Public Accounts

HC Deb 25 November 1999 vol 339 cc786-845 2.27 pm

Mr. David Davis (Haltemprice and Howden)

I beg to move, That this House takes note of the 68th and 69th Reports of the Committee of Public Accounts of Session 1997–98, of the 1st to 38th Reports of Session 1998–99 and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on these Reports (Cm 4279, 4285, 4312, 4335, 4380, 4381, 4394, 4408, 4456, 4469, 4471 and 4515). One hundred and thirty years ago, Gladstone looked beyond the immediate horizon of day to day politicking to set in train a package of public service reform that has been fundamental to the good governance of Britain ever since, and which has provided a model for the rest of the world to follow. That initiative helped to mark out Gladstone as one of the giants of the last century. The most important aspects of the package of reform related to financial accountability and, in particular, to the setting up of the Public Accounts Committee.

On the eve of the 21st century, the Government have the best opportunity since Gladstonian times to show similar vision and to modernise public accountability as they modernise government. In that way, they will be able to meet the ever more demanding needs of the citizen, and to reinforce public confidence in the process of government. That brings me to the centre of my challenge today: to make the House—this packed House [Laughter.]—realise that not only is financial accountability an interesting and positive force for improvement in public service, it is a central plank in our democracy. It will be every bit as important in the next century as it was in the last.

I start by reflecting on the past year. The Public Accounts Committee produced 40 reports, on matters as diverse as financial control in the European Union and the way in which the electricity regulator secured a benefit for the customer.

The number and variety of reports that we are able to produce is a testament to the tripartite structure. First, we rely greatly on the reports produced by the National Audit Office and the Northern Ireland Audit Office. Sir John Bourn, John Dowdall and their staff of experts produce a tremendous range of professional and interesting material from which we choose. The House should be proud of them and grateful to them.

The Committee Clerk, Ken Brown, and his staff cope magnificently with the volume of material that we cover. Ken offers sage counsel to the Chairman, keeps him in line and keeps the Committee's business flowing seamlessly. I offer the thanks of the entire Committee to all of them.

Finally, much is due to the members of the Committee, who co-operate well and work hard with diligence and tenacity. Their contribution, in the face of the Committee's heavy work load, makes a significant demand on their time. I do not expect to be disagreed with by Members in the Chamber today. I offer all of them my personal thanks for making my task easier.

In the past year, we have lost some valuable members. I pay tribute to my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) and to the hon. Members for Reading, East (Jane Griffiths) and for Halton (Mr. Twigg); and in particular to the right hon. Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan), who had served on the Committee since 1979. All those Members have made valuable and distinctive contributions and served the House well.

I notice that the hon. Member for Liverpool, Garston (Maria Eagle) is leaving us at the end of the debate, so I offer personal thanks to her for all the very distinctive and distinguished input that she has made to the Committee. Her contribution would augur well for a stellar future career. I shall also miss her advice on chess.

Mr. Charles Wardle (Bexhill and Battle)

That is the kiss of death.

Mr. Davis

Yes; I finish off most people that way.

I welcome the hon. Members for Brent, North (Mr. Gardiner) and for Newbury (Mr. Rendel) and my right hon. Friend the Member for Skipton and Ripon (Mr. Curry), who have all joined the Committee since the last PAC debate, and who, I am sure, will be great assets to my team.

It also gives me great pleasure to welcome to the Committee the new Financial Secretary to the Treasury, the hon. Member for East Ham (Mr. Timms). He takes the place of the hon. Member for Hornsey and Wood Green (Mrs. Roche), who has moved on. This is my third PAC debate and my third Financial Secretary. The others have since been promoted, so I hope that the hon. Gentleman's new post will prove, and be viewed as, a blessing rather than a curse for him.

Let me turn to the headline figures for the year. The National Audit Office and the Committee generate substantial savings—some £365 million in the past year alone. Examples include improvements in the management of sickness in the Metropolitan police that led to a reduction of £23 million in the cost of sickness absence when compared with the previous year. That is equivalent to about 513 officers available for duty.

Improvements in the conduct of privatisations that have followed from our recommendations saved an estimated £63 million last year. Over three years, savings of £1.2 billion have been achieved equivalent to well in excess of £7 for every pound spent to run the National Audit Office.

Our work also has a qualitative impact. Work on underpayments to public service pensioners prompted the Department of Social Security to clarify and simplify the way in which it communicates with pensioners. Our work on the cervical cancer screening programme caused the National Health Service Executive to change its position on setting a target date by which all screening laboratories must meet the standards expected. That will now be accomplished by March 2000.

In total, some 1,900 significant changes to systems have arisen from the work of the National Audit Office and the PAC. Our work is of practical benefit to Government, as shown by the fact that some 92 per cent. of recommendations that were made in the past year were accepted.

Our reports can be categorised in many ways. I shall confine myself to four broad themes: first, project management, especially in information technology; secondly, better service delivery; thirdly, financial irregularity and mismanagement; and fourthly, the private finance initiative. I shall not dwell today on one of the major issues that dominated our work this year—the millennium bug. With just four weeks to go, the country will know soon enough whether the Government have succeeded in protecting vital services.

The first theme to emerge from our work concerns project management, especially information technology. That has been a key feature of the Committee's work in recent years. Failure to manage major projects successfully continues to plague this Administration, as it did the last. Enormous sums of money have been wasted, key public services have been disabled and the lives of citizens have been disrupted.

NIRS2, the new national insurance recording system, affects every adult in the land at one time or another, and we found a clear failure to deliver services to the citizen. It is reasonable to expect the state to be able to calculate correctly the pensions and benefits due to its citizens, but in this case many months elapsed when that could not be done. The failure to get that system working plunged many thousands of people, including those in the greatest need, those recently bereaved and those moving into retirement, into uncertainty and fear: uncertainty about the level of their future income, and fear that they might be running up a debt that they would have to repay, the value of which they do not know.

Even more troubling is the fact that, apparently, lessons are rarely learned. Yesterday, the Committee approved a report, which will be published soon, which summarises the lessons arising from an examination of more than 25 reports about IT projects published by the PAC and the NAO in the past 10 years.

That benchmark report reflects the Committee's concern that the failure to deliver Government IT projects places in jeopardy the success of almost every Government programme or initiative and makes any pledge about IT delivery of Government services look optimistic in the extreme.

Indeed, at one point—when considering the work of the immigration and nationality directorate, on which the Committee has yet to report, and with reference to the Passport Agency, on which we have yet to take evidence—the right hon. Member for Swansea, West (Mr. Williams) was moved to comment about the failure of the IT system that it had led to a situation where foreigners cannot get in and British cannot get out. I do not want to pre-empt our report, but some obvious lessons stand out from the work over the years on IT projects.

On the inception and design of projects, the lesson is that it is necessary to analyse and understand fully the implications of the introduction of new IT systems for businesses and customers. There was a spectacular failure in that regard in relation to NIRS2.

On the management of projects, the lesson is that key decisions on IT systems are business decisions as well as technical ones. Senior managers have a crucial role in driving through the successful development of IT systems.

On relationships with suppliers, the lesson is that relationships between Departments and suppliers will have a crucial effect on the success of the project. Contracts between Departments and suppliers must therefore be clearly specified. There have been repeated failures in that regard.

On post-implementation issues, organisations must learn lessons from projects undertaken, which can be fed back into the consideration of later projects.

I welcome the Government's commitment in their "Modernising Government" White Paper to a more co-ordinated and strategic approach to IT across Government. I also welcome the recently announced Cabinet Office review of major Government IT projects designed to ensure that future systems run effectively, deliver value for money and apply best practice.

However, poor project management does not stop with IT. Lessons can be replicated elsewhere. For example, our report on the management of the final part of the Guy's hospital rebuilding programme concluded that the project had been allowed to spiral out of control for nine years before any sense of realism was applied. The project was completed over three years late, at a cost to the taxpayer of an extra £98 million. Obviously, that extra funding had to be found from elsewhere in the national health service budget.

Poor project management can spell inconvenience for the citizen and can have disastrous effects for the taxpayer. Headline failures of major projects, such as the problems with NIRS2 and the Passport Agency fiasco, are writ large. The Committee is also increasingly concerned about the quality of service that citizens receive as they interact with Government.

That brings me to my second theme—better service delivery. My starting point is that taxpayers have a right to expect high standards of service from those public bodies that spend their hard-earned cash—most families pay well over £300 a week in taxes, in one form or another. Most important, individuals who are vulnerable or in need have a right to be confident that their interests will be safeguarded by the state. I am sad to say that we have found that that has not always been so.

The Public Trust Office looks after the financial interests of about 22,000 people with mental incapacity. It manages or supervises the investment of some £1.4 billion of patients' money. It charges them about £11.5 million for the privilege.

The Committee first considered the issue in 1994 and, as a consequence, published one of its most critical reports of the decade. Revisiting the subject this year, we found that the improvements that we had been promised had not been delivered and that, worse still, in some important areas performance had deteriorated markedly. That fell far short of what patients have a right to expect. The PTO had failed properly to protect the income and assets of patients. In many cases proper accounts of patients' income had not been received and about 90 per cent. of the accounts that were received were late. The PTO had missed many of its key performance targets, including important ones such as for the numbers of visits to patients. Its financial management, which is typified by its inability to produce accounts that could be audited, was appalling. Patients have been failed at every turn.

Needless to say, our report was strong, and I was delighted to see the response from the Lord Chancellor's Department. Sir Hayden Phillips, the permanent secretary of the Department, has not, historically, been a pin-up of the Committee. However, he showed great willingness to accept our findings and to commit to taking firm action. That provides a model for the ideal relationship between the PAC and Whitehall. As a consequence, the service to those that the PTO was supposed to serve will be enhanced considerably. Professional receivers will be appointed to look after the affairs of patients and the PTO will impose sanctions for poor performance. Minimum standards will be set for visits to patients to check on their financial welfare and there will be detailed monitoring of returns from investment fund managers.

The citizen also has a right to expect that the Government, when spending taxpayers' money, will act in a co-ordinated manner and that one Department's spending decisions will take into account the consequences on all others. That point was well illustrated by the Committee's 27th report on the work of Her Majesty's Customs and Excise and its operation of the red channels.

We discovered that decisions had to be taken to reduce the staffing of red channels. Reliance was placed, instead, on declarations—which were frequently made by telephone—of dutiable goods brought into the country. That policy delivered a short-term financial benefit, but I am concerned that such decisions can be taken without consideration of the long-term social costs of increased smuggling, particularly of drugs, that will inevitably arise as a consequence. The Department did not even estimate the cash lost by non-manning of the red channels, let alone consider policing costs and the other social costs that might have gone with the decision.

Mr. Tam Dalyell (Linlithgow)

I read that report and Dame Valerie Strachan's evidence with considerable interest. Did the Committee consider at any time the problem of anonymous numbered bank accounts?

Mr. Davis

No, the Committee did not examine that particular problem. I raise the issue at this point, because I was primarily concerned about the lack of focus on the returns to the Government, to taxpayers and to society of a short-term financial saving. The Committee focused, as it often does, on a narrow issue—in this case, the red channels—but, as the hon. Gentleman's question implies, the decision had very broad consequences.

My third theme—financial irregularity and management—is a perennial one -for the Committee. This year, the Committee broke new ground in our work on financial management and control in the European Union. We visited Brussels and Luxembourg, not to talk just to the European Court of Auditors, but to commissioners, Commission staff, parliamentarians and others, so as to get to grips with the scale of the problem and the actions in hand to address it. The Committee's conclusions are provided in our 29th report.

Our visit followed immediately on the refusal of the European Parliament to grant discharge to the European Community's budget and the subsequent resignation of the European Commission. We were frankly staggered by the scale of a problem that appeared almost endemic. Indeed, we were appalled by the culture of complacency that we found. We found a lack of clarity about who is accountable to whom and for what, a cultural emphasis on devising policy without regard to effective management, outdated staff codes that inhibit effective management, weak financial reporting and inadequate arrangements for the detection and prosecution of fraud.

Everyone we spoke to agreed that urgent action was needed, but there seemed to be a lack of any real belief that it would be possible—and, indeed, there was little will—to make that happen. We concluded that Commissioner Prodi and Commissioner Kinnock face a monumental challenge as they seek to reform the Commission.

Again, we have received a very positive response from the Government. They stressed that they would continue to press for better accountability at all levels of the Commission and welcomed the appointment of Mr. Neil Kinnock as vice-president for administrative reform. They said that they would continue to press the Commission to introduce proposals for the reform of staffing codes, that they attached higher priority to proposals to improve the presentation of the Community's financial information and that they welcomed the change in format of the 1997 Court of Auditors report.

The Government share the Committee's concern over the Commission's failure to create an anti-fraud culture and they argued that the new anti-fraud body—which is known as OLAF—would be able to take a strong lead in creating a culture that was intolerant of fraud in European institutions. I am not entirely sure that the Committee was persuaded on that final point, but no doubt other hon. Members will refer to it in the debate. I have met Commissioner Kinnock again since our visit to discuss those important issues, and he has also enlisted the supported of Sir John Bourn and the staff of the National Audit Office in his efforts.

We are concerned about the financial management of public money wherever it is spent, as demonstrated by our series of reports about the improper use of public money by higher and further education institutions, the most notable being Halton college, which was considered in our 37th report. In that case, more than £6 million was overclaimed from the Further Education Funding Council for England for students who were not eligible, for courses that were significantly shorter than was claimed and for courses that were claimed at a higher rate than was justifiable. In those cases, there were failings in the audit arrangements.

Further education colleges appoint their own private sector auditors and, perhaps, it is time for a fundamental overhaul of auditing in the further education sector. I notice that in Scotland, the new Auditor General will audit every further education college. Perhaps similar arrangements should apply in England. We have been so exercised by the repeated failure of governance in such institutions that we have commissioned a special report, pulling out the general lessons arising from our work. That will be published in the new year.

The final historic theme emerging from our work relates to the private finance initiative. Our work on that illustrates how we take an essentially retrospective view of events—with 20:20 hindsight—and try to turn that into a degree of foresight, so that we identify lessons of wider applicability. We therefore take a forward-looking approach and our benchmark 23rd report on how to get better value for money from the PH is a good example of that. In the report, we recognised the importance of the Government finding new ways to harness private sector business skills to identify scope for innovation in the delivery of public services. We concluded that the PFI offers enormous benefits if managed properly.

PFI contracts have been signed that involve private sector capital of more than £13 billion and that commit Departments to payments of more than £70 billion over the next 25 years. We recognise that PEI is still new and that all parties are still learning. Mistakes are inevitable while experience and guidance are continuing to develop. However, we have been frustrated by the old mistakes that have been repeated and where lessons, such as the need to get sums right—lessons which have long been established in conventional procurement—have not been learned.

Departments must avoid the temptation of the quick fix and the buy now, pay later option that delivers the service today, but at a significant cost to the taxpayers of tomorrow. Departments must evaluate risks and options thoroughly so that they agree only those deals that still bear examination several years down the line. We must be absolutely clear that there is sufficient information available to Parliament on the extent of the commitments. When items are moved off the public sector balance sheet, the commitment to vast on-going payments must be clearly understood. The PFI must not be used as an exercise in creative accounting.

That brings me to the need for greater openness and honesty in government use of information. One of the biggest revolutions that we have seen over the course of this century is the information explosion. New information technology and the spread of the internet have fuelled the growth in the collection and evaluation of information. Governments of all parties over the years have also played their part in making more information available and accessible.

Interest in such matters is not restricted to politicians and academics; there is widespread public interest in the performance of government. I therefore greatly welcome the recent White Paper, "Building Trust in Statistics". That is a laudable initiative, and it is imperative that the public should have total confidence in the integrity of government statistics. That might best be achieved by making the national statisticians truly independent and by ensuring proper parliamentary accountability. Perhaps the statistics commission should be placed on the same footing as the Comptroller and Auditor General. However, I know, Mr. Deputy Speaker, that I am wandering off-subject.

The key to securing proper accountability is the independence of those who provide information to Parliament on the performance of government. I have been troubled for some time about one aspect of the Comptroller and Auditor General's independence, and that is in relation to his audit of the Budget assumptions. That is a task undertaken by the NAO and the Comptroller and Auditor General in good faith, and of course it is right in principle that the NAO gives reassurance where it is appropriate.

I say honestly to the Minister that I take the view that reassuring financial markets, for example, about the validity of the Government's financial information is important and in the national interest. However, it is essential that the NAO's work is not misrepresented. It is required to audit changes in the assumptions that underpin the financial forecasts in the Budget, not to give a view on all the assumptions every year.

A fortnight ago, the Chancellor said that his pre-Budget forecast was based on assumptions audited by the NAO. The NAO has not been asked to audit most of the assumptions since 1997. Either the Government should ask the Comptroller and Auditor General to look at all the assumptions each year, or the Comptroller and Auditor General should be able to select which assumptions he considers. I ask the Government to consider the possibility of amending the Finance Act in the coming year to make that possible. As it stands, the position is akin to a company chairman selecting which subsidiary the auditor should audit in each year. The shareholders in a company would not feel comfortable about such a procedure. I ask the Minister to consider that carefully.

I shall now raise issues that apply to the future. All are based on the fundamental parts of the 40 reports before us. The issues underpin all those reports and are fundamental to the relationship between Government and Parliament and, in particular, the Public Accounts Committee. A number of developments at the centre of government, particularly resource accounting and modernising government, will require a major cultural change in government and will impact directly on our work.

Much has been said recently about public accountability acting as a brake on the creativity of Whitehall and on innovation and risk taking in government. Senior civil servants have held up the PAC as an obstacle to action and have fretted that they cannot deliver joined-up government for fear of incurring the wrath of the PAC. We must deconstruct that argument.

I have said on numerous occasions that I will applaud well-thought-through risk taking even where it goes wrong. The key, however, is the phrase "well-thought-through". The PAC is, rightly, tough on bureaucratic incompetence; for example, major IT projects that are poorly specified and badly managed. The instances that we have seen recently are the inevitable consequences not of risk, but of plain bad management.

