§ 4.45 p.m.
The Earl of Caithness
My Lords, I beg to move that this Bill be now read a second time.
The primary purpose of this short Bill is to extend the enabling powers to create trading funds under the Government Trading Funds Act 1973. In preparing for this debate I looked back over what my noble friend Lord Gowrie said in introducing the Second Reading of the 1973 Bill. In spite of the passage of time the basic objectives of creating trading funds remain the same. He said:This is a short Bill, almost entirely concerned with finance. It provides that a restricted range of government organisations may be financed through trading funds rather than from Votes. This change in the method of financing is not an end in itself. With a number of other changes which are being introduced in the management of the organisations, it is designed to enable them to carry out those activities more effectively".What has changed is the context. The impetus for this Bill comes from the Government's Next Steps initiative. This stemmed from a report by the Efficiency Unit entitled Improving Management in Government: the Next Steps.
My noble friend Lord Belstead, repeating a Statement made by my right honourable friend the Prime Minister in another place, announced to this House on 18th February 1988 that the Government accepted the main recommendations of the report and in particular that,to the greatest extent practicable the executive functions of Government, as distinct from policy advice, should be carried out by units fairly designated within Departments referred to in the report as 'Agencies'. Responsibility for the day-to-day operations of each Agency shall be delegated to a chief executive. He will be responsible for management within a framework of policy objectives and resources set by the responsible Minister in consultation with the Treasury".This concept is not so very different from that which gave rise to the 1973 Act—the Fulton Report's 1285 "units of accountable management". The difference is one of scale. Perhaps units of accountable management were a concept ahead of their time. Certainly they never really took off. All that is left are the few remaining trading funds set up under the 1973 Act. With Next Steps we already have, with the launch of the Patent Office last week, 11 agencies and 43 announced candidates, with a clutch of launches planned for the next couple of months. Taken together agencies and agency candidates already cover one-third of the Civil Service.
The main aim of Next Steps is to deliver services more efficiently and effectively within available resources for the benefit of taxpayers, customers and staff. It does so by identifying suitable units—the agencies—and for each agency setting out its responsibilities, setting performance targets, delegating the authorities—particularly on financial and personnel matters—necessary to make the targets achievable and making the chief executive accountable for the results achieved.
At this point I should draw your Lordships' attention to the White Paper published by my right honourable friend the Chief Scretary to the Treasury and entitled The Financing and Accountability of Next Steps Agencies. It was designed to accompany this Bill when it was introduced in another place. It has two main purposes. First, it sets out the full range of intended financing and accountability arrangements for agencies—whether they are financed by the normal process of parliamentary supply or as trading funds. It thus sets this Bill in its context. Secondly, it considers the changes proposed in this Bill, the reasons for them and how the Government would intend to use the new powers if they are granted by Parliament.
Annex A to the White Paper lists the agencies and agency candidates as they were when the White Paper was published. As your Lordships will see from this list, such agencies come in all shapes and sizes and cover a range of widely differing activities. There is not standard blueprint and the arrangements for each agency have to be tailored to suit its particular nature and circumstances. This is as true of financing as other matters. As the annex indicates, many agencies and certainly the vast majority of staff employed will not be suitable to become trading funds and will continue to be financed with the normal processes of parliamentary supply. Not all those agencies that fall within the enabling powers of the Bill will necessarily become trading funds but for some agencies trading fund status confers a genuine prospect of improved value for money.
