by Mark McGwire, which set the record-breaking 70th major league home run, was sold in New York for £1.65 million by the man in the stand who had caught it. Anyone who thinks that that was a fortuitous windfall may not have heard the story of the railway rolling stock companies and the few former British Rail managers—three in particular—who made an absolute killing during the privatisation exercise. For example, Mr. Jukes from Forward Trust, which is now called Eversholt, invested £110,000 as his initial stake and sold the company on only 12 months later for a personal profit of £15.9 million. Mr. Anderson of Porterbrook put in £120,000 and sold the company after only eight months for £33.5 million. Dr. Prideaux of Angel put in no money—he got the banks to front the company—and received £15 million.
It was enlightening to have the opportunity to question those three former British Rail managers about why they deserved that windfall. What special effort had they put in to earn that amount of money? The answer given to the PAC was that the risk that they had taken justified the massive return. When asked whether they deserved 492 the profit or felt a little guilty at having ripped off taxpayers so massively, it was not surprising that we did not get much of a response.
What annoys me, the public and other members of the PAC most is that the assets—the family silver—could be sold off by the previous Government at such an undervalued rate. They were almost given away. Those people made all that profit because, when they sold, the market recognised the true value. Unfortunately, the taxpayer did not get the money. That is why, in that report and subsequently, we looked into ways to reduce such windfalls. I was glad to see in the Treasury minute on that report that the Government accept that those windfall gains certainly risk discrediting privatisation and that theywill consider carefully in future sales mechanisms to prevent any purchasers from enjoying excessive windfall gains.Such mechanisms are sometimes known as the clawback clause and we need to use those arrangements much more frequently.
Many other aspects of privatisation were raised in our hearings. Hon. Members have mentioned our over-arching report into value for money in privatisations. One aspect of that is a clawback arrangement that will ensure, particularly when high levels of uncertainty are associated with the sales, that we build into contracts ways to get the windfall right for the taxpayer and the Government. Another recommendation is that we must value companies properly in the first place, to ensure that the best price tag is put on them before privatisation so that the proper market value is gained for the taxpayer and that we do not merely give assets to the private sector because of dogma or ideology. If they are to be given away, there is a reason and there should be a gain to the public at large.
It is true that the report recommends that, if shares in privatisations have to be sold, it should be done in stages to test the market more effectively. I am glad to see signals that that is becoming a more acceptable practice for the public sector.
I do not think that any hon. Member has touched on the fact that the PAC recommended that close scrutiny should be given to pre-sale restructuring, so that the Government do not spend millions of pounds of taxpayers' money putting aspects of the public sector right and then hive them off to the private sector. If major amounts of public expenditure go on restructuring, the public should gain some reciprocal benefit.
On a number of issues, one felt that one could ask the same question of whatever witness came before the Committee. Advisers' and consultants' fees are always being raised in the PAC, and members of the Committee become exasperated. I think especially of the inquiry into design, build, finance and operate roads under the Department of Transport. We must consider advisers' and external consultants' fees throughout government to ensure that we always get value for money.
Fraud is part of the bread and butter of our inquiries. The right hon. Member for Bexhill and Battle (Mr. Wardle) reminded me of the fraud at the Amman embassy. Extrapolated downwards, the stationery budget equated to, I think, 300,000 biros. The amount of fraud on the mileage budget would have taken a car around the world 12 times—physically impossible in the time available. We must ensure that our accounting officers more rigorously monitor such day-to-day expenditure. 493 Many other management issues and lessons emerged. Those lessons should be internalised in the day-to-day operations of the Government.
I was pleased by the development of the new public service agreements initiative which evolved from the comprehensive spending review in the summer. Contracts between the Treasury and Departments mean that extra cash is provided to secure not only the services but modernisation and reform of the way in which Departments operate and of the services that they provide. That is a strong step towards better incentives for best practice in Departments, and places more responsibility on accounting officers and Departments.
Other hon. Members have mentioned the news on fraud going around the European Union. That is a clear example of a lack of good democratic auditing procedures as strong as those that we have established over the many years that the Public Accounts Committee has been going and it has led to great problems in European institutions. As a strong European, I think that, if we need government in Europe, it must be publicly accountable and the money spent must clearly be shown to be good value for money and to have been efficiently and effectively spent. Developing auditing processes in the EU is important.
I had to come off the Public Accounts Committee in November. I learned a lot from it and am sad to leave, but I was pleased that today's speeches showed that the robust tradition of scrutiny and good accountability for public accounts will continue for many years to come.
§ Mr. David Atkinson (Bournemouth, East)
I echo the congratulations offered by my hon. Friends to the new Financial Secretary on her recent promotion. She has been very helpful to me on the issue to which I shall confine my remarks; it will come as no surprise to her that it is the subject of the Public Accounts Committee's 66th report, "Managing the Millennium Threat". It was published last July and the Treasury responded in October. Given its importance, I am sorry that the issue was not highlighted in the motion.
As the first hon. Member to raise the issue way back in 1995, I want to use this debate to warn that we are not doing enough and have not done enough to avoid problems that are now inevitable, as more and more experts are concluding. It is essential that contingency plans are in place well before the end of this year.
When I first raised the issue at Prime Minister's questions, the entire House fell about in response to the warning that I gave my right hon. Friend the Member for Huntingdon (Mr. Major) about the consequences for business and Government if it was not addressed. I do not suppose that there were many in the House then who knew what I was talking about; most probably thought that what I was suggesting was silly, sensational and apocalyptic. To be honest, that had been my view. It was only because a constituent in the computer business had raised the issue with me at a surgery that I made inquiries and became convinced that he was right to be concerned that no one was responding adequately.
Although my right hon. Friend the Member for Huntingdon did not refer to it in replying to my question, I had already learned from him that his Government were 494 planning and implementing measures that were to put this country ahead of most others in terms of awareness and taking action in the public sector. That is contrary to the picture painted by Ministers of this Government, who suggest that they found the cupboard bare when they came into office. The proof of that, if it were necessary, can be found in the report of the National Audit Office published on 21 May 1997, "Managing the Millennium Threat", which was clearly prepared before the general election.
I accept that some of the answers that I received to the questions that I tabled to every Department in early 1996 were complacent and short on detail. However, as the NAO report confirmed, the central information technology unit of the Office of Public Service, supported by the Central Computer and Telecommunications Agency, was ensuring that central Government were preparing our public services in good time to anticipate and avoid problems in the three years before the millennium.
In reply to my Adjournment debate in June 1996, the first detailed debate in the House on the matter, the Minister responsible for information technology, my hon. Friend the Member for Esher and Walton (Mr. Taylor), announced the establishment of TaskForce 2000, a Department of Trade and Industry-sponsored, private sector-financed public awareness campaign aimed at ensuring that British business would be millennium ready.
I apologise for harking back to the past, but, to my knowledge, no one has put the record straight in the House on the previous Government's response on the millennium bug. It is, of course, not mentioned in the 66th report. However, I stress, as I always have, that I do not believe that voluntary action by business, in response to DTI exhortation and the TaskForce 2000 campaign, will be enough to ensure our millennium readiness. That will have a knock-on effect on the provision of public services.
Such is the nature of the issue that it is not enough to ensure that the necessary action on the computer systems of Departments and public sector agencies, as well as those in the business sector, has been taken, including sufficient time to allow the testing essential to ensure millennium compliance. If the systems with which those computer systems are linked, such as those of their suppliers or receivers, are not compliant, theirs will also fail to perform after the first midnight of the new millennium. As is becoming more widely understood, it is an all-or-nothing situation. In a network of computer systems, the chain is strong as its weakest link. If one system is not compliant, all those with which it is linked are also at risk.
There will always be reluctance to disclose true millennium readiness, especially in the private sector. There are many reasons for that, including maintaining competitiveness, the risk of future legal liability and the difficulty of obtaining insurance. As the Chairman of the Public Accounts Committee said, the civil servants who assured the Committee that we will be all right on the night next new year will not be around to pick up the pieces. That is why the Pledge 2000 initiative mentioned in the Treasury response, which the Government have signed, to the 66th report will prove not to be worth the paper on which the signatures are written.
The non-legally binding abstracts issued by the urgent issues task force sub-committee of the Accounting Standards Board on disclosures on millennium 495 compliance relating to business, to which the Financial Secretary referred in her reply to me last year in her previous role at the Department of Trade and Industry, will prove to be totally inadequate as the only yardstick of progress in this country. Both serve only to encourage over-optimistic and complacent conclusions that do not reflect the reality.
For the reasons that I have given, I felt that there was no alternative but to legislate to introduce a statutory requirement on company directors to assess the millennium compliance of their company's computer systems and to report the outcome of that assessment in their annual report to shareholders—the owners of the company—together with the action that they were taking to safeguard the company and the shareholders' investments in it if its systems were found not to recognise the year 2000. That was the object of the private Member's Bill, the Companies (Millennium Computer Compliance) Bill, which the House allowed me to introduce under the ten-minute rule procedure in November 1996. The Bill had reached its Report stage by the time of the general election. I had amended it in Committee in response to suggestions that I received from the top 100 companies that I had approached, many of which supported my Bill.
I contend that, if the previous Government had allowed my Bill to become law before the dissolution of Parliament, this country would now be far and away ahead of all others in the millennium readiness of both its public and private sectors. Company annual reports for the years ending 1998 and 1999 would have seen to that. Even the present Government had an opportunity to support the Bill when the House allowed me to reintroduce it in June 1997 after the general election. I appreciated the fact that the Minister courteously listened to my arguments on that occasion. Instead of supporting my Bill, the Government chose to suspend TaskForce 2000 before replacing it with Action 2000 almost six months later. In hindsight, I believe that that delay of almost six months will prove to have serious consequences in terms of missed targets and escalating costs.
The concerns about the millennium bug are reflected in the Public Accounts Committee's 66th report. It concludes:we cannot be sure that government business will not be disrupted in the year 2000…we are concerned about the readiness of the wider public sector to cope with the Year 2000 issue".In response to the Committee's concerns that the NHS executive could not give an assurance on the safety of patients, the Treasury was right to say that it would be dishonest to guarantee that there would not be a single unforeseen mishap. The truth is that no one can guarantee that, where date-related computer systems are involved, nothing will go wrong at the end of this year. No one knows for sure how widespread the year 2000 problem is likely to be.
We know that many modern computer systems are vulnerable to flawed software. Even Windows 98 is not millennium compliant unless action is taken and then tested, despite the assurances of Microsoft. The PAC was therefore right to urge in its report that the Office of Public Service shouldEnsure that contingency plans are in place, and are tested.It said:We look to the Office of Public Service to require all public bodies to have comprehensive robust business continuity plans in place by January 1999.496 The Treasury has responded by saying that a number of Departments and agencies have yet to begin work on dedicated year 2000 business continuity plans. I suspect that that situation applies throughout the entire public and private sectors of this country. There will be all too few contingency plans in place, and they will be too late to be effective.
We still have the time, just, to replace a reliance on a voluntary requirement to have in place contingency plans with a statutory one. That is why this morning I secured from the Public Bill Office the opportunity to introduce a new Bill under the ten-minute rule procedure to require organisations responsible for providing essential public services and critical infrastructure to draw up contingency plans in the event of their computer systems failing to deal with calendar dates after 31 December 1999; to require such plans and the names of those responsible for them to be notified to an appropriate authority; and to require the plans to be made available on demand. I shall seek the leave of the House to bring in the Computer Millennium Non-Compliance (Contingency Plans) Bill on Tuesday 2 February.
