HC Deb 29 February 2000 vol 345 cc315-44

'.(1) This section applies in connection with the examination by the Comptroller and Auditor General of the accounts of any government department or other body under or by virtue of—

  1. (a) any enactment, including this Act, or
  2. (b) in the case of a body other than a government department, any arrangement which provides for the accounts of that body to be subject to examination by the Comptroller and Auditor General.

(2) Subsection (3) applies only to the following records, that is to say—

  1. (a) records which are in the custody or under the control of the department or body to which the examination relates, or to which that department or body has or can obtain access;
  2. (b) records of a receiving body to which any paying body has or can obtain access.

(3) In connection with such an examination as is mentioned in subsection (1), the Comptroller and Auditor General shall, subject to subsections (2), (4) and (5), have a right of access at all reasonable times to any record relating to—

  1. (a) the accounts of the department or body to which the examination relates,
  2. (b) any money originating in the Consolidated Fund,
  3. (c) any liability or contingent liability that will or may be met out of monies originating in the Consolidated Fund, or
  4. (d) tax credit under the Tax Credits Act 1999.

(4) The right of access conferred by subsection (3) shall not be exercisable in relation to any record relating to accounts which—

  1. (a) are subject to audit by the Auditor General for Scotland or the Auditor General for Wales, and
  2. (b) are not also subject to audit by the Comptroller and Auditor General.

(5) In such cases and to such extent as the Treasury may by order designate, the right of access conferred by subsection (3) shall not be exercisable in relation to any record which is not held by or under the control of the body to which the examination in question relates.

(6) An order under subsection (5) shall be made by statutory instrument, and shall not be made unless a draft of the instrument has been laid before and approved by resolution of the House of Commons.

(7) A person who holds or has control of any record to which the Comptroller and Auditor General has a right of access under subsection (3) shall give the Comptroller and Auditor General any assistance, information or explanation which he requires in relation to the matters recorded in it.

(8) In this section "paying body" means any body which pays to a receiving body money originating in the Consolidated Fund, and a "receiving body" means any body which receives from a paying body money originating in the Consolidated Fund, but does not include in either case a body the accounts of which are subject to audit under section 2 of the Audit Commission Act 1988 or section 97 of the Local Government (Scotland) Act 1973 unless it is a body specified in section 98(I) of the National Health Service Act 1977.'.—[Mr. David Davis.]

Brought up, and read the First time.

2.15 am
Mr. David Davis

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to discuss the following: Government amendment No. 21.

Amendment No. 17, in clause 11, page 6, line 19, leave out from "(5)" to "shall" and insert— 'The Treasury, a body which is designated for the purposes of section 10 and a person who acts as auditor for the purposes of section 10(2)(c) or (7)(c),'. Government amendment No. 25.

Mr. Davis

The amendment tabled in the names of the right hon. Member for Swansea, West (Mr. Williams), the hon. Member for Newbury (Mr. Rendel) and myself is about protecting the rights of Parliaments and, thereby, taxpayers to have independent information about the way in which public money is spent. I have raised the matter before during discussions on the measure, and have listened closely to the Government's concerns.

I have reworked the new clause to address those concerns and to ensure that there are none of the undesirable or unintended consequences identified by Ministers in Committee. I travelled that extra mile willingly because I want to find a formula that is in the interests of Parliament, the Government and the taxpayer.

A fundamental point, which has not been well understood, is that the new clause does not provide a right for the CAG to roam at will. It is not a right for him to follow public money wherever it goes—desirable as that might be. It simply provides that, where the Government or funding bodies secure for themselves, through statute, contract or other means, access to a recipient of public money, the CAG's independent right of access will follow automatically.

The revised provision is even more limited than the version that I tabled in Committee. It includes restrictions on access in order to address specific concerns raised by the Government. It includes an additional subsection to make it perfectly clear that devolved matters are excluded. It even allows the Government a right of veto by order. That gives them a mechanism to deal with any case they identify—although I cannot imagine any—in which the CAG should have less access than the Government, or where his access should be subject to some proviso. I am in earnest about the new clause and want to find a way of framing it that will leave the Government content. In addition to the provisions that I have included specifically to help them, the interaction of my new clause with the commencement provisions in clause 27 would provide further flexibility.

The core difference between my access proposals and those of the Government lies in subsection (2) of my new clause. Access applies first to documents controlled by a Department; secondly, when a Department itself has access; and thirdly, when funding bodies further down the spending chain have access. Clause 27 will allow the Treasury to bring the Bill's provisions into force piecemeal. It could choose to bring in initially only the first part of my access provision, which is in line with its own, activating the rest after further consultation. The Financial Secretary raised the prospect of consultation, and I hope that that will take place and will be constructive.

The Government provision, which I shall discuss shortly, will close the possibility of addressing weaknesses in the Comptroller and Auditor General's access right until the next time that legislation on these matters is before the House. That may be many decades in the future. My provision would create the framework for the weaknesses to be addressed without further primary legislation.

We had a useful debate in Committee about what is now clause 8 and the Comptroller and Auditor General's right of access to information. It ran over two sittings and lasted for more than four hours, so hon. Members will be relieved to learn that I do not intend to repeat it here. I want to move the debate on, setting out specific concerns that the Government raised in Committee and demonstrating that my new clause would give no grounds for any of those concerns.

I shall start by briefly summarising events in Committee before I progress. I explained in Committee that the access clause is unsatisfactory for three reasons. First, it will make Departments the gateway through which the Comptroller and Auditor General must gain access to information whereas the original Exchequer and Audit Departments Act 1866 invested the powers of access directly in him. Secondly, it will repeal, without equivalent provision, a section in the Exchequer and Audit Departments Act 1921 that is the only statutory basis for the Comptroller and Auditor General's rights to information on the many other accounts that he audits.

I am pleased that the Government have addressed those points in amendments to clauses 8 and 22, but they have failed yet to address the third and most important point that I raised in Committee. The clause will fail to update the Comptroller and Auditor General's access. It will leave him to face public audit in the 21st century with access rights developed to meet the needs of public administration in the middle of the 19th century. That is the fundamental flaw that my new clause is designed to correct.

I want to remind the House why we need the Comptroller and Auditor General to have access rights that extend outside Departments. My examples are those that I described in Committee, but I shall only summarise them here. Many functions of Government are now delivered outside the traditional public sector. Two main categories are particularly important. First, private sector companies deliver contracted-out activities—for example, PFI contractors to whom Departments are already committed to pay more than £70 billion in the next 25 years. Secondly, bodies in the independent and voluntary sectors provide public services funded by Government. For example, housing associations deliver on behalf of the Housing Corporation social housing programmes that are worth more than £1 billion each year.

Parliament has the right to expect the same standards of probity and regularity in the use of public funds however they are spent. Departments are still responsible for the way that the money is spent and they rightly insist on automatic access for their staff. The Comptroller and Auditor General can examine Departments' own checks on service deliverers, but that may not provide him with adequate evidence to reach an independent view. His professional view is that he needs access to audit Departments. Departments often agree, but the solution is piecemeal. The CAG must ensure that Departments secure access by contractual means. That is administratively burdensome; it diminishes the CAG's independence by making him dependent on Departments; and, where access is resisted, it impedes scrutiny by the PAC on behalf of the House.

I summarised in Committee some of the most notable examples of frustration experienced by the CAG and the PAC, caused by depending on arrangements granted at the behest of Departments and the Treasury. It took five years of negotiation before the CAG obtained access to the Housing Corporation and other executive non-departmental public bodies. The CAG was unable to provide the PAC with an assurance that Camelot had correctly handed over national proceeds from the lottery for four years because the company and its auditors refused to provide the evidence.

It took several years of negotiation before Government provided the CAG with access to training and enterprise councils, and Government refused the CAG access to private train operators despite the fact that the PAC considers that necessary to verify on behalf of Parliament that public subsidies have been earned. The Government fail to provide the CAG with powers to visit farmers, to check their claims—even though staff of the European Court of Auditors can visit UK farmers to check on EU money.

The CAG can examine only those registered social landlords—housing associations, in modern parlance—that volunteer access. In one case where an hon. Member brought irregularities to the attention of the CAG, it took six months for access to be arranged. The case is not the subject of a criminal investigation. That is an example of a lack of statutory access rights impeding the CAG's ability to respond to hon. Members who have concerns about the use of public funds in their constituencies.

There are related concerns about whistleblowers. Recent legislation named the CAG as a person to whom whistleblowers may disclose information and remain protected, yet the CAG does not have powers to examine allegations made against private contractors accused of misappropriating public funds—a case of fragmented rather than joined-up government.

