Mr Edward Leigh (Gainsborough, Conservative)
I beg to move,
That this House
takes note of the 64th to 68th Reports of the Committee of Public Accounts of Session 2001–02 and the 1st to 49th Reports of the Committee of Public Accounts of Session 2002–03, and of the Treasury Minutes and the Northern Ireland Department of Finance and Personnel Memorandum on these Reports (Cm 5728, 5770, 5789, 5801, 5802, 5823, 5849, 5953, 5961, 5962, 5963, 5984, 6016, 6051, 6105, 6110).
In introducing today's debate on the Public Accounts Committee, I should point out that today represents something of an experiment. Rather than have a traditional whole-day debate, we agreed this year to split it into two, with the second half to follow before the summer recess. That, I hope, will make matters more topical and allow Members to make an early start on their eager journey home for the half-term break—after, of course, listening to our debate first. I shall set a good example to those who are to follow by keeping my opening remarks briefer than in previous years. I am pleased to say that this has been a most successful year for the Committee. We have published more than 50 reports, covering the work of almost every part of the Government, from Departments of State to smaller but important and interesting bodies such as Victim Support and the Office for National Statistics. We have examined major defence spending programmes and high-profile health and private finance initiative topics. We have also considered what might be called the behind-the-scenes work that contributes so much to the quality of public services, such as that done by the various regulatory bodies. Our investigations touch on some very topical issues. I shall mention two that strike a chord in these times of increased terrorist threat: exercise Saif Sareea 2, and NHS emergency planning in England.
Saif Sareea 2, a major military exercise, took place in Oman in 2001. It was the subject of our sixth report, published just eight days before the opening shots of the war in Iraq. However, the National Audit Office report was published—and we had our hearing—some months before that. Our aim at that stage was to focus attention on learning lessons from the exercise that should have been addressed before the conflict began.
We have yet to report on the operation in Iraq, but we took evidence from the Ministry of Defence and the armed forces in January. Overall, the operation was a resounding military success. Problems with the Challenger tank during the Saif Sareea 2 exercise were overcome, and the tank performed well throughout the Iraq operation. When considering the exercise in Oman, however, we said that the MOD should ensure in future that troops sent into harsh environments were equipped appropriately. We said, for example, that they should be issued with suitable boots. We now know that there was a shortfall in desert clothing in Iraq, and that there was insufficient body armour—the latter with tragic consequences. Our hearing with Sir Kevin Tebbit, the permanent under-secretary at the Ministry of Defence, was feisty. No doubt, we shall return to the topic in July, when we have our next debate.
On the domestic front, we reported on NHS emergency planning. We found that parts of the NHS were not well prepared to handle emergency threats, such as nuclear, chemical, biological and radiological incidents. Clearly, that is a fast-moving area. I am pleased to say that the Department of Health is acting on our recommendations.
I want to emphasise that the PAC is not political. It is an all-party Committee, with a Labour majority and an Opposition Chairman. Our work is based on consensus. We never have votes, and we do not try to replicate what goes on in the Chamber of the House of Commons. We simply try to establish the facts.
People are now very sceptical of politicians, but I think that they would be amazed at the care that members of the Committee take to reach a sensible, consensual and balanced view, and at the hard work that they put in. I like to think, however, that the work is not based merely on finding the lowest common denominator that we can all agree on. Our reports are very hard hitting indeed, and I pay particular tribute to the work done by the members of the majority party.
We are not Jeremiahs, despite what some people think. We do not set out with the objective of being critical, although I fear that we often are. Our aim is to discuss the facts involved with the body concerned, and to make recommendations that can improve the delivery of public services. I believe that we have a real impact.
Over the past three years, the PAC and the NAO have generated financial savings that we reckon amount to £1.5 billion. Our recommendations are invariably accepted by the Government, because they are well founded and pragmatic. They deal not with controversy over policy, but with administration. I shall give one example of the major impact that the Committee can have. Our tough questioning of Imperial Tobacco Group representatives helped the Customs and Excise authorities in their attempts to get the company to sign a memorandum of understanding. Through working with the tobacco manufacturers in that way, the Customs and Excise service has successfully restricted the availability of tobacco products to smugglers.
In this debate last year, I quipped that Imperial Tobacco was exporting enough cigarettes to some countries for every inhabitant to be smoking several hundred a day—thus illustrating the level of smuggling back into this country. I am pleased to say that exports of the company's products to the unlikely destinations of Moldova, Afghanistan and Latvia have now stopped altogether. Presumably, exports of Nicorette patches have rocketed, but we will never know.
In the past year, several valuable members have left the Committee. I pay tribute to my hon. Friend Mr. Gibb, and to the hon. Members for Croydon, Central (Geraint Davies), for Newbury (Mr. Rendel), and for Knowsley, North and Sefton, East (Mr. Howarth). It gives me great pleasure, however, to welcome to the Committee the hon. Members for Birmingham, Erdington (Mr. Simon), for Dagenham (Jon Cruddas) and for Sheffield, Hallam (Mr. Allan). The latter two are present in the Chamber today.
Membership of the Committee is not an easy ride. Members have to work hard in preparing to dissect two entirely different topics every week that Parliament sits, and they are often complex or technical. No other Select Committee has anything like our work load. Committee members work with energy, commitment and enthusiasm. I am indebted to them for their support, and pay tribute to them. I also pay tribute to Mr. Nick Wright, our Committee Clerk, and to the other staff, for the valuable service that they provide.
I want to focus on three themes this afternoon: how the Committee is working; how we can secure better procurement and project management; and how we can improve service delivery and regulation.