If enacted, my Bill would do much to ensure that the essential public services on which all of us rely, especially the most vulnerable, will be protected in less than a year from now; otherwise, we shall see develop over this year a growing mood of uncertainty and alarm, which will alter the behaviour of the public and of financial markets. We still have time to avoid that situation.
§ 4.6 pm
§ Mr. Alan Campbell (Tynemouth)
I am pleased to be able to speak in this debate and pleased, too, that this year we are dealing with our own reports rather than with reports inherited from the previous Committee—although I suppose the Minister may not share my sense of familiarity with them. I associate myself with the comments made about the work of the Chairman of the Public Accounts Committee, the Clerks and the National Audit Office. I add my warmest wishes to my hon. Friend the Minister in her new role. She brings with her a considerable reputation from the Department of Trade and Industry. I wish her well.
The Committee produced 67 reports over the year. The House will be relieved that I do not intend to comment on all of them. I shall limit my comments to three—the 48th report "Ministry of Defence: Sale of the Married Quarters Estate", the 61st "Getting Value for Money in Privatisations" and the 65th "Privatisation of the Railway Rolling Stock Leasing Companies". I wish to comment on those reports for two reasons. First, privatisation is an on-going issue. The Government have signalled their intention to sell shares in the Commonwealth Development Corporation, the National Air Traffic Services and Belfast port. We have also collected a national asset register that presupposes that in the fulness of time those assets will also be sold off.
Secondly, the 61st and 65th reports were published when the House was in recess. The 65th attracted some attention, such was the scale of public concern. The reports raise important issues for the House: they should be debated on the Floor of the House and our debates should be on the record of the House.
My hon. Friend the Member for Shipley (Mr. Leslie) has already alluded to the 65th report. In July 1992, the then Department of Transport issued proposals for railway 497 privatisation. That was followed in 1993 by the Railways Bill, which provided the legislative background to privatisation. British Rail began to reorganise its operations for sale. The three rolling stock companies or roscos were to lease stock to the train operators. That was to be a long-term investment. It was assumed that the rolling stock would have a lifespan of about 30 years. I suspect that there are people travelling on trains who would regard 30-year-old stock as something of a luxury, but it would be a long-term investment. In 1996, the roscos were sold off for about £1.8 billion, but the important point is that, within a few months, they were sold on for £2.7 billion. In that process, the taxpayer lost out considerably and British Rail managers in post and former British Rail managers made personal fortunes. We have already heard that, for personal investments of between nothing at all in one case, and £120,000 in another, those managers received windfalls of between £15 million and £33 million. Perhaps to rub salt into the wounds, they admitted to the Committee that, when they sold the companies on, none of them paid capital gains tax.
The Committee found it significant that two of the three buyers of the roscos were management buy-outs. Employee buy-outs were envisaged in section 113 of the Railway Act 1993, but, with hindsight, I am quite sure that the employee buy-outs and the sell-offs were not the type of management buy-outs envisaged in the Act. I am very much in favour of employees owning their own companies, or certainly having shares in their companies, but that type of management buy-out does not fit my model, either.
It became clear that being a manager in British Rail at that time gave certain advantages. All the potential bidders who came before the Committee said that they had access to what they called the basic information—in one case, they said that they had had too much information—but much of that information was provided late, and the British Rail managers were in a much better position to deal with it and to realise its importance. There is an enormous difference between having information about a company and understanding how that company works—that is of fundamental importance for all privatisations where management buy-outs are involved. The British Rail managers had that understanding so, as the Committee pointed out, the playing field was not level.
Furthermore, one potential bidder, who came before the Committee and who later bought one of the roscos, said that, when he had contacted the sellers asking for an indicative price, he had been told £1 billion each. Even when the roscos were sold on, they did not attract £1 billion each. Mr. Souter was able to shrug his shoulders at that when he appeared before the Committee; he had lost out the first time, but presumably thought that he would gain the second time. I am sure that it is in the nature of Mr. Souter's work that he believes that what goes around comes around, and that his time will come. The question for the Committee and for the House is when the taxpayer's time will come in these deals.
The Department of Transport was aware of the loss-making potential of those deals and yet, as we have already heard, no clawback arrangement was made. The funding arrangements for the channel tunnel rail link 498 contained a clawback provision over the next 15 years. It is not impossible to arrange such provisions, but the Committee was told that clawback was not seriously considered and it did not find its way into the final arrangements for the sale of the roscos. The Department was told to get on with it: it was told by Ministers to carry on regardless, and that the shortfall could be blamed on market conditions. It is clear that, by selling those companies in the way that they did, the Government helped to create the very market conditions about which they had been talking.
In April 1994, the plan was put to the Prime Minister and sanctioned at the highest level. Warnings were put in a memorandum; the Committee pointed out—and I point out again—that it wished that the accounting officers had put that information in a letter. The officers have a responsibility not only to their Departments and to Ministers but to the House, and it would have been nice if they had discharged that responsibility by putting their information and warnings in a letter.
We were told that political uncertainty had affected the sale, but most of the people who appeared before the Committee said that railways would have be on the Government's agenda whichever party won the election. They were told that investment could not come only from the taxpayer, which suggested that the companies would have to look to the private sector. As most of those who came before the Committee admitted, they realised that the new arrangement would carry Government subsidy and that if—almost unimaginably—it all went horribly wrong for the railways, the Government would have to step in.
Where was the uncertainty in that? The people who recognised that there might well be uncertainty but who could recognise the potential were, of course, the managers themselves, who went on to buy and sell on the roscos. Almost predictably, the Government went for a quick sale, the market got the depressed sale that it had anticipated and quick profits were made. Although I agreed with much that my hon. Friend the Member for Liverpool, Garston (Maria Eagle) said about the role of civil servants, I want to point out that those sales were ministerially led; they were not led by departmental civil servants.
§ Mr. Phil Hope (Corby)
Was not the period that elapsed between the management buy-out and the time when the managers sold on the rolling stock companies as little as seven months? It is difficult to justify the assertion that market conditions were responsible for the conditions of the original sale, given that, only a few months later, the companies were sold on for such huge and unacceptably high profits.
§ Mr. Campbell
I am grateful to my hon. Friend for making that comment. It is precisely the point that there appears to have been some miraculous change in market conditions, and I shall return to that matter in due course.
I should like to move on to the Committee's 48th report, dealing with the sale of the MOD married quarters estate. Although it is easy to see how rolling stock might deteriorate over time and fall in value, it is hard to understand how property prices for the married quarters estate could fall in value over a period of 25 years. The evidence to the Committee showed that the MOD's 499 preferred option in 1994 was some kind of housing trust. In summer 1994, new Ministers at the MOD again sanctioned the sell-off and again it was sanctioned by the highest authorities. Annington bought the houses, which, as we have already heard, are rented back to the MOD. Annington paid £1,662 million; that is a considerable amount, but, on the MOD's estimate, it is still £140 million less than it would have cost the MOD to run the houses for the next 25 years, and at the end of that time the MOD would, presumably, still have owned the properties.
The Committee was told, in most of sessions at which privatisation was discussed, that privatisation is about the transfer of risk. It is hard to see where the real risk lies for Annington in that deal, but I know where the risk lies for the taxpayer. The MOD spends about £350 million a year in rent, whether or not the houses are occupied, and in December 1997 some 13,600 MOD homes were unoccupied, at a cost to the taxpayer of more than £60 each a week in rent. The MOD spends at least £1,500—probably considerably more—on each house every year on maintenance costs, and it admitted that it still pays £11 million a year to keep families in private accommodation. If we add up the costs of the sale and of the outgoings over the next 25 years, we see that the taxpayer, or the then Government, received £1.6 billion for the deal, but that the actual cost to the taxpayer would be £3 billion over that period. To rub more salt into the wounds, Annington did not ask to pay the money in two tranches, but was asked to do so. Again, the taxpayer lost out. I understand that one anonymous employee of Annington described the matter as a "licence to print money". However, yet again there was a huge sale for which Ministers created the market conditions.
I have a number of concerns about that and other privatisation matters and welcome the 61st report, on best value for privatisation. I hope that the Government learn lessons from it, for in the past it seems that despite all the warnings, minutes and guidelines that existed, if Ministers wanted to push decisions through, they did so.
I was interested to hear the comments of the hon. Member for Faversham and Mid-Kent (Mr. Rowe), who unfortunately has left the Chamber. He spoke about examining public expenditure or privatisations before they actually happened. I shall return to that theme later.
As has already been pointed out, it is not for the Committee to be for or against the policy of privatisation: to some extent, we are all privatisers. However, the Committee has a role to play when the implementation of that policy fails to give value for money to the taxpayer. The more privatisations we looked at, the more some of us became convinced that there had been a headlong rush towards sell-offs under the previous Government, either to fill the coffers or to spread the perceived benefits of privatisation. That is for others to judge. However, that policy produced what my right hon. Friend the Member for Swansea, West (Mr. Williams) memorably called a "scorched earth" policy—or perhaps a "final solution" would be a better term.
It is not as though there are no watchdogs in this area. However, if I owned a watchdog—perhaps I should say that I do in case there are any burglars in my neighbourhood—I would not be very happy if it did not bark until the deed was done. It is no good the dog's barking after the burglar has been in and run off with the family silver. I wonder whether there should be earlier 500 scrutiny. I appreciate that it would be difficult to identify who should carry it out: issues of commercial confidentiality would presumably preclude the House from assuming that role. The National Audit Office and the Public Accounts Committee already have a scrutiny role, but that comes into play after the event, and it would muddy the waters if they provided advice on the process beforehand.
Would it make that much difference if the decision to proceed were made almost come what may? By the time the Public Accounts Committee considers the matter, the Minister concerned has often left office or moved on, as has the accounting officer. I think that the charges pending against accounting officers should be considered before they move on so that the Public Accounts Committee could become involved earlier in the process.
This debate is not about closing the stable door after the horse has bolted. These reports are made more difficult to swallow because we were told for a long time that the horse was a nag that was not fit to enter the 2.30 race at Hexham. However, we often discovered within a few weeks of the sale that the horse had turned into a grand national winner. The jockey who rode off with the horse not only received no share of the winnings but did not achieve the asking price. Yet we see the occasional glimpse of a jockey opposite.
The taxpayers deserve better. Governments are very good at collecting and spending taxes: they should be better at safeguarding taxpayers' interests. We hear a lot about tax at election time, usually from aging rock stars and game show hosts who threaten to leave the country if taxation is increased—although unfortunately they seldom do so. They are probably in a position to look after themselves. I am concerned about the small business people, the teachers, nurses, pensioners and the girls on the check-outs at Morrisons who do not have to earn very much before they start paying tax. Their parents and grandparents paid tax that was used to buy and sustain public companies, and they deserve better from their investment.
I hope that the Government recognise those concerns, because the issues remain current. The Public Accounts Committee will continue to hold current Ministers and accounting officers responsible for their decisions.
§ Mr. Alasdair Morgan (Galloway and Upper Nithsdale)
I wish to refer to the 42nd report of the Public Accounts Committee, which deals with the Skye bridge. I shall be relatively brief, as many of the issues were covered by the hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy).