Those examples show that the CAG needs access rights that extend beyond Departments and that it is not enough to rely on administrative means. I refer hon. Members who want more detail to the reports of the sixth and seventh sittings of the Standing Committee.

The relatively minor change to access rights that the Government appear to have conceded as part of their agreement to remove Departments as the gateway through which the CAG must gain access returns to the previous legislation, which vested powers of access directly in the CAG. Government amendment No. 21 refers to documents controlled by Government Departments or pursuant to arrangements made by a Government Department for compiling or handling its records. I would appreciate the Minister's clarification. Is that intended to provide access to any contractor undertaking finance-related services on behalf of Departments, such as EDS which works for the Inland Revenue, and Chessington Computer Centre, which processes many billions of pounds of Government payroll?

The amendment falls far short of the current administrative arrangements for CAG access that currently operate with the Government's blessing. The Government's general guidance on contracting states that access shall be provided where a contractor processes or handles records relating to the operational activities of the authority. Further Government guidance, specifically on PFI, states that contracts should ensure that the CAG is entitled to examine the contractor's records. How far does the amendment go? It certainly fails to reflect their own acknowledgement of the extent to which contractors deliver services and public programmes and to whom the CAG will require access. Nor does it acknowledge the need for the CAG to have access to a range of bodies in the voluntary, independent and public sectors. In such cases, the CAG will have to continue to negotiate his way in with the relevant body to obtain access, so it therefore falls far short of the recommendation in the ninth report of the Public Accounts Committee.

2.30 am

I want to progress the debate by considering the Government's concerns about granting the CAG the type of access rights that we seek through the new clause. I have studied the Committee Hansard as before, and it reveals five issues that are of serious concern to the Government. First, they are anxious that the new clause would allow the CAG a right of access to anywhere that public money was spent, down to the last paper clip, and that anybody entering a contractual relationship with the Government would be subject to that inspection. Quite simply, that would not be the effect of the new clause. It would grant the CAG access only where the Government or funding bodies considered that they themselves needed access. In those terms, we might call it a piggyback provision.

The logic of that approach is that the CAG would need access for the same reason that the Government need it—that is, when the only way to ascertain that a service is being delivered is to examine it at the service deliverer's site. Thus, contracts under the new deal give the Employment Service access to bodies that provide training and employment opportunities funded by the initiative. The Employment Service quite properly needs access to ensure that claims are bona fide. The CAG also needs access to satisfy himself on behalf of Parliament that payments under the new deal are regularly made for services that have been delivered. The Government accept that the CAG needs access and secured that through administrative means. That is welcome and essential, but, as I said when we debated a previous amendment, the administrative approach is inherently deficient. I shall return to that.

In contrast with the new deal example, I doubt whether the Employment Service has secured rights of access to its stationery supplier. It can monitor the quality and price of supplies without going into the supplier's manufacturing process, can test the price in an open market and, most important, can see that it is getting what it pays for as the goods are delivered to its premises. For exactly the same reasons, the CAG does not need access there. The new clause would not give him such access and the provision, therefore, is in no way an unfettered right to roam.

Secondly, the Government are concerned about the potential constraining effect on others of widening the CAG's access. They consider that wider access in general may stifle innovation and risk taking, and that access specifically in respect of tax credit payments made by employers on behalf of the Government may be a burden on business. The Minister said in his comment on the review that those matters would be taken up.

On the PFI and in the context of the "Modernising Government" agenda, the CAG has already said publicly that he supports well thought through risk taking and experimentation, the emphasis being on well thought through. The Government have welcomed that comment and have stated that they recognise that people will no longer be able to use audit as an excuse for not delivering more co-ordinated and efficient services. A statutory right of access for the CAG will not impact on risk taking in any case. The CAG already has full access to Departments, which might be risk averse. The purpose of the new clause is to extend his access beyond Whitehall to, for example, the private sector bodies delivering public services. Such bodies have innovation and risk taking at their core and will not be inhibited by the CAG, but public sector standards and expectations may be less familiar to them, and there may be a correspondingly greater need for the CAG to have access.

The proof is provided by experience. The CAG has negotiated access to the private sector in many cases, and the arrangements have worked well. The very changes encouraged under the "Modernising Government" agenda show the need for more flexible arrangements for the CAG. Cross-departmental initiatives and public-private partnerships require civil servants to work outside the traditional rigidities of Departments, and defining the CAG's access in terms of those Departments is out of kilter with such modernisation.

Mr. Rendel

Does the right hon. Gentleman know, or has he heard from any Government source, of any occasion when the Government have felt that the CAG's access has proved in any way oppressive?

Mr. Davis

That is an extraordinarily interesting question because we often hear the general argument that such access suppresses risk taking but we have never been given an example, so the answer is no. If there has been such an occurrence, I would be interested to hear about it. Perhaps the review will pick up some of those points.

On tax credits, access is necessary because they replace benefits that are currently delivered through Government agencies that are already subject to the CAG's inspection. Those credits are, in effect, payments from the state. In recognition of the concern about the burden on business, I have made the new clause clearer, to show that it allows access only for examining tax credits, which involve payments, and does not apply to the tax system as a whole because that is largely about receipts rather than payments.

I can assure, and reassure, the Government that the CAG's access would impose no burden beyond that already inherent in the tax credits system. The CAG has informed me that his staff would conduct examinations of tax credits by accompanying Inland Revenue staff on the visits that they make to check compliance, so the new clause will not, in any event, add any new burden.

The CAG estimates that, unless specific weaknesses become apparent and require further work, his staff would need to attend 0.5 per cent. of the Inland Revenue's visits. Based on the Revenue's latest figures, that would mean attendance by the CAG's staff at about 200 out of just under 40,000 visits. Access for the CAG would mean no additional visits to employers, but simply one or two extra people on a tiny proportion of visits that would take place in any case, so the additional burden argument does not stand up.

Thirdly, the Government have said that the existing arrangements to provide access work well and are preferable to a statutory provision. However, the Chief Secretary, in giving evidence to the Committee, recognised that the arrangements that stem from that approach are a bit of a hotch-potch. They have often required lengthy and costly negotiations, illustrated by the examples that I cited earlier.

The existing arrangements raise the further constitutional issue that the Government, and in practice the civil service, decide what Parliament may scrutinise. A statutory approach would bring administrative savings in negotiating access, avoid accidental omissions and ensure that Departments do not dictate the extent of parliamentary scrutiny. My reassurance to the Government in this matter, as with the previous point, is that wider access is not new—it is already in place in many parts of the public sector. We merely want the mechanism for securing wider access to be more consistent and robust. As an additional benefit, the statutory approach will be cheaper to operate.

Fourthly, the Government are concerned about duplication of audit. That stems from a misunderstanding about audit. There will never be more than one auditor who audits the accounts, and the CAG will not conduct a duplicate audit of the accounts of bodies in question. To continue with an earlier example, the CAG would examine the records of the new deal provider organisations, not to audit their accounts but to audit those of the Employment Service and ensure that the training and employment opportunities for which the service has paid have been delivered.

The Government are keen for the CAG to place reliance on work that other auditors have undertaken in auditing the accounts of bodies in which he has an interest. Sometimes that is appropriate and it is for the CAG to judge when it is. Unless specifically contracted to do so, other auditors will not examine whether funds provided to the body have been used as Parliament intended, because their responsibility is to the body itself, not to Parliament. Two cases illustrate the different remit and the role of auditors working on behalf of the bodies that they audit, rather than on behalf of Parliament, as in the case of the CAG.

Halton college claimed £6.4 million from the Further Education Funding Council, with no support from college records. That happened over several years, despite the fact that the college's auditors had been required to certify funding claims. The funding council subsequently reviewed the quality of work undertaken by private firms auditing colleges, and identified concerns in 11 of the 26 cases reviewed.

In the second case, Gwent tertiary college was taken to the brink of collapse by incurring a deficit of £6.8 million through significant weaknesses in the controls of claims for European funding. The college's auditors had repeatedly certified that all grants and income had been used for the purpose for which they were received, but had not taken any detailed testing of expenditure to primary records to support their audit opinion. Neither of the matters is new to the Minister, as both have been related in Public Accounts Committee reports, which the Treasury has received.

There is no risk of audit duplication. We are discussing different and complementary functions on the part of the auditors.

Fifthly, the Government said that the Bill is about resource accounts, not about audit. However, analysis of the Bill shows that it covers far more than is necessary to bring in resource accounts and resource-based supply, and that audit is indeed at its core. The Bill repeals 16 sections covering audit in the Exchequer and Audit Department Acts 1866 and 1921. Seven of its 28 clauses deal with audit. It is hard to imagine a Bill that is more about audit. The opinion that the Bill is only about resource accounts and resource-based supply and not about audit is simply not supported by the facts.