The real issue for the civil service is that risk taking is counter-cultural in Whitehall. That is largely because risk taking requires a willingness to countenance failure and to abort projects that go wrong. Our experience is often that there is a failure to quantify risk and a tendency to throw good money after bad in ever more brazen attempts to convince the world that things can be put right. In such cases, we will be critical, but in cases where risks are properly measured, evaluated and managed, we will consider the outcome with an open mind. The PAC must no longer be held up by Whitehall as an excuse for the failure to innovate.

The need for public accountability must not be used as an excuse for failing to deliver services in the most sensible way. That is a further red herring traditionally used by Whitehall to justify not working in a joined-up way—I use the Government's language—with other parts of government. It is for the Government to determine who will be accountable for the delivery of public programmes, not the PAC. All we ask is that there is a clear line of accountability. If that requires three accounting officers appearing before us at once, so be it.

Our approach is not set in stone, merely bedded in the notion that identifiable individuals must ultimately be accountable to Parliament for the use of taxpayers' money. Indeed, it was an understanding of the cross-departmental nature of the problems faced by the Government that led me to ask the Comptroller and Auditor General two years ago to carry out an examination of the criminal justice system across all Departments. That report will be coming out in a week or two.

The Committee's positive response to joined-up working, where it is appropriate, is illustrated also by the case of the Public Trust Office, which I mentioned earlier. Clearly it is sensible for the PTO's services to be provided by different agencies, and we welcome that. Similarly, it is important that the interests of its clients are protected by the setting of very clear targets for performance and outcome, for which the Lord Chancellor's Department will remain accountable.

Critical to effective accountability is the need for auditors to have adequate powers to do their job properly. Again, my approach is simple: auditors should have the same rights of access as Government. In that way, the ability of Parliament to scrutinise the activity of Government would be protected, whatever mechanisms are used to deliver public policy. Certainly it must be wrong that European auditors, working on behalf of the European Parliament, have greater rights of access within the United Kingdom than the Comptroller and Auditor General, who is working on our behalf. There is a raft of areas where the Comptroller and Auditor General's access rights have not kept pace with changes in Whitehall, and I referred to many in last year's debate.

I say to the Minister that I fully recognise that under this Government there have been considerable improvements in the access rights of the Comptroller and Auditor General to royal transport and palaces, the lottery operator and the audit of all the new non-departmental public bodies established since the election. Indeed, the Lord Chancellor, Lord Irvine—who is also not a pin-up of the Committee—when proposing that the National Audit Office should audit the new Legal Services Commission, said that the Comptroller and Auditor General should be the auditor of all public bodies unless there is a special reason why experience found only in the private sector is required for a particular body.

Lord Irvine also referred to the fact that audit by the Comptroller and Auditor General means scrutiny by those who possess the greatest expertise in the audit of public moneys". His sentiments have now found support in the sixth report of the Public Administration Committee, which I believe was published yesterday and which recommends that the Comptroller and Auditor General should audit all NDPBs.

To return to Gladstone, the Government now have a once-in-a-century opportunity to modernise the public audit process. The Government Resources and Accounts Bill, which will give effect to resource accounting and budgeting, will substantially amend the founding legislation of the Comptroller and Auditor General's audit, but the Treasury has not yet seized the opportunity that the change presents. I shall therefore be pressing for that to be put right. In 11 of the 40 reports before the House today, the solution offered by the Treasury involves, in one respect or another, the move to resource accounting. The points that I shall now make apply directly to those reports as well as the overall position.

The Government must provide the Comptroller and Auditor General with the statutory access to documents, information and explanations that he needs to undertake his work on behalf of Parliament. Even where the evidence is held by third parties—for example, those contracting with public bodies—and by organisations carrying out public functions under authorisation from Government or Parliament, it cannot be right that the Comptroller and Auditor General wastes valuable time and effort arguing for access on a case-by-case basis, subject to a Department's whim. Those frustrations extend even to the Committee.

We asked for the Comptroller and Auditor General to be given access to documents held by Oflot about the financial integrity of applicants to run the lottery. We first asked the Government to arrange that in March 1998. Subsequently, two members of the Committee had a meeting with the Secretary of State for Culture, Media and Sport, and we still await a decision. Frankly, that is not good enough.

The Government must ensure that the Comptroller and Auditor General is automatically the auditor of every non-departmental public body. The Government have conceded the principle and must take this opportunity to put it into practice. At present, more than 50 NDPBs, spending around £3 billion provided by Parliament, are not subject to his audit. The Housing Corporation, for example, spends more than £1 billion a year. Changes to the way in which government works have put large amounts of expenditure outside the departmental boundary. Managerial changes should not be allowed arbitrarily to remove expenditure from automatic parliamentary scrutiny. I hope that the forthcoming Bill will correct that.

The Government must enable the Comptroller and Auditor General to audit limited companies established by central Government bodies. Hon. Members may be surprised to learn that there are well over 200 such companies, receiving between £2 billion and £3 billion of public funding every year. The choice of vehicle through which the Government deliver an aspect of public policy and service should not determine the parliamentary scrutiny that it receives.

The Government must provide properly for the audit of any extension of resource accounts to include wider aspects of the public sector, as they have said may be their ultimate intention. The forthcoming legislation should give the Comptroller and Auditor General access along the lines of provisions in companies legislation to bodies whose accounts are consolidated into the wider whole of Government accounts that the Comptroller and Auditor General is required to examine.

The Government's proposals to change the basis for supply and the way in which Departments will be held accountable to Parliament should not be brought into force until it is clear that the new system is better than the one that it is intended to replace. I seek an undertaking from the Government that the relevant sections of resource accounting will not be implemented until the Committee has signified its satisfaction and the Government have provided us with assurances that all Departments are fully prepared for the change.

Mr. Geraint Davies (Croydon, Central)

Does the right hon. Gentleman believe that the work of the Audit Commission should be accountable to a Select Committee of this House, be it the Public Accounts Committee or the Environment Sub-Committee, in the way that the NAO answers to the PAC?

Mr. Davis

That is not what I am getting at, although it would be a worthwhile reform. I would not want to make the Audit Commission accountable to the Public Accounts Committee, unless the hon. Gentleman wants to turn up to 100 meetings a year rather than 50, as we have now, but it would be valuable to have a second PAC to deal with the output from the Audit Commission and hold the Government to account on it. I hope that the hon. Gentleman pursues that worthwhile idea, but it is not the point that I was making.

Mr. Dalyell

I do not want to interrupt the flow of the right hon. Gentleman's interesting and informative speech. Has the Committee had any difficulty with bodies in Scotland and the Scottish Executive?

Mr. Davis

The hon. Gentleman tempts me enormously.

Mr. Dalyell

Succumb to the temptation.

Mr. Davis

I try never to succumb to temptation. The purpose of my Committee is to prevent people from doing that. Like the hon. Gentleman, I am concerned about that large tranche of money—£14 billion, or however much it is—that is spent on grant from this Parliament to Scotland. We have attempted to create an audit committee in Scotland that is equivalent to the PAC. I am attempting to make sure that it is able to learn from our experience. However, that does not deal with the hon. Gentleman's point, which is that accountability to this Parliament for that £14 billion has been sheared off and dislocated as a result of last year's devolution legislation, but that was a decision of this House. He and I both have to live with it, whether we like it or not.

My final point, on which I shall talk only briefly, is incredibly important. The Government have not addressed the audit of performance measures.

Sir Robert Smith (West Aberdeenshire and Kincardine)

A small amount of the Scottish block is spent by the Secretary of State for Scotland. Is the use to which that money is put still accountable to the right hon. Gentleman's Committee?

Mr. Davis

The permanent secretary to the Scottish Office is responsible for the entire £14 billion. It is possible to summon him to account for the use of all of it, but the difficulty is that the National Audit Office is unable to penetrate behind that 14 billion to inform the Committee about its use. One of the virtues of the Public Accounts Committee is that it is non-partisan in its findings. One reason why it can be so non-partisan is that it has a strong factual basis for every decision or recommendation. It is hard to dispute party points when the facts of misdemeanour, waste, misuse, inefficiency or lack of service delivery are staring people in the face. That is what we lack for the Scottish money. We can still summon the permanent secretary, but we do not have the vital weapon that we have with every other aspect of public accounting in this country.

As I said, the Government have not addressed the audit of performance measures. The Government's proposed resource accounting reforms will require the annual preparation of statements of performance. They may well be the most important component of the reforms. Despite a long campaign by the Public Accounts Committee, the Government have not yet decided whether they will be independently audited. The Select Committee on the Treasury reported in July this year on the need for external validation of performance measures and concluded that the National Audit Office would be the best body to do that. The Government's response is disappointing. Performance measurement has tremendous potential to serve as a lever to improve the delivery of public services and to increase the openness and transparency to Parliament and to the citizen of what the Government have done on their behalf. However, all Governments will have to resist the temptation to manipulate performance information. That temptation applies to every Minister in every Department in every Government of whom I have had experience. Independent validation is an essential protection in that respect.

The Government must accept that there is a stark parallel. Local government is properly being subjected to a rigorous, independently audited performance measurement regime—the so-called best value regime. We are told that poor performers will be named and shamed and publicly exposed. The Government are rightly spending millions of pounds on equipping the Audit Commission to carry out that role, yet the same strictures are deemed inappropriate for central Government. Why? The Government's failure to allow the NAO to carry out for central Government the role that its counterparts will carry out for local government is beyond comprehension. Hard facts and truthful data are the currency of debate in any democracy. It is vital that they are not debased in any way.

There have been controversies in recent months over the treatment of a wide variety of information, from tax burdens to waiting lists. I shall not get involved in those controversies today, but I want to prevent them from happening. It is vital that the public have absolute confidence in Government information, be it on hospital waiting lists, tax burdens or any other matter.

The Comptroller and Auditor General and his staff have been developing methods for validating performance measures. The Bill that the Government will shortly introduce should allow the House to benefit from that expertise through routine reporting on performance measurement as part of the examination of public accounts. That would be consistent with the National Audit Act 1983, which deals with efficiency and effectiveness in the delivery of public services.

As we enter the next century, the Government should recognise that they have a unique opportunity to emulate one of the greatest successes of the last century. I have no compunction as a Conservative in recognising that it was a success brought about by a great Liberal Prime Minister. It might seem rash, but a Government truly seized by reforming zeal would update not just the process of government, but the public accountability system that is its cornerstone. Gladstone's contemporaries 130 years ago might have thought him mad to establish an auditor that the Government could not sack, to put the whole of the Government, as they were then, within his remit and—maddest of all, dare I say—to create a Public Accounts Committee chaired by an Opposition Member. What might have been seen as madness at the time has been seen subsequently as his most visionary action. The Government must be equally visionary this year.

I fully understand that what I am proposing would not yield short-term political profit for the Government. If they set out to modernise rather than marginalise Parliament, they will make their own political job a little harder. However, if they grasp the opportunity and have the courage to recognise that strong democracy generates good government, we shall all have reason to applaud their actions.

3.10 pm

Mr. Alan Williams (Swansea, West)

At the start of his speech, the right hon. Member for Haltemprice and Howden (Mr. Davis) said that the House was packed. Look around and see what he has done. I greatly respect his chairmanship, but he should have learned a lesson from the fact that two previous Financial Secretaries could not stand coming here again.

I shall echo the right hon. Gentleman's approach, in that rather than giving a nut-and-bolt, step-by-step résumé of the year, I shall try to put our activities in a broader perspective because this is a singularly appropriate time to do so. In a recent, equally well attended debate on Select Committee leaks, I noted that Britain prides itself on its democracy but is under an enormous illusion in that belief. The ordinary citizens' participation in parliamentary democracy, if they lived to 80, would be a mere 20 votes. What is democracy and where do we find it? In a representative democracy, the answer must be here in this building or not at all. It is to be found here in this Chamber, but even more in our Committees. Although much of what we do is pedestrian by nature, it does not alter the fact that it is fundamental to the preservation of a working, meaningful democracy. If the Executive are not made continuously accountable, democracy will cease to exist.

The year before last, a retiring permanent secretary said that the Public Accounts Committee should not be confrontational or about blame. From his perspective, I understand that that might be an uncomfortable scenario, but his statement showed a lack of understanding of the Committee's role and nature. As its Chairman said, it was set up 130 years ago at a time of corruption, sleaze and waste. That may prompt some to ask whether was it worth it, but it is not appropriate to ask so facile a question. We should recognise that waste, inefficiency and impropriety are not to be fought as individual battles but as part of an on-going campaign to suppress and restrain them. Human nature being what it is, we cannot get rid of them but only try to contain them.

The sheer scale of what our one Committee is trying to do is rarely understood in its democratic context outside the House. Fifteen of us try to monitor more than £300 billion of public expenditure. When we were set up 130 years ago, there were only a couple of Departments to monitor, so a small Committee was appropriate. Now more than 4,000 accounting units spend the £300 billion. We meet only 50 times a year. Hon. Members will confirm that meeting twice a week, as we do when Parliament is sitting, with each report being different and consisting of 70 pages of briefing, is quite an onerous responsibility. However diligent the 15 of us may like to think we are, the PAC can only scratch the surface.

Returning to the permanent secretary who thought that the Committee was confrontational and involved with blame, I ask anyone to consider, with 4,000 subjects of possible examination, whether we should take them in turn or try to prioritise them. If we are to prioritise them, should we not pick those where there are lessons to learn? It may not be a matter of blame. The more innovative the subject being considered, the more essential its scrutiny so that any problems are rooted out as early as possible.

Sometimes our work is frustrating. We revealed the problems of computerisation, but they continue to appear. We deal with the dangers involved in varying costs and the problems of conflicts of interest. However, we could do those things in only the most token way if it were not for the National Audit Office. I do not say that to pander to the NAO, whose work we all respect. It has some shortcomings, but also enormous achievements. A Committee of 15 hon. Members, with constituents to look after and responsibilities imposed by the Whips, cannot pretend to monitor at all effectively what the Government are doing without the work of the NAO. There is nothing like a spell in opposition to make one understand the value of such monitoring. It is a measure of the scale of the task synthesised for us that it takes 750 staff to enable the NAO to do the monitoring that it undertakes on our behalf and to prepare reports. I emphasise to the Minister, because the whole Committee will return to this, that the NAO can do its work only if it has, and continues to have, appropriate access to each of the 4,000 units.

The NAO and the Comptroller and Auditor General must remain independent. In fairness, in recent years they have been made increasingly independent. However, their accountability and reports must be to Parliament and our Committee and not, as has been mooted in some quarters, to the Treasury. It would be ludicrous to have the monitor of the Executive reporting to the Executive. They do that sort of thing in Moscow, and we have seen the results there.

I am not opposed to change. Indeed, I have been a great advocate of changes. As a Committee member, I am concerned only that when they happen, we are prepared to deal with the consequences. The whole House, and Ministers in particular, have a responsibility there. There have been changes in the structure of Government that make accountability more elusive. I mentioned fragmentation and the 4,000 units that we try to monitor. Yesterday, the report of the Select Committee on Public Administration noted that there were more than 1,000 non-departmental Government bodies and various task forces. We are now told that the NHS Executive will be divided into more than 600 different accounting units. We are in a dynamic stage, with experimentation in the structure of government and in the way in which we deal with the people who are deemed to be appropriate to make up the Executive. I am not making any value judgments about the desirability of those developments. They have happened and I am observing the consequences.

Civil servants have increasingly had to become accustomed to short-term contracts. Such contracts, by their very nature, have the potential to diminish the loyalty of civil servants, and they certainly diminish their experience, and the ethical and financial codes that apply in the civil service. If that is the way in which things are to go, so be it, but we should monitor the consequences.

As for entrepreneurial activity in government, I was a Minister in the Department of Industry way back in the 1970s, and in the Department of Economic Affairs in the 1960s. We always sought cross-fertilisation of ideas between the civil service and private industry to get the best for the public service. People find it frustrating if they come into the civil service and are given chief executive positions but have no background in the public ethic and no experience of the public approach to taxpayers' money.

One lunch hour, I sat in the cafeteria with a Minister—I would never dream of revealing his name or which party he was in, but I have been back on the Committee since 1990, so he could have been in either Administration. He told me, "I hope you realise that your Committee is costing my Department money. We are spending good money to employ business men, and they are telling us that they are afraid to do things in the way that they want to because they are afraid of the Public Accounts Committee." They have reason to be afraid only if they do not observe the rules. Business men have incredible freedom to ignore their shareholders, but the taxpayer cannot be ignored. Parliament cannot afford to allow the taxpayer to be ignored.

Mr. David Davis

I am listening to the right hon. Gentleman with fascination. I have worked in business, and one of the misapprehensions of the public sector is that businesses are loose, slack or unethical with the use of money. In truth, the controls in business are often much tighter than in the public sector. I think that that is in part because the public sector rests, quite reasonably, on the integrity and altruism of the people who work in it. Does the right hon. Gentleman accept that when people are taken out of a controlled environment and put into one that assumes a level of integrity and altruism, that of itself creates a problem?

Mr. Williams

Yes, of course. We agree that there is a problem, and we must address it. It may have been before the right hon. Gentleman's time as Chairman, but after a debacle involving a chief executive of a quango I advocated that all new chief executives should be required to attend a civil service college initiation course, so that they were not thrown in at the deep end.

Our dearly beloved colleagues in the Treasury covered their backs by supplying people with a bunch of notes on what they should and should not do, and the relevant Department also covered its back against the Committee and the Treasury by supplying another set of notes. People were pitched into the job and were not given any time to read the notes, and the Department was surprised when they did not observe the rules. We have now tried to address the problem. The key difficulty is not with the personnel, but with the structures that are being considered.

The changes are making the money trail more difficult to follow. It is not just that there are too many of them, but that a trail is often cut off and a fence is put across it. Therefore, accountability is blurred and diminished. It does not matter whether we are for or against privatisation and contractorisation. It is interesting that in local government the Audit Commission is allowed to follow public money wherever it goes, but at governmental level where there are much larger budgets, the National Audit Office does not have that power. Every act of privatisation or contractorisation diminishes the area that the NAO can investigate, but it is still the taxpayers' money. In diminishing what the NAO can examine, it diminishes what the PAC and the House of Commons can examine.