The Skye bridge was the first private finance initiative project—the former Tory policy has apparently now become new Labour orthodoxy and been re-branded public-private partnership. The handling of the project was a disaster which the Committee rightly criticises. A few quotes from the report will illustrate that fact. The report states:This was a serious omission in their evaluation of the project which leaves a question mark over its value for money…Toll payers' interests were insufficiently protected…We are not satisfied that the costs of the bridge are reasonable … This was contrary to good practice, unfair and imprudent…It is highly unsatisfactory…A question mark must remain over the extent of value for money obtained.501 The project was a disaster which, thankfully, the Government responsible paid for, together with their other mistakes. One might argue that at least we got a bridge at the end of it. The Public Accounts Committee recognises that fact in its first conclusion, which states:The Department achieved their primary objective, the provision of a privately financed tolled crossing to Skye.In its eagerness to find a statement that was not critical of it, the Scottish Office responded to the Public Accounts Committee by saying:The Scottish Office Development Department is pleased that the Committee recognises that the bridge brings benefits.It is hardly likely to have done anything else, given that Skye was previously an island unconnected to the mainland. Any bridge built by anyone would presumably have brought some benefits to the people of Skye. However, the anger in Skye and in Scotland remains.
The Labour party in opposition peddled the story in the highlands and islands that it would abolish tolls when it came to power. However, there has been only a reduction in tolls—to which the Committee refers in paragraph 17 of its report—for frequent users of the Skye bridge. If one is prepared to shell out £26, one can get one's tickets at a discount.
Many car owners on Skye, in my constituency and throughout rural Scotland would not own a car if they lived in an urban area. They cannot afford to run their cars: they do so because it is a necessity, as sufficient public transport does not exist. A disproportionate part of their family budgets is devoted to running a car. The annual MOT test can cause a family budget crisis if the car fails to pass. It is claimed that £26 is somehow a concession for those people, but I think that the charge is most unfair as it bears so heavily on those who can least afford to pay. The Government must do more work in order to bring the benefits of a really low toll to the people of Skye and the highlands and islands. Why should the people of Skye and the highlands pay for a defective scheme and for the mistakes of the previous Administration?
In 1997, this Government were prepared to write off £62 million in debt on the bridge across the Humber and to reduce interest payments on the remaining debt. Will the Government explain why the people of Skye are somehow less deserving of having their debt written off? After all, the fee for a return crossing on the Humber bridge is £2.60 and it is £11.20 on the Skye bridge.
§ Mr. Charles Kennedy
I have already had my shout, so I am loth to intervene. However, I must raise a point about the Government's concessionary package—which was much less than Labour implied at the time of the election. I know from my own experience that those in the poorest categories, particularly the elderly, might make the crossing only two or three times a year, mostly to travel to Inverness for hospital visits. Forcing such people to purchase a book of 20 tickets for £26 adds to the disadvantage and discrimination that they already suffer.
§ Mr. Morgan
I thank the hon. Gentleman for making that valid point. Added to the cost of the crossing is the substantial cost of petrol in rural areas, which has not been helped by some of the Government's policies. It is a 502 mistake to think that people travel regularly from Skye to Inverness. The hon. Gentleman is correct to say that some people must wait two or three years before they realise any benefit from their £26 investment.
The Government have said that there is no funding available to buy out the concession contract. In light of the Committee's report, do the Government consider that a variation of the windfall tax might be appropriate in the case of the excess profits that are clearly being made by the concessionaire? Would it be appropriate to use such a tax to buy out the contract? The Bank of America now owns 97 per cent. of the bridge and is presumably clawing back 97 per cent. of the profits from its concession. It is currently being sued in the United States to the tune of £1 billion by the city of San Francisco and some 250 other local authorities in that country. There could be no more apt a target for a windfall tax.
The report also says that there is no guarantee that the toll will be removed even once the debt is repaid and the concession ends. Will the Government now give a guarantee in that respect? The Scottish Office's response to the part of the Committee's report that broached that subject was fairly opaque and was included in a series of responses that the hon. Member for Ross, Skye and Inverness, West described as casual.
The hon. Gentleman also mentioned that Professor Robert Black of Edinburgh university said last week that the fact that the assignation statement identifying the authorised concessionaire had not been published along with the toll order was a fatal flaw. The legal basis for collecting tolls now seems to be on shaky ground. Surely the legitimacy of the whole operation urgently needs investigating, as the hon. Member for Ross, Skye and Inverness, West has already suggested. Once the result of the current action before the Court of Session in Edinburgh is known, that investigation must be set up as a matter of urgency.
We need a thorough inquiry into the complex web of financing and contractual obligations. The inquiry must be conducted in a transparent manner because throughout the saga we have lacked any such transparency. As every year goes by, the public and hon. Members become more and more confused about the matter.
I turn finally to another matter that has been mentioned in the debate. The Chairman of the Committee, the right hon. Member for Haltemprice and Howden (Mr. Davis), referred to the nature of scrutiny arrangements under the new Scottish Parliament. I believe that the system will increase the scrutiny of public expenditure in Scotland. No United Kingdom committee, even one with the appetite for work that the Public Accounts Committee seems to have, could hope to give the amount of scrutiny to Scottish expenditure that it will receive from a committee of new Members of the Scottish Parliament, who presumably will be eager to call to account the civil servants in St. Andrew's house. That has too seldom happened in the past.
The hon. Member for South-West Hertfordshire (Mr. Page) followed the same line, but his suggestion that the Public Accounts Committee should continue to investigate activities in the devolved departments in Scotland is a recipe for chaos and conflict and would be 503 deeply resented in Scotland. My party wants the new Scottish Parliament to work effectively, but it will not be assisted in that if Committees in this House interfere.
§ Mr. Morgan
I do not think, Mr. Deputy Speaker, that you would allow me to rehearse the argument that Scotland is not subsidised by the UK taxpayer and that, if anything, the cash flows in the other direction. I would be willing to have an argument about all kinds of expenditure against all kinds of income which I think we would win, as we have done in the past, but I shall move on.
Later in his speech, the Chairman of the Committee referred again to the need for parts of the United Kingdom to learn from the experience of other parts. He cited the Committee's report on cataract surgery in Scotland. After devolution, any report produced by the Scottish Parliament would be just as readily available to Departments elsewhere in the United Kingdom as a report by the House on Scotland currently is. What matters is the willingness of Departments and agencies throughout the United Kingdom to learn from the experience of others in the UK and, for that matter, in Europe.
§ Mr. Geraint Davies (Croydon, Central)
I, too, thank all those at the National Audit Office, Sir John Bourn, the Committee Chairman and, in particular, my right hon. Friend the Member for Swansea, West (Mr. Williams), whose experience was helpful to all members of the Committee.
I also congratulate the new Financial Secretary on her appointment; I am sure that she will bring a wealth of experience to her new role. Last night, I hosted a forum of 50 businesses in the House, which was attended by her successor, by Lord Clinton-Davis, and by the Minister for Energy and Industry, who all sang her praises. She will bring a businesslike approach to her new role.
It is a great privilege to be a member of the Public Accounts Committee because it is the premier Select Committee. Other Select Committees receive minuscule support in terms of the numbers of staff they have compared with the National Audit Office. That is right, because there is £5,000 of Government expenditure for every man, woman and child in the country. It is of key importance that Governments deliver value for money. The new Government, with their focus on outputs and value and the public service agreements that have been referred to, are in favour of that approach. It is important that we are pushing in the same direction.
My background is in multinational companies, where I managed product development, marketing and advertising for Europe and Britain before starting my own businesses. I was also leader of Croydon council, the largest council in London. I came to the Committee with those perspectives. I was surprised that Departments did not adopt proper accounting techniques and, in particular, that they had no apparent idea of cashflow or asset management. That is now being changed through the introduction of resource accounting, which is welcome. Through more rational asset management in individual Departments, we shall be able to make great savings and create opportunities for the taxpayer.
504 Local government is often regarded as the poor relation of central Departments, but councils already perform asset and capital management and use performance indicators, which are now being included in public service agreements. Previous speakers have mentioned parliamentary accountability for that expenditure. Councils are audited by the Audit Commission, but there is not a Select Committee considering their expenditure. Perhaps the Environment, Transport and Regional Affairs Committee should do that, as the Chairman of that Committee has suggested. Other hon. Members have mentioned the lack of accountability of the Housing Corporation, housing associations and quangos and the need for more rigour in European expenditure to bring greater confidence as we move towards a new Europe.
Hon. Members have referred to the accountability of those who are meant to be responsible for expenditure—the so-called permanent secretaries, who are in fact semi-permanent because, as career civil servants, they move on from a post as soon as the Public Accounts Committee catches up with them. We need to consider a system of accountability for those individuals. A problem in many of the Departments that we have studied is that many civil servants have not had sufficient financial training. Departments do not have enough accountants and financial or commercial experts to focus on value for money and outputs. There are great people in the civil service, but we need to strike a commercial balance.
The Government are considering more partnerships with the private sector under the private finance initiative, which the Committee has examined. It is crucial that when the public sector engages with the private sector, the former is enabled to get the best deal through commercial negotiation. I look forward to a new era of secondment and switched experiences in which we can ensure that we get the best value for the taxpayer.
Several hon. Members have referred to privatisation, and I shall not dwell on the points that were made so well by my hon. Friends the Members for Tynemouth (Mr. Campbell) and for Shipley (Mr. Leslie). The issues considered by the Committee are not political; they relate to management and to getting the best deal for the public, but there is a grey area about when timing becomes policy.
As has been said, different people have different views on privatisation, but let us assume for a moment that we agree with a given privatisation. If that is so, we have to accept that timing is important in respect of value for money. If rolling stock suddenly has to be sold before a general election, as was the case, what happens to value for money for the taxpayer? There is a false sale, which means a lower price. The rolling stock cannot be sold in stages so the market cannot be tested, and, even more crucial, the people who thought that there might be a Labour Government—wise people knew that there would be—wonder what the commercial value of the privatised rolling stock of a formerly nationalised railway would be under a Labour Government.
Some people might think that a Labour Government would not want to encourage that, but because the previous Government were hastily pushing civil servants into the premature sell-off of railway stock, what happened, among other things, was that the price was deflated but later took off in a real market and was then exaggerated by the political changes. In the interests of the Government and the taxpayer, the sale should have 505 been delayed for the sake of value for money, instead of being pushed forward for ideological reasons. There is a similar story with the Ministry of Defence property, a scandal that has already been mentioned.
Public service agreements are measurable performance targets that the new Government have introduced and I shall focus on how they fit in with the activities of the NAO and the PAC. The old way of allocating Government expenditure was on a yearly basis. Every year, each Department would tell the Treasury that it wanted a certain amount of money because it had it last year and that it must have it again or there would be problems.
The new way—the third way, as it were—is for expenditure to be output-based. New money is allocated on the basis of what is to be done with it, whether what is to be done is measurable and what it will mean for the public. This involves a three-year planning phase—the comprehensive spending review—and alongside it we are to have resource accounting. It all adds up to a much more professional, strategic approach to the management of public funds.
Obviously, we have all heard about the extra £40 billion that will be spent on health and education, but the watchphrase is "investment for reform". That is what the public service agreements are about: 350 performance targets and 150 efficiency targets. We shall be able to see things coming which the PAC needs to review—for example, truancy needs to be down by one third in three years, car crime needs to be down by 30 per cent. in five years, and there needs to be 3 per cent. efficiency savings a year in the national health service.
Let us not pretend that there will not be debates over the priorities, whether there should be local variations and whether there needs to be a shift in priorities over time. However, the key point is to make it clear that we look for a return on investment in terms of the outputs that the public enjoy.