Mr. Timms

I am grateful to the right hon. Gentleman for giving way. Before he concludes, I wanted to ask him about a point that he made earlier in his speech. He said that the new clause would not give the NAO further access than the Government have, but, as I understand subsection (8), it sets up an endless chain of paying bodies and receiving bodies, which could allow the NAO to go further than the Government can go. Where in the new clause does the right hon. Gentleman believe there is a restraint on that?

Mr. Davis

I shall make two points to the Minister. As with the previous new clause, if he says that the problem is simply one of drafting, I am happy to accept his undertaking that he will come back to it in the Lords and correct it accordingly. However, I was referring to subsection (2), which lays down the categories that were intended. As the Minister will imagine, we took parliamentary counsel's advice on the matter. If he is correct in his description, I am happy for the new clause to be corrected at a later stage.

In conclusion, the resistance to the new clause is misplaced on all counts. I have tried hard, as has the National Audit Office's counsel on my behalf, to find a form of words that removes unintended consequences. It is simply a matter of accountability to the taxpayer for the way in which public money is spent.

We all want public services to evolve in the modern world. As I said in the Committee—the Minister smiled at the time—I am that strange thing, a right-wing Tory who believes in public services. We all want them to evolve. We want the taxpayer to get a good deal, and we want to be able to prove it. We do that by setting in statute the principle that Parliament and the taxpayer's auditor has the access necessary to do its job.

Amendment No. 17 deals with whole of Government accounts and access in that respect. I shall not go into great detail. The arguments are similar to those that I made to the Minister in Committee. It is the Comptroller and Auditor General's opinion that, under the accounting standards under which he is required to work, he has access to the subordinate accounts and the right to intervene or to require intervention from the subordinate auditors of the components of whole of Government accounts. If he is not able to have that access, he may have to qualify whole of Government accounts on those grounds. That is in nobody's interest. The new clause is designed not as a right to roam but for a specific purpose. If the Economic Secretary has a problem with it but says that the Treasury will table an amendment on the issue in another place, I will be happy to accept that.

The new clause aims to provide a good quality audit on behalf of Parliament and the public. That will benefit Government.

2.45 am
Mr. Flight

I support my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), especially on new clause 3. We are considering complex and difficult territory, which will become more difficult still. Government amendment No. 21 does not tackle the problems with sufficient subtlety.

If we take as a starting point the obvious desire to protect and modernise Parliament's monitoring of the way in which public money is spent, we must face the fact that auditing by the Comptroller and Auditor General will be inappropriate in many cases. Private finance initiative organisation means that public money will increasingly be spent on a subcontractor basis. Simply requiring audit or full access to follow all public money is not practical.

I repeat that it is clear from experience that it is unsatisfactory for Departments to act as gatekeepers to control the Comptroller and Auditor General's ability to monitor public money and unearth nasties. In many cases, too much time has been spent and too much difficulty encountered in gaining the necessary access.

The delicate question is where the line will be drawn. The Comptroller and Auditor General needs to be empowered with statutory rights in a way that is sufficiently flexible to permit some evolution. My right hon. Friend the Member for Haltemprice and Howden argued that access is not appropriate when we are simply considering the Government's buying of supplies. Doubtless the new Government procurement office is intended to deal in a commercial fashion with value for money in buying supplies.

It is difficult to decide where to draw the line. For example, some services are contracted out to the private sector. If I were running a business and providing to other parts of the private sector services similar to those that I provided to Government, I might believe that it was inappropriate for the Comptroller and Auditor General to redo the work that my auditor had undertaken. If I had done a deal with the Government to provide a service at a specific price, why should the matter go further, as long as I delivered the service? That gives rise to a question about checking whether the service has been provided. However, drawing the line about what merits access will prove increasingly difficult.

My right hon. Friend the Member for Haltemprice and Howden suggested the guideline that right of access is clearly required when the Government reserve any rights of investigation. A right of access is clearly required when funds are collected and paid in a form that is analogous to the arrangements for the lottery. There is clearly a right of access where there is any form of public subsidy.

Despite being capitalist in the way in which I think, I understand that the more that is devolved and subcontracted to the private sector, the more scope there is in some senses for corruption, and that one must therefore err on the side of permitting more rather than less access. The whole debate—going back to the central PFI subcontracting issue—about access and PFI provisioning is not complete and will require a good bit more consideration.

Let me return to the very beginning. We are talking about public money. Ideally, Parliament, through the CAG, should be doing the monitoring and should have the necessary rights of access to follow up all such expenditure. At present, there are many areas, as we all know, where there is nowhere near sufficient access and where even the obtaining of access has taken far too long.

As methods of delivering public services change, the needs involved in handling such matters will change. It seems to me that the new clause goes a long way towards providing the necessary flexibility for the future, as well as the correct basis of a statutory right, and that it will permit, in the public interest, the weighting to be on the right side in terms of not impeding the Comptroller and Auditor General as present arrangements tend to do.

My understanding of the Government's alternative proposal, in amendment no. 21, is that it is much more limited and retains Government Departments as the gatekeeper: it would present great difficulties in the chain of potential subcontracting of the provision of services out of the public purse, whether involving PFI contracts or others.

I am not a lawyer technically qualified to know whether the drafting of the new clause fully ties up the considerable complications, but it has taken account of a great deal more than Government amendment No. 21, and deserves support in principle, if not in its present form. It represents rather more than Government amendment No. 21 embodies.

Mr. Edward Davey

The House must choose tonight between new clause 3 and Government amendment No. 21, which seems to deal with only one of the original weaknesses in the Bill: the fact that clause 8 would have given access to the Comptroller and Auditor General only through the Departments acting as gatekeepers.

The Government heard our complaints in the Committee and have responded. We welcome the fact that amendment No. 21 shows that they listened and responded appropriately. However, the amendment does not deal with the second issue, which the new clause picks up—the need to extend the statutory right of access for the National Audit Office not only to departmental accounts and documents related to them but to other bodies which one would expect the National Audit Office to be able to audit. Therefore, the new clause is clearly preferable, and we shall support it.

I do not, however, believe that the new clause is perfect. The Minister pointed out in an exchange with the right hon. Member for Haltemprice and Howden (Mr. Davis) that it might not restrict access sufficiently, and that it might open up a situation in which the National Audit Office could follow the supply of services from the private sector to the public sector far too far, so that it would have to go into far too much detail.

My problem with new clause 3 is slightly different, however. Again, it relates to subsection (8), in which the draftsmen have tried to introduce the concept of a "paying body" whose money originates from the Consolidated Fund. When I first read the new clause, I thought that a fairly ingenious device, but, on reflection, I see that it means that some bodies to which hon. Members have said they would like the NAO to have access rights would not be covered. That applies in particular to public bodies that obtain their revenue from levies, which were mentioned earlier. They would not be covered because the levies do not count against the Consolidated Fund. Bodies that are effectively public corporations, such as the BBC, would not be covered either.

While, as the Minister said, one aspect of the new clause may need to be restricted, another aspect probably does not go far enough. There is room for improvement; but, given that new clause 3 is the best that we have at the moment, I give it my preference.

Mr. David Davis

I think that we are getting too tangled up in the wording of subsection (8). I talked it over with the draftsmen in the first instance, and it appears that the form of words is not unique to the new clause; but I am not too fussed about that. Let me ask the hon. Gentleman's opinion about something else.

The last group of proposals that we discussed included a permissive clause tabled by the Government—commendably, I think—to allow the Treasury to intervene to provide access where it is not currently available. Does the hon. Gentleman agree that it would be sensible for the Government to table a similar permissive clause—not drafted in the same way, but intended to cover the problems that we are discussing—to give some power to the review to which the Minister has referred? One of the concerns that the Minister creditably mentioned was that there would not be another primary-legislation opportunity in the foreseeable future.

Mr. Davey

That is a good point. If a permissive clause is the only way in which we can secure the changes that we seek on a piecemeal basis through the review, we need such a measure. I hope that the Government will listen to our suggestions, and table such a clause in another place. As I am sure the right hon. Gentleman agrees, however, that is a secondary solution; what we really want is a provision in the Bill that would deal with the issues universally.

The right hon. Gentleman brings me to my next point, which concerns the review that has been referred to—in fairly loose terms so far: we have read press reports, and engaged in conversations outside the Chamber. Perhaps the Minister or the Chief Secretary will be able to tell us a little more, because I think the review is relevant to a number of the groups of new clauses and amendments that we are discussing.