I shall deal with the Committee's approach first. We would not be effective without the considerable help of Sir John Bourn, the Comptroller and Auditor General, and his 800 staff at the NAO. The NAO's effectiveness depends, in turn, on access rights. Since last year's debate, there have been two major steps forward. In May, the Government moved the orders to implement Lord Sharman's recommendation that the CAG should audit all executive non-departmental public bodies, and that his access right should be on a statutory basis. That welcome step will enhance public accountability. I thank the Minister and his Treasury colleagues for listening to our recommendations.
The other step appears to be smaller at this stage, but may be very significant. It is the agreement between the BBC, the NAO and the Department for Culture, Media and Sport that the NAO should identify and carry out value-for-money reviews agreed with the BBC's audit committee. The results of that work will be reported to Parliament in due course. That is a very important step for which our Committee has been asking for years, and I am pleased that, with the help of the Treasury and other Ministers, we are making progress at last. I do not know why it is happening, but the Committee is grateful. Increasingly, the need for truly independent oversight of the BBC has come to the forefront of public debate. We are talking, of course, about accountability in respect of the efficient and effective use of resources, and not about the hot topic of editorial standards.
I give an absolute commitment that neither the PAC nor the NAO will ever get involved in controversies about what should or should not be said on the "Today" programme. That is not our job, which is to look at financial accountability. I believe that that is equally important, especially when more than £2 billion in licence fee payers' money is at stake. I consider the new arrangements for NAO access to be an important milestone, and a first step that I hope will pave the way for the improved financial accountability arrangements that we expect to feature in the renewal of the BBC's charter in 2006. When the charter is renewed, Committee members expect to get the same rights of access as we have for other Government Departments, although we recognise that the BBC is different.
Another development for the Committee is our expanding programme of visits. In the past, we hardly ventured beyond the Committee Corridor, but we are endeavouring to broaden our knowledge in advance of specific hearings. I hope that that innovation is welcome to Committee members.
Prior to our evidence sessions on private finance initiative prisons, we had a very impressive visit to Altcourse prison in the north-west of England. Prison officers do a very difficult job in very trying circumstances. What stood out on our visit was the general atmosphere in the prison, and the constructive and positive attitude of the staff we met. We spoke to prisoners, and learned at first hand about the programmes for their education and training. These days, even prisoners are conscious of standards of service delivery. They were obviously delighted to be at Altcourse rather than down the road at Walton prison in Liverpool, where prisoners are banged up for up to 24 hours a day. The visit highlighted the fact that there is a strong case for greater co-operation and learning between publicly and privately managed prisons, and we made that recommendation in our report.
Our other visits have included a trip to see the Apache helicopter at Middle Wallop, and another to the Forensic Science Service headquarters in Birmingham. Last month, at Heathrow airport, we heard an excellent presentation from Sir David Omand on the progress of improving risk management in government, and we also had a chance to see behind the scenes of customs operations at the airport. Members of the Committee also visited our counterparts in France and Germany to gain an insight into their systems of accountability. It was especially interesting to learn about other systems for delivering health and education, and about the way in which those fields are audited.
The Committee's work is not just about financial savings. We are particularly concerned about public service delivery, and I shall turn to that later. We are interested in the proper management of valuable non-monetary resources. In our 47th report, we argued that clear priorities were needed for the national film and television archive to ensure that the nation's film heritage does not, literally, rot away—as it is doing in some parts. The DCMS, the Film Council and the British Film Institute, which is responsible for the archive, have launched a full review.
When considering fisheries enforcement in England, the Committee heard about the wasteful discarding of fish when fishermen are over their quota, or want to land only the best-quality catch. That practice may account for more than two thirds of the fish killed in some species or locations. We thought that ludicrous, and argued that the Department for Environment, Food and Rural Affairs should give careful consideration to allowing the landing and sale of such catches but with the proceeds used to fund research and conservation efforts.
Turning to procurement and project management, we are talking big business. The Government are spending more than £14 billion a year on goods and services. Not surprisingly, then, the Committee is interested in how good practice might be more widely applied. Some of the examples that I am about to give are not for the fainthearted, but it is important that where things have not gone well lessons are learned for the future.
In our 44th report, we examined the development of the national IT project for magistrates courts, known as Libra. We described it as one of the worst deals we had seen—given how much we see, that is indeed a damning indictment. In just four years, the cost has more than doubled, to almost £400 million, yet magistrates courts still do not have the IT systems they need to manage their workload properly. The handling of that project by the former Lord Chancellor's Department was disastrous at every turn. It procured a contract to provide services to 42 magistrates courts committees, over which it had no real authority or control. It ran a poor competition and attracted only one bidder, which should most certainly have sounded warning bells in the Department. It then failed to take decisive action when the contractor, ICL, did not deliver what was required. For its part, ICL did not understand the Department's requirements, took on excessive risk and underpriced its bid. It performed poorly throughout and could not meet the target dates for delivery of the core application.
We find such stories again and again in our work, and other Members can deal with other projects throughout the IT sector that we have examined. However, I said earlier that we were not Jeremiahs and if Libra is an example of how not to manage a project, the acquisition of the London Heart hospital is quite the opposite.
Our 23rd report describes how the University College London hospitals NHS trust, through quick and well-managed risk taking, swiftly seized the opportunity to acquire the private London Heart hospital in a matter of months. That increased UCL's cardiac treatment capacity and boosted the hospital's services to patients. It is an example of an organisation using innovation and creativity, and we applaud it. We try to give credit where we can.
I have already touched on one PFI project—the Libra debacle—but so that the debate is balanced, I must tell the House that, overall, we found no overwhelming argument for or against the PFI in our 28th report, which drew together our 18 reports on the initiative over the past four years. Perhaps we came to no overall conclusion because we were not trying to be political. We have seen well considered deals, which were carefully negotiated, managed effectively and offered substantial benefits, while others have been awful. We hope that the lessons from our work will help the public sector to get the best deal for the taxpayer.