The right hon. Member for Haltemprice and Howden (Mr. Davis) mentioned in passing independent verification and scrutiny. I am sure that they will be instituted. My understanding of the current position is that they will be overseen by a Cabinet Committee, but clearly the NAO and the PAC are also well placed. The public service agreements will be linked to performance information, which will be part of the resource accounting regime. It is the view of the NAO, the PAC, the Treasury Select Committee and the Procedure Committee that the performance information in resource accounting should be independently validated, preferably by the NAO and the PAC. I hope that the Government will consider that.
Efficiency statements were announced at the same time as the public service agreements by the former Chief Secretary. I mention them especially in relation to fraud, procurement and absenteeism, which were the former Chief Secretary's focus in this instance, and to the work that the PAC has undertaken in the past year or so.
As has been said, the Committee recognised that there was some £900 million of housing benefit fraud, something like 8 per cent. of total spending. It concluded in its report not only that the Government needed to be fair and to ensure that the people who deserved housing benefit and were entitled to it in fact received it, but that they had a robust system to deter fraud.
506 Benefit interaction and confusion provided the opportunity for benefit fraud. In particular, the Department of Social Security and the Benefits Agency failed to control claims for income support and jobseeker's allowance—people applied for housing benefit at the same time, and the resulting gateway led to enormous benefit fraud. The problem is being tackled, and we should pay tribute to the work of the NAO and our Committee in bringing the problem to the fore. The Government welcomed what the Committee said.
The Government spend something like £20 billion on procurement. That is big money, and it is important that if we can make savings on Government purchases, we do so. In our report on the Ministry of Defence's stores management, we identified that for every £1 million of expenditure, between £30,000 and £100,000 could be saved or, to look at it another way, was lost because stores were not issued directly to the people using them. Again, that is being taken on.
As for NHS supplies, we examined the need for systematic analysis of price differences—the price of items being supplied other than to the NHS—in a bid to drive down supplier costs. Indeed, we are interested in the development of various new procurement techniques, be they linked to the PH, or be they procurement cards, the streamlined purchase of something like 1,750,000 low-value goods or electronic procurement.
As hon. Members will know, the target is that something like 90 per cent. of routine items should be electronically procured by March 2001, and a model is being devised for procurement excellence. There are also Ministry of Defence smart procurement initiatives and a joint departmental strategy. All these issues are key to the Government's value-for-money strategy and were examined by the NAO and the PAC.
Sickness absence is a problem that the Government need to tackle. The Committee did some work on the Metropolitan police service whose sickness average is 14.4 days a year. One day costs £6.3 million, and the implementation of some of our recommendations has already led to various savings.
We also did some work on the Child Support Agency. It is clear from what has been said that there are various problems. The basic message is that we need a simpler, standardised system, and that message has clearly been taken on board in the Government's recommendations.
In conclusion, the NAO and the PAC have been and will continue to be an enormous stimulus to Government success. The advent of public service agreements will bring a new stimulus in terms of value for money for the taxpayer. Alongside a revolution in information technology and a new accountability, we can look forward to ever higher standards of quality services for the public, tailored to the priorities of the people of Britain.
§ Mr. Geoffrey Clifton-Brown (Cotswold)
I congratulate the hon. Lady the Member for Hornsey and Wood Green (Mrs. Roche) on her appointment as Financial Secretary. With the introduction of the euro, she takes over the job at a challenging time. I wish, her well in t hat task, because it will be vital for all of us that she gets it right. Like other members of the Public Accounts Committee, I pay tribute to the Comptroller and Auditor General, Sir John Bourn, for the excellent job that he does 507 in charge of the National Audit Office. As a member of the Public Accounts Commission, which sets the budget for the NAO, he is in charge of a lean and efficient organisation. He scrutinises every area of public expenditure extremely well.
I should also like to pay tribute to the Committee Clerk, Ken Brown, and his staff, who order our affairs with meticulous efficiency and distribute the paper work on time and in the correct order. Many hon. Members—[Interruption.] Sorry, I forgot to pay tribute to my Chairman for his outstanding efficiency and courtesy. I would have been struck off the Committee if I had not done so. Please, Mr. Chairman, call me early and allow me to speak at great length at the next Committee sitting.
Many hon. Members have referred to the Committee's effectiveness. The ideal would be for the Committee to have no work to do, because that would mean that there was no misappropriation of taxpayers' money. The Government would set their departmental spending priorities and each Department would draw up its budget and present the relevant motion to Parliament, which would approve it or not. Supplementary and excess votes would become an extreme rarity, and retrospective Treasury approval would be non-existent.
Perhaps there is some light at the end of the tunnel. We may be able to achieve something resembling that nirvana by the introduction of resource accounting, which will be introduced in 1999–2000, and will replace the current system of appropriation accounts. Perhaps I am being over-optimistic, but I believe that its introduction is the largest change in the delivery of our public services since the Committee was established more than a century and a half ago, so we should have high expectations of it.
Will the Financial Secretary give the House an idea of when the present system of appropriation accounts will be phased out? I note that the Treasury has not asked the PAC for approval to phase it out, so no date has been set. Will she tell the House what trigger points will have to be reached in the resource accounting process before it will be safe to phase out the existing system, which has been in place for so long?
I hope that the resource accounting system will enable Parliament to obtain financial transparency from and exercise far greater control over every Department of State. Other right hon. and hon. Members have referred to the Ministry of Defence—our 23rd report in 1996–97 shows that it overspent on class I votes 1, 2 and 3 by a staggering £234 million. When the Treasury was questioned by the Committee, I asked for a note on this matter. The MOD was fined £168 million, which came out of its budget for the subsequent year. The Secretary of State for Defence prepared a report, which went to the Chief Secretary. It is a very serious matter when a Department overspends its parliamentary voted money.
Permanent secretaries, who, as accounting officers, are involved in such excesses deserve to have their promotion prospects carefully examined. They should realise that their duty as accounting officers is paramount. The right hon. Baroness Thatcher, when she was Prime Minister in charge of the civil service, instructed her Cabinet Secretary to examine the effectiveness of permanent secretaries before they were promoted. We should return to that practice.
The 23rd report criticised the financial controls at the MOD. As the hon. Member for Liverpool, Garston (Maria Eagle) said, the costs on the Waltham Abbey Royal 508 Gunpowder Mills project escalated out of control by more than £10 million and retrospective Treasury approval was sought. That is an extremely rare occurrence—it has happened only three times since 1992. Some sanction should have been applied against the responsible MOD officials.
Worst of all, that report highlighted the fact that between 1988 and 1996, a staggering £50 billion was passed through uncontrolled suspense accounts. There were 2,705 suspense accounts, and £40 million had to be written off in 95 of them, including £19.5 million through the Army pay disbursement suspense account. The operation of such financial controls in a major Department of State are a disaster, and the accounting officers should be accountable for such gigantic errors.
I wonder whether the Financial Secretary can tell us whether the resource accounting shadow programme is on track. The programmes were supposed to be completed by 31 December 1998 so that a full shadow financial resource account could be produced by the end of the financial year on 1 April 1999. If the implementation of that process has slipped, for example in the Department of Social Security or the Ministry of Defence, which are the most likely candidates, it will be difficult to produce that first shadow resource account. I should be grateful if the Minister would give us some idea about that.
Other hon. Members have mentioned the fact that devolution will change the role of the PAC. That may be a good thing, but I am concerned that there should be no underlap or overlap between the current PAC functions and the functions that will be carried out in the future by the regional audit offices. We must watch that carefully. I am sure that my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the PAC, would be only too pleased, if asked, to give help and advice about how the procedures could be carried out in those auditing bodies.
As has already been mentioned by right hon. and hon. Members, we have carried out some important regional surveys. For example, our 44th report points out the difficulties with the payment of disability allowance in Northern Ireland where as much as £17.8 million out of a total of £250 million, was incorrectly paid out in benefit. Such scams must be brought to the attention of the House and it is important that the Northern Ireland Grand Committee is properly able to examine such matters.
Other hon. Members have mentioned the 32nd report which says that 17 per cent. of NHS bodies in Scotland are not confident that they will be millennium compliant by 31 May 1999. My hon. Friend the Member for Bournemouth, East (Mr. Atkinson) spoke at length on millennium compliance. A total of £56 million will be required to put that problem right. I hope that I am not unlucky enough to be on a life support machine in a Scottish hospital on 31 December this year or, if I am, I hope that it will continue to function.
The 32nd report also deals with cataract surgery, which is a quality-of-life issue. If a cataract operation is not carried out in a timely manner it is possible to go blind. Our report found that of the completion target of 80 per cent. for day cases, only 43 per cent. was achieved. That is a staggering shortfall that should have been rectified much earlier. As a result, the NHS was unable to benefit from various savings of £1.5 million.
509 Although the bulk of the PAC's work is about ensuring value for money, rooting out fraud is just as important. After examining some of the latest figures today, I have a robust figure for fraud in the Department of Social Security of at least £4 billion. That is a staggering figure. Time after time in Treasury debates in the House the Government chide the Opposition and ask them to say where savings can be made when we say that their budget is unsustainable. The Financial Secretary should look at that figure of £4 billion in fraud. I shall break it down for her so that there is no doubt that it is robust.
In the Benefits Agency, the figure for fraud is reckoned to be about £2.3 billion. In housing benefit, the figure for fraud is reckoned to be £900 million although, in our later report this year, that may be coming down, and I welcome that. Gross errors in income support—that is overpayments less underpayments—account for £424 million and those relating to the jobseeker's allowance account for £167 million. That makes a total of almost £4 billion.
There are some fairly elementary things that could be done quite quickly to reduce that figure. For example, it is estimated that the loss to the national insurance fund account arising from the fraudulent encashment of giro cheques and other order books may be as high as £64 million and is certainly confirmed at £13.2 million. It would be a fairly simple process to have a system of bar codes so that we could be certain that the person cashing the giro cheque is the person entitled to do so.
I pay tribute to the National Audit Office, which last week, for the 12th year running, has qualified the Benefit Agency's accounts, and, for the 10th year running, has qualified the national insurance fund's accounts. It is a very serious matter when accounts have been qualified for such a long time. If I were one of the accounting officers at the Department of Social Security, I would be pretty ashamed of that record.
Hon. Members have already mentioned the NIRS2 computer system, which was dealt with also in the Committee's 46th report, which was produced on 1 July 1998. The NIRS2 is one of the Government's largest computer systems and should be supporting the Contributions Agency in its endeavours to make payments to pensioners. However, even today, six years after the tender was let, the agency is still having to pay out compensation to those who did not receive proper payments into their pension funds. That is an utter disgrace. The Department of Social Security should have got on top of the matter far more quickly than it did. In February, the matter will be brought before the Committee. I hope that, in line with the request of my hon. Friend the Member for South-West Hertfordshire (Mr. Page), we ask for Andersen Consulting to send a senior, answerable partner to tell us why the system has been so delayed.
We should very seriously examine fraud in the Department of Social Security. Time after time—probably four times since 1990—the problem has come before the Committee. We must devise mechanisms to ensure that real and positive action is taken when such matters are dealt with by the Committee.
My right hon. Friend the Member for Haltemprice and Howden has already mentioned the National Audit Office's other remits. When the Public Accounts 510 Commission set the National Audit Office's budget, the Comptroller and Auditor General made it quite clear to us that he was completely dissatisfied with the fact that the European Court of Auditors, based in Brussels, has greater access to non-departmental government bodies and executive agencies than our own National Audit Office. The Government should rectify that anomaly forthwith.