Will the review just involve the right hon. Gentleman and some of his colleagues from the PAC, or will it seek to secure a wider consensus in this place? As the right hon. Gentleman rightly said in his exchange with the Minister, it is important for the review to be led by Parliament. It is about the accountability of public bodies to Parliament, and Parliament should therefore be represented in it, in as many ways as are appropriate. The PAC will obviously have a role in that regard, but I should have thought that representatives from the main parties should at least be consulted, and possibly invited on to any review panel that the Government may consider establishing. Then hon. Members on both sides of the House would have an input into the review.

3 am

As the right hon. Gentleman said, what is the remit of the review? Will it cover the things in the Bill and some of the wider issues that we have read about in today's Financial Times—problems of accountability if there are cross-departmental reviews and budgets in future? Will it cover other matters such as supply and procedure for estimates in this place, which we touched on earlier?

All those matters are germane to the issue of parliamentary accountability on the budget. As we know so little about the review, all I can do at this juncture is to urge the Minister to discuss its remit with all parties to ensure that Parliament has an input at the first stage. The hon. Member for Stoke-on-Trent, South (Mr. Stevenson), a Labour Member, agreed that we needed to reform the procedures for supply, so, again, we can get cross-party consensus on a fairly radical approach to improving financial accountability.

In dealing with some of the problems that the Minister raised in Committee concerning the extension of CAG's institutional jurisdiction, the right hon. Gentleman talked about one of the favoured Government solutions to the problem: using administrative means to extend the CAG's access rights where appropriate. However, study of the administrative methods that the Government employ in respect of the auditing of various bodies suggests that the administrative regime goes against the NAO becoming an auditor.

I refer, for example, to the Treasury's central unit on procurement, which issues guidance on model form contracts. Apparently, a standard term in the contract says that the incorporation of a clause on access rights for the NAO is explicitly at the discretion of the parent purchaser. Therefore, the administrative regime on which the Economic Secretary puts such reliance works against a solution to the problem.

Mr. David Davis

I am speaking from memory here. As the hon. Gentleman will remember, I had dozens of examples in Committee, but, if I remember correctly, access to the training and enterprise councils was held up not by the Department, but by Treasury intervention preventing access.

Mr. Davey

The right hon. Gentleman may be right. I do not know the details, but it follows from what I have said that the administrative regime—whether from the Treasury, or the Treasury's central unit on procurement—is not pushing on the issue in the way in which the Government sometimes suggest it is.

I hope that the Government will look to other independent bodies and commentators for their views on that crucial matter and for solutions. In Committee, I had occasion to quote, sometimes extensively, from the latest academic work on the issue, entitled "Audit, Accountability and Government" by Fidelma White and Kathryn Hollingsworth. It is great seller—at least it should be.

Chapter 4, entitled "The jurisdictions of the C&AG", reviews all the various areas that we discussed in Committee. Having looked at how the NAO is able to audit public money that is spent through private contractors and local spending bodies such as voluntary agencies, it concludes that there is a need for statutory legislation to ensure that there are automatic access rights. I quote from page 89 of the book: the C&AG could be given guaranteed rights of access to the records of all local spending bodies and private contractors providing public services and functions. Until such legislation is forthcoming, the C&AG will remain the poor relative of other public sector auditors, such as the Audit Commission and the European Court of Auditors. The quotation reiterates many of the points made by the right hon. Member for Haltemprice and Howden, and emphasises the fact that it really is time that reform on access was made. We have waited far too long for it.

We have been told that the Government have quite a good record on access. When the Economic and Chief Secretaries appeared before the Public Accounts Committee, they said that they were minded to move further in that direction. They probably do not want to hear this repeated, but we want to encourage them to have the strength of their convictions and quickly to follow them through. This matter has waited far too long to be tackled.

The Bill is the first legislation for many decades to deal at all comprehensively with the access issue. The Government should seize this opportunity to ensure that Parliament's auditors, who are accountable to Parliament, have the access rights that they need and should have.

Mr. Fabricant

In the debate on the previous new clause and amendments, we heard that the Comptroller and Auditor General was not allowed to investigate whole swathes of the economy. Now, we hear that there are other spheres in which the CAG is allowed to investigate, but to which he has no access. That is not auditing, it is impotency.

The hon. Member for Kingston and Surbiton (Mr. Davey) said that, in many cases, the CAG is able to gain access only at the discretion of the body that is to be audited. Such an arrangement cannot be right. In extreme circumstances, in cases in which there might be a misappropriation of funds, such discretion would not be exercised in favour of allowing access. Therefore, we are talking not only about impotency, but about responsibility without authority. Such an arrangement also cannot be right.

It is quite extraordinary that officers of the European Court of Auditors are able to go tramping over British farms, whereas the CAG cannot send his officers on to British farms should it be appropriate to do so. Clearly, when it comes to the CAG, there is no independence.

Government amendment No. 21 does not go far enough. New subsection (2) states that new subsection (1) applies only in relation to documents which are held or controlled— (a) by a government department, or (b) in pursuance of arrangements made by a government department for the compiling or handling of any of its financial records. That considerably restricts the CAG's activities.

We have heard of cases in which the CAG was seeking information—from Camelot, for example—but it took four years to obtain that information. The issue of whether Camelot has been making excessive profits is, rightly or wrongly, contentious. Nevertheless, it would have served the interests of Parliament—and certainly the interests of the people, whom Parliament serves—for the CAG to gain access to the relevant figures. Provision on access must be tightened up. It certainly should not be loosened or slackened, but that is what is happening.

As my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) said, there is a difference between the actions of a commercial auditor—a chartered accountant, certified accountant or any auditor certified by the Department of Trade and Industry—and those of the CAG. The CAG has the additional duty of investigating and determining whether funds are being spent in the spirit intended by Parliament. The Companies Acts do not impose such a duty on commercial auditors, but the CAG must perform that duty. He can do so only if he has access. That access must be quick, because in extremis, where there might be fraud or misappropriation of funds, there is a possibility that delay might enable the organisation being audited to conceal information that the CAG needed to see.

Customs and Excise has great powers to investigate certain issues, particularly inputs and outputs for VAT calculations. It is very strange that such powers are not available to the CAG, who is empowered by Parliament on behalf of the people to see whether funds are applied in the way in which Parliament intended.

I welcome Government amendment No. 21 to some extent, but it does not go far enough. New clause 3, tabled by my right hon. Friend the Member for Haltemprice and Howden and the Public Accounts Committee, is comprehensive. It would not damage the organisations that might be subjected to audit.

Unlike my hon. Friend the Member for Eddisbury (Mr. O'Brien), who has only just entered Parliament, I was in business back in the 1980s. My company has been subjected to audit and even dawn raids by Customs and Excise to look at my VAT inputs and outputs. I claimed VAT back because my company was mainly an exporter. Disruptive though such audits can be, if a company keeps its books in a professional manner, it is not a difficult process to undergo. When I started the company in the 1980s, the records were kept manually. These days, almost all companies, from FTSE 100 companies to small sweet shops, keep their accounts on computer. It is not right to say that such audits can be difficult and that the Government are trying to protect companies from them.

I was shocked to hear—perhaps my right hon. Friend the Member for Haltemprice and Howden will correct me if I am wrong—that the BBC is also protected from such audit. That is a problem. The BBC has its own auditors, but whether the corporation is operating in what is called a fair trade environment is a contentious issue. I do not want to go too far off the point, because you would rightly call me to order if I did, Mr. Deputy Speaker, but it is worth explaining. I said that it was in the spirit of Parliament's legislation that the CAG has to investigate.

The BBC gets most of its income from the licence fee, but a relatively small amount comes from the operation of BBC World, which is its commercial arm, selling radio and television programmes overseas, producing publications and entering into joint ventures with commercial operations. It competes with other organisations that are funded not by a licence fee, but by shareholders and trade in a normal environment.

Parliament has rightly said that the BBC should not have a commercial advantage. None of its operations should be funded, directly or indirectly, by money from the licence fee. Nevertheless, we all understand that the BBC has a large structure. After all, it is a £2 billion organisation and it is sometimes difficult to separate the overheads that are paid for by the licence fee from the overheads that should be funded by its commercial arm.

3.15 am

Strictly speaking, it is not the duty of the BBC's auditors to look into that particular aspect of the BBC's operations, although they do so. I am quite sure that if the Chairman of the Select Committee on Culture, Media and Sport, the right hon. Member for Manchester, Gorton (Mr. Kaufman), were here now, he would say that one of the first duties of the CAG should be to ensure that the spirit of Parliament is carried out with regard to the BBC to ensure that there is fair trading and that none of the BBC's commercial operations are funded, directly or indirectly, by the licence payer. It is yet another area where the BBC is being protected—another area to which the CAG does not have access. Indeed, I believe that not only does he not have access, but he is not even empowered to investigate those operations.