Common to different contracting approaches is the need to observe standard procurement best practice and to transfer risk adequately. If that does not happen, millions of pounds can be wasted and the past year has uncovered another litany of cases. In a class of its own was the individual learning account programme. It is likely that half the budget for ILAs—nearly £100 million—was siphoned off in fraud and abuse, which reflects the number of shortcuts taken by the Department for Education and Skills. The scheme was poorly thought-out; it was put in place too quickly and the risk management was wholly inadequate. There were innovations designed to reduce bureaucracy for new learners and new providers but, to match that, the Department should have built counter-fraud measures into the design of the scheme and set up robust monitoring.
At the Committee's hearing, the accounting officer, the permanent secretary, was frank in his acknowledgement of the scheme's shortcomings and his regret that they had occurred. That is one way of dealing very well with a Select Committee: to apologise profusely. However, he was less able to explain why those shortcomings had been allowed to occur in the first place. Accepting responsibility is important, but so, too, is the need for reassurance that weaknesses have been properly analysed and understood so that they can be identified and action can be taken.
Departments need to make their contractors aware that being sacked is a real possibility—it should not automatically be seen as the most difficult and riskiest option. Risk transfer takes place only if Departments are willing to terminate the contract or to take legal action when a contractor fails to deliver. We will support Departments which take a tough line with the private sector.
Mr Richard Bacon (South Norfolk, Conservative)
The Economic Secretary to the Treasury bears on his back the scars of ILAs. The first Adjournment debate that I initiated in this place was on ILAs and the hon. Gentleman, who then held a different portfolio, had the misfortune to have to answer it. My hon. Friend Mr. Leigh refers to the fact that ILAs were in a category of their own, but does he agree that one of the most depressing aspects of the case was that the actions of the Department took place despite shelf-loads of advice in advance and warnings about how to conduct, or not to conduct, projects of that type?
Mr Edward Leigh (Gainsborough, Conservative)
Yes. The programme was undertaken with the best of intentions, but some people in government and the civil service are still, sadly, rather naive about the sort of people out there who are prepared to take the Government and the taxpayer for a ride and commit fraud. I hope that we have learned our lessons from a project that I accept was undertaken with the best intentions.
Other examples of waste that we examined included the construction of nuclear submarine facilities at Devonport. In 1999, the Ministry of Defence gave my Committee assurances that that contract was under control, yet there were further cost overruns of £314 million. The MOD admitted that it had partly funded poor performance by the contractors and had borne the cost of risks originally transferred to the contractor. We found that unacceptable and urged the MOD to get a proper grip over the final phase of the project, to avoid further cost increases and to assess fully the risks that it retains.
There was also inadequate risk transfer in the public private partnership for National Air Traffic Services Ltd., which we considered in our 48th report. The private sector partner, the Airline Group, did not have to bear risk in proportion to the control it had over the company. Risks to the taxpayer come home to roost when blind optimism over future levels of air traffic, coupled with the raiding of NATS finances by the Department for Transport and the Treasury, left the company in a vulnerable financial state.
That may sound obvious with the benefit of hindsight, but we seek to ensure real improvements in procurement and related spheres, not just improvements on paper. For example, the MOD reported that a target to reduce stock holdings had been met, but the NAO was unable to validate that. The poor quality of information was underlined by the brass nuts that the MOD valued at £83 million when they were actually worth £1.17.
We all want better public services, which is my final theme. The Committee has covered a wide range of public service issues in the past year, from support for victims of violent crime to the—should I say engaging?—experience offered by Government call centres. The public increasingly find it more convenient to obtain public services through call centres, with demand up by more than 40 per cent. over the past three years to an annual total of nearly 100 million calls, but the public will continue to use them only if the service is good. An astonishing 5 million callers to the child benefit centre in 2001–02 were met with the engaged tone. Would that happen in the private sector? Perhaps it would. The problem is not only the speed with which callers get through; the quality of the advice given is critical and Departments should focus their efforts on that.
Mr Richard Allan (Shadow Spokesperson for the Cabinet Office, Cabinet Office; Sheffield, Hallam, Liberal Democrat)
The point about call centres is reflected in all hon. Members' surgeries: when people cannot get through, they come to us. The difference in the private sector is that, if people cannot get through to one business, they will go elsewhere. With most Government services, there is simply no alternative.
Mr Edward Leigh (Gainsborough, Conservative)
That is a good point. To be fair to the Government, it is worth while saying when considering such projects—whether call centres or IT projects—that the sheer size and complexity of the problem that the Government have to address is usually far greater than that ever addressed in the private sector, where call centres or IT projects are typically used to deliver one service or product, whereas, of course, inquiries to the Government are complex and range across the whole country. We must be fair to those who are trying to draw up such schemes. I acknowledge the problem, but the hon. Gentleman is right to suggest that at the end of the day we are dealing with the public and they have no choice. There is no competition or alternative, so standards should be much higher in the public sector. I am sure that we can agree with that, wherever we come from politically. Why should the standards that we expect in the public sector be inferior to those that we demand in the private sector?
Turning to an unsung but highly valued provider of public service, we considered the work of Victim Support, for instance. Although much respected by victims and witnesses, the same level of support is not available across the country, even where crime is high. Victims deserve the same support wherever they live, and that, in turn, is vital in encouraging people to report crime. We called on the Home Office to devise a proper, national strategy and to decide on the proper balance between public, private and charitable funding.
