HC Deb 09 February 2000 vol 344 cc339-45

22. Section 6 of the National Audit Office Act 1983 (which enables the Comptroller and Auditor General to conduct examinations into the economy, efficiency and effectiveness with which certain departments, authorities and bodies have used their resources) shall apply to the Authority.".

The amendment's purpose is to secure the accountability of the FSA to Parliament. There are important reasons why Parliament should put in place effective accountability arrangements. First, the authority will have a significant impact on a major sector of the economy and will carry out major public policy functions. It will prescribe and exercise far-reaching controls and regulations over a wide range of businesses and in the interests of society at large, as well as the consumers who use financial services. Therefore, although constituted as a private company, the authority will have a statutory objective and will carry out public policy.

Some of those functions, such as the regulation of building societies and insurance, are currently undertaken by bodies subject to the scrutiny of Comptroller and Auditor General and hence of the Public Accounts Committee on behalf of Parliament. Without the amendment, that scrutiny will be lost. That would be a move backwards.

The authority will be funded by fees paid by registered firms, a form of compulsory levy, or directly hypothecated tax, in effect, on the financial services industry. Widespread concerns have been expressed—among others by those firms that will be required to fund the authority—that the Government's original proposals, which are reflected in the Bill, do not provide for full independent scrutiny on behalf of Parliament, for example, the Securities Institute and the London Investment Banking Association have expressed support for the idea of the CAG undertaking such scrutiny.

The CAG would be well placed to provide such independent scrutiny. He would bring the necessary authority to that role and be in a strong position to assess the authority's performance against its statutory objectives. The National Audit Office already has considerable expertise as the external auditor of the other principal regulators—the electricity, gas, rail, telecommunications, water industries and the Office of Fair Trading—and would be able to provide valuable assistance to the authority, to the Treasury and to Parliament.

On a basis of CAG reports, the PAC has published a number of reports on those regulatory authorities. Their value has been publicly recognised by the Government. In March 1998, the President of the Board of Trade, in a report to Parliament, noted that a recent Public Accounts Committee inquiry into regulatory methodology was instrumental in securing closer collaboration between regulatory offices", and concluded that

the current Parliamentary arrangement have allowed for effective scrutiny of utility regulation". I acknowledge that the Bill provides that the authority will be required to produce an annual report to Parliament, on the basis of which it can be questioned on its activities. Clause 10 provides that the Treasury can commission independent reviews of the authority's performance and will be able to choose who undertakes such reviews.

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In Committee in July, the then Financial Secretary to the Treasury said that it would be open to the Treasury to appoint the NAO to carry out a particular review and that that option would be considered carefully. That is all very well, but there is no substitute for giving the Comptroller and Auditor General, and therefore Parliament, the right to examine the authority as a basis on which it can be satisfactorily scrutinised. In particular, it would be for the Treasury to decide if and when such a review should take place and to prescribe the terms of reference. In my judgment, that takes away rights from individual Members of Parliament, for example to ask for a review as a result of a constituent's problems.

In tabling the amendment I recognise that the option of the CAG being able to examine the authority has already been considered during the progress of the Bill. The Joint Committee on Financial Services and Markets, which examined the draft Bill, studied the issue but did not support access for the CAG on the ground that the authority will be paid for by the industry and not the taxpayer. That argument is entirely disingenuous. On that basis, we would not have access to Camelot and a series of bodies that carry out a public function. The authority will be performing a public function and, bluntly, its charges can be seen as akin to a directly hypothecated tax. Therefore, such arrangements call for fully independent scrutiny on behalf of Parliament.

It should also be noted that the CAG already has access to a number of limited companies that undertake public functions, such as the Student Loans Company and Remploy, on which he has usefully reported.

The Joint Committee also believed that parliamentary scrutiny could best be achieved by asking a parliamentary Committee to review the authority' s annual report and to take regular evidence from a broad section of consumers and practitioners. The Joint Committee did not suggest which Committee should do so, or how the work would be resourced. Were the Public Accounts Committee to do it, it would expect to have evidence from the CAG. It is difficult to see how a Committee could exercise effective scrutiny without some form of report based on access to the authority's papers. I say that as the Chairman of the Committee that carries out most of the scrutiny of such matters in the House.

In Committee, the Government rejected an amendment to clause 10 that would have required the Treasury to appoint the Comptroller and Auditor General as the independent person undertaking reviews. In doing so, the Government argued in addition that the Treasury might wish to use someone else to undertake some types of review and that the CAG ought not to conduct any review that might question policy objectives. I entirely accept the last point.

This amendment deals with both arguments and leaves the Treasury free to use clause 10 to commission other types of independent review, including those involving policy objectives. It applies the bar on the CAG questioning policy objectives—that is built into the National Audit Office Act 1983.