As I said at the beginning of my speech, the CAG is made impotent by the fact that he cannot gain access without permission, of his own volition and quickly. Consequently, I fear that this has become an impotent Bill.

Mr. Stephen O'Brien

Every Bill contains signs as to its true intent. Access has to be one test of any Bill dealing with auditing. In a public company, if one were considering entering into a contract, particularly an equity arrangement for a joint venture, one of the first things one would do is insist in the contract terms on a right of audit and a right of access to the records that enabled an audit to be carried out.

Many of the issues that lay behind the previous group of amendments also relate to this group, particularly in relation to matters over which there is no immediate presumption that the Comptroller and Auditor General will have a right of audit and the bodies involved in public expenditure will have a right to enter and inspect.

Therefore, there are huge missed opportunities in the Bill. For example, there is no provision for the Comptroller and Auditor General to have the necessary statutory access to examine the large sums of public money spent by new service providers, including private contractors and voluntary bodies, such as the private contractors who handle the £4 billion of central Government pay, manage six prisons, including Doncaster and the Wolds, and spend £5.2 billion of public money providing new deal training opportunities. I cited those examples in relation to the previous group of amendments and they are equally applicable to the provisions relating to access. Voluntary sector registered social landlords receive £1 billion annually to provide local services on behalf of central Government.

There is also no provision for the CAG to have access to the body to be established to carry on public-private partnership business, which is very much the equivalent of what I was alluding to earlier. A public company could never get away with the shareholders criticising the board of directors, which in business terms, as we have heard during this somewhat prolonged debate, is the equivalent to the Executive in Parliament.

Mr. Hayes

My hon. Friend is presumably making the point that as government and the relationship across Departments become increasingly complex, and as the relationship between private and public bodies becomes a more common feature of the exercise of political power, so that they are more likely to act in unison to deliver a particular aspect of public policy, a more sophisticated solution for auditing their affairs needs to be introduced to match those changes.

Mr. O'Brien

I thank my hon. Friend for that fine intervention.

Mr. Caplin

It was long enough to be a speech.

Mr. O'Brien

Given the quality of Conservative Members' interventions, they could often be taken for speeches. In my brief time as a Member of this House, that is not a criticism that could be made of Labour Members.

As government becomes increasingly complex, a more subtle solution is required. I shall leave an attempted, partial solution to some of the issues raised until later in my short contribution on this group of amendments. I want to move from a point about new clause 3 to the inadequacies on amendment No. 21, which alludes partially to what my hon. Friend spoke about.

As I was saying before my hon. Friend's intervention, there is no provision for the CAG to have access to any body to be established to carry on public-private partnership business, despite the fact that it will receive substantial public sector funds—£200 million in the first year in the form of cash and guarantees. Audit is required whenever cash is involved; it advises on even larger amounts of public expenditure. That is a further example of the erosion of the CAG's scrutiny, as he currently has access to the Treasury's private finance initiative taskforce, which the new body will replace. That is a surprising example of the Government appearing to resile from access and accountability, let alone seeking, through the Bill, to underpin or improve what already exists. The failure to provide access puts the CAG's programme of work on the PFI at risk. I hope that when the Ministers finish their discussion, they will take that point on board.

Neither is there provision for the CAG to have access to bodies whose accounts will be consolidated into whole of Government accounts. Instead, there is the inadequate alternative of access to the auditors of such bodies, which is entirely out of step with equivalent arrangements for company consolidated accounts—with which, I freely confess, I am far more familiar than I am with whole of Government accounts—where auditors have access to all companies in a consolidation.

I have listened to the contributions on amendment No. 21 and have tried to understand why it has been drafted in the way that it has and the change that it encompasses. Although I give credit to the Government for having listened and for tabling the amendment, it makes a slightly finer point than the broad purpose that was intended. I shall leave it to other hon. Members to decide whether it goes far enough. However, given that, under the amendment, the Government—the Treasury—are judge and jury in their own case of accountability to the public for the public's money, I seek clarification of the phrase: Subsection (1) applies only in relation to documents which are held or controlled— that phrase appears with some regularity— by a government department, or… The provision then refers to other matters.

Those of us who have not had experience of Government could well imagine that the words held or controlled…by a government department might imply that, in this increasingly complex world of public-private partnerships, information that could be relevant to a Department and which it would be important for auditors to see, because of the exercise, within parliamentary sanction, of proper judgment of expenditure, was not held or controlled by that Department. That relates to the complexity to which my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) referred.

I am not just making a semantic argument. That is how the words appear and we are here to scrutinise the Bill and the amendments proposed to it by the Government. If my suspicion is correct and the amendment relates only to documents that are held or controlled…by a government department, what if the Government decided to avoid the danger—in a controversial matter—of an audit trail with which they did not feel comfortable? What if they decided never to allow a Department to have a particular document, but held it in the Treasury? The Treasury could decide to keep the document so that it was never held or controlled by the Department. It would thus not be accessible in the audit trail.

That point needs to be addressed, so it is not heartening that Ministers have been conferring with one another during the whole of my speech. Perhaps they can listen and talk at the same time. I have made an important point, on which I would like to receive an answer.

Mr. Fabricant

Has my hon. Friend noticed that, even when the CAG does have access, it should be only at "reasonable times"? My hon. Friend has only recently come from business, so he will know that when the officers of the Customs and Excise VAT department want to carry out a detailed audit, they arrive at the most unreasonable times to make sure that the figures are right.

Mr. O'Brien

I am grateful for my hon. Friend's intervention, although I do not necessarily accept that we would want to be unreasonable. Access at reasonable times is reasonable. However, I note the contrast between that provision and what the Government did recently when they implemented European legislation in relation to the new competition regulations. Those give the power for dawn raids and other inspections at times that could never be considered reasonable. Surprise is the whole point. These days, effective audit means that there must be an element of surprise. That is to prevent documents being shredded—to prevent discs being wiped and the destruction of mother boards in computer hard drives.

There are no grounds for suspicion that such activity would take place in Departments. I should be alarmed if that were the case. The whole point of the Bill is that we should give the public trust and confidence that the stewardship of their money is at all times thoroughly accountable and that, above all, those who are responsible for that accountability will have free and full access without impediment.

3.30 am
Mr. Paterson

My hon. Friend has touched on a larger issue. The problem with the Bill is that large elements of the public accounts are not covered by it. However, what he has picked up is that there are ways and means of hiding information from the Comptroller and Auditor General even in those areas that are specified as being within the Bill's remit.

Mr. O'Brien

To return to rather primitive mathematics, we could paint a series of Venn diagrams in which there are a number of overlapping circles. We might have an audit right in certain respects and a right of access in other respects, but we would be very lucky if the two rights happened to meet. We have tried to identify where some of them do not meet.

However, more importantly, amendment No. 21 contains the phrase documents which are held or controlled…by a government department. There is a possibility that the Treasury might decide to keep all documents relating to expenditure by a Government Department in the Treasury itself and would be the judge and jury in the process. Given that we must consider all sorts of possibilities, under amendment No. 21, the Comptroller and Auditor General would not have the access to the information that he needs in those circumstances.

Mr. Fabricant

Does my hon. Friend agree that his point about Government Departments is especially damaging given that there is a trend in government generally to contract out to private corporations or agencies, such as the Benefits Agency, that would not be regarded directly as Government Departments under the terms of the Bill?

Mr. O'Brien

My hon. Friend makes a good point. In vain, I sought clarification in the definitions contained in the Bill. It may be a sign of my own shortcomings, but I was unable to find such clarification. I very much hope that we shall receive clarification and that may mean that the Government's amendment requires emendation.

I thought that we were making significant progress on the last group of amendments. I had high hopes that the Government would accept new clause 2 given the reasoned, non-partisan and uncontroversial basis on which it was introduced. That acceptance was not forthcoming, which was a surprise and disappointment. Therefore, I am less optimistic that the Government will be prepared to accept new clause 3 and that is why I focused on amendment No. 21. That will be one of the realities with which we may have to deal. My hon. Friend makes a valid point. I am glad that he intervened when he did, because I was about to conclude my remarks.

Mr. Hayes

I will not attempt to emulate the erudition of my hon. Friend the Member for Eddisbury (Mr. O'Brien) or the verbosity of my hon. Friend the Member for Lichfield (Mr. Fabricant). However, I wish to shed a little light on the matter.