The effectiveness of the regulators is a further dimension of public service delivery on which the Committee has focused. The influence of regulation can be huge on the economy, producers, consumers as a whole and on individuals and small businesses. At its best, regulation creates a stable, reliable framework. It can improve life in all sorts of ways—protecting people's pensions, protecting them from hazardous waste and loan sharks, and so on. The key is that regulation should be effective, not heavy-handed, and should not create hidden costs and red tape.
The Committee has oversight of nearly all the major regulators, with the noticeable exception of the Financial Services Authority, and I say to the Treasury that we would like to have oversight of that as well. We looked at the progress that the Office of Fair Trading has made in protecting consumer interests. We found it disturbing that there is still far too little control to prevent unscrupulous lenders and debt collectors from obtaining consumer credit licences—even those with previous criminal convictions. We urged the OFT to improve its checking of applications and to work with the Home Office and the Department of Trade and Industry to get much needed access to information on criminal convictions. I am pleased that some progress has already been made. Since our report, the OFT has obtained an undertaking that it will be given access to information on unspent criminal convictions across the United Kingdom.
Public confidence in the safety of food has been undermined by high-profile issues, such as BSE, as well as up to 4.5 million cases of food poisoning a year. The Food Standards Agency was created to lead on food safety and standards, and to be an authoritative and trusted voice where public doubt occurs. Our report concluded that the agency has not yet demonstrated convincingly that it is able to do that. Despite its campaign to raise hygiene awareness in catering establishments, for instance, behaviour has not changed. More than a third of staff still do not wash their hands before dealing with the public and after using the toilet—it does not bear thinking about. We called on the agency to monitor the extent to which its advice and information are being used and to boost its profile both in the Government and with the public.
Increasingly, over recent years, individuals have been worried about the security of their pensions. The Occupational Pensions Regulatory Authority—OPRA—was set up in the wake of the Maxwell case to try and allay such fears. However, we found that it had focused too much on the detail of regulating pensions and not enough on pensioners' interests. Since then, it has embarked on an ambitious programme, supported by the Department for Work and Pensions, to establish a new kind of regulator: one that focuses on risks to pension scheme members and builds public confidence at the core of its functions.
We on the PAC are concerned not with Government policy, but with value to the taxpayer. We have seen well managed projects and programmes, we have seen successful and innovative approaches by the Government, but we have also seen huge waste over the past year. I have already mentioned the Libra project, with a £400 million overspend, £314 million additional costs on nuclear facilities at Devonport and the £97 million debacle of individual learning accounts.
I could have covered the £500 million hike in the price of Nimrod; the £3 billion spent on the foot-and-mouth outbreak, where prompter and more effective action could have reduced the toll in terms of cash and the impact on farmers; and the £2 billion that seeps out each year in benefit fraud and the fact that, for the 13th consecutive year, the NAO has not been able to accept the accounts submitted to it by the Department for Work and Pensions. I could also have talked about the working families and disabled person's tax credits, where up to £700 million has been overpaid, or the disastrous introduction of the new tax credits system, which has caused much unnecessary suffering to genuine and often vulnerable claimants.
Given the commitment of an extra £61 billion in Government spending over the next three years, how can we be confident that that money will make its way to improved front-line services and not be frittered away? I put that question to the Prime Minister at the Liaison Committee last week. I stress that that is not a party political point. The PAC has pointed to waste and inefficiency over many previous Administrations, and many examples of waste and inefficiency can be found in them. There is a risk—I put it no stronger than that—that those extra resources, £61 billion, might also result in extra bureaucracy, excess regulation and over-targeting. The Prime Minister gave me a limited assurance in reply, but we on the Committee will continue to watch this space.
In particular, the Committee will want to focus on the following questions. First, what is being done to reduce administrative bureaucracy on medical and nursing staff, teachers and policemen, so that they can spend more of their time providing services to the public, not in form-filling and bureaucracy? Secondly, do Departments and agencies still have excessive overheads and too many layers of management, and how can those be cut back so that resources can be ploughed back into front-line services? Thirdly, is there too much regulation and is it stifling innovation and limiting the performance of regulated services? Lastly, on targets, is there the right number of targets? Are they measuring the right thing? Are they sufficiently testing and stretching? What action is taken against those who fail to meet them?
This distinguished Committee, of which I am proud to be the Chairman, has a proud history in holding the Government to account. It continues to look at the topical issues of the day and plays a crucial role in improving the quality of public services. I commend its work to the House.
Mr Gerry Steinberg (City of Durham, Labour)
I congratulate the Chairman of the Committee on an excellent, comprehensive speech. He has covered most of the things that I was going to say, so that is a good start. I also congratulate the hon. Gentleman on the way in which he chairs the Committee. Even though he is an Opposition Member, he is very fair, as we would expect him to be, and it is a delight to serve on the Committee under him.
I very much look forward to this debate each year because it gives hon. Members the opportunity, if nothing else, to pay tribute to the National Audit Office. Its reports are the basis of all our work, and they can only be described as excellent. I now realise that, before I served on the PAC, my knowledge of most subjects was very limited indeed. Some would probably say it still is quite limited, but I can assure hon. Members that reading those reports gives us a lot of knowledge. We get an incredible amount of information from virtually every report on each subject, and a lot of information—details, facts and statistics—becomes available to us. When hon. Members are researching any topic, I suggest that they read an NAO report that covers it. I was shocked and amazed when I heard the Leader of the House say, in answer to a question this afternoon, that he had not read an NAO report. Shame on him! He should read every report that comes from the National Audit Office. If he is listening to the debate, I am sure he will take that advice.
