Public Accounts

HC Deb 29 January 2003 vol 398 cc900-80 1.39 pm

Mr. Edward Leigh (Gainsborough)

I beg to move, That this House takes note of the 1st to 63rd Reports of the Committee of Public Accounts of Session 2001–02, and of the Treasury Minutes on these Reports (Cm 5393, 5450, 5470, 5477, 5481, 5487, 5512, 5524, 5549, 5600, 5612, 5636 and 5676; and HC 1261, Session 2001–02). The motion stands in my name and those of the right hon. Member for Swansea, West (Mr. Williams) and the hon. Member for Newbury (Mr. Rendel).

It has been an extraordinarily busy year for the Public Accounts Committee. In the past 12 months, we have produced almost 70 reports—probably more than in any one year in our 140-year history. If I were to devote only five minutes to each report, I would have to give a speech of Gladstonian length—[HON. MEMBERS: "Excellent—go for it!"] That is the bad news. The good news is that I shall take only a few examples.

Our reports have covered almost every part of Government, from the vast Departments of State such as Health, Education, Defence and Revenue, to smaller but very interesting bodies such as the Victoria and Albert Museum and the Maritime and Coastguard Agency. We have examined major defence spending programmes and high-profile health and education topics, as well as some of the behind-the-scenes operations that contribute much to the quality of public services, such as the roles of various regulatory bodies.

The rich and varied range of topics that we examine each year places the members of the Public Accounts Committee in a unique position in the House. Our remit spans the whole spectrum of government, our perspective is comprehensive and our conclusions and recommendations for improvement are pragmatic and, I believe, well founded. That claim is borne out by the fact that the Government accept more than 90 per cent. of those recommendations, which is a record unmatched by any other Committee—in fact, no other Select Committee comes anywhere close. The National Audit Office calculates that the work of the Public Accounts Committee has led to savings of £1.5 billion in the past few years.

Our role is twofold. We exist to hold to account those who are responsible for spending the hard-earned money of taxpayers, and we are bold and outspoken when we find that the expected standards of financial management have not been met. We are also anxious to ensure that lessons are learned and mistakes not repeated, so we cast a retrospective eye over events, but we adopt, we hope, a forward-looking and positive approach, and we are prepared to commend when it is right to do so.

Some senior officials may regard an appearance before my Committee as little preferable to an audience with the Inquisition, but the purpose of our rigorous questioning, which we try to do politely, is to make a difference and provide an effective check on the actions of the Executive. That is surely what Parliament is about. However, we do not stop there. This year, we showed that we are prepared to take on a major company, Imperial Tobacco, by questioning its chief executive and posing severe questions about an aspect of the company's activities.

I am extremely proud to be Chairman of the Public Accounts Committee, the best and most influential Committee in Parliament. Our work load is staggering, but shouldered with great competence by my colleagues on the Committee. I hope that I am giving nothing away, but when I recently spoke to the Clerk of another Committee who was watching the progress of our work, he said, with some surprise, "But they ask their own questions! In our Committee, we give the Members the questions." In the PAC, we ask the questions and we do the research.

Our success is due to our solid cross-party consensus, which again makes us unique. On my watch, I shall never allow party politics or advantage to influence our work—

Mr. George Osborne (Tatton)

Shame.

Mr. Leigh

It is not a shame at all. It is central to our achievements. As our inquiry into Portcullis House showed, we are prepared to look to our own without fear or favour.

We are well supported by our Clerk and his staff, who also have a vast work load because of not only the number of reports that we issue, but the mountain of correspondence on every aspect of public life that we receive. I pay tribute also to the organisation with which we work so closely, the National Audit Office. I thank Sir John Bourn, the Comptroller and Auditor General, whose reports to Parliament do so much to inform the work of the Committee—indeed, they make the work of the Committee possible.

I shall focus on three themes that have characterised the Committee's work in the past year: improving service delivery to the public; fraud; and improving the quality of public administration. Improving the quality of public services is not a party political issue. The Prime Minister himself has placed great emphasis on the need to make rapid progress in that respect, and the PAC welcomes that initiative. Over the past year, we have looked, from the point of view of service delivery, at a number of different areas. We have found the picture to be mixed; we have found much good practice and staff dedication, but also evidence of major shortcomings and the need for improvement. Let me give some examples.

Perhaps the most visible example of public service delivery is the provision of health services. In our 45th report, we focused on efforts to reduce NHS waiting lists and waiting times. A lot of money is being spent on the problem and we were keen to find out what progress had been made. At the time of our inquiry, over 195,000 people in England and Wales had been waiting for more than 13 weeks for an out-patient appointment, and just over 1 million people were waiting for treatment.

Waiting a long time can be a painful and dispiriting experience, as I found out myself a week ago at the Chelsea and Westminster hospital, where I was kept waiting for more than two hours for a four-minute appointment. It makes people angry that the money that they see being put into the health service is not being used wisely. In addition, over a third of patients stated that their condition worsened while waiting.

Mr. David Rendel (Newbury)

The Chairman of the Committee may remember that the following report was about occasions when some parts of the NHS had tried to fudge the waiting lists, and had made people wait inappropriately for that reason. Does he recall the suggestion that the NHS should have told those people if they had been inappropriately put down the waiting list because they might have been due compensation? The NHS did not seem very happy about that. Would he like to take up that point?

Mr. Leigh

I shall deal with that point later, but the hon. Gentleman is right that the NHS could have been more forthcoming about compensating people if their waiting times had been inappropriately adjusted. That is a good point and we shall want to debate it at greater length.

We found some evidence of improvement in waiting lists and waiting times, and we give credit to the efforts of the Government; where credit is due, we give it. But we also found significant variations in waiting lists and times in different parts of the country and in different specialisms. The accuracy of the figures remains uncertain, partly because not all hospitals check their waiting lists often enough. We found that pressure to reduce waiting lists had led to significant numbers of consultants treating less urgent patients before others with higher clinical priority. That was entirely unacceptable and the Department issued clear guidance that clinical priorities must be adhered to. We wanted annual surveys to be carried out to make sure that consultants were observing the guidance that was now being given to them.

The large amount of extra money—there are huge amounts of extra money going into the health service—is to be welcomed, but only if it is spent wisely and effectively. There is no virtue in throwing money around, with no clear idea of whether it reaches desired targets. It will also be necessary to change the culture and working practice of all medical professionals and foster greater co-operation between health and social workers. Ultimately, the public will be convinced that their money is being spent well only when their experience of the NHS improves.

Mr. John Bercow (Buckingham)

I am grateful to my hon. Friend, whose industry is matched only by his ingenuity. Following through the train of thought that he has been pursuing, and given that the Government spend approximately £400 billion a year—or £700,000 per minute—can he offer the House any indication of the size of the savings potentially available from the 70 reports issued over the last year?

Mr. Leigh

As I said, we reckon that our work in previous years has saved £1.5 billion. The NAO calculates that, for every pound that it spends, it saves £8. I never quite understand that argument. Presumably, the more the NAO spends, the more will be saved; there must be a limit somewhere. We reckon that our activities help the Treasury; indeed I pay tribute to Treasury Ministers. Our agenda is very similar to theirs. We work closely with the Treasury, but when we find it falling down from its own high standards, we will not be slow to criticise it. We work closely with the Treasury to try to achieve some of the savings to which my hon. Friend the Member for Buckingham (Mr. Bercow) refers.

A different aspect of service delivery is the opportunity created by the development of electronic services. I am a bit of a technophobe myself, but I accept that this is a very important part of Government, and certainly a high priority. It is clear from our work that Departments recognise the potential, but in several areas we have found a failure to deliver e-services that people in the real world can, and want to, use. The Government aim to have all their services available electronically by 2005. That is fine, but there is little point in having e-services available if the public do not use them.

For example, Customs and Excise has made it possible to submit value added tax returns electronically, but we found that only 2,500 out of 1.65 million VAT-registered traders signed up to do so.

Another timely example for any of us who have yet to complete our tax returns—I hope that everyone here has done so—comes from our 52nd report, which looked at the Inland Revenue's progress in introducing e-services. The Revenue has a target of 50 per cent. take-up of its services by 2005. However, last year fewer than 100,000 out of a potential 9 million people filled their tax forms online. If we are to bring these e-services online, we must be able to complete the process.

My hon. Friend the Member for Tatton (Mr. Osborne) once tried to access the Passport Agency and went through the whole process, but, at the end of the day, he still had to deliver his application by post. There is not much point in that.

The public will see no point in using e-services when new systems fail or are difficult to use, or where there are concerns about system security. It is important to assure people that e-services are potentially quick, easy and secure. More generally, e-services need to be better thought through. Departments will not reap the rewards if they simply convert existing ways of delivering services to electronic applications. They must fundamentally rethink what they are offering.

That was demonstrated by NHS Direct, the subject of our 40th report. NHS Direct has been a real success story for the Government. It provides easier and faster health advice and information to the public and quickly established itself as the world's largest provider of telephone health care advice, handling some 5.3 million calls in the last financial year. It is popular with the public. We felt that other Departments could learn lessons from how that large new service was introduced.

Our praise was tempered slightly by concerns that many callers were waiting too long to speak to a nurse, as I found myself when I called them after suffering from severe headaches—no doubt caused by chairing overlong meetings of the PAC. There is a risk that NHS Direct could be a victim of its own success. The Department should take stock, set a clear strategic direction for the service and plan what impact it will have on other parts of the NHS.

There are few areas where the need to improve the service to the public is more important than health and education. We looked, in our 58th report, at access to higher education. We found that the Government will surely fail to meet their target—that, by 2010, 50 per cent of 18 to 30-year-olds will go into higher education—unless universities recruit and retain more students from poorer backgrounds. That is highly topical because a major barrier to increasing participation is the system for funding students. Its extreme complexity and the fear of debt are barriers to increasing participation. We called for the Department to simplify the situation and make it more certain. In response, the Department has already developed proposals radically to streamline funding. That will give students greater certainty over their finances.

One public service that we use daily is the postal service, which I take a particular interest in because I once had responsibility for it. It is true that it still retains a high level of customer satisfaction. Not long ago, the service was regarded as one of the best in the world. In recent years, it seems to have lost its way. In examining the topic, we took evidence from the regulator, Postcomm, and from Consignia, now once again known, thankfully, as the Royal Mail. A key element of the service is the early morning delivery, but this may soon be lost to us, inconveniencing people and damaging small businesses.

We found that the Royal Mail was experiencing major problems. Profitability was affected, and job cuts were proposed. Those difficulties had impacted on the quality of the universal postal service—something that we all support in this House and something for which we have all fought, particularly those of us who, like me, represent rural areas. The Royal Mail had consistently failed to meet its own target of delivering 92.5 per cent of first-class mail the next day. Performance also varied substantially over the country.

Our work showed that something had to be done. Postcomm intends to encourage improvement by rapidly opening up the market, way beyond what the European Commission is planning to do to liberalise the mail markets. We were concerned that Postcomm was making critical decisions that could jeopardise the universal service without the right information to judge the consequences. I believe that competition must be the way, but there is a real risk of throwing the baby out with the bath water. Postcomm needs more information about how changes to the levels and types of service that the Royal Mail provides will affect its customers.

In our 28th and 49th reports, we looked at the variety of initiatives designed to promote better policy making. We had a wealth of examples: some were good and some were not. Those who forget the lessons of history are condemned to repeat them. If we are to avoid a repeat of the millennium dome, the benefits payments card or the state earnings-related pension scheme fiasco, Departments must get better at all aspects of the process of making policy. That has nothing to do with Labour or Conservative Governments: we are all as bad as each other. Dare I say that? I suppose that I can get away with that much. In particular, Departments must carry out sound analysis and consult both potential customers and those who deliver the service properly. That might sound rather obvious—it is rather obvious—but it does not always happen in practice, as we found again and again.

I shall conclude the theme of improving service delivery on an up-beat note. Earlier this month, the Committee took evidence on the acquisition of the London Heart hospital. What is striking about this case is the way in which a hospital trust, aware of undercapacity in cardiac treatment, took rapid action to resolve the problem. When the private London Heart hospital came on the market, the University College London Hospitals NHS Trust saw a chance, went for it, slashed through the usual pernicious red tape that can envelope much of Government, broke a few rules in the process and took a risk. The deal to acquire the London Heart hospital was completed in months—a record. The result is a boost to patient treatment, as we saw when we visited the hospital.

The case stands out against the quagmire of bureaucracy that all too often hampers Government bodies. If Departments keep using the same processes, they will achieve the same outcomes, and it is likely that extra funding will exacerbate many of the problems that we encountered. A radical improvement in the standard of service delivery across almost all sectors will require a radically new approach to service delivery. Providing they are managed well, my Committee will welcome innovation and creativity. Although we recognise that they might not always work, we are not trying to create a culture in Whitehall that is averse to risk. We say take a risk, as long as it is a carefully considered risk.

I turn to my second theme—tackling fraud. We are fortunate—we should say it more often—to have very few cases of serious fraud committed by individuals in the public sector. We have a record second to none in the world. That is a tribute to the honesty of our public servants, and the robustness of the systems and controls that are in place. However, fraud against the public purse is a major concern. There is a wide spectrum, from individuals exploiting weak control systems for agricultural subsidies to fraud of epidemic proportions in the benefit payments stream.

One of the most serious individual cases that the Committee considered was described in our 51st report, which examined the activities of a farmer who was found guilty of committing £157,000 worth of fraud against the common agricultural policy. The fraud was perpetrated over a number of years because controls operated by the former Ministry of Agriculture, Fisheries and Food and the former Intervention Board were laughably weak. There was no cross-checking of claims between different subsidies, and the fraudster was able to claim for different crops on the same piece of land. Map references for fields were not always required from the farmer, or checked. His crimes came to light through a chance transfer of a member of staff.

Our hearing on the episode could almost be described as surreal. Notwithstanding the seriousness of the offence, a number of scams were pulled that would make Joe Grundy jealous. It was a case of appallingly lax controls—or perhaps I should say flax controls. The farmer had a particular problem with a series of combustible barns. His losses might have provoked a comment from Lady Bracknell, but they apparently did not evoke any interest in the Ministry. Over a two-year period, three of his barns, together with the crops that he claimed to have harvested, burned down. Indeed, so fond was the farmer of his barns that he even applied to the Ministry for a grant for a barn that had already been built.

In our hearing, my colleague the hon. Member for Glasgow, Pollok (Mr. Davidson) asked the Department There had already been inspections made of this property, had there not, and nobody had spotted that the barn was already there? To which the reply was: At that stage, no, nobody had spotted that. Our colleague then remarked: It is a difficult thing to spot, of course. The farmer also had an unconventional approach to geography. To disguise the fact that he was claiming to grow different crops on the same fields, he made up the Ordnance Survey map references for them and claimed for fields in Iceland, Greenland and the North sea. In our view, the Ministry and the Intervention Board did not pursue the irregular claims with sufficient vigour and recovered only £1,325. Clearly, there were a large number of lessons to be learned from the case, and I am pleased that controls have now improved.

Mr. George Osborne

Did not the hearing demonstrate the value of picking apparently small cases of fraud—in that case, £150,000, which is small relative to overall Government spending? By focusing on the issue and getting a permanent secretary to explain why things had gone wrong in that case, we revealed broader lessons about the failure of controls in that Government Department.

Mr. Leigh

That is an important point. It is sometimes tempting for our hearings and NAO reports to cover a whole aspect of better Government policy making, and often the hearings that we hold, though interesting, are less effective than when we focus on a specific subject, possibly involving a relatively small wastage of money. When we focus the spotlight of the PAC on just one small part of a Department, nobody in Whitehall knows whether our spotlight might hit them next. If we were concerned only with value, we could spend all our time dealing with social security and nothing else. We must range widely.

Mr. Richard Bacon (South Norfolk)

Does my hon. Friend also recall from that hearing the rather strange fact that the Ministry had had recommendations from our Committee four years ago about ways in which it could reduce fraud, and appeared to have taken no notice of them? Indeed, the permanent secretary was unaware of them. The point made sotto voce by my hon. Friend the Member for Tatton (Mr. Osborne) at the beginning stands: it is not enough for the Government to accept the recommendations of the Committee; they must follow through afterwards.

Mr. Leigh

That is an extremely important point. Sometimes we have a tendency to congratulate ourselves on the fact that 90 per cent. of our recommendations are accepted. It would be surprising if they were not, as we do not get involved in policy. We make sensible suggestions for improved implementation of policy. However, there is no point in the Government accepting 90 per cent. of our recommendations if there is no follow-through mechanism, particularly undertaken by the NAO to keep track of those recommendations. One thing that the Committee could do, which we have not actively pursued in the past, is to keep an eye on Treasury minutes and come back to them in questions to Ministers over the ensuing months and years. It is important that that aspect of our work is done effectively.

Mr. Bercow

I am grateful to my hon. Friend for generously giving way again. Although I do not in any way argue with claims made for the probity of British Government in general, or for the integrity of the bulk of our civil service in particular, does my hon. Friend recall that, in a series of parliamentary answers in the previous Session, many Members were shocked to discover the scale of theft and fraud from Government Departments, including Government buildings? Is he not as concerned as I am about the scale of the heists that have taken place from the Lord Chancellor's Department?

Mr. Leigh

Yes, obviously we are concerned about that. I shall deal briefly with the Royal Mint, where there was a particularly serious example, to illustrate the point. The trouble is that we can only take examples. We are speaking about raising and spending £650 billion, so it is a vast field to cover.

Geraint Davies (Croydon, Central)

Returning to the case of the farmer, Mr. Bowden, it was suggested that that represented the tip of an iceberg and that there was a systemic problem of fraud. Can the hon. Gentleman confirm that, after our report, the Department looked thoroughly into such activity and found, perhaps as much by good fortune as by judgment, that that was an isolated case, and that the public need not fear that people like Mr. Bowden with lots of fields in the North sea and elsewhere are claiming subsidy?

Mr. Leigh

We must put the matter into perspective. The fact is that farmers are claiming large amounts from the CAP. As I said, the Ministry has now introduced controls, so it is to be hoped that the attempted scam will not be repeated.

Benefit fraud is far more serious. When we examined the level of fraud and error in income support and jobseeker's allowance, we found that welcome progress was being made towards targets to reduce fraud levels. There is still too little information about the scale of fraud across benefits, which is remarkable. Estimates so far suggest that some £2 billion could be lost in fraud and a further £1 billion in customer and official error each year by the Department for Work and Pensions. As some of the Department's fraud estimates were out of date, however, it was impossible to tell what progress was being made across the board.

Large-scale benefit fraud has been around for a long time and will not be solved overnight. The Department's antiquated IT systems are, to some degree, dogging its attempts to improve performance, but it could do more. The Comptroller and Auditor General has qualified his opinion on the Department's accounts for reasons of fraud and error for the past 13 years. In other words, the Comptroller and Auditor General qualifies the Department's accounts every year. A loss of £3 billion each year to fraud and error may not immediately amaze the general public, as like me and others, they are phased by arguments about billions, but when we think that that amount would buy us almost 45 new hospitals each year or, more frivolously, allow us to stage an annual Olympic games, the enormities of the Department's losses come home to us—and this is just one Department of State.

Mr. Bacon

Does my hon. Friend agree that the most extraordinary aspect of the issue was that the then permanent secretary admitted to the Committee that she did not even have a target date for publishing a set of accounts that was not qualified because of fraud?

Mr. Leigh

The matter will be dealt with later this week and I cannot reveal to the House what the result will be, although it may well guess that the problem will be ongoing because of the Department's apparent inability to deal with it. We appreciate the problems that it faces. It is in control of a budget of massive complexity and difficulty, but it must surely concern the House of Commons that the independent auditor has, in layman's language, been unable to approve the accounts of a great Department of State for 12 consecutive years. That must be of great concern to the Treasury, just as it is to the Committee and the House as a whole.

We think that better targets are now in place as a result of our work. We hope that the auditor can work closely with the Department to ensure progress, so that we can reduce the amount that is lost on fraud and error. Unfortunately, the fraud cases that I have outlined were not the only ones to come before the Committee.

Mr. Brian Jenkins (Tamworth)

Will the hon. Gentleman clarify the situation? I am sure that, like me, he believes that there is no endemic corruption in the British civil service. We are discussing fraud and corruption not among staff, but among members of the public. We are challenging not corruption in the civil service, but competence.

Mr. Leigh

The hon. Gentleman makes his point very well and I agree entirely. I am firmly of the opinion that the problem is not one of fraud or corruption on the part of civil servants, although there will be isolated incidents. Given the complexity of the system, the problem is fraud on the part of those claiming the benefits. Of course, only a small minority is involved, but it is large enough to waste £2 billion a year.

As I mentioned, the other startling case involved the Royal Mint, which one would have thought was a bastion of tight security. Sadly, we found it to be the mint with the hole. Remarkably, for eight months, a safe containing £25,000 in banknotes was left open and unattended during the working day. Unremarkably, somebody—or some people—took advantage of that slapdash security and put their hands in.

My third and final theme is linked to measures to combat fraud, and it concerns improvements in the quality of public administration, in respect of which the Committee makes a significant contribution. We do so on behalf of the taxpayer. I believe that good governance is an essential ingredient of a stable society. Our work provides the public with confidence about the way in which their money is spent. That is why we find it unacceptable when standards are not maintained and insist that lessons are learned.

I have mentioned aspects of our work relating to NHS waiting lists, and I want to deal with the appalling lapse to which the hon. Member for Newbury referred. Fortunately—we must put the matter into context—a very small number of NHS trusts were involved. The Committee found examples of 10 hospitals where managers and staff had fiddled their waiting lists to hide the fact that they were missing Government targets. That was a profoundly irresponsible thing to do and had very serious consequences for patients. In some cases, those actions will have prolonged the suffering of patients and their condition may have worsened.

The arrangements for identifying those involved and taking disciplinary action fell well short of good practice. In some cases, the inquiries were not rigorous or complete and some of those who were allegedly responsible were allowed or encouraged to resign during the process. Some trusts breached NHS guidelines that ruled out confidentiality deals as part of severance packages. The right hon. Member for Swansea, West has repeatedly pointed out that the Committee does not want to see confidentiality deals. We want transparency. The severance packages cost some £260,000 and some did not include clawback arrangements in respect of working elsewhere in the NHS. As some people had confidentiality schemes, they went to work elsewhere in the NHS and got their money.

The Department of Health has promised to address all those issues. NHS trusts took steps to develop action plans for the 6,000 or so patients who suffered as a result of the adjustments. That includes sending patients to other trusts and to the private sector for treatment. However, the Department could not tell the extent to which patients' health suffered as a result of delays in treatment or whether compensation will have to be paid.

Manipulating public information such as waiting list statistics can have an appalling effect on public trust. The Chancellor has made it clear that the NHS is an absolute priority for him and is compassion in action, as he puts it. I repeat that the manipulation of public information affects the public trust in what is going on. The Department must ensure that pressure to meet targets does not lead the NHS to engage in any more statistical sleights of hand or distortions of clinical priorities.

Geraint Davies

The hon. Gentleman will remember that the manipulation of data was carried out by a small number of people in a small number of trusts. Those people have since left or been thrown out, but is he aware that there is evidence to show that some of them are emerging on the other side in PFI deals? Will he give an undertaking that our Committee will consider that issue so as to chase through the small minority who have been corrupting public statistics and ensure that they do not play any future role in public service?

Mr. Leigh

That is a very important point. We want to consider each PFI deal individually rather than become involved in policy arguments. One is always worried about the problem to which the hon. Gentleman refers and the possibility of gamekeepers who have worked in the public sector turning poachers in the private sector. There is now a far more of a relationship between the private and public sectors, and we and the Treasury must constantly keep that in mind. The issue may not be corruption in the accepted meaning of the word, in which people are taking backhanders, but corruption that involves people using knowledge acquired in the public sector for their own private good when they go into the private sector. I give him my undertaking that the Committee will consider that issue.