A trading fund is designed to encourage a much more businesslike approach to the delivery of government services where their cost is principally financed by receipts from those services. It is this requirement of financing by receipts that restricts the range of government bodies suitable to be financed by means of a trading fund. The mechanism is summarised in paragraph 4.2 of the White Paper:A 'trading fund' provides a financing framework which covers operating costs and receipts, capital expenditure, borrowing and net cash flow. It has powers to borrow to meet capital1286requirements, and to establish reserves out of surpluses. Within this framework, it can meet outgoings without detailed cash flows passing through vote accounting arrangements".A trading fund addresses the fundamental problem that the cash-based vote and appropriation account system for services wholly or mainly funded by parliamentary supply does not well suit operations financed by receipts. It is designed, so far as is possible within a public service, to bring the method of financing for trading activities into line with the best public and private sector methods of managing organisations which have significant capital assets. By giving a standing authority to apply receipts to expenditure, it allows management to vary expenditure up or down in line with receipts rather than being constrained by cash control on inputs. The fact that all the costs entered in the trading account will correspond to actual outgoings, especially the servicing of the capital, should help to focus management's attention on the trading and management accounts and on the return which it is obtaining on the capital employed. That will be reinforced by the requirement to meet a financial target.
It follows that the detailed cash flows of trading funds will no longer be within the full control processes of parliamentary supply. The 1973 Act addressed this issue in two ways. First, it required that no trading fund could be set up without Parliament debating each proposal on art affirmative resolution order. That principle is maintained by the present Bill. Secondly, it laid down for trading funds statutory requirements for accounting to Parliament stronger than for the remainder of the Civil Service. Those requirements are strengthened by the Bill.
I turn now to the Bill itself. Clause 1 substitutes four new sections for Sections 1 and 2 of the 1973 Act and adds a fifth section. New Section 1 contains the new enabling powers. It extends the powers under the Government Trading Funds Act 1973 to set up trading funds to a wider range of bodies, including those which form a statutory and monopoly service with fees paid by the public and fixed under statute. That is achieved by the new enabling powers and by the widened definition of "services" in Section 1(7). The powers would allow a trading fund to be established where operations of a department of government are suitable to be financed by a fund and in particular the revenue of the fund would consist principally of receipts in respect of goods or services provided in the course of those operations; and where it would be in the interests of improved management efficiency and effectiveness. The administrative tests that the Government would intend to apply using the enabling powers are essentially concerned to ensure that the setting up of a trading fund would lead to greater efficiency and effectiveness and are described in the White Paper.
New Section 2 deals with the appropriation of assets and liabilities for a trading fund, with their financing and with related matters. New Section 2A deals with public dividend capital in relation to trading funds. New Section 2B deals with borrowing by trading funds and sets a new limit on all such borrowing of £2,000 million which may be increased 1287 to £4,000 million by affirmative resolution order. New Section 4A provides for the winding up of trading funds.
Clause 2 requires the responsible Minister to prepare and publish accounts and reports of trading funds in such forms as the Treasury may determine. It also makes minor and consequential amendments to the 1973 Act.
Clause 3 widens the powers contained in the Exchequer and Audit Departments Act 1921 so that the Treasury may require the preparation of statements of account in respect of any operations of a government department. As the White Paper explains, those would cover the production by agencies other than trading funds of commercial-style accounts.
Clause 4 repeals the now obsolete Borrowing (Control and Guarantees) Act 1946 and makes certain consequential repeals of other enactments. Clause 5 deals with transitional arrangements.
It is a short Bill but one that I believe will have important benefits for the more efficient and effective conduct of business within government. I commend it to the House.
Moved, That the Bill be now read a second time.—(The Earl of Caithness.)
§ 4.55 p.m.
Lord Bruce of Donington
My Lords, I am most grateful to the noble Earl for having introduced the Bill. It arises from the declared purposes of governments over a number of years to try to separate the executive functions of departments of state from those which are more concerned with policy determination and general implementation and for the responsibility of advising Ministers. From the Fulton Report and the Ibbs Report onwards, there has been a progressive, and so far as I can see an agreed, programme of proceeding further in this direction.
As the noble Earl stated, in her announcement on 18th February 1988 the Prime Minister introduced the report of the Efficiency Unit, Improving Management in Government: the Next Steps. However, she also stated at that time at col. 1154 of the Official Report on 18th February:I do not anticipate that legislation will be required for the proposals that I have announced".It appears that on reflection the anticipation of the Prime Minister was not realised and that legislation has proved necessary in order to tidy up, or indeed implement, certain financial implications of the carrying out of the recommendations of the Efficiency Unit. Otherwise Parliament would not have had an opportunity in your Lordships' House of monitoring or interfering in any way with the profound changes in the form and functions of government that are implicit in the proposal to set up these agencies.