I had a little chuckle to myself a few weeks ago when I saw the publicity surrounding the Health Committee's investigation into obesity. Its members appear to have travelled all over the world—I am not criticising that at all—to find obese people. They even went to Finland—they were probably pronouncing it wrong and thought they were going to Thinland. They spent weeks investigating the subject, when all they had to do was read the report that we produced about two years ago and examine their own Chairman—that would have given them an insight into obesity. [Hon. Members: "Ooh!"] I am sure he will not read Hansard.
I was surprised that the Chairman of the PAC did not mention the fact that our Committee won the parliamentary Committee of the year award—I am not quite sure whether it is a BAFTA. I thought he would have the trophy on display this afternoon. You, Madam Deputy Speaker, could have waved it above your head and shown the world what we are capable of. To be serious, though, without the NAO reports, I suspect that we would not be the Oscar winners that we are.
It is quite clear that the Public Accounts Committee is the Real Madrid of the Committee world—I was going to say Manchester United, but I changed my mind. That is particularly true since several Select Committees have come under severe criticism in the past six or seven months. There was an article by a Bernard Dineen in the Yorkshire Post last summer, entitled "Pompous MPs are feeble bullies". I shall quote directly from it:
"The worst moment in the David Kelly saga came when a loutish Labour MP said to him: 'Remember you are before the High Court of Parliament'. The High Court of Parliament? Who do these pompous MPs think they are? The Law Lords? If they had uncovered anything useful by penetrating questioning, their pomposity might be excused. But this pathetic bunch couldn't penetrate a rice pudding . . . The chairmen strut around, preening themselves as head of the 'powerful', 'influential', or 'formidable' watchdog . . . The worst committees have turned themselves into kangaroo courts, bullying witnesses and touting for publicity."
However, the article also says:
"With the exception of the Public Accounts Committee, most of them are a waste of space."
I have said how much I admire the NAO, and the same must be said of the PAC staff. They are also excellent, especially in the service that they provide for Committee members. Nothing is trouble for them and they are a pleasure to work with. I thank them for all the help that they have given me throughout the year.
Public Accounts Committee members are told that we do not have a good reputation with senior civil servants because we are supposedly a little too aggressive. They seem to forget that we work from National Audit Office reports that invariably show that the NAO has discovered weaknesses in Departments, fraud, incompetence, and so on. Frankly, the accounting officer who appears before us is responsible for those actions. It sometimes seems to slip accounting officers' minds that they sign NAO reports to show that they agree with their findings and conclusions. If they did not sign the reports, they could not be published or presented to the Public Accounts Committee. However, as I said yesterday, I sometimes feel that the report that I read and the report that the civil servants read are two different reports altogether, because they interpret them differently from Committee members.
There is nothing more galling to me than when an accounting officer appears arrogant and complacent, and dismissive of Committee members' questions. We have a right—indeed, a responsibility—both to Parliament and to the taxpayer to ask searching questions of the accounting officers and witnesses who appear before us. We have a right to be taken seriously and for our questions to be answered, even if Departments would rather not answer them or would prefer them not be asked so that the information would not go into the public domain.
I had a little spat with a chief accounting officer—a permanent secretary—only a couple of weeks ago. Believe it or not, it involved Sir Andrew Turnbull. Hon. Members might ask, as did I, who he is. Apparently, he is the head of the civil service. He complained to the NAO about my aggressive attitude, and Sir John Bourn passed the complaint on to the Chairman of the PAC who, I can assure hon. Members, has reprimanded me. However, perhaps Sir Andrew should take note of his Departments rather than worrying about what Committee members have to say and ask. He should look at the number of cock-ups over which he presides and the wasted taxpayers' money that goes down the drain each year which could be used to fund better public services. We are not talking about millions of pounds, but billions.
Mr. Bacon is a valuable member of the Committee—even though he sits on the Opposition Benches, he is quite a nice chap. He wrote an article for The Daily Telegraph which he passed round all members of the Committee. Although I do not want to make his speech for him, I am sure he will not mind me quoting from the article. Incidentally, he took the figures from reports that the Committee had produced. I ask Sir Andrew to read the hon. Gentleman's article, which says:
"The Department for Work and Pensions has received a black mark from the auditors every year since 1988 because of the volume of fraud . . . Each year, between £3 billion and £7 billion goes south through fraud and error. Five years ago, civil servants running social security were slammed by MPs for not knowing if housing benefit fraud was going up or down. They still don't.
"didn't train enough pilots in time.
Customs & Excise loses between £7 billion and £10 billion on unpaid VAT and £7 billion on excise duties on alcohol, tobacco and fuel. The Inland Revenue says £2.5 billion is at risk annually because of income tax self-assessment."
The computer system for the magistrates courts has already been mentioned. The article says that it
"saw costs explode from £156 million to nearly £400 million",
yet it still does not work property.
system, which did not work either.
"The Government Communications Headquarters expected to pay £40 million for moving the signals intelligence computer systems into its new building. Managers told the GCHQ board it would cost £20 million . . . it cost £400 million.
The Government thinks the National Health Service loses 16 to 20 per cent. of its budget each year through waste, mismanagement, incompetence and fraud.
Dirty hospitals kill 5,000 people a year and cost £1 billion . . . Clinical negligence claims cost another billion."
Those facts are all widely available in NAO reports and in the reports that we have written. Yet Sir Andrew had the audacity to complain that I was asking questions about fraud, mismanagement and incompetence. Frankly, I think that he had some cheek. I suggest that he read the NAO reports and come up with ways of saving the taxpayer those billions of pounds that are going down the drain.
Not everyone agrees with me, and I have had one or two letters from members of the public—although not from my constituents, I am glad to say. One was from a gentleman—well, not actually a gentleman—who wrote to me and described me as a part of the female anatomy, and constipated at that. I shall leave that matter there, but perhaps we cannot always get praise from everyone.