The Bill will give the Comptroller and Auditor General a new duty to report on whole of Government accounts, so clearly his role must be credible. To be credible, he must have access to good-quality, accurate and thorough information. That is consistent with the description of him in the debates in 1921 that were referred to earlier. I am mindful of the contribution made by the right hon. Member for Swansea, West (Mr. Williams), because in 1921 a Member, simply referred to as Mr. A. Williams, described the Comptroller and Auditor General as the watch-dog of the House of Commons in all these matters of economy and regularity.—[Official Report, 11 August 1921; Vol. 146, c. 820.] If he is to be a watchdog in that spirit, the information he collects must be thorough and accurate. That seems to accord with the Government's definition of what is good and right. A White Paper published in July 1998 said that Departments should be capable of withstanding audit and that, to justify an unqualified opinion, they would need to be free of material error as defined by the standards of the auditing profession.

The Bill's first fundamental inconsistency is with private practice and existing statute. Generally accepted accounting practice among auditors provides substantial powers to auditors of consolidated accounts. The Companies Act 1985 states that where a company has a subsidiary undertaking that is a body corporate incorporated in Great Britain, its auditors shall give to the auditors of any parent company such information and explanation as they may reasonably require for the purposes of their duties as auditors of the company. The Bill is inconsistent not only with private practice, private auditors and statute but with the only comparable example of a consolidated audit in the public sector. With the National Health Service, there are already statutory powers for the CAG to collect not only data about bodies for which he has direct responsibility, but relevant information from a range of bodies that he does not directly audit—health authorities and trusts. The CAG's responsibility in that respect is supported by substantial powers that are not repeated in the Bill for the rest of government—which is a much bigger affair than the NHS.

The debate is not, therefore, just about the Bill's failure to extend the CAG's powers in respect of quangos and other outside bodies but about inconsistency with existing practice in the private and public sectors.

The Minister may say that the CAG might rely on information supplied by the primary auditors of those bodies consolidated in the accounts. He can rely on that information only if it is collected. The Bill gives no authority to the CAG to insist that information is collected by primary auditors on aspects of Government affairs for which he does not have responsibility. There is a real chance that the CAG will be obliged, in the absence of that information, to give a qualified opinion on the conduct of Government affairs, Government probity and the accuracy of Government accounts.

Mr. Paterson

The CAG audits the general accounts of the NHS but not the individual accounts of trusts and authorities, which have their own auditors. Is that relevant to my hon. Friend's point?

Mr. Hayes

The hour is late, but my hon. Friend is clearly not paying sufficient attention to the detail of my remarks. Perhaps that is because of my lack of clarity rather than his lack of diligence. Although the CAG does not audit the trusts and authorities that make up the NHS, he has a responsibility—a statutory power—for collecting information from those auditors, which allows him to take a view about the consolidated NHS accounts. That is not replicated in the Bill in respect of other Departments. Essentially, I said that the precedent established by practice in the NHS is not being used in the Bill as a foundation for good practice.

Mr. Geoffrey Clifton-Brown (Cotswold)

I am pleased that my hon. Friend has given way because, as a former member of the Public Accounts Committee, I am very aware that the CAG is unable to carry out value for money reports when he does not have proper access for auditing Departments. Is my hon. Friend aware that for every £1 spent those reports recover £8 of public money?

Mr. Hayes

I am, and that reinforces the importance of my point. The sums involved are substantial and my hon. Friend encourages me to return to the 1921 Act, which will cause some excitement.

Mr. Stephen O'Brien

It is a relief to us all.

Mr. Hayes

There is more excitement than relief for Members across the Chamber. When the 1921 Act was introduced to the House, it was noted that the need to reform the 1866 Act was born of the fact that Government expenditure had increased about twentyfold. Heaven knows how today's expenditure compares with that of 1921, but, in my judgment, the multiplication of Government spending necessitates precisely the diligence implied by my hon. Friend the Member for Cotswold (Mr. Clifton-Brown). Given that enormous increase in the nature and breadth of public expenditure, not to extend the scope of the CAG's discretion would be extremely remiss.

Before I digressed, I was saying that the CAG works closely with the Audit Commission in auditing the summarised NHS accounts and has powers to collect summarised accounts from the auditors who work in the individual trusts and authorities, to whom my hon. Friend the Member for North Shropshire (Mr. Paterson) referred. However, he can do that only because he has been given statutory powers by the House. I find it extraordinary that the Government have set aside that example and have not extended the scope for the CAG in other areas of Government affairs.

I said earlier that the CAG was described as a watchdog in 1921, but I shall return briefly to the 1866 Act, which I happen to have to hand. The failure that I have described is not in character and does not follow the spirit of Gladstone's Act, which makes it clear that the Comptroller and Auditor General shall have free Access, at all convenient Times, to the Books of Account and other Documents relating to the Accounts of such Departments, and may require the several Departments concerned to furnish him, from Time to Time, or at regular Periods, with Accounts of the Cash Transactions. The spirit of that Act was one of free access—

Mr. Fabricant

Open government.

3.45 am
Mr. Hayes

I was going to say freedom of information, but, in Blairite Britain, those are dirty words. However, that Act certainly aimed, in the interests of probity, to open up the affairs of Government to the CAG as the watchdog of the House.

We have strayed a little from our earlier discussions about the nature of the relationship between the CAG and the House, as opposed to the nature of the relationship between him and the Government, but it is absolutely clear that, on the particular issue of access, the CAG is very much the representative of the House. He is given free access, as he should be, to the affairs of Departments and outside bodies.

Mr. Paterson

On open government, my hon. Friend could have quoted a great name in the other place, the Lord Chancellor himself, who, when discussing the CAG's appointment to audit the new Legal Services Commission, said: The Government are committed to increasing transparency and openness to Parliament. For that reason, we believe that the auditor of public bodies should be the Comptroller and Auditor General.

Mr. Hayes

My wife did a course on interior design, and she is about to do a degree in that subject.

The failure to give the CAG appropriate access certainly contradicts the spirit of the Gladstonian tradition, which is at the heart of our discussions. The Government's willingness to extend the CAG's power, at least in principle, to report on whole of Government accounts necessitates an entirely different approach to access. It is disappointing that the Government have been at best timid, and at worst something unparliamentary.

As my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, said when the matter was discussed in the Standing Committee, this is not an academic matter. The Treasury will inevitably take a rosy view of the state of its own project. The Treasury and the Government will also take a rosy view of the scope of the CAG's powers in respect of access to information.

I am not by nature cynical or suspicious, but I am suspicious about the concentration of political power, and the further the exercise of political power is from the people, who are represented by the House, the more suspicious I become. The Bill makes me very suspicious indeed.

Mr. Rendel

I want to make a few remarks about amendment No. 17, whole of Government accounts, and what access the CAG needs to perform his duties successfully. Most hon. Members who have talked about amendment No. 17 have concentrated on the fact that if the CAG does not have full access to all the accounts that make up whole of Government accounts, he may have to qualify WAG, which will embarrass the Government.

I want to concentrate on a slightly different aspect of that question. As somebody who did much work in internal audit in Esso, I am aware that an auditor who discovers by looking at high-level accounts that there may be a problem will often be able to discover precisely how that problem arises only by considering in much greater detail the accounts much further down the tree.

It was perhaps instructive that at a meeting not so long ago, the Public Accounts Committee considered a case of fraud in the high commission in Calcutta. From looking at fairly high-level accounts, it was obvious, at least with hindsight, that money was going missing. Some £80,000 went missing over three or four years.

What was not obvious was how the money was going missing. That did not become apparent until the people looking into the matter looked at the lowest level, by inspecting till slips that had been fraudulently altered on the front counter at the high commission. That illustrates the fact that one may have to look a long way down the tree to work out the basis of a problem that has been detected in an account.

If the Comptroller and Auditor General is to examine whole of Government accounts successfully in future, as the Government rightly intend, it is important—not just because he may have to qualify the accounts, but for the purpose of investigating any problems that he may find—that he has access right the way down the tree.

I shall add a further point, by way of a challenge to the Minister who responds to the debate. On the previous group of amendments, I pointed out an interesting sentence in our most recent report, which reads: We believe in the principle that the Comptroller and Auditor General should have full access to all Government expenditure. The agreed PAC report states that important principle, which is perhaps even more relevant to this group of amendments. Will the Minister tell us whether the Government also accept that principle?

Mr. Syms

I shall make a brief contribution, as I am sure that we are all anxious to make progress. The debate has raised concerns about how the system will operate. As we know, the Bill places on the Comptroller and Auditor General a new duty to audit and report to Parliament on whole of Government accounts. It is vital that he has full access to records.