The standard of our NAO is considerably higher than that of the European Court of Auditors. In our 35th report, which hon. Members have already mentioned, we state that fraud in the Community is a serious matter. I am not surprised that, today, the matter has been subject to a vote in the European Parliament. Paragraph 5 of our 35th report states:We are disappointed to find that standards of financial management and accounting across the Community are still too low; and that there is evidence of waste, error and fraud in the Community's expenditure programmes.It continues:we endorse the Comptroller and Auditor General's conclusion that the Commission have some way to go before they attain the quality of financial reporting expected of public sector financial statements, such as government accounts in the United Kingdom".When our NAO has been so damning about the European Court of Auditors, the latter should consider how the former conducts its work and try to adopt some best practice.
As I am dealing with our 35th report, it is worth highlighting the four major areas in which the European Community is falling short—the very subject of today's vote in the European Parliament. First, the report states that agricultural compensation schemes do not take into account movements in world prices. It is fairly elementary that they should do so. The second problem is the media's oft-quoted example of high tobacco subsidies that have absolutely no effect on improving tobacco quality. The third problem is that the recovery of customs duties are not always collected properly. The final matter, and perhaps financially most important, is the high error level in the payment of structural funds. My right hon. Friend the Member for Haltemprice and Howden has said that total errors amount to £3.5 billion per year. As we are the third largest net contributor, at £1.7 billion, the issue directly affects Parliament and the, taxpayers of this country.
We should be very concerned about such matters in Europe. Will the Financial Secretary tell us what action the Government took to rectify the problems when they held the presidency last year? What follow-up has there been? If we are to renegotiate our financial arrangements with the European Commission and our Fontainebleau rebate is to be reduced, the continuing financial irregularities will be of even greater concern to us.
The work of the NAO is of the highest quality, ensuring savings of more than seven times its running costs. It performs a great service to the House and the nation in monitoring the financial probity of the uses to which taxpayers' money is put, but it has less access to UK institutions than the Brussels-based European Court of Auditors. That is an anomaly. I hope that the Financial Secretary will say something about it. If not, I hope that my right hon. Friend the Chairman of the Public Accounts Committee and the Chairman of the Public Accounts Commission will pursue the matter vigorously with the Chancellor until we have a solution.
511 It is a privilege to be a member of the Public Accounts Committee, which does an effective job in monitoring the NAO's work. I commend its work to the House.
§ 5.6 pm
§ Mr. Barry Gardiner (Brent, North)
Mr. Deputy Speaker, imagine that you are a shareholder in a large national corporation. You do not normally pay close attention to the company's dealings, but you read the annual report, which has just arrived on your doorstep. As you read it over your morning orange juice, you find that the company has divested itself of an arm of what it calls its non-core business. At first you nod with approval as you read that the sale realised £12 million for the corporation, but as you turn to the appendix you become puzzled. You discover that for the division of the company to be sold, it had to be restructured. That restructuring cost £2.2 million. You check the appendix once more to find that the sale also had costs amounting to £3.1 million. The sale price of £12 million has cost £5.3 million to realise, so the real price that the company received was only £6.7 million—or was it?
You look at the fixed assets in the accounts to find that assets valued at £5 million were transferred with the sale. The price that your company has received seems to have diminished to £1.7 million from that original £12 million—at least it would have been £1.7 million but for the guarantees. Your company gave 63 guarantees to the purchaser regarding levels of work and income. Because the work in one or two areas was less than forecast—although overall work was considerably greater—your company had to pay compensation to the purchaser totalling £1.542 million.
Your mental arithmetic is in overdrive as you calculate that the original purchase price of £12 million now looks more like just £158,000. Well, it would look like that if the final sale price had been £12 million. In fact, because of a post-sale adjustment in the value of the transferred assets, a further £600,000 was clawed back off the original sale price by the purchaser. Your company appears to have paid—not been paid—£442,000 to divest itself of that part of its business.
Perhaps you console yourself with the thought that it must have been a loss-making part of the company—a non-profitable division that the company is better off without. If that were the case, it is hard to see why, because your company has guaranteed it an income of £111 million over the next six years. Few businesses get a better start-up. On reading that annual report, would you not determine to get rid of your shares in that dreadfully managed company as quickly as possible?
I regret to inform you, Mr. Deputy Speaker, that this is not some fanciful thought experiment. You were a shareholder in that company and so were the rest of the British public. The company was Great Britain plc under the previous Government and the sale was that of the facilities services division of the Atomic Energy Authority in March 1995.
I am delighted to say that the shareholders expressed their view of the board's incompetence at a quinquennial meeting held on 1 May 1997 and the company is under new—perhaps I should say new Labour—management.
The Public Accounts Committee has done Parliament a great service by its thorough investigation into Atomic Energy Authority privatisations, first of its facilities 512 services division and subsequently in September 1996 of AEA Technology. In the sale of AEA Technology, the Department of Trade and Industry received a gross sum of £227.75 million following a flotation valuing the shares at £2.80 each. After deducting the costs of restructuring at £121 million and the £8.1 million paid to the Government's so-called advisers, the sale achieved a net figure to the Treasury of just £98.65 million. How strange then that on the very day of the sale, the markets placed a £34.8 million premium on the offer price. Within 20 months, the share price had almost tripled, valuing the company at more than £622 million. The taxpayer had netted just £98 million.
When the Public Accounts Committee asked the DTI to explain why AEA Technology so spectacularly outperformed the FT support services index in the month after the sale, the response was that although it no longer had responsibility for the company post-privatisation, the Department believed that the new management had beenassiduous in talking to their shareholders and explaining to them their plans as they gradually began to develop.So it was a matter of spin. If assiduous talking can push a company's performance 30 per cent. higher than the FT index for the sector, Charlie Whelan should leave the BBC and come on down to the City because there will always be a job for him there.
It is vital that the mistakes of the past are not reproduced in future privatisations. The PAC reports are littered with references to previous advice which has been ignored, with Departments blindly trying to reinvent the wheel and protecting their own dignity rather than requesting advice from other Departments that have broader experience and have learned from past mistakes. If there were ever a case for collegiality and joined-up government, it is here, in the custodianship and disposal of public assets.
I shall briefly set out the lessons that I hope will never have to be relearned about the process of privatisation and how the Government can maximise returns and ensure value for money for the British taxpayer.
The beginning of the privatisation process is marked by pre-sale restructuring. It is unacceptable for Departments to seek to inflate net sale proceeds by ignoring restructuring costs related to that sale. If restructuring is carried out, it should not bring benefits to the private purchaser without realising commensurate returns for the public.
I have mentioned the £121 million restructuring of AEA Technology. It can be argued that without such a restructuring, the business would have been unsaleable. However, I believe—this is not a recommendation in the 61st report—that after any restructuring, the Government should also consider afresh whether more value may now be achieved by retaining the asset post-restructure, rather than by selling it. Pre-sale restructuring should take place if it will enhance proceeds for the taxpayer. However, on no account should the Government seek to inflate proceeds to the Department by ignoring the restructuring costs when calculating net returns—as has been done in the past.
I wish to refer to, the objectives of the sale. Departments should ensure that such objectives are carefully set prior to the privatisation process. In the sale of Scottish Power and Scottish Hydro-Electric, no benchmark or target ranges were identified either as to the number of 513 shareholders or, indeed, the length of time that those shares were to be held by those shareholders. Yet only by quantifying those in advance would it have been possible to have analysed whether the much-vaunted objective of increasing individual share ownership had been achieved.
On benchmarking, the process of considering how a business is valued gives the Government some grasp of the potential worth of the enterprise and can act as a guide to whether the terms of the sale are likely to achieve full value for the taxpayer. In August 1988, the Rover group was sold to British Aerospace. Before entering into negotiations, the Government had not undertaken a comprehensive valuation of the company. Benchmarking is an essential tool of privatisation. Only a fool—or, perhaps, a Conservative Minister—attempts to sell something without having any idea of its value.
Book-building can be a useful tool in acquiring that knowledge, where brokers seek indications of demand at a range of prices to see where that demand begins to fall away. In book-building, it is vital that the range is not focused too narrowly, lest a similar result to that of AEA Technology occurs—where the sale price of £2.80 was the top of the range which was canvassed in the book-building process, and no significant tapering occurred during that process. That led to the gross undervaluing of the company and the corresponding loss to the taxpayer.
Departments should always consider retaining a proportion of the shares because that enables the Government to extract the maximum value for the taxpayer from post-sale enhancements in value. It is noted by the PAC in the 61st report that in the privatisation of the 12 regional electricity companies, not only were no benchmarks used, but, because no shares were retained, the public did not benefit by the rapid escalation of the share price which occurred shortly after the sale. By contrast, the successful phasing of the sale of British Aerospace, Associated British Ports, National Power and PowerGen enabled the taxpayer to benefit from additional proceeds of £2.3 billion. That shows how critical phasing can be.
The timing of privatisations is also critical. Privatisations which are offered too close to each other—like Railtrack and British Energy—can lead investors to regard the two as just one investment opportunity, thereby reducing the revenue gained.
On the role of external auditors and their appointment, it is vital that the appointment of advisers should be transparent and by competitive tender. The financial and legal advisers for the award of the first three passenger rail franchises were appointed by the Office of Passenger Rail Franchising without competition. Their fees accounted for nearly £19 million.
Competition not only lowers cost; it ensures propriety in the appointment process. When completion and success fees are agreed with advisers, it is ridiculous to rely on valuations made by the potential beneficiary of the success fee. Independent valuations must be obtained, and the performance criteria should be defined at the start of the' process as far as possible.
Schroders' £1.99 million success fee for the sale of AEA Technology was based on its own valuation of AEA, which was not independently validated. The success fee 514 paid to N. M. Rothschild and Son Ltd. was not formally agreed until two of the stages used as the basis for determining success had already been completed. That is not just to set one's own target and fix one's own reward; it is to place one's arrows in the bull's-eye before the game has even begun. Any criteria for success fees must be set out, preferably before the appointment of advisers, and based on independent reference points.
My hon. Friend the Member for Shipley (Mr. Leslie) mentioned clawback. After the sale of the rolling stock leasing companies, all were resold within two years, with the profits that my hon. Friend mentioned. The Government, however, were aware that the timing of the sale might not be conducive to the achievement of best value for the taxpayer. A clawback provision relating to gains from further on-sales would have protected the taxpayer's interest, but no such provision was introduced. That should have happened. If a clawback provision had been inserted in the sale agreement for the 12 regional electricity companies, the public would have received their rightful share of the £214 million of excess pre-tax profits beyond the forecast profits used in agreeing the sale. In future sales, clawback should always be considered.
The United Kingdom has built up an enormous pool of experience relating to privatisation. There are many things that the Treasury has pioneered, and has got right. The use of partly paid offer structures is an excellent example. Investors have proved ready to pay a premium for partly paid shares, with minimal problems from non-payment of the second instalment. Sadly, much of Britain's experience has come in a bitter form, through the failures and mistakes so assiduously documented by the Public Accounts Committee. I pay tribute to the work that the Committee has done.
I join others in welcoming my hon. Friend the Financial Secretary to her post. I also welcome the recent interchange between the Department of Trade and Industry and the Treasury. I believe that it will enhance the willingness of the two Departments to work constructively together. The mistakes of the past must not be repeated: that is the message that the House must send to Government, throughout Whitehall, on the basis of the PAC reports.