I shall describe one investigation, to highlight what I mean by waste, and by not listening to what the PAC and NAO say. The Chairman of the Committee mentioned this matter. On
From the start of the hearing, the witnesses were defensive to the point of being dismissive of some of the questions put to them. I accept that the report from the hearing said that the exercise had been a success, but it also pointed out that two important pieces of equipment needed for desert warfare were inadequate: the Challenger 2 tanks, which the Chairman mentioned, and troops' personal equipment and clothing. Hon. Members who have been following the debate on equipment during the past year are perhaps beginning to realise what I am talking about. The problems with the Challenger tanks were addressed, but what about the personal equipment and clothing for troops in action in desert warfare? A major criticism of the 2001 exercise was that there were insufficient stocks of desert combat suits and footwear to equip the Joint Rapid Response Force.
Lo and behold, when the real thing happened less than two years later, the NAO tells us that a similar problem occurred. Again, personal equipment for the soldiers had not been provided and there may well have been—I am not saying that there definitely were—tragic consequences from some of the soldiers' not having the right body armour. Interestingly, I received a letter from a retired Major Thornton, ex of the Royal Northumberland Fusiliers. In something of a diatribe against the Government's policy, he made this valid point:
"It was plain to see from the TV pictures of the war that the troops did not have the correct kit, as some had for example Desert clothing whilst others had European clothing and you could clearly see some had the wrong boots on."
That criticism had been made of the Saif Sareea exercise, and yet two years later here was exactly the same thing happening again.
We are fully justified in making complaints and questioning vigorously to ensure that such things do not happen again. Questions must be asked as to whether lessons learned from the exercise were heeded in events two years later. Perhaps the most important failing that the Saif Sareea exercise highlighted was the problem with asset tracking: equipment was lost in transit and no one knew where it was. That is a long-standing problem, which has gone on for years and years and remains unsolved to this day. It was the main reason for some of the problems in the Saif Sareea exercise—again, we also saw it only a year ago.
Equipment in the Saif Sareea exercise was sent from the United Kingdom, but because of an unreliable tracking system, no one knew where it was or whether it had arrived. The report on the exercise made it quite clear that the two asset-tracking systems, named Global and Vital, were ineffective. The Global server routinely crashed throughout the exercise, although that was not acknowledged by the Defence Logistics Organisation. That is not surprising, because it never acknowledges anything. Vital, a consignment tracking system introduced as a result of an NAO recommendation following the first Gulf war, was by 2001 operating at around 500 per cent. capacity. During the exercise, it took 15 minutes for the in-theatre Vital system to discover the contents of a single ISO—individual spares order—container. The lack of the Vital system at the point of exit in the UK and the point of arrival in-theatre meant that if something was sent directly to the first line unit, there was no way of being able to check where it was—anywhere in the world—until it arrived at its destination.
Clearly, nothing had changed during the second Gulf war. The report on that told us that ammunition was present in abundance, although the press said that it was in short supply. However, it could not be transported from where it was to the front line because it was not known where the equipment was to transport that ammunition. The ammunition was there, but it could not be transported to the front line, so soldiers thought that there was a lack of ammunition. The problem with asset tracking had been strongly identified by the NAO and the PAC in October 2001, yet we saw the same problems a year ago. Nothing was done when we pointed out the problems. Although most Departments adhere to PAC recommendations, there are times when that does not happen and problems occur.
I have probably said more than enough, and other hon. Members want to participate, so I shall finish. I can already say that I am looking forward to the next debate on this subject, which should be in six or seven months' time.
Mr Richard Allan (Shadow Spokesperson for the Cabinet Office, Cabinet Office; Sheffield, Hallam, Liberal Democrat)
It is a pleasure to follow Mr. Steinberg, who has clearly been cowed into abject submission by his second-hand telling off from the head of the civil service.
I am new to the Public Accounts Committee, as its Chairman has already pointed out, so I was not present for the hearings behind many of the reports that we are discussing today, but I have enjoyed reading them. I cannot confess to having read all 54, and if hon. Members look at the Table, they will see what a pile they make. However, I have looked at several of them, and I shall refer to those today.
I echo the thanks that have been expressed to the National Audit Office, which has been extremely helpful in breaking in a new Committee member and offering support. The concept of accountability to Parliament, which we talk about in many contexts, is very real in, and given flesh by, the work of the NAO. The mission of the Comptroller and Auditor General is clearly focused on accountability to Parliament, and as someone who feels that Parliament should have a life independent of the Government and the Executive, I found it quite refreshing to discover one aspect of our work in which that is absolutely the case. There are many aspects of our work that are necessarily dominated by the Executive, but that is certainly not so in the case of the NAO. Parliament is clearly the sovereign body in that regard. I also pay tribute to the Committee staff, who could not have done more to help me to get to grips with the complex agenda, and to the Chairman and fellow Committee members for treating me gently—or at least, more gently than some of the witnesses who come before us.
What is special about the reports that the PAC deal with is that they allow us to make evidence-based judgments on the performance of Government functions. Much of what we do in the House is based largely on anecdotal evidence. It is necessary, in a representative democracy, that Members pick up concerns in their constituencies and bring them to be raised in the House. We sometimes have a tendency to generalise from the particular, which might mean that we do not always make accurate judgments about Government services. However, the NAO reports provide serious evidence based on the work of 800 people beavering away, plus the large number of outside contractors and experts that the NAO bring in for specific reports. The value in that evidence perhaps exceeds anything else that we do.