As the hon. Member for Newbury (Mr. Rendel) and others said, it is extremely important that the new system sets out with confidence and transparency and that there is a culture of proper audit of whole of Government accounts. I have been in business, and I recognise that auditing is not a one-off job. Often, a business man has an on-going relationship with the auditor who inspects the company. Sometimes, information systems are set up and the business is run in accordance with the way in which the auditors intend to perform their task.

If, through new clause 3, we give the CAG the fullest powers to examine whole of Government accounts, we will set up the right culture for the new accounting system. We have heard that many areas will not be covered, and that in some areas the CAG will have to take evidence and audit outside bodies. Unless the fullest power is available to him to double-check where necessary and to go back over the audit trail, I am worried that mistakes will be made because we have not placed our full confidence in the CAG, who, after all, is working on behalf of Parliament.

We hear a great deal about modernisation. A decent audit of whole of Government accounts would be a valuable step in that direction, which hon. Members in all parts of the House would support. As my hon. Friend the Member for Cotswold (Mr. Clifton"Brown) pointed out, that would represent value for money in these times of limited resources.

New clause 3 is a good clause. I believe that it is worthy of support and a step in the right direction. I hope that the Government will accept it. I am sure that their silence means that they do not disagree with our arguments. If they did, they would doubtless try to contribute to the debate.

In the private sector, the powers of auditors of consolidated accounts are governed by statute. Section 389A(1) of the Companies Act 1985 provides for auditors to have access to the bodies in the consolidation. Unless there is full access to all the companies, bank accounts and information that pertain to consolidated accounts, a true and whole picture cannot be obtained. Ninety per cent. or 95 per cent. is not enough; full access is required.

Generally accepted accounting practice recognises that, in some circumstances, the auditors of consolidated accounts will need access to undertake their tests in the consolidated bodies. New clause 3 provides for that. Accounting standard 510 states that the principal auditors of a consolidated account may decide that supplementary tests of the records or the financial statements of the component parts are necessary. Depending on the circumstances, such tests may be performed by the principal auditors or other auditors.

It is important for the CAG to have full access. He does not necessarily have to audit all the accounts himself, but if the bodies who may undertake the audit know that the Government auditor can gain full access to information and double-check that they are doing their job properly, it will ensure that their work is up to standard. If we do not do that, many bodies, which perhaps pay their staff large salaries, may not have the incentive to do the job as well as they would perform it if they believed that the Government expected accountability for spending Government money.

Mr. Fabricant

Does my hon. Friend agree that it is intolerable that the Comptroller and Auditor General could not gain access to the Camelot accounts or to the organisation for four years?

Mr. Syms

I am not sure whether that is intolerable, but it is worth considering. Doubtless there will be many anomalies.

New clause 3 should be supported. It has been tabled by well-respected hon. Members across the political divide. It clearly establishes a regime, which would be more transparent and would mean that the new accounting system began with the right culture, which is vital. Granting the widest possible access to information and organisations to the auditor who is responsible to the Public Accounts Committee and to the House would mean that we could all be proud of the manner of the new system's start.

Mr. Paterson

It is a great pleasure to follow the sensible contribution of my hon. Friend the Member for Poole (Mr. Syms). I shall not detain the House for too long, but I want to follow up my earlier comments on another group of amendments. Our fundamental duty as Members of Parliament is to hold the Government to account for the way in which they raise money from the public by enforced confiscation through taxation, and to ensure that that money is spent correctly.

The Comptroller and Auditor General's job is meaningless if he does not have strong powers of access in law. He had those powers under the 1866 Act. My hon. Friend the Member for Cotswold (Mr. Clifton-Brown) made a telling contribution. He said that £1 invested in the sphere of Government activity that we are considering recoups £8. Gladstone would have approved of that wholeheartedly. According to the biography by Philip Magnus, Gladstone took such a detailed interest in public expenditure that he complained when his servants used new luggage labels. He went into such detail to save public money. He so respected taxpayers that he believed that not one penny should be wasted.

Since that time, government has sadly grown like Topsy. The current framework is totally inadequate, as my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) said—

Mr. Deputy Speaker

Order. The hon. Gentleman is making general points. He must confine his remarks to the amendment that we are considering, especially as many of his hon. Friends have made contributions on the new clause. He should get straight to the point.

4 am

Mr. Paterson

I am most grateful to you, Mr. Deputy Speaker, for keeping me on the straight and narrow. I will return to the question of access, which is the heart of the new clause.

I repeat that the CAG cannot do his job unless he has strong powers of access written into the Bill. I shall not repeat the exact examples that have been given, because I do not want you to be cross with me again, Mr. Deputy Speaker. But we have heard about housing associations, my hon. Friend the Member for Lichfield (Mr. Fabricant) mentioned the case of Camelot, and earlier we talked about the training and enterprise councils in prisons, where access—which I repeat is the heart of new clause 3—was restricted. In one particularly bad case quoted by my right hon. Friend the Member for Haltemprice and Howden, it was restricted for up to five years. I think that it was a case brought by a Member of this House. It took five years for that case to be investigated.

If the new clause goes through, the CAG will have legal powers to get real access. All that that does is to follow the advice in the ninth report of the Public Accounts Committee, which said that the powers of access must be direct. The Committee made the very good point, in paragraph 29, that currently the CAG has to negotiate the terms of access on an individual basis with the bodies and their sponsoring departments. This is administratively burdensome and diminishes his independence. The Committee noted that other public auditors have very strong independent legal rights. It says in paragraph 31: Auditors working for the Audit Commission in England and Wales and the Accounts Commission for Scotland have a right of access to every document which they consider necessary relating to a body they audit. Even the European Court of Auditors has powers of access to both private and public sector bodies within Great Britain in receipt of European funds. So it seems anomalous that the auditor for England and Wales does not have these powers in law.

It is sad that Labour Members are laughing, because this is a report by an all-party Committee, and the clause is promoted by Members from the three main parties represented in the House. All that it does is to follow up the conclusion, in paragraph 38, that it is unacceptable that the Comptroller and Auditor General must negotiate with the relevant body to obtain access to the new types of service deliverer. The Committee made it quite clear when it said, in conclusion (xi), contained in paragraph 6: In order to examine the accountability of departments, he needs matching statutory rights of access so he can give Parliament independent assurance that public funds have been spent properly.

Mr. Syms

Is there not a danger that the audit may well have to be qualified if there is not proper access for the Comptroller and Auditor General?

Mr. Paterson

That is certainly true. That is why we need stronger powers written into the Bill. That is the nub of the matter.

Amendment No. 21 is quite inadequate. I do not need to go into the detail that my hon. Friend the Member for Lichfield did. Of the two, there is no question which is better. New clause 3 follows the recommendations of the Public Accounts Committee. I am trying to outline for the benefit of Ministers, in case they have not had time to read the report properly, that the recommendations were extremely clear and they have not taken them up.

My right hon. Friend the Member for Haltemprice and Howden said that Ministers were using the excuse that the Bill does not concern audit. The Public Accounts Committee made the very clear point, in paragraph 41, that At least a third of the Bill covers audit scrutiny and other parts cover new initiatives such as Partnerships UK and Whole of Government Accounts. It clearly considered that the Bill could and should be used to modernise the CAG's audit and access arrangements. Its conclusion is stated in paragraph 42: The Committee stands by the principle that robust powers of access should be written into law. On that basis, the Government will have to come up with a very good reason for not supporting the new clause.

Mr. Fabricant

Does my hon. Friend agree that it is an insult to the House that the European Court of Auditors can have access, should the European Parliament wish it, whereas if the British Parliament should wish the CAG to have access to agencies or non-governmental bodies he would be unable to get it?

Mr. Paterson

My hon. Friend is right: the current proposal is ludicrous. The PAC points out that local authorities are under stronger powers of audit than central Government, and he made the valid point that the European auditors also have stronger powers.

Now is the time to change, and this is the first piece of legislation since 1921 that has given any Government a real opportunity to make this major change. As I have said, the PAC makes absolutely clear, in black and white, the principle that robust powers should be written into law.

Miss Melanie Johnson

I am sorry to have disturbed the hon. Member for Arundel and South Downs (Mr. Flight) from his slumbers.

Let me run through the main points as quickly as I can. I shall not attempt to respond to a number of the contributions that have been made. It would probably have distressed Gladstone to hear some of what has been said here at 4 am; moreover, only two members of the PAC are present, and the last vote was won by 257 to 27. That does us no good in the House.

Mr. James Gray (North Wiltshire)

Will the Minister give way?

Miss Johnson

No, I will not. The hon. Gentleman has been present for some time, but has made no contribution to this part of the debate.

Mr. Gray

I want to do so now.

Miss Johnson

But I am denying the hon. Gentleman the opportunity.