Criminal justice is another interesting area. Financial penalties are the most common punishment imposed on offenders by Crown and magistrates courts—a subject in which I am interested, as I used to be a practising barrister. Such penalties account for 70 per cent. of all sentences. In 2001–02, the financial penalties imposed totalled £387 million, but the collections amounted to only £228 million, and some of them related to fines imposed in previous years. The crucial point is that, in practice, slightly more than half of financial penalties are collected. It seems to be up to criminals to decide whether they pay fines, certainly in some parts of the country. The effectiveness of the criminal justice system is being undermined and both victims of crime and the taxpayer are being sold short.

Our 57th report from the last Session should be read by every public servant, and certainly by every accounting officer. It concerned the operation and wind-up of the Teesside development corporation. We found that weak financial management and oversight of the corporation may have cost the taxpayer some £13 million in additional costs, leaving a deficit of £23 million that could rise to £40 million. To put it in context, one has to say that the corporation achieved much of lasting benefit to the Teesside area. It helped to attract private investment of more than £1 billion, created 12,000 new jobs and brought 1,300 acres of derelict land back into use. However, we believe that this could have been done with greater regard to the principles of the proper conduct of public business. It is not sufficient to deliver a good in Teesside or anywhere else, while still breaking all the rules of public corporate finance, or enough of them to cause concern.

Explanations for some of the more unconventional transactions entered into by the corporation were—how shall I put it? —unconvincing. There was evidence of poor risk taking and acting without appropriate authorisation. The Department failed to act when it should have to bring the corporation's regeneration activities into line, despite warning signals from a number of sources, including colleagues in this House.

Mr. George Osborne

The hearing on the Teesside development corporation revealed a weakness in our hearings. Often, we get the accounting officer who is currently in post, rather than those who were in post when the problems arose. As I remember it, the accounting officers involved in that particular case were the then permanent secretary at the Treasury and the Cabinet Secretary, neither of whom we were able to call before our Committee.

Mr. Leigh

That is a weakness. Our Committee has the right—as do all Select Committees—to call any official, and naturally, we normally call the current accounting officer. The principle is: the king is dead, long live the king. The fact that the officer was not in post at the time does not mean that he cannot answer questions. Having said that, Whitehall should take note that our Committee has passed a new resolution that makes it absolutely clear that in a case where we believe that we will not get to the bottom of things simply by interrogating the current accounting officer, we will be prepared to summon the former one—in this case, the permanent secretary—even though that person may have moved to another Department or retired. I know that that is controversial in Whitehall: the mandarins do not like it, and I can understand why. However, I am sure that they will appreciate that, if we are to do our work, we cannot simply be presented with someone who has mugged up an argument for that afternoon. There may be long periods when that person was not in control, and we would be unable to question the accounting officer of that time.

Jon Trickett (Hemsworth)

Some members of the Committee have been irritated by the principle of collective, almost anonymous responsibility that the civil service seems to apply whenever something goes wrong. As with the private sector, our Committee should emphasise the principle of individual responsibility.

Mr. Leigh

We have to accept that in the modern way of doing business, whether in the public sector or the private sector, people must accept a certain amount of responsibility for their actions, and we shall indeed demand that that happens.

Geraint Davies

The hon. Gentleman has mentioned Imperial Tobacco, which set a great precedent for the Committee in the summoning of witnesses from the private sector to bring them to account for the loss of public funds. In that case, the smuggling of cigarettes was involved. Will the hon. Gentleman confirm that the Committee will be prepared to summon private sector witnesses when the public purse is being threatened?

Mr. Leigh

Yes, of course. In that case, we were looking at Imperial Tobacco's exporting billions of cigarettes to Kaliningrad, Moldova and Andorra, where they could not possibly all be smoked. For that to be possible, every inhabitant of Kaliningrad would need to have smoked several hundred cigarettes a day. So they can only have been exported to Kaliningrad in order to be re-imported here as smuggled cigarettes, which clearly affected the public revenues available to Customs and Excise. Interestingly, it was the chairman of Customs and Excise who fingered Imperial Tobacco. In fact, he attended our Committee, although we did not know about this issue. He wanted to use the Public Accounts Committee as a lever to put pressure on Imperial Tobacco, and we have indeed caused it considerable embarrassment, which is a fair and proper thing to do.

The key part of improving the quality of public administration is the need to ensure that the lessons learned are spread widely, and that the savings and improvements identified in one area of government are quickly transferred elsewhere. Here, I shall deal briefly with the private finance initiative, about which there is much debate. We believe that each initiative must be judged and assessed on its own terms. However, in 1999, after we examined and reported on some early PFI deals, we issued a report on the experience so far, to help the public sector to get the best possible deal for the taxpayer. We are currently drafting a follow-up report, which will draw on the 15 reports we have published so far. It will tackle recurring themes in our work, such as the quality of contract management skills available in the public sector, and the extent to which risk is really transferred to the private sector. My personal, strongly held belief is that if things go well, the private sector must be allowed to make a good profit, but if they go badly wrong, it must be prepared to lose its shirt.

One area in which our work has already made a difference is in the refinancing of projects. Our work on the refinancing of the Fazakerly prison deal caused the Office of Government Commerce to insist that the taxpayer get a share of refinancing gains. This amounts to a mandatory 50:50 sharing of refinancing gains from new projects, and a 30 per cent. share of refinancing gains on early deals.

So the Committee will look very closely at how robust these new arrangements are. The private sector shoulders the risk of a PFI project, and we do not deny that it is entitled to benefit from refinancing gains, but taxpayers must be able to feel confident that they are also getting the money to which they are entitled. The Government's willingness to accept our views on this again demonstrates the tangible contribution that the Committee can make to the work of the Government.

In summarising the Committee's work, I hope that I have been able to show that we add value in all that we do. We have a distinct role in the House, and we constantly touch on key issues.

Mr. George Howarth (Knowsley, North and Sefton, East)

Does the hon. Gentleman agree that, of all the Departments we have interviewed—certainly since I have been a member of the Committee—the one in greatest need of better management is the Lord Chancellor's Department?

Mr. Leigh

That is a Department that could perhaps do a little better. [Interruption.] We must not get involved in personalities. In fact, a National Audit Office report published today shows that the Libra project is probably one of the shoddiest PFI deals ever. It has run completely out of control, costs have risen from £135 million to £400 million, and the basic computer system for magistrates courts is still two years away. I acknowledge the point that the hon. Gentleman makes.

We have a distinct role within the House. We focus on implementation rather than policy, and we are able to stay above party politics. I am always impressed by the way in which my colleagues on the Committee respect that discipline. That is essential if we are to continue to be effective, but we would not be effective without the considerable help of the National Audit Office. In turn, the NAO's effectiveness depends on access rights. I should tell the Financial Secretary that I look forward to the imminent implementation of recommendations stemming from the Sharman report. Nearly two years ago, Lord Sharman recommended, and the Government accepted, that the Comptroller and Auditor General should audit all Executive non-departmental public bodies, and that his access rights should be on a statutory basis. Once in place, that provision will represent a significant step forward for Parliament. I very much welcome the Government's response to this, and when the Financial Secretary sums up the debate, she will doubtless be able to tell the House what action she intends to take—hopefully, very shortly.

Before I finish, there are some small gaps to which I must refer. I remain concerned that the BBC is outside the remit of the CAG. I await with interest the Government's response to our recent recommendation that Parliament's ability to scrutinise the BBC would be considerably enhanced were the CAG able to examine its financial management. For just over £2 billion-worth of compulsory licence fees—in essence, a poll tax—to be outside our scrutiny is simply not sustainable, and I urge the Government to act. I am sure that, sooner or later, we will win this battle on behalf of Parliament.

I have a similar concern—here, I may not carry with me everyone on the two Front Benches—about the civil list. I must say, as a monarchist, that the royal family's position is strengthened by greater transparency about their spending. For example, we were able to demonstrate that the cost of royal travel has substantially reduced over time. I therefore repeat, on behalf of the Committee, our long-standing request for the CAG, on behalf of Parliament, to be given access to the civil list.

Mr. Rendel

Is there not a third instance where the CAG could do with further access? When we were talking about tax credits recently, it came to light that the CAG needs to have direct access to the accounts of those private sector firms that are handing out tax credits to ensure that they are doing it properly.

Mr. Leigh

The CAG has asked for access to employers' records, but that is being resisted by the Inland Revenue. I do not know why. The Inland Revenue claims that that would add to the tax burden, but the CAG's staff are skilled in doing their work to ensure that they would not increase burdens on business. In effect, the private sector is a tax collector, so why should there not be such an audit?

Mr. Bacon

Is there not a fourth example? The Financial Services Authority could do with some oversight, judging by its recent performance on split capital investment trusts, when it denied knowing anything about what was going on and later had to admit that it had been informed about what was going on in Guernsey.

Mr. Leigh

That is a bridge too far for the time being, but my hon. Friend makes his point, and we may return to that—perhaps he can do so, when he is Chairman of the PAC in a few years' time.

I am part of a long tradition, established by Gladstone, of Opposition Members chairing the most powerful Select Committee of the House. We are able to consider matters of the utmost political sensitivity, but because we focus on delivery, rather than policy, we sustain the cross-party consensus that is fundamental to our success. Our work reaches into every corner of government and covers every pound of the £650 billion that the Government collect and spend each year. Some may argue that our work skims the surface, but our presence alone focuses minds. Our recommendations—by and large, the Government accept them—make a real difference. In my view, government is only as good as the independent parliamentary scrutiny that it receives. I believe that we play our part in that process, and I commend the motion to the House.

2.27 pm

Mr. Alan Williams (Swansea, West)

I congratulate the Chairman of the Public Accounts Committee, the hon. Member for Gainsborough (Mr. Leigh), on the way in which he has taken up his new role. His speech today echoed the enthusiasm that he shows in Committee, and these 70 reports show the effectiveness with which he and the Committee work. The humour that he has brought to the Committee has been very helpful on occasions, and he has demonstrated that again today.

I was pleased to hear the hon. Gentleman say that he would abstain from any political partisanship. Of course the PAC Chairman is always an Opposition Member, and one of the delights of being its Chairman, which is one of the best appointments in Parliament, is that within about two years of a change in government, one is in the happy position of always questioning the other side. We had a long, long spell of questioning the other side.

I joined the Committee just over 12 years ago, and what impressed me then—it still impresses me now—is that, although the Committee reflects what the Chairman has said, it has an ethos of its own and its job is to get at the facts and to produce reports based on the facts, regardless of which party is behind the Administration at the time.

I wish to join the hon. Gentleman in extending our thanks to the National Audit Office and, indeed, its equivalent in Northern Ireland. That is more than ritualistic; it is important that the House of Commons understand the NAO's importance. With national income and expenditure of more than £700 billion, even with 70 reports a year, we would still not get very far, as a bunch of 15 Members of Parliament, unless we had the quality and depth of research contained in the reports that we receive from the NAO. That tribute is not meaningless; it is important because, without the NAO, financial accountability would not exist in the House.

I should also like to thank the NAO in relation to my role on the Liaison Committee. The NAO is now extending the help that it gives to the other Select Committees by seconding people, where appropriate, to help them with studies. Indeed, as the House has asked the other Select Committees to carry out a more detailed examination of estimates, the NAO is preparing to support them in that work.

It is also important to realise that a review is being undertaken into the back-up for the Select Committees. What depressed me when I became Chairman of the Liaison Committee was the inadequacy—not the low quality—of the support given to the Select Committees. A review is now in hand to examine the support that the Committees need, and the NAO is playing a leading role in it. That should reassure hon. Members, because the NAO will be absolutely objective. When I gave evidence to the Modernisation Committee, I recommended that the NAO should be used in that way because I knew that we would get an objective assessment of what is needed.

As the Chairman of the PAC has intimated, we have tried several innovations this year. Once or twice in the past, we have called X permanent secretaries and X accounting officers, but that never became a habit. However, two recent episodes justify our decision to determine who will come before us—not just the current accounting officer, but the previous one or whoever was in office at the time.

One of those instances relates to rail privatisation and goes back a couple of years. We recalled a witness whom we expected to give a very rough time, and we were provided with a good insight, even compared with the NAO report. The man who had sat there dealing with the practical managerial problems of trying to implement the policy, regardless of its rights and wrongs, was able to give us an insight into why some of the decisions had been taken. The hon. Member for Newbury (Mr. Rendel) will remember that occasion.

Although we did not agree with those decisions, we had a better understanding of the motivation and, indeed, the attempts by some of the individuals concerned to do their best. That led to a less abrasive report than we might otherwise have produced, whereas relatively recently—I shall not name the occasion—we had an example where the reverse happened. Very recently, someone who had been made a permanent secretary had to answer on behalf of a predecessor who had been in place for the previous four years. In the end, that person had to say, "I was not there. I don't know." That is our point, and the head of the civil service should understand that, although we know that he is not happy about our decision.

It is an enormous advantage to us if we can have first-hand experience, rather than always having before us a witness who has read the same report as we have read and then been briefed on what the questions might be by civil servants who were previously in that post. There is no substitute for questioning the person who was in post at the time, especially with very important examinations. I know that the head of the civil service and his permanent secretary colleagues are not happy, but they must recognise that accountability to the House comes above their sensitivities and sensibilities.

Our second innovation is in relation to visits—I am not talking about visits to Australia, New Zealand or the United States. We made visits to the Treasury building and the Heart hospital, and a memorable visit to Kensington palace. Because of the sensitivities of one Member who is present today, I shall not go into that in depth, but we can look back on that experience with more than fondness, as the taxpayer had previously been receiving reimbursements of only £69 a week for seven bedrooms and seven living rooms, whereas, in a year and a half, he will be receiving £120,000 a year for that same property. That is a small example, but it demonstrates the advantage of looking at things oneself.

That case—the hon. Gentleman and I may view it from different angles—demonstrated what I found when I first started asking questions. The palace said in its recent statement that the apartment had five bedrooms and five living rooms. In a parliamentary answer, the Department said that that same property had seven bedrooms and seven living rooms. I suspect that the truth is that the other two bedrooms and living rooms were for staff and therefore did not count in the palace's version. When I first started asking about grace and favour accommodation, I pursued a series of questions for about 12 months. As a result of the constant changing of the figures that the Department received from the palace, we discovered 100 grace-and-favour apartments that the Department did not even know existed. There is a value in scrutiny, which we may pursue with varying degrees of enthusiasm.

I want to raise the issue of no-go areas. We have produced about 70 reports, but we have been impeded in some ways by the existence of no-go areas, some of which the Chairman has referred to. The BBC is one of the most outrageous examples. I shall discuss that at some length. The National Audit Office is not allowed to audit the BBC, even though it receives £2.5 billion of statutorily raised money in the form of the fee, which, in Sharman's terms, constitutes public money. It should be monitored by the NAO.

As it happened, Mr. Dyke and the permanent secretary appeared before us to answer questions in relation to collecting the television licence fee. In our discussions, he repeated the old standby argument that if the BBC allowed the NAO and the PAC to investigate and audit its resources, its editorial freedom would be undermined. As we cannot consider policy, I do not see how that could arise. In any case, the BBC appears before the Culture, Media and Sport Committee, which can consider policy, to discuss its work, but it cannot appear before us to discuss money. One is left with a clear impression that they are more worried about money than about editorial freedom, because, of course, we audit the BBC World Service, and have done so for many years. In the more than 12 years that I have been on the Committee, I have never been aware of any complaint from the BBC that our monitoring of the overseas service had in any way impinged on its editorial freedom. I thought that we should confirm that, however, so I asked the permanent secretary if she would check with her Department whether there had been any complaints about the role of the NAO and the PAC in relation to the World Service in the previous six years. A footnote to our report states: Note by witness: Neither DCMS nor the Foreign and Commonwealth Office has any record of complaints, in the last six years, about National Audit Office access to the BBC World Service. Thus the argument does not stand up.

It got worse, however. Mr. Dyke displayed a sheer arrogance, verging on contempt for the Committee, which was revealed in his answers to questions. I pursued the issue with him and, in answer to question 223, he said: There were quite strong arguments against when we were established in 1982 and those positions have not changed. I followed up by asking, You know what they are, do you, the strong arguments that were against in 1982". Mr. Dyke responded: I have looked at what the arguments were because I guessed the question might come up. I responded: In that case, you should be well prepared. Mr. Dyke replied: Being prepared and deciding to enter the debate are two different things. Therefore, according to Mr. Dyke, he had taken the trouble to prepare to answer a question that he was not prepared to answer when he came to the Committee.

I ask my colleagues to cast back their memories: I recollect that from that stage I became somewhat impatient with Mr. Dyke; I called in the Comptroller and Auditor General, and I mentioned the matter of contempt of Parliament. Strangely, there is no mention of that in the minutes. I had the Clerk check the transcripts this morning. I draw that to your attention, too, Madam Deputy Speaker, as responsibility for Hansard rests also with you. In some mysterious way, part of the hearing—it may have been ill-tempered, and I may have been fractious and wrong, in which case I do not deserve to be protected from my wrong-headedness—has not been recorded as it should have been. If my hon. Friends recollect the occasion—

Jon Trickett

indicated assent.

Mr. Gerry Steinberg (City of Durham)

indicated assent.

Mr. Williams

I seems that they do, as does the Clerk. I therefore ask you, Madam Deputy Speaker, to find out what went on.

The fact is that the Sharman Committee, the Select Committee on Culture, Media and Sport and numerous Members on both sides of the House—

Geraint Davies

Will my right hon. Friend give way?

Mr. Williams

Let me finish this point, and then I will do so gladly.

All those people—and Mr. Gavyn Davies when he was carrying out a review of BBC finances prior to becoming chairman of the BBC—favoured National Audit Office monitoring. The only one of us who has changed his mind is Mr. Davies, since he changed his job. It is for him to explain why. Up to now, other than stating that we would prejudice or damage editorial freedom, no one at the BBC has given the PAC any evidence or convincing argument to demonstrate that. As I said earlier, one is bound to conclude that what they are worried about is not editorial freedom but impartial external audit and accountability to the House of Commons.

The second no-go area is the Financial Services Authority, where we are talking about £170 million of public money, in Sharman's definition, raised statutorily in the form of levies and fees, in an area of extreme importance to the public. At a time when pension funds are collapsing and there are scandals about the advice that people have received on investments and savings, the FSA monitors banks, building societies, insurance companies, investment advisers and fund managers, yet as far as I can determine, it is the only regulatory body of the many that come before us that the Committee cannot investigate. Why? Even powers that were formerly exercised by the Treasury and were thus subject to examination have ceased to be subject to examination because they have been transferred to the FSA. We want to know what is to be done about that.

The Treasury will arrange for value-for-money investigations, but in the case of all other regulators, the NAO determines whether there should be such an investigation and carries it out. The NAO should be given the same powers in relation to the FSA.

I again echo a point made by the Committee Chairman, the hon. Member for Gainsborough. The Committee, Sharman and the NAO have all had a go at the third no-go area. We can look into royal travel, which involves a lot of money, and the cost of the palaces, which takes far more money, but the one thing that we cannot look at is the civil list—all because of a Select Committee recommendation made in 1972.

The PAC found that the real-terms costs of the palaces had fallen to about a third of what they were before—after I had produced a mass of information from a series of parliamentary answers—I persuaded the NAO to carry out an investigation and the PAC to hold a hearing. That was beneficial. The palace told us, "What good boys and girls we are, we're saving all this money."

Seventy per cent. of the civil list goes to pay the salaries of people who support the monarch. There is no problem with that; the monarch must have support. We do not vote against the money, but we want to find out whether it is being used effectively, as we do with other grants of public money.

The Committee was frustrated because for many years it had tried to get access to quangos—a point that was also made by the Committee Chairman. We had access to most but not all of them; we could not look at Government companies. We asked successive Chancellors, but the Treasury seemed to close around them and we lost, so during the last Parliament I made some proposals. The hon. Member for Newbury may remember the occasion. The Government Resources and Accounts Act 2000 was being considered by Parliament, so I suggested that the Committee carry out some political terrorist activity and send a volunteer team to the Standing Committee. The then Chairman of the PAC, the right hon. Member for Haltemprice and Howden (David Davis), the hon. Member for Newbury and I attended the Committee to fight the case for the PAC.

We made such confounded nuisances of ourselves—not by being awkward but by winning the arguments—that, in the end, the Treasury set up the Sharman committee to look into accountability to Parliament in relation to public money. The Government had no problem in giving notional acceptance to Sharman's recommendations, apart from those on the BBC and the civil list. I am delighted about that.

For well over a decade, the Committee had hammered its head against the wall of supplication; the moment that we got awkward, we got somewhere. Accountability to Parliament can be made to work if we want to make it work—if we discover where Departments are vulnerable. I am genuinely pleased—as was the whole Committee—that Sharman was almost entirely adopted.

I shall conclude by asking my hon. Friend the Financial Secretary three questions. The first relates to NAO access to bodies receiving public money either from Departments or from non-departmental public bodies, including contractors, subcontractors and so on. I understand that a statutory instrument will be enacted in March. Will my hon. Friend confirm whether it is still on schedule and will be in force by the end of the current financial year?

My second question is about NDPBs that are companies. At the request of the NAO, the PAC took on a case that the NAO strongly believes in and is arguing for in Brussels. It related to how our rights are influenced by European directives. Are the Government giving the NAO full support in those representations and, if so, what form does their support take?

My final question is politically sensitive at present, for obvious reasons. Sharman recommended that the NAO undertake validation of the data systems underlying the public service agreements. Ministers were understandably a bit nervous about that. My understanding is that the NAO is undertaking four trial runs, as it did with resource accounting. It is trying, with four Departments, to devise a system that works effectively. It is hoped that the first reports to the House and to the PAC will go live in 2004. Can my hon. Friend the Financial Secretary tell me whether that is still on target?

I became a Member of the House in 1964. I joined the PAC in 1965 and enjoyed the experience. I then spent 18 years on the Front Bench before returning to my proper position. The first place I headed for was the PAC. I still think that my colleagues and I do some of the most valuable work in the House of Commons. I still find that work rewarding and absorbing, and I hope that all my hon. Friends do, too.

2.54 pm

Mr. David Rendel (Newbury)

It is always a pleasure to follow the right hon. Member for Swansea, West (Mr. Williams), who is, as all its members know, one of the Public Accounts Committee's most effective members. It is always a pleasure to see him come in, often at the end of our hearings, to address the witnesses with that delightful smile on his face. It is so disarming as far as the witnesses are concerned, but we all know that it is the smile on the face of the tiger. His bite is always worse than one expects, and it is certainly effective.

I pay tribute to our Chairman, who has proved to be very effective and has done a great job since the last election. I am delighted that we are working closely across all three parties with him.

The Committee has been expanded so that, for the first time, a colleague from the Liberal Democrat party has been appointed to it. Sadly, however, my hon. Friend the Member for Cheltenham (Mr. Jones) has been unable to with us much as he became rather ill shortly after his appointment. I am sure that we would all want to wish him a swift return to the Committee when his health recovers. I pay tribute to Nick Wright, our new Clerk, who has had just over a year in office and has proved to be as effective as his predecessor, Ken Brown. It is a delight to work with him and his staff, and they always give us a very good service, as of course do the staff of the National Audit Office, who are invariably patient with all our demands, however insensitive they may be.

The right hon. Member for Swansea, West was absolutely right to say that this is one of the most powerful, if not the most powerful, and effective Committees of the House. It is a delight to serve on it. I am surprised that some of my fellow Opposition Members and some Government Back Benchers have not yet recognised its effectiveness. It is fun to serve on it and to feel that, once in a while, even as an Opposition Member, one can have real influence over the workings of, if not Parliament, the country as a whole and the way in which civil servants work to make Departments more effective.

I should like to speak about a few of the Committee's reports in order to bring some matters to the attention of the House. One report was on obesity. It was the first time that a collection of senior civil servants from a wide variety of Departments—permanent secretaries, accounting officers and others—had appeared before us. If I remember rightly, there were five witnesses, all of whom held senior office. It was fascinating to see some cross-departmental working—so-called joined-up government—and to have a chance to do some joined-up work in the Committee by asking questions of permanent secretaries and others. It also gave me the chance to get on to one of my hobby-horses—any cling—and to mention that cycling and walking reduce the problems of obesity, which are—dare I say it? —growing.

A report on the Victoria and Albert Museum made it clear that the imposition of charges had been a major reason for the drop in visitor numbers. I am delighted that charges have now been removed, as a result of which the figures have risen very quickly. I like to think that that fact, combined with our report on what went wrong after charging was introduced, means that charging to enter our museums will never be reintroduced.

Another report was on oil pollution at sea. That gave me a chance to use, as members of the Committee often do, some of my experience as someone who worked for a while in the oil industry and therefore knew a little about it. I asked the witnesses whether oil transported by pipeline or oil transported by ship was most likely to lead to pollution. It became apparent that oil companies, which decide whether to construct a pipeline to a new oilfield purely on cost grounds, had done no real research into whether the cheaper solution in terms of their costs of moving oil to and from an oilfield was also cheaper in terms of the long-term costs of pollution. The witnesses agreed that research into which of the two was more likely to lead to pollution would be a good thing. I hope that the Government will try to ensure that it is conducted.

We had an interesting hearing on the Post Office. Some of us with rural constituencies made the important point that rural areas are suffering from a drop in the number of post offices. Small post offices are often the heart and soul of small rural villages; often, when such a post office closes the village dies. The maintenance of those post offices is therefore very important to us. It became clear that the threat to rural post offices and to the Post Office in general is likely to grow as competition is introduced. I like to think that it is partly as a result of that hearing that the extent to which and speed at which competition was introduced was somewhat reduced.

It became clear that what has really gone wrong with the Post Office is that it has made very large profits over a long period, all of which have been siphoned into the general Government coffers and not reinvested in technology and services. If the Post Office had made such investments, it might still be making some of those profits and would not be in its current state.

We had an interesting investigation into income tax and the Inland Revenue. The Chairman of the Committee said that people should be encouraged, as much as possible, to submit their income tax returns online. However, he did not mention the ironic fact that Members of Parliament are among the few employees, wage earners or whatever who are unable so to submit their income tax returns online because the special parliamentary form that we must use is not yet available online. If the Treasury wants to set a good example, perhaps it could ensure that something is done to correct that.

I was able to make a bit of fun of the Inland Revenue on that occasion by pointing out that it sends out bills for £0.00 to those who have been fined for sending in their forms late when they do not in fact owe any tax. In subsequent parliamentary questions, the Treasury replied that it was important to send out those bills to warn people that they were late sending in their forms, even if no payment was implied. That merely brings the Inland Revenue into disrepute. I hope that the Treasury will think again about whether that is really the best way to approach Inland Revenue taxpayers.

We also had a hearing on clinical negligence in the health service. One of the issues that was discussed was whether we should move towards a no fault, no blame compensation system, on which I have been keen for a long time. I should explain, as I often have to in our hearings, that I have a direct interest in the health service in that my wife is a general practitioner. There is no question about the amount of concern and distress in the health service as a result of people worrying about being taken to court for decisions made, often in very good faith, but nevertheless in error. Medicine is not a science but an art, and it is often difficult to make the right decision. The fact that people do not always make the right decision should not necessarily lead to their being taken at great length, often over many years, through the courts, with all the stress that that adds to them in doing their jobs. I am sure that that is one of the reasons for people wishing to take early retirement, which is leading to some of the health service's staffing problems. A great deal of stress arises from the difficulties that people get into when they are taken through the courts. We also discovered that the amount of money that is spent on lawyers in many negligence claims is more than the victim of the negligence ever receives. The whole system is a way of putting a lot of money into the pockets of lawyers rather than into those of victims, which is not a good way of spending public money.

The private finance initiative was a much-discussed subject, often as a result of individual cases that came before us. Several issues have been common to many of our hearings. First, competition is likely to reduce gradually for PFI schemes, not least because of debt refinancing, which the Chairman mentioned. As we get better at demanding back for the public sector some of the savings that are achieved through debt refinancing, PFI schemes will become less attractive for the private sector. There is a danger, which one or two cases have shown, of few companies competing for PFI contracts. When we reach the stage at which the level of competition is so low, the value of PFI is likely to reduce and it will become more difficult to judge whether such a contract is good value for money when compared with the public sector.

On several occasions, some of us have been worried about the way in which the public sector comparator was calculated. We sometimes wondered whether the figures were fudged to show that the private sector contractor offered better value when, had the figures been calculated differently, the result would not have been so clearly in favour of the private sector.

Many of us have been worried about risk transfer. Often, the risk has not been properly transferred in the expected way. Consequently, the value of the PFI contract has been much less than it was believed to be. The public sector has frequently had to bail out a private sector contractor. In practice, the risk has remained with the public sector, which is no great surprise. The major public services that our Government run simply cannot be allowed to go to the wall. One cannot put out a major health service operation to the private sector so that there is nowhere to treat patients if it goes bankrupt. The public sector must keep the facility going. Genuine risk transfer is difficult in major, important public services.

A further point recently came to light. It has not formed part of our hearings so far but I hope that it may do so in future. There is a growing worry that many major contractors who win PFI contracts transfer large parts of the debt to special purpose vehicles, which are subsidiaries of the main contractor. They may be hiding the extent to which they are getting into debt and putting their operations at risk. We may have to take that up in the Committee. It is not direct fraud, but it hides from the public sector the danger that some of our PFI contracts could pose.

The point is worryingly mirrored by the Government's tendency to treat some of their liabilities as off balance book by trying to ensure that genuine Government liabilities in some privatised contracts are hidden off balance sheet and do not count towards the public sector borrowing requirement. Further questions will have to be asked about where the debt lies, especially in relation to, for example, privatisation of the National Air Traffic Services or the tube.

We had some fun with our investigation of pipes and wires. Controlling the number of holes that are dug in our roads is a subject of enormous public interest. Everybody experiences the congestion that roadworks cause. There is a case for telling regulators that they should insist on private utilities ensuring that they use the same hole in the road and do not dig up the road several times in quick succession. That maddens many members of the public.

I want to consider three reports that have particular topical significance. Prisoners and prisoners who reoffend have featured in the press recently. It became clear when we talked to the head of the Prison Service that, if we want to reduce crime, the worst thing that we can do is imprison people for a short time. One of the most likely methods of causing reoffending is to give sentences that are too short to provide the education that prisoners need and could mean that they lead a life free of crime.

The point is difficult to get across to the public, who tend to believe that the best thing to do with prisoners is to lock 'em away for as long as possible and throw away the key. If we want to ensure that a prisoner does not reoffend, and if we are interested not in retribution but in securing the minimum number of victims in future, it is important not to put people in prison for a short time, after which they are more likely to commit more crimes. That happens all too often.

There is a strong case for investing much more money in prison education. When Mr. Narey, director general of the Prison Service, came before us, he said that the return from investment "would be dramatic". He stated: I do not believe I am doing much more than playing at the edges". That makes a strong case for the "spend to save" budget—another subject that we considered recently. Spending a little more on educating our prisoners would give them a chance of leaving prison not for a life of more crime but a useful life in the community.

We could spend a little more on such education now. The report states: The Prison Service said that the single action most likely to impact on reoffending was investment in education to enable prisoners to obtain jobs on release. As I said earlier, that is a difficult view to present to the public. It is easy to follow the tabloid route of claiming that the best thing to do with those who have committed crimes is to shut them away for a long time. However, the worst thing that we can do is to put them away for a short time and leave them to learn more about how to commit crimes in future.

Combat identification is the second especially topical subject that I want to consider. It is topical because of the severe threat of war with Iraq. The war already has comparatively little public support. Many people believe that we should not even consider going to war in Iraq. If many of our troops are killed by friendly fire or many enemy civilians are killed by our fire, public support for a war is likely to reduce. That was apparent in recent conflicts. For example, in Kosovo, the deaths of innocent civilians constituted a major reason for some people's belief that it was not sensible for us to be there.

Mr. Alan Williams

The National Audit Office report made it clear that friendly fire is not a new occurrence and that it has been part of warfare for a long time. One can understand that, on the ground in close battle, friendly fire causes a high proportion of deaths; it is not a new experience. That does not mean that we do not want to stop it, but the hon. Gentleman might inadvertently have given the wrong impression that it was a recent phenomenon.

Mr. Rendel

I accept the right hon. Gentleman's point that it is by no means a new experience. However, the extent to which civilians are in danger in modern warfare is new. When armies met on a battlefield in Europe in the middle ages, that was different.

Madam Deputy Speaker (Sylvia Heal)

Order. I hope that the hon. Gentleman will not continue with that point for long.

Mr. Rendel

I shall not wander into the middle ages any longer, but one of our reports made the specific point that we should consider whether our armed forces need to pay more attention to the possibility of identifying the difference between enemy forces and enemy civilians.

It struck me as rather odd that the witnesses who came before us on that occasion did not seem to recognise that it was an important point. They seemed to think that the only important point was to identify our forces from the enemy forces, and they had not taken into account the important psychological effects of modern warfare—not just on our armed forces, but also on our civilians back here in this country—and how important it is, if we are to fight a modern war, to have the support of the public behind our armed forces, which they could lose if we do not pay proper attention to this question.

I turn now to what is my own specialist subject, in so far as I have one in this House: higher education and widening participation in it. As the Chairman mentioned, that is another matter of important topical interest.

The NAO report confirmed that people from poorer backgrounds are already significantly less likely than others to participate in higher education. The previous Secretary of State and the current Minister for Higher Education have both confirmed over time on different occasions that the fear of debt is one of the main reasons why young people are being put off going to university.

A report from Universities UK, the joint vice-chancellors' body, is, I believe, to come out in a few weeks' time. Baroness Warwick, chief executive of Universities UK, announced some of its findings to a conference that I attended just the other day. She pointed out that about 84 per cent. of the group of young people that it surveyed who were thinking of going to university—they were either in further education colleges or sixth forms—said that they were concerned about the levels of debt, which were among the problems deterring them from possibly going to university. It also found that 15 per cent. of these young people had decided that they would not go to university, and that 50 or 60 per cent. of them had decided not to go because of the fear of debt.

The Government are rightly determined to get more of those young people who can benefit from university education to do so. They are rightly concerned to widen participation in that sense. As we all accept, widening participation means widening participation particularly among the less well-off sections of our population, those who perhaps do not come from families that traditionally have gone to university.

If we are to achieve that wider participation, it is absolutely clear that we must reduce the fear of debt. Indeed, it was the Prime Minister's recognition of that fact that led to his announcement in his famous conference speech immediately after the last election that he would set up the review of higher education financing, and of student financing in particular. The present situation is therefore somewhat ironic. The Prime Minister having decided upon that, because he knew the problems the matter had caused for Labour party candidates on the doorstep in the previous election, as a result of the perception of the debt and the fear of debt at the levels it was then, after the introduction of tuition fees, we now find that as a result of that review the fear of debt will be much greater. Indeed, the debts that students end up with will be much greater.

There is possibly a need for a further National Audit Office investigation of how we have reached this point. The Government knew that they had a major problem over widening participation among less well-to-do families. They set up a review to answer it and ended up with proposals that will make the problem far worse. If that is not some error in the way in which the Government work, I do not know when in the time that I have been on the PAC I have seen a worse case.

3.19 pm

Mr. Brian Jenkins (Tamworth)

I am grateful for the opportunity to contribute to this debate.

It is always a pleasure to follow the hon. Member for Newbury (Mr. Rendel). Listening to his contribution, particularly what he said about prisoners, one can readily see why he has the reputation for being someone who does not naturally court popularity.

Following the Chairman of the Committee, the hon. Member for Gainsborough (Mr. Leigh), is always difficult. As a member of the Committee, one realises that he always takes the best shots first, and in his extensive, well-presented opening he covered a wide range. If I repeat some of his remarks, it is only because I feel they need repeating.

Being a member of the Public Accounts Committee is one of the most challenging and rewarding positions to hold in the House. The PAC is unique among Select Committees. No other Committee has the same work load or breadth of remit. No subject is left untouched. One of our great strengths is that we can question different Government Departments; we go across government and can therefore judge the degree of joined-up government.

The Committee's aims are unique compared with those of all the other Select Committees. We do not look at policies; we look at the management, at the effective delivery of the civil service. The intricacies of policy analysis are left to the other Select Committees. We interview permanent secretaries rather than Ministers. Our role is to put a unique spotlight on the operation of the civil service and its relationship with the Government.

We have enjoyed some fine verbal exchanges with the witnesses, at times producing from both sides turns of phrase of which Sir Humphrey would be proud.

The PAC's success rate in being listened to also makes it unique. Over 90 per cent. of its recommendations have been accepted by the Government. Is that because they are so easy and are not challenging enough? No. Working with the National Audit Office we have brought about savings of £1.5 billion over the past few years. My colleagues on the team are well supported and are probably the best briefed in the House, having over 700 members of staff in the NAO to draw upon, as well as the excellent professionalism of the Committee staff.

The PAC can highlight the culture of the civil service. It is worth drawing attention to the present culture. As the Chairman pointed out, the present permanent secretaries have a background in policy rather than management. Yet the Government have expectations of delivery that the civil service will work towards, and different types of individual may need to rise to the higher echelons. Good management makes all the difference to the success of a project. Without those skills being prioritised internally in the civil service and, equally important, in external dealings with private sector suppliers, a project can fail to be delivered on time and in its full scope.

Throughout the past year the PAC has risen in prominence, owing in no small part to its excellent chairmanship and support staff. I hope that that trend will continue. With the commitment of staff, Members and the NAO, I am sure that it will.

Our job as parliamentarians is to ensure that we ask the right questions—the questions that the public demand—and obtain publicity, highlighting both successes and failures in our administrative set-up.

A notable moment for me last year was our visit, an away-day, to Kensington palace to view the accommodation. Regardless of the merits of the present living arrangements, the team on the PAC should feel justifiably proud that it was they who gained access and saw the accounts for the first time and brought into the limelight a sector of public expenditure that should be accountable.

I should like to give the House a quick sample of what it is like for some of our witnesses to appear before us. It is not all bad. We had the Radio Communications Agency before us. On the auction of radio spectrum for the third generation of mobile telephones, we thought congratulations were in order. In fact, that auction was a great success and raised a great deal of money—much more than anyone originally anticipated. But when we put the operation under scrutiny we found that £6.1 million had been spent on advisers who were so out of touch with the market that they were looking for £1 billion in the sale. We raised £22 billion. Was the £6.1 million well spent? Many Departments spend a great deal of money on advisers. Is it always well spent? The £22 billion was, indeed, good news.

Another report that the Committee considered last year was "Giving Confidently: the Role of the Charity Commission in Regulating Charities", on the Charity Commission for England and Wales. As a citizenry, we have a right to believe that the charities that collect on our streets are run effectively and efficiently and are above board. We found that in 1999–2000, 38 per cent. of charities had failed to submit annual accounts on time or at all. We decided that the Charity Commission must improve on that. If it does not and the public believe that the money that they donate does not reach its final destination, their contributions will diminish.

The Chairman referred to Joseph Bowden. That is a classic case. Mr. Bowden was a farmer who claimed money off that well-known Department MAFF—I am not sure whether it stands for the Ministry of Agriculture and the Farmers' Friend—for farming flax. Not only did Mr. Bowden develop a new technique and get paid for planting two crops in the same field, he did even better by claiming for planting crops in the Irish sea. Of course he had some difficulty when he had to collect the flax and send the crop off, so he burnt down the barn.

One would have thought that the insurance company that inspected the barn and paid out would have been efficient, but Mr. Bowden burnt down the barn in January 1996 and, lo and behold, again in December 1996. The insurance company paid out £85,400. There was no problem with him pleading guilty to that deception. But if the MAFF investigation was inconsistent, what about the investigative procedures of the insurance company that paid out twice in one year? We could go so far as to say that Mr. Bowden was a serial abuser of benefits.

The Department for Environment, Food and Rural Affairs has since renewed its operations so that fields are logged. Satellite technology allows us to tell when one crop has been planted in a field and it is not possible to claim for another crop in the same field. We know where fields are located, which is amazing, and the Department has come to grips with one of its major problems.

Many farmers complain about red tape because of the number of forms that they have to fill in. I have much sympathy with them. But they must understand that the only reason for that red tape is to stop fraud and the misappropriation of public moneys. Unfortunately, the Department was not quick enough to impose controls on Mr. Bowden or to get back much of the money that he managed to squirrel away.

Appearing before the PAC can give rise to difficulties. I always think of the PAC members as a pack—an apt term, I think. The way in which we follow each other when questioning a witness can be a tortuous experience for the person giving evidence. That was the case with the 57th report "The Operation and Wind-up of Teesside Development Corporation". The corporation left a large debt of £40 million when it was wound up. We put one or two questions to the chief executive that are a good example of the Committee working well.

The chief executive sold land on behalf of the corporation even after the board had been wound up. He received valuations from a team of valuers on selling the land and advice from a team of lawyers on the wind-up. The lawyers had no other client and advised Mr. Hall to shred the documentation. I said to him: If there was an inquiry, you would have extreme difficulty proving the decision you made on the day was in strict accordance with the regulations laid down and the notes on valuation provided to the corporation to uphold your story, would you not? The witness replied: In so far as those cases refer to files, I am not saying there would be a difficulty in responding to them ultimately, if one had all one's advisers around, but the situation appears to be that the National Audit Office did not find all the files it wished to find. All I can do is repeat the organisation and set-up of the disposal of the files of the Corporation. When asked You would have difficulty in proving these deals were open honest and above board, would you not?", Mr. Hall said: I am totally satisfied they are open and above board". However, I pursued him by saying: They are not in existence though", to which he replied, It would appear not. I had to recite to Mr. Hall one of the things that people in public life believe in. I said: In public life the one thing we are terrified of, above all things, is not the fact that we are innocent, in that respect", but that we have to prove we are innocent. If the media are on our back, we have to prove with documents that we have done things correctly and in accordance with the law. Anyone who is told by legal advisers to shred files has received bad legal advice.

When an accountancy officer appeared before the Committee on that issue, we explained that the Department's guidelines were left in tatters, yet he continued to support the corporation, for reasons best known to himself. I asked Do you think the corporation was not better controlled because your Department lacked the power, the will or the ability? He replied: We are trying to improve the way in which it governed itself. We certainly had the power, we had the ability—what was the third one? I said: The will, the power or the ability? The accountancy officer replied: We had the power but it was rather a nuclear option. We had the ability and we chose to do it in a non-nuclear way. We did not have the will to throw the baby out of the bath water, by which I mean we decided it was better to soldier on with the existing management, the existing Chairman, the existing Board than to go for some other option. I countered: The question jumps up, why? He said that although the corporation was effectively trying to wind down, The Department took an active role in doing that. As I said earlier … if we did not succeed it was because of some pretty amazing behaviour at the very end. One is left in no doubt that although the corporation ignored the Department's financial guidelines, it was allowed to do so because the Department lacked the will—the political will—to get involved and ensure that things were done in accordance with strictly observed guidelines.

One lesson that any Secretary of State or Minister must learn is that they will be held to account if they start interfering with strict financial guidelines—they will be brought before a Committee to answer for their actions. We get Sir Humphrey answers, but sometimes if we push a little harder, we get more revealing answers. That is the PAC's role. The breadth of subjects that we cover gives us a spotlight on the public sector that few parliamentarians have. I look forward to the challenges that 2003 will bring for the Committee, and I hope that the Government, especially the Treasury, recognise that openness and accountability are essentials of good government. They should join us in insisting that all public expenditure, including that of the BBC, the Financial Services Authority and the civil list, comes under the auspices of the PAC.

3.34 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton)

I apologise to the House and my hon. Friend the Member for Gainsborough (Mr. Leigh) for missing the first few minutes of this debate. I had to attend a meeting that was arranged some time ago, and it was difficult to rearrange it. However, I heard most of his excellent speech, which was an enjoyable and important contribution to our debate. I agreed with the three themes that he set out in weaving the year's events into his speech, and I should like to pursue some of them.

It is a pleasure to follow the hon. Member for Tamworth (Mr. Jenkins), as I often seem to do in our twice-weekly hearings. He is right that serving on the PAC gives one a unique spotlight, to use his phrase, on the operation of the civil service. I find particularly interesting the notion of a split between the running of an organisation and policy development. It is echoed in the question of whether a Minister should be held accountable when things go wrong because of poor policy implementation or when the policy itself causes things to go wrong in his Department. Permanent secretaries who appear before our Committee often draw that distinction.

A recent case that starkly illustrates the point is the London Heart hospital, to which my hon. Friend the Chairman of the Committee referred to early in his speech. Mr. Andy McKeon, the director of policy and planning at the Department of Health, appeared before the Committee, and I asked him what experience he had had of running an organisation of 800,000 employees. I would have been happy if he had told me that he had experience of running an organisation of 100,000 employees. He told me that he had no such experience, and added that he was not running an organisation of 870,000 employees. His role was to set a framework for the NHS within which 600 organisations can develop and implement their own plans. In other words, he saw himself merely as the civil service adviser to Ministers on the overall direction of policy in the Department, not as an executive or director of the NHS as a whole. No doubt that is also the view of Sir Nigel Crisp, the chief executive of the NHS. There is therefore no one in charge of the NHS. There are 600 separate organisations, and the Department of Health fulfils its role by sending memos, guidance notes and teams of inspectors to those organisations, cajoling, harassing, targeting, measuring and judging them. But it does not actually run the national health service.

By contrast, in the private sector, there is always one person in charge at the top—a chief executive in the true sense. He runs the operation, and his survival depends on how well he does so and how profitable the company is. That, in turn, is determined by the successful delivery of the company's service. There is no distinction between policy and operation—every failed operation is a failure of the chief executive's management. The most revealing distinction between the operation of the private sector and Whitehall is that the person who runs the organisation also sets its policy. In Whitehall, the people who run the organisation are different from the people who set policy. Because of that, the skills required of a permanent secretary in Whitehall are different from those required to run a large organisation, be it the NHS or the education system.

A running theme of the PAC's deliberations—there were many echoes of it in the Chairman's opening speech—is the fact that the successful project manager rarely makes it to the top job of permanent secretary. He may be able to run a successful operation but cannot necessarily craft beautifully written policy recommendations and memos to Ministers.

One of the best witnesses to appear before the Committee in the past year was Mr. Paul Jenkins, to whom my hon. Friend the Member for Gainsborough referred. Mr. Jenkins is the national project manager for NHS Direct. The National Audit Office report was very complimentary about how NHS Direct was established and run, and Mr. Jenkins was widely praised for his achievements by members of the Committee. Even more striking, however, was the way in which he answered questions. He was clearly on top of every aspect of the project, and did not need to turn to the people behind him for extra briefing or notes. I suspect that he had riot even been briefed the previous week in the usual intensive way undertaken by civil servants coming before the Committee. I think that he knew everything anyway.

The contrast between Mr. Jenkins's answers and the answers that we normally receive from permanent secretaries was striking. The difference is that Mr. Jenkins is a project manager who has been in charge of NHS Direct for the past five years. The tragedy is that it is unlikely—although I hope that it is not impossible—that he will become permanent secretary at the Department of Health. PAC members with experience longer than mine have noticed that success at project manager level tends not to lead to promotion to the top positions in the civil service. That is a mistake that may contribute to the problems that Britain has faced over many years. Those problems—which did not begin in 1997, but go back 20 or 30 years—have surfaced in our health and education systems, not to mention in the immigration service, the passport office, and elsewhere.

I want to draw to the House's attention three other PAC reports that I believe are of concern. To an extent, they demonstrate the broader themes that I have just set out. A number of hon. Members mentioned the report entitled, "Improving Student Achievement and Widening Participation in Higher Education in England." The problems in that area were in part attributed, in the report and by witnesses, to poor prior attainment at secondary school level. I focused my questions to David Normington, permanent secretary to the Department for Education and Skills, on that poor attainment.

I was struck by the equivocation in the answers that we received. There seemed to be no clear departmental view about the reasons for the poor performance of many secondary schools. Despite constant questioning, I was unable to extract a departmental view about the ethos that makes a state school successful, and how that would contrast with the ethos that makes a school unsuccessful. I felt that there was an alarming complacency about British education, and that it contrasted alarmingly with parents' deep concerns.

The permanent secretary cited the Pisa report from the Organisation for Economic Co-operation and Development. That is an international survey of all 32 OECD countries, and Mr. Normington said that it provided evidence that Britain's education system was fourth in science, seventh in English and eighth in maths. By now, he will be aware that the survey has been widely discredited, because the questions that it used measured aptitude and life skills rather than the education curriculum. The survey is more a test of IQ than knowledge, and French officials have dismissed it as biased in favour of creative skills over knowledge. I had hoped that Mr. Normington would refer to the more authoritative Timms survey, which has been carried out for many years and shows that, in terms of the standard of state education provision, Britain comes 20th among OECD countries.

I am worried about complacency and the lack of understanding of our education system. Above all, I am concerned about the lack of rigour in policy development—a problem to which my hon. Friend the Member for Gainsborough alluded. There appears to be no real understanding of the figures cited to the Committee.

I was concerned when we interviewed the then permanent secretary at the Department for Work and Pensions, Rachel Lomax, who gave one of the worst performances of the year before our Committee. The accounts of what was the Department of Social Security, and is now the Department for Work and Pensions, had been qualified by the National Audit Office for the past 13 years because of the huge and unacceptably high levels of fraud and error, which, as our Chairman said, are estimated to amount to at least £3 billion a year. Personally, I suspect that that is an underestimate.

Our report considers fraud and error in just one benefit—income support. For that one benefit, some £573 million a year is lost through fraud, £154 million through customer error, and a staggering £173 million through official error. The £573 million fraud figure is made up of a staggering 216,000 cases of fraud, in each of which an average of £2,600 a year is fraudulently claimed. Of those 216,000 cases, the Department prosecutes only 11,000 a year—just 5 per cent. of the estimated number.

Leaving aside the difficulties that we had in extracting those figures from the permanent secretary during the hearing—I believe that that demonstrates that tackling fraud was not at the top of her list of priorities—I must emphasise that such a low prosecution rate in itself reveals problems. At first I thought that the low rate was a policy decision, based on the fact that the costs involved in pursuing a prosecution involving only £2,600 fraudulently claimed would be likely to exceed the amount recovered. That, of course does not take account of the argument that prosecuting and obtaining convictions constitutes a deterrent to people attempting fraud, whereas merely repaying fraudulently claimed benefit, even 13 weeks' worth of it, does not.

The bulk of the £573 million of fraud does not derive from organised crime, which accounts for only £100 million, but from small-scale fraud. The only way to tackle the massive fraud at the Department for Work and Pensions is to have a policy to deal with small-scale fraud rather than concentrating on organised crime alone.

Mr. Bacon

I am enjoying listening to my hon. Friend' interesting speech. I particularly remember the questions that he asked the permanent secretary at the Department of Social Security; I, too, was unimpressed by her answers. Indeed, I have a videotape of my hon. Friend's contribution on that occasion, and I recommend it to any hon. Member. My hon. Friend finally forced the permanent secretary to admit that what he was saying was correct.

Does my hon. Friend agree that this attitude to prosecution is not confined to social security? Our hearings have produced evidence from various sources, including the Department for Environment, Food and Rural Affairs, the Ministry of Defence, Customs and Excise and others, that in Government generally—I am sure that it was the case when we were in office, too—there is an unwillingness to pursue prosecutions. Does he agree that that needs investigation?

Mr. Gibb

I am grateful to my hon. Friend for that intervention and hope that he continues to enjoy watching that video. He has made a valid point. Across Departments, the decision whether to prosecute is based on detailed departmental guidelines that we need to examine to find whether they are appropriate in today's climate. Like him, I believe that we are not prosecuting sufficient numbers of people, not just in respect of benefit fraud but of tax and customs and excise matters. Prosecution is a deterrent.

Mr. Andrew Love (Edmonton)

I have been listening with great interest to the hon. Gentleman. Does he accept that a major contributory factor to the difficulties outlined in the Committee's investigation is the complexity of the benefits regime? Does he agree that there are also major problems in assembling the level of evidence necessary to prosecute cases, and that until we deal with those two issues, we will never get to the bottom of the fraud problem in our benefits system?

Mr. Gibb

The hon. Gentleman makes an important point. Of course complexity is a key reason, particularly for customer error and official error, but the simpler one makes the system, the less fair it becomes. It is a balance between complexity and fairness.

The hon. Gentleman is right that it is difficult to obtain the evidence to pursue frauds. To arrive at an estimate of 216,000 cases of fraud a year, a sample of 30,000 is taken, on which detailed annual reviews are conducted to determine how much fraud there is in the sample. The results are then extrapolated across the whole population. We must do such sampling for real, across a much larger proportion of the population, and then pursue the prosecutions once that review has taken place. The problem is that that is very expensive, but the invest-to-save approach will be well worth while in the long run.

The Department will not be able to reduce the level of fraud until it invests significant sums in tackling fraud to provide real deterrence against the submitting of false claims. If the only punishment for making a false claim is that the money must be repaid if one is caught, there is no deterrent against submitting one. Because of the complexity of the system and the difficulties in obtaining evidence about whether a person is living with another person—these are terribly intrusive questions—it is necessary to rely on the deterrent effect of prosecutions. Where enough evidence can be compiled to pursue a prosecution, a decision should be taken to go ahead with it. I suspect that the small sums of money involved mean that there is no real desire to pursue prosecutions, even when evidence can be compiled, because the focus of the Department is on organised crime, which causes only a small proportion of the fraud.

Mr. Love

I must declare an interest in that I have written at length to the Comptroller and Auditor General on this issue. Does the hon. Gentleman accept that, in the sample 30,000 cases that he mentioned, a strong element of subjective value judgment is used in deciding whether fraud has been perpetrated? Many people outside the National Audit Office consider that the figures for fraud are vastly inflated.

Mr. Gibb

I do not agree that the figures for fraud are vastly exaggerated, because of what one hears anecdotally. The hon. Gentleman will hear from his constituents of cases where people are claiming benefit while working. The number of times that we hear of such cases from constituents makes us realise that there is a widespread culture in certain parts of our constituencies and in certain sections of society where falsely claiming benefit is regarded as par for the course. We must end that approach to the benefit system, not just because it costs the taxpayer at least £3 billion a year, but because it fosters a culture of dependency, which is not good for society and very damaging to the people caught up in it. We shall inquire into benefit fraud later in the year when we examine jobseeker's allowance, and I hope that the Committee will be presented with evidence that shows that real progress has been made in reducing these unacceptable levels of fraud.

Finally, I mention our report on improving air quality, on which I was particularly dismayed by the lack of rigour in policy making. My hon. Friend the Member for Tatton (Mr. Osborne) was able to extract from Mr. Martin Williams, the head of technical policy at DEFRA, the information that the measures being proposed to deal with just one out of nine pollutants to be dealt with would cost the United Kingdom economy some £1 billion a year. In defence of that very large sum, the permanent secretary said that it was not a trivial issue as we were trying to deal with 24,000 early deaths a year, to use his phrase. On the face of it, a mere £1 billion per pollutant would be very worthwhile expenditure if it were saving 24,000 people a year from untimely and tragic early deaths, but of course it all depends on what is meant by 24,000 early deaths. The correct technical phrase that the permanent secretary should have used was, "24,000 deaths brought forward". The definition of "deaths brought forward" is given in a footnote to the NAO report, as It is not known to what degree deaths are brought forward … it is more likely to be by days or weeks rather than months or years. In other words, we are talking not about someone in their thirties struck down in the prime of life, but about losing a day or so over a lifetime. If the cost of that day or so is having to earn an extra £1 billion per year per pollutant divided by the number of people in Britain, generating that extra wealth for the country may cost us all more than a day, or a few days, or a week of our lives. I therefore wonder whether the policy is the right one.

I am especially concerned about the fast and loose way in which facts and figures are bandied about without any focus on rigour. Far more accurate cost-benefit analyses are needed before we pile on to ourselves restrictions and costs that might be far more harmful to us than beneficial. If we are to restore people's faith in the political process, we need to be far more scrupulous in the use of facts and statistics, but in my time on the PAC, I have seen too many examples of an absence of rigour in their use. I hope that the coming year will bring evidence of more intellectual rigour in the development of policy, more integrity in the use of facts and figures, and more professionalism and relevant experience among the people who are charged with advising on policy and direction in our public services.

3.56 pm

Mr. Gerry Steinberg (City of Durham)

I am delighted to follow the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). It was a pleasure to listen to his wise and considered speech—there was a lot of sense in it. I only hope that mine matches his.

I want to place on record my thanks to the staff of both the Public Accounts Committee and the National Audit Office for the excellent work that they carry out in a highly professional manner. I feel especially sorry for the PAC staff, who have to put up with my constant requests for assistance. Perhaps it is because I am getting old and forgetful that I am always searching for my papers—they are never in the right place at the right time—but the staff are always very obliging and make sure that I get them. My thanks go to them and to the NAO staff, who are always ready to give members of the PAC expert advice and the information that we want.

Serving on the PAC is one of the most worthwhile and enjoyable duties that I have as a Member of Parliament, especially here at Westminster. It is easy for a Back-Bench Member in a Government party that has a substantial majority to become very bored and to have to go looking for something to do, but I assure the House that that is not often necessary when one is a member of the PAC with two thick reports a week to digest; there is plenty to do if one can get through those reports.

The beauty of the Committee is twofold: first, we keep it non-political and out of the realms of policy, although members of the Committee occasionally try it on—especially Opposition Members—

Mr. Bacon

Surely not.

Mr. Steinberg

Yes, they do, but the excellent Chairman of the Committee makes sure that the Opposition do not get away with it and are soon brought back into line. We all share the same aims: to root out inefficiency and waste, and to seek value for money—and to embarrass the accounting officer, some more than others. The second aspect of the PAC that I like is that it covers so many topics, as we can see from today's Order Paper. When I was a member of the Select Committee looking at education, education was the subject of report after report, week after week, year after year. To be frank, it was extremely boring. With the PAC, we have a different report twice a week and the topics are varied: from defence and social security to smuggling and the royal family. I did not put those two together on purpose. I do not intend to speak about those subjects today, and I am sure that the hon. Member for Bognor Regis and Littlehampton will be delighted to hear that.

For the first two or three years that I was on the Committee, we produced reports on the previous Government, so it was easy to criticise. It is becoming a bit more difficult now that it is the present Government's policies that are being examined and we can see the mistakes that they are making. However, that does not deter us; it is a pleasure to do it.

Another topic on which I do not wish to dwell is the PFI, an issue that will be a constant source of discussion over the next few years. We need more time to consider the PFI and deliberate before we come to any firm conclusions, although I accept that each PFI scheme will be looked at individually. I was very sceptical about the PFI, particularly at the beginning, but I must admit that I am beginning to warm to it a bit more. It will be interesting to see the reports on the present PFI schemes.

On the Order Paper today, we see reference to two reports on PFI schemes: on the Royal Armouries museum in Leeds, which was a bit of a cock-up—if one is allowed to use that expression in the Chamber—and the other on the Treasury building. There will be many more in the future and we will be able to see the success, or otherwise, of such schemes.

Before I refer to the reports, I want to place on record my thanks to the Chairman of the Committee, the hon. Member for Gainsborough (Mr. Leigh), who does an excellent job.

I want to concentrate on three different, but worrying, reports, each of which deals with how taxpayers have to pick up the bill when things go wrong. When a mistake is made, it is our constituents who pick up the bill, which can add up to billions of pounds. We talk about "billions of pounds", but we do not realise how much that is; at least, I do not. It is a huge amount of money.

The first report to which I shall refer was entitled "Tackling Obesity." It seems like an age since we did it, but it still seems to be hitting the headlines now. Although the hearing had its humorous moments, the topic is of immense importance because of the problems of obesity. Most adults in England are now overweight; that includes myself, although I would not go so far as to say that I was obese. One in five adults are obese, which results in about 18 million working days lost because of sickness and about 30,000 premature deaths a year. Those 30,000 deaths are probably not the ones to which the hon. Member for Bognor Regis and Littlehampton referred; obesity cuts people's lives considerably.

Obesity is costing the NHS about £500 million a year and additional costs mean that the total comes to something like £2 billion. The situation is getting worse year by year. The National Audit Office estimated that, by the year 2010, the cost to the NHS would be something in the region of £3 billion a year.

When I read the report and listened to the evidence, I was—to say the least—a little cynical. There are, of course, people who are obese because of a medical condition but, frankly, most of them are obese because they over-indulge. They eat and drink too much and do not do enough exercise. Were it not for the fact that the taxpayer had to pick up the bill, I would probably say, "Let them get on with it. It is up to them." Unfortunately, the consequences for the rest of us are serious, so we should not allow them to get on with it. We should do something about it.

The vast majority of those who are obese or overweight, including myself—I do not deny that—eat too much, drink too much, eat the wrong food and do not do enough exercise. I am a lot more careful since I was told that I had high cholesterol. I went to see my doctor, who told me that I was too fat. I lost about a stone and a half and I do quite vigorous exercise now, so I feel rather proud of myself. I hope that people will take notice of what I am saying.

Should not every GP automatically advise their patients, as my doctor did? They do not, I am afraid. That does not happen. We found that doctors' attitude towards patients who are very fat or obese is pathetic. Only 40 per cent. of GPs identified those patients as being at greatest risk, and 2 per cent. of GPs did nothing. If they saw a great big fat lump sitting in front of them, they did not even mention it. They just allowed the patient to get up and walk out, without mentioning their weight. That is wrong. Seventy-five per cent. of GPs sent overweight patients somewhere else to do something about it. All they needed to say was, "Look, you're too fat. You need to take some exercise and you have to eat less." but they did not do that. They simply sent the patients somewhere else and brushed over the matter.

I concluded from the report that GPs were failing to tackle the problem, either because they did not take it seriously enough or because they did not have time. It is correct that they do not have time. The report is accurate about that and about the diseases associated with obesity. Doctors are contributing to their own work load, because if they fail to treat obesity, more patients will come back to them with the associated illnesses, so the doctors' attitude is counterproductive.

Targeting schoolchildren and influencing them is the most important way to combat the problem. It is probably impossible to change most adults' way of life. There was an article recently in one of the daily newspapers about a head teacher who, for the benefit of the pupil, had informed the parents that their child was obese, and rightly so. If I were a head teacher, I would have done the same thing. What did the parents do? Far from saying, "Thank you very much. We'll do something about it", they blew their top and went to the press, complaining about the disgraceful way in which the head teacher had picked on their child. If the parents had had any sense, they would not have reacted with outrage but taken notice of the head teacher and done something about the problem.

We must educate children so that they can educate their parents. Parents must learn that a trip to McDonald's is not so much a treat as a health hazard. I asked why, for example, the Food Standards Agency does not target the unhealthy fast-food outlets or pressurise the food manufacturers to produce cheap, tasty, low-fat, low-salt, healthy food. The FSA does not do that and I did not get the impression in the hearing that it intended to do so.

Geraint Davies

I am listening carefully to what my hon. Friend is saying. Does he agree that schools should reduce the amount of salt and fat-impregnated food on offer and should not have coca-cola machines, and that the Government should think seriously about the possibility of not allowing advertising in the middle of children's programming to induce children to get hooked on salt and fat-impregnated processed food?

Mr. Steinberg

I am always delighted to give way to my hon. Friend. I wondered whether he had written my speech for me, as I shall come to those topics in a few moments. If he will bide with me, he will get the answer.

The increase in fast-food intake, coupled with the huge decline in physical activity, is the main reason why children are becoming fatter. Sport England recently produced some statistics showing that the proportion of young people who spend two or more hours a week in curricular sport decreased from about 46 per cent. in 1994 to 33 per cent. in 1999. In the same period, the number of 17-year-olds walking to school fell from 59 per cent. to 49 per cent. Senior pupils have no excuse for not walking to school. They cannot be worried about what will happen on the way there. The reason is simply pure laziness, which means that they get lifts instead. Indeed, car journeys have doubled over the same period. One of the most frightening increases, however, has occurred in the number of hours spent watching television. The figure rose from about 13 hours a week in the 1960s to 26 hours a week in the 1990s. I suspect that any new research would find that much more time is spent in front of a screen, bearing in mind the development of computer games and so on.

Those powerful statistics demonstrate a reduction in physical activity, but investment in sport and other physical activity has not declined. In the past 15 years, five sports centres have been built in my constituency. People cannot blame a lack of facilities for doing less exercise. I suspect that the problem is that we make too many excuses and that the population is merely becoming lazy. We are lazy in our eating habits—it is very easy to buy something from McDonald's or to fry our food—and our exercise.

Mr. Alan Williams

My hon. Friend is making some interesting comments. I was lucky enough to attend a conference in the United States, which has an even worse child obesity problem than ours, where child psychologists said that children as young as two were now developing brand preference. That is why there are so many jolly little jingles and plastic giveaway toys. Children who do not even know what they are telling their mums and dads that they want are being indoctrinated into brand preference and their parents will unthinkingly give them what they want.

Mr. Steinberg

My right hon. Friend is right. I visited America a number of years ago. The amount of food served there—especially meat—was, frankly, disgusting. One could not eat it all. If people eat in that way, it is not surprising that they are getting fat. He is right that television and advertisements are dictating the way in which people lead their lives.

The Government need to take some tough decisions to ensure that lifestyles change. On the points made by my hon. Friend the Member for Croydon, Central (Geraint Davies), I believe that every schoolchild should have at least two hours a week of timetabled and compulsory physical education. On his specific question, schools should be allowed to serve only healthy meals. There should be no chips or crisps. Manufacturers of unhealthy food should be banned from having any involvement with schools. Companies such as McDonald's, Walkers, Pepsi and Coca-Cola should not be allowed to give sponsorship to schools. We should not allow them to have any involvement with schools, let alone through sponsorship.

We could also ban cars from towns, which would make people walk a little more. Car parking should be banned outside schools and moved to, say, a quarter of a mile away. We should make kids walk to school if they have people who can accompany them. I know that those proposals are radical, but there is a reason why: our kids are eating the wrong foods, getting no exercise and suffering the consequences. Such measures need to be taken very seriously, because we are, frankly, killing ourselves.

The second issue that I want to raise is completely different, although it again relates to waste, value for money and even fraud in some cases. The operation and winding up of the Teesside development corporation relates to my area in the north of England. I know that this issue has been mentioned already, but I want to go into it in a little more detail. The TDC, which was the largest corporation of its kind, was set up in 1987 and wound up in 1998. It received some £354 million-worth of grants and generated income of about £116 million.

The usefulness of Members of Parliament is shown by the fact that this particular investigation was initiated by local MPs, who complained to the National Audit Office. They had worries about the corporation's operations, but they had gained little satisfaction from the then Department of the Environment, Transport and the Regions. As it proved, their worries were fully justified. The NAO's report clearly showed that, from an early date, the DETR and the regional government office in the north had had severe doubts about the TDC's financial probity and working, but had done very little about it. The report was highly critical of the lack of control and involvement of board members. They existed but were not used, and they appeared to take no interest in the running of the corporation. They sat back while some horrendous things went on.

The chief executive managed the TDC as a one-man band and was a complete law unto himself. On numerous occasions, he personally handled controversial property deals without the board's approval or even knowledge. In the main, his financial director was not invited to board meetings, even when financial items were being discussed. How on earth that could happen God only knows, but it did. The chief executive ignored and overrode DETR cautions and warnings. The NAO investigated many cases. In two of them, the corporation had re-acquired sites from prospective developers for the original sum paid plus £1.6 million, even though none of the developments had actually taken place. In other words, £1.6 million of taxpayers' money was just given away to developers, in return for nothing other than getting the sites back.

The chief executive flouted the TDC's guidebook and his responsibilities as an accounting officer, and he ignored Treasury guidelines for accounting officers. That led to financial losses on transactions of some £11 million. He believed that his actions were justified because his primary role was to foster regeneration, by entrepreneurial means, with the private sector. However, he went far beyond what could be regarded as acceptable, and in doing so he abused his position, knowing full well that, at the end of the day, the taxpayer or the Government would bail him out if anything went wrong. He spent money that had not been approved by Parliament, and in the process he lost the taxpayer millions of pounds.

To make matters worse, when the NAO investigated the TDC, it was unable to find key information such as marketing and disposal files and contract files with developers, which, as we learned, had been shredded. In my view and that of many other Members, the very fact that those documents were missing and had been deliberately shredded shows that the NAO had discovered only the tip of the iceberg.

The worrying aspect of this case was that the then DETR clearly knew that something was not right about that corporation. For more than two years, my hon. Friend the Member for Middlesbrough, South and Cleveland, East (Dr. Kumar) had tabled parliamentary questions that made specific and general allegations. The same Member met the relevant Minister, and an internal investigation took place. However, it concluded that limited evidence had been found, and that there was little point in investigating what was possibly maladminstration. In my view, nothing was done simply because the DETR knew that it would otherwise disturb a can of worms, and all hell would break loose. The NAO's later investigation did indeed discover a can of worms.

Thus I am very critical of what was, in essence, a failure on the part of the then DETR. In failing, it also failed the taxpayer.

Mr. Bacon

I am enjoying the hon. Gentleman's speech. Does the fact that the permanent secretary who was in charge at the time is now in charge of social security give the hon. Gentleman any cause for concern?

Mr. Steinberg

I am sure that the hon. Gentleman would not expect me to comment on that, except to say that I hope that that permanent secretary's record is a little better in social security than it was in dealing with the fraud that I mention. I had better not go down that line because I seem to remember that that permanent secretary said—what was it again? Perhaps I should not go into that any further. I am sure that, if I did, you would be very cross, Mr. Deputy Speaker, and I do not want that to happen.

When the corporation was wound up in 1998, it estimated that it had left a surplus of about £14.5 million. Again, after investigation, it became clear that there was no surplus at all. In fact, there was a deficit of about £23 million, but that could rise even further to as much as £40 million—a sorry state of affairs and, again, the taxpayer has had to pick up the bill.

The final report that I want to comment on is about the handling of medical negligence claims in England. The costs to the taxpayer are entirely different from those of obesity or the Teesside development corporation. I am trying to show that public money can be wasted in a number of different ways. By March 2000, provision to meet likely settlements for medical negligence was £2.6 billion and claims expected to arise from incidents that had occurred but had not been reported were estimated at a further £1.3 billion. Thus a total of £3.9 billion in medical negligence claims is expected. That is staggering. How many hospitals could be built with £3.9 billion, making such claims unnecessary because the hospitals would be in better condition?

Mr. Howard Flight (Arundel and South Downs)

As has been mentioned, that report goes on to make the point that the legal costs are likely to be just as great as the claims, thus implying that the ultimate costs arising from that source may amount to about £7 billion.

Mr. Steinberg

Not being a mathematician, I will not go into the exact figure, but I intend to deal with that issue almost immediately.

On average, such claims take a long time to settle—about five and a half years. The point is that almost half the claims settled the year before last cost more in legal and other costs than the settlements themselves. For example, the cost of reaching settlements up to £50,000 was greater than the damages awarded in more than 65 per cent. of those cases. That report and the evidence itself make it clear that the whole system is chaotic and desperately needs an overhaul.

I think that all PAC members received a letter from Dr. Anthony Barton, who is apparently a solicitor and medical practitioner. In the letter that he wrote to me, he said: Victims of clinical negligence are rightly entitled to compensation; there must be affordable access to justice. Most cases are legally aided and most cases fail. The legal aid system (available only to a minority) is fundamentally flawed: Funding is granted on the advice of the applicant's lawyer; the system is inherently biased, creating perverse incentives for unmeritorious cases to be pursued. This is amply borne out by the low success rates of these cases. I have investigated that, and the figure is 24 per cent. He went on to say: The usual 'loser pays' rule of litigation does not apply to the legally aided claimant who enjoys costs protection; the claimant is in a no lose position and the health service defendant is in a no win position. Cases may be settled irrespective of merit in order to avoid irrecoverable legal costs (especially in low value claims). The system is inherently unfair. The problems of clinical negligence litigation are inextricably linked to the flaws of the legal aid system. He is absolutely right, as became clear when we undertook that report.

The report made it clear that because of the difficulty of pursuing claims, few people were able to do so unless they were getting legal aid. If the legal aid was not available, they were excluded from the legal aid process, exactly as has been described. Steps were taken to address the problem by bringing in a no-win no-pay scheme, and claimants' solicitors have been able to add to their charges a success fee of up to 100 per cent. of their costs if the claimant wins—a bonus that is claimed from the loser. That worries me greatly, as I am sure that it will encourage the development of a litigation culture—as we have seen in the United States of America—in which solicitors chase ambulances and patients sue for the flimsiest of reasons.

A short while ago, I visited the hospital that is being built in my area under the private finance initiative, with which I am very pleased. When I came out of the gate, I saw pasted on nearby bus shelters posters advertising a firm of solicitors in Newcastle called Samuel Phillips and Co. The huge headline on the poster encouraged people to contact the firm "If the nurse has made it worse". I do not know what other Members think of that, but I found it very distasteful. I accept that solicitors must advertise for business, but stooping to that kind of campaign is unacceptable.

I do not believe that the new conditional fee arrangements have improved patient access to justice. Indeed, they could have a detrimental effect, because solicitors will not want to take risks and claimants may not be able to get insurance. Between 1990 and 1998, claims rose by about 72 per cent. Is there more negligence, or are the public more aware of the litigation culture? In five years, the cost of claims has risen from about £200 million to £1.5 billion. The report says that the total value of outstanding claims with only a 50 per cent. chance of success in 2000 was about £4.3 billion. Those are staggering figures, which seem to indicate that we should concentrate on the apparent clinical incompetence throughout the national health service.

Obviously, claims are successful only if there has been negligence, and the report indicated that there had been £4.3 billion of incompetence in the NHS. I shall refer to some of the 94 negligence claims examined in a recent report, "Clinical Negligence in the National Health Service in Wales"—I presume that the situation is similar in England; there is no reason why it should not be. The Auditor General for Wales produced the report, so it is very reliable. One of the aspects examined was the frequency of alleged or admitted causes of clinical negligence. Of the 94 claims, more than 30 per cent. were for misdiagnosis by a doctor, 20 per cent. were for technical mistakes during an operation, 18 per cent. were for surgical mistakes during an operation, and fewer than 10 per cent. were for drug complications. To me, that was unbelievable.

The report also notes some of the main alleged or admitted causes of negligence; for example, under misdiagnosis, it lists Doctor fails to take an x-ray. Doctor underestimates patient's concerns. Failure to recognise signs of illness. What are doctors for if they cannot even do that? Other causes of negligence are listed under the heading "Operation, technical" and include Failure to listen to the patient's requests. Failure to perform pre-operative checks. Failure to provide pre- or post-operative explanations. Inadequate supervision of instruments—dislodged or not removed. Do we really want to go into hospital? The list under "Operation, surgical" includes Damage to organs, muscles or nerves. Failure to administer appropriate drugs during operation. Incomplete operation. The list goes on; it is a horror story.

We need to take drastic action to eradicate that incompetence. The arrogance of many medical professionals needs to be tackled, otherwise we shall continue to pay out millions of pounds in compensation. I have no faith at all in the British Medical Association as a regulator; we need an independent body to look into cases of alleged incompetence.

A pilot study in two London hospitals concluded that about 10 per cent. of patients admitted to acute hospitals experienced an adverse event, but that half those events were preventable. That is appalling and does not give us much confidence about going into hospital.

Patients should be able to check on whether a doctor has a record of negligence. Almost every constituent who comes to me with a complaint about a hospital has experienced a negative attitude from the hospital.

Patients must have clear guidelines on the options open to them, whether for a complaint or a claim. If that occurred, most cases would never reach the stage where solicitors were involved. If trusts were more open and honest, the number of cases resulting in litigation would be considerably reduced and so would the bill to the taxpayer.

The House will be delighted to know that I have almost reached the end of my speech. The examples that I have highlighted from our investigations in 2001–02 show both the importance of the PAC in the fight against waste, inefficiency and incompetence and the need for all Departments to achieve value for money. Government spending needs constant scrutiny if there are to be real improvements. Scrutiny by the PAC has clearly led to improvements. By virtue of the excellent reports that we receive from the NAO and the vigorous way in which my colleagues on the PAC carry out their work, all expenditure is made accountable to Parliament.

4.33 pm

Mr. Richard Bacon (South Norfolk)

It is a great pleasure to follow the hon. Member for City of Durham (Mr. Steinberg). We have all been delighted and entertained by his enthusiasm for the private finance initiative, especially in relation to his local hospital.

I, too, want to dwell on the PFI. It is a matter of great concern and affects much of what the PAC does, in relation both to central Government projects, such as buildings and computer systems, and to schools, prisons and hospitals.

The work of the PAC is of huge importance and I am privileged to be one of its members. According to figures that the Committee has seen on just three aspects of Government—Customs and Excise, health and social security between £16 billion and £24 billion of taxpayers' money disappears in one way or another. I do not say that it is all unaccounted for, as not all the accounts are qualified. Neither do I pretend that it is easy to account for all such money, or someone would have done so by now, but the figures show the large scale of Government expenditure and thus the importance of the PAC's work.

The PFI has been the subject of much comment and debate; it is a matter of some controversy. The Institute for Public Policy Research recently pointed out that only 6 per cent. of PFI projects completed by central and local government were subject to independent value-for-money examination by official audit bodies. I discussed the 6 per cent. figure with the National Audit Office, which suggested that it might be slightly higher depending on how it is calculated. None the less, a substantial proportion of PFI projects have not been independently evaluated. The institute called for a full and independent review of value for money in the PFI to check both that the schemes are expected to deliver value for money when signed and that they deliver the predicted benefits once they are up and running. During last year's conference season, the trade unions called for a moratorium on the PFI until a full assessment had been made, although they got short shrift from Treasury Ministers for doing so.

The Health Committee mentioned the PFI in its recent report on its work over the last Session. It noted that its inquiry, "The Role of the Private Sector in the NHS", was undertaken in the knowledge that there had been a great deal of controversy and debate about the merits and cost-effectiveness of the PFI. The Committee sought to discriminate between polemical evidence that was being advanced by both sides in order to reach a balanced judgment. Its report noted: Perhaps the key deficiency identified by the Committee related to the lack of accessibility and clarity in the data used to support PFI decisions. The Audit Commission recently published a report on the PFI in schools that was critical of some of the early contracts. By measuring PFI projects against a control group of traditionally funded schools, it concluded that the PFI had not yet delivered some of the most important benefits expected of it. I accept that those were early contracts and that lessons have been learned—I am sure that that is what the Economic Secretary would say; that is probably what he is writing down now—but my enduring impression from my time on the Public Accounts Committee is that, across various areas of Government, lessons that should have been learned from experience often are not: they are ignored or forgotten. Regardless of the merits of the case for the PFI, I hope that the Economic Secretary will accept that neither the Treasury nor the Government generally has yet succeeded in building a settled will in favour of the PFI. On the Committee, sceptics include left-wing state socialists and right-wing free market chartered accountants.

Mr. Rendel

And one or two Liberal Democrats.

Mr. Bacon

Yes, even one or two Liberals are sceptical about it. If there is a bandwagon going, I guarantee that a Liberal Democrat Member will jump on to it. With that kind of spectrum, who could possibly go wrong?

If the Treasury wants to persuade people of the merits of the private finance initiative, it has to do at least two things. First, it should be much more open and transparent. Secondly, it needs to do much more to allow competition, by which I mean that it needs to allow PFI and conventional procurements to compete with one another on similar projects and to run side by side in the long term.

Let me take those two points in turn. First, the Treasury simply needs to open up more. If it is right about the PFI, what has it got to be afraid of? It can only gain from greater public understanding of the arguments. It should be open about professional fees, about which I shall say more in a moment, and explain more about how an assessment is made, openly acknowledging the other factors that are involved. If it involves using a balanced score card, it should say so, and explain how that works. People understand that value for money does not always involve buying the cheapest—that is why we are not all driving around in Reliant Robins.

An area in which we need complete transparency is that of professional fees. The National Audit Office's report on the PFI contract for the development of West Middlesex hospital states that the cost of the advisers was made up of £967,000 for financial advisers, £803,000 for legal fees, £204,000 for project management, £128,000 for the quantity surveyor, and £237,000 for "Others", making a total of £2,339,000. What it does not say is that those are not the total fees for the project, but only the fees paid by the Department of Health. The professional fees paid by Bywest Ltd., the PFI contractor for the hospital, are separate. When the witnesses appeared before our Committee, I asked them to supply more details about the other fees, and I await their answers with interest.

PFI contractors are in a position to pay their side of the professional fees only because they know that they have a contract with the Government that in the end will entitle them to receive annual unitary payments from the Government. The taxpayer is therefore financing those fees. Hon. Members have a right to know on behalf of taxpayers how much is being spent in that way. The Treasury explicitly acknowledges that in relation to its building in Great George street. I tabled several parliamentary questions about that PFI project. The Economic Secretary is fortunate that he did not hold that position at that time; the current Financial Secretary had the burden or pleasure of answering them.

The answer to my parliamentary questions was that the fees on the Treasury's side were £3.223 million, and that Exchequer Partnership, the PFI contractor for the Treasury building, paid £22.08 million. The total at 27 June 2002 was therefore £25,303,000 in professional fees. Given that the building cost only £118 million to construct, according to Treasury figures, it is odd that the professional fees should constitute such a high proportion of the total. Common sense suggests that if one pays £118,000 for a house, one would not expect to pay professional fees of £25,000 to the solicitor and the bank. Even allowing for the higher fees that one would expect for a complex project such as the Treasury building, it is odd that the professional fees should be more than one fifth of the total construction cost.

Sir Kevin Tebbit, who is permanent secretary at the Ministry of Defence, said in evidence last year that the fees in relation to the financing of a typical PFI project should be approximately 1.2 per cent. of its net present cost. The net present cost of the Treasury project is £170 million. Under my preferred COTD—cash out the door—measure, the expected payments for the building in the 35-year life of the contract, including the project's inflation assumption, total £838 million. Again, the former Economic Secretary provided the figures in an answer last year.

If we use Sir Kevin's rule of thumb of 1.2 per cent. for financing costs, one would expect that the total fees for the Treasury building, with a net present cost of £170 million, would be around £2,040,000. However, the actual fees relating to the bond issue for the Treasury building are £6,968,000 for Exchequer Partnership and £2,637,000 for the Treasury. Again, the Treasury provided the figures. That is a total of just over £9.6 million, which is 5.65 per cent. of the net present cost. That is nearly five times more expensive than the figure that one would assume using Sir Kevin Tebbit's rule of thumb.

I asked Sir Kevin whether he knew why the fees for the Treasury building were so high. He assumed a somewhat Delphic appearance and replied that it was perhaps not a good idea for him to tell the Treasury how to do its job. However, I should like Ministers to explain why they appear to be spending so much taxpayers' money all over the City. I wonder whether the Treasury has decided that, after three years of falling stock markets and a rather light deal flow, short of bidding for Safeway it is time to help the City of London through some old-fashioned pump-priming. However, if that is so, hon. Members should know about it.

Will the Financial Secretary explain why I received two replies from her to the same parliamentary question on fees? Both answers were received on 27 January. The code numbers for both are the same. Every reference number is identical, but one answer states: I refer the hon. Gentleman to the reply I gave him on 27th June 2002".—[Official Report, 27 January 2003; Vol. 398, c. 619W.], yet the other states: I shall let the hon. Member have a reply as soon as possible. That suggests that something has been missed, that the information has not yet come out or that further expenditure has occurred. I await the reply with interest.

Treasury Ministers will know that the bond issue by Exchequer Partnership for the financing of the Treasury project was for £127,790,000, and that, with some mezzanine debt and other shares and stock, the total capital involved was £140, 965,000. What interests me is whether the bond that was issued the other day, on 16 January 2003, by Exchequer Partnership (No. 2) plc for £165,145,000 means that there is now a whole new tranche of fees to be paid on top. If so, how much is involved? Are all the numbers that I am talking about in relation to the Treasury building only half the picture? Does Exchequer Partnership (No. 2), which covers only the eastern end of the building, mean that all these fees should be roughly doubled?

Why in the new Exchequer Partnership (No. 2) bond issue, in the many crates of documents relating to the new bond that are available for inspection at Allen and Overy, or indeed at the Financial Services Authority, is the financial model not disclosed, contrary to previous practice?

Incidentally, what precisely were the benefits to the public purse in breaking the PFI project for the Treasury building into two parts? Members of the Committee went round the building. I walked all the way round it, and it definitely looked like one building to me.

While on the subject of openness, may I say that when I asked the Ministry of Defence about fees it gave me figures only in relation to its side, and not in relation to the PFI contractor, Modus Services? The Treasury has been admirable in answering these parliamentary questions in relation to both sides, and rightly so, because ultimately it is the taxpayer who bears the cost.

The Treasury professional fees are just over 10 per cent. of the total. On the same basis, given that the MOD is paying out in relation to its PFI building fees of £11,190,000, one might expect roughly another £107 million of fees for Modus Services Ltd., the PFI contractor for the MOD building. I do not know whether that is too high or too low. It is certainly plausible. The fees for the London underground are already around £400 million, although how much has been achieved for that is a subject for another day and a separate debate.

The point is that the taxpayer has a right to know. If the Treasury seriously expects people to come on side in relation to the PFI, we must know the facts. It is no good saying, as the MOD did in its answer to me, that the fees paid by the MOD are available but that the fees for the PFI contractor are not.

Geraint Davies

As the hon. Gentleman is focusing on the PFI, may I ask him what he thinks will be the impact of the change of the Treasury's discount rate on the present value of PFIs from 6 per cent. to 3 per cent. and on the number of PFIs coming forward and their relative value to public sector comparators?

Mr. Bacon

I shall come on to the public sector comparator in a minute. Answers I have received from the Treasury, although how much credence one can attach to them is a moot point, show that the Treasury view would be that the discount rate cannot be seen in isolation. I talked to the National Audit Office about the discount rate. Its view is—and this is a point that I shall come to when I talk about the public sector comparator—that, although one clearly needs to take note of the discount rate, even more important is the question of the risk factor, the way in which capital risk costs and risk factors for a variety of different items that go into the calculation are assessed. I was going to say "manipulated", but I shall leave out such a tendentious word.

If we are to get the public on side, the Treasury must be more open about this matter. As I have said, it is no good the MOD's saying that its professional fees are available but that the fees paid by the contractor, Modus Services plc, are a matter for Modus Services plc, as if that is that. We need to make fair comparisons if we are to understand the PFI and weigh it in the balance. The Government have more work to do in selling the PFI. Inadequate and unhelpful replies do not assist their case. Such replies only make one think, rightly or wrongly, that there is something to hide.

The second area I want to address is the question of the Treasury's allowing more competition, by which I mean competing types of procurement. It is all very well saying that the investment programme through PFI is only around 10 per cent. of current Government investment. I attended the seminar held at the Treasury last year, which was very helpful. The then Chief Secretary quoted that figure. I think that he said that £3.5 billion was going through the PFI and about £35 billion was going through conventional routes, but if we look at the current building programmes in our constituencies—schools, hospitals or prisons—it certainly does not seem like that. If one asks my local education authority in Norfolk how much choice it has as to which kind of procurement to adopt, it will reply that the answer is zero choice. It is told "You want some money? This is how you get it." That is hardly the best way to assure ourselves that taxpayers' money is being spent in the most efficient, effective and economical way.

The best test would be a live ongoing test. Procurements could run side by side for different projects in similar areas. For example, one could allow some school contracts to be let under the private finance initiative and others by conventional methods. That would give a better basis for assessing whether the PFI was delivering the claimed benefits and whether mistakes from earlier contracts had been learned. At the moment, we are just assured that that is the case. The fundamental point is that we should subject the PFI to ongoing competitive pressure from other forms of procurement. At the moment, Ministers reassure us that everything is rosy because the project has been compared with the public sector comparator. We are supposed to take that at face value.

On the public sector comparator, which the hon. Member for Croydon, Central (Geraint Davies) mentioned, the Ministry of Defence building report "Redevelopment of MOD Main Building" has an interesting chart on page 24. It shows the public sector comparator broken down by different categories. The left-hand column has a figure of base costs for capital expenditure, replacements, operating costs, legislative change and so on. There is also a risk factor. The middle column has a number and the right-hand column has a percentage. For example, the base cost for capital expenditure is £208.6 million. The risk, as a percentage of the base cost, is 29.5 per cent., making a further £61.5 million. At the bottom of the chart is a total base cost of £643.3 million. If all the risks are added up as a percentage of the base costs, they amount to a further £102.9 million. Miracle of miracles, the total is £746.2 million, which is the public sector comparator. Guess what? The PFI came in at £746.1 million.

Mr. Flight

Not £745 million?

Mr. Bacon

No, the PFI was much closer than that. There was only £100,000 in it.

I had a pocket calculator with me at the hearing and thought that the sum looked strange. It was almost dodgy: how could it be that close? Having done some calculations, I decided that a bit of jiggery-pokery had been going on. If we reduce the 29.5 per cent. figure, which is quoted as the risk as the percentage of base costs for capital expenditure, by 0.5 of 1 per cent.—from 29.5 to 29 per cent.—instead of the public sector comparator looking £100,000 more expensive, it suddenly looks £1 million cheaper. If instead of going from 29.5 per cent. to 29 per cent. we go down to 25 per cent., it looks £10 million cheaper. If we go down to 20 per cent., it looks £20 million cheaper. The question arises: how was the figure of 29.5 per cent. reached? What is so miraculous about it? What makes it so special? Why is the risk for "legislative change" 4.6 per cent.? Why is it not 3.6 per cent. or 9.6 per cent.?

I share my concerns about the public sector comparator with the hon. Member for Hemsworth (Jon Trickett). He used to be a building contractor. If his clients queried a price, I can only imagine what their reaction would have been had he said, "Don't worry, chum. I've put in this capital expenditure risk factor here of 29.5 per cent. on top of the base costs. Experience shows that this factor varies between 2 and 51 per cent. So if you take the difference between the two, divide it by two and add a little bit for a rainy day—if you really feel like it, divide by two thirds of the square root of the number you first thought of—then the 29.5 per cent. does indeed seem, well, how can I put it, guy, absolutely bang on the nail. You've definitely got the best possible price available." I imagine that had the hon. Gentleman said that, he would have got an answer involving some plain Anglo-Saxon words, possibly mentioning brass knobs.

The plain fact is that the public sector comparator provides enormous scope for manipulation to get the answer one wants by exploiting the inherent uncertainties of any given situation and the complexity of the financial models.

Mr. Jenkins

As someone who has been involved in the public sector, I have made decisions on purchasing and refurbishing contracts. If a contract came that close to the figure, I would have severe doubts about going down the PFI route. The marginal cost of maintaining my staff, expertise and ability to use my staff in future would make me decide firmly in favour of the public procurement route. [Interruption.]

Mr. Bacon

I would be grateful if the hon. Gentleman would rephrase his question succinctly. I did not hear all of it because of undoubtedly incisive and eloquent chuntering on the Front Bench.

Mr. Jenkins

If there was a close decision between PFI and public procurement, as someone who has had experience of such decision making, I can assure the hon. Gentleman that I would go down the public procurement route because it would mean that I could keep my staff, make a contribution to my overheads and be allowed to compare contracts as I would have a control group capable of putting a package together.

Mr. Bacon

I agree that a control group has merits. One does not have to rely on assurances from Ministers at the Dispatch Box that all the lessons that could be learned have been learned, and that everything is being done in the best possible way with the possible best motive for the best possible result, as one has something that one can look at. That point was made in a report, not by the National Audit Office, which advises us, but by the Audit Commission. A bit of competition between audit bodies does not seem to do anyone any harm. It may be true that those schools contracts referred to in the Audit Commission report were early phase contracts, but that is no reason why we should not go forward with some new conventional procurements so that we can run different systems side by side.

One worry about the contracts that I mentioned earlier is the fact that they are long term. The contract for the Treasury building, for example, runs for 35 years, as does the contract for West Middlesex university hospital. The contract for Norfolk and Norwich university hospital is for 60 years, with a break at 30 years. A short PFI contract lasts 20 years. The worry is whether it is possible to write a sufficiently flexible contract to allow for huge changes that could occur over such lengthy periods. Meanwhile, of course, annual unitary payments are obligatory. I appreciate the point that the Treasury frequently makes about acknowledging the need to pay whole-life costs, but the rational decision may be to let something decline because the resources are needed for something else. We need to consider whether the PFI allows us sufficient flexibility to do that. Running the two systems side by side would be a great way to check that in real time.

Mr. Frank Field (Birkenhead)

As I was late arriving for the debate, I may not be successful in catching your eye, Mr. Deputy Speaker. However, as the hon. Gentleman is talking about the Ministry of Defence contract, it is invaluable to have the NAO evaluation, which compares the PFI with a more traditional redevelopment route. Basic questions need to be asked. If we assume that the MOD has more than 700 rooms, the redevelopment contract comes out at more than £1 million a room. Is any redevelopment costing that much sensible, given that the total cost of the contract is three times that for the new parliamentary building?

Mr. Bacon

I have a lot of sympathy with the right hon. Gentleman's point. Asking simple, fundamental questions is an important part of what our Committee does and I am staggered by the extent to which they are oft en not asked in Whitehall. When I asked the finance director of the NHS how much taxpayers' cash he expected to pay out, making allowances for inflation, during the lifetime of the contract for West Middlesex hospital, he did not know. He did not know the answer to that basic question. He did not know how much money he was spending, even though he had come to our Committee to talk about precisely that.

One of the Treasury's own advisers described the public sector comparator as "cretinous". The NAO is usually a paragon of understatement. As a member of the PAC, I have learned to savour its understatements like a fine burgundy. One of my favourite reports was entitled "Inappropriate adjustments to NHS waiting lists"—it was about managers fiddling the figures. Yet even the NAO was moved to describe the public sector comparator as "pseudo-scientific mumbo jumbo" which leads to "spurious precision" and a temptation to fiddle the figures". By its elegant and reserved standards, that is little short of apoplectic. Will the Financial Secretary assure us that the public sector comparator will be put out of its misery as a principal tool for decision making on PFI projects? At least, if it is not, I should be grateful for an explanation of how much longer we will have to flog this dead equine, which I am willing to do if required.

Will the Minister acknowledge that, for schemes of the same type, such as school schemes, it makes sense to run some PFI schemes alongside conventional procurements? That would help to measure outputs properly over the long term, and to maintain competitive pressure.

Will the Financial Secretary explain why the professional fees for the Treasury building were so high? How much more is there still to pay? How much cash is the taxpayer going to have to part with in total over the life of the project, including the eastern part of the building? Should I double my figure of £838 million? Why is the financial model for Exchequer Partnership (No. 2) not available for inspection at lawyers' offices and at the FSA? How does that square with the aim of becoming more open, transparent and accountable, which has been central to my remarks?

Finally, it is a huge pleasure to be on the Committee. I should like to thank Sir John Bourn and his staff, particularly the assistant auditors general, especially Jeremy Colman and Caroline Mawhood, with whom I have had close dealings. I also want to thank the NAO press office staff who do a tremendous job in promoting the work of the office and the Committee. Finally, I want to thank the people in the Clerks Office—Nick Wright, Richard Poureshagh and Ronnie Jefferson—who also do a tremendous job. They are very long suffering and hard working.

I look forward to the Committee's work in the year ahead.

5.1 pm

Jon Trickett (Hemsworth)

It is a pleasure to follow the hon. Member for South Norfolk (Mr. Bacon), whose speech was typically robust and well researched. When he mentioned my contribution, I feared that I would be branded as a left-wing state socialist, rather than as a building contractor. I am not sure whether I would not be proud to be branded as such.

I, too, should like to thank the officers working for the Committee and the NAO. The Committee involves an enormous amount of paperwork. I occasionally misplace documents, and the staff have always been polite and efficient in providing replacements. I usually then find the original documents, and end up with two sets. That is wasteful, but I am grateful for the help that I receive.

It is a privilege to be on the Committee. We meet some of the finest minds in the public sector when we encounter the permanent secretaries and accounting officers who work for the various agencies and Departments. I have learned something about the organisational culture of the civil service. As has been said, things are done in the civil service that would not be done in the private sector.

The British seem to prefer the dilettante culture. A person who is a good teacher will not necessarily be a good head teacher, nor a good athlete a good sports administrator. A good policy theorist should not necessarily become head of the NHS, but promotion in the civil service tends to go to the policy boffins rather than the managers. The British seem to make less of management as a skill than we should.

Secondly, a curious convention in the civil service is that current accounting officers take responsibility for the mistakes or successes of their predecessors. No doubt that tradition is honourable, but does it not militate against good management? In any other organisation, a person making a colossal blunder or a great success would receive the credit. The PAC often interviews people who are not responsible for the decisions or management functions being investigated. The innovation alluded to earlier by the hon. Member for Gainsborough (Mr. Leigh), the Committee Chairman, is very welcome. It will mean that the person responsible for a decision will appear before the Committee, rather than the current accounting manager.

My third point about the civil service's organisational culture is a curious one. We often discover that apparently criminal acts have been perpetrated—not by civil servants, but by those for whom services are provided. Yet there is a marked reluctance across the whole civil service, in almost every Department, to prosecute. Perhaps the British habit of tolerance is a good one, but to tolerate some of the criminal activities that appear to have taken place is taking tolerance a little too far. The Committee would like to see Government agencies taking a more robust attitude towards such matters than they have done, at least for as long as I have been on the Committee.

Moving away from organisational culture, I want to reflect on partisanship within the Committee. It is fascinating to see how the Committee, although it deals with the most tendentious political and other problems that our country faces, avoids the crime—if crime it be—of partisanship. We seem to be able to approach issues in a non-partisan way. I do not mean that I personally, or any other members of the Committee, have abandoned our politics, or the philosophical and moral underpinnings that brought us to a particular partisan position. I am usually guided in my questioning by a particular philosophical, political or moral perspective, but it is a good and worthwhile tradition that we avoid the crime of partisanship, which would diminish the Committee's work.

I intend to speak principally about the private finance initiative, and I shall illustrate the point that I have just made with reference to the PFI. It seems to me that it would be possible to approach it from an ideological point of view—to say that, for ideological reasons, the idea of a public service being provided either on or off the balance sheet of the public sector is either a bad thing or a good thing. However, we have not taken that line, and the Chair of the Committee regularly reminds us that we ought not to be asking such political and policy questions. When we address PFI matters, the civil servants frequently, almost habitually, say that this is not a question of something being on or off the balance sheet, but a pragmatic judgment that has to be made when particular functions, or a particular construction contract, is being taken out to PFI.

The normal argument in support of the PFI is that the Government are simply not very good at handling large-scale capital projects, which is why they are increasingly adopting the PFI. While I have been on the Committee public expenditure has increased substantially, and so has the extent to which the Government have used PFI as a means, or methodology, of achieving their objectives.

Whether or not the Government have not customarily handled capital contracts and building contractors very well, the Government, the Treasury or whoever else makes the decisions has now taken a further step, in saying that not only should building contracts and capital projects be handled externally through private contracts but that the financing of the contracts itself should be undertaken by the private sector.

When we interviewed Sir Andrew Turnbull, he said that the point of privatizing if I may use that word—the financing functions, which are conceptually separate from the building functions, was to use the expertise of private financiers to drive the building contractors hard, and that the leverage that the banks and other funding institutions would exercise over the builders and other main contractors would somehow enhance the private builders' capacity to deliver projects on time.

That is a persuasive argument, but when everything is taken into account I am not entirely convinced by it. Let me examine the way in which the PFI has operated in the schemes that we have considered during the year. We have been talking particularly about the Royal Armouries—in which I declare a marginal interest, because I was the leader of Leeds city council when the project was brought to Leeds—and the Treasury building. We also discussed a more general report called "Managing the Relationship to Secure a Successful Partnership in PFI Projects".

Taking those three papers together, I think there is an overwhelming case for saying that the PFI is not working to the advantage of the public sector. I shall highlight some of my causes for concern, which, as is the nature of the Committee, are pragmatic rather than ideological. It seems to me that, in general terms, the PFI has been biased in favour of the private sector. That has happened in many different ways, as the reports describe. I shall focus on the principles, not the detail.

First, the rate of return that the private sector has achieved from the PFI is substantially higher than that which it would achieve from other contracts. We were told that by the chairperson of the Major Contractors Group—the person who brings together all the building firms that work under the PFI. He told us that the builders were achieving a rate of return on turnover at least 1 per cent. higher than they would achieve on non-PFI building contracts. That is a huge amount of money, given the hundreds of millions of pounds involved. That suggests at the very least a lack of competition between the private contractors.

Secondly, as other hon. Members have said, the discount rate that the Treasury established—6 per cent.—was unusually high and has now been reduced substantially. We were told that it was high because the Government wanted to encourage the creation of a PFI marketplace, but the discount rate was extraordinarily biased. It probably cost the public purse tens of millions of pounds.

Thirdly, in the early days at least, PFI contracts had no provision to cover the situation where the financier refinanced the scheme after winning the contract. That produced windfalls of tens of millions of pounds of additional profit. As we all know, if we remortgage our house when interest rates are reduced, we can achieve a windfall. Contractors were doing that deliberately and there was no provision in the Government contracts to claw back any of that money. That has clearly changed now but, in the early days at least, refinancing was a major windfall for the private sector.

Fourthly, the risk that was allegedly being transferred from the public sector to the private sector when we went through the PFI, which has been given a number—millions of pounds of public money were involved—was rarely transferred. It would be unimaginable for a school or hospital to be allowed to go bankrupt; the Government would have to stand behind them as a lender of last resort. Precisely that happened in relation to the Royal Armouries museum; the paper is quite clear, so I need not go through it. Even the Treasury accepts, I think—the Committee certainly did—that the public sector stood behind the risk. In that sense, no risk had been transferred.

I want to mention one or two other points about the way in which the PFI operates. First, it must be said that the skill of the civil service in handling contractors has been lamentable. Hon. Members need not take my word for it; that statement was made to the Committee by the Office of Government Commerce, the official Government body now dealing with PFI contracts.

The National Audit Office conducted an opinion survey of those people in the public sector who were handling the PFI contracts. Mr. Gershon accepted in evidence to the Committee that he was unhappy about the blend of skills that the public sector had in negotiating the contracts. In 17 of 72 contracts there was a wholly inappropriate mix of skills among the people handling the building contract.

Worse, Mr. Gershon accepted that after the contract had been let, a wholly new team of civil servants was brought in to handle the contract. The people handling the contract were usually different from the people who had let the contract. The private sector would not make such a mistake. Mr. Gershon accepted my contention that two thirds of all the contracts being managed by the PFI were being managed by civil servants who had little or no involvement in the procurement of the contract—another fundamental error. It is lamentable that, by having inadequate management processes in the public sector, we have allowed the private sector to drive so much of the agenda.

The way in which the PFI was handled in relation to funding competitions raises many questions. Other hon. Members have said that more detailed analysis of its operation is needed. The Committee supported the statement made by the NAO that public finance would be much cheaper than private finance, and the only way to square the circle and be able to claim that the contract as a whole is cheaper in the private sector than it would be in the public sector is—to use a phrase that I have often used—by loading the dice against the public sector.

During our discussions on the PFI, it emerged that the private sector invented an entirely new way of handling contracts through the use of so-called due diligence. It struck me that that use of due diligence, which was invented by the private sector, is a tool that might well now be available to the civil service in its handling of contracts, and that much of the risk that we say we take if we retain contracts in-house could he obviated in that way. Sir Andrew Turnbull and I engaged in what could only be described as a round of shadow boxing on the subject, but I maintain that the use of due diligence by the civil service might well have obviated many of the risk factors that we supposedly handed over to the private sector through the PFI.

When the Committee interviewed the chair of the Major Contractors Group, it came as a surprise to me to learn that the various building contractors who allegedly compete with each other for PFI contracts meet regularly to discuss general matters, though not specific contracts. The fact that such a body exists suggests to me that if they do not discuss such matters at the table, with minutes taken, such discussions may well take place afterwards on the golf course—although I should say that the gentleman we met made some excellent points and I have no wish to impugn his professional integrity.

Mr. Jenkins

The same gentleman—the spokesman for the construction contractors—said that on early PFI contracts, the firms lost on almost every building project. The cost to the companies of building was greater than the money they received. They relied for profit on the rest of the package—the continuing maintenance and operation of the projects. Why did everyone lose on construction but remain eager to take part in the process? That is the worrying question.

Jon Trickett

I thank my hon. Friend for those points. I do not feel that, either in the reports before the House or subsequently, we have come to grips with the operational details of the process.

As I was saying, the possibility of collusion cannot be ignored. Furthermore, the way in which the civil service has operated the tendering process means that often the shortlist of competitors has been reduced to one far too early in the process. Once there is only one person in the ring and that person knows that they are the only one tendering, the capacity of competition to drive down the price to the advantage of the taxpayer is lost. That problem is seen all too frequently in the PAC's reports. The possibility of collusion combined with the practice of reducing shortlists too early in the process make me wonder about the degree of competition.

I make that suggestion because something quite startling emerged from our discussions with the chair of the Major Contractors Group. We were told that the cost of tendering could range from £1 million to £4 million. He told us about a £70-million contract that his company had won, in which the price of entry had been £4 million. The cost of tendering and preparing all the documents that the civil service wanted, was £4 million—in legal fees, quantity surveyors' and architects' fees and all the other functions that were required. The number of companies that are capable of stumping up £4 million—or even £1 million, which we heard was often the figure—is limited. Whether or not there is collusion, there must be a strong temptation among the handful of companies that are tendering for such work to say to each other, "Look, we are all spending £4 million, but only one of us will get the contract." I would be tempted, were I in that position—I have been in the building industry—to say that I would make a tight bid on the contract, but not on the next three; £4 million is a lot to risk on a gamble that one's bid might come in the lowest. To be fair to the contractors, such a suggestion was denied, but there must be a temptation. The price of entry to PFI prohibits the small and medium-sized contractors, militating against competition.

In every case, the PFI is supposedly tested against this thing called a public sector comparator. The idea is that the accounting officer will invite tenders from the private sector; as I have suggested, those tenders might have only limited value. The accounting officer will then compare those tenders with a mythical public sector tender, called the public sector comparator. How this is derived is a mystery to the Committee; we have never had it explained or analysed. Even this afternoon, the Treasury has fallen back on the public sector comparator, saying that where it is higher, it leads inevitably to a project being handed to the private sector and becoming a PFI project.

Mr. Bacon

It was a mystery to me, too. Does the hon. Gentleman recall Sir Kevin Tebbit referring to the "Monte Carlo method", which may illustrate the precision with which the public sector comparator is wrought?

Jon Trickett

I bow to the hon. Gentleman's memory. I do not remember that analogy, but I remember phrases such as "mumbo-jumbo" being used by accountants describing the public sector comparator. Accounting officers and permanent secretaries have to rely on something when they hand out £1 billion contracts. I believe that they are exposed to criticism if they do not have a comparative figure because, almost inevitably, we are dealing with a single private sector competitor in the latter stages of the bid. In order to demonstrate value for money, the civil servants have to be able to demonstrate in some way that they are choosing to go down one particular road rather than another. However, the public sector comparator model is riddled with holes and the National Audit Office has told us that it is mumbo-jumbo.

The Committee has agreed to look into the public sector comparator, but suppose the model collapsed, as I suspect it will? We would then be left with the dangerous position in which civil servants were handing out multi-million and sometimes multi-billion pound contracts to the private sector with no demonstration that value for money was being achieved.

If we put that alongside the point that the number of companies in the UK or Europe that are capable of bidding is down to a handful who meet frequently in conclave, we must be concerned about our exposure to the allegation that we are not getting value for money; in the mean time, we are putting future taxpayers in hock to the tune of tens of billions of pounds.

I have made these points on the PFI out of a genuine spirit of concern. I am in any event predisposed to believe that wherever possible the public sector ought to be the provider.

5.25 pm

Mr. George Osborne (Tatton)

I apologise for not being present for the whole debate. I missed some contributions because my constituent, Sally Clark, has just had her conviction for murdering her two children overturned.

My work on the Public Accounts Committee is among the most rewarding that I have done in the 18 months that I have been a Member. The right hon. Member for Swansea, West (Mr. Williams) said that he joined the PAC in 1965, which was six years before I was born. That puts my 18 months of experience into perspective. Nevertheless, I have tremendously enjoyed the work. I remember that, when I was a Government special adviser, what the permanent secretary most feared was not his Minister appearing in Parliament or Opposition days, even when we had a majority of only one, but his appearances before the PAC. That struck a chord with me at the time, and I remember saying that, if I ever got into Parliament, I would try and get on the PAC, which I managed to do.

One of the strengths of the PAC is the fact that it does not get involved in the policy debates that dominate this place. That point has been made by a number of hon. Members in all parts of the House. We follow the money, as Woodward and Bernstein would put it. As a result, we uncover cases of fraud and weaknesses in policy. Another strength of the Committee is its Chairman. I must say that, or I will not be called in subsequent hearings. His relaxed style, with the touch of the rapier, is engaging and effective.

I join other members of the Committee in paying tribute to the work of the National Audit Office, which provides us such a tremendous service. I remember Sir John Bourn telling me that many of the people who work in the NAO could find much better-paid work in private sector accountancy, but choose not to because they are motivated by a sense of public duty and public spirit, and enjoy their work. Among the most enjoyable work are the studies conducted on behalf of the NAO that the PAC considers

I welcome the Financial Secretary as an honorary or de jure member of the PAC. I have mentioned to her before that the Tatton Conservative association provides mutual aid to the Bolton West Conservative association. The PAC is supposed to assess value for money and progress against targets. We have totally failed on value for money, because the Financial Secretary's majority seems to increase the more money we put into Bolton West Conservative association, and we have failed in our target to unseat her. I think that we will be twinned with a more marginal seat, so we are off her back. She will probably be there for some time to come.

The debate is wide-ranging because of all the reports. Hon. Members have picked on those that interested them. The Chairman did a good job of drawing out some general themes. I shall speak mainly about the private finance initiative, as have other hon. Members, and briefly mention a couple of other reports. I was struck by our work on NHS waiting lists and how targets distorted clinical activity. The right hon. Member for Swansea, West told me that when he was a Minister in the Department of Economic Affairs—which, by the way, is why I think he has a deep suspicion of the Treasury—Tony Crosland told him that Governments spend five years undoing what they do in the first six months. The NHS waiting list targets were an example of that. The work of the PAC showed how distorting targets can be, as they were on air quality, as my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) mentioned, I think, when I was absent.

The work that we did on prisoner reoffending was striking. I know that the hon. Member for Croydon, Central (Geraint Davies) was particularly interested in that. I was struck by the extremely high rate of recidivism and the lack of proper support for prisoners in prison through training and drug rehabilitation. I have in my constituency the second largest women's prison in the country, and it has no proper drug rehabilitation programme, despite the fact that 80 per cent. of the inmates are heroin addicts. That is very striking. It is also striking that 40 per cent. of prisoners are homeless when they are released, so it is hardly surprising when they almost immediately—

Mr. Lindsay Hoyle (Chorley)

On a point of order, Mr. Deputy Speaker. I am very concerned that the right hon. Member for Haltemprice and Howden (David Davis) has been making arrangements to visit my constituency and have his photograph taken outside a brand new bus interchange developed by the Labour authority there, but has not had the courtesy to tell me that he is visiting the constituency. Can you give any ruling on this matter?

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. That is not a matter for the Chair, but I can repeat what has been said from the Chair on a number of occasions: it is one of the courtesies of the House that hon. Members should inform the Member representing a constituency if they are visiting it for a political purpose. Alas, that rule is not 100 per cent. observed, but it would certainly help cordial relations in the House if it were.

Mr. George Osborne

The work that the Committee did on tobacco fraud, which other hon. Members have mentioned, was also interesting. With the protection of parliamentary privilege, I should like to say that I think that the executives of Imperial Tobacco lied to us in saying that they exported billions of cigarettes to Kaliningrad, Latvia and other such countries in the belief that they would be smoked locally, as they clearly knew that they would be reimported into this country illegally. That is the reason why Regal and Superkings, two of that company's brands, account for 50 per cent. of all smuggled cigarettes in Britain.

I was also struck by our work on widening access to higher education and our discovery—it was not rocket science—that student debt is the single biggest deterrent to going university for people from less well-off backgrounds. I hope that that informs the debate in the next couple of years.

Before I deal with the PFI, I should mention a report whose Treasury minute we have not received, but which is germane. In our work on the Saif Sareea 2 exercise conducted by the Ministry of Defence in Oman, we found that there were serious problems with the equipment used by the British Army in the desert. That included the tanks that would not work because their filters became clogged with sand; the guns that jammed; the boots that melted; and the clothing issued to soldiers that was designed for personnel stopping the Russians on the north German plain in the middle of winter rather than for fighting in the desert. The Ministry of Defence assured us at the time that those equipment problems were being addressed in short order. In the light of current international events, I hope that that has happened.

It is interesting that many hon. Members have picked up on the PFI theme. As usual, the speech of my hon. Friend the Member for South Norfolk (Mr. Bacon) was well informed and intelligent. He always puts me to shame when he turns up at PAC hearings with a mound of extra work and research. That knowledge reveals itself in the hearings, as it did in his speech.

From a different ideological angle, the speech of the hon. Member for Hemsworth (Jon Trickett) was also interesting. I seem to remember that, when I watched coverage of the Labour party conference, one of the rows about the PFI was based on the suggestion that the National Audit Office should conduct an independent study. The Labour leadership negotiated a compromise—this is the way in which it does these things—that involved its asking the NAO to conduct a study. However, it seems to have escaped the notice of the leadership that the NAO has been conducting loads of studies on the PFI and it continues to do so. While it waits for the Government to ask it to do what it is mandated to do by the Labour party conference, it should look at the studies that the PAC has done.

Many studies have been mentioned that deal with specific projects, such as those relating to the West Middlesex university hospital, the Royal Armouries Museum in Leeds and Treasury and MOD buildings, as well as earlier reports on Fazakerley prison and Dartford and Gravesham hospital. Our work on public-private partnerships—a sort of hybrid of PFI—includes our investigation of Airwave, National Air Traffic Services and other such shining successes of the PPP. I should point out for the sake of Hansard that I say that with some irony.

Of course, today the PFI is a major form of Government procurement, and has been adopted with all the zeal that only a convert can muster. For the first time ever, I take the Chancellor of the Exchequer at his word when he says that more than 400 PFI contracts are committing Government Departments to almost 100 billion of expenditure, that 500 of the 550 school buildings built since 1997 have been PFI projects, and that 90 of the 100 major hospital projects have been PFIs.

In theory—I stress, in theory—there is a strong case for PFIs. In theory, by specifying what service it wants rather than how it should be delivered, a public authority—be it a Department or a council—frees itself from the risks and responsibilities associated with the delivery of those services. Again in theory, risks are transferred from the public sector to the party best able to handle them. Again in theory, competitive bidding from the private sector discovers the best supplier and finds the best-value approach to delivery, while payment by results should incentivise innovation and excellence.

However, to judge by the work that we on the PAC have done, theory is not being matched by reality in PFI projects. That is partly because transferring risk, incentivising innovation and finding best value are not the principal reasons why public authorities choose the PFI route. The real reason, as any Treasury Minister knows, is that the PFI is often the only way that a Department or council can get the project that they want through the Treasury. Instead of the large up-front investment that would appear on the Government's balance sheets, one gets the projects now and pays later. In the words of Jeremy Colman, the NAO's guru on PFI, it is the "only show in town." So we find that with the PFI, the costs to the public purse are often the same in the long run—indeed, they are often greater—but the Treasury books look good in the short term.

Because that is the principal driving force behind PFI, the Government ignore many of its problems and drawbacks. The PAC surveyed 121 PFI contracts and looked at the lessons to be learned. Several common ones emerged. First, value for money is very hard to prove or disprove. As the previous two speakers pointed out, the public sector comparator is easy to manipulate and only spuriously precise; indeed, the Ministry of Defence building was a classic case of that.

The second lesson is that the innovation promised by the PFI rarely arises in practice. Innovation means risk, and perversely, PFI bidders are very risk-averse, partly because of the costs associated with mounting a PFI bid. For some reason, the exception to that is IT projects, for which the opposite is true. Such projects show a cavalier disregard of risk. In about 10 days, we are to hold a hearing on the Libra project, which is managed by the Lord Chancellor's Department and looks like a classic case of such cavalier disregard. The NIRS 2 benefits computer system was another classic example of a complete lack of forward thinking about the reforms that an incoming Government might make to social security and pension payments, even though many of those reforms were spelt out in the party manifesto of the time. The computer system could not cope with those changes, so the supplier had to be contacted—it was the only supplier that could do the job—and hundreds of millions of pounds were spent on upgrading the system.

The third lesson that I draw from our work on the PFI is that private sector financing costs are very high in relation to the risks involved. In fact, financing is very rarely competed, and there is evidence of market inefficiencies. A classic argument that is used by people who do not like the PFI is that it is more expensive for the private sector to borrow money. That is true, but it need not be that much more expensive. Government-guaranteed bonds for the channel tunnel rail link are significantly more expensive than gilts, although the risk is identical.

The fourth lesson is that PFI deals continue to be costly to negotiate and complicated, even after 10 years of experience. High bidding costs deter bidders and reduce competition. I have lost count of the number of hearings in which it emerged that there was only one bidder for the PFI contract at the end of the process. In such cases, the Department handling the negotiation had to pretend that other bidders were involved in the process. I would be amazed if the people bidding did not know that they were the only bidders. Of course all that ends up being paid for by the public sector.

The final lesson that I learned is that risk transfer—again, this point was made by the hon. Member for Hemsworth—is not as extensive as it seems because, ultimately, delivery risk can never be transferred when it comes to Government projects. The Royal Armouries Museum in Leeds is a good example. That prestigious project obviously meant a huge amount to that city. However, visitor numbers were far below those projected, the PFI company got into all sorts of trouble, and the Government had to bail it out: they could not afford to let that brand new museum close because that would have been too embarrassing. At the time, the PAC concluded: If a department is unwilling to accept the consequences of risks being borne by the private sector under a PFI deal, it should not transfer these risks in the first place.

Mr. Jenkins

The hon. Gentleman started his contribution on the PFI by saying that he agreed with it in theory, but he then said that its implementation was flawed. Is he saying, with hindsight, that the theory was wrong or does he still believe the theory to be right but that we are failing to get to grips with its practical mechanics?

Mr. Osborne

The hon. Member for Tamworth (Mr. Jenkins) anticipates my concluding remarks. Of course, Tamworth is a historic town for the Conservative party because of the Tamworth manifesto, which I mention for the historians who are present.

While the PFI is primarily seen as a means to get projects past the Treasury, the Government will never realise its true potential or the benefits that I have identified in theory. Indeed, the worst argument for the PFI is, ironically, that advanced by the Chancellor, who says that all those new schools and hospitals could not be afforded otherwise. Even though PFI contracts are substantial, they make up only 9 per cent. of total public investment, so they could be afforded if they were properly structured on the Treasury books. After all, they ultimately appear on the Treasury books.

If the PFI is to bring private sector innovation and expertise to the public sector—I should like that to happen, as it would deliver real risk transfer and value for money—there needs to be a change in mindset in the way that the Government approach the PFI. They need to focus on the outputs, not the inputs. They have to believe that the public get a better service when the private sector is allowed a freer rein in operating projects.

It is striking that the PFI has worked pretty well in prisons. PFI prisons are often much better than public sector prisons—for example, in terms of prisoner reoffending—because they are given a free hand to operate with different staff levels, wage rates, pension arrangements, working rotas and so on. They operate with the efficiency of a private sector employer—not with the inefficiency of public sector employer—but the Government find it politically unacceptable to let that happen in the big public services, such as schools and hospitals. They are, frankly, under too much pressure from the public sector unions.

It is striking that the Prime Minister got the biggest applause at the Labour party conference—I watched it on television, although other hon. Members will have seen it in person—when he said that he would "work with you", the unions, to end the two-tier work force". Of course that line got huge applause because it meant that the Government would not allow PFI contractors to have the same freedom in employing people as the private sector.

Mr. Bacon

Was my hon. Friend struck, as I was when we visited the London Heart hospital a couple of weeks ago, that the private sector employees in the hospital were being paid higher rates than the NHS staff?

Mr. Osborne

Although I did not take part in that visit, I was struck by the conclusions that my hon. Friend drew from it.

In conclusion, we still have a long way to go if we want to realise the true potential of the PFI, which is about improving service delivery to the public and saving money for the taxpayer. We have a long way to go until a change in the Treasury mindset allows the PFI's true potential to be realised. We have a long way to go before we break the assumption that public services, paid for by the public, have to be delivered by the public sector.

5.44 pm

Geraint Davies (Croydon, Central)

It is a pleasure, as always, to follow the hon. Member for Tatton (Mr. Osborne). I also extend my great thanks to the Chairman of the Committee, the hon. Member for Gainsborough (Mr. Leigh), and my right hon. Friend the Member for Swansea, West (Mr. Williams), who always gives sterling support to the Committee. I thank the Public Accounts Committee Clerk and, like all other Members who have spoken, the National Audit Office in particular.

The reality is that the National Audit Office, which has in the region of 700 auditors and accountants, is responsible for auditing a third of the country's GDP in terms of all Government expenditure. If we compare the cost of that with the cost of accounting for the other two thirds, which is billions of pounds of private sector money, we get some sort of indication of the value for money provided. It is not simply that for every £1 we spend we get an extra £7 back; we are getting expert people at low cost because they are committed to public service. We should all pay tribute to them today.

I mentioned in one of my interventions on the Chairman of the Committee how pleased I was that we were also beginning to take bites out of the private sector, as it had been insinuated that chunks were being taken out of the public purse. It is a matter of public concern that smuggling of tobacco products amounts to about £3.5 billion of lost income to the Government and, therefore, to the taxpayer, which is equivalent to a penny on income tax. It was of particular concern to hear that some 70 per cent. of Imperial Tobacco's exports of Regal and Superking cigarettes were being smuggled back, mainly in massive cargo crates through organised crime, thereby avoiding tax. I am therefore pleased that we have taken a step forward, and I hope that we will not hesitate to do so if such opportunities occur again.

I hope to touch briefly on a number of key reports through which the Committee has added value. Some of our hearings and evidence point to the future of policy development and, indeed, to better value for money from the point of view of the Treasury.

First, I want to focus on our 53rd report, "Reducing Prisoner Reoffending". Basically, every prisoner in our jails costs the taxpayer about £34,000. We have about 73,000 people in our jails the biggest prison population in Europe apart from Portugal—costing about £2.1 billion. The question is: if it costs £15,000 to send a pupil to board at the best public school in Britain and get him or her to be a top-level taxpayer, why are the Government spending £34,000 to generate repeat offenders 60 per cent. of the time, costing enormous amounts? Other than that £34,000, there are costs in terms of extra police, higher insurance, court costs, fear and anxiety.

The Government, of course, have been effective in reducing crime—it is down by about 27 per cent.—especially crimes such as burglary, and vehicle and violent crime. Contrary to public views, they have also taken a tough approach to sentencing. The number of people sent to prison on a first offence is up 50 per cent., and a mandatory sentence of three years is applied to third-time burglars. Despite that, the press talks about Lord Irvine and Lord Woolf saying that we should be soft. In fact, we have an enormous prison population that has grown by 60 per cent. in the past 10 years.

The key question is: how do we stop those people reoffending? Some 60 per cent. of them will go out and reoffend, costing about £11 billion a year. If we look at the profile of those in our prisons, we see that some 75 per cent. of them have been permanently excluded from schools, which was one of the key findings of our hearings. Pupils in those circumstances would often have tuition for one day a week, while, for the other four days, they would wander around, having misbehaved to start with. Consequently, they would start stealing mobile phones and so on. They arrive in jails—universities of crime—with virtually no education, having been on the street committing petty crime, and, before we know it, they are introduced to a new criminal fraternity who teach them how to become better at committing crime. We found that only between £200 and £1,600 a head of the £34,000 that we spend keeping people incarcerated is spent on education. That is not much to get them into a position where they can work again.

As the Committee heard, studies of reoffending over many years have established that the three drivers that prevent it are work, family support and having a home. Prison does not prepare people by giving them education and retraining for integration in the labour market. Furthermore, due to the overcrowding in our prisons, more than 25,000 prisoners are more than 50 miles from their families and 11,000 are more than 100 miles away. New offenders going into institutions have no family support to enable them to study or work for rehabilitation and they are moved around constantly because of the overcrowding problems.

The situation is much worse for women. Half of women prisoners have children. Two thirds of the 10,000 children affected are under 10 and four in 10 of the families will be permanently broken and lose their home. We need to think carefully about the management of our prisons and our prisoners and its impact on repeat offending, which amounts to an extra million crimes a year, and the costs involved. As the hon. Member for Tatton pointed out, about 40 per cent. of prisoners leave jail and are homeless, which massively reduces their prospects of getting a job or not reoffending.

There are many lessons to be learned from our reports. The Government have responded to some of the issues. For example, the Department for Education and Skills is taking responsibility for prison education. Some prisons have set up links with housing providers, but the situation is mixed to say the least.

Our report is instructive about the provision of small local units, with boarding and intensive education. They could draw on the lessons that we have learned from the use of pupil referral units. In my patch, excluded children are given the opportunity of full-time education in pupil referral units and 70 per cent. of them go on to further education. In the past, many of them would have gone into the prison system.

If such special, intensive education units can be shown to convert people back to the straight and narrow, into the world of work and earning money, they could be options for sentencing in the courts system. People could be given options akin to drug treatment and testing orders, where they are blood tested for drugs for two years and so on and if they breach the order they go to jail. In this case, people could spend a compulsory two years in a centre that would equip them for work instead of spending nine months in a normal prison. Failure to comply with behaviour and learning standards would lead to default of the order and a return to jail. Such reforms of our prison system could convert serial offenders into taxpayers and I hope that the Government will focus on that businesslike approach.

Children who are at risk of ending up in prison could be identified much earlier, during their school life. Initiatives such as sure start and education action zones should be celebrated and built upon. Children who lag behind at school can become misbehaving pupils, minor offenders and then serial offenders. We need to invest in those children early in their lives for the sake of the whole school environment and for society at large.

Our report on access to higher education is obviously topical. Investment in higher education should be a capital item in the national accounts, not a revenue item. If we compare the amount of tax delivered over a lifetime by a graduate and someone with three A-levels, we find that an extra £50,000 comes back from the graduate. As a business proposition—in terms of borrowing money to invest—that recovery of tax revenue provides a strong argument for the Government. Indeed, the Government could also investigate PFI opportunities in that regard. We found in Committee that there are three barriers to access to higher education, the first of which is secondary schools. Some 90 per cent. of those with A-levels go on to university. My area of Croydon contains some of the fastest-improving schools in the country. That has been achieved through a combination of things, one being leadership in tackling some of the problems at an early stage through, for example, education action zones. Other studies that I have seen show that social background is a major factor in determining the outputs of schools.

The ambition of students to go to university depends partly on the experience of their parents. Sadly, one in five adults are functionally illiterate and one in four are functionally innumerate. By that, I mean that one in five cannot use the "Yellow Pages" effectively and one in four would have great difficulty in calculating their change if they bought groceries in a shop. Given that starting point, it is difficult for pupils from such backgrounds, which are often dominated by overcrowding, television, no access to books and no history of education, to reach a platform from which to break through into higher education.

When we considered the issue of debt, we found that 46 per cent. of full-time students are already in full-time employment, and that of those giving up their education, nearly 40 per cent. do so for financial reasons. Poorer people are more likely to drop out. Some debates in the House have focused on the idea that the average return of a graduate is about 50 per cent., but I would suggest that the key issue is not the average return, but the marginal return from the marginal group to whom we are trying to provide more access. The current proposal, which I am sure that the Public Accounts Committee will consider, is for 9 per cent. extra in tax on earnings over £15,000, which, with the addition of 22 per cent. basic rate tax and 12 per cent. national insurance, would generate a marginal tax rate of 43 per cent. That compares with the higher band rate of 41 per cent. Some people might think, "It might be worth my while getting three A-levels and not going to university."

Mr. Rendel

Does the hon. Gentleman accept that the Government have been unable to provide any evidence to show that there is a margin between what a graduate earns and what an average person earns that is any different from what that person would earn even if they were not a graduate? The graduate premium is not based on any evidence. All we know is that those who happen to be graduates earn more than those who are not, but that is not necessarily to say that they would not have earned that much in any case.

Geraint Davies

The evidence that I have seen suggests that there is a causal relationship not just a correlation. Some higher-earning graduates pay about £140,000 extra tax in a lifetime, those in the middle pay an extra £30,000 to £40,000, while those at the bottom end may pay slightly less. It is a moot point. Obviously, if one takes certain degree courses, such as medicine, veterinary science or law, which provide added value through knowledge, as opposed to a mere screen for one's IQ, one will get a return from that.

That means that at a time when people are expected to pay for their degree at a later stage, there will be greater demand for degrees that have a perceivable return as opposed to, for example, humanities degrees. Someone might say, "I can get a humanities degree, but I won't have the added value of being a medic." It has been suggested that the extra top-up fee will be applied to more popular courses such as medicine. In that case, poor students, who currently have to pay £1,000 in tuition fees, will have to pay £3,000, minus the £1,000 grant. They will have to pay twice as much, albeit that the payment is deferred.

Poorer students may have to jump bigger hurdles if they choose courses that offer higher salaries later. I appreciate that that is a sophisticated point, but it is nevertheless important. Of course, the Government have offered to write off debts if students enter public service. That is good for public service, but market distortions and so on must be taken into account.

There are choices and challenges. I should have liked national insurance to be extended beyond its current level, up to where the 40 per cent. tax starts as a surrogate graduate tax. I attended a large comprehensive school and was the only one to get into Oxford university that year. No one had gone to Oxford in the previous year and no one went in the following year. If I had had to face extra costs of £7,000, I would not have gone.

The Government are clearly chasing an entry target of 50 per cent. for 2010. They want to provide better access. Whether they achieve the target is an empirical question, which the Public Accounts Committee will again consider.

Let us consider the report entitled "Postcomm: Opening the Post". As other hon. Members have said, our impact on the postal service in Britain was significant. Consignia was about to restructure and lose 30,000 jobs and the over-zealous regulator was prepared to enforce liberalisation in the marketplace ahead of our European counterparts. That would have meant that competitors from Germany, and especially Holland, could have come here, cherry-picked, taken the heart out of the postal service and undermined universal service provision.

People in Britain have rightly been used to a postal service that delivers mail anywhere in the country for the same stamp. It was suggested that there was a danger of cherry-picking. The regulator implied that there was no cherry-picking and that the direct costs were covered in rural parts of the country. That is fallacious. Clearly, if an operator takes 90 per cent. of all postal services and simply uses Royal Mail stamps for the other 10 per cent. so that Royal Mail picks up the fixed costs of the deeply rural areas, that constitutes unfair competition.

I am glad that our intense scrutiny and the regulator's lack of rigour, which was shown in our hearings, meant that the arrival of competition is delayed. The regulator claimed that whether the playing field was uneven and other such matters were not in his remit.

Mr. Steinberg

I am sure that my hon. Friend remembers that the regulator objected to the increase of 1p in the price of a stamp. The Post Office suggested that that increase, which it was not allowed to make for many years, would have solved many of its problems. Does my hon. Friend agree that the regulator therefore put the Post Office in a worse position?

Geraint Davies

That is an important point. We found that, in the past five years, although the Post Office's turnover had increased from £6 billion to £8 billion, it had moved into negative profitability. The reason for that was that the real cost of a first class stamp had gone down by 8 per cent., because the Post Office was not allowed to raise the price of stamps. Yet when the British public were asked "What do you think about value for money?" nine out of 10 would reply, "It's very good value." The cost of a stamp here was about 30 per cent. less than in Germany and elsewhere.

We were finding that, in essence, the regulator was working against the public interest. The withdrawal of benefit income is causing the widespread destruction of postal services in the rural community. The amount involved is £400 million, which is a penny on stamps, and I believe that the public would agree to pay the extra penny for those extra services. But the public are not given that choice, because of the way in which the Post Office is set up and is commercially run, without factoring in social value as well.

Mr. Steinberg

When I asked the regulator about an increase of a penny on a stamp, he said that it was his ambition to see the price of a stamp decreased. That being the case, I think that the regulator was working against the Post Office rather than for it.

Geraint Davies

It was my experience that the regulator was completely out of touch with the public interest and was acting in a very narrow way. He clearly did not like Consignia or the people in it, and wanted to move forward irrespective of the outcome to the Royal Mail. Luckily, the public mood and the sterling work of our Committee managed to stop that and delay liberalisation.

The final report that I wish to allude to very quickly is the 61st report, on the management of surplus property by the NHS. The NHS is to sell off £700 million worth of land and property by March this year. The difficulty in London is that an extra 800,000 people will move in, requiring health services, which cannot be provided if less land is available. Individual trusts have been selling off individual bits of land and property, without a strategic approach. I believe that in London there should be an audit of all public sector land—highways, health, police, rail, local authorities and so on—with the aim of taking a strategic view on land use over the next 10 years in terms of the public interest. The National Audit office could take a lead in this audit, which would be done not just for health needs, but for housing needs and the like. It would be better than a piecemeal approach, which ultimately would not deliver the best use of land for operational and accommodation needs.

We have been talking about the issue of PFI. Clearly, the arguments for PFI are about risk transfer, added value and innovation, as well as off-balance-sheet financing. But a key issue is the fact that the discount rate that the Treasury now applies has gone from 6 per cent. to 3 per cent. I support that, but it will make for a much more competitive environment in which new PFI ventures will seek to make money. Therefore, I think that fewer will come forward, and accordingly I support the Audit Commission's recommendation that we twin-track traditional public procurement ventures, in terms of building hospitals and the like, alongside the newer forms of financing, so that we have a proper test.

Mr. Love

As the National Audit Office and the Public Accounts Committee are supposed to scrutinise public expenditure with a view to value for money, and as the Audit Commission has questioned whether PFI in the education sector provides value for money, I wonder whether either the National Audit Office or the Public Accounts Committee has yet had an opportunity to discuss the Audit Commission's very important recommendations.

Geraint Davies

We have not, but the Audit Commission's report echoes the findings of the NAO, which are that some of the early PFIs provided less value for money, but that the more recent ones exhibit the effects of a learning curve, much of it informed by the work of the NAO and the Audit Commission itself, and are delivering much better value for money.

The point that I am trying to make is not that PFIs have been historically problematic, but that, given the upfront costs of competing PFIs, making them much more competitive, reducing the discount rate, providing clawbacks and so on, may discourage some private sector operators from coming forward, which is fine. We do, however, need to engage public sector comparators and procurement to ensure that there is real competition between both public and competing private sector providers. I am sure we will do that.

In essence, it has been another great year for the PAC. On prisons, the question of whether we can deliver better value for money for taxpayers out of the £34,000 investment should be considered, as should land use by the NHS. There is much thinking to do on higher education and a range of other issues, including PFI. As I said, we can do that because we have an alternative civil service of 700 or 800 accountants supporting us. The work of the PAC in providing financial scrutiny for the House of Commons continues its great tradition as the premier Select Committee of Parliament.

6.10 pm

Mr. Howard Flight (Arundel and South Downs)

I, too, wish to pay tribute to the enormous amount of useful work that the Public Accounts Committee and its Chairman, my hon. Friend the Member for Gainsborough (Mr. Leigh), have carried out in the past 12 months as they followed the money and investigated the efficiency and quality of those in the public sector responsible for how taxpayers' money is spent. I also pay tribute to Sir John Bourn, the Comptroller and Auditor General, and his colleagues whose reports do so much to inform the Committee's work.

I have spent many hours reading the Committee's conclusions in the nearly 70 reports that have been produced over the year. They are a veritable gold mine of information. I regret to say, however, that most of them constitute a depressing litany of the failings, wastes and inefficiencies of the public sector. I hope that all those hon. Members who seriously care about the effectiveness of public expenditure will read through the reports, even if they have been unable to attend the debate.

It is a great shame that, except in limited subjects, the media have not and do not, give much coverage to the reports, because they represent the only independent, unbiased investigation of what goes on in the public sector. Some hon. Members may have read what Professor Minford said in December about the national statistics for 2001. According to him, although 8 per cent. more money was spent on public services, the public received only 3.1 per cent. in extra volume in terms of more or better services. After adjusting for 1.9 per cent. inflation, that constituted 6.1 per cent. of real extra spending and 3.1 per cent. of extra volume, so there was an overall shortfall to the taxpayer of 50 per cent. Given that spending on public services is rising at close to 10 per cent. per annum, that implies that about 1 per cent. of gross domestic product has been transferred from the private to the public sector by additional taxes, 50 per cent. of which has been poured into a black hole. The effectiveness of the public sector is crucial if we are to achieve what both sides of the House want to achieve.

I have no doubt that the overwhelming majority of the 7 million people who work in the public sector are conscientious and do their best, but the PAC reports tell a story of money being dissipated ineffectively, of bureaucratic incompetence and of waste, mismanagement and inefficiency—all, dare I say it, the diseases of monolithic state provision and production, which lack customer power. I think my hon. Friend the Member for Buckingham (Mr. Bercow) asked about quantifying waste. I added up what I found and it came to at least £18 billion. I recollect other colleagues placing the figure as high as £24 billion.

The Cabinet Office reports focus on value for money, but find that there is a lack of adequate consultation with customers to identify barriers to effective policies. There is inadequate consideration of the effects of policies by one Department on another, inadequate involvement with those who have to implement policies, and insufficient flexibility to adopt new methods of delivery. They find that Departments lack the confidence and data to terminate policies that are not working or are no longer cost-effective. None the less, £400 million per annum is being spent on policy-related research. On joint working and cross-cutting, the PAC, I am afraid, damningly comments that the civil service does not really know what makes sense.

The Government implicitly recognised the need to seek to achieve value for taxpayers when they set up the system of regulatory impact assessments in 1999. As Members will know, their effectiveness has been criticised in both Whitehall and the business community. In its review of RIAs, the Committee found no adequate Whitehall proposals for improvement, substantial variation in the quality of assessments, insufficient use of RIAs to support the Government's arguments against European Union regulations, and the need for external evaluation of RIAs by, for example, the National Audit Office to improve their effectiveness.

Geraint Davies

The hon. Gentleman said that a significant amount of money was going in, but there was insufficient output in his view. Does he accept that any organisation with a history of massive underfunding that then receives money should first return to normal working practices? After more investment, its output or the rate of return increases. The hon. Gentleman's recipe for slashing public investment by 20 per cent. is therefore counter productive.

Mr. Flight

I am surprised that the hon. Gentleman should fall for his party's Goebbels-like misrepresentations. Had he read my article, he would know that I was talking about the scope for cutting waste in certain areas—in central administration, for example, by up to 20 per cent. Similar conclusions fall from the reports of the PAC, of which the hon. Gentleman is a member. He is missing the wood for the trees—the history of the Committee's reports shows that, for a number of years, it has sought to deal with public sector inefficiencies and the reduction of waste. It is strange that some Members should sit back and say that the Committee is doing an excellent job—indeed, it is—while waste and inefficiency continue.

When looking at achieving better value for money from professional services, the PAC found that Departments had not responded adequately to major initiatives and that there was a lack of information on professional services expenditure, and the Comptroller and Auditor General identified a failure to save £65 million. Departments employ more than 3,000 internal economists, statisticians and lawyers, and, in recent years, have spent an estimated £1 billion on consultants. As one report comments, framework agreements for the use of professional services should enable discounts of up to 20 per cent. to be achieved".

Those recommendations are all wonderful—similar points have been made today—but why are they not being implemented? The PAC Chairman dwelt at length on several reports on health provision and the NHS. Several Members, particularly the hon. Members for Newbury (Mr. Rendel) and for City of Durham (Mr. Steinberg), focused on the report on clinical negligence. I find that report acutely disturbing. The problem is not new, but it is growing and it is not being tackled. In March 2000, 23,000 cases were outstanding, taking an average of five years to resolve. Provisions for expected payment of outstanding claims amounted to £4.4 billion. As was said earlier, allowing for the associated legal costs, there is a drain on health spending of £7 billion. In addition, the national health service will incur administrative costs to deal with those problems.

Legal costs exceeded the sums paid out in 65 per cent. of settlements. As of March 2000, a quarter of NHS trusts had not achieved even basic risk management standards set by the clinical negligence scheme, and two thirds had not achieved more than the basic standards. If ever there was a territory overdue for major change and reform capable of effecting substantial savings, that is it.

My hon. Friend the Member for Gainsborough and other hon. Members referred to the report on NHS waiting lists. Above all, the report describes the changes in culture and practice that are needed and that go beyond money. It cites doubts about the reliability of the figures, and suggests that they do not truly measure the time between seeing a GP and receiving treatment. As my hon. Friend pointed out, the report confirms that targeting in the NHS is resulting in clinical priorities not always being adhered to. It also states that, in some cases, the forced ties between GPs and local hospitals are resulting in increasing waiting lists, and undercapacity elsewhere outside the tied hospitals.

Reference has been made to the fact that staff in 10 hospitals were found to have been engaged in gerrymandering waiting-list data to hide missed targets. It was especially worrying to read that confidentiality deals were wrongly concluded, and that severance packages were paid to people who had departed under a cloud. The report also raised doubts about the ability of 189 trusts to handle complex disciplinary cases.

My hon. Friend also referred to the fraud figures in the Department for Work and Pensions. They are depressing to read. As other hon. Members have noted, not only is more than £3 billion being lost to fraud and errors, but there is no apparent probability that the targets to cut that amount—by 10 per cent. this year, 25 per cent. in 2004 and 50 per cent. in 2006—are likely to be met.

The Committee found what I can only describe as gross inefficiency and mismanagement in the medical assessment of incapacity and disability benefits. Fifty per cent. of cases are appealed; 40 per cent. of the appeals are successful, and 25 per cent. of appeals arise from decision-making failures in the Department. The report found that £40 million a year is lost in paying incapacity benefits to people who are no longer eligible. Worst of all, of 25,000 people called for examination each year, 17,000 are sent home because of over-booking.

The Committee also looked at the implementation of the national probation service information system strategy. It found that, although 49 out of 54 offices had installed the information system, only 16 were making serious use of case records available on it. There was also a lack of knowledge about how to use the system. As other hon. Members have noted, it is a disgrace that more than 40 per cent. of the fines imposed by the courts are not being collected. It is not just a matter of losing £160 million a year; it makes a mockery of our justice system.

Other hon. Members focused on higher education. I shall not repeat what they said, but I noted that it was reported that £725 million had been spent on additional courses at further education colleges. However, that report also states that some 38 per cent. of the additional lessons were rated as at best satisfactory or worse, and that many students left college without achieving qualifications.

The Committee found that losses to the Revenue from excise fraud amounted to between £6.4 billion and £7.3 billion, excluding value added tax, but that the courts had confiscated only £23 million between 1994 and 1998. The relevant report points out that, despite attempts to tighten up, the root of the problem is diagnosed as the excessive differentiation between United Kingdom and continental European duty rates, which represent an ongoing incentive to fraud. The report has found that, as Customs tighten up in one area, fraudsters tend to move to another.

The report also refers to VAT missing trader fraud, which is a major problem. It is unclear whether Customs and Excise started investigations and prosecutions without telling the Treasury, or whether the Treasury has been a little economical with the truth as to when it knew the extent of the problems and what Customs officials were doing.

The report on the Inland Revenue appropriation account for 1999–2000 points out that the Comptroller and Auditor General does not have access to employers' records to test the accuracy of tax credit payments, which rose to £4.5 billion last year.

The report on the contract extension for NIRS 2 makes the point that the then Department of Social Security had made a major mistake in not assessing the impact on pensions and national insurance legislation, or the risks and costs involved. It also said that the Accenture arrangements, and the out-performance of its targeted productivity by an enormous margin, suggested that the prices had been far too high. However, the report noted that the Department was locked in, and expressed grave concern about the £4 billion value of the contract to be rolled over next year.

Offenders in prison have already been referred to. Given that so much is spent per prisoner, it is incredibly depressing that six out of 10 are recommitted within two years of their release. As well as the other factors that have been mentioned, breaking the cycle of crime requires, in particular, effective action on drug abuse.

The Committee is virtually the only body monitoring the efficiency of the Ministry of Defence and of defence procurement; I do not think anybody else has commented on that territory. The 2000 report found that up to £102 million had been wasted in pursuing ineffective solutions to the Bowman equipment problem, and £155 million written off in connection with medium-range TRIGAT. It found that with TRIGAT in particular, the MOD took far too long to meet the armed forces' needs: the project took 26 years, and delivery was still not expected until two years after it had been cancelled.

The 2001 report describes progress as a result of smart procurement, but says that project cost control remains weak and performance measures confused. It recommends that the UK follow a more flexible approach, along the lines followed in the United States, to contract for development work more closely with the industry. A separate report on Ministry of Defence property management found that poor practices and weak oversight had left the Department open to the risks of fraud.

The PAC found that Department for International Development targets were also deeply compromised. The Department's fundamental target was to reduce world poverty, but the EU received 55 per cent. of the budget and was doing very little to direct help to poor countries. The Committee also found that, in general, the Department's targets were not well geared to informed decisions on the ground, nor well communicated.

Others have referred to flood risks. The report found that there was too much overlapping bureaucracy, waste and inefficiency. Fortunately, in West Sussex the chief executive used emergency powers and took the necessary measures to stop Chichester flooding. He reported that had he not used those emergency powers, it would have taken him more than a year to deal with the bureaucratic barriers that he would have been required to negotiate to implement the necessary measures.

Others have already commented on the report on improving air quality. It says that the targets were limited by gaps in evidence on the health effects of air pollution, and it comments on the absence of contingency plans if the targets were not met. The Department's approach to assessing whether the benefits of further possible improvements in air quality justified the massive costs that would be involved, failed to assess whether reducing one pollutant might increase the levels of others. The report notes that basing financial values on the expected benefits was nonsense. It seems to be saying, in polite language, that the whole exercise was pretty much nonsense.

Another of the Committee's reports has reviewed, over the past year, the scandalous way in which the sale of Britain's gold reserves was effected in the summer and autumn of 1999. It confirms that excessive transparency as regards announcing the sales resulted in hitting the bottom of the market cycle. I also make the point, which the report does not cover, that at the time many or several leading investment banks that had borrowed gold under the Bank of England's gold window were actually short of gold.

There is a report on the landfill tax credit scheme, which it says is administratively too complex, lacks accountability and transparency and has administrative costs of some 9 per cent. per annum.

The report on shifting to resource accounting is also depressing. It says that one third of 12 Departments' accounts are qualified and that, whereas the Home Office and DEFRA made virtually no improvement, 27 Departments failed to meet statutory deadlines for rendering their accounts for audit.

Therefore, right across the board it is a story, by any normal standards, of inefficiency, waste and ineffectiveness. Others have paid special attention to the territory of the private finance initiative and public-private partnerships; I particularly agreed with the conclusions drawn by my hon. Friend the Member for Tatton (Mr. Osborne). Obviously, this area has had some media coverage. The common theme was the need for more post-implementation professional management of PFI projects. Although there was well-recorded criticism of inadequate participation in gains achieved from refinancing, I was pleased to note that 58 per cent. of authorities with performance reviews had made deductions in their payments due to failure to meet particular performance standards. In the example cited of the Treasury buildings PFI, the report stressed the need for third-party competitive funding and the inappropriateness of the 6 per cent. discount rate, which was effectively rigging fair value comparisons. I hope that in future the Committee will look into not just the major MOD building refurbishment, but the drains and urinals project, where more than £20 million has already been spent on legal expenses.

Mr. Love

Down the drain already.

Mr. Flight

Correct; there is a bad smell coming out of it.

The report on the channel tunnel rail link is perhaps the most damning, because the Government ended up guaranteeing £4 billion and more of bonds, with, in essence, a reward to the equity promoter for having failed. That is the reverse of what the transfer of the operating risk should be about.

Others have mentioned the £700 million NHS property deal. Not much was said, but I read into what was said that the Committee thought that the NHS might have done a pretty bad commercial deal.

We have today's NAO report on the mismanagement by the Lord Chancellor's Department of the Libra magistrates court computer-linking project, which, if I understand what is being said, will waste some £300 million.

No one mentioned the report on the millennium dome, the biggest epitaph of incompetence of the lot, but perhaps it has been commented on in many other places.

Mr. Love

It is a tour de force that the hon. Gentleman has managed to cover so many reports, but is the conclusion that he draws from them that it is still possible to cut 20 per cent. from public expenditure?

Mr. Flight

Perhaps the hon. Gentleman should have a little medical attention to his ears. As the Committee must be well aware, there are many areas in which there is very substantial scope for less waste, and in some areas the potential may be as high as 20 per cent., but no one—certainly not I—has ever said that that was across the board. Indeed, in the report to which the hon. Gentleman is implicitly referring, I twice made the point that there really was not the scope to cut expenditure overall in health or education, two of the main spending areas.

However, I find the contents of the reports disappointing, given the Government's professed keenness to get good and fair value, and look at cutting out waste. I hope that the Financial Secretary to the Treasury will have plenty to say about the pile of reports, because they detail more than enough waste to achieve substantial cuts in expenditure.

Public service agreement targets are mentioned in many of the reports, such as those on the health service, the Inland Revenue's progress, the introduction of e-services, higher education, reducing benefit fraud, and many of the other areas in which our £650 billion in taxes is spent. The Government introduced PSA targets in 1998 with the intention that they would demonstrate to the public that the public services were being run more effectively and that the promises of improvement were being kept. Since 1998, three separate sets of agreements and targets, totalling more than 600 and spanning more than 20 Government Departments, have been issued.

So far, almost 40 per cent. of the targets set in 1998, excluding those that have been rolled over, have been failed or are on course to be; similarly, 75 per cent. of the targets set in 2000, again excluding those rolled over, have been failed. No doubt, those percentages will improve substantially once the rolled-over targets have been included. The latest forecasts for performance against PSA targets were due in autumn last year, but as we approach February 2003, five key Departments have not reported. They include the Department of Health, the Lord Chancellor's Department, which seems to be most often in the dock of the PAC, the Crown Prosecution Service and the Foreign Office—all of which are responsible for major spending.

Two things strike me about that: first, to be so late in reporting illustrates great sloppiness in the public sector; secondly, a major improvement on the success achieved to date is needed. Of the Departments that have reported, Customs and Excise stated that one of its targets was crude and selective, and other Departments refer to a considerable amount of out-of-date information and a significant number of targets not met.

While the targets regime is first the responsibility of the Select Committee on Public Administration, I hope that the Public Accounts Committee, in pursuing the three key themes that have characterised its work, will examine the targets system. Evidence has emerged to date that the targeting regime has not improved efficiency, economy or standards of delivery, but has tended to pervert the focus of efforts in the public sector to the satisfying of targets rather than to doing the job well and properly satisfying customers. It also produces entrenched hierarchies in which the checked are subservient to the checkers, which is especially disheartening for staff. Brain power is deflected to setting targets rather than to improving delivery, and in the cases referred to by the PAC Chairman, the regime has led to cooking of the books. I hope that we will have a proper appraisal of targets next year.

6.38 pm

The Financial Secretary to the Treasury (Ruth Kelly)

I shall speak more briefly than I intended to, in order to allow the Chairman of the Public Accounts Committee a couple of minutes in which to respond to the debate.

This stimulating and wide-ranging debate has confirmed my view that the PAC continues to make a major contribution to our system of parliamentary scrutiny and accountability. The programme of the Committee in each Parliament is always impressive in scope, and in forensic skills the Committee has few equals. The Committee's effectiveness is greatly assisted by the able chairmanship of the hon. Member for Gainsborough (Mr. Leigh), who ensures both that the Committee performs its task rigorously and that hearings are conducted in a fair manner. In doing so, he has helped to maintain the rich tradition of the Committee, which dates back to the Gladstone era.

The Committee is helped in its task by the assistance provided by the Comptroller and Auditor General, Sir John Bourn, and the staff of the National Audit Office. The independent watchdog has an important role to play in holding the Executive to account. Its financial audit work and value for money studies continue to provide high-quality analysis that helps to raise standards of financial stewardship, efficiency and effectiveness in Government Departments.

The Government certainly share a common agenda with the Committee. We both want to see that public money is used wisely, economically, efficiently and effectively. We want high-quality public services to be delivered, Departments to follow best practice in project management and risks to be identified and managed effectively. These are not party political issues, and some of the cases that the Committee has studied over the past year are rooted in the actions of previous Governments in the early to mid-1990s.

Much progress has been made by Departments over the past year on these fronts and I will want to come back to those points later in my speech. First, I should like to reflect on the work of the Committee over the past year. The Chairman's speech reminded us of the broad range of topics that the Committee considers. I know that this important work involves a heavy commitment from everyone concerned. It is immensely to the credit of Committee members that the Committee continues to make recommendations that help to raise standards of performance in Departments and to ensure that past experience is applied in implementing the projects and programmes of tomorrow.

The Chairman highlighted several reports by the Committee and reminded us of their key findings and recommendations. His examples illustrate the importance of the issues that the Committee looked at. I am particularly pleased that he mentioned the hearing on the acquisition of the London Heart hospital. It is good to hear praise for a successful venture, as well as criticism for things that have not gone so well.

One comment that cannot be made about the Committee is that it lacks a human touch. Its findings and recommendations very often hit on issues that impinge on the lives of individual citizens. Let me give two examples to illustrate that. The first is crime, an issue that concerns everyone. In its report on prisoner reoffending, the Committee found that nearly six out of every 10 prisoners are convicted of one or more offences within two years of being released. Breaking that cycle of crime requires action to address drug misuse and offending behaviour, and to improve literacy and numeracy.

For those reasons, the Committee recommended that the Prison Service should develop programmes that meet the needs of short-term prisoners, as well as longer-term prisoners, to lower the risk of their becoming repeat offenders. In response, the Prison Service was able to say that it was setting challenging targets to improve its regimes and to expand the provision of skills training, drug treatment and resettlement activities. The Prison Service pointed to its work with the probation service to develop pilot programmes, specifically for short-term prisoners.

A second example is obesity, and I much enjoyed the remarks of my hon. Friend the Member for City of Durham (Mr. Steinberg) on that subject. The Committee found that most adults in England are overweight, and that one in five—around 8 million in total—are obese. Obesity causes much human suffering by contributing to chronic disease and premature mortality, and it entails a substantial cost to the NHS and to the wider economy.

No single Department can tackle the issue on its own. The Committee sensibly noted that a joined-up approach was needed across Departments and local agencies to tackle this problem effectively. The Committee particularly noted the emphasis that needed to be placed on children and young people leading healthy lifestyles.

The Committee made a range of recommendations, going right across government and addressing a diverse range of issues, including food labelling and advertising, physical exercise by children and the provision of advice on weight control. This case illustrates the Committee's capacity to grapple with complex issues that are highly relevant to the man in the street. I am glad that my hon. Friend the Member for City of Durham took his comments to heart and instituted a change in his regime.

The Government's response highlighted the steps that the Department of Health, the Department for Education and Skills, the Department for Transport and the Department for Culture, Media and Sport were taking with other partners to improve diet and physical activity levels and the significant investment being made to transform physical education and school club links over the next three years.

Several hon. Members, including the hon. Member for Arundel and South Downs (Mr. Flight) and the Chairman of the Committee, mentioned the report on NHS waiting lists. Its findings make sober reading. Not only had some hospital managers and staff made adjustments to their waiting list data to hide the fact that they were missing Government targets, but in some cases those actions had prolonged the suffering of patients. Such serious findings demanded a serious response. NHS trusts have been advised that clinical priority must be the main determinant of when patients are seen, and that any misreporting of figures will be treated as a matter of great importance. Action has been taken to improve data quality and ensure correct reporting. It is unacceptable for data to be manipulated.

Although I accept the kind words of the hon. Member for Tatton (Mr. Osborne) about my re-election prospects in Bolton, West, I do not accept the charge that he made, and I make no apology for setting those targets in the first place. Targets are an essential part of good performance management; they provide a clear focus for all those involved in delivery. Measuring performance enables success to be rewarded and failure to be corrected.

The Chairman repeated the Committee's continuing interest in the efforts being made by Departments to tackle fraud. As he said, we are fortunate in this country to have very few serious cases of fraud, but that does not provide grounds for complacency. Departments are frequently reminded of their responsibilities to reduce the risks of internal and external fraud and, in those cases where it occurs, vigorously to investigate the cause and the culprits. For its part, the Treasury continues to provide advice to Departments on managing the risk of fraud, and alerts them to cases that have lessons with wider application. We wish to entrench a culture of fraud deterrence in each and every Government Department.

The hon. Member for Buckingham (Mr. Bercow), in his usual trenchant fashion, referred to the Government's record on fraud and asked whether attempts had been made to quantify it. The Treasury publishes an annual report on internal fraud and theft in Government Departments, the level of which has been fairly stable for many years at about 600 cases a year, with a value of about £2 million per annum. Of course, we must always to do more to make sure that the figure reduces further.

The Chairman of the Committee mentioned social security benefit fraud, as did the hon. Member for Arundelf and South Downs. The Department for Work and Pensions is working hard to reduce fraud and error in the social security system. I emphasise that not only are the figures very large, involving thousands if not hundreds of thousands or millions of cases, but at present it is impossible to distinguish between fraud and error, so the overall figures capture a rather complex situation. The DWP is working hard to combat fraud and error and is trying to have its accounts accepted in an unqualified way as soon as possible.

The Chairman of the Committee mentioned delivery as one of his key themes. In that context, my hon. Friends the Members for Tamworth (Mr. Jenkins) and for Hemsworth (Jon Trickett) asked whether the skills of senior civil servants were appropriate for delivering public policy. I certainly agree that delivery and the skills of senior civil servants need to be improved. The Government are taking several steps to enhance project and programme skills, and to champion career paths that embrace responsibility for delivery.

Several hon. Members referred to the role of the private finance initiative in improving public services, and I note the close interest that the Committee takes in such deals. The PFI is ensuring that unprecedented new investment in public services is delivered on time and to budget. It has generated £30 billion of investment since 1997. In the right circumstances, the PFI can ensure that the public and private sectors work together to deliver better quality services for the public. Like all innovative projects, some will fail and lessons will be learned.

The Committee's work has been very helpful in that process, but there have also been many very successful projects. I was glad to hear that my hon. Friend the Member for City of Durham had moved from being a sceptic and was starting to warm to the PFI. That is encouraging. Unfortunately, my hon. Friend the Member for Hemsworth is not yet persuaded, but I remind him of the words of an assistant auditor general of the National Audit Office who said: The evidence is that on the whole PFI deals deliver to time and to budget. You get what you want, you get it when you want it and it costs you what you thought it was going to cost. Conventional public projects have a very bad record in that respect".

None the less, the Government's approach to PFIs has developed considerably since early contracts were established and there have been many improvements in the system, some of which were made on the initiative of the National Audit Office and the Public Accounts Committee. However, I also remind the House that traditional projects were, on average, almost 50 per cent. over budget between 1975 and 1995. That is not an enviable record.

We welcome the PAC's continued scrutiny and I hope that it will turn its attention to other issues that have been the subject of considerable interest today, such as the use of the public sector comparator and how it can be improved in assessing future projects.

I note the comments of the hon. Member for South Norfolk (Mr. Bacon) and I am aware of his great interest in the Treasury PFI project. I was extremely pleased to hear his comments about the quality of parliamentary answers from the Treasury. He made many detailed points and I shall certainly not try to address them all now, but I shall study Hansard and provide a full reply to each of them.

On the Sharman report on audit and accountability, I was pleased to hear the warm words of the Chairman of the Committee about the Government's response. Indeed, I think it is fair to say that, when the response to the report was published, the Committee was pleasantly surprised by the fact that it went further in some respects than Lord Sharman had suggested. I pay tribute to the work of my right hon. Friend the Member for Swansea, West (Mr. Williams) and his colleagues on the Committee, who played their part in ensuring that the Government took on board many of the comments that were made.

To remind us of the situation at the time, let me say that the Government had not been opposed in principle to changes in audit and access arrangements. For instance, we had provided the Comptroller and Auditor General with access where he had required it in the past. The Government's policy had been that he should be the auditor of all new non-departmental public bodies established since 1997. However, we had some genuine concerns about how wider access and audit facilities would be used and the impact that they would have on the affected bodies.

For example, would new statutory powers of access to documents held by private sector bodies and individuals lead to big extra burdens on the private sector? We did not, for example, want access powers to prevent small companies from doing business with government or to introduce unnecessary bureaucracy in arrangements for grants paid to small bodies. We also asked whether the NAO would be able to manage the additional work load involved in auditing more non-departmental public bodies without the quality of service suffering, and whether it would continue to provide the range of assurance and services that private sector auditors provide when they audit such bodies.

To his great credit, Lord Sharman fully recognised the need for protocols and assurances from the auditor if greater powers on audit and access were to be given. Following his recommendations, suitable protocols and other practical arrangements were discussed with the NAO. In the light of those assurances and arrangements about the way in which the Comptroller and Auditor General would use his powers, the Government accepted Lord Sharman's main recommendations and, indeed, went further in some respects.

On the specific points raised by my right hon. Friend the Member for Swansea, West, we have consulted the Comptroller and Auditor General on the necessary orders providing him with statutory powers of audit and access. He has said that he is content, and I believe that the orders will be laid before Parliament next week. So I can confirm that, if Parliament agrees, the new powers will be in place in the coming financial year.

My right hon. Friend also asked about access to non-departmental public bodies that are companies. Department of Trade and Industry officials work closely with NAO officials to ensure that the legal position is understood. The Government support Lord Sharman's recommendations, and we certainly would support any change—if it is possible—to take place through the forthcoming companies legislation.

On the CAG's access to the BBC, I do not want to discuss the matter further today, other than to say that I have taken note of the feelings expressed on the Floor of the House. The Government are considering the recommendations of the Public Accounts Committee, and we will respond in due course. I also heard the comments about access to the Financial Services Authority. The Financial Services and Markets Act 2000 empowers the Treasury to institute value-for-money studies of the FSA itself, but my right hon. Friend the Chief Secretary to the Treasury has said that he will consider inviting the CAG to carry out such studies if the subject matter is suitable.

This debate has again demonstrated the enormous value of the Committee's work and its enduring contribution to the process of parliamentary scrutiny. It is in the interests of the House and of the ordinary taxpayer that it continues to maintain this proud tradition.

6.57 pm

Mr. Leigh

May I thank the Financial Secretary to the Treasury for her remarks, and in particular for her commitment to introducing the order relating to Sharman next week? That is very welcome news for the Committee. I further thank her, and my hon. Friend the shadow Chief Secretary to the Treasury, for their summing up of this debate. They seemed to reach rather different conclusions about our work. I suppose that that shows that success in policy making is, like beauty, in the eye of the beholder. Perhaps we can all agree that, whichever party is in charge, there is always room for cutting out waste, and that is precisely what we try to do.

I thank the right hon. Member for Swansea, West (Mr. Williams), who leads the Labour group—if I can describe it that way—on the Committee, and the hon. Member for Newbury (Mr. Rendel), who leads the somewhat smaller Liberal Democrat group, for their support in making our work this year such a success. I also thank the right hon. Gentleman for his comments on the BBC, and the hon. Member for Newbury for his comments on prisoner reoffending. The hon. Member for Croydon, Central (Geraint Davies) obviously takes a great interest in that subject, and I thank him for his comments as well.

I thank the hon. Member for Tamworth (Mr. Jenkins) for taking part, and for his comments on agricultural fraud. I thank my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) for what he said about the essential need to promote project managers into the position of permanent secretary. I also thank those who took part in the mini-debate on private finance initiatives, which was today's central theme. My hon. Friends the Members for South Norfolk (Mr. Bacon) and for Tatton (Mr. Osborne), and the hon. Member for Hemsworth (Jon Trickett) offered some interesting facts and arguments about the PFI. This debate will run and run, and although it is true that we are getting better at delivering these projects on time and on budget, real concerns remain about transferring risks, about taking these matters off the balance sheet, and about public sector comparators. Anybody who takes an interest in the PFI should study this debate.

Our Committee has had its day in the court of Parliament, and I believe that we have proved today that we are doing a good job in holding the Executive to account. I commend the motion.

Question put and agreed to.

Resolved,

That this House takes note of the 1st to 63rd Reports of the Committee of Public Accounts of Session 2001–02, and of the Treasury Minutes on these Reports (Cm 5393, 5450, 5470, 5477, 5481, 5487, 5512, 5524, 5549, 5600, 5612, 5636 and 5676; and HC 1261, Session 2001–02).