Like my friend, the right hon. Member for Haltemprice and Howden—we are personal friends even if we are political adversaries, and our Committee is non-political because it is factual, which is one of the joys of serving on it—I am most concerned about this problem, and I cannot emphasis that too strongly to the Financial Secretary. I know, however, that he has not had a chance to immerse himself in the subject. Richard Crossman used to say that it takes six months to read one's way into a new job, and that is probably about right if it is a subject that a Minister has not dealt with before. The Government should make their changes—that is a policy decision—but they should ensure that the powers of the NAO and the PAC are adequately amended to cope with those changes. It is not just a matter of nut-and-bolt auditing, but about accountability and whether this is a democratic institution.

Mr. Dalyell

May I be forgiven a reminiscence as Richard Crossman's Parliamentary Private Secretary? That formidable and, in my view, excellent permanent secretary at the Ministry of Housing and Local Government, Dame Evelyn Sharp, used the PAC to pursue her own policies against those of the Minister. I am sure that that does not happen these days.

Mr. Williams

Having known the Minister and his determination to get his own way, I can well understand why Dame Evelyn may have been so tempted.

The Chairman gave a list, which I shall not repeat, but I shall touch on two items mentioned. The report of the Select Committee on Public Administration, which was published only yesterday, emphasised that the Comptroller and Auditor General should be given the power to audit all—not just some—executive non-departmental governmental bodies.

The other item concerns an innovative, controversial policy—perhaps it is less controversial to some than it is to others. The body that is to be established to carry on public-private partnership business will be involved with massive sums of public money. It will also commit Government for a long time—a 30-year commitment on the average project. It is imperative that something as new and innovative as PPP, and with so many potential pitfalls—potential opportunities, as Governments would see it—should be monitored properly and thoroughly. That can be done only by the PAC and the National Audit Office, and I am sure that we shall have further discussions with my hon. Friend the Financial Secretary and his ministerial colleagues.

I apologise for speaking for so long, but I want to make another point emphatically. I am increasingly irritated by a factor to which the Chairman of the Committee himself referred. By its very nature, the Committee is retrospective, in that the event involved has to have happened, the National Audit Office has to have discovered and investigated it, the NAO has to have reported to us, and we have to have had a hearing. A year or 18 months can pass between an impropriety, or even a minor mistake, and our hearing about it.

One of the most galling consequences for us is that, invariably, the more serious the case, the less likely we are to see before us the accounting officer who was accountable at the time. There is a noticeable incidence of premature retirement as a result of, for instance, the onset of severe backache, which seems to correlate directly with the severity of the NAO report.

The Committee has reached the unanimous view that retirement, or moving to a different Department, does not exonerate a civil servant from his duty to answer for that for which he was paid.

Mr. Richard Page (South-West Hertfordshire)

I empathise with the right hon. Gentleman's request. Does he think that it is worth asking the NAO to carry out a statistical audit to establish whether more accounting officers move, or retire, when they are due to appear before the Committee, as against normal movement within the civil service?

Mr. Williams

During the previous Parliament, I engaged in a little experiment. In May, we organised a hearing involving a certain health authority. We decided to call back from retirement the man who had chaired the authority when the problem had arisen. During the hearing, I asked Sir James—the chairman involved—when he had first learned of the date on which the authority would first appear before the PAC. He replied, "Two weeks before Christmas." I then asked, "When did you resign?" He said, "One week before Christmas."

3.33 pm

Mr. David Rendel (Newbury)

I am delighted to take part in the debate. Let me begin by apologising to the House. I have already written to Madam Speaker, to the Committee Chairman and to the Financial Secretary to the Treasury, explaining that unfortunately, owing to a prior engagement, I shall have to leave the Chamber at about 5 pm, and consequently will be unlikely to hear the end of the debate. I am particularly sorry that I shall miss the Financial Secretary's response to the debate—unless all those who wish to speak after me speed up their remarks considerably, in which event I may still have a chance to hear his speech. I hope that I shall.

I am pleased that my name is attached to the motion. It is a great honour, as I am the newest member of the Committee. I have attended only one sitting so far, and have attended none of the sittings to which the reports that we are discussing relate. In a way, therefore, I feel something of a fraud today, but I am, as I said, delighted to speak in the debate. I was particularly pleased by what the Committee Chairman said about the work done by my predecessor as a Liberal Democrat Committee member, my right hon. Friend the Member for Caithness, Sutherland and Easter Ross (Mr. Maclennan). He served on the Committee for a long time, and I am sure that he will enjoy reading the Chairman's comments in Hansard.

Although I was not a member of the Committee during the time to which the reports refer, I have had the opportunity to make use of a number of PAC reports in the past. Some proved excellent and valuable, especially those relating to the Child Support Agency and the national insurance recording system. In the last Session, last January, I spoke in the debate equivalent to this about the PAC's first report on NIRS. It is, perhaps, something of a coincidence that the Financial Secretary should, like me, have moved from the issue of social security, with which a number of the reports were so concerned, to his present duties.

Over the past year—since I spoke about NIRS—a number of other major failures in the Government's computer projects have come to light. A series of large-scale projects have come to grief in one way or another, including—importantly—the project to re-computerise the passport system in the Home Office, which had such dramatic results last summer. In the Department of Social Security, there was not just NIRS but the benefit automation project, which was intended to automate the system for benefit transfers and to help local post offices. Both those arrangements went badly wrong.

In both instances, because such large Government computer systems were involved, a large number of people were involved—millions, in some instances. We are talking not just about those who are comparatively well off and can do something about it, but about many of our constituents who are not at all well off. Such people find it difficult to deal with Government bodies at the best of times, and are hopelessly confused and unable to respond appropriately when a major computing system goes badly wrong.

I want to concentrate on NIRS2, because it strikes me as a good example of what has gone wrong, and I feel that it may be possible to draw some conclusions from the Government's failure to deal with it adequately. I refer particularly to the Committee's twenty-second report, produced in the last Session.

The problem is that NIRS2 was allowed to go "live" before it had been thoroughly tested. I appreciate the Government's difficulties: the system was set up under the previous Government, and owing to various changes that had been made, it was inevitable that we should have a new computer system to record national insurance payments. The Government were in a difficult position, in that they had to get the new system going, but the previous Government had failed to appreciate the time scale that would be needed for the introduction of a new system. That meant that NIRS2 had to be introduced before it had been tested and debugged, and before all the necessary corrections had been made. As a result, not unexpectedly—at least, it should not have been unexpected—the system collapsed, and all new and repeat claims for contribution-based retirement pension, job seekers allowance, incapacity benefit and related housing and council tax benefits were for a while paid "blind", on the basis of what the individuals concerned said were their records, rather than what the Government had recorded. That obviously caused many difficulties. It caused the possibility of errors in payments—overpayments as well as underpayments—in the case of people who could ill afford such errors.

The present Government, rather than the previous one, are surely to blame for the fact that, for many months after the story broke in August 1998, DSS Ministers underplayed the scale of the problem. They simply did not realise how big it was. They failed to warn people of the likely effect. They claimed that they would be able to deal with it fairly quickly and easily, but it eventually became obvious that that was not the case, and that the delays would have severe effects. When we debated the subject in January it was made clear that, even after the publication of the PAC's initial report, the Department had failed to inform the PAC that the situation was not only continuing but had worsened, and the PAC was rightly angry about that.

Had it not been for the PAC's reports, many members of the public and officials might still have been in the dark about the extent of the problem and the difficulties that they might meet, and so might not have been able to help some people to overcome the difficulties that they would face as a result of a systems failure.

In some cases, those difficulties amounted to what might seem to be comparatively small underpayments or overpayments of £1.25 a week, but in other cases, involving SERPS payments or private pension payments, they could have amounted to as much as £100 a week. That is clearly a significant sum, but even the much smaller sums may be significant to those living on a state retirement pension with no other form of benefit, whose income is therefore restricted, and who are living hand to mouth, as, sadly, those who live on the most basic benefits have to do.

As the Chairman said, one of the great difficulties was many people's fear that they had been overpaid. Many who were not overpaid feared that they had been overpaid and so felt unable to use all the benefits that they were given, putting them to one side in case they were later called on to return them to the state.

The Government's difficulty was that, by failing to register the size of the problem and the difficulty that they faced in rectifying it, they led people to believe that the problem would be over by a certain date, but that date changed time and again. As a result, people did not know where they stood.

The most important thing is that the Government should take on board the lessons to be learned from the PAC reports and others. Lessons must be learned from not only the NIRS2 system but all the other IT systems that have gone wrong to ensure that such things do not happen again. We will need massive IT projects, so we must ensure that the Government are running good IT systems. Some of them will be large for the very good reason that there are many millions of people in Britain, all of whom may have different requirements.

Mr. John Bercow (Buckingham)

Before the hon. Gentleman moves on to the lessons that we might usefully draw, does he agree that computer inadequacy is also the principal reason why the Department for Education and Employment has been obliged to tell us that approximately 50,000 young people have left the new deal to proceed to what it euphemistically calls "destinations unknown"?

Mr. Rendel

I am sure that the hon. Gentleman knows a lot more about that than I do, and if he claims that that is right, I have no reason to suppose that it is not, but it is certainly not a subject that I know enough about to confirm to the House that he is right. He may have a chance to catch your eye, Mr. Deputy Speaker, and to say more about that later.

We need to consider how such projects are conceived and what they are meant to do. In future, the Government must consider more carefully how the programmes will be used, how people will be able to handle them, and the real requirements of the end users. The Government's needs may be taken into account, but sometimes the end users—the benefit recipients—are not sufficiently taken into account.

A further point concerns contingency plans. The very fact that such programmes are necessarily large and complex means that, almost invariably, they will go wrong, particularly when they are first introduced. That means that those who operate the systems must have enough time to get them up and running properly and to iron out all possible initial difficulties alongside the old system.

There must also be a contingency plan for dealing with problems after the introduction of the new system. It was the lack of a proper contingency system that caused such enormous problems when NIRS2 was introduced; there was no way of returning to the old system when the new system was introduced, causing many further and, to my mind, unnecessary problems. We must ensure that services can continue to be delivered to our fellow citizens whatever happens to a new computer system.

Many of the new large systems will be introduced under the private finance initiative, whichever party is in power, even when my party takes over in government—[Interruption.] Some of us think long term, even if most do not.

It is important to recognise that the whole point of introducing such systems under the PFI is to transfer some of the risk and its cost to the private sector. When such systems are introduced they are necessary. With regard to NIRS2, only a small amount of compensation has been paid by Andersen Consulting, which produced the system, because once it started going wrong the Government were over a barrel. In effect, they were told, "You need us to make sure that it works in future, so if you start demanding compensation we will back out and leave you in a hopeless situation." The Government were, in effect, almost blackmailed, so they allowed the company to try to iron out the problems without its having to pay a lot of compensation.

Therefore, the risk that the Government thought they had transferred to the private sector was not so transferred at all and, in effect, the taxpayer has had to pay for all the problems. If we are to continue to use the PFI, we must recognise that difficulty. We must recognise that, once such massive projects are under way, it is hard to change the contractor running them, giving them a great hold over the customer. In such a situation, it is hard to see how the risk can be transferred. That is a problem that the Government have not answered. I do not pretend that I have an answer to it, but it is something that needs to be worked out. If the PH is to work properly, we need to find a way of genuinely transferring the risk to the private sector.

There must be better ways of handling such big projects. In so many big projects the Government systematically fail to ensure that they work properly and that, when things go wrong, the costs do not fall on the public sector. There must be better ways of handling such projects. I can only suggest that it would be a good start for the Government to pay careful attention to the PAC's reports and to see whether they can learn some lessons, which will enable us to avoid some of the horrific problems that we have had with computer systems such as NIRS2.

3.49 pm

Mr. Gerry Steinberg (City of Durham)

This is the first time I have participated in one of these debates, and I shall be brief. I shall certainly be briefer than the Chairman was. It is a pity that he is no longer present because I wanted to remind him of how long he spoke this afternoon and how little time he gives me in Committee. If he returns, I shall do so.

First, I pay tribute to the Committee staff. I have read past debates, and paying tribute to staff is a convention, but I do so sincerely. The staff are excellent; they keep us supplied with the briefs and papers that we need. The right hon. Member for Haltemprice and Howden (Mr. Davis) has returned to the Chamber. Earlier, I told that House that I intended to be much briefer than the right hon. Gentleman in view of the amount of time that he grants me in PAC meetings.

Mr. David Davis

My entire speech probably did not make up for the hon. Gentleman's overruns this year.

Mr. Steinberg

We shall not continue the argument.

I pay tribute to the National Audit Office, without which the PAC could not survive. Indeed, we would not exist without it; it does an excellent job.

I have been a member of the PAC for just over a year. It has been one of the most enjoyable experiences that I have had since coming to Westminster 12 years ago. Whitehall needs to be kept on its toes, and the PAC does that. One of the most incredible aspects of interrogation in the PAC is the complacency that some senior civil servants demonstrate. I sometimes despair when billions of pounds have been wasted and senior civil servants remain complacent about it. Perhaps they object to being questioned by, in my case, a minor Back Bencher. The PAC thus has a vital role to play. The Committee is well controlled by the right hon. Member for Haltemprice and Howden. He is a fair man who does a good job, although I am convinced that he gives me less time than anybody else.

It is the Committee's strict convention to be non-political. That convention is well respected, although it has been difficult to be non-political in the past year—I have been brought into line on several occasions. However, I suspect that it will become easier to be non-political as time goes on and we consider reports from this Government rather than those of the previous Administration.

Today presents an opportunity for a more open debate, which is welcome. This afternoon, we can express opinions that we cannot present in Committee because of the convention that I mentioned. I shall not philosophise like my right hon. Friend the Member for Swansea, West (Mr. Williams) and the right hon. Member for Haltemprice and Howden; I shall be a little more blunt.

I believed that we could discuss approximately 40 reports today, and the right hon. Member for Haltemprice and Howden said that the number was indeed 40. However, I want to concentrate on the two reports that I found the most interesting and, politically, the most controversial. I want to discuss the reports on the two privatizations—of British Energy and Railtrack—that the previous Government undertook. I believe that the previous Government proceeded with them purely for reasons of dogma. My argument this afternoon will clearly demonstrate that.

Let us consider British Energy. The PAC's report examined whether the Department of Trade and Industry took reasonable steps to minimise taxpayers' financial exposure to nuclear liabilities, and whether it maximised the proceeds obtained from shares. Not long after I first entered the House in 1989, the then Prime Minister made it clear that she would not touch the privatisation of British Energy with a bargepole. Yet in 1995, the previous Government went ahead with the sale. Initially, the sale of shares was a flop, and many remained unsold—indeed, only 88.5 per cent. were sold. The sale raised approximately £1.26 billion at a time when British Energy owed the Treasury £600 million. A simple sum shows the amount of money that the sale of shares raised. The remaining shares were sold later—not by design, but because they could not be sold initially. That extra sale raised £198 million. The total raised was due to good luck rather than good management.

The eight most modern nuclear power stations were sold while the older stations were retained in the public sector. The older nuclear power stations are nearing the end of their useful lives and will soon need to be decommissioned. The sale ultimately raised approximately £1.5 billion, yet it was hoped that it would raise £3.7 billion. So the loss to the taxpayer was enormous; one does not have to be a mathematician to work it out.

The original construction of Sizewell B, one of the power stations that was sold, cost approximately £3 billion. I would have expected the privatisation to raise at least the original capital costs of the eight power stations that were sold. Yet the sale fell well short of the cost of one power station. To make matters a darn sight worse, the Treasury had expected to receive from the nuclear industry approximately £560 million in 1996–97 and £1.12 billion in 1997–98. Yet after privatisation, the industry cost the taxpayer £950 million over the same period. That is not a good deal.

After privatisation, the nuclear industry changed from an income-generating industry into a revenue drain. It now costs the taxpayer more to run the nuclear industry in the form of British Nuclear Fuels plc because it no longer controls profit-making modern stations. To make matters worse, the taxpayer will have to pay for decommissioning the older magnox power stations without the benefit of any revenue from the modern stations. Again, that is not a good deal for the taxpayer. The decommissioning will cost approximately £8 billion. Even worse, the privatised industry will be expected to make a contribution of only £16 million towards paying for long-term liabilities of nearly £15 billion. Clearly, that privatisation was an absolute failure that caused a huge loss to the taxpayer.

The PAC concluded that the nature of nuclear liabilities caused inevitable uncertainties, especially in the long term, about British Energy's ability to finance them and that, therefore, the Government should monitor carefully the company's on-going ability to meet its liabilities without recourse to the taxpayer. The Committee also concluded that the taxpayer was still open to financial liability for British Energy's nuclear power stations. Those financial liabilities arise from several causes.

First, British Energy has a fixed-price contract for fuel reprocessing with British Nuclear Fuels plc, which is still publicly owned. Secondly, there is currently no technology for the disposal of nuclear waste in the United Kingdom. Thirdly, there is a residual risk that, in the long term, neither the trust fund that was set up, nor British Energy, will be able to finance the full cost of nuclear decommissioning. For those reasons, it is my view that that sale should never have gone ahead—there are too many doubts regarding an industry that must, at all times, have safety as its paramount consideration.

When the Department of Transport privatised Railtrack in 1996, it sold all the shares at one time, for £3.90 each, through a stock market flotation that raised about £1.9 billion. About two years later, when the NAO wrote its report, those shares had risen in value to £16 each. The report clearly states that one of the aims of the sale was to get a good deal for the taxpayer. Although that was a simple aim and £1.9 billion was raised, Railtrack was worth £8 billion two years later. Quite contrary to the stated aim, the deal was dreadful: the British taxpayer and the Treasury lost a fortune and the company was sold off for about £6 billion less than it was worth. That money could have gone into Treasury coffers to be used in health or education or to build hospitals. Quite obviously, the policy was to sell at all costs.