§ Mr. David Rendel (Newbury)
I wish to concentrate on the 46th report, on the replacement of the national insurance recording system, something that, as the report clearly demonstrates, has been a comprehensive shambles.
The report, published on 10 June last year, refers to a system, the original contract for which was to cost about £134 million. We are not talking peanuts; we are talking about big sums, even in Government terms, and the fact that a large part of that money has been comprehensively wasted because the programme has been so late is a serious matter that we should all consider. As the Chairman of the Committee made clear, when the report came out, it seemed that there had been many problems, but, as far as the report showed, most of those, apparently, were resolved and the programme was due to come into operation. On July 13, it became clear via newspaper reports that the whole system had, apparently, gone live.
It was not until about the middle of September that it began to be clear that, far from the problems being all over and done with, there were still serious problems with 515 the new system, that it could not yet make the calculations—all the records were not there and ready to be used for calculations of new benefit claims—and that, in effect, all contributions-based benefit claims, plus linked housing benefit and council tax benefit claims, were being paid blind. It was not until 4 November, when we had the written answer to a written question to the Secretary of State for Social Security that I tabled and that was referred to by the Chairman, that it became clear how many problems there still were with the system.
The Chairman was, rightly, a bit angry that the Government had not come clean earlier and admitted that there were still many problems with the system. I accept that he is right to be angry, but I was a bit surprised that the Government did not come clean earlier as the major share of the blame for the failure of NIRS2 has to lie, not with the current Government, but with the previous Government, who originally arranged the contract, and then failed to look into it carefully enough and to realise that it was totally inadequate and that the programme as originally envisaged was not going to meet the needs.
The Government made the situation even worse by failing to admit openly at an early stage what the problems were, but the problems were not down to them originally. That would have made it easier perhaps—it should have made it easier; I am surprised that it did not—for them to be open about what problems still existed.
That written answer still left several questions. I should welcome the Minister giving some answers in her winding-up speech, if she can, to the questions that I intend to put. Clearly, there is still a major backlog of benefit claims that have not been properly processed through the computer because the programme is not yet able to do that. That backlog has to be cleared, even though a number of people have been paid benefits on the basis of manual calculations—the best that the various agencies can do is to work out roughly what the benefit claims should be.
Even though manual calculations are being done, all those claims will have to be re-checked once the computer system is up and running, so the first question is: how quickly is that backlog going to be cleared? What extra resources are the Government going to put into the clearing of that backlog and what are the costs of those resources? Clearly, that is an extra cost to the taxpayer, unless it can be reclaimed from Andersen Consulting, the contractors.
Secondly, personal pension providers have worries because they, too, have suffered as a result of the inadequacies of the programme and the fact that it has been so delayed. What compensation does the Minister expect to have to pay to personal pension providers as a result of the programme's failures?
Thirdly, do the Government foresee any additional compensation being paid by Andersen Consulting? Will the Contributions Agency seek any extra compensation? The report makes it plain that, apart from the compensation that has already been won from Andersen Consulting—some £3 million—there is a lot of lost savings due to the late implementation of the programme. Will the Government be adequately compensated for the lost savings as a result of the long delays?
516 Perhaps the most important question of all is: what will happen to the individuals who suffered as a result of the failure of the whole project? The answer that I received said that compensation would be considered for the individuals concerned within the normal rules of the departmental special payments scheme. I do not suppose that many of the people involved know what those rules are. I am not familiar with the full set of rules, and I do not know whether the Minister is. However, it would be interesting to know, for example, whether there will be any compensation for those who have had to pay extra costs just to fight their cases.
I took part in a local radio programme earlier this week dealing with telephone calls from people who had suffered as a result of the project's failure. Many callers complained about the number of letters that they had had to write and telephone calls that they had had to make to obtain a manual calculation of their benefits, given that those calculations could not be done by computer.
It seems unfair that those extra costs should be borne by people who by definition—because otherwise they would not be claiming the benefits involved—are among the poorest in society. They include new pensioners who may have to rely entirely on the state retirement pension, and who are therefore among the poorest of all our citizens. It is not fair that they should have to bear the cost of fighting for benefits that should have been paid automatically as a result of a computer calculation.
Hon. Members earn in the region of £40,000 a year and some of us may regard as comparatively small the amounts of money that are not being paid after the manual calculation has been performed. Those sums may be as little as £1.25 a week, but they are not insignificant for a person on a retirement pension of only a few tens of pounds. If the rules contain a threshold governing when compensation may be paid, it is possible that some of the amounts involved may be below that level. If so, I should be very sorry if, because of the project's failure, people were to lose out for ever on benefits to which they were entitled.
Will the Minister say what will happen in those rare but sad cases in which people die before the backlog is cleared and their payments are properly calculated? Given that many of the people involved are old age pensioners, such cases must exist. Will the relevant payments be made into those people's estates, or will the money simply be lost altogether?
It is not the fault of this Government that the contract was so badly managed, but people who have lost out deserve full compensation from the state, regardless of which Government are in charge. That compensation should take account of the back payments: it should also include a real allowance to cover the interest incurred in the cash flow costs that they have suffered and the extra costs involved in fighting for benefits that should have been paid automatically.
Finally, we need to learn the lessons from the fiasco of a project that has gone badly wrong. I was delighted to hear the hon. Member for Cotswold (Mr. Clifton-Brown), who unfortunately has left the Chamber, say that the matter will be brought back before the Public Accounts Committee. However, I believe that we need a full independent inquiry into how and why such a totally inadequate contract came to be let to Andersen Consulting. Such an inquiry should also determine why 517 the Government have recovered so little in compensation payments when the project went so badly wrong. It is one for thing for such a project to go wrong; it would be much worse if we did not learn the lesson and get it right next time.
§ Mr. Nick Gibb (Bognor Regis and Littlehampton)
First, I congratulate the Financial Secretary to the Treasury, the hon. Member for Hornsey and Wood Green (Mrs. Roche), on her appointment. I hope that her career at the Treasury will be as successful as her predecessor's seems to have been.
I also pay tribute to my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), and to all the members of the Public Accounts Committee, for their work over the past 18 months: 67 reports in that period is a prolific output and a heavy work load.
The Committee's work and the investigations by the National Audit Office are crucial in helping all hon. Members to carry out one of our primary duties, which is to scrutinise the Executive. Bearing in mind what has happened in Europe, I hope that my right hon. Friend the Member for Haltemprice and Howden will never find himself suspended and on half pay as a result of blowing the whistle on waste and fraud and reporting such matters to Parliament.
In November 1997, my right hon. Friend summarised the role of the PAC in a typically pithy phrase:we in the PAC look for good practice to encourage and disseminate, bad practice to discourage and eliminate and improper practice to condemn and punish. In short…the good, the bad and the ugly."—[Official Report, 20 November 1997; Vol. 301, c. 476]The PAC and the National Audit Office concentrate on the bad, but scattered throughout the reports are nuggets of interesting and revealing good news about our public services. For example, the 32nd report on cataract surgery in Scotland points out that the number of operations to remove cataracts carried out there increased from 10,000 a year in 1992 to about 16,000 a year by 1997.
The 61st report on getting value for money in privatisations points out that, for nearly 20 years, the United Kingdom has led the world in the privatisation of state-owned businesses. The report could also have pointed out, but did not, that, as a result of the privatisation programme, state industries that once cost the Exchequer £50 million a week now contribute to it £65 million a week in corporation tax revenues.
The 28th PAC report on the Charity Commission points out that Britain has 184,000 registered charities, with an annual total income of £16 billion and assets of about £35 billion, which must be a good news story.
As we have heard, the 36th report on the water industry in England and Wales points out that, since privatisation, the quality of service has improved in a number of respects. It also highlights the fact that the privatised water companies are investing around £3 billion a year compared with £1.75 billion a year when they were state owned. The 59th report on the coastguard points out that, in 1995, it dealt with more 12,000 incidents in the UK search-and-rescue region.
518 One could find many more such examples, but the key role of the NAO is to find fault and there is plenty of fault to find, as we heard from the hon. Member for Brent, North (Mr. Gardiner). The hon. Members for Ross, Skye and Inverness, West (Mr. Kennedy) and for Galloway and Upper Nithsdale (Mr. Morgan) highlighted their and the PAC's concern about the Skye bridge project.
The hon. Member for Liverpool, Garston (Maria Eagle), in a thoughtful and interesting contribution on the nature of government and the ethos of the permanent Executive, used the Ministry of Defence to illustrate how Whitehall is not always as responsive as it ought to be to PAC reports and their conclusions.
Reflecting a continuing theme of the debate, my hon. Friend the Member for South-West Hertfordshire (Mr. Page) expressed his concern over the NAO's role following devolution and the problems that that may cause in terms of access. He made the important point that individual accounting officers, whether or not they are still in post, should be answerable to the Committee—a similar point to that made by the hon. Member for Croydon, Central (Mr. Davies) about permanent secretaries.
The hon. Member for Reading, East (Jane Griffiths) was slightly more optimistic about the PAC's advice being adopted, citing its 61st report on privatisation as an example. She praised the Social Security Administration (Fraud) Act 1997 as an effective first step in tackling social security and housing benefit fraud.
My hon. Friend the Member for Bexhill and Battle (Mr. Wardle) emphasised, as have others members of the PAC in this debate, the need for the Comptroller and Auditor General to be given access to non-departmental bodies and even into private sector companies that have contractual relationships with the state. He emphasised the fundamental importance of the PAC's work in exposing the complete shambles in the European Commission.
The hon. Member for Shipley (Mr. Leslie) is the only person I know who is pleased to receive his income tax bill, which I find slightly odd, so I will move straight on to my hon. Friend the Member for Bournemouth, East (Mr. Atkinson), who raised the important issue of the millennium bug, which was the subject of the PAC's 66th report.
In a slightly more partisan speech than was otherwise heard in the debate, the hon. Member for Tynemouth (Mr. Campbell) said that market conditions were being blamed for the sale of the rolling stock leasing companies. He failed to mention that market conditions were severely affected by the statements of the right hon. Member for Birmingham, Ladywood (Clare Short) when she was Labour's principal spokesman on transport.
My hon. Friend the Member for Cotswold (Mr. Clifton-Brown), in a moving speech on resource accounting, highlighted the lack of accounting controls in the Ministry of Defence. He also mentioned fraud, both in the Department of Social Security and the European Union and made the important point that the National Audit Office does not have the same access powers as the European Court of Auditors.
The 46th report, on the contract to develop and update the national insurance recording system, or NIRS, caused concern and was mentioned by several hon. Members. The measured but critical conclusions of the Public Accounts Committee report foresaw the impending 519 disaster that struck the computer system only three months after its publication, despite the fact that not all the requested information was given. It stated:We are very concerned that the implementation of the new system is already nearly 18 months behind the date agreed…the Agency face an immense task catching up with their operations".As the hon. Member for Newbury (Mr. Rendel) pointed out, last September the time came to transfer some 65 million records from NIRS1 to NIRS2, the biggest and most complex information technology project in Europe. The system collapsed. Thousands of records were wiped out, causing chaos in benefit offices and, undoubtedly, cases of hardship. Many newly retired pensioners have been paid pensions that ignore later year contributions. As my right hon. Friend the Member for Haltemprice and Howden informed the House, this will be the subject of a future NAO and PAC report. The many lessons to be drawn about how to structure and manage such a colossal project are well documented in the 46th report, which will provide useful guidance for similar private finance initiative projects.