As the noble Lord said, there are two kinds of agencies. Both are covered in the Bill. There are the Next Step agencies which are to be involved in trading. They are defined in the White Paper to which the noble Earl has referred as those in respect of which the greater part of their revenues are 1288 financed by receipts from the customers of those agencies. At the time of the report nine of those trading Next Step agencies had been established and a further 27 were recommended as being likely candidates. At the date of the original proposals put forward in the White Paper a further 15 were proposed. That gives the total number of trading agencies either in existence or proposed as 24. I shall give examples of those presently.
The other agencies, which will be headed by executives responsible to the Minister and ultimately responsible to Parliament, amount to 28. One non-trading agency has already been established. A further 27 are candidates for inclusion at a later stage. I am told that there may also be a further two which have since been added. A total of 30 will be non-trading agencies. That gives a total of 54 governmental agencies. As the Minister said, that will result in the departure of well over one-third of the total number of civil servants from the main body of Civil Service departments.
The principles upon which all those agencies were conducted are set out in the report of the Efficiency Unit. I shall summarise them because it is important that at some time we should give fundamental consideration to the far-reaching principles involved. The findings of the original Efficiency Unit report, to which the Prime Minister referred in her speech on 18th February were:First, the management and staff concerned with the delivery of Government services (some 95 per cent. of the Civil Service) are generally convinced that the development towards a more clearly defined and budgeted management are positive and helpful".We on this side of the House do not wish to dissent from that general proposition.Second, most civil servants are very conscious that senior management is dominated by people whose skills are in policy formulation and who have had relatively little experience of managing or working where services are actually being delivered".Once again, we on this side of the House would associate ourselves generally with that finding. Then we find a further conclusion:Senior civil servants inevitably and rightly respond to the priorities set by their Ministers which tend to be dominated by the demands of Parliament and communicating government policies".That also is a tendency that has been evident over many years. We agree in general with that finding. As a result there has frequently been ministerial overload. In current circumstances, where Ministers have not only a responsibility for a great department of state but have responsibilities connected with their membership of the European councils, it must be clearly understood—we on this side of the House agree—that there is a considerable overload. The other finding was that too little attention had been paid in the past to the results of the expenditure and other activities of the various great departments of state. We do not dissent from that finding. Those findings are all generally acceptable to those of us on this side of the House.
The normal constriction imposed upon the Opposition in your Lordships' House of not opposing a Government Bill on Second Reading, is fortified by the fact that the Opposition in another place did not dissent from the Second Reading.
1289 Therefore on this side of the House we wish to be as co-operative as we can be in assisting in that general forward process, subject of course to certain safeguards which have not yet been dealt with entirely. Therefore in Committee we may well submit amendments from which the Government may dissent. They will probably dissent from at least two of them which were moved in another place because the Official Opposition, supported by others, objected to the continued agency formation process (in so far as it affected those which were going to use trading funds) and the threat of some privatisation in the future. The Opposition in another place did not like that idea. I shall not press the matter at this stage in your Lordships' House because it is likely to be some years before such a privatisation takes place and the prospect of it being achieved by the Government at present in office after the next general election is likely to be pretty remote. I shall not press the point because it would be unkind at the moment.
There is of course the question of public accountability. When the activities of government departments are hived off into separate agencies there is always the question of public accountability. By that I do not mean only accountability to the other place—the requirement to submit accounts to the Comptroller and Auditor General, and so on; to appear before the Public Accounts Committee; and the responsibility of Ministers to continue to answer questions which may affect their agencies—but the rights of the public. It has not yet been successfully established that the quality of public service can be measured by its profitability in trading terms. That, I am afraid, still remains to be proved.