The situation was made worse because, as a result of previous privatisations, the Department should have known what to expect. It was clear that selling shares in stages had produced substantial increased proceeds: the price rose over time and became higher than that achieved when all the shares were sold at the initial issue price. Two examples come to mind: the sales of National Power and PowerGen by the Department of Energy. The shares were sold in two stages and, as a consequence, the overall proceeds from the two sales were £2.3 billion higher than they would have been if 100 per cent. of the shares had been sold initially.

At the time, the Department of Energy set out its reason for adopting the phased sale strategy in great detail and circulated the information widely throughout Departments so that its experience could be of benefit during future privatisations. Did the Ministry of Transport take any notice of the information that was given it? No. The information and advice that the Department of Energy had passed on to all Departments were ignored and the Ministry of Transport lost billions of pounds for the taxpayer. In my view, that is a scandal. However, when the PAC questioned the chief accounting officer on those issues, the response was quite complacent. It did not even seem to have been accepted that what had happened was anywhere near a scandal.

The NAO report states that a 100 per cent. sale was decided on because of the Treasury's concern about the impact of a partial sale on the confidence of investors in the light of the approaching general election. If that was the case, it is clear to me that the policy was to sell at all costs. Political dogma, if I dare say that again, overrode the financial consequences of the privatisation. What can only be described as an astronomical increase in share values over the past few years has occurred simply because Railtrack was completely undervalued. It certainly has not improved because of its track record.

Mr. David Davis

Ouch!

Mr. Steinberg

It is also claimed that, because Railtrack was sold in such a hurry, the interim regulation scheme was also overgenerous and excessively costly to the taxpayer. As a consequence, total rail subsidies have doubled compared with the aid received by British Rail, which originally ran the system. To quote from the NAO report, the value of shares also increased because the market realised that Railtrack could secure significant efficiencies on operating costs, particularly infrastructure maintenance expenditure and investment". In other words, Railtrack was highly valued because people knew that it would make cuts. We have seen what happens when such cuts are made. The taxpayer was ripped off by the sale of Railtrack and the traveller now receives a declining service from it. I do not want to go into its record, but it is clear to everybody that there is a great deal of worry in respect of safety on the railways, basically because of lack of investment.

Who has made a lot of money out of these privatisations? Certainly not the taxpayer. Investors have achieved huge returns on their investment, all at the expense of the British taxpayer. At the time, Railtrack was also given, on a plate, billions of pounds of investment land, which was hardly noticed—the measure just went through and people did not realise what had happened. To my mind, the two privatisations, which the PAC studied in great detail, were done for no reason other than dogma. Both sales were bad for the taxpayer. They cost the Government billions of pounds and have created severe problems for the future. They have given little benefit to the taxpayer, if any, but investors have done very nicely, thank you.

The previous Government's declared policy was to deepen and widen share ownership, but the sale of Railtrack in particular was aimed at deepening rather than widening. The emphasis of that sale was on those who already owned shares adding Railtrack to their portfolio, rather than trying to persuade people who had never owned shares to buy them. The policy was to sell at all costs—sell and be damned—and that allowed large institutions to get their hands on the huge Railtrack profits.

In both privatisations, the PAC was concerned that the Department chose not to stagger the sale of shares. In both privatisations, believe it or not, the cost of consultants and advisers was absolutely astronomical. The obsession with privatising nuclear power generation meant that management and financial consultants alone cost £25 million. In the privatisation of Railtrack, consultants and advisers cost £39 million. Astronomical sums were paid for advice that, on reflection, appears to have been badly wrong and has contributed to a bill for the taxpayers amounting to millions of pounds.

We all have our opinions about the consequences of the two privatisations and why they were carried out in such a way, but I do not think that anybody who read the reports and listened to the evidence could argue against the idea that, in both cases, the taxpayer was ripped off. I am delighted that the Treasury accepts the PAC recommendations that, in any future sales, Departments should consider negotiating a clawback on unanticipated increases in the profitability of companies and that, in any future flotation, Departments should start from a presumption in favour of a phased sale. If that is not possible, there should be safeguards to protect the taxpayers' interests. Those recommendations are very sensible. What a pity that they were not in place when Railtrack and British Energy were privatised. If they had been, vast sums of money that could have been used for other purposes would not have been squandered.

4.9 pm

Mr. Charles Wardle (Bexhill and Battle)

I shall not, on this occasion, follow the hon. Member for City of Durham (Mr. Steinberg) and make overtly political comments. I agree with the right hon. Member for Swansea, West (Mr. Williams) that the purpose of the Public Accounts Committee is to measure and assess performance by officials rather than to look at policy, as other Select Committees do.

After making that unkind jibe, I should add that it is a pleasure otherwise to follow the hon. Member for City of Durham, who has in Committee a deceptively avuncular style that lulls witnesses into complacency when he goes for the jugular, as he is able to do very effectively.

The hon. Gentleman was also responsible for the one bright moment on the Committee's recent trip to Brussels and Luxembourg. After a particularly tedious—not to say frustrating, even depressing—day of evidence from people who did not seem to understand what financial controls really meant in the northern European sense, and when the entire Committee was feeling down, the hon. Gentleman announced that it was his birthday. There were, therefore, some very vigorous Euro-celebrations, which I am pleased to tell the House were paid for not by the European Commission, but by Committee members.

I offer an advance apology to you, Mr. Deputy Speaker, to the Minister and to the House for planning not to be in the Chamber for the debate's conclusion. I mean no discourtesy, but well before I knew the date of today's debate, I had made arrangements to attend a function in my constituency. I wrote to Madam Speaker to explain my predicament.

I follow my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) and other hon. Members who have commended the National Audit Office and our excellent Committee Clerk on the quality of the material that provides the basis of the Committee's evidence taking and subsequent reports. I am sure that all hon. Members will agree that the thoroughness and incisiveness of the case load we receive is exemplary.

Before turning to deal with a few specific reports, I repeat the calls that have been rehearsed today, and which I and other hon. Members made last year, for an extension of the Comptroller and Auditor General's remit to give him access—for audit purposes and to measure value-for-money performance—to spheres of public expenditure that he currently cannot examine. Despite the Committee's recommendations in the past year, not enough progress on that front seems yet to have been achieved.

I know that there will be an opportunity to raise those issues when the Government's Resources and Accounts Bill is considered on Second Reading, but I add my voice now to those pointing out that the CAG should have access to the books of private contractors and voluntary boards when taxpayers' money is spent. He should have access to the accounts of non-departmental public bodies and to the books of limited companies established by central Government bodies, as well as to bodies established to participate in public-private partnership business.

Before dealing with specific reports, I should also like to praise the work done by the National Audit Office, and within the Treasury itself, to enable Whitehall to switch to resource accounting. I have said on many other occasions that resource accounting will provide a framework of management controls that will help to modernise Whitehall and empower not only the middle management ranks of the civil service, but those in senior positions. I wish every Department well with that important challenge.

I should like briefly to draw the House's attention to four reports, the first of which is the sixteenth, "National Savings: Developments in Financial Reporting". Two and a half years ago, the Committee reported that the number and size of discrepancies and unreconciled balances in the National Savings accounting systems was unacceptable, and pointed to a failure to apply basic accounting principles and to a serious risk of fraud. It was clear that the past management of National Savings had very little sense of urgency about financial controls, perhaps because there was always the comfortable, but ultimately irresponsible, assumption that the Government of the day would stand as guarantor for investors if anything went wrong.

In December 1998, the National Savings agency entered into an agreement with Siemens Business Services, which led a year later to all the operations and administration of National Savings being subcontracted to Siemens. There were two dangers in that arrangement.

First, Siemens's track record elsewhere in the public sector has been less than satisfactory. One has only to think of the costly mess at the immigration and nationality directorate to appreciate that Siemens can get things badly wrong.

Secondly, I believe that the decision to transfer the entire administrative organisation out of an agency such as National Savings to a subcontractor, simply because the agency lacks management expertise and information technology skills of its own, is not a sensible, long-term public service solution. It does not create a situation in which the public may participate through share ownership, but merely places a hopeful bet on an outside partner, with no real means of control for the agency if performance does not come up to standard.

It would be better for the agency to set about recruiting and building its own in-house management and IT capabilities. That would leave open for later the option for the agency to be privatised or not, according to policy and demand.

The National Savings agency was 11 months late with its undertaking to complete the investigation into its financial accounting systems. Subsequently, it claimed that the net discrepancy found was just £4.6 million, which management considered insignificant against the total funds under management of £63 billion. However, the net figure of £4.6 million reflected positive and negative adjustments of £40 million and £44 million respectively. Therefore, the unaccounted errors came to £84 million. Small savers are entitled to better custodianship than that.

The twentieth report was entitled "Home Office: Handgun Surrender and Compensation". In 1997–98, firearms legislation—which I felt at the time, and still feel, was rushed, ill considered, intrusive and likely to have little of the desired effect—led to thousands of responsible and decent people, who either collected firearms or were members of target-shooting clubs, having to surrender to police a total of 162,000 handguns. The legislation did not touch the millions of weapons still held illegally by villains and lawbreakers that are still being brought into the United Kingdom undetected.

In the rush for action, the Home Office had not made an accurate assessment of the number of guns to be handed in, or of the consequent drain on police time. The Home Office also did not have in place an efficient administrative system to compensate owners promptly for handguns. Many owners had to wait more than a year to be paid, and it took the Home Office 15 months of confusion to reach the conclusion that more staff were needed to process claims. The Home Office said at the outset that it would handle 4,000 claims a week, but ultimately, it dealt with 400 claims a week. The innocent collectors and shooters—who suddenly found that, through no fault of theirs, Parliament had banned their hitherto lawful hobbies—deserved better treatment.

The twenty-fifth report, "MAFF: Arable Area Payments Scheme", is an example of what I call the Brussels effect on government. The scheme was introduced in 1983 and is the largest of the common agricultural policy schemes administered by MAFF, paying £1.1 billion per annum to British farmers.

What is worrying is that, over the five years 1993 to 1998, the cost of running the scheme grew by £3 million, which is a 21 per cent. increase. Rather than achieving greater efficiency over the five years of experience, the opposite occurred. MAFF gives as a reason for that the constant stream of rule changes emanating from Brussels.

Bearing in mind what the Committee saw on our visit to Brussels—an utterly cavalier attitude to financial controls and an obsession with bureaucracy—the waste of time and effort and the escalating cost to MAFF are unsurprising, but nevertheless deplorable: and all for what purpose? MAFF says that, in 1996–97, it found 2,700 irregularities that led to administrative penalties, but in the United Kingdom, in five years, there have been only seven prosecutions for fraud on the scheme.

Combating fraud was high on the agenda for the Committee's visit, earlier this year, to Brussels and Luxembourg. The twenty-ninth report, "Financial Management and Control in the European Union", is really misnamed, as it might more accurately have been entitled, "The lack of financial management and control in the European Union". I agreed to the report, but should say that it could justifiably have been worded even more strongly.

We concluded that there is a lack of clarity about who is accountable to whom, and for what. We said that there is a cultural emphasis on devising policy without regard to the consequences. We talked about dated staffing codes, inadequate financial reporting and ineffective arrangements for combating fraud. We might equally have underlined the arrogance, the complacency and the introverted preoccupation with political jockeying and horse-trading for positions of privilege within the Commission's bureaucracy. There was no real regard for financial control or for the taxpayers' interests in Brussels.

If that is the climate in which an overarching European federal power is being constructed, with a single currency to be followed by a centralised European tax-raising system, I want no part of it, because it will not serve the best interests of this country.

4.20 pm

Maria Eagle (Liverpool, Garston)

I am grateful for the opportunity to speak in this debate. I wish to start by reiterating the thanks that my right hon. Friend the Member for Swansea, West (Mr. Williams) and the Committee Chairman, the right hon. Member for Haltemprice and Howden (Mr. Davis), gave in respect of the National Audit Office and the Comptroller and Auditor General. While my remarks may be briefer, they are meant no less sincerely. We could not do the job that we do without the NAO and the hard work of its 750 staff.

We could not begin to deal with the NAO papers and two hearings a week without the effort and work of the Committee Clerk, Mr. Ken Brown, and his staff. I wish to place on record my thanks to them. It is often the mundane things, such as having the right report in one's hand, that are an essential prerequisite to scrutiny in this House. One cannot scrutinise the Executive without the right report.

I speak with a tinge of sadness in this, my third such debate as a member of the Public Accounts Committee. As the ever-sharp eyes of the Committee Chairman spotted, the Order Paper shows that this is to be my last day on the Committee, as I am to be discharged as soon as the debate ends. The Committee of Selection works in mysterious and wonderful ways, and I hope that this decision was not an early verdict on my speech.

I will miss being a member of the Committee. It has been a remarkable introduction for a new Member of Parliament to one of the core functions of Back Benchers, and all Members of Parliament—to scrutinise the Executive. I do not mean just the Government or politicians, but Whitehall, as the PAC scrutinises Whitehall more fully than the politicians.

Those who are present today will have seen us lean back in our seats at the mention of politics. That is odd for politicians. However, an essential prerequisite of the effectiveness of the Committee is that party politics and arguments over policy are taken out of its considerations. It is difficult at times to ignore the political situation, and it is difficult for a politician to resist the temptation to resort to looking at a matter in one particular way. However, the Committee is there to scrutinise the Executive, and primarily the accountability of Whitehall and the accounting officers.

The NAO and the Committee have a tough year in front of them, and that is another reason why I am sad to be leaving the Committee. It feels like I am abandoning the Committee at the time of its highest work load—although I am sure that my replacement will be as assiduous and sharp as I could ever have been.

The Committee and the NAO has had to deal this year with the advent of resource accounting, and with issues such as devolution which have marked a huge change in the way in which the Committee works, and these changes will continue. It is easy to say "resource accounting and budgeting" but it is not so easy to do. The transition is likely to be more long standing and a little more painful than it might seem.

It will be difficult for the Committee because while resource accounting and budgeting will make budgets more transparent, it will not make understanding them any easier. It will be more difficult for members of the Committee who do not have accountancy training—that is just about all of them—to follow matters with their usual and expected clarity.

The heavy work load of the Committee teaches Members to organise themselves properly, to pick up on the important points and to leave the less important points to one side. My right hon. Friend the Member for Swansea, West made it clear that there was an enormous task of scrutiny in front of the Committee, and it is essential that Members are able to home in on the important points. The NAO does that on behalf of the Committee, but the Committee must take that further—particularly in respect of value-for-money reports. With only 15 minutes of questions per hearing, every Committee member must carefully consider the points that they wish to raise.

My overwhelming impression of the work of the Committee is that it is resisted by Whitehall, although not by politicians. In this, I am speaking about all Governments—not particularly this one or the previous one. However, Whitehall and the senior accounting officers, who are "the scrutinised" in this sense, do not like the scrutiny and seek ways of minimising it. In my first year on the Committee, we had an assurance, via a Treasury minute, that a convention called "not for NAO eyes" would be removed.

Another perennial issue is access. The Committee has constantly asked for extended access at every legislative opportunity, but Whitehall's response has often been that the Committee does not need it. We have made progress, but perhaps what the Comptroller and Auditor General really needs is a financial right to roam Bill. It seems simple to me—if it is taxpayers' money, the Comptroller and Auditor General should have access to it. The difficulty is in putting that into effect. In Treasury minutes, Departments produce reasons why that cannot be done, rather than ways of achieving it. I cannot see a problem with allowing the Comptroller and Auditor General access to taxpayers' money—although more staff may be needed.

Non-politicians in particular do not like scrutiny, although politicians are used to it. My right hon. Friend the Member for Swansea, West referred to the number of times that the accounting officer responsible for the stewardship of the money we are concerned with is not the person who comes before us. It is remarkable how often accounting officers retire, are promoted or disappear one way or another just before a hearing of the Public Accounts Committee.

I do not wish to delude myself, and while the PAC is effective, it is not 100 per cent. effective. It does not achieve 100 per cent. perfect scrutiny, as I have said before in these debates. However, I am almost persuaded to reconsider my view of the effectiveness of the Committee when I see how regularly accounting officers who are supposed to appear before it choose to disappear somewhere. Perhaps we are a little more effective than I thought.

The Government should give some thought to the issue of disappearing accounting officers. I would enjoy seeing the figures of my right hon. Friend the Member for Swansea, West for the previous Parliament and comparing them with figures for this one to see how regularly accounting officers move just before Committee hearings.

The right hon. Member for Haltemprice and Howden referred to the way in which accounting officers complain about the evidence sessions and the Committee's confrontational style. I say that they should stop whingeing. They have all year to do their jobs, but I have 15 minutes to do mine while they are front of me. If that leads to some confrontational questioning, I am sorry, but accounting officers are often responsible for billions of pounds of expenditure. They have to realise that they are accountable to the Committee and should stop complaining about how it chooses to do its job in a restricted amount of time.

Whitehall does not always respond positively, and two reports in the past year show how responses from the Executive can differ. The first is the twenty-fourth report on the flotation of Railtrack. I do not intend to go into huge detail about the political background of that flotation, except to say that the then Government's policy was to privatise. Legislation had been enacted to enable the privatisation to take place and the first of the private companies—of the 100 or so formed from what had been British Rail—had been formed in January 1996. Privatisation had finished by March 1997, so that was a speedy timetable.

In other reports, the Committee has considered other aspects of rail privatisation, including the rolling stock operating companies, the train operating companies and the freight operating companies, and it has an overall picture of the transfer of the entire business to the private sector. The Railtrack privatisation was effected speedily, for whatever reason. The Committee suggested that the failure to sell the shares in tranches led to a potentially massive undervaluing of the business. The Committee also concluded that the timing of the flotation was designed to maintain the momentum of the entire privatisation process in the rail industry, and that that appeared to take precedence over bringing in the maximum amount of money. What is not disputed is that the shares were sold for £3.90 each, or for a total of £1.9 billion, and when the Committee took evidence on the flotation of Railtrack the shares were worth £15.51 each, a total of £7.8 billion. That is a measure of the potential undervaluing of the company.