The House has considered amendments to clause 10 that would deal with the independence of Treasury review and make periodic reviews mandatory. Although those amendments did not refer to the CAG, my hon. Friend the Member for Chichester (Mr. Tyrie) considered in Committee that the Government had not explained why providing for the Comptroller and Auditor General to conduct the independent reviews was not a reasonable approach. We have not had an answer to that argument. My hon. Friend also referred to the benefits of the CAG reporting to the PAC. In response, the Financial Secretary referred elliptically to the burdens associated with mandatory reviews and to the Joint Committee.

The amendment has the advantage of providing the independent evidence that effective scrutiny by a parliamentary Committee, as recommended by the Joint Committee, would require. It does not specify how frequently the reviews should be undertaken. That is left to the CAG's discretion. In exercising that discretion, he would of course consult the Treasury and the authority as to the timing and the matters that he would be examining. I have discussed that matter with him.

If the authority is to get off to a good start, it needs to secure the confidence of the financial services industry. A clear line of accountability to Parliament, accompanied by independent assessment of performance by the CAG would go a long way to achieving that.

Mr. Cousins

I do not support the amendment, or its terms. None the less, it raises an important and interesting point. I do not see why it is sensible to accept that the National Audit Office will be the agency that will carry out reviews at this stage, nor do I think—as the FSA is to be one of the most closely monitored and scrutinised public statutory bodies—that such an amendment is necessary. I am not happy with the idea that the NAO could undertake policy reviews of the authority. That would in some way usurp the responsibilities that the Government intend to give to Parliament.

Mr. Davis

That is precisely the opposite of what I said. The use of the National Audit Office Act proscribes any investigation by the Comptroller and Auditor General into the merits of policy. He is not allowed to do that under that Act and that is why the extension of the clause is there. That is also why the Treasury can use other investigators to look into policy matters.

Mr. Cousins

I am grateful for that intervention. I had understood the right hon. Gentleman to be saying that he wanted the NAO to review the objectives of the FSA. If I have misunderstood him—

Mr. Davis

I think I used the term, "the achievement of objectives". That is what the NAO does—it studies effectiveness in the achievement of pre-set objectives.

Mr. Cousins

I am grateful for the clarification. However, it points to some of my anxieties and my difficulty in supporting the amendment. The important point is that the Government intend that the FSA will make an annual report to Parliament. They also intend that a parliamentary Committee will be responsible for scrutinising the authority's work. However that is to be done, and whoever is to do it—the Minister may not wish to go into detail about that at this stage—what resources are to be made available to Parliament through the mechanism of whichever Committee is to be responsible for carrying out that duty effectively? That is the important question. We should consider whether the NAO, or some agency that could be commissioned if resources were available, would be accessible to whichever Committee had the task of scrutinising and reviewing the FSA so that Parliament might be better and more fully informed. Committees often do not have the resources that they want to carry out their scrutiny functions effectively. I urge my hon. Friend the Minister to bear at least that point in mind, but I do not support the amendment.

Miss Melanie Johnson

I understand why the right hon. Member for Haltemprice and Howden (Mr. Davis) tabled the amendment and I know that he has already argued his case on behalf of the Public Accounts Committee in a memorandum to Lord Burns Joint Committee, as well as arguing it fulsomely in connection with another Bill.

Clause 10 provides that the Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the FSA has used its resources in discharging its functions. However, it does not provide that the NAO must always carry out such reviews. I am not apologetic about that. In some cases, if the Treasury concluded that a review was justified, it might want to ask the NAO to do the job and nothing would prevent it from doing so. However, on other occasions, the Treasury may wish to appoint another body to perform that task. If so, that would not be any reflection on the NAO's expertise or professionalism, but simply of the fact that another body may be more familiar with how the financial markets work, and thus the constraints under which the FSA operates. A different body may be more appropriate to perform the task in a particular case.

Mr. David Davis

I take the hon. Lady's point entirely. As we heard from the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), preclusion from policy might be another reason for having a body other than the NAO perform the task. However, in answering my points, I hope that the Minister will answer the simple question of how direct accountability to Parliament will be achieved. If hon. Members themselves want to raise an issue about the FSA's performance—not about its policy—how will they do so if their only mediator is the Treasury?

Miss Johnson

I am happy to answer the question, but should first say that, if the amendment were accepted, it would create a dual system in which the Treasury could initiate a review under clause 10, whereas the National Audit Office might begin its own review under the amendment. I am not sure whether the right hon. Gentleman intends his amendment to have that effect, but, as drafted, it certainly has the potential to cause overlap and confusion.

Therefore, although I certainly agree that the FSA should be susceptible to value-for-money scrutiny, we share the Burns committee's conclusion—to which the right hon. Gentleman referred in his earlier remarks—that The NAO rightly seeks to follow public money wherever it goes, but the FSA will be paid for by the industry, not the taxpayer. The right hon. Gentleman advanced some arguments that he felt countered that fact, but many people would say that the FSA is in a different position from other bodies and that his arguments might be stronger in relation to those.