We ask people in every other walk of life to move towards evidence-based work. If we expect doctors and educators, for example, to perform that kind of detailed analysis of their functions to find out what works and what does not, in order to decide their future strategy, it is entirely appropriate that we should use the work represented in these reports to provide us with the evidence to inform our decisions and help us to do things better in future. Indeed, in my time on the Committee so far, I have gained a strong impression that its work is not just about hauling people in front of us to answer for what they have or have not done; it is also about agreeing measures to improve future performance.
My particular area of interest is information technology; that is what attracted me to the Public Accounts Committee. It is an area that we have the opportunity to consider frequently, usually for all the wrong reasons, mainly that IT projects have gone sadly wrong. Speaking as someone who has worked in the IT industry and wants to see it do well, and who believes that IT has tremendous value to offer to the public sector as well as the private sector, I hope that we shall be able to shift the agenda away from the necessary work of saying what went wrong, and towards looking for solutions that will allow us to implement IT in a more successful manner in the public sector in future.
The Chairman of the Committee has already referred to the 44th report of the 2002–03 Session on the Libra project for magistrates courts. That is a classic example of how things go wrong, and how not to do them. That project ended up costing far more and delivering far less than was promised. That is precisely the problem that we usually end up with: an increase in costs and a failure to deliver what was required. In those particular circumstances, we not only paid more—the figures have been cited already—but ended up with only one part of the project, the infrastructure part. We did not end up with the specific magistrates courts applications, which would in the end deliver the extra value and allow us to do what we wanted—to get people through the courts more quickly. That would be in everyone's interest. That IT project became part of the problem, rather than being something invisible that simply allowed people to do their job better, which is what IT should be when it works.
We need to be aware that IT should never be an end in itself—certainly not in the context of public services. It is simply a means to an end. That end is to provide more time for doctors, nurses, teachers and, in this case, people who work in the magistrates courts, to get on with their work. The IT should give them more time rather than taking it away, but it was clear from this case that we ended up with a huge focus on the IT system rather than on the business of the magistrates courts.
The criticism in the report was incredibly strong. The Committee certainly did not mince its words. I believe that this is the strength of PAC reports: they do not shilly-shally. As the Chairman has already pointed out, the report stated:
"This is one of the worst PFI deals that we have seen."
There is no messing around there. It goes on to consider the reasons why the PFI deal was so poor, and to give recommendations for moving on from that. It is worth our while to consider how the lessons have been learned from that. An announcement was made earlier last year that we now had a presumption against PFI for IT projects. Obviously, the report on the Libra project was instrumental in leading to that presumption. Much of the debate last year concerned PFI as a general concept, and the Chairman has referred to the report that considered PFI projects in the round. However, there are certain specific features of IT projects that make them inappropriate for PFI projects, and we have rightly come to the conclusion that PFI is normally not going to be the appropriate solution.
That brings us back to the issue of risk. The whole concept of PFI involves the transferring out of risk, yet in the context of an IT project, it is impossible to do that. The risk will always remain with the public sector purchaser, because the risk is that they will not be able to do their business. We saw from the Libra project report that the purchaser had gone so far down the path that when the contractor said, "We want more money or we're pulling out," it could not say, "Well, that was your risk," because if the contractor pulled out, the risk would fall back on to the magistrates courts, in that they would have no IT system. We are starting to understand that there are contexts within which we cannot effectively or meaningfully transfer the risk out, because it will remain with the public body, in that it will not be able to carry out its business.
Another aspect of IT projects, which is relevant in the context of the Libra project, is that things move on very quickly. It is impossible to define the entire specification for an IT project at the beginning and expect that specification to remain stable throughout a two-year development process. That is simply unrealistic. Perhaps, as a result of this and the other reports, we are moving towards a notion of a public-private partnership—I hate that phrase, but that is how they are described—in which services are supplied in bite-sized chunks on a cost-plus basis in which the supplier clearly shows what it will cost to deliver the next module. The purchaser then offers the supplier the price for it, with an agreed margin. That is a far more sensible way to proceed than saying, "We are going to give you X for a two or three-year project," and expecting X to stay constant throughout. Our experience tells us that X never stays constant throughout.
Mr Richard Bacon (South Norfolk, Conservative)
Did the hon. Gentleman notice the article in The Independent, either yesterday or today, about BAE Systems, which has advocated in a recent study carried out for it by Oxford Economic Forecasting a move away from smart procurement and a return to cost-plus for complex defence projects?
Mr Richard Allan (Shadow Spokesperson for the Cabinet Office, Cabinet Office; Sheffield, Hallam, Liberal Democrat)
That was a helpful intervention. As a good Lib Dem, I should read The Independent every day, but I cannot say that I have read that article. I will, however, go and read it later. We have heard a Labour Member quoting The Daily Telegraph, and now a Conservative Member is quoting The Independent. Modern British politics is a wonder to me.
I shall give an example of the point that I am making from local government working, and in doing so, I shall praise a council that would not normally receive praise from these Benches. Westminster council's customer relationship management system was put in place precisely on those cost-plus terms. There is a lot of scope for expansion in that regard. I suspect that as we continue to re-evaluate PFI projects, one of the themes that might emerge is that the notion of transfer of risk is sustainable only in a far more limited range of contexts than was originally imagined. It was going to be the answer to everything. It might be the answer to some things, but there are usually other solutions that are far more appropriate.
Lessons have therefore been learned from that report; it has been extremely helpful. I want to refer to two of the other reports, which show us how much work remains to be done. The 66th report of the 2001–02 Session on government on the web, and the 20th report of the 2002–03 Session on the use of call centres, both raise questions about the extent to which we are still unclear about how to evaluate the use of new technology. We are going ahead and introducing it, but we have not necessarily got in place the measures that we need to be able to say whether it is a success.