The Treasury minute that forms the departmental response to the report makes interesting reading. Committee members will know, although others may not, that the Committee gives its conclusion and the Department responds in what is called a Treasury minute. The Committee concluded that, in the case of Railtrack, value was not obtained, but the Treasury minute merely noted the Committee's description of its view of the sale. It may be that 92 per cent. of the Committee's recommendations are accepted, but some are not, and in this case there was clear departmental resistance to the Committee's analysis.

The Committee also concluded that the timing of the sale was more about the need to maintain momentum in the privatisation policy than it was to ensure value for money. The Department confirmed that the timing of the sale was influenced by the need to maintain momentum, but the Treasury minute then attempts to justify that and claims that it was an objective of policy. It makes no attempt to deal with the point that value for money was not obtained.

In Railtrack's case, as in other cases, Committee members trod carefully in the report, because the issue was politically controversial at the time. The Government's policy was diametrically opposed to that of the Opposition, but the Government speeded it through to complete it before the general election. Whatever we may think of that, it is clear that, some time later, the Department is still resisting, not accepting, the Committee's points. There is nothing new about that and, indeed, last year—in our report on procurement in the Ministry of Defence—we made recommendations that had first been made in Gladstone's time and the Ministry had still to deal with the issues. It is not unusual for Departments to accept recommendations but to fail to change the way in which they work.

My second example is the report into the further education sector and alleged irregularities at Halton college, which was mentioned by the right hon. Member for Haltemprice and Howden. The FE sector is responsible for spending some £5.6 billion of public money, and since 1993–94 the Committee has produced a series of reports that have been seriously critical of problems with governance and propriety in the sector, which have led to notorious incidents at, among others, Halton college and Bilston college. No doubt, others with similar problems remain to be investigated.

Halton is one of 435 FE colleges, so if problems are endemic in the system, that is a matter for great public concern. The report into its problems concluded that the college claimed almost £14 million more in grant than it was entitled to and 114 staff lost their jobs as a direct result of the financial problems caused by having to repay that money. That led to a further £1.8 million in redundancy costs and a serious deficit in the educational courses that the college was supposed to be providing. In addition, obvious problems were caused by the fact that the principal and deputy principal spent 12 months of their five-year reign abroad on jollies—not to put too fine a point on it—at a direct cost of £210,000 and an incalculable cost in their credibility in the college.

The irregularities must have been common knowledge in the college a long time before they were brought to the attention of the National Audit Office by a whistleblower.

Eventually, the principal and deputy principal were suspended on full pay, and finally they left—but not before drawing an extra £200,000 in salary before the matter was resolved. I deplore the fact that the college misled the Committee about whether legal costs had been paid to those two. Understandably, they had sought to delay their departure from the college because they were still drawing their full salaries—but to expect the college to pay the legal costs of creating the delay beggars belief. The Committee was originally told that the college had not paid, but later it emerged that it had.

All the governors who allowed that to happen have now resigned, but the college, and the local area, have been left with a serious problem. It is difficult to see how such poor governance was not picked up by the Further Education Funding Council. Moreover, at the time of some of the worst excesses, the college's internal and external auditing, which was carried out by the same private sector firm, Deloitte&Touche, did not detect the problems and gave the college a clean bill of health. The FEFC's procedures for picking up problems did not reveal what was going on, either. That shows poor performance by the funding council, which if repeated elsewhere would cause considerable problems wherever there was a governance issue.

I shall now deal with some of the Treasury minutes that have been sent in response to the report. The Committee was struck by a reference in the report to the fact that the Department was willing to act speedily to put the problems right. About time, one might say, in view of the number of FE colleges with problems.

The Treasury minutes in response to all the conclusions start with sentences such as: The Department for Education and Employment…Halton College…and the Further Education Funding Council…accept the conclusion", The Department, the Funding Council and the College accept the conclusion", and The Department welcomes the Committee's conclusion". That is in marked contrast with the responses in the same document from the Department of the Environment, Transport and the Regions concerning the flotation of Railtrack.

Two days after our evidence session, the Department for Education and Employment was already issuing new guidelines to the Further Education Funding Council to put right some of the problems, and it has now decided to legislate to abolish the funding council and change the way in which the sector is governed and its governance overseen. That, too, is in marked contrast to the reaction of DETR in connection with Railtrack.

That illustrates Whitehall culture. The Public Accounts Committee teaches all its members about Whitehall Departments. One can soon spot which are profligate, which can and cannot control their expenditure, which do not even try to control it, and which are quite good at doing so. One would not do this publicly, but when individual accounting officers appear before the Committee, one can also make judgments about them, and about their effectiveness and their commitment to carrying out their duties.

That is one of the fascinating things about being a member of that Committee: one can learn a lot about how Government works. It has been an interesting experience, and I apologise to my fellow members of the Committee for giving up on them at this stage. I may be back some time; I do not know. I wish them well for the coming year, when they will be busy with legislation passing through the House, with getting to grips with resource accounting and with all the issues of access that every Member has mentioned.

The FEFC example shows that politicians can listen, and can kick Whitehall until it acts. Whitehall must understand Parliament a little better; Parliament is all about accountability, and politicians are here to ensure that there is accountability. They themselves are accountable to the electorate, and I think that accounting officers need to realise the meaning of that word.

4.44 pm

Mr. Richard Page (South-West Hertfordshire)

I begin by expressing my regret at the departure from the Public Accounts Committee of the hon. Member for Liverpool, Garston (Maria Eagle). Her notional 15 minutes have shown why she will be sadly missed, and we wish her every success in the greener pastures to which she is migrating.

I have had the privilege of being on the PAC since 1987, with three years off, either for good behaviour or for bad; I am not sure which. I am firmly of the opinion that it is the most important and influential of the Select Committees. It achieves that because we have the invaluable support of Sir John Bourn and his staff.

In addition, we have reports that are agreed with the accounting officer, which enables us to cross-examine the witnesses without the constant party political bickering back and forth that characterises so much of our general parliamentary activity. That gives the Committee strength.

The party political divide is crossed on the Committee, and hon. Members on both sides of it clearly understand the concept of accountability and the need for correct financial management. That is fundamental to our work, and I am worried that the Bill that will come up before us in a week or two—the Government Resources and Accounts Bill—may weaken the work of the National Audit Office and the PAC. I hope to touch on that idea later.

First, however, I come back to the idea of crossing the political divide. It is one of the Committee's endearing virtues that we have succeeded, without recourse to a vote, in reaching agreed conclusions on every report on every subject since I have been a member of it. That achievement is greatly to the credit of my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the present Chairman, and his predecessor, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I praise both of them, as I do in my speech on this subject every year, so that I might get called early for the taking of evidence—but so far that has not worked, and next year I may have to embark on a different tack if it does not work this year either.

I strongly supported the Committee's initiative earlier this year in arranging two "awaydays" to examine the arrangements for controlling European Union finances in Brussels, Luxembourg and Strasbourg. Unfortunately, as our Chairman and others have said, we found serious and unacceptable problems in the EU's institutions. There was a definite lack of clarity about who was accountable for spending, as well as an unwillingness to consider how policies should be implemented once they had been devised.

Almost all the financial auditing and reporting procedures were inadequate, and the measures available to combat fraud were conspicuous by their absence. It is extraordinary that members of the European Commission should be reluctant to accept any personal responsibility for the Commission's actions and for those of their own directorates. That is a little like a company chief executive not wanting to take responsibility for the actions of his staff.

We need to know whether the new commissioners, headed by Mr. Prodi, and the individual directors general, will be made directly accountable, inside the Commission and to the European Parliament, for their responsibilities. We must demand to know the progress that has been made towards clarifying the duties of the Commission and member states in the operation of some 1,500 structural fund programmes.

It is equally worrying that the Commission has been able to develop policies without considering fully the risks and the resource implications involved, and the financial controls needed to ensure that those policies succeed. At present, Commission programmes are like fire-and-forget missiles: they are devised and fired, but we have no idea where they will end up, or what their cost and efficiency will be.

The European Union spends about £54 billion a year, but is run like one of our ancient universities, where the dons leave the bursars to carry out the schemes that they have approved. It is no wonder that the number of small schemes supported by the Commission has grown so rapidly, nor that there have been so many instances of error and fraud.

The House debated these matters earlier this year, and I will resist the temptation to repeat what was said then, even though it well bears repetition. So far, the Government's response has been inadequate. They need to take a much tougher line to ensure that Britain's public money is not wasted in the Commission.

I could spend until 7 o'clock, when the plug will be pulled on this debate, listing all the schemes that have gone wrong, but I shall limit myself to a couple of examples. They have emerged thanks to the persistent efforts of a whistleblower, who tried for years to get matters put right through official channels. Eventually, a committee of independent experts was called in to investigate.

In its March report, that committee states that it found that one small item in the humanitarian programme had led to four fictitious contracts being issued, to a total value of £1.6 million. Part of that sum had been spent on employing 11 staff to implement the programme. Similarly, a programme to support tourism was begun in 1989. By last spring, 76 organisations or individuals had been the subject of criminal prosecutions or inquiries in the European Union. The head of the supervising unit was found to be engaged in "unauthorised external activities" that gave rise to "embezzlement, corruption and favouritism."

Members of the Public Accounts Committee will know what a sacrifice it is for me to restrict myself to two such cases, and to resist going into detail about the cochineal beetle scam, which is a story in itself.

Perhaps, given such examples, we should not be surprised that the former Commissioners and directors general did not want to take personal responsibility for such matters. As has been mentioned already, that neglect was made worse by the fact that internal promotions inside the Commission were strongly influenced by attempts to maintain a balance between member state nationals. People have been promoted not according to ability and skill, but according to their distribution on a nationalist basis.

That is not the way to ensure that taxpayers' money is correctly controlled and spent. The PAC report earlier this year showed that the opportunities for error and fraud had increased. There is no doubt that successive European Commissions have failed to respond adequately to the concerns expressed by the European Court of Auditors and by the European Parliament's Committee on Budgetary Control.

For all practical purposes, until now no Commissioner or member of staff—however incompetent or useless they may be—has been liable for dismissal. I am prepared to say that Brussels needs a strong infusion of the principles and practices governing accountability for public funds that operate in the United Kingdom. Everything that I have heard, in April and since, reinforces that contention.

To put the matter bluntly, the European Parliament must grasp the nettle and insist on the introduction of proper accountability. We should let Sir John Bourn examine the Commission's activities and say what its members should be doing. At the same time, the European Parliament should set up a PAC of its own, with the authority and power to call directors general before it, so that they can be held responsible for the money that they dish out to projects so casually.

I shall not continue in this vein except to say that the Committee's Chairman has been delicate and gentle in his treatment of the matter, and I hope that I can stiffen his resolve to be even firmer in the future to ensure that Europe spends our taxpayers' money in the most effective and efficient fashion.

My comments should not blind us to our responsibility to make sure that we note the continual challenges facing Departments and agencies. One recurring theme, which the Chairman touched on when summing up the Committee's activities this year, is the failure of public bodies to get right their provision of new information technology programmes. Time and again, we see a catalogue of doom and disaster. I shall not repeat the comments about the fiasco of the replacement system for national insurance contributions—I imagine from my postbag that the show still has some way to run.

The arrangements for privately held handguns, referred to by my hon. Friend the Member for Bexhill and Battle (Mr. Wardle), gave another opportunity for confusion and delay. A number of my constituents waited much longer than a year for compensation. Their letters and queries did not receive the effective and efficient response expected of a Department. As my hon. Friend said, the Department thought that it could handle 4,000 cases a week, but the figure eventually reduced to 415 a week, adding to my constituents' confusion and frustrations.

The lessons of this and other problems in designing and operating new technology do not appear to have been learned elsewhere. I am always conscious, when speaking this late in a debate, that some examples have already been given. However, I should like to give the example of the immigration and nationality directorate and the Home Office's lack of flexibility. The plan to reduce staff numbers as a new computer system started operating was not realistic because, as we know, the system did not work properly, and it took longer and longer to process applications. However, the reduction of staff proceeded apace, leading to a double whammy. The computer was not working well, but, even so, staff numbers were being reduced. The number of applicants waiting ballooned until reality eventually dawned. The directorate had to reverse its staff reduction policy and take on people to try to reduce the number of people waiting for their applications to be considered.

I would be very surprised if any hon. Member has not been touched, through a constituency case, by that delay. There are striking parallels with the more recent problems in the Passport Agency. I must not pre-empt the PAC's findings, but there is no doubt that some passport offices came very close to a meltdown. I know for a fact that one of my hon. Friends and his secretary had to deal with some 300 cases during that difficult period. I suppose that historians of trivia will have a field day, given the number of umbrellas that the Passport Agency had to buy to keep the long and frustrated queue dry in wet weather.

The Financial Secretary to the Treasury would be wise to bear in mind the comments of our Chairman on aspects of the Government Resources and Accounts Bill. I favour resource accounting, which will bring us into the real world by paralleling what is already accepted practice in the private sector. However, I am not surprised that there are problems. The National Audit Office was shown a first draft of the Bill on 22 October. To hit such a responsible and respected organisation with a Bill less than 30 days before its presentation and First Reading is not good enough.

I am worried by the suggestion that the NAO will not be clearly accountable to Parliament. The Bill is ambivalent and may be interpreted as meaning that the NAO could report to the Treasury. I hope that that interpretation is wrong. If not, that would be the same as allowing the auditors of a private company to report to the directors, not the shareholders. That would undermine the work of the NAO and the PAC. The Bill gives us an opportunity to improve our accountancy practices and operations. However, I fear that it may have the opposite effect.

The PAC must never lose sight of its responsibility to learn from the problems that arise in our Departments and agencies. We must try to apply the lessons across the board. That is our duty to the country and to the taxpayer.

5.2 pm

Mr. Barry Gardiner (Brent, North)

I now know how those people feel who shake one's hand at parties but who, when asked what they do for a living, try quickly to change the subject. When, gradually, one steers the conversation back round to insisting on asking what they do for a living, they blanch, then say, in a most apologetic manner, as if they are killing off any possibility of an interesting conversation, "I am an accountant".

Many people assume that members of the Public Accounts Committee are a similarly boring, number-crunching group of people, who pore over sets of statistics in a dull, if worthy, way. Nothing, of course, could be further from the truth. As a new member of the Committee, I am the other type of person avoided at all costs at parties—the unashamed enthusiast. I thank the right hon. Member for Haltemprice and Howden (Mr. Davis), the Committee Chairman, and my hon. Friend the Member for Liverpool, Garston (Maria Eagle), who have given exceedingly good advice and helped me to settle quickly into the life of the Committee.

I am sorry that my hon. Friend will leave the Committee soon, but few will be surprised by her promotion, in which I wish her every success. Her unique and acerbic style will be missed by everyone except those unfortunate enough to have come before the PAC as ill-briefed or incompetent witnesses. To those people, she showed little mercy, and we shall try to maintain her high standards.

The PAC reviews the whole range of Government activity. We have investigated matters this year from alpha to omega, from the arable area payments schemes to the millennium bug. Our intention is always the same—to assess whether the Government are operating at maximum efficiency and obtaining good value for the money that they spend.

I am aware that the Committee has been accused of laying more emphasis on apportioning blame where things have gone wrong than on making constructive proposals. I have not found that to be true. Certainly, the Committee can be harsh on witnesses whom it believes have failed in some respect. However, I have always found that the focus of the Committee is to learn the lessons of why things went wrong and to ensure that the same problems do not recur. Its concern is always for those who have suffered by the failure under review. The principle is that, by holding people to account, the Committee decokes the engines of Government.

I shall cite one clear example of the human consequences of a failure that was investigated by the PAC this year. The national health service's cervical screening programme was first established as a national programme in 1988. It aims to reduce the figure of 3,500 women who develop invasive cervical cancer each year and the 1,300 who die as a result.

The Comptroller and Auditor General prepared a report for the Committee on the screening programme. He reported that early diagnosis and treatment in colposcopy clinics had prevented up to 3,900 invasive cancers and resulted in morbidity rates falling by 7 per cent. a year. However, there were notable breakdowns in the screening programme—most notably at the Kent and Canterbury hospital.

The Committee identified significant quality failings at every stage of the cervical screening programme, affecting thousands of women every year. The Committee found that 13 health authorities had not yet achieved the target of screening 80 per cent. of women between the ages of 25 and 64 within a five-year period. That is a disgrace when we know that reaching that five-year target would prevent 84 per cent. of cervical cancers.

The Committee was extremely forceful in stating that lives were being put at risk by that failure. Brent and Harrow—my own authority—was one of the 13 health authorities that was failing in that way. I was not a member of the Committee when it produced its report, but that report alerted me to the problems that women in my constituency faced. Why should they be exposed to that risk and why should one in 12 have to endure the terrible stress and worry of a repeat smear simply because the first was not taken properly?

Brent is one of the most ethnically diverse boroughs in the country. The Committee pointed out that women from ethnic minorities are under-screened and that adequate data are unavailable for many ethnic groups. Armed with the Public Accounts Committee report, I was able immediately to contact my local health authority and demand action to improve the screening available to local women.

I was not alone. Within three weeks of the report's publication, the then Secretary of State for Health had met health executives from my area and a plan of action was set in place. Recommendations contained in the report about incentivisation of local general practitioners and targets for implementation were set. More recently, the Government have injected a further £23 million into cancer prevention and palliative care.

My hon. Friend the Minister for Public Health has now been given responsibility for implementing the Government's policy for tackling cancer and for effective screening. I am delighted to be able to tell the House that the health authority in my area has now reached a figure of 78 per cent. compared with the 80 per cent. target—an improvement that I and all the women in my constituency welcome.

However, my purpose is not to praise the Government for their response, nor to pursue a constituency matter, but to show how vitally connected is the work of the PAC to the lives of our citizens. The work of the PAC is not simply to save money, although its Chairman has set out how successful it has been in doing so. The Committee's work is not just about bringing people to book for their mistakes, although the reference made by my right hon. Friend the Member for Swansea, West (Mr. Williams) to backaches that lead to early retirement suggests that the Committee is also effective in that scrutiny role. Above all, the PAC's work is to improve the lives of our citizens by improving the service that they receive from Government. When I became a Member of Parliament, it was my belief that that was the job of all Members—I have not changed my view. That is why I consider it to be such an honour to serve on the PAC.