The 27th report, on measures to combat housing benefit fraud, reveals a catalogue of unacceptable complacency and waste. Some 4.5 million people receive housing benefit, costing £11.5 billion a year, of which some £1 billion to £2 billion is lost through fraud. That figure is unacceptably high. The PAC is right to conclude:The waste of public money on Housing Benefit fraud is massive and inexcusable, and it has gone on for far too long.Much has been done in recent years to crack down on benefit fraud. The fraud hotline and all the spend-to-save initiatives are successful examples. Such initiatives must continue. Paragraph 7 states:Investment in anti-fraud work can be very cost effective".That is true. The southern command team of the Benefits Agency Security Investigation Service, or BASIS, was so successful in the first sixth months of the year that its £2 million budget has been spent. Since September 1998, the BASIS teams have been standing idle. That is accounting madness; penny wise, pound foolish, as my grandmother would say. It is important that the Government continue to demonstrate that they are serious about tackling fraud and properly resource the spend-to-save initiatives.
The report also makes important observations about prosecuting those caught defrauding the system. It states:Fear of detection can be an effective deterrent against committing fraud, but only if it is backed up sufficient prosecutions and effective penalties.However, the level of prosecutions by local authorities is incredibly low, at less than 1 per cent. of detected frauds.
On a Social Security Committee visit to the Benefits Agency a year ago, I asked a senior official about prosecutions. His response was that being caught was the deterrent and that prosecutions were therefore an unnecessary expense. I believe that that is wrong. If the only downside to putting in a fraudulent benefit claim is having perhaps to repay it one day, there is nothing to lose in putting in such a claim. That does not provide an effective deterrent. As the hon. Member for Reading, East said, the lack of prosecutions is an open invitation to fraudsters to help themselves to the pot of gold. Criminal prosecutions followed by the possibility of gaol is a deterrent. Local authorities and the DSS should, in the view of Conservative Members and of the PAC, prosecute far more often.
520 Despite repeated PAC criticisms over many years, it seems that the DSS is not adequately dealing with the issue. Last week, for the 10th successive year, the Benefits Agency had its accounts qualified by the National Audit Office because of fraud. Yesterday, the NAO qualified the accounts of the national insurance fund because of fraud.
Social security fraud pales compared with fraud in the European Commission. The 35th report examined the European Court of Auditors for 1996 and concluded:We are disappointed to find that standards of financial management and accounting across the Community are still too low; and that there is evidence of waste, error and fraud".It is estimated that £6 billion is lost through fraud from the total EU budget of £65 billion. That is 10 per cent. Fake contracts, non-existent building projects and a culture of jobs for the boys or jobs for one's dentist seem to be rife in the European Commission. EU fraud is a black hole into which billions of pounds of taxpayers' money is pouring. Neither the European Commission nor, I am afraid to say, the British Government, are doing enough about it.
According to Paul Van Buitenen, the Dutch auditor who was rewarded for his disclosures by suspension on half pay, a number of EU Commissioners were themselves involved in irregularities. Even more worrying is the claim by Bernhard Friedmann, the German president of the European Court of Auditors, that his investigations had been hindered in every way and that the Commission had told him untruths.
My hon. Friend the Member for South-West Hertfordshire made a telling point when he said in last year's PAC debate that the National Audit Office should extend its work into examination of European financial affairs. He said:I suspect that the NAO might be slightly more rigorous than some other bodies in tracing where the money goes, finding out how it is spent and ensuring that we get value for money."—[Official Report, 20 November 1997; Vol. 301, c. 489.]Subsequent events have proved that something is needed to deal with the problem of EU fraud.
In last year's debate, the then Financial Secretary, now the Paymaster General, said that the NAO had been invited to audit the assumptions underlying the forecasts of public finances. The Chancellor, the Financial Secretary and other Treasury Ministers have made much of that as an important step in openness. However, the Opposition fear that that innovation has not been properly implemented, and that the good offices of the CAG have been used simply to serve the Government's political purpose.
I cite as an example the CAG's first report in June 1997 on the Government's assumptions on unemployment. He said:As a level assumption for claimant unemployment, the figure of 1.65 million would seem consistent with the available independent assessment of unemployment prospects.In other words, 1.65 million was a reasonable assumption for a flat unemployment level for the years covered by the Red Book. However, in subsequent government documents, that figure was reduced. In the November 1998 pre-Budget report, a figure of 1.3 million unemployed was used as the assumption on which the public finances were based.
The NAO was not asked by the Government to audit any of the changed figures. If the Government wish the figures that they use in documents to be audited by the 521 NAO, that must be done consistently or not at all. Otherwise, all that the Government are doing is abusing the office of the CAG, something that the Opposition would condemn.
As my right hon. Friend the Member for Haltemprice and Howden has said, the integrity of measures of public performance needs to be iron-clad. So, instead of asking the NAO to provide them with political cover, the Government would be better advised to ask it to audit the value for money of some of their flagship schemes such as the new deal, which the Opposition feel represents poor value for money for taxpayers.
This has been an important debate on the vital work of the NAO and the PAC. As my hon. Friend the Member for Daventry (Mr. Boswell) said during a previous PAC debate, for corruption or waste in the public finances,sunlight is the best disinfectant".—[Official Report, 20 November 1997: Vol. 301, c. 517]The PAC has done a great deal to shed light on such issues. We look forward to the Financial Secretary's telling us about the Government's proposals to strengthen further the role of the NAO and the PAC in their work as guardians of the taxpayer's money.
§ The Financial Secretary to the Treasury (Mrs. Barbara Roche)
I thank most warmly all the right hon. and hon. Members who have participated for the high standard of the debate. This is my first appearance at the Dispatch Box in my new role as Financial Secretary to the Treasury and I thank most heartily all the hon. Members who have welcomed me; I cannot think of a more important debate on which to make my first appearance in my new role. My officials and my predecessor told me about the high standard of work, the dedication and the all-party approach that these vital issues command, and I am delighted that their comments have been vindicated by today's debate.
I thank the Public Accounts Committee for all its hard work over the past year. By any standard, the Committee has had an exceptionally busy year, producing 67 reports, which must be close to a record. A feature of all those reports is the thoroughness with which the members of the Committee have tackled the subject and the fact that, quite rightly, the reports are hard hitting. Much has been made this afternoon of the historic role of the PAC and the fact that it exists to hold the Executive to account, to carry out the most important part of Parliament's scrutinising role by ensuring that taxpayers' money is spent properly and wisely, and to ensure that Ministers and officials account for that money properly.
The Committee must be congratulated on the way in which it has highlighted waste, inefficiency and fraud, as well as identifying and promoting good practice. The Opposition spokesman, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), whom I thank for his kind words, made a good point when he emphasised good practice. The reports contain outstanding examples of good practice, and both the Government and the Committee want that to be promulgated throughout Whitehall.
One of the reasons why the Committee has been so productive is the chairmanship of the right hon. Member for Haltemprice and Howden (Mr. Davis). Both the House 522 and the country are well served by his hard work. We should also be grateful to the new members of the Committee and to those who have done sterling work over many years, including my right hon. Friend the Member for Swansea, West (Mr. Williams), and the right hon. Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan), who cannot be with us today. It is a particular pleasure for me to serve in this area with the hon. Member for South-West Hertfordshire (Mr. Page), who was my immediate predecessor at the Department of Trade and Industry. I also thank the hon. Member for Bexhill and Battle (Mr. Wardle), who has continued to serve as a member of the Committee in the new Parliament.
Our thanks must also go to the National Audit Office and the Northern Ireland Audit Office and their respective Comptrollers and Auditors General for all their work. Good-quality auditing is essential to provide an assurance that public money has been well and properly spent. The task facing all those bodies is enormous and no one should underestimate it. We are lucky to have organisations of such calibre, which carry out their work so effectively.
No fewer than eight of the Committee's reports deal with privatisation and all make important and valuable points. The hearing on the sale of the rolling stock companies was one of the most memorable, as the Committee heard how a small number of former British Rail managers had made huge windfall gains of between £15 million and £33 million through their investment in those companies. That issue was dealt with by my hon. Friends the Members for Shipley (Mr. Leslie) and for Tynemouth (Mr. Campbell). The Committee was absolutely right to draw attention to those excesses. Gains like that risk discrediting privatisation as a whole, and, in future sales, we will need to put in place mechanisms designed to prevent any recurrence.
The Committee's 61st report, "Getting Value for Money in Privatisations", sets out lessons derived from all the Committee's reports on privatisation. My hon. Friends the Members for Shipley, for Brent, North (Mr. Gardiner) and for Reading, East (Jane Griffiths) pointed out correctly that lessons must be learned. We agree that the lessons set out in this valuable report should be taken into account by Departments. However, it is important that Departments be allowed to exercise judgment in seeking the best possible deal for the taxpayer, rather than slavishly following a detailed set of rules. I assure all hon. Members that those lessons will be widely disseminated, and I shall ensure that they are learned by all Departments. That is absolutely essential as far as the Treasury's role is concerned: we must ensure that this guidance is recognised centrally and reflected in all Departments.
There has also been discussion of other areas. The hon. Member for Newbury (Mr. Rendel) referred to the 46th report, "The Contract to Develop and Update the Replacement National Insurance Recording System". As he will be aware, that system contains 65 million accounts, and there were bound to be major challenges in changing to a new computer system of that size. However, in all honesty, I must admit that it is disappointing that delays have occurred in relation to retirement pensions and widows benefit, for example. The hon. Gentleman highlighted very well what that means to the people who value and gain from that service. He was right to point out the consequences for those individuals.
523 I assure the hon. Gentleman and the House that every effort is made to minimise the impact on clients. In most cases, any delays have been overcome by using contingency measures. I also reassure the hon. Gentleman that no records were destroyed during the development and conversion or as a result of live processing.
The hon. Gentleman raised several other points. The contractor, Andersen Consulting, has had to bear the associated costs of the revised implementation plan. In addition, Andersen's has had to pay £3.7 million in compensation to date. The hon. Gentleman also raised some wider points regarding social security issues, and I shall undertake to ensure that he receives a satisfactory reply to all those questions.
Turning to wider issues, I am delighted to inform the House that excellent progress continues to be made on public and private partnership projects, including private finance projects. I shall bring the House up to date on a few developments. Since May 1997, we have signed projects with an aggregate capital value of £4 billion—which, incidentally, compares with approximately £7 billion in the five years before then. Hospitals and schools and other vital public services across the country will benefit.
There was a discussion about the Skye bridge to which the hon. Members for Ross, Skye and Inverness, West (Mr. Kennedy) and for Galloway and Upper Nithsdale (Mr. Morgan) contributed. I assure them that we are aware of their keen interest in this subject and understand the sensitivities of tolling in this case. It is important to remember that tolls have always been lower than the equivalent ferry fares, but as the hon. Gentlemen would acknowledge, the Government acted quickly to reduce tolls for regular users.
I am absolutely confident that my right hon. Friend the Secretary of State for Scotland has thoroughly considered the many points put to him by the hon. Gentlemen. I understand that the courts in Scotland have also considered various issues relating to procurement for the bridge. The Government welcome the Public Accounts Committee's recognition of the important role that public-private partnerships can play in delivering public services. I can tell the hon. Gentlemen that the lessons from the Skye bridge project have already informed best practice guidance for subsequent projects.