I do not want to go into too much detail at this stage because this is only a Second Reading, but among the trading fund agencies that have been formed is of course Her Majesty's Stationery Office. The prices it charges for Government publications of which it has a monopoly have sharply increased over the years. Profit targets will be set for Her Majesty's Stationery Office. It will set a return on capital requirement. To put that public monopoly, now of course to be a trading fund next-step agency, in the same category as a private enterprise firm is at any rate open to doubt.
There is always the possibility that, where such a government hived-off organisation is a monopoly which sets itself financial targets of profitability, the profitability factor may outweigh service to the general public. Over the years it has become common knowledge that the price of documents issued by Her Majesty's Stationery Office has accelerated by an amount considerably in excess of the RPI. A point can arise where the public, through being unable to acquire documents because of financial restriction, may not be as well informed as had the documents been available at a lower price.
I am given to understand that the report into the activities of the Al Fayeds, for example, costs £45. I do not want to evaluate costs against the activities of crooks but the price will not enhance the report's circulation. The problem of whether the pursuit of 1290 profit-determined efficiency is always the best way to serve the public has still to be resolved.
The Minister may have observed in today's Financial Times a current commentary on the result of the establishment of the new agencies to which he referred. It stated:A more likely result is buck passing. The minister will take the credit for successes while blaming the chief executive for failures. When things go wrong, the chief executive will say: I pressed the Government for more resources, but could not get them. Ministers will seek to distance themselves from agencies, but if a chief executive seeks to blame the Government's financial stringency and the minister's position is threatened by inefficiencies, he will intervene, and nothing will be achieved by devolution".The same feature also deals with the problem of the general public.
Ultimately freedom in a democracy depends not merely on the right to vote once every five years or at a by-election but also upon the continued flow of accurate information to the general public. My view, which I shall not press in Committee but now give for your Lordships' consideration, is that we in the United Kingdom will never have a free democracy until we have a freedom of information Act roughly in conformity with that in the United States. Indeed the Swedish Government, who follow the same policies as Her Majesty's Government in relation to the devolution of executive functions of government to the trading or non-trading agencies, have established a successful ombudsman to cover exactly those matters to whom the individual citizen can complain.
We are also concerned about the accounts. Paragraph 5.9 of the White Paper to which the noble Earl has referred states:The trading fund legislation will continue to impose statutory obligationsand I underline the word "statutory"—on all funds, whether created under the existing or the extended powers, to prepare full accounts for each financial year; these will be commerical-style accounts".I have looked carefully through the Bill not only in regard to the trading agencies but also the non-trading agencies. I have done so particularly in regard to the amendments to Section 5 of the Exchequer and Audit Department Act 1921. That does not provide for the form of accounts to be rendered. There is no requirement under the Government's Bill or under the Acts that it amends, including the Act of 1866, which requires a specific form of accounts to be rendered in respect of these agencies. There is provision that accounts will be prepared but accounting concepts have changed considerably over the years.
With the noble Earl's co-operation, I sincerely trust that we on this side of the House will be able to devise an amendment suitable for him to accept so that the intention expressed in the White Paper—that is for a statutory obligation for the agencies to prepare full accounts for each financial year which will be commercial-style accounts—will receive statutory status within the Bill or the Acts that it amends. Drafts will be submitted during the course of the Committee stage. Should the noble Earl require to consult with us prior to that stage I 1291 shall be happy to co-operate in order to achieve the purpose set out in the White Paper.
We are concerned with a number of most important bodies. It may not be known, for example, that the agencies will fall under the financial purview of the Government and come within the administrative process. I say that it is administrative because, apart from the financial reforms incorporated in the Bill, all the others will be carried out by administrative action. It is as well that the country is aware that among the bodies which will become new agencies as distinct from part of the mainstream Civil Service is the social security benefits administration. It employs a large number of people and it received the strictures of the Auditor General when he recently audited the National Insurance Fund.