I am delighted that my hon. Friend the Financial Secretary to the Treasury is sitting on the Treasury Bench. I welcome him to his new role as Minister concerned with the PAC, because I know him to be someone of absolute integrity and clear principles. The pleas that he has heard this afternoon, from all those Committee members who have spoken, about the vital importance of allowing the Comptroller and Auditor General complete and unfettered access, and of making him clearly accountable to Parliament, and not to Whitehall, will not have gone unnoticed. When he responds to the debate, I urge him to do so without reading the frantic scribblings of the civil servants in the box, but basing his comments on what he knows to be right, and on what he knows the principles of the Public Accounts Committee to be.

5.12 pm

Mr. Andrew Stunell (Hazel Grove)

I speak very much as an outsider. I am not a member of the Public Accounts Committee—unlike my hon. Friend the Member for Newbury (Mr. Rendel), I have not just joined the Committee, and unlike the hon. Member for Liverpool, Garston (Maria Eagle), I have not just left it—I simply observe what it does. If imposed on Departments, its record of productivity would be most welcome. To produce 38 reports as the result of a year's activity is a great tribute to the Committee in general and to its Chairman, the right hon. Member for Haltemprice and Howden (Mr. Davis), in particular.

I was impressed by the comments of the hon. Member for South-West Hertfordshire (Mr. Page) on the way that political debate was replaced by consensus—or more, perhaps, that a pack of politicians was collectively hunting down inefficiency and bureaucracy not in competition, but in concert. That, too, is a tribute to the Committee's work.

I have a few brief points—especially on the Committee's twelfth report—but I am moved to comment on European Union financial control by the words of the hon. Member for South-West Hertfordshire. I realised that there were difficulties, but he impressed on me how bad they were when he said that they were as bad as those in a typical British university. Had I realised that, I might have spoken primarily on that subject.

I am a member of the Select Committee on Procedure, and I remind the House that we produced a detailed report on resource accounting and its implementation. We took evidence from a wide range of individuals and organisations, including the Comptroller and Auditor General and the Treasury. I do not think that it is a breach of privilege if I point out that, in drawing up its report, the Committee was nearly minded to recommend that the introduction of resource accounting should be delayed for a year, because we were worried whether there was sufficient resilience in the financial control systems—especially in individual Departments—to undertake the transfer and changeover process on a short time scale. Bearing in mind that things have not changed much for 100 years or so, the question arose whether it would be possible to make that change in the proposed time scale. It is interesting to read what the PAC has said about that and the concerns that it has expressed. I hope that the Minister will give not a bland reply, but chapter and verse about the implementation plans. The Government Resources and Accounts Bill will be debated in the House next week, and it is very much incumbent on the Treasury and Treasury Ministers to persuade the House that the necessary safeguards exist.

I speak as a strong supporter of the introduction of resource accounting. For too long, public accounts and public budgeting have been distorted by outdated procedures, but various splendid new systems of IT have been introduced to great hopes and a loud fanfare, only to crash flat on their face. We cannot afford that to be the case with the resource accounting system.

The second report on which I want to comment briefly is the twentieth report, which relates to the handgun compensation scheme. I do so as a constituency Member who is still in detailed dialogue and correspondence with Ministers about the scheme's failure to work in a timely and adequate way. There is every sign that those who administer the scheme have only the faintest and most tenuous idea of what is involved, and of the technologies and the implications. Many perverse and contradictory decisions have been taken. To those who are very much part of the shooting community and who know their art backwards, that is a constant cause of frustration, and such technically unsustainable decisions reflect badly on the Government and the process of government.

Sir Robert Smith (West Aberdeenshire and Kincardine)

Does my hon. Friend recognise that the frustration is made even greater by the fact that those people were law-abiding citizens, causing no threat, and that they therefore feel that, if there is to be compensation, it should be made efficiently and effectively?

Mr. Stunell

Yes, I agree with my hon. Friend.

I do not wish to detain the House with the complexities of different types of equipment and paraphernalia—shooters in my constituency have been quick to brief me on that. In short, those who administer the compensation scheme obviously have only the foggiest idea of the differences between, for example, various types of ammunition press. I agree with my hon. Friend that the scheme has not shown the Government in a good light.

I welcome the Committee's twelfth report, entitled "The Office of Electricity Regulation: Improving Energy Efficiency Financed by a Charge on Customers". I know that the Financial Secretary, who, in a previous existence, took a close interest in energy efficiency and fuel poverty issues, will take an interest in that report. It is a good report, which identifies some relevant issues, but I felt that it was tentative in suggesting appropriate solutions. Therefore I shall highlight those issues and say what I believe the way ahead might be. I should be interested to hear the Minister's response.

The twelfth report says that there is some contradiction in what the regulator is required to do. On one hand, he is required to promote the efficient use of electricity; on the other, there is an obligation to deal with fuel poverty. About 8 million households in this country are the victims of fuel poverty and spend an excessive amount of their disposable income simply on the job of keeping warm. The Government have established and adopted the Kyoto target to reduce carbon dioxide and other greenhouse gases by 12.5 per cent. of the 1990 level by 2010. I am sure that the Minister will want to confirm that the Government have adopted a higher voluntary target of 20 per cent. for the same period.

Reducing fuel poverty and reducing carbon dioxide emissions are twin objectives, but the Committee's 12th report suggests that there is some conflict and tension in achieving those objectives within the framework that the regulator faces. However, there is a solution to the problem. It is well established that 40 per cent. of the energy used in this country's homes is wasted. Poor households are just as much victims of that energy wastage as rich and high-consumption households. The size of the household and the income of the family make no significant difference to the amount of energy wasted in a home. Therefore, it is feasible that a more efficient use of energy—electricity, in particular—will lead to something like a 40 per cent. reduction in consumption and, hence, a 40 per cent. reduction in bills, even if there is no change in pricing levels.

That can be achieved with an increase in the quality of life. It does not require hairshirts and pullovers; one can improve the quality of one's life by insulating one's home more effectively and running it more efficiently. That would result in less fuel poverty and an achievement of the targets for the greenhouse gas reductions that are mentioned in the twelfth report.

The report also refers to the Office of Electricity Regulation, Offer, which has now become the Office of Gas and Electricity Markets, Ofgem. I want to point out to the Minister and to Ofgem that it is possible to have one's policy cake and eat it. Some of the fears expressed in the report are unfounded.

Work can be done on insulation standards, heating controls and on changing electrical systems. If there were a commitment to replace all electrical heating in homes by 2010, that would reduce carbon emissions by about 6 million tonnes a year. Straightforward and practical measures can be carried out through the regulatory and grants system, and they are within the Minister's hands. They would have a significant impact on both carbon emissions and fuel poverty. I have not even mentioned what can be achieved for domestic equipment efficiency. Older domestic equipment is less efficient, and the poorest households often have the oldest and least efficient domestic equipment.

I welcome the report's note of caution on how implementation is proceeding. No one could possibly object to its proposal that the energy distribution companies and others should exercise more control over energy efficiency. It is unnecessary and wrong for grossly different prices to be charged in different places—and sometimes even in the same area—to implement the Government's plans to make efficiency improvements to homes.

However, that note of caution should not be taken as a signal—this was hinted at in the report—that, to reduce fuel poverty and to increase social inclusion, there should be a relaxation in the way that the grants scheme applies the policy on reducing carbon emissions.

Will the Minister confirm that there is an intention to have joined-up action on reducing fuel poverty and emissions? We have had an excessive number of consultation documents on all matters relating to energy, energy efficiency and renewables. I have filing cabinets full of such documents. We need not more consultation documents or even, perhaps, more reports from the Public Accounts Committee, but more co-operative action from the Department of Trade and Industry, the Department of the Environment, Transport and the Regions and the Minister's Department, the Treasury.

A clear remit must be passed on to Ofgem—which, when the report was written, was Offer—setting out a regulatory environment that will achieve what is necessary, which is the translation of our energy supply companies into energy service companies. We need a much more vigorous and rapid move towards energy service companies and parallel, similar mechanisms. We need action, not just plans and consultation.

We probably need finance. When Liberal Democrats mention money, people say, "Well, of course they always want to spend more." However, I must point out that in this case, the distribution price review will be included in the utilities Bill that was announced in the Queen's Speech. The Minister will want to confirm that every household in the country will make significant savings on its electricity bill. Government figures suggest that consumer electricity bills could be reduced by £60 per household by 2005, representing an overall saving to consumers of £1.25 billion in the next five years. That contrasts with the current levy of £1 per year imposed on every consumer to fund those programmes—a total levy of £25 million.

It is appropriate that a Treasury Minister should be present today, because I want to suggest that the right way to approach the situation is to take just a small fraction of that saving to consumers under the new distribution price review to improve the amount of support that is given to programmes such as those described in the twelfth report.

I welcome the twelfth report, but it runs some risk of deflecting Ofgem from its key task. The report does not emphasise enough the fact that reductions in carbon dioxide emissions and fuel poverty can be achieved by the same policies as the Government have already implemented. Of necessity, the report does not consider the overall cost-effectiveness of all the interlocking powers and duties imposed on the regulators, on budgets and on Departments to achieve the Kyoto target, which the Government have accepted, and their own social inclusion aims.

The PAC has done a very good job with its wide range of reports. I welcome them all, including the twelfth report. Although I am a little worried about the impact that it might have on the Government, I hope that the Minister, in replying to the debate, will assure me that the Government will take the good points from the twelfth report and not be diverted from their intentions on greenhouse gases.

5.29 pm

Mr. Tam Dalyell (Linlithgow)

I am concerned simply with the fifteenth report, "HM Customs and Excise: The Prevention of Drug Smuggling".

It was 37 years ago to the week when I was asked by the then Chairman of the Public Accounts Committee, Harold Wilson, to join the Committee. My membership was one of the great educations that any Member of Parliament can have. As my right hon. Friend the Member for Swansea, West (Mr. Williams) can easily imagine, Harold Wilson was a glittering Chairman. He got through the business, asked the most searching questions very quickly and did not tolerate long-windedness by any of the members of the Committee.

I also served Douglas Houghton of "Can I Help You?" fame, later Lord Houghton of Sowerby, who was another marvellous Chairman, as was the Conservative John Boyd-Carpenter—so much so that I campaigned for him to be Speaker of the House of Commons rather than Selwyn Lloyd, but a fat lot of use that did. I had regard for all of them.

I have not been a member of the Committee for a long time now. The rest of the House should appreciate the hours of serious and desperately important work that our colleagues on the Committee do. Without question, the Public Accounts Committee is the most effective and important Committee of the House of Commons.

I should like to refer—briefly and succinctly, I hope—to paragraph 3 of the fifteenth report. It says: Their strategy is governed by several themes, including the development of specialist skills, increased flexibility and mobility of resources, focusing on risk, and placing greater emphasis on known or suspected smugglers and giving greater attention to large scale, commercial smuggling and a lower priority to smaller 'personal use' seizures. It is about drugs. I gave my hon. Friend the Financial Secretary some warning—perhaps not enough—of what I wanted to talk about.

I was chosen by the Speaker to lead the parliamentary delegation to Peru in September. We went to the upper Amazon, where the mayor of Iquitos said passionately, "Yes, it is true that we produce more coca leaves than anybody else in the world, but you can see on the Amazon ships in grey with guns. Yes, they are warships, but they are not going to war with Brazil. We are trying to do something about drug smugglers." He continued vehemently, as did the governor of the province, "You saw all the dogs at the airport sniffing every piece of luggage"—and so we did. That again was all about drugs.

When we went back to Lima for our serious discussions, we went to the United Nations drugs agency, where the very serious Frenchman Vandenberghe, together with his German colleagues and others, endorsed what we had been told in Iquitos. They said, "We will do everything that we can to stop this terrible trade in drugs, but as long as you people in the United States and western Europe are prepared to tolerate anonymous numbered bank accounts in your system, we are fighting with our hands behind our back." That was the considered view of the expert agency.

During our 50-minute meeting with President Fujimori of Peru, who is a tough man, he went even further, saying, "I totally agree with the governor of the province and the mayor of Iquitos. I totally agree with what has been said to you by the drugs agency here in Lima, but action can only be taken on an internationally agreed basis." We naturally asked where he had in mind. He named Cayman and the Bahamas and then mentioned Switzerland too, and said that perhaps the City of London was by no means as perfect as we British would like to believe. I am not saying that great care is not taken in the City and in Switzerland.

I have asked the Swiss, and they say that they look at every incoming sum above £1,000. Well, £1,000 is peanuts, so that stretches the imagination. I am willing to believe that the overwhelming majority of banking firms do their best to find out where money has come from if there is any suspicion that it involves drug-related money laundering, but perhaps some do not. That is why the Committee's suggestions are so important.

I speak to back up what the Committee says at paragraph 5: The Department did not convince the Committee that their reduced level of resources was a sufficiently considered response to the threat. Paragraph 6 states: Over the last decade, the Department have seized increasing amounts of illegal drugs. In 1997–98 they seized drugs valued at £678 million, and estimate that they disrupted some 130 illegal organisations. The average length of sentence passed by the courts on convicted drug smugglers has increased". The report adds that the Department should improve their management information in this respect. Point (x) on page vii of the report states: There is also a lack of evidence to determine whether the Department's activities provide sufficient deterrence, particularly with respect to major drug smuggling organisations. We endorse the Department's intention to develop their understanding of the deterrent effect that they have and to work closely with other agencies on this issue".

Mr. David Davis

I listened with interest to the hon. Gentleman's comments on numbered accounts. It is inevitable that it is easier for illicit money to hide in a large financial centre. I accept entirely what he said about numbered accounts. It is clear from our report that the strategy followed by this Government and the previous one is failing. The best demonstration of that is that the price of drugs on the street, which is tabulated in the report, has gone down over the past 10 years, both in real terms and in money terms, in almost all cases. Whatever change of strategy emerges, there certainly needs to be a change.

Mr. Dalyell

The Committee's Chairman makes a crucial and pertinent intervention, which I can only endorse.

My impression as an outsider reading the evidence is that the Committee felt that Customs and Excise could do more. I am certainly not going to criticise Dame Valerie Strachan or Mr. Dick Kellaway who gave evidence, but I refer to the latter's answer to my hon. Friend the Member for Liverpool, Garston (Maria Eagle) on page 19. He said: Unfortunately, other countries do not have the National Criminal Intelligence Service and this is the difficulty. In this country we have got a very advanced one and it is a joint operation between police and Customs and because we share our intelligence, we are able to come up with some gauge about those people who are involved in this trade. Unfortunately, one of the problems of drug smuggling throughout the world is that many of the supplying countries of course are Third World countries, they are countries which are often corrupt, they are countries which of course have very poor law enforcement activity and law enforcement is starved of resources, so they have not got the intelligence which we have got available to us. As the Committee says, it is a matter of resources.

Having been here a very long time, I can only say that I am more fussed, from the point of view of my constituency, about what is happening with drugs among young people than any other subject, even unemployment or all the difficulties that we have been through over the years. Nothing hurts so much as the terrible havoc that is being wreaked by drugs.

I know that there is no magic solution but I would be interested, at the Minister's convenience, either by letter or in answer to this debate, to learn the general reaction of the Treasury to the Committee's twelfth report. It is a very valuable report and I can only thank my parliamentary colleagues for their work on behalf of the whole Parliament.

5.40 pm

Mr. Andrew Love (Edmonton)

I should like briefly to comment on the private finance initiative, and will draw heavily on the twenty-third report of the PAC, entitled "Getting Better Value for Money from Private Finance Initiative." I make no apology for that, as I have been trying to resolve many of the complex issues that are involved in this initiative, which is still considered somewhat controversial. One need only listen to the debates in the House or read any of the daily newspapers to know of the controversy that surrounds it. As it develops in new areas, such as education and health—the most recent development is in housing—controversy continues to surround it.

The whole idea of a private finance initiative is questioned in the public mind. In my constituency in Greater London, London Underground is at the centre of the controversy. Although that may not strictly be a PFI scheme—it may be a public-private partnership—the debate is about whether it is a privatisation. Whichever it is, it will not be a privatisation.

These are complex issues. When I tried to resolve them for myself, I looked back to the introduction of the PFI seven years ago, when the Chancellor of the Exchequer at the time, now Lord Lamont, said in his autumn statement that PFI was intended to improve the value for money of public sector projects by encouraging the development of closer relationships between the public and private sectors through the transfer of risk and responsibility, and to enable the public sector to benefit from private sector skills and innovation in the delivery and procurement of services.

That statement clearly contends that the private sector initiative is about risk and value for money. It is not about value for money in the short term, because we all know that not having to pay capital charges up front will make it value for money in the short term. It is about achieving value for money in the longer term.

I should like to suggest four ways of improving the private finance initiative. The hon. Member for Newbury (Mr. Rendel) and the Chairman referred to the transfer of risk. When the PAC considered the first report on the replacement national insurance computer, the NAO reported to Parliament that that PFI represented strikingly good value for money, provided that the service contracted for was delivered. That is the important part. We cannot transfer all the risk through a PFI. If the project is not delivered, the Department concerned still risks suffering the fallout from the failures of the PFI.

The second report of the PAC showed the fallout from the problems of the Department of Social Security and the Contributions Agency. There was a substantial backlog of payments to pensioners. Some of the poorest people suffered because of that failure. Thousands of long-term and short-term payments could not be made or were made on an interim or emergency basis. That increased the confusion, and the Department failed to respond to the services needed by that community.

We could consider reports on immigration and nationality that are still to come before the Committee. The Passport Service has had similar problems. A little noticed press release from the Cabinet Office a week or two back said that a central IT unit is being established to review the failures of PFI initiatives. Those involved will have to deal with a tall order, in that they will have to specify some particularly complex projects. However, I am glad to note that the problem is at least being tackled.