The right hon. Gentleman asked how the FSA can be held to account. It is important to recognise that much stronger accountability requirements—both to Ministers and to Parliament—are being imposed on the FSA than were imposed on its many predecessor bodies, some of which he also referred to. There is, for example, provision for the Treasury to appoint and remove the board. Additionally, non-executives will have to report annually on the FSA's efficiency and economy, and that report will have to be laid before Parliament. We should also fully expect that report to be debated by Parliament. The Treasury could also commission inquiries into regulatory failures.

We feel that the best way of ensuring full accountability to Parliament would be to ask—as the Burns committee did—a parliamentary Committee to review the FSA's annual report and to take regular evidence from a broad spectrum of consumers and practitioners.

Mr. Cousins


Mr. David Davis

Will the hon. Lady give way?

Miss Johnson

I shall happily give way.

Mr. Davis

I thought that there was a great deal of power in the point made by the hon. Member for Newcastle upon Tyne, Central—who may want to intervene on this point himself—on parliamentary Committees' resources and access. I wholly agree with the Minister's comments on the right to dismiss the board and the other powers that she mentioned. However, all of that depends on the information that is available to Parliament. Without the right information, all those decisions are not only irrelevant, but would certainly be ill-founded. The availability of impartial information is a specific concern, and a report produced by the body itself could not conceivably be seen in such terms.

Miss Johnson

I apologise to my hon. Friend the Member for Newcastle upon Tyne, Central, who I did not realise was trying to intervene. I am grateful to the right hon. Gentleman for drawing it to my attention. We are not suggesting that the body should not be subject to value-for-money scrutiny; we believe quite the reverse. Criteria will be established under which the FSA will be subjected to value-for-money scrutiny. The only disagreement that I have with the right hon. Gentleman on that point is whether it must be the National Audit Office that performs that role, and whether the Bill should specify that, in all circumstances, the National Audit Office must perform that role. That is the only issue between us. In every other way, I should expect exactly the type of information and reviews that he mentioned to be submitted to the House and subjected to the full panoply of parliamentary scrutiny.

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Mr. Cousins

I am most grateful to the Minister for those comments, and should like to pursue the points made by the right hon. Member for Haltemprice and Howden. Currently, the Treasury Select Committee—of which I, like some other hon. Members in the Chamber, am a member—scrutinises the FSA's work. Although I cannot prejudge what the Committee will do in future, I am reasonably confident that we intend to continue to scrutinise it. However, the issue arises of access to sufficient resources to perform that work of scrutiny of a body such as the Financial Services Authority will be after the Bill is passed.

The FSA will be a powerful and significant body, and there should be sufficient resources to perform proper scrutiny. Although I realise that my hon. Friend might regard that as a matter for the authorities of the House rather than for Ministers, the issue is so important that—even if it were to be seen as a matter for the authorities of the House—the Government's guidance and intentions on the issue now would be significantly advantageous.

Miss Johnson

I am grateful to my hon. Friend for those comments. However, I am a little puzzled by his difficulties on the matter. Obviously, the FSA would be audited and subjected not only to value-for-money scrutiny, but to reviews on effectiveness and on fulfilling other criteria. The scrutiny and reviews will be done by those who are appointed to do them, and they will be reported. Therefore, all the information will be available. Moreover, future difficulties in scrutiny will be the same as those that already exist—such as hon. Members' ability to find sufficient time and to put in the effort to review all the information that is produced by those activities, to ensure that the information is subjected to the scrutiny and oversight that it merits.

I do not think that the difficulties encountered in scrutinising the FSA under the arrangement that we envisage will be any different from, or greater than, those currently confronting the House or Committees in scrutinising the authority.

Mr. David Davis

The hon. Lady has been very courteous in giving way so many times. The hon. Member for Newcastle upon Tyne, Central made a valid point. Even before that, however, the issue of access was raised. The Select Committee on the Treasury is probably the proper Committee to deal with the matter. However, even if it had sufficient resources, it would not be able to gain sufficient access on its own back, but would still have to use the mediation of the Treasury itself. I do not believe that that is acceptable for parliamentary accountability.

Miss Johnson

The FSA will have to be reviewed and to subject itself to such scrutiny, and will not have the option of deciding whether to undergo those processes. Therefore, that information and those reports will come back to Parliament and be available for hon. Members to debate and consider. Specifically, presentation of the annual report to Parliament will be a major occasion. In the annual report, non-executives are required to report on both efficiency and economy.

I am quite confident that the arrangements that we have provided in the Bill are entirely satisfactory. In meeting the desires of the right hon. Member for Haltemprice and Howden, the arrangements fail in only one respect—they do not, in totality, specify the National Audit Office. Although I am sorry to disappoint him again, I trust that the House will not support amendment No. 483.

Mr. David Davis

I beg to ask leave to withdraw the amendment.

Amendment, by leave, wthdrawn.

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