Amendment No. 21 is framed to give the CAG a right of access rather than imposing a duty on Departments to provide access, as the current clause does. In Committee, a number of Members expressed concern that the "duty to provide access" formulation would in some way constrain the CAG, and perhaps even reduce the access that he currently has. The Government did not agree with that argument then, and do not now.

The "rights of access" and "duty to provide access" formulations are, in legal terms, two sides of the same coin.

However, I promised in Committee to consider the matter further. Having done so, we have decided to revert to the original "right of access" formulation, on the ground that it is what hon. Members preferred. It would also bring the Bill into line with other statutes concerning audit access. I hope that that reassures hon. Members that the CAG will enjoy the same access under resource accounting as he does under the current system, and proves that the Government never had any intention of compromising the CAG's ability to do his work.

The Government recognise that access to contractors who are handling a Department's financial records is essential if the CAG is to be able to audit its accounts properly. Currently, such access is secured through the contract terms, and that has proved satisfactory; but the Government agree that putting such access on a statutory basis will give additional reassurance both to Parliament and the CAG that in such circumstances access will always be available.

Let me now deal with amendment No. 25. As we made clear at length in Committee, the CAG does not audit or, indeed, have direct access to all the bodies that are likely to be included in whole of Government accounts. The main types of body falling into that category are those in Scotland and Northern Ireland, and the local authorities in England and Wales. Strong audit frameworks are either in place or being put in place in all those areas. That picture contrasts with the inadequate or non-existent audit arrangements that private-sector group auditors sometimes encounter in individual subsidiary companies, and which the reserve powers of access in the Companies Act were intended to address. Accordingly, we see no need to cut across the post-devolution and local government audit frameworks by giving the CAG the same reserve powers of access as Companies Act group auditors.

The Government believe that new clause 4, tabled by the right hon. Member for Haltemprice and Howden (Mr. Davis), should be rejected. It would give the NAO "matching" rights of access—that is, the same rights of access to the records of a body receiving public money as are enjoyed by a body paying public money. I see the right hon. Gentleman nodding. From what he was saying, I thought that there was perhaps some disagreement about the effect of the new clause, but we believe that it would give the CAG quite far-reaching access. An order-making power enables the Treasury to deny the NAO access to certain records that would otherwise be open to its scrutiny.

At a technical level, two points are worth noting. First, the proposal to give the NAO "matching" rights of access goes significantly further than simply giving the NAO the same rights of access as Departments. There should be no confusion about that. It gives the NAO the same rights to the records of a body receiving public money as those enjoyed by a body paying public money.

Therefore, in a case that has exercised several hon. Members in the debate and earlier, if the Department of the Environment, Transport and the Regions paid money to the Housing Corporation, which paid money to registered social landlords, who paid money to others, such as construction firms and, possibly, sub-contractors, the NAO would have access to all the bodies in the chain—providing that each body in the chain has its own rights of access to the next body in the chain—even though the NAO audited only one body in the chain: the Department. That represents a major increase in statutory rights of access.

Secondly, the new clause gives the NAO access to the books and records of private sector firms on the same basis as that enjoyed by the Inland Revenue for the purposes of examining whether tax credits have been properly calculated. The right hon. Gentleman went into how he saw that working in some detail. In Committee, several Members expressed concern about that. I, too, am unhappy about it. We still believe that it provides the NAO with powers to investigate the tax affairs of individual firms. We do not think that that is appropriate.

The new clause needs to be viewed alongside the Government amendment to clause 8. The question for the House is whether it would be right to enhance significantly the CAG's statutory rights of access on the basis set out in the new clause, or whether we should choose instead the formulation in our amendment, which seeks broadly to preserve the NAO's rights of access as set out in the Exchequer and Audit Departments Act 1866, which has been referred to extensively.

It would not be right to enhance significantly the CAG's statutory rights of access. The Government accept that the NAO sometimes needs access to books and records of Government contractors to complete the audit of the Department concerned, but we believe that, where it is required, access can be secured satisfactorily by clauses in contracts. Government guidance already provides that contracts with suppliers should include provisions allowing NAO access to the books and records of contractors where that is necessary for the audit of the Department concerned.

Several hon. Members have mentioned the Camelot issue. I do not propose to go through that or other issues at great length at 4.13 am, but the criticisms have been wildly misplaced. Four years are under issue. About two and a half were under the previous Government. It is purely for that Government and their Ministers to comment on that period, not the present Government. When we came to power, we took steps as quickly as we could to ensure that access was available through the first legislation that made it possible.

Mr. David Davis

I do not want to detain the Minister for long. When I was nodding earlier, I was indicating that I was not nodding off, rather than encouraging her. At this time in the morning, that is an important communication to make sometimes.

The general issues that she is going through are all technical issues that are in dispute between us. The dispute is about whether her interpretation is correct. Frankly, if that, rather than the matter of principle, were the issue, as I said earlier, I would be happy to hear her say that she would bring the measure back corrected later on. The intention is not to allow the CAG to pursue money wherever it goes. It is to give him powers that match those that exist, where that is necessary.

The Minister mentioned the lottery. As she knows, throughout the debate and Committee stage, I have never sought to attribute blame on a political basis one way or the other. Frankly, that does not stand up. The Government were able to do something about the matter because they had available to them a piece of primary legislation, but that is the problem. If we are depending on a passing piece of primary legislation on which to latch a right or condition, it would not be a satisfactory arrangement to ensure Parliament's fundamental rights of access.

4.15 am
Miss Johnson

I am grateful to the right hon. Gentleman for his remarks. However, we disagree with him not only on the force of new clause 3, but on how extensive the arrangements for access should be. It is not only a matter of legal or other interpretations of the new clause.

I accept that the Public Accounts Committee has identified various cases in which it claimed that there are gaps or anomalies in the CAG's statutory rights of access. The Committee and hon. Members speaking in today's debate have given as examples bodies such as training and enterprise councils, registered social landlords, the Chessington Computer Centre, privately run and managed prisons, and contractors in the new deal initiative. However, arrangements have been for NAO access in all those cases. Usually, the arrangements involve clauses in contracts. I have already mentioned access to registered social landlords, who are also subject to an agreement with the Department of the Environment, Transport and the Regions.

I realise that some people are keen that the NAO should have access particularly to the books and records of private finance contractors. The NAO has, of course, already reported on a considerable number of private finance schemes. Therefore, in practice, there does not seem to be a problem with access. Moreover, last July, the Treasury issued guidance on the standardisation of private finance contracts that makes it clear that contract clauses should be included in PFI contracts to allow appropriate NAO access.

Nevertheless, I should like to give four reasons why, if we allowed NAO access through contracts, we would not be prepared to give the NAO a statutory right of access.

First, we have to recognise that giving the NAO a statutory right of access to recipients of public money would impose a regulatory burden on the firms concerned, which they would rather not have. Both the British Chambers of Commerce and the Federation of Small Businesses have said that enhancing NAO access in the manner proposed by the Public Accounts Committee would only increase the burden of red tape on small and medium-sized enterprises.

Secondly, giving the NAO a right of access could lead to increasing layers of audit. The right hon. Gentleman perhaps felt that he had dispelled that concern, but a residue of it remains. Contractors could be subject to layers of audits and visits by inspectors.

Thirdly, there is a concern that giving the NAO statutory rights of access could encourage them to duplicate the work of regulators. One reason why giving the NAO access to registered social landlords was so long a bone of contention is that there was a worry that the NAO would use such access to duplicate the work of the Housing Corporation, which has been given by Parliament the job of regulating that sector of the economy.

Fourthly, there are similar concerns about whether the NAO might use a statutory right of access to duplicate the work of competition authorities. Clearly, the NAO should not do work that is properly the responsibility, for example, of the Office of Fair Trading.

Mr. David Davis

There are two points. First, one of the problems at the Housing Corporation was the weaknesses in its own financial control systems. The second and general point is that, at this time of the morning, I shall not press either new clause 3 or amendment No. 17 to a vote, because I should like to make some progress and do want to waste 15 minutes. However, I do not accept the Minister's arguments. We still disagree on those matters, as she will appreciate.

Miss Johnson

I am grateful to the right hon. Gentleman for making those points, and appreciate that he still does not agree on those points. Our point is that the access issue should not be addressed in isolation. My right hon. Friend the Chief Secretary has said, as we discussed earlier in the debate, that he would like to undertake a study of those issues. I very much hope that the right hon. Gentleman will accept my right hon. Friend's invitation to join the steering group for the study.

For all those reasons, I invite hon. Members to reject new clause 3 and to accept the Government amendment.

Question put and negatived.

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