I also want to discuss the private finance initiative and the alternatives to it. Is the traditional procurement method better? I believe that it is necessary to have a robust public sector comparator in order to make the choice. Let us cast our minds back to the original PFI, which featured in the Skye bridge project. Those involved made little effort to choose a public sector comparator, because they had already decided that they wanted to build the bridge, and only private finance was available.

As the situation has developed it has got better, but mistakes are still being made. A report published this year on the first health service private finance initiative, relating to Dartford and Gravesham hospital reveals that, according to the report on the basis of which the decision was made, the PFI was supposed to provide £17 million-worth of advantage—9 per cent. of the overall cost. When the position was examined more closely, however, the figure fell to £2.5 million, a mere 3 per cent. of the overall cost. That does not call the PFI into question, but it calls into question the calculations that have been made, and in the long term it may also call into question the whole issue of the PFI.

The Select Committee noted the complexity of the issues in its twenty-third report, stating that assessing the value for money offered by a PFI deal by comparison with a conventional project will involve comparing the value for money now with that of money later. Such comparisons can be very sensitive to the assumptions on which they are based. That could not be more true, in the context of some of the reports with which we have been presented. It suggests that we must have a rigorous review of the choices before a PFI is undertaken, and I feel that that must include a sensitivity analysis. We have to know what the tolerances are. Given that projects of this kind last for some time, we need to know whether the PFI is likely to work to our advantage in the long term.

Another example is provided by the four road schemes that we examined last year. We used a discount factor of 8 per cent.; Treasury guidance suggests a factor of 6 per cent. That may not sound very much, but it amounted to £69 million. Although the difference was significant, it did not call the PFI into question in the short term, but if we consider the long term and the changes that are likely to occur, this may be a problem waiting to happen.

I am also concerned about the appropriate allocation of risk. Although the intention of the PFI is to transfer as much risk as possible to the private sector, that is not always appropriate, especially when the risk involved cannot be controlled by the private sector partner. The widening of the A74 in Scotland is an example. The PH payments were based on "shadow tolls"—on the number of vehicles that would travel on the road. The private sector partner cannot control that factor, which inflates the cost of the scheme.

In an earlier report, the Committee suggested that the PFI should be provided in the context of things that can be controlled: the continuing use of the road, or dealing with accidents on the road. In any event, I feel that we should allocate the risk appropriately.

My final comment on the PFI relates to compensation. This was mentioned by the hon. Member for Newbury. I refer to the transfer of risk: is the risk transferred if adequate compensation arrangements are not in place? We see the problem in all the information technology projects.

Mr. Geraint Davies

My hon. Friend has made his point accurately, and has rightly stressed the sensitivity of the question of value for money for the PFI. A critical element of that is often a discount rate in terms of the income stream, the value of the service and the assumed interest rate. Does my hon. Friend feel that we should make public the assumptions about interest rates and discount rates at the time that PFIs are agreed, or that we should simply look back in anger?

Mr. Love

I am always predisposed to make public such issues, but I agree that there may well be commercial sensitivities in some areas, and that needs to be considered carefully. But I certainly believe that we should ensure that the basis on which PFIs are arranged is robust and can be defended publicly.

Compensation is important in PFI schemes. If risk is not to be transferred back to the public sector, compensation must be commensurate with the additional costs that failure to deliver the project entails. It should reflect the cost of completion of the project, or, in extreme circumstances, the cost of redoing the whole project.

Measured against that must be the fact that any additional costs loaded on to the partner will inevitably mean an increase in the cost of the PFI scheme. That is obviously where subtle negotiations come in. The public sector started out not terribly experienced in this matter, but we are gaining experience in negotiating such contracts. However, we did not have such experience in the past, and the NIRS contract is a case in point. That contract contained up to £100 million in compensation, but to date—at least, when the report came before us—we had received only £3.1 million. We were told that there were contractual problems and legal difficulties, but the contract should have specifically covered such matters. There is also the question of whether £100 million will be adequate to meet the losses made on the project. We need a clear outline of the contractual relationship in a PFI to ensure that everyone knows who takes responsibility for a failure and where the costs will be distributed.

The reports before us, a number of which deal with PFIs, show that in some circumstances the PFI provides value for money for public procurement but, as has been said, it is not a catch-all. Not every project will be susceptible to PFI, and we must decide where it is appropriate and where it is not.

I remain sceptical of some of the areas into which the PFI now reaches, but as a member of the PAC I am prepared to wait and see how our experience moves us forward. We should ensure that it is available where appropriate. It is not a quick fix. Everyone seems to think of the short-term gain that we need not pay for the capital costs without thinking of the longer term.

It is critical that the PFI should work throughout a project's term. It does not solve the chronic shortage of capital funds in the public sector. We should say clearly that there must be value for money for a project to go ahead. But where private sector skills are available and can be used, and innovation can be introduced to a project, we should do so: as happened to some extent on the Jubilee line, a project which was completed on time, unlike previous projects which were delayed.

The Treasury Committee is considering the PFI at present, but the public sector's experience of what it means is growing. The Government Resources and Accounts Bill will include a new vehicle for developing the PFI, and we have seen the work being done by the National Audit Office, as well as the work done by the PAC on value for money. All that will show clearly that the PFI can work in a certain way and under certain conditions on behalf of the public sector.

5.55 pm

Mr. Geraint Davies (Croydon, Central)

I want to cover a few points on information technology contracts, the private finance initiative and our views on accountancy methodology in Europe. The Public Accounts Committee is an enormously important institution in Parliament. The Government spend £5,000 on the average person in Britain—man, woman or child—and it is important that they get value for money. That is why we have 750 full-time staff considering those issues.

I want to comment on the advent of resource accounting, which I welcome because it gives the Government an understanding of asset management and cash flow analysis. I was leader of the biggest borough in London and our accounting methodology meant that we were already fully aware of our asset management and our cash flow. When Governments claim that they want best value, and that local authorities are no good at managing their funds, they should look in the mirror, because local authorities are well up on their accounting procedures. I echo some of the points about extending the powers of the NAO to include the sort of powers that the Audit Commission has and, indeed, those that exist in Europe.

In a given financial year, the Government will spend about £7 billion across the board on IT for the Inland Revenue and Departments such as defence, health and social security. It is crucial that any lessons about value for money that we learn in the PAC are acted upon. In the 1990s, 25 cases, which were characterised by delay, confusion, lost cash and bad service to the consumer, came before the Committee. Certain Departments failed to learn from their mistakes, but, more importantly, they failed to learn from other people's mistakes. Joined-up thinking must be applied across government and the PAC has drawn together many of the lessons in one report.

In a simple business analysis one must acknowledge that mistakes can be made at certain stages when one commissions IT projects in the public or the private sector. One should start by having a clear concept of consumer requirements for the IT and what it is supposed to achieve. Often, there is no such clear concept. It is important to ensure that contracts are tight and clearly identify who is responsible for what. However, they should also include flexibility and provision for modernisation because the IT in use five years hence will be a quarter of the price and twice as effective as that of today. If we buy IT through the PFI, we may pay over the odds for in-built obsolescence in technology and service delivery that is out of date because the new user has different demands. We must bear that in mind.

My experience of implementation is that top management—for example, the permanent secretary—does not get its hands dirty and believes that a few junior managers can implement IT systems. When everything goes badly wrong, there is crisis management and all the managers have to rush in. A complete fiasco ensues, the service suffers and, often, there are no contingency plans. Delays on the IT side mean that conventional methods of providing services are not used either and chaos follows.

To illustrate my point, I shall refer first to the immigration and nationality directorate and Siemens and, secondly, to the national insurance recording system. On immigration, the number of asylum applications was approximately 35,000 a year when the previous Government drew up the contract with Siemens. That number has increased to 80,000 because of what has happened in Kosovo and the Balkans. It is easy to be clever in hindsight, but we should have a system that can cope with international turbulence such as war and massive increases in migration. The specifications in the contract did not allow for that; they could not cope and the concepts involved were not clear.

Siemens subcontracted to Perot, so it was obvious that Siemens could not do the job on its own. One wonders why we could not find a company that could do so. Perot was to provide a tailor-made system, but did a runner. We ended up with Siemens saying, "Okay, we'll produce something off the shelf." As it made the wrong assumptions—it was to have worked on the project with someone else, but ultimately had to work alone to produce something off the shelf, not tailor made—it was not surprising that things began to go badly wrong. Siemens had planned to run a paper-free management system alongside a computer system, but the computer system was delayed.

The immigration and nationality directorate moved offices and ended up in Croydon, which is my constituency. There was chaos and the legacy is that the Minister of State, Home Office, my hon. Friend the Member for Hornsey and Wood Green (Mrs. Roche), who was previously the Financial Secretary to the Treasury, is regularly in Croydon trying to sort out the mess. It is good to see her there, but there are lessons to be learned about project management.

Unfortunately, the mistakes have been repeated in other examples that have been considered by the Public Accounts Committee. Issues such as those surrounding NIRS2 take a long time to come to light; indeed, they go back to the time of the previous Government. The Andersen Consulting bid for the contract came in at about a third cheaper than that of its nearest competitor and offered a big-bang approach under which a whole system would be introduced to a complex area all at once. After being given the work, Andersen Consulting concluded that it could not do it all at once. It wanted to do the work bit by bit and renegotiated with the Government, so the public cost exposure was widened because the original contract was suddenly not intact. There have been various other problems, but I do not have time to go into them.

Intellectual property value is important when a company gets its product right. Even though there may have been all sorts of service delays and costs for us, a company might say to Argentina, for example, "We can do your national insurance. We know how this system works because we have done the experiments in Britain." If it sells that system for an enormous amount of money in the international marketplace, should not we, as the seed-corn investor, have a profit share in respect of it? If we are to think about entrepreneurial activity in government, why not consider not only windfall profit clawback, but profit share in terms of the marketability of products developed by us in the public sector?

I was pleased that my hon. Friend the Member for Edmonton (Mr. Love) referred to the private finance initiative; he made some excellent points. The PFI is big business. The Government expect to invest about £100 million over the next four years in capital expenditure overall and about 13 per cent. of that will be under the PFI. I understand that the payback on those projects over the next 27 years will be £80 billion. The figures are big and, as has been made clear, it is important that we are able to show that it is better to go down the PFI route than the traditional capital expenditure route in terms of value for money. Capital expenditure investment is increasing in itself, outside the PFI, from £18 million to about £25 million a year by 2001.

Value for money is a big question. Underneath it—if we are to have the PFI as opposed to traditional investment—re other questions: whether there is genuine risk transfer and how that is measured; whether there is genuine innovation that is producing added value and how that is measured; whether added value will be available from the business because there will be new products that can be marketed outside the normal scope of government; and whether specialist management is available that we do not have at our disposal. We must also ask whether all those together compensate for the extra cost of capital.

In the Skye bridge example, which has been referred to, the extra cost of capital was about a seventh of the total, but we should compare that with the Jubilee line extension, to which a more conventional approach was taken. Although it was thought that it would cost £2.1 billion, the total cost was £3.2 billion. An extra £1 billion was spent and the project was delayed for a year. Under the PFI, risk is transferred because a company has to complete a task with a certain amount of money and in a certain time. If it fails, it has to pay for that. As long as we can button such conditions down contractually and if the company does not liquidate itself so that we end up bearing the cost—such a big "if' needs to be checked out through credit ratings—such a system makes a lot of sense.

The questions that we need to ask ourselves when we assess the PFI at Treasury level—and, thereafter, in the Public Accounts Committee—concern risk transfer and added value and whether they are measurable and transparent. We must also ask whether we have a negotiating team—in-house or at arm's length—that is sufficiently capable to negotiate the best deal for the public sector. The private sector will always come in and bid for more than the real cost to maximise its profits. That culture is often not relevant within government at the moment. Is modernisation built into contracts in relation to technology and service profiles?

As my hon. Friend the Member for Edmonton asked earlier, what discount rates will apply to project, and what assumptions will be made on interest rates? How sensitive will value-for-money decisions be to those rates? On confidentiality, I am an advocate of being as open as possible about discussions on the realism of rates.

Provision should be made for compensation if there are service delays or disruptions, and to claw back excess profits. However, we shall be able to apply the lessons learned from other PH projects, and the Public Accounts Committee will increasingly be examining the increasing sums provided by the Government for PFI projects.

I should like to make a few comments about the Committee's visit to mainland Europe—which occurred in the aftermath of the European Commission's resignation. Hon. Members will recall that, after the group of wise people investigated irregularities at the Commission, and the European Parliament refused to accept the Union's 1996 accounts, the Commission was forced to resign en masse.

The Committee was able to make various suggestions for improvements to financial accounting practices in mainland Europe. The European Union has a £55 billion budget, with irregularity—some caused by mistake, but other by fraud—running at 5 per cent. However, to put that into context, irregularity in the United Kingdom social security budget amounts to 8 per cent.

I should like the European Union to divide its budget into various categories, so that some sub-budgets may be passed while others receive further scrutiny. Such an arrangement would enable us to focus on real weaknesses, rather than making it necessary to invoke the collegiate system of collective responsibility, in which the stakes are all or nothing and which places the onus on the European Parliament to pass the budget, warts and all.

The Public Accounts Committee is supported by the National Audit Office and interrogates a permanent secretary, who is an accounting officer. The situation is much less clear in the European scenario.

The Court of Auditors—which should act as the equivalent of our National Audit Office, supporting the Committee on Budgetary Control—should interview Commission Directors. In practice, however, the Committee on Budgetary Control spends perhaps 10 minutes examining the report of the Court of Auditors, which is located 115 miles from the Parliament.

The Court of Auditors works very closely with the Commission—which is allowed to vet some of the Court's reports before they are sent to the Committee on Budgetary Control. Moreover, there is no single accounting officer, as the person authorising the money and the person spending the money are different people in different parts of the organisation. It is therefore no surprise that the system in the United Kingdom, and in northern Europe generally, may not bring a lot of added value to the Commission itself.

In my two years on the Public Accounts Committee

Mr. Love

An old hand.

Mr. Davies

Yes; I am a very old hand.

I have certainly enjoyed the opportunity of applying business disciplines to public expenditure, and think that we have recently made rapid progress. When I was elected to the House, however, I was surprised to learn how backward the accounting system was in relation to resource accounting. Nevertheless, the European Union could learn much from the United Kingdom.

There are many challenges ahead in improving information technology and the PFI, but I am sure that, collectively, we shall be able to help meet them.

6.9 pm

Mr. Quentin Davies (Grantham and Stamford)

It is a pleasure once again to find myself opposite the Financial Secretary to the Treasury, albeit in a different departmental capacity, and I take this opportunity to congratulate him very sincerely on his appointment.

This is a very special parliamentary occasion. The fundamental—the primordial role—of Parliament, ever since we were established back in the 13th century, has been to vote Supply to the Executive branch, to authorise the raising of taxes, and then to keep close tabs on the Executive branch in its expenditure of that money. The Public Accounts Committee acts in effect as the ears, eyes and arm of the House of Commons in that essential constitutional role.

We have a sense of gratitude to colleagues who serve on the Committee and do such an excellent job. That is why the Committee and the NAO system has justifiable international prestige at present. I want to pay tribute to my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), and to all colleagues on both sides of the House who have given up their time to produce 40 reports—a considerable achievement.

All the speeches today have been thoughtful, and no one has come into the Chamber to mouth slogans. Many who have spoken are members of the Committee, but others who are not have been motivated enough to sit through a long debate to make carefully considered points.

My right hon. Friend the Member for Haltemprice and Howden set out his achievements, and referred to the 40 reports and £356 million in savings—a concrete achievement on behalf of the taxpayer. He referred to a number of interesting inquiries that the Committee had undertaken. He was harsh in his comments about the EU, and I will return to that matter. He referred to the Halton college affair. I thought that it was quite a regrettable achievement for one small further education college to succeed in malversating £6 million without anybody noticing.

My right hon. Friend referred to the challenges and problems that the Committee faced and would be likely to face in future. He said that the Government appear so far to have refused the NAO access to Oflot's records in the vetting of candidates for the national lottery. It must be of concern to us all if the Committee and NAO find difficulty in carrying out their task because of obstruction from the Executive branch. I hope that the Minister will address that.

My right hon. Friend said that 50 agencies were not covered by the NAO or the Audit Commission. Since these intermediate agencies are growing in importance in the Executive, it is worrying that so many should not be covered. Parliament deserves an explanation, and I hope that we will get an assurance from the Minister that they soon will be covered.

My right hon. Friend said that it was essential that the performance measures which were to be agreed between the Government and various Departments should themselves be subject to audit. That is extremely important, and I hope that the Government will respond favourably.

My right hon. Friend made a serious charge which should not be forgotten. The Chancellor, in his pre-Budget statement the other day, said that the assumptions and projections behind his statement had been audited by the NAO. My right hon. Friend pointed out that that was not the case for all of them. Frankly, the selective auditing of assumptions—without making it clear to Parliament which had been subject to audit and which had not—is in some ways worse than no audit at all, as it gives an entirely spurious credibility to the vital figures which appear in such statements.

The right hon. Member for Swansea, West (Mr. Williams), who has long experience in the House on both Front and Back Benches, spoke with considerable authority. He made the point that giving short-term contracts to civil servants and introducing commercial incentives into the civil services increases, to some extent, temptations and difficulties that otherwise would not have arisen. He said that that may be a threat to the culture of the civil service, and while I do not know how much of a problem that is likely to be in practice, we must be alive to the possibility. The right hon. Gentleman made some useful points.

The hon. Member for Newbury (Mr. Rendel) dealt with the NIRS2 computer fiasco. The Liberal Democrats are normally so sycophantic towards the Government, but he made it clear that he regarded the matter as being their fault, not—as the Government often try to pretend—that of the previous Administration.