The hon. Member for Ross, Skye and Inverness, West put several detailed points to me. I assure him that the Government will respond to those in full.
Many of the reports produced by the Committee during the past year focus on the need to improve value for money in the provision of public services. Two such reports are mentioned in the motion. The 32nd report, on cataract surgery in Scotland, calls for greater consistency of performance between similar institutions and advocates greater use of benchmarking. I entirely accept that benchmarking, whether between institutions or regions, is a valuable technique for improving value for money.
There has been much discussion this afternoon about devolution and its effects, and the contribution of the right hon. Member for Haltemprice and Howden has been acknowledged. I say to all hon. Members that we want to make sure that the lessons of best practice after devolution are widely spread. The Committee, the Government and I want that.
524 The 44th report, on the administration of the disability allowance in Northern Ireland, provides a valuable insight into the performance of the Social Security Agency. The report is valuable in so far as it highlights the need for the agency to keep abreast of developments in Great Britain in protecting its systems against fraud.
The Government are absolutely determined to improve value for money in public services. Two initiatives have been mentioned: the introduction of public service agreements and greater cross-departmental working in the delivery of public services. My hon. Friends the Members for Shipley and for Croydon, Central (Mr. Davies) spoke about the importance of public service agreements, which were first published last month in a White Paper entitled "Public Services for the Future: Modernisation, Reform, Accountability". The White Paper sets out clear aims and objectives and specific targets for improving the effectiveness and efficiency of the services that the public receive and are entitled to receive at a high standard.
Linking the investment of public money to the delivery of specified outputs and standards of efficiency is a major step forward in improving value for money. It is also a significant improvement in accountability—that is the aim of the Committee's work—making it much easier for Parliament and the general public to judge the Government's effectiveness in meeting their objectives.
The second initiative concerns a much greater emphasis on effective cross-departmental working. The right hon. Member for Haltemprice and Howden and I might have a discussion about what phrase should be used. I like the phrase "joined-up government". Using resources well is not just a matter of providing stability, flexibility and the right incentives; it is also important to ensure that Departments and other bodies work effectively together to deliver public service objectives, as all hon. Members want. The key challenges in joined-up government are not only to identify better routes for delivering services to the public but to ensure that we maintain clear lines of accountability.
There has been much discussion about resource accounting and budgeting. Important points were made by Conservative Members, including the hon. Members for Cotswold (Mr. Clifton-Brown) and for Bexhill and Battle, and by my hon. Friend the Member for Croydon, Central.
We greatly welcome the Committee's continuing vigilance over the introduction of resource accounting and budgeting, as set out in its 67th report. We have absolutely no doubt that resource accounting and budgeting will enhance the quality of financial information available to the House and will enable Departments to manage their resources more effectively on behalf of the taxpayer. There is considerable agreement about the fact that that is the way forward.
As the Committee knows, our intention, subject to Parliament's approval, is to implement resource accounting and budgeting fully from 2001–02. In the meantime, in response to the question put to me by the hon. Member for Cotswold, we propose to report to Parliament on progress at defined "trigger points". The Committee's approval of the trigger point strategy is most welcome, and I am delighted that all Departments have Successfully achieved the first trigger point—stage 1 approval—before the December 1998 deadline. I can tell the hon. Member for Cotswold, and my hon. Friends who raised the same issue, that it is an important matter for the 525 Department and for me, and I shall work with the Committee to make sure that we get the implementation absolutely right. I fully share the Committee's view of its importance.
The right hon. Member for Haltemprice and Howden also mentioned parliamentary involvement in the validation of performance information. I understand what he says, but I hope that the right hon. Gentleman and the Committee will recognise that, unlike the position with regard to financial information, there is as yet no agreed set of standards for performance information. My Department believes that the appropriate way to proceed is to develop such standards. I undertake to keep the matter under review and to consult other interested parties, including the NAO. I may not be able to give the right hon. Gentleman the reply that he seeks, but I undertake to keep in close contact with him and the Committee on this issue.
§ Mr. Clifton-Brown
Would the hon. Lady be prepared to examine the performance indicators published by executive agencies to see whether there were any useful lessons to be learned for Government Departments?
§ Mrs. Roche
I certainly undertake to consider that, and I thank the hon. Gentleman for his helpful suggestion.
Quite rightly, mention was made this afternoon of the great concern felt about the loss of public funds through fraud, which was highlighted in several of the Committee's reports. The motion that we are debating refers to the Committee's 34th report, which deals with the further fraud at the British embassy in Amman. The Foreign and Commonwealth Office has rightly acknowledged that there were failures in basic financial controls, and financial controls and disciplinary arrangements are being tightened.
Frankly, I fully accept that one of the most disturbing features of the case is that it happened so soon after the Committee took evidence on other irregularities at the same embassy. It is imperative—I hope that careful note will be taken of what I say—that, where the Committee highlights failings, effective corrective action is taken swiftly.
Another issue dealt with this afternoon—my hon. Friend the Member for Reading, East referred to it in great detail—is the content of the Committee's 27th report, entitled "Measures to Combat Housing Benefit Fraud". The Green Paper on fraud, which was published in July, sets out what we intend to do to tackle welfare fraud. I know that my right hon. Friend the Secretary of State for Social Security is determined to minimise losses that occur through fraud and error so that he can increase the resources available to meet genuine need, which is what we all want.
My predecessor, the Paymaster General, took part in a joint Treasury-NAO seminar on the subject of tackling the risk of fraud. She was impressed by the determination and expertise that Departments bring to bear to counter fraud risks. She also noted the valuable contribution of the national audit agencies, including the work of the Audit Commission, in areas such as data matching.
Hon. Members have referred to the European Union. The Government have consistently supported measures to strengthen the financial management of the EU budget, 526 and we shall do everything we can to fight fraud. We used the United Kingdom presidency of the European Union to ensure that Council conclusions focused on the real areas of concern—over-budgeting, poor objective setting, over-complex legislation and little real evaluation of results.
I dealt with structural funds in a former incarnation in the Department of Trade and Industry, so I understand the points that were made about delays in payment. We welcome the German presidency's proposals for an independent, high-level group to consider ways to strengthen the fight against fraud.
§ Mr. Christopher Gill (Ludlow)
Does the hon. Lady agree that fraud is endemic in the European Union? The only way to eliminate fraud is to do away with the regimes in which fraud is deep-rooted and endemic.
§ Mrs. Roche
I have great respect for the hon. Gentleman, but I suspect that he and I have different views on the European Union. The Government and members of the PAC are committed to ensuring that proper proposals are in place. We shall act vigorously in conjunction with our European Union colleagues, particularly in the Council of Ministers, to ensure that, when fraud occurs, every possible measure is taken to deal with it.
§ Mr. Wardle
When the hon. Lady talks to her German counterparts about the initiative that they are proposing under their EU presidency, will she suggest that one of the players in that investigation should be our Comptroller and Auditor General, Sir John Bourn?
§ Mrs. Roche
I note the hon. Gentleman's point, but he will forgive me if I do not give him an instant reply. That point has also been made by other hon. Members.
I shall deal with the important issue of NAO access, which has been raised by several hon. Members. I agree with the hon. Member for Bognor Regis and Littlehampton that my hon. Friend the Member for Liverpool, Garston (Maria Eagle) made a thoughtful speech on this subject. I listened carefully to the points made in the debate. When I came to this brief, I recognised that this was a major issue for the Committee.
I hope that the Committee and the House will appreciate that we have approached the issue of access positively. We were quick to legislate to provide the NAO access to the lottery operator for the purposes of auditing the national lottery distribution fund. We have also made arrangements for NAO access in connection with the grants in aid for the occupied royal palaces. I think it is right to say that the right hon. Member for Haltemprice and Howden has acknowledged some of the improvements that we have made. When we have created new agencies, such as the regional development agencies, we have proposed that the Comptroller and Auditor General should be the auditor. Those are positive steps forward.
I am aware that there have been a number of discussions in the past year on other access issues, such as the possibility of giving the Comptroller and Auditor General a right of access to Government contractors and making him the auditor of publicly owned companies.
527 On Government contractors, the Government's approach is to provide for NAO access where that is necessary for the financial or value-for-money audit of a Department or agency. Broadly speaking, that will be when all the information necessary for the audit is not held by the audited body.
On publicly owned companies, I understand that the NAO already has access to many of the bodies concerned. Where statute requires the auditor of an non-departmental public body to be a Companies Act auditor, the NAO will have inspection rights. It will also have access through contract clauses to bodies such as training and enterprise councils.
In the short time since taking on my new post, I have not been able to form a final view on whether any further concessions should be made, although I am aware that there are strong arguments against making further changes. Nevertheless, before reaching a final decision, I would be happy to talk through the issues with the right hon. Member for Haltemprice and Howden and the Comptroller and Auditor General. I hope that that approach will be helpful to the PAC. I was conscious of the fact that I wanted to listen to what hon. Members had to say in this debate and to have some further discussions with them before reaching a final view. I hope that that will be helpful to the House.
I was delighted that, in October, the four national audit agencies launched the Public Audit Forum with the very clear message thatGood government needs good audit".That is a positive example of the spread of good practice. It will strengthen co-operation among the national audit agencies, promote the setting of common standards and help to minimise the burden of audit on audited bodies.
The hon. Member for Bournemouth, East (Mr. Atkinson) spoke about the millennium bug difficulties. The hon. Gentleman and I have not always agreed on the method by which one tackles that important issue, but I shall take this opportunity to pay tribute to him. He was the first hon. Member to raise the issue and he has done the House a great service. When the issue was raised initially, it was not thought to be important. In fact, it is very important and the hon. Gentleman has pioneered work in that respect.
As the hon. Member for Bournemouth, East knows, the Government take this issue seriously. That is why we formed Action 2000 and gave it the resources necessary to continue the job. It is also why, under the chairmanship of my right hon. Friend the Leader of the House, there is considerable action taking place throughout Government. I pay tribute to the hon. Gentleman for his tireless work.
A great deal has been said today about follow-up activity and there have been many thoughtful remarks about the very nature of the PAC. A great deal of work goes on, but do the Government and Whitehall listen? It is for all of us to ensure that we do, and it is for the PAC to look at how the follow-up activity is implemented. I very much want to work with the Committee to ensure that that takes place.
We all realise that good managers, whether in Government or outside, need to remember the old lessons as well as the newer ones. In looking back, I was struck by how the Committee's reports continue to illustrate both those points. Some of the most notable instances of fraud arise because of basic failures in the elementary oversight of basic controls, in authorising payments on the basis of hand-written documents or treating delivery notes as 528 invoices. We need to make sure that basic controls are being implemented. As to newer lessons, I am confident that the Committee's recommendations on privatisation will provide a coherent and constructive source of guidance.
More generally, I was struck by the clear, firm and constructive nature of the reports, even when they were critical, as they often were. I am sure that the breadth of the Committee's efforts and its energy will keep us all on our toes.
I look forward to working next year with the right hon. Member for Haltemprice and Howden, with the Committee and with the House in ensuring that the House and the people of the United Kingdom—whom we are so privileged to serve—get value for money from their public services and receive the very best public services we can possibly provide for them.
§ Question put and agreed to.
That this House takes note of the 1st to 67th Reports of the Committee of Public Accounts of Session 1997–98, and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on these Reports (Cm 3880, 3893, 3894, 3936, 3955, 3973, 4004, 4015, 4021, 4041, 4055, 4060, 4069, 4075) with particular reference to the following Reports: