ARMY ACCOUNTS.

HL Deb 25 November 1925 vol 62 cc893-934

LORD OLIVIER had given Notice to call attention to the announced proposal of the Army Council to revert to the form of Army accounts superseded in the year 1920; and to move for Papers. The noble Lord said: My Lords, the matter to which I desire to invite the attention of your Lordships' House, and to endeavour to obtain some explanation from the Government upon, is one of very far- reaching public importance, in two definite directions. The first direction is that of the efficiency of Army administration; the second is that of the general efficiency of the administration of public finance. I must confess it is from that point of view that I have been myself heretofore most familiar with the questions involved, and so far as the question of the efficiency of Army administration is concerned I only came into contact with it when the two streams of interest coalesced, about five years ago, through the adoption of the recommendation of a Select Committee of the House of Commons with regard to the form of Army accounts. But the movement out of which the alteration of the Army accounts arose, so far as it concerned Army administration, was one that had been going on for many years.

First of all let me read the statement of the Secretary of State for War upon the proposals of the Army Council. Replying to a Question in the House of Commons on July 30 last, nearly at the end of the last Sittings of Parliament, the Secretary of State for War said:— After careful and prolonged consideration the Army Council have decided that the system advocated by the majority of the Committee, besides presenting serious disadvantages, e.g., from the point of view of mobilisation, would involve a heavier expense on account, keeping than we can afford in the present circumstances of financial stringency. It is therefore proposed, subject to the approval of the Committee of Public Accounts, to discontinue the 'cost' accounts of combatant units, retaining only those of productive and other establishments for which such accounts are of proved value. It is also proposed to return to the cash form for the Army Estimates and Accounts presented to this House, while at the same time furnishing supplementary information as to the full cost of various parts of the Army. This change will involve a reduction in the numbers of the accounting staff.

I must take your Lordships back through a little preliminary history in this matter and the controversies which were dealt with by what is known as the Lawrence Committee. More than thirty years ago, Sir Arthur Haliburton said in his evidence to the Hartington Commission: I think you could never get good administration unless the administrator sees the accounts, sees the details of his expenditure. Under the old system of Army accounting the officer responsible could not possibly know the cost of his battalion or his command, because there were no accounts which showed it. Later on there is a memorandum to the Report of the Committee from Sir Charles Harris, who was then the chief financial adviser to the War Office. This is what Sir Charles Harris said: The system of Army accounting is, in fact, so rudimentary that no even moderately complicated commercial business, and the administration of the British Army is probably more complicated than any business in the world, could be conducted successfully without something further, something that would classify and exhibit the expenditure according to the purposes for which it is incurred, distinguishing between 'capital' and 'maintenance,' between the working expenses of the different branches of the organisation, and so on; something that would supply at least some general test of the economic efficiency of the organisation and working of the concern, such as the train mile unit in a railway management.

Then we had a very important Committee, presided over by Lord Esher, which put very pointedly one of the chief issues underlying the controversy on the Lawrence Committee's Report. It said: When money is doled out in compartments, and no discretion as to allocation is permitted, savings are not likely to accrue. There can be no doubt that in proportion as officer are accustomed to financial responsibilities, the economy, which they alone can secure, will be effected. While the present system of financial control is futile in peace, it is ruinous in war. Officers unaccustomed to bear any financial responsibility and ruled by excessive and complex regulations, cannot at once improvise a system for the control of expenditure in the field, when the restraints are suddenly removed. The result, as in South Africa, is the waste of millions. The position as to discretion in allocation of funds and financial responsibilities is to-day much the same as it was when this Report was written; the regulations have, if anything, become more complex.

These authorities put in a concise form the observations which I myself have made on the present system of accounting and which my former colleague, Sir Henry Gibson, also continuously made. Sir Charles Harris says: Thirty years' experience of the actual working of the present system of external control of War Office expenditure in peace and war has convinced me that it fails to produce real economy. Up to the present the old system has been maintained practically side by side with the new system. In 1918, a Select Committee of the House of Commons, a very carefully selected Committee, upon which were the noble Lord, Lord Banbury of Southam, and my noble friend Lord Arnold, presided over by Sir Herbert Samuel, went carefully into the question of the system of public accounts and specifically into the system of the Army Accounts, that being one of the great spending Departments.

Your Lordships are precluded from having anything to say in regard to the taxes imposed upon you, or to the purposes for which taxes shall be expended, but I think your Lordships are at liberty to consider whether any system of public administration is working efficiently and for the good of the country. Therefore I make no apology for a further examination of thi6 subject. With regard to the Army side of the matter a new system of accounting was introduced in 1919. This has been spoken of as the "cost" system, but it is just an ordinary, normal, common sense set of accounts such as all modern businesses employ. The old existing system is a cash account, recording what cash is received and paid out, and taking care that, the cash is properly accounted for. It is not, and cannot be in such an institution as the Army, an account of income and expenditure, and it loses touch entirely with large quantities of public values, such as stores and unconsumed supplies of all sorts. Sir Herbert Samuel's Committee very severely criticised the existing system of public accounts as being really quite useless for giving information to Parliament or for controlling the expenditure of the great spending Departments, and they therefore recommended the adoption of a scheme of Army accounts, which had already been prepared in the War Office, which placed the accounts on the clear and logical basis on which you now find them.

Before 1920 the Army account simply showed appropriations for pay, and certain other appropriations for various classes of persons who received payments for supplies. It did not give you any objective classification at all. It did not tell you the cost of the standing Army, of the hospitals, the cost of a battalion of infantry or a brigade of artillery. It did not give you the sort of account which you find in any railway business. A railway company keeps a schedule of its servants and their rates of pay, and has a system of controlling its cash receipts and expenditure; but it presents its accounts under the heads of the various services which it is performing—permanent way, locomotive power, and so on. It gives the manner in which the money is spent on the purposes for which the railway is run, just, as the new accounts give the way in which money is spent on the purposes for which the Army exists. This system of accountancy was introduced in 1920, and it was reviewed by successive War Office Committees. It had also been reviewed by the experience of trial in the Western Command of the Army and to a certain extent in other Commands before it was actually embodied in the Parliamentary system.

I have here some excerpts from the Report made by Sir Charles Harris to the National Expenditure Committee of the results of that experimental working, and the Report of the War Office Committee under the presidency of Sir Gerald Ellison. That Report states:— The Committee are confirmed in their belief that accounts of a costing type can, with advantage be kept in all units and establishments of the Army. The existence of such accounts enables future expenditure to be controlled from actual information, extravagance localised, and efforts at economy recognised. Commanding Officers are able to judge whether their own units and establishments are being run economically, as well as efficiently, and to show actual figures in support of their administration. Useful comparisons of cost are possible, both in a Command, and between Commands; and explanations of differences bring important factors to the notice of the Administrative Staff. This should be the case to an even greater extent when more settled conditions are established. In instituting such comparisons, however, care must be taken that full allowance is made for the very different conditions under which similar units may be situated.

The new accounts have proved their value in such instances as the following:—

1. (1) Disclosing cases where the cost of services was quite disproportionate to the value of the services rendered.
2. (2) Suggesting changes by which similar results could be obtained at less expense.
3. (3) Fixing responsibility, with consequent quickening of interest among all ranks, in matters of administration."

To the Army the chief interest of these accounts was their possible use to give Commanding Officers greater responsibility and power of discretion in dealing with the services under their command and doing the best for their unite.

A further Committee was appointed under Major-General Sir Frederick Robb, and later a very strong Committee was appointed under General Sir Herbert Lawrence. It is a curious coincidence that, the scheme having been brought into force owing to the recommendations of a Committee of which Sir Herbert Samuel was Chairman, it was further submitted by His Majesty's Government to the examination of that distinguished officer Sir Herbert Lawrence, and that those two gentlemen are at the present time conducting another very important inquiry on behalf of the Government, having been selected as men of the highest authority on administrative and practical questions. That is, I think, sufficient evidence of the weight that should be attached to the recommendations, first of the Samuel Committee and then of the Lawrence Committee.

The Report of Sir Herbert Lawrence's Committee is such an extremely lucid and cogent document that it ought to be read, and, no doubt, has been read, by all noble Lords who are interested in this matter, but I would venture to quote a few paragraphs from that Report as putting in the clearest manner the case for the system which, to the great astonishment of all concerned, was suddenly thrown over by the War Office five or six months ago, after having been practically approved of by the War Office and by both military and financial authorities ever since its introduction. The Report of Sir Herbert Lawrence's Committee says:— We fully endorse the opinion of Sir F. Robb's Committee … that the new system 'has potentialities in it which are altogether lacking in the old system.' We go farther and say that it is proved to demonstration that, by a proper system of accounting, economies to an extent at present quite unrealised can be effected. I may say that this Committee had many distinguished members. There were two very distinguished professional accountants, who had done very good service for the Government and were recognised by the Government as having done so; it had three military representatives besides the Chairman; and it included Sir Charles Harris, the Financial Secretary of the War Office, and also a gentleman who is now Director of Finance at the Treasury—and I am sure that the Director of Finance at the Treasury must be a very high authority on the questions of economy and efficiency into which this Committee went.

The Committee then, having had, as I say, the assistance of the Director of Finance at the Treasury, reported that it is proved to demonstration that, by a proper system of accounting, economies to an extent at present quite unrealised can be effected. They go on to say:— Until the Army as a whole appreciates the use which may be made of the information afforded by a proper system of accounting it is impossible to obtain the best and most economical administrative results. It would be idle to pretend that the new system has been received with favour by the Army as a whole, and this fact we attribute to various causes, amongst which may be mentioned:—(a) The use of the title 'Cost Accounting,' which is misleading … The fact is that, prior to the introduction of the new system, there was nothing in the Army outside the War Office worthy to be called by the name of 'accounts,' and while in the outside world more and more use was being made of accounts for the purpose of administration—not only by commercial concerns but also by public bodies—the Army had adhered to methods which had long since been obsolete. The Committee go on to give another reason why the system was not received with favour. They attribute it to the fact that the introduction of the accounts has not been accompanied by increased administrative responsibility. An officer cannot be expected to take much interest in an account of expenditure which he has no power to control.

I have heard criticism of the way in which the War Office has dealt with the particulars given in these accounts. It has been suggested that there has been too marked a tendency to maintain the whole use and employment of the new accounts solely for the benefit of the Financial Secretary's branch, and that sufficient use has not been made of them to allow Commanding Officers to appreciate their value and to make use of them in the administration of their units. I have heard that criticism made, and it seems to me to be not entirely without foundation. The Report goes on to say:— The new system has from the first been subjected to the suggestion that the accounts are not worth what they cost, and the natural reply is to point to savings which have already been effected as the result of the accounts. The present feeling cannot be removed until it is accepted as a fact—and we are convinced that it is a fact—that a proper accounting system"— this is, a proper accounting system, and the old cash system to which the War Office are reverting is not a proper or useful accounting system— is as necessary to the efficient administration of the Army as a proper medical service is to its health, and that there can never be any question of reverting to the old, unscientific forms of account which existed before the new system was introduced. Nearly twenty years ago the Esher Committee severely criticised the 'excessively complex and minute regulations' by which the War Office was 'supposed to control expenditure,' and pointed out that rigid adherence to those doubtless effected small savings, but did not, and could not secure real economy. They also referred to the 'interminable paper correspondence which wears out the energies of officials and unfits them for the discharge of their proper duties.' The position in this respect is much the same to-day as it was when these criticisms were written. We believe that the new system of accounts, when properly developed and carried to its ultimate conclusion on the lines which we propose in this Report, will not only enable masses of complicated regulations to be swept away but, by killing for ever the present system of referring to higher authority, and even to the War Office, individual cases of trivial importance, will effect a vast saving in correspondence and in the staff required to deal with it.

The Report went on to make certain definite recommendations which would have caused considerable saving in expenditure. They made one recommendation which has proved to be of a somewhat controversial character. They recommended that the decentralisation of pay and accounting duties should go down as far as units, and the appointment of regimental Accountant Officers (or warrant or non-commissioned officers) to units, station Accountant Officers to groups of small units permanently at a station, and depôt Accountant Officers at regimental depôts. Sir Charles Harris, out of his experience, was strongly in favour of retaining existing pay centres, because he was of opinion that decentralisation down to the unit would mean an increase of expenditure for accounting which would not be covered by savings on amalgamations and would also, he fears, decentralise the control of the finance departments. On the other hand, by the absorption of the Army Pay Department, which was proposed—thereby threatening considerable displacement of men from their present position—the Committee estimate a saving of £2,430 in the War Office, of £43,100 in the Royal Army Pay Corps and Corps of Military Accountants, and of £195,440 on account of the Record Offices, which they propose to amalgamate with the new general staff of pay accountants, or a total of over £240,000. The figures are a little less now, because the totals have been reduced on the annual Estimates.

That then was the gist of the Lawrence Committee's Report. It insists upon the necessity of giving the Regimental and Commanding Officers a direct interest in the economical administration of their units, and a good deal more discretion than now with regard to drawing the full present allowances or making a choice. They suggest the assigning to a regimental unit of a block grant, and that within certain regulations they should be at liberty to spend that sum with much more freedom than they now possess, and without the necessity of referring to the War Office for authority if they want to make a little change. The Committee state that it would place the Commanding Officers and their subordinates in a much better position to deal with promptitude and intelligence, on mobilisation, with matters on which in peace time they have discretion, whereas during the last War they suggest that Army expenditure was full of defects owing to lack of training in this discretion.

Last year, when Mr. Walsh was Secretary of State for War, he was severely pressed and heckled by Sir L. Worthington-Evans, who is now Secretary of State for War, as to what he was going to do upon this Report, and the present Secretary of State for War was quite anxious that Mr. Walsh should not be timid in the matter. He said:— In regard to the Lawrence Committee Report. I confess I was not quite satisfied with what the right hon. gentleman said. He [Mr. Walsh] seemed to be a little timid about it. That was a Committee which was set up by me. I will tell the House why I set it up, and I hope the right hon. gentleman will pursue this work. When I was at the War Office, the accounting and finance services—namely, the Finance Department, the Army Pay Corps, and the Corps of Military Accountants were costing—I speak from memory—£1,900,000 a year. That was an enormous sum, and I felt certain that if it was looked into a large reduction could be made. I succeeded in making a reduction of £100,000 a year by amalgamating the work of the Record Office with the Pay Office.

Sir L. Worthington-Evans, a man of considerable business experience, who administered the Ministry of Munitions during the War, took what appeared to me to be the obviously sensible view. He continued:— This Report suggests that certain further steps should be taken, and it says that £240,000 could be saved if these steps are taken. Let me remind the right hon. gentleman that this is the cost of an infantry battalion, and it is up to him to see that that saving is made in order that there shall not be any pressure to cut off any infantry battalion. The right hon. gentleman says that that will take time. It bus taken time to get this Report, and it has taken time to get these reductions, and he will find that it will require a good deal of energy on his part to get this carried through, but he ought to get it carried through. This Report was the report of one of the strongest Committees ever set up. It was a combination of military, administrative, financial and accounting experts. … What I want him to do in the future, whenever he can—I do not want it rushed— … is to get them along with him and see that it is done, because I believe there is quite a considerable amount of money in it. At present the system is a dual one. There is a system of vote heads and of so-called cost accounting. There are two sets of people doing that, each being paid, and, when it is done, the two systems do not agree, and a third set of people is employed in reconciling the work of the two first. That is going on at this moment, and the sooner it, is corrected the better, because it is a sheer waste of money. I find myself in the very happy position of being in agreement with all the rest of the right hon. gentleman's speech, and, therefore, I need not detain the House any longer, but I hope that those reforms, the time for which is now ripe, will fall to his credit in the course of this year. He quite impressed Mr. Walsh and Major Attlee, who was then Under-Secretary for War.

Major Attlee, who replied, as Undersecretary, to the comments which had been made, assured Sir L. Worthington-Evans that every possible despatch was going to be taken to carry out the recommendations of the Report, and said— To my mind the true lesson of the Lawrence Report is that if you get a sound accountancy system you will get your economies in administration. That is the point, and the detailed way in which that could be worked out is a matter in reference to which we have appointed a Committee. He went on further, in answer to another hon. member [Lieut.-Colonel Hodge] who asked him a Question, to say:— What struck me throughout his speech was that he was rather in the position of forcing an open door. That is to say, not only had Sir L. Worthington-Evans devoted his speech to championship of the Report of the Lawrence Committee, but the War Office were prepared to endorse it also. Major Attlee goes on:— I think he will agree that the Lawrence Report goes a long way towards meeting some, if not all, of his points, and he knows that the Lawrence Report has been accepted in principle and that the details will be worked out. That was fifteen months ago.

In July last, we had this Parliamentary answer given. This Parliamentary answer is one on which I should like to make a few observations. We all of us are pretty familiar, from public experience, with the Parliamentary game of cross-questions and crooked answers. This answer is rather more ingenious in some respects than most of them. It first says that After careful and prolonged consideration the Army Council have decided that the system advocated by the majority of the Lawrence Committee … Sir Laming Worthington-Evans, as Chairman, has got his pack together, and they have apparently turned him round and run him out. The system advocated by the majority of the Lawrence Committee … What does that mean? There was no division on the Committee except on one point, that was whether the devolution of control of accounting should be to the unit instead of the pay centre. That is the only point on which there was a difference. Sir Charles Harris was the only dissentient, and he dissented only on that point. The whole of the rest of the proposals of the Report were advocated by the whole of the Committee, including the Director of Finance from the Treasury. The answer goes on: besides presenting serious disadvantages—for example, from the point of view of mobilisation … Well, but so far as mobilisation is concerned, nothing can possibly go to pieces more absolutely and entirely than the present system of accounts and the present system of pay does. On mobilisation the whole of the regulations as to rations, scales, and so on, are scrapped, all the War Office system of regulation goes, and the whole thing devolves on the responsibility of the Commanding Officer in the field for doing what he can, and he must have what he wants.

Similarly with regard to pay. I happened to come into contact with the Pay Office during the War, and I can conceive no more distracting existence than that of the Paymaster-General of the Forces during the War. He knew perfectly well all the time that he was being cursed by thousands of men who were not getting what they knew they were entitled to, because the entitling records were not available at the places where they were; and he knew also perfectly well that hundreds of thousands, indeed I think you will find some millions, of money were being paid away to people who were not entitled to it at all. That was bound to happen on mobilisation, and we do not complain of it. All we say is that economy in the Army during war time can only be learnt by practising economy and business procedure in time of peace. If you get your Army administered under a real businesslike system of accounting, approved again and again by the best financial and business and military authorities in the Kingdom, and if you have that system working, and you have Commanding Officers with a considerable amount of devolutionary discretion under it, then you will have on mobilisation an Army very much better able to look after financial and material interests than the Army can possibly be under the present system of control of accounting.

LORD BANBURY OF SOUTHAM

Do I understand that Sir Charles Harris, after experience, approves of the system?

LORD OLIVIER

Certainly he does. He approves it entirely. It was only after Sir Charles Harris was retired from the War Office that the counter-current began to set in. I can assure the noble Lord personally that that is so. I have had the most explicit letters from Sir Charles Harris on this subject again and again. The answer goes on— It is therefore proposed"— that is, because there was one dissentient and because the point on which there was dissent, devolution to the unit, was not accepted— It is therefore proposed, subject to the approval of the Committee of Public Accounts, to discontinue the cost accounts of combatant units, retaining only those of productive and other establishments of which such accounts have proved of value. It is also proposed to return to the cash form of Army Estimates and Accounts presented to this House. An extraordinary non sequitur. Why "therefore"? Why, because a particular proposal for devolving responsibility as far as the unit is negatived, are you to scrap the whole of this admirable system of accounts, which has again and again been endorsed and approved by the strongest possible War Office Committees? What is the sequence of argument? "It is therefore proposed" to return to a system of cash accounts which Sir Charles Harris and the Committee on National Expenditure, on which Lord Banbury sat, said was not a system of accounts but simply a cash statement.

Why should you return to that simply because the financial people consider that you cannot devolve the responsibility as far as the unit, which is the only thing that there was dissent upon? They give a reason. They say:— The maintenance of the present system would demand a greater expense on account keeping that we can afford in the present circumstances of financial stringency. It is obvious that what the present Secretary of State for War, when he was in Opposition, feared, has come to pass. The Chancellor of the Exchequer has come down and said: "Here is an expenditure of £200,000 involved because you have got a double staff. Either you scrap that double staff or you scrap a battalion." He is threatened, I assume, with cutting down his Estimate. And, curiously enough, instead of adopting the recommendations of the Lawrence Committee and pulling out the old tooth because the new tooth was growing up beside it, it is proposed to pull out the new tooth, which is obviously the more efficient tooth, on the plea that it is drawing more sustenance from the system than the old tooth is doing. That seems extraordinary when the Lawrence Committee has shown to you that by carrying out this amalgamation you can save your £200,000.

I can guess why that is not being done. Because, as was pointed out, there are a good many officers in the Pay Department who might have to be displaced, and it may have been an instruction to the Committee who considered the matter that they were not to bring in any proposal which would involve an addition, to non-effective services. There may have been an obstruction of that sort. But surely, having regard to the future, and to the acknowledgedly admirable advantages of this system, it is better to face the trouble of carrying out the transition, and maintain your efficient instrument of accounting and control, with its advantage of being able to give Commanding Officers at any rate information as to what their work is costing, even though you cannot devolve authority as far as the Lawrence Committee recommended. But they propose to return to the cash form of the Estimates, while at the same time furnishing supplementary information as to the full cost of the various parts of the Army.

I ask, what does that mean? When you have destroyed the present system of accounts, which do enable you to give the cost of particular Divisions of the Army, and when you have returned to a cash account, from which you cannot possibly get that information, how are you going to furnish to Parliament the full cost of various parts of the Army? You cannot do it. You never could do it until this new system was introduced. You never could tell what was the cost of a battalion, or of a hospital, or of any service. The only services as to which you could account for the cost were those particular services which were called the manufacturing services—the Ordnance factories and one or two others of that sort—in which proper commercial accounts were kept. It is idle to tell Parliament, whether the other House or this House, that you can tell the cost of any part of the Army if you return to the system of cash accounts, because I can assure your Lordships, and everybody who is an adept in public accounts will agree, that you cannot do it and you never will be able to do it. Therefore, that is misleading. We shall have to go without that information, Parliament will have to give up the privilege of knowing what it is paying for and will have to go back to the old system of voting cash only.

That is a very dangerous and mischievous system. In the first place, it has the broad and obvious fault of not telling you what you are spending or the purposes for which you are spending money at all. There is this further great danger—and here I come to the general financial danger, on broader financial grounds—that it goes back to a system of accounts under which real expenditure could constantly be incurred without the House of Commons or any one else ever knowing anything about it. There is a particular phrase in the Report of the Lawrence Committee which I should like to quote to your Lordships. They say that the maintenance of the distinction between cash and other expenditure not only adds to the difficulties of the responsible administrator, but also tends to a continuance of the idea fostered by the old system of accounts, that the consumption of stocks is not expenditure. You have Army stocks in existence with a valuation of about £103,000,000. Those at present stand in a balance sheet and nothing can be expended out of those stocks unless the outgoing appears as an expenditure in the accounts and is charged against the particular unit for which the stocks are used. But under the old system, which was abolished in 1919 and which obtains in all other Departments of the public service until this day—the Office of Works, the Stationery Office, the Admiralty, though the Admiralty have a separate? system of cost accounts—when you had bought stocks or stores of any kind, you charged the expenditure to the Vote and no account appeared against that purchase in any of the Departmental Accounts to Parliament. They are not kept on charge as a value in the balance sheet, and as showing that they are part of the working capital account. The consequence is that your real expenditure—for expenditure is a parting with values and not merely the drawing of cheques on your banker—was continually concealed under the old system and will be concealed if and when it is reintroduced.

Since the War the War Department has used up out of stocks about £43,000,000 worth of stores which would never have appeared in the old accounts at all, because they had already been charged for as expenditure. They were stocks, which were charged as expenditure in former years and had been bought out of the Vote of Credit. Under the old system those things would never have appeared as part of the cost of the Army at all.

During the past four years, under the new system of accounting, they have appeared as part of the cost of the Army—that is to say, what you are spending in cash and value upon the Army. That is what is done by the present system of accounts.

During and after the War the old system of cash accounting cost the country an enormous sum, first of all indirectly by losing track of the value of part of the stores, because in previous years they had been charged to expenditure. It also led to some extraordinary transactions in the Public Accounts, some of which I would like to instance to your Lordships. One of the most extraordinary transactions in the Public Accounts to which this system gave rise was this. In May, 1919, His Majesty's Government thought it right to send assistance to General Denikin in South Russia, by giving him Army stores and ordering Army Contractors to send stores to him. I say nothing about the policy of those transactions. It may have been a reasonable policy for His Majesty's Government to pursue, and had His Majesty's Government asked for the consent of Parliament nothing more need have been heard about it. As a matter of fact, it was not until about two years afterwards that the whole facts of the case were elicited, and upon the facts as they then appeared the Public Accounts Committee of the House of Commons expressed their opinion that it did not seem to them to be quite clear that stores which had been bought for General Denikin's Army could properly have been said to be stores bought for the purposes of the British Army. They said also that if such a gift was made during a war to an Allied Power that might be reasonably done without consulting Parliament; but for this act long after the Armistice the consent of Parliament ought, in their opinion, to have been asked.

Under the present system of accounts, those stores not having been already charged to expenditure, but being live values for which the accounting officer had to account in his Parliamentary Vote, neither he nor the Minister could possibly have handed over property which cost £65,000,000 to any foreign friend without coming to Parliament and asking whether Parliament consented. That is one of the direct results of the old cash system of accounting, by which you spent money and the accounting officer had no further responsibility to Parliament for stores in his account.

During the War an enormous mass of property of all sorts was bought—stores, stocks and material of all kind. After the War those were disposed of by the Ministry of Munitions and the Surplus Disposal Board. All that property was bought out of borrowed money on Votes of Credit and, strictly speaking, it was working capital. It was in hand and had not been disposed of. It was the property of the Government, which had not been expended. And this fallacious idea that stores which had been bought and not disposed of can be got rid of without incurring expenditure worked in this way. As these stores were not tied up to any capital account and did not stand in any accounting officer's balance sheet, they could be brought back into account as appropriations-in-aid. Any railway accountant who had stores undisposed of and sold his surplus stores and deducted the proceeds from his expenditure, would at once upset his balance sheet, and if our accounts were kept in a manner which would cause any Judge in Bankruptcy to refrain from censuring them if they were brought before him by a. business man, and prevent him saying: "You have confused your accounts; you have mixed up your expenditure account with your capital account," and could have been worked honestly as only the War Office accounts now can under the new system, those receipts would automatically have gone back into the Consolidated Fund and have gone to the reduction of the Debt and the nation would have faced the matter. They either would have raised fresh taxation or they would frankly have had to re-borrow the money, because they were living on borrowed money.

Nevertheless, such is the disguising effect of our old cash system of administration that our Chancellors of the Exchequer went about boasting that they were not as other people, but were paying their way out of income. Whereas, of course, they were not paying their way out. of income. They were paying their way out of the proceeds of borrowed money. Those are examples of the confusing effect of the old cash system of accountancy, and if you return to that system you must abandon any idea of controlling expenditure on the system recommended by the Committee of the House of Commons in 1918. That decision has been staggering and depressing to those who have sympathised with the effort to get a bettor form of public accounts.

I do hope that His Majesty's Government will be able to give us some kind of consistent and cogent explanation of this extraordinary change of view. I hope that the Secretary of State for War can give us some real substantial reasons for rejecting the suggestion of the Lawrence Committee in regard to the amalgamation of staffs. I am moving for Papers, and I would put it to the noble Lord that the Papers I move for are any correspondence that has passed between the Army Council and the Treasury giving the reasons of the Army Council and the replies of the Treasury upon this subject. I also ask whether he can lay before the House the Report of the subsequent Committee—the Committee under Mr. Crosland, which was appointed to consider the recommendations of the Lawrence Committee, and in consequence of which I apprehend the action of the Army Council, the Treasury and the Government have been taken. I to move.

VISCOUNT HALDANE

My Lords, before the noble Earl answers the questions which have been put to him there is one question, or perhaps two, which I should like to add. I am not going further into the matters which have been spoken of with so great a wealth of knowledge by my noble friend Lord Olivier, who has put before your Lordships the whole situation. Mine is a much more homely and simple question. What I want to know is whether the Government propose to continue the system of accounting to Parliament which was in force when I was War Minister. I was Secretary of State for War for six and a-half years. I will tell the House the form in which I brought my Estimates before the House of Commons, and then I will ask the House whether it was even a decent form. I was not free in the matter. I was held down by the tradition of that most conservative body, the House of Commons, and also by the traditions of the Treasury.

But now I will tell your Lordships how it was done. It is very simple. What is cost accounting of which we have heard so much to-day? I will tell your Lordships what it is not. When I wanted money for the Army I brought in the Estimate in the spring. I used to bring in the Estimates under a number of heads and sub-heads—there were many of them. I used to ask for so much money under each, and I used to get that because the Estimates had been approved by the Cabinet, and they were backed by the full force of the Government. I should have had to resign if the Estimates had 'been refused, and they never were refused. What did they consist of? The Vote for the pay of the men, the Vote for stores, the Vote for horses, the Vote for medical' services, including the hospitals, and so on.

Now when Parliament voted that money, which it only did after a great debate upon the Estimates, it voted the money with wholly insufficient knowledge. Take, for instance, hospitals. That is a case which conies into my head. I asked for so much money for hospitals, but I did not tell the House of Commons what the hospitals were. There were hospitals in the Aldershot Command, and there were hospitals in the Northern Command. There was so much put down for hospitals, but there was nothing to show the House of Commons whether the hospitals in each Command were being economically run. For anything that appeared to the contrary the beds might be empty in one Command and full in another. Yet the sum of money asked for was the same. One set of beds might be more extravagantly maintained than another set, yet there was nothing in the Estimates to throw any light on this point. It was the same with all the Estimates. Parliament voted the money, and afterwards the Accounts Committee went into the matter to see if I had complied with the instructions of Parliament. The instructions were: "We give you so much money, and you are not to expend it on anything except what we have told you." I did not tell them very much.

When the matter came before the Public Accounts Committee the Accounting Officer of the Army attended and showed that the money had all been spent

under these heads. That is all that Parliament asked. It did not know whether we had been wasting money on hospitals. It did not know whether we had been wasting money on pay. It did not know whether we had neglected this, or attended to that, because it had no details before it. In other words the House of Commons did not know what it was doing in voting that money. That was an old custom. There was no cost accounting. That is to say there was no accounting which showed the House of Commons what the cost under each head was.

There has been a good deal of obscurity introduced in the discussions in the newspapers and in the House on this subject. What is cost accounting? You can only get it clear into your mind if you remember that what you are dealing with is a system under which the Estimates are brought into the House of Commons. When you have that in your mind you see at once that there is no account of cost given to the House of Commons which is of the slightest use to enable the ordinary Member to form a judgment on the matter. Of course there is accounting. When you go down to the Command there is somebody who keeps account. You send the money down to the General Officer to expend, but you send him down a block of money. He has never been told about this, that, or the other thing. No doubt he could be controlled, but Parliament has given no instructions that he should be controlled. All Parliament has said is: "Here is so much money to throw at the heads of the various Generals in the Commands. If you have not spent it by March 31 then you must bring it back and put it into the pot again."

Suppose your Lordships tried to manage your households on that footing. Suppose you assembled your butlers, your valets, your cooks, your housekeepers and your coachmen, and suppose you said—I am assuming you are in an opulent state of mind—" We have got such and such an income, it is pretty good, and we are going to spend a third of it on the kitchen, a tenth of it on the tailor, so much on the wine merchant, and so on. There is so much money which has to be spent, and remember if yon do not spend it you will have to bring it back." What would happen? Why, your Lordships' households would be run even more extravagantly than they are to-day. There would be no accounting, there would be no looking into details, there would be no opportunity given to you to say: "I will not buy this, that and the other thing because it is too dear. I will see whether it cannot be got cheaper, or whether a less quantity will not suffice."

VISCOUNT PEEL

Did the noble Viscount acquiesce in this vicious and dangerous system for six and a-half years?

VISCOUNT HALDANE

I will tell the noble Viscount at once. That is the system. It has been established with the authority of Parliament, and from which Parliament will permit no departure. That is the system which had been approved by the Treasury, and to which the Government, as I understand it, to-day is going back after having got rid of it. I was going to tell the noble Viscount; that the House of Commons should Vie very dissatisfied, and the reason is that this system had gone on into the War and through the War, and had attained to the magnitude of a scandal, but after the War was over some active young members of the House of Commons —I do not know whether the noble Viscount was one of them, I think he was in the House of Commons in those days, I am talking about 1919?

VISCOUNT PEEL

No. I was not there then.

VISCOUNT HALDANE

Then you have not the merit I was going to ascribe to you. Some of these young members set to work and said: "We will not have this. We will not have these Army Accounts kept in tins way. We will have a system of cost accounting." Sir Herbert Samuel's Committee insisted upon that, and then that very able man, whose financial knowledge is unrivalled—and I very much regret that he has left the public service now—Sir Charles Harris, set himself to work. I had the advantage of Sir Charles Harris's services and when I was free I took the fullest advantage of them. There was a set of Estimates which we considered too high, and I had to get them down. I could not, because I had not proper accounts. But we set to work, and Sir Charles Harris detailed financial experts to each head of Departments in the War Office with the result that before any one spent any money it was estimated to him in sovereigns. Thus he became very careful before spending. We got something like £3,000,000 off in the first year by the application of this method and the way in which the Generals pushed it through.

I say very emphatically that if you want economy in the Service, in the Army, you will only get it through the soldier. It is ridiculous to suppose that your Treasury officials or your business men can get economy. They do not understand it enough, they cannot go into the details that a soldier can, and if you treat a soldier properly he is just as keen an economist as anybody. If you go to a General in charge and say to him: "It is your duty to the State to keep your expenditure at the lowest," he will scrape in order to do that as nobody else will scrape. That is the system which ardent spirits wish to see applied outside the War Office. I could only do it in the War Office, and ask that whenever any money went down to the Commands out of the Votes it should be spent not only on good financial advice but on the advice of experts who should be on the staff of the General, or at any rate close to his ear, who would be able to tell him what each proposed item of expenditure would cost in money. That was very necessary. I remember a case—it was not; in my time—in which a very expensive building, no doubt a useful building, was to be put up, but it did not occur to the other branch of the Service, to ascertain the tenure of the land on which the building was to bi-erected: and it was built on a lease which had only four years to run. Naturally the country did not profit by that transaction. But that is not the fault of the soldier; it is because you will not give him proper advice and assistance when he is spending your money.

The whole object of Sir Henry Lawrence's Committee was to secure that to him, to see that the money Parliament voted should not be spent with an absence of control, which is the case to-day, but that those who have to spend the money should have at their elbow people who would be able to tell them what the amount would be. It means, of course, some staff; but look at the other side. I have no doubt you would have got large economies if the system had been in practice. There is a good deal of money to be saved in connection with Army Intimates. But what has been done? Sir Henry Lawrence's Committee recommended, and the Report was approved, the system which had begun to be set up. But the Government has abolished the system and reverted to the old system under which I worked; and one of the questions I desire to ask is: Will the noble Lord tell us now in what respect the system they have reverted to differs from that old system? Under what supervision by Parliament is the money spent which is voted in the Votes and the annual Estimates presented for the year? Is the Public Accounts Committee in possession of more details now which enable it to be satisfied not only that the money en bloc has not been spent outside the purposes for which it was appropriated, but that it has been spent to the best advantage and with full advice given in connection with each item to the General who is responsible for what has been done?

I have, in a very superficial way, put before you a state of things which I consider is very bad, and I hope to hear that the Government are taking vigorous steps to get rid of the old defective system and set up in its place another system which will be as great a reality as Sir Henry Lawrence's Committee proposed to make it.

LORD RAGLAN

My Lords, I have no theoretical knowledge of accounts, but I should like to give your Lordships one or two instances as to how this system, so belauded by the noble and learned Viscount opposite, actually works in practice. From what I can learn, so far from saving any money for the taxpayer it is in many cases costing him more. Let me take one case. There were certain officers who, finding it cost them £3 a day for Government transport, hired civilian transport at £2 5s. and saved themselves 15s. a day. But they cost the taxpayer £2 5s. in cash. I am told it is now impossible for a regimental pioneer to mend a broken window, because when you add together the cost of the pioneer's pay, his rations, his clothing and his equipment, it becomes much cheaper to call in a civilian. At Easter this year the battalion for which I am responsible was attached to a Regular unit, and it was arranged that the cooks of the Regular unit should cook the rations of my men. In accordance with the law of accountancy it was necessary that the number of hours worked by the cooks should be computed and a proportion of their pay for those hours should be costed against my unit and credited to the unit to which the men belonged. They did not receive, of course, a penny more pay and the taxpayer did not pay one penny less. So far as I can make out the whole Army has been engaged in playing a sort of game of battledore and shuttlecock with figures like this. I congratulate the Government on having taken a step in the right direction, a step which will ensure that the money which is spent on the Army will be spent in a way which will increase the efficiency of the fighting men.

LORD JESSEL

My Lords, I had some personal experience during the War of this system of costing accounts. I was in charge of a considerable number of horses, from 5,000 to 6,000, and great expense was, of course, incurred for forage. The whole question was gone into very carefully and in the interests of economy we were allowed to keep very accurate accounts. Comparisons were called for with the big railway companies who keep large studs of horses, and by having that information we were able to reduce our own costs considerably. There was also this incentive, that in many cases the Commanding Officer was allowed a certain proportion of what might be made by the sale of manure and fats from the cookhouse; and in this way great savings were made. What I want to say to your Lordships is that, if an inducement is given us in the shape of a block grant per unit to make savings so that some of the profit derived is given to the unit, you will effect great economies.

In regard to the remarks of my noble friend behind me, the question of costing accounts can, of course, be carried to an absurdity, but I do think that the new system was a great improvement. I quite agree with that which the noble Viscount opposite said regarding the Public Accounts Committee in the House of Commons. I think it is a pity to have to scrap all this unless something equally efficient is going to be put in its place, and when the noble Earl replies on behalf of the Government I hope he will assure us that something is going to be done to help units and at the same time to make for greater efficiency in the administration of the cost of the fighting Services.

THE CIVIL LORD OF THE ADMIRALTY (EARL STANHOPE)

My Lords, I am sure that the House will regret that my noble friend Lord Onslow, owing to reasons of ill health, is unable- to be present to-day (o deal with the many questions that have been put. I am afraid that I can lay no claim, like noble Lords opposite, to great financial knowledge nor, since I was never a member of the- Army Council, can I claim any intimate knowledge of the method by which the War Office presents its accounts. Consequently, when I find myself having to deal with the points raised by two such great authorities as the noble Lords opposite on those two particular subjects. I am afraid that your Lordships will feel that I am not likely to present as good an argument as the case really deserves.

The noble and learned Viscount opposite dealt briefly with the method in which the country receives its Estimates and accounts. I confess that I was disappointed that the noble Lord who initiated this debate did not take us somewhat further in his description of the Lawrence Committee's recommendations than he actually did. He reached the middle of paragraph 50, and I was waiting to hear him say something about paragraph 51, speaking with his knowledge, of Treasury matters and being himself an old Treasury official. Paragraph 51 is really the foundation of the Lawrence Report. It lays down that, quite obviously, there would have to be a very material change in the control by Parliament and by the Treasury of financial affairs, that the Accounting Officer of the War Office would have to be relieved of his responsibility to a very largo extent and that the Public Accounts Committee would have to amend the regulation which he will find quoted at the bottom of page 21 in the middle of that paragraph.

I think the House will hardly have understood exactly how this new form of accounts came into operation. The noble Lord did tell your Lordships that the Select Committee on National Expenditure recommended various very drastic and material changes in the whole form of public accounts, but, so far from having been accepted in another place or by the Government of the day, I understand that those proposals never really received any general discussion in another place, and that neither the Government of that day nor any of its successors, including that of which the noble Lord himself formed a part, have really put the major proposals of that Committee into operation. As regards the Army, certain proposals were made to the Committee to which he referred, over which Sir Herbert Samuel presided, making agreed proposals for a change in the form of presenting Army Estimates and accounts and, as an experimental measure, the Government of that day brought in the accounts in the form in which they have stood up to the present time—that is to say, from 1919–20 until the present year. But, so far as I have been able to discover, neither the Public Accounts Committee nor another place asked for the accounts to be submitted in that way nor did they approve it until after the accounts had been produced in the new form. They were never approved before they were' brought in, and only to some extent afterwards, by the Public Accounts Committee.

As a result of experience, two grave objections have been found to the form of the new accounts. In the first place, it did not displace the cash accounting system. It merely produced another system on top of it and. as the noble Lord himself, I think, has said, the result has been a large increase in the number of officials and great complications in getting the so-called costing account system find the cash system to correspond and tally. The cash system still continued to be necessary in order to present the accounts in a form over which the Auditor-General and another place could exercise their control. As regards the second objection, I think the noble Lord also admitted that the new system really failed to produce any scheme of cost accountancy as it is known in business and commercial circles. As regards the first point—the Parliamentary audit—since the cash account had to be continued in the same way, the paymasters continued—I give this as an example—to show in their cash accounts for fuel the money which was actually paid to coal merchants: but the Army Service Corps got from the quartermasters of each battalion receipts for so many tons of coal without any reference whatever to its market price. As regards the new system not being cost accounting, in the first place, to take the instance which I have just given, you have to authorise the Commanding Officer of a unit to go wherever he pleases in order to get his coal at a price that he thinks suitable, and you might, in point of fact, get competition between units and a good many complications of that kind.

But there are far graver objections than that. A Commanding Officer is ordered to take his battalion, let us say, to the new Wellington Barracks and, if he is going to be charged an economic rent for those buildings, he will find that his unit is charged a very high price indeed. Similarly, another battalion is ordered to go to barracks at Warley, where the rent is low. Consequently, when you begin to compare the cost of those two units, one with the privilege of going to Wellington Barracks and the other with the privilege of going to Warley Barracks, you get two entirely different costs. But the Commanding Officer obviously has no say whatever as to which place he is likely to go, and the result is that, as regards rent, the- figures have had to be "cooked," if I may use such an expression. The figures have had to be cooked.

LORD OLIVIER

Why should they be? The object of accounts is to know what things are costing you.

EARL STANHOPE

Surely the object was to provide economy in units and know what each unit was costing?

LORD OLIVIER

You do not provide economy by pretending that you are spending less than you are.

EARL STANHOPE

The object was to encourage commanding officers to effect economy and compare one unit with another. Supposing Parliament had said to a Commanding Officer: "Here is a definite sum of money; go on and maintain your unit for that sum, and at the end of a given period you will produce an account of how you have spent the money." I think many of your Lordships will agree that that is a system which has many advantages. It is obviously the old system under which the Army was raised originally, when actually the Commanding Officers not only raised the men but paid them and provided them with arms and ammunition, and did the whole thing from the beginning to the end. You can hardly do that now. I can imagine a rather astute Commanding Officer saying to would-be recruits, officers and men: "If you want the privilege of serving in my unit you should pay an entrance fee." It would re-introduce the old system of purchase. Further, you might get Commanding Officers—you undoubtedly would at first—who, having been given a definite sum to last till March 31, would discover somewhere about January 31 that they had run through the whole of the money. They would have to come to the War Office and say: "We must have more money in order to pay our men. We must have enough money to buy food and to keep them going for the next few months." You would have the War Office having again to come to Parliament with a Supplementary Estimate.

I am speaking entirely from recollection, but I had the impression that some years before the War, when I was a member of a County Territorial Association, there was a moment when my county happened to be one of the very few associations which were solvent on the question of clothing. Had there been a cost-accounting system at that time, I am not sure that the admirable scheme of the noble and learned Viscount opposite would not have been brought to an abrupt and early close.

VISCOUNT HALDANE

We left them free.

EARL STANHOPE

They were not on cost-accounting?

VISCOUXT HALDANE

Just the same.

EARL STANHOPE

I understand the noble Viscount to claim that the system which was then in existence was the right system, and not the system which has existed since 1919–20.

VISCOUNT HALDANE

There was nothing inconsistent. The Territorial Associations did not account directly to Parliament. There was a Vote for the Territorial Associations, but we left them free. They had to keep careful account, but they did not come directly to Parliament

EARL STANHOPE

That is exactly my point. The units, and so on, would not come directly to Parliament, and the War Office would therefore get more freedom to deal with things in the way desired. However, that is really a minor point, and is only according to my recollection. The result of this system has been this. As the noble Lord who initiated the debate knows well, it has not been popular in the Army, and for this reason, that such a very large proportion of the cost of any particular unit is expenditure entirely outside the control of the Commanding Officer. Actually I think the pay and fixed allowances alone are well over one half of the cost of the battalion, which amounts to £125,000, and are outside the control of the Commanding Officer altogether. Discretionary power has been given to the Commanding Officers with regard to provisions and clothing.

LORD OLIVIER

And forage?

EARL STANHOPE

I cannot answer that off-hand. I think some discretionary power with regard to clothing was given during the time when the noble and learned Viscount was Secretary of State for War. It is hoped that further elasticity can be allowed in these directions. It is true that the admirable Report of the Lawrence Committee received the general approval both of the War Office at the time and of the Treasury, and that they were in favour of an extension of cost accounting, but it was only subject to further consideration with regard to expense. I think the noble Lord opposite was 'hardly fair in the quotations he made from, an answer given by the Secretary of State for War in another place. I understand he represented to the House that the reason why this new form of account is to be discontinued was solely on account of the difficulties of mobilisation. If noble Lords refer to the answer given in another place they will find that the answer refers, first of all, to various serious disadvantages and merely gives as an example the difficulties of mobilisation.

LORD OLIVIER

I read this answer as referring to the system advocated by a majority of the Committee. There was only one point on which there was a majority. On the rest they were unanimous.

EARL STANHOPE

Well, my Lords, I understand that the Army Council now propose to bring in. accounts exactly in accordance with the principle on which they were brought in before by the noble and learned Viscount, and others, but, that they will give more material information on various subjects than they used to do in past days. It is proposed that, although cost accounting should disappear as regards combatant units, nevertheless it should be maintained for a great many other services of great importance.

LORD OLIVIER

Could the noble Lord give us the particulars?

EARL STANHOPE

I was about to do so. I understand that operating accounts with regard to the clothing factory, electricity supply stations, bakeries, laundries, and such like, which stand obviously on an entirely different footing from those of combatant units, will still have cost accounts produced, and they will still have the advantage of skilled accountants, who will keep ton oh with their activities, and be able to report on how far their services have been given with efficiency and economy. Already, as a result of having these cost accounting officers in these particular establishments, very material improvements have been effected in their method of operation, and it is therefore proposed that such institutions should still have the advantage of that expert advice. Moreover, it is proposed that a certain number of officers now serving in the Corps of Military Accountants shall be at the disposal of General Officers Commanding, who will be available for undertaking any detailed accounting investigation of any Army services, whether normally costed or not; that is to say, a General Officer will be able to turn his specialised accounting officers to any particular direction in which he thinks it would be of advantage to get detailed accounts.

I understand that the Army Estimates will have a sort of interleaved information, much in the same form possibly as the Admiralty accounts, as they are now presented to Parliament. Personally, I am inclined to wonder whether that is an advantage. I understand that a certain well known Member of Parliament said the other day that this new form of Army Accounts was entirely unintelligible to him, and he wished to Heaven that the Army produced its accounts like the Admiralty. As a result of that I have been more inclined to favour the system of cost accounting, in order, possibly, to evade a certain amount of Parliamentary criticism than I would otherwise. Therefore, whether the Army is entirely wise to produce so much information for the benefit of Parliament, and for discussion and criticism in another place, remains to be proved. The cost of this scheme of Army accountancy at the present time is £250,000, and, if you make allowance for pension charges, and so on, it would work out at £300,000. If you had gone further and had put the whole scheme of the Lawrence Committee's recommendations into force the cost of accountancy would have come to £400,000.

LORD OLIVIER

On the Estimates for the current year I see the cost for military accountancy is £220,000. Last year it was £250,000.

EARL STANHOPE

I accept the correction of my noble friend. The War Office have now, as the noble Lord knows, with the approval of the Treasury, recommended to the Public Accounts Committee that the Army Accounts should revert to a simpler form than they are in now. So far I understand that no answer has been received from the Public Accounts Committee, but, in anticipation of approval, steps have already been taken to reduce the number of personnel engaged in accounting, and in preparing accounts for next year, and it is hoped that eventually, if the scheme is approved, the cost of this accountancy will come to well under £100,000, as against £400,000 which would have been spent if the whole of the Lawrence Report had been put into operation. I think your Lordships will agree that that is an economy which is well worth making.

VISCOUNT HALDANE

Yes if you get it on the other side of the account.

EARL STANHOPE

Like the noble Viscount, I trust the Army officers to be as economical as possible, and I think they will be so, whether this accounting is going on or not. As regards Papers, I have only to say that the Report of the Committee presided over by Sir F. S. Robb—all the relevant parts of it—have already appeared in the Lawrence Committee's Report, which has been published, and therefore there does not appear to be any real object in producing a Report of which the main part has already been produced. As regards the Crosland Committee's report, that was a Departmental Committee which was appointed solely to work out details of the Lawrence scheme and to report to the Army Council, and I understand that it is very unusual for the Report of a Departmental Committee to be published, and the Army Council do not propose to do so in this instance. Inter-Departmental correspondence between the War Office and the Treasury in regard to this or any other scheme is confidential, and obviously it would be very inadvisable from any point of view to make public correspondence of that kind. As the noble Lord knows, it is practically never done. Therefore I am afraid that there are no Papers really which can be produced, and I understand that probably the noble Lord will not press his demands, because he probably knows that already as well as I do.

EARL BEAUCHAMP

My Lords, I confess that I generally look at any accounts or balance sheets with a good deal of suspicion, because it is known that there are such things as balance sheets which are published in order to conceal the real facts of the case, and they are apt sometimes to leave me in a state of some confusion. I am not quite sure that my mind is not on this occasion in a state of some confusion as to the exact merits of the case. I am very much impressed by what was said in the course of the discussion, both by Lord Raglan from his personal experience and by Lord Stanhope. I do not think that your Lordships have suffered from the absence of the noble Earl, Lord Onslow, as the case could not have been better presented than it was by Lord Stanhope. But there is this to be said, that the whole system of accountancy has changed a great deal during the last twenty or twenty-five years, and people expect accounts to be on a different system from what they used to be. Therefore what was suitable twenty or twenty-five years ago is not necessarily suitable to-day, and in connection with the Army and the Navy we want accounts made up in the same way as accounts are made up for other big businesses which have no connection with the State.

I understand that under the old system anybody going down to a hospital anywhere who asked the responsible general: "What does your hospital cost you altogether?" would have found that that officer was quite unable to give him any answer. You cannot, under the old system, say what is the cost of a hospital, and for this reason, that the expenses of the staff are charged with those of the other members of the Royal Army Medical Corps to the Army Agent in London. The accounts for orderlies would go to the Paymaster at Waking, for the head offices are there; the accounts for food, fuel, and water you would find mixed up with the other accounts of the Army Service Corps, whose headquarters are at Aldershot; medicine would have been mixed up with all the other medicine of the other hospitals and the only accounts existing would be at the War Office; and, finally, bedding and furniture accounts would have been found in the Barracks Department. That cannot be an economic way of running hospitals, and we want something a great deal more up to date in order that we may know at once what is the cost of a hospital. Then it is possible, by seeing how many patients have been in that hospital, to compare it with hospitals outside. But more modern and up-to-date accounts are, I think, quite clearly necessary in eases of that character.

Really, I suppose the method in which our accounts have been presented has had a two-fold object. One is to prevent theft, and the other is to make it perfectly certain that money meant for one object is not spent for another purpose altogether. With that in mind, I do not think anything better could be devised than the form of accounts now existing in the Army. We have gone rather beyond that now, and the time has come when we want accounts to help in other directions. It is not only a case of preventing over-expenditure on a particular item, or of preventing the responsible officer spending more on "A" than he ought to spend. We want now to find out the exact total cost of one particular service so as to see whether any economy is possible in regard to it. A little has been done in that direction. The Treasury ordered some of the Departments to pay for their own telegrams and to return those telegrams in their expenditure. The result was that in 1922 the number of telegrams was reduced by something like fifty per cent, and the number of words was also reduced; so that there was a very considerable saving in that one item.

I see that the Lawrence Committee thinks that by a proper system of accounting economies at present quite unrealised could be effected. I realise that a system of this kind must be expensive. But there is, indeed, the question as to whether some of the other accounts might not go by the board if this system of cost accounts proves successful. In that way economies might be effected which will cover this expense. I think it was open to the noble Earl, although he did not do so, to say that those who were anxious for this change were amongst those economists who always want economies in this respect, but never in any respect in which they are interested themselves. The reply to that might be that if you abolished accounting altogether you might succeed on paper in effecting certain economies, but it is obvious that in every other direction you would have a great deal of expenditure. There is the question whether this system of cost accounting might not, in the same way, produce very real economies.

May I say, in passing, that being an ardent economist, I look forward to supporting His Majesty's Government' in any discussion regarding the economies they suggest at Rosyth; indeed, I shall urge them to go a- great deal further if the matter is raised in your Lordships' House. Those remodelled Estimates have not yet, I think, been pronounced upon by the Public Accounts Committee. I am not sure what the procedure may be, but would it be possible to make available for public information the reply ultimately received from the Public Accounts Committee? I believe they have been asked by the Treasury their opinion of this, and it would be interesting to know whether they approve of the change in the system of accounting suggested by His Majesty's Government. Let me mention what was said by Sir Herbert Samuel, a great authority upon these subjects, in the introduction which he wrote to a work on Parliament and the taxpayer. He said that, so far as the direct control of Parliament in these matters was concerned, Estimates might just as well not be submitted to Parliament at all. I have noticed that only this month the Chambers of Commerce, in the course of an interview with the Chancellor of the Exchequer, urged that His Majesty's Government should continue these accounts because they thought there was real importance in the reforms of the National Expenditure Committee.

The noble Earl has given an explanation of the intentions of His Majesty's Government. I heartily welcome the declaration that they will not return entirely to the bad old system, but that they propose to add to the former accounts certain explanatory figures. I confess I had it in mind to ask His Majesty's Government whether they would not consider the question of submitting this form of accounts to some independent authority. It is obvious that there are very good and very sound authorities for this system of cost accounting; but I think His Majesty's Government would have been supported in their action had they sought the advice of some competent Committee before it was initiated. For the moment, in view of the action which His Majesty's Government proposes to take in regard to the Army Estimates, I will not press that, though it might be necessary on a future occasion to do so. But we shall certainly watch with very great interest the form in which the Estimates are presented on this occasion, and if we find they are not satisfactory we shall probably raise the matter again and press His Majesty's Government to take some action, possibly in the direction of getting from some independent Committee an authoritative expression of opinion as to the best form in which the accounts should be presented.

THE FIRST COMMISSIONER OF WORKS (VISCOUNT PEEL

My Lords, I noted with great satisfaction the statement of the noble Earl, Lord Beauchamp, that when some of the suggested economies, whether at Rosyth or elsewhere, come before your Lordships' House for discussion they will receive his full support. I am going to enlist his support, if I may, on further occasions, because I can assure him that the economies proposed by His Majesty's Government will not stop short at Rosyth, or other dockyards, but will spread, I hope, to the general field of administrative expenditure.

I am sorry that the noble and learned Viscount, Lord Haldane, is not in his place because I wanted to know whether he was reassured upon the point he made. He seemed to be under the impression, and to be anxious about it, that the system of accounts now being established was in all respects the old system, or, as he called it, the bad system of accounts under which he suffered for six and a-half years when he was Secretary of State for War, but to whose evil influence he was not awake, I think, during the time he filled that office, though he became conscious of it after ten or twelve years of further experience in other Departments. I think my noble friend Lord Stanhope has made it clear that the system proposed is not what might be called simply a return to the old system which then prevailed, but that the House of Commons will be given a great deal of useful information as to the costs of different units or different businesses, like the electric system, where that is carried out, and so on, which, any how, will enable the House to offer criticisms of far more value and with far more knowledge than was the case when the accounts were solely presented in the old fashion.

But the noble Earl, Lord Beauchamp, with that passion for economy which he has displayed on this as on other occasions, told us that he thought that by the costing system of accounts as fully applied—and I wish to say a word on that in a moment—economies could really be obtained. You may be able to obtain economies, but you have to find out what is the value of those economies. You have, as I think the noble and learned Viscount said to find out what is the expenditure on the other side to enable you to secure those economies. That is really very largely the point in the system of costing accounts, because, as my noble friend Lord Stanhope has pointed out, the area within which Commanding Officers of units, whether cavalry regiments or battalions of infantry, can effect these economies, is extremely limited. I have heard it said that there is about ninety per cent. of the expenditure which the Commanding Officer cannel control in any way at all. Therefore, you have to ask what he might be able to do within the very limited area in which it would be possible for him to effect economies.

As against that, you have to set the whole of the very large cost of these military accountants, who have to produce a very large amount of very elaborate accounts in order that hypothetically, perhaps, you may save a small sum of money on some units. That has to be considered. But the real root of the trouble is that if you were really going to establish complete authority in the hands of Commanding Officers, and so on, of units to carry out all these economies which have been suggested, you would really have to revert to the eighteenth century system. You would have to carry out a form of decentralisation which would practically smash up the organisation as built up in the War. Take, for instance, the question of the recruiting organisation. You would have to abolish that, I suppose, and each Commanding Officer would be his own recruiter, competing against all the other units all over the Kingdom. You would have to do more than that, I think. Take the different directors at the War Office. There are fourteen or fifteen directors there, and the chiefs of the Army Council under whom they are grouped. Everybody, I suppose, would suggest that in any sensible system you would hardly allow Commanding Officers to make all their contracts. The contracts would still have to be made by the directors, but these gentlemen and their corresponding chiefs would have their character entirely altered. They would become not controllers of expenditure, but they would become mere purveyors, suppliers, as it were, of different quantities of fuel and food and what not.

The fact is a complete system of decentralisation of that kind would not really be compatible with central control by the War Office, and with the responsibility of the War Office to Parliament. That, of course, has been felt during the last few years in the War Office itself. The system has not been fully carried out, and the reason is that it could not be fully carried out. You want to have both systems. You want to have a cash account system, and you want also to have a costing account system. Obviously, if you are to have both systems of account going on you are bound to have a considerable expenditure, and the economies that you are to secure by your change may easily be wired out by the expense of this double system of accounting. Then you say to yourself: "Can I have one system? Can I do away with the cash system entirely, and introduce wholly the other system?" You cannot do it, because of the profound alterations you would have in the whole organisation of the Army. In these circumstances surely it is better I will not say to revert to the old system, but to keep to the cash account system, which is understood by Parliament. The alterations to which my noble friend has referred will make it possible for the House of Commons to understand the Estimates perhaps better than they did before, and perhaps enable Members to make more informed criticisms than they did before.

I think a good deal of misconception has run through portion of the speech of the noble Lord opposite, because he has always been comparing the Army to a business undertaking, and he has drawn from it certain analogies. In a business undertaking you may have a very careful system of cost accounting to find out what the production of every article that you make costs. Take, for instance, the making of shells. You could compare the cost of a shell made in one undertaking with its cost in another, and see whether one was more expensive than the other. But commercial undertakings, it is hardly worth while pointing out, exist in order to make profit. No such test can be applied to the Army. The Army does not exist to make a profit, but, I suppose, to produce a fighting force. Therefore all the standards and all the analogies that may be drawn from a business are really inapplicable when you come to the consideration of an Army. What the noble Lord opposite really wishes to recall is, I will not say a discredited but an ancient system, and the only way in which he can attain his ideal is to abolish the cash system and rely solely upon the accounting system, which has never been carried out. That would be to return to a system which was prevalent, perhaps, in the eighteenth century, but would be wholly incom- patible with the organisation of the Army to-day, and withthe proper control of Parliament over the expenditure which is understood by members of the House of Commons, and which, I hope, will be assisted by those changes that my noble friend has said will be carried out.

LORD OLIVIER

My Lords, it would take longer than I could venture to trespass upon your time to remove the misapprehensions that exist between the noble Viscount, Lord Peel, and myself as to the foundations of my argument, and therefore I will not deal with them. I will simply say that nothing was further from my mind than to compare the work of the Army with that of a commercial business. My purpose has been simply to deal with the institution of a system by means of which we could get the best service out of the Army with the utmost public economy. I should like to deal with one point that was touched upon by the noble Lord, Lord Raglan, and also with a remark that fell from the noble Earl, Lord Stanhope, as to the objections to the tiresome character of this costing system. Lord Raglan said that it was very irritating to be charged £3 a day by the motor transport people when he could get a mechanical lorry for £2 5s. He would, of course, choose the lorry at £2 5s. May I point out that the object of this costing system is to see just how much your services are costing For the mechanical transport arm of the Army about £650,000 is provided in the year, and I see that the cost of that mechanical transport per day appears in the Army Estimates for this year as £2 3s., compared with £2 2s. last year. I do not know why any particular transport officer should charge a Commanding Officer £3 for a lorry. He ought to have been able to supply it at £2 5s. The noble Lord has misconceived the purpose of the accounting. Your mechanical transport is not simply for daily service. You have to have a considerable reserve, and you have to have a fixed establishment to deal with cases of emergency. The result of having a costing system of this kind is that when a mechanical transport officer charges a Commanding Officer £3 for a day's work, the Commanding Officer at once kicks and says: "Look here, this man is charging me too much."

LORD RAGLAN

He has no power to alter the charge.

LORD OLIVIER

You see the cost, and you ask why he did it.

LORD RAGLAN

In that case you would be hauled over the coals for doing it.

LORD OLIVIER

Yes. But he says: "Do you not see your mechanical transport is costing you too much? It is being run too expensively." The purpose of this accounting is to show exactly what the mechanical transport is costing, and it enables you to tell whether £3 a day is not too expensive. If a railway director sees, from his system of accounting, that his train mileage is costing him too much he finds out where he has wagons standing about sidings, and whether something cannot be done to bring them into use. The value of a system of accounting such as I have in mind brings to your notice at once whether transport is being uneconomically worked. You discover whether you have too many motor lorries in active service, and whether you can take some of them out of active service. That is the value of these accounts. They are of real and substantial value to any person desiring to administer his funds to the best advantage.

Take another case. The noble Earl said that you could not charge rents for buildings because some buildings are much more expensive than others. That is no reason for not seeing what your buildings cost you. The object of a Parliamentary Estimate is to show Parliament what the Army is costing it under these various divisions. If you have a set of barracks at a higher rent than another, then you simply allow a larger grant. There is the case raised in the Report of the Auditor-General, who said he found that a hospital in Iraq cost more than a hospital in Hounslow, and that he was told it was more expensive to run the hospital in Iraq than in Hounslow. Therefore the cost account is useful in finding that some institutions are more expensive than others, and, speaking as an administrator, it is very interesting to have the point brought out that one institution is costing more than another. You can then inquire into it and if there is good reason for it you get to know it; if there is no good reason then you bring the cost down. During the War Sir A. Keogh called in Sir Charles Harris to help him to control the expenditure on war hospitals. Some were expensive and some were not, and by doing this the medical directors were able to compare one hospital with another, and make allowances where the conditions were different. That is the value of this cost account; it enables an administrator to enforce economy where it is necessary.

I do not wish to detain the House too long, but there is one other point to which I desire to refer. The noble Earl made me the jejune offer that the accounts of certain Departments should be presented in a manner which would show their cost. The bakeries, the electricity supply stations, the pumping stations, the Royal Army clothing factory, the gas generating stations—all these only come to £664,000 a year, which is about one per cent of your total turnover. I do not think that magnificent addition to the cash accounts is much worth having. We had the accounts of the Ordnance factories and the Army clothing factory appended as riders to the accounts. We have been told that we shall have the accounts presented showing in an interesting form what are the costs of the divisions of the Army. But if you are going to revert to a cash system, how are you going to show the cost of the different parts of the Army? You cannot do it. Those persons outside who make these vague offers do not understand that it cannot be done unles3 you abstract and divide and then "cost." The testimony of the War Office Financial Branch was that the system of "Vote heads" had been useful for the purpose of economy, and it is admitted that the present proposals will only cut off £100,000 from the Corps of Military Accountants. That corps only costs about three farthings in the £ of the whole Army annual turnover, and the experience of any one accustomed to financial control is that the value of having a system of accounts, which a cash accounting system is not, is much more than three farthings in the £. You propose to save about three-eighths of a penny in the £ by your proposal, and you sacrifice the whole of the advantages you get under the present system. I cannot carry it any further now.

There is the question of the Papers. I agree there is not much use in laying the Robb Committee Report on the Table. The noble Earl said he could not lay the Crosland Committee's Report on the Table of the House because it is a Departmental Report. I do not press him on that point, but at; regards the correspondence between the Army Council and the Treasury that, of course, will be made public because it comes before the Public Accounts Committee, and is published in their Report. I thank the noble Earl, Lord Beauchamp, for his suggestion that this matter should be referred to an independent Committee. I could wish that had been done, but the Goverment know that all the great professional accountants in the country, all the business concerns in the country, such as the Associated Chambers of Commerce, will snap their fingers at the scheme of cash accounting to which the Government propose to revert. They will say it is not worth the paper it is written on, and that is what any expert Committee will say again. That is why there is no prospect of the noble Earl's suggestion being considered. I beg to withdraw the Motion I made for Papers.

Motion for Papers, by leave, withdrawn.

House adjourned at twenty minutes before eight o'clock.