They are grave matters and the Bill provides the only occasion for us to raise them; other than on an originating Motion tabled by the Government or in a short debate initiated by one of the political parties. The noble Earl will be astounded to read paragraphs 13, 14 and 20 of the report of the Comptroller and Auditor General about the present state of the administration of the social benefits which include the majority of social security payments. By reason of the hour I shall not read them now but they require the most urgent attention.
We on this side of the House are prepared to give constructive support to the general thrust of the new agencies—the Next Steps agencies. We consider that they have a most valuable function to perform. However, it must not be assumed a priori that the mere creation of an agency, the setting of financial targets and all the paraphenalia that has been asssociated with similar ventures during the past few years will, of necessity, be best for what the Government euphemistically term the "customer". They are, in general terms, the citizens of the United Kingdom whose interests we are here to protect. Therefore, we hope that the noble Earl will respond to the constructive approaches that I have made on behalf of Members on this side of the House so that finally we shall have a much better Bill, still within the Government's policies, than is now before the House.
§ 5.17 p.m.
The Earl of Caithness
My Lords, I am pleased that this afternoon we in this House have had the chance to debate the Bill which, though modest in itself, marks an important contribution to the wider reforms which are taking place through the Next Steps initiative in the way in which government go about their business. I am particularly grateful for the contributions of the noble Lord, Lord Bruce of Donington. I thank him for his constructive remarks and point out that my door is open too should he wish to discuss matters between now and another stage.
In my opening remarks I touched briefly on the origins of the Next Steps initiative and gave the House some idea of the progress that we have been making. As I said, with 11 agencies up and running and 43 announced candidates we have about one 1292 third of the Civil Service already within our sights. The Next Steps project manager, Mr. Peter Kemp, has said in public on a number of occasions that he will eventually expect something of the order of 75 per cent. of civil servants to be working in agencies. We are talking about maybe 400,000 civil servants and many billions of pounds of public expenditure. We are also talking about organisations which provide a large number of important services to the public ranging from such services as forecasting the weather, to issuing driving licences and making social security benefit payments to quote but a few examples. The scale of this reform should not be underestimated and the scope for benefits in terms of better quality and more efficient and effective public services is considerable.
The noble Lord, Lord Bruce, confirmed my figures, in slightly different format. However, I should perhaps remind the House, as I indicated in my opening speech, that not all those bodies which fall within the powerhouse of the Bill will necessarily become trading funds. Each case must be considered on its merits. At present one agency, HMSO, is a trading fund, as the noble Lord, Lord Bruce, reminded us; one trading fund, the Mint, is an agency candidate.
At present only around 20 per cent. of the running costs of government departments are offset by related receipts. It therefore follows logically that the majority of government activities will not be suitable to become trading funds because they will not have sufficient receipts to qualify.
The noble Lord, Lord Bruce, spoke earlier about privatisation and will mention the matter in more detail at a later stage. Before agencies are set up all other options, including abolition and privatisation, are examined. In most cases the examination leads to the conclusion that the nature of the services provided by the agencies does not make privatisation a feasible or realistic option. That is not to say that some activities might not be contracted out, but generally our expectation is that most mainstream activities of Next Steps agencies will continue to remain within central government for the foreseeable future.
I look forward to debating that in more detail with the noble Lord—who then spoke on what I consider to be an equally important point, the question of the quality of service. He suggested that because trading funds are largely financial mechanisms—they are set targets and will be concerned with financial matters—the quality of service is irrelevant and would suffer under pressure to meet financial objectives. Let me make it absolutely clear that that was never the intention and certainly is not the intention now.
The main aim of the Next Steps initiative is to deliver services more efficiently and effectively within available resources for the benefit of taxpayers, customers and staff. That applies just as much to agencies which become trading funds as to other agencies. It is always possbile to throw more money at public services, and that may or may not improve delivery. Many providers of public services are monopoly suppliers and therefore increased 1293 expenditure is likely to be reflected directly in increased charges, which is not always what the customer wants. In each case I say to the noble Lord that a balance has to be struck between securing improved efficiency and effectiveness in the delivery of services and protecting the taxpayers' and the customers' interests.