The hon. Member for City of Durham (Mr. Steinberg) alleged serious miscalculations by the Treasury in managing several major privatisations, including nuclear power and Railtrack. I did not always find his financial logic easy to follow, but I hope that he and the Government would agree that it is important that investment or divestment decisions are taken entirely on the basis of marginal costs or marginal return, and not sunk cost. For a moment, I thought that the hon. Gentleman was suggesting the latter, but that would be a serious error that would cause great economic damage to this country. When comparing marginal costs, one must compare the potential return keeping an asset in the public sector to the return that would be obtained by selling it, which would constitute a capitalisation and a lump sum. It is no use saying that a privatisation should not be carried out because the return for the private organisation that takes over the activity will be much higher. Of course it will, and that is why the private sector bid for it. The efficiencies resulting from the privatisation are reflected in the price.

My hon. Friend the Member for Bexhill and Battle (Mr. Wardle) dealt with national savings, which are important to many small savers. He also made the original suggestion that agencies should think about setting up in-house IT units instead of contracting out or buying in that service. The proposal would need much thought, but those with responsibilities in that area should think very carefully about it.

The hon. Member for Liverpool, Garston (Maria Eagle), who is leaving the Committee, gave us an elegant swan-song in which she coined a couple of useful phrases. She said that the Committee and the National Audit Office should have a "financial right to roam", and I agree. That right should not be constrained, although my right hon. Friend the Member for Haltemprice and Howden claimed that that is what is happening. That is worrying. The hon. Lady also said that if taxpayers' money is involved, the Committee should be allowed to pursue it. That principle could not have been better expressed.

My hon. Friend the Member for South-West Hertfordshire (Mr. Page) dealt with two matters. He was severe about the European Union and the Commission, and he also made several important points about the relationship between the Government Resources and Accounts Bill, the National Audit Office and the Committee.

The hon. Member for Brent, North (Mr. Gardiner) mentioned cervical screening, which was the subject of an important report. He reminded us that the issue involved not just money, but life and death. I think that he said that cervical cancer causes 1,300 deaths a year, although I cannot confirm that figure. If that is so, one would hope that that number could be brought down rapidly, because the assumption must be that if earlier diagnoses were possible the great majority, if not all, of those women could be saved.

When I read the report I was also struck by the Committee's strong strictures about the local management of Kent and Canterbury hospital. Page viii of the sixty-ninth report of the 1997–98 Session says: They deserve the severest censure for doing nothing about those problems and for bottling them up within the Trust". Something should have been done about that, and it sounds to me as though several people who had been exercising executive functions in the trust ought not to be exercising them today. I hope that they are not.

The hon. Member for Hazel Grove (Mr. Stunell) dealt with the twelfth report, on energy efficiency, and very properly criticised the Government for the inefficiency of the handgun compensation scheme.

The hon. Member for Linlithgow (Mr. Dalyell), who is still internationally known as the hon. Member for West Lothian, made a passionate speech about the danger of drug abuse and the problems of controlling international money laundering. That is relevant to our debate because those problems were touched on in the fifteenth report.

The hon. Member for Edmonton (Mr. Love) made several telling points about the private finance initiative. He rightly said that the PFI can all too easily become a way of disguising reality and cooking the books rather than a way of providing economic benefits for the nation. PFI is an important and positive development in itself, but a degree of healthy scepticism about it is appropriate.

The hon. Member for Croydon, Central (Mr. Davies), who knows quite a lot about business and IT, said that some of the mistakes that had been made in the IT-related schemes had involved the specifications rather than errors by the contractors, who had had to take over projects on the basis of the specifications. That is interesting, because the hon. Gentleman normally defends Ministers, and if when computer systems go awry the fundamental errors are in the specification, clearly it is the Government rather than the contractors who are largely to blame.

The hon. Gentleman also said that when contractors have learned things at the expense of the British taxpayer by pioneering a new system—they may not have done it well, but they will have come away with valuable know-how—the Government should share the benefit. That is a good idea. The Government have missed another opportunity in failing to grasp that idea and include it in contracts where possible. There could be a provision for a royalty or other payment when know-how acquired as a result of carrying out a particular contract is subsequently sold on by the contractor to customers elsewhere in the world.

It would be wrong for me to finish speaking without saying on behalf of the Opposition what conclusions we draw from the debate. As I have said that the debate is important and the subjects pertinent, and that they have been dealt with in a serious fashion by the Committee, if I did not now give our point of view it would be something of an abdication on our part.

Reading the reports, which was necessary homework for the debate, is a salutary if somewhat depressing exercise. It is clear that things are not quite as well conducted in our administration as most of us would like to think.

I was struck by the criticism of the European Commission from both sides of the House, and by the strong language in the Committee's report on that subject. The House knows me well enough to realise that I am not one of those who simply gloats over any and every criticism of the Commission—on the contrary. None the less, the criticisms must be taken seriously. If one believes that the Commission is a vital body, and in many ways has a fine record as a bureaucracy, it is even more worrying that there should be such substantial flaws in what we might call the "back office"—the aspects concerned with administration, implementation and financial control. I think that we all look to Commissioner Kinnock to bring about some real changes. All hon. Members know him and sincerely wish him well, even though opinions about him differ. As Commission Vice-President with responsibility for administration, Mr. Kinnock is the senior British Commissioner. He has a vital job and faces a great challenge. I hope that the Committee will go back to Luxembourg, Strasbourg and especially to Brussels before it reports on the Commission again in a couple of years or so. It is extremely important that some real improvements are evident.

I turn now to the NIRS computer system. It is clear that a bad mistake was made in August last year, when the system was accepted. The Public Accounts Committee is never party political, but paragraph 4 of the report on NIRS published in June states: Fifteen months after we first took evidence from the Contributions Agency the situation is much worse. The system is still not fully operational. That was bad, but far worse was the complacency of the Government's response to the crisis, of which the House should be much less forgiving. Only last autumn, the Secretary of State for Social Security said that the matter would be resolved in a few weeks. Either he did not know what he was talking about, or he was trying to pull the wool over the eyes of hon. Members about a very serious matter. That was insouciance bordering on recklessness, and the House deserves an apology.

Another theme that emerges from the Committee's analyses of failures and problems has to do with the Home Office. It cannot be a coincidence that nothing that the Home Office does goes right. We have had the disaster with handguns, and the shambles in the immigration department. The Committee has not yet had a chance to examine the shambles in the Passport Agency, but I hope that a National Audit Office report on that matter will be available to the House fairly soon. The Home Office seems incapable of running anything with even a modicum of efficiency.

Finally, the Government Resources and Accounts Bill, which will be given its Second Reading on Monday week, was referred to several times. The Bill gives the Government a wonderful opportunity to enhance the transparency and the reality of the figures presented to the electorate. It is also a wonderful opportunity for the Government to increase the rationality and efficiency of their operations, so that better decisions in resource management are taken.

The Bill is a superb initiative and we have welcomed it, in principle, from the beginning. However, it contains some enormous lacunae. Vast areas of Government revenue and expenditure are not covered, and some of the most important areas of liability—including the national insurance system, and pensions liabilities that must amount to some £200 billion at least—are simply omitted.

I hate to think what would happen to someone in the private sector who produced a company balance sheet that left out what amounts to a fully owned subsidiary—in this case, the national insurance system. Such a balance sheet would disguise from readers one of the most pertinent liabilities of that private sector company, but the Government seem to think that they can get away with such conduct. I hope that they will think again on that matter, and on the many other important issues that have been raised this afternoon.

6.29 pm

The Financial Secretary to the Treasury (Mr. Stephen Timms)

As always, it is a pleasure to follow the hon. Member for Grantham and Stamford (Mr. Davies), and I thank him for his kind words.

I have listened with great interest to this debate, in which many valuable points have been raised. I hope that, unlike my predecessors, I will be able to listen to the debate when it comes around again in a year's time. First, though, I want to thank the Public Accounts Committee for its hard work over the past year. The Committee's Chairman, the right hon. Member for Haltemprice and Howden (Mr. Davis), said that it had produced 40 reports in that time. I look forward to the opportunity of attending a meeting of the Committee as a member before too long. I thank the Chairman and other members of the Committee for their welcome.

Since the last debate of this kind in January, the Committee has continued to work with its customary diligence. In an excellent and elegant speech, my hon. Friend the Member for Brent, North (Mr. Gardiner) illustrated well how the reports have great influence for good in individual localities such as his constituency as well nationally.

One of the main reasons why the Committee continues to have such an impact is that it is extremely well served by its Chairman. He exhibits not only great energy and enthusiasm, but real concern about standards of behaviour and value for money in Government. That is a powerful combination, for which we are indebted to him.

I should also like to thank other members of the Committee, who have worked very hard, particularly my right hon. Friend the Member for Swansea, West (Mr. Williams), the senior member of the Committee. When I was first elected to the House, a member of my local constituency party advised me that if I wanted to be effective, I should emulate my right hon. Friend, particularly with regard to his work on the Committee. I have watched his contributions since then with the greatest interest, and concluded that that tribute was well deserved.

I thank the Comptroller and Auditor General, Sir John Bourn, the head of the Northern Ireland Audit Office, Mr. John Dowdall, and their staff, for all the valuable work that they have done over the past year. We are indeed very fortunate to be served by such excellent auditors.

One of the main ways in which the Government are seeking to improve the quality of our public services is through the modernising government initiative. The National Audit Office has an important part to play in making the initiative a success, not least by carrying out studies in the relevant areas. The Government would welcome, for example, studies of cross-cutting initiatives and how to make better use of new technologies. We do not claim to have all the answers, and are keen to expose those areas to effective scrutiny.

Fear of how auditors will react to new ways of doing things is often cited as a reason for sticking to time-honoured ways of working. But Departments need to adapt if they are to exploit all the opportunities that are opening up. That is why I particularly welcome the statement by the Public Audit Forum in the White Paper "Modernising Government" that auditors will support well thought through risk-taking and experimentation. The Committee Chairman said that today, and my right hon. Friend the Member for Swansea, West also spoke about the importance of innovation. I hope that officials at all levels will take note.

We are grateful to the Public Audit Forum for a number of things, as well as its statement in the White Paper on modernising Government. I welcome that initiative as well as the co-operation between our national audit agencies, which is demonstrated by the forum's work, and the determination of auditors to think positively about the major issues facing the Government, and how they can contribute to achieving worthwhile change.

The Government also aim to secure better service delivery through involving private partners. I welcome the Committee's work on getting better value for money from the private finance initiative and the thoughtful remarks of my hon. Friend the Member for Edmonton (Mr. Love). Since the election, we have signed more than 140 deals involving capital investment by the private sector of nearly £5 billion to deliver better services over a wide range of activities. But there is still undoubtedly scope for doing more. Following the recommendations of Sir Malcolm Bates, we announced in July the creation of a new private sector-led body, Partnerships UK, a private company with a public mission. That is a practical response to the key lessons outlined by the Committee in its 23rd report.

A number of hon. Members have spoken about the Committee's work on privatisations. My hon. Friends the Members for Liverpool, Garston (Maria Eagle)—whom I congratulate on her well deserved appointment—and for City of Durham (Mr. Steinberg) made some telling points about the way in which privatisations were handled, particularly Railtrack and British Energy. The Committee drew important conclusions about that. Both those firms were affected by the windfall tax, which offered comfort to some hon. Members. The Railways Act 1993 required that Railtrack should be sold as soon as was practicable, and that was the source of some subsequent difficulties.

Several hon. Members have talked about the Government Resources and Accounts Bill, which I agree is the most important change in central Government financial accountability since the initiative of Mr. Gladstone of which we heard earlier. The Bill will enhance the quality of financial information available to the House and will enable Departments to manage resources more effectively. I am glad that that move has been welcomed and that it is not contentious.

Implementation is well under way and progress is being monitored, assessed and reported. The hon. Member for Hazel Grove (Mr. Stunell) asked for chapter and verse on progress. I can tell him that Departments are submitting dry-run resource accounts to the NAO for audit, with a view to meeting trigger point three. The next trigger point will come when Select Committees receive dry-run resource-based estimates from Departments for the coming financial year. Further reports on progress and policy will come before the House, and the Bill provides for the preparation of whole-of-government accounts, allowing the expansion of the principles of resource accounting to accounts for all public sector spending.

Mr. Stunell

Will the Minister give way?

Mr. Timms

I apologise, but I cannot.

The right hon. Member for Haltemprice and Howden suggested that the Bill should extend the NAO's rights of access in several areas. I am not persuaded of the need for that, but the matter will be fully discussed in the coming debates on the Bill. The right hon. Gentleman suggested that the NAO should audit all non-departmental public bodies, but it was agreed some time ago that the NAO should have inspection rights for all those bodies, so it already has the access it requires if it is to follow up points of concern.

As it happens, the NAO has been asked to audit all bodies established since the general election. However, each case should be considered on its merits rather than our imposing a one-size-fits-all policy on such bodies. I do not rule out the possibility of extending rights of access by administrative means in agreement with relevant Departments, where it may be necessary to provide effective audit or to help to promote well thought through innovation and risk-taking. I look forward to discussing such matters with the Comptroller and Auditor General.

The right hon. Member for Haltemprice and Howden and the hon. Member for Grantham and Stamford asked about NAO access to Oflot. I am sorry that the Committee has not yet had a response to its request for access to Oflot's books. The request raised difficult legal issues, which have taken some time to resolve. Matters are progressing, and I hope that the Government will be able to give the Committee a response soon.

The hon. Member for South-West Hertfordshire (Mr. Page) suggested that the Bill would curtail access currently available to the NAO. I can assure the House categorically that Ministers have no intention of curtailing existing access. The Government also categorically intend that the Comptroller and Auditor General will continue to report to Parliament, and not to the Treasury or anyone else.

The right hon. Member for Haltemprice and Howden asked about NAO audit of performance information. Reliable systems should be in place for measuring and monitoring performance, but I am not sure that mandatory external validation by the NAO is necessarily the best way forward. Several issues will have to be considered further as performance reporting policy develops. We shall keep the point under review, and I am aware of the excellent work of the Audit Commission among local authorities, which was mentioned by my hon. Friend the Member for Croydon, Central (Mr. Davies).

I was asked about audit of the assumptions for the Budget. The Comptroller and Auditor General conducts those audits on the principles set out in the Finance Act 1998. The role of the NAO is formalised in the code for fiscal stability. I remind the House that this Government and this Chancellor have gone much further than any other in opening up their assumptions on public finances to public scrutiny. I am sure that the Committee has welcomed that development.

European Union reform was mentioned by a number of hon. Members. Those issues were discussed in the Committee's 29th report. We agree wholeheartedly that fundamental reform is needed. The Prime Minister himself called for root-and-branch reform. The new Commission has taken action, which is encouraging. Neil Kinnock chairs a group of commissioners to push forward the reform process and they will be setting out detailed reform proposals next February. He has also published a route map for reform, to set out milestones up to next February, including a new whistleblower's charter. I am glad that the right hon. Member for Haltemprice and Howden has been in discussion with him. I welcome the Committee's continuing interest in the matter.

I thank my hon. Friend the Member for Linlithgow (Mr. Dalyell) for his courtesy in letting me know that he wanted to raise issues associated with the fifteenth report. I will ensure that, as he requested, he receives a copy of the response to it, setting out our arguments in detail. He was right to identify the drugs problem as one of huge importance and one that has a high priority for the Government.

Of course, unnumbered bank accounts are prohibited within the United Kingdom. In the case of the overseas territories, including the Cayman Islands, we have instituted a new independent review of the system of financial regulation that is in place to plug any gaps between it and international best practice. In that way, I hope that we will be able to deal with any difficulties that remain there.

Mr. Dalyell

Will my hon. Friend give way?

Mr. Timms

If I may, I will carry on, but I will be happy to discuss the matter further with my hon. Friend.

The hon. Member for Hazel Grove asked me to confirm that the Treasury, the Department of Trade and Industry and the Department of the Environment, Transport and the Regions are working together on environmental issues. I certainly can do so. The recent announcements by my right hon. Friend the Chancellor on the climate change levy are a good illustration of that and have been welcomed by environmental organisations and industry.

My hon. Friend the Member for Garston gave the House a rightly shocking account of the irregularities at Halton college. I am glad that she was pleased with the Government's response. A clear theme that runs through a number of the Committee's reports is that problems could have been avoided by compliance with sound financial and management controls. We are committed to matching best private sector practice on developing such systems.

In the case of the Public Trust Office, it has been acknowledged that the Committee's conclusions demand a fundamental programme for change and the Lord Chancellor will be making a statement in February on the reforms that he proposes. I am pleased with what the right hon. Member for Haltemprice and Howden said about the response of the permanent secretary at the PTO, even if he is not the Committee's pin-up. It would be interesting to know who is that pin-up—we have heard about a number of people who it is not.

Several hon. Members mentioned information technology problems, about which I am also concerned, including the problems with NIRS2, with which I am very familiar. There has been no complacency. The system was supposed to be up and running by February 1997, before the general election, so it is a bit rich for the hon. Member for Grantham and Stamford to attempt to blame the Labour Government for those problems. Like all of us, I regret the problems caused to many pensioners and others by NIRS2 delays. The difficulties are thankfully largely, although not entirely, behind us.

Of course, there have been examples of IT projects that have gone well, but some have gone badly. The Government have established a review team to study how things can be improved, as has been mentioned. It is located in the Cabinet Office central IT unit so that it can work closely with officials developing the Government's corporate IT strategy. The team includes representatives from throughout Whitehall and the private sector. I am particularly pleased that it will include someone from the National Audit Office.

We have had an interesting debate, which has demonstrated the wide range and importance of audit and accountability issues. I very much look forward to dealing with those issues in the months to come. I can assure right hon. Members and hon. Members that I have taken careful note of all the points that have been made and will reflect further on all of them. I am sorry that I have not had an opportunity to respond to all the points that have been made as fully as I should have liked, but I am grateful to the House and to all those who have spoken in the debate and taken the opportunity to put their views forward.

Question put and agreed to.

Resolved, That this House takes note of the 68th and 69th Reports of the Committee of Public Accounts of Session 1997–98, of the 1st to 38th Reports of Session 1998–99 and of the Treasury Minutes and Northern Ireland Department of Finance and Personnel Memoranda on these Reports (Cm 4279, 4285, 4312, 4335, 4380, 4381, 4394, 4408, 4456, 4469, 4471 and 4515).