That does not mean that quality of service is the poor relation. As my right honourable friend the Chancellor of the Exchequer made clear in a speech to the audit commission in June of last year, shoddy public services should not be an option, nor should they be tolerated. We should not have embarked on the Next Steps initiative or introduced this legislation if all we were interested in was cutting costs. This Bill, unlike the earlier Act, no longer refers to improved commercial operation. Instead it specifically refers to management effectiveness, which means delivering a better service to the customer as well as the taxpayer.
The increased accountability requirement will show more clearly the quality of service actually provided compared with the targets originally set. They will thus lead to a better service to the public and better containment of taxpayers' and users' costs. The publication of full reports, including details of the extent to which agencies met their quality of service targets, will help to put agencies under strong pressure not only to maintain but to improve the standard of services provided.
The noble Lord, Lord Bruce of Donington, like me. managed to find a moment in his busy day to look at the Financial Times. I am glad that Mr. Bogdanor of the Financial Times is paying attention to this very important initiative and recognises that it is a real attempt to improve management and government for the benefit of taxpayer, customer and staff. I am glad that he recognises that there is a sensible bridge to be built between public and private ways of doing things, including a greater emphasis on output measurements and the extent of customer satisfaction, which is clearly right. Many of our public services could be improved and Next Steps is the right approach. I am glad that the noble Lord endorses the general direction in which we are going.
Mr. Bogdanor, however, is factually wrong on the question of accountability and redress. Ministers only delegate their powers to chief executives and can take such delegations back. They can become involved in day-to-day matters, though it is hoped that they will not normally do that. Individuals can still appeal to their MPs and MPs to the Minister responsible for all the activities of the agency, though as a matter of good management and speedy customer satisfaction it is hoped that they will try the chief executive first.
The Parliamentary Commissioner—the ombudsman—continues to have exactly the same 1294 rights of access and powers in respect of chief executives and staff working in agencies as he has now. With regard to freedom of information, Next Steps is a contribution to that rather than the reverse.
The noble Lord touched on the form of accounts. Here I bow to the superior knowledge of the noble Lord, as an accountant. He was right to say that the 1973 Act did not place a statutory requirement on the form of accounts and the present Bill follows that. However, all trading funds under the 1973 Act are required to prefer commercial style accounts. The very form of their operation means that they have to do so. We believe it would be inappropriate to determine the form of accounts, but I look forward to dealing more fully with that with the noble Lord in the fullness of time.
Lord Bruce of Donington
My Lords, I am grateful to the noble Earl. He will be aware that the White Paper referred to statutory means of accounting. "Statutory" means what it says. If it is to be statutory and the White Paper prescribes commercial-type accounts—which it does—it follows that the statute must lay that down.
The Earl of Caithness
My Lords, I hear what the noble Lord says about "statutory". As I concluded that part of my speech it occurred to me that he mentioned "statutory". He has covered the point again and we shall be debating it at the next stage.
The Next Steps initiative seeks to build on the strengths of our Civil Service. It has a well deserved reputation for impartiality, fairness, integrity and propriety. Those attributes will continue to be an essential part of public service. People are the service's important asset. By delegating real managerial responsibility for achieving results along with the right tools for the job, Next Steps aims to provide an incentive for people to give their best; a recipe, I hope for turning the good into the excellent.
Next Steps indicates the Government's genuine intention to improve the quality of the services it offers to the public within the resources available. All of us at some time or other have cause to use those services, and it is right that we should expect to receive a high standard of service. One of the most important benchmarks of whether this initiative has succeeded will be whether it leads to significant improvements in standards of service.
The measure which we have been debating this afternoon adds to the range of tools available to help us in this task. For those agencies for which it is suitable it will, without any loss of accountability to Parliament, be the key to considerable improvements in value for money. I commend it warmly to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.
§ House adjourned at twenty-nine minutes past five o'clock.