In the early years, the Committee looked at NHS Direct, which uses both web and call centre technologies. We had an apparent success there, but it is sometimes difficult to dig far enough to see what genuinely constitutes a success. In the context of government on the web, it is not simply a question of counting how many people have accessed a web page. Similarly, in the context of a call centre, it is not simply a question of saying how many calls have been answered. There are measures of quality and ways of defining whether those calls and web accesses saved money for the Government, but they are still not being clearly set out.
Both reports are to be seen in the context of the Government's having set broad targets saying that by 2005 all Government services must be online. Online explicitly includes call centres, which are the online option for many services. Although the reports are written in that context, I do not think that the measures to allow us to define whether the investment has been a success have yet been spelled out.
At paragraph 4(vii), the report on government on the web is explicit about that matter. In its criticism the PAC puts down a marker that needs to be picked up more generally. It says:
"Significant sums are being invested by departments and local authorities in developing Internet-based services. As yet there is very little reliable data, however, on the extent to which value for money is being achieved in terms of both better public services and improvements in efficiency. Public sector organisations need to set out the intended value for money benefits in the business cases justifying their expenditure on IT projects and monitor and report on their achievement."
That recommendation succinctly sums up the problem, which is that the Government drive has been to stick everything online. In many cases specific money has been allocated. The Government have said in this area or that area, "You can have some money to stick stuff online," but have done far less work in the form of asking whether what is online is effective and delivering an improved public service. If it is not, it is completely meaningless. Having a web page means nothing if it does not result in better delivery of public services. I say that as somebody who is interested in investment in IT. We need to remain sensibly sceptical about the outcome, unless it can be demonstrated.
Certainly some huge questions remain about government on the web. The UK online Government portal is appalling. It compares very unfavourably with those in other countries. I know that the Government recognise this themselves and are seeking to provide an alternative. We are still a long way from seeing it. If any hon. Members want to see how dire matters are, they should try looking for information about national insurance numbers. Unless one already has a degree in the structure of government, it is incredibly difficult to work out where one should go. National insurance numbers are somehow cross-cutting between the Department for Work and Pensions and the Inland Revenue. Those wanting to obtain one will find that that is administered by the employment service. There is incredible complexity. If people know what they are looking for, they can find it; if they do not, they cannot. That completely goes against the whole principle of putting services online and making them accessible.
The report on call centres also says clearly that we do not yet have the measures needed to evaluate success. We read at page 3 of the summary:
"While it is for departments to decide whether to set up a call centre, the Office of the e-Envoy is responsible for electronic government strategy which includes call centres. The Office has, however, limited information on the performance of call centres and the quality of service which they deliver. The Office needs to obtain reliable data to benchmark call centre performance, identify and spread good practice and press departments to tackle poor quality service where it exists."
The Minister may agree that one way to improve the quality of call centres is to use the excellent call centre resource that exists in south Yorkshire, which many people have taken as one way of providing a good call centre service. The more substantive point is that we do not yet know, and have no way of evaluating, the true effectiveness of call centres. That remains an open question, subject to the same kind of concerns as the concerns about the web investment. Is this investment truly justified? We shall not know until we have the measures by which we can evaluate the centres.
I have greatly enjoyed serving on the Public Accounts Committee to date. I commend the report to anyone, whether a Member of the House or not, who is looking for evidence—that is the key word—to evaluate the effectiveness of Government expenditure properly.
Mr Jon Trickett (Hemsworth, Labour)
I join all hon. Members who have spoken so far in first expressing my pleasure at serving on the Public Accounts Committee, and, more importantly, in paying my tribute to the staff who serve us. There is no doubt that the Committee staff go out of their way regularly to be of assistance to Members in order to make the Committee as effective as it no doubt is. And without the support of the National Audit Office, which everybody agrees is a highly professional organisation, clearly the Committee would not be as effective, nor would the public purse be protected as well as it is in the United Kingdom. There is much for us to learn from that.
As has already been suggested, the Committee can from time to time become somewhat passionate and fierce, not to say robust, in its questioning, and that is probably an understatement when it comes to our exchanges with accounting officers. We would not want to stray into being personally rude to anybody. That would not be our intention, and I am sure that the Chair would never allow that kind of atmosphere to develop. But it is true that from time to time there can be extremely fierce exchanges between us and those representing the civil service, the accounting officers.
That probably reflects the strength of feeling of hon. Members of all parties on the Committee about waste in public expenditure. Ideologically we come from different backgrounds entirely. Some of us are passionate believers in public expenditure and the necessary taxation to put right the defects that, without public intervention, the market would leave in our society. There are others who have a different point of view. They feel that the public sector should be smaller, to reduce taxation for understandable political or ideological reasons. However, we can all share a hatred of waste and incompetence.
Members of the PAC are sometimes in danger of becoming anoraks, in the sense that whenever we examine public expenditure we tend to see waste. That is especially the case for those of us who are regular attenders of the Committee. The UK expends about £350 billion, and we know that the vast bulk of that is well spent. It is professionally spent by public servants who are doing their absolute best to provide a service to the public. We cannot look at the part of the iceberg that is invisible. Instead, we look at the part of it that is visible in terms of waste, and there is a great deal of waste to worry about.
I shall now reflect on the PAC and Select Committees in general. Probably the PAC is the only Committee to have a debate on the Floor of the House—it was once a year, and now it is twice, with two half days—about its work. In addition, it is the only Committee that has the support of the National Audit Office. That makes the Committee extremely powerful. The NAO has statutory rights of access to data and information, which in turn makes the PAC extremely powerful. Given the national debate about the nature of our Parliament and the loss of confidence, to some extent, that the population has in politicians, I wonder whether the legislature—the House—should not examine carefully the way in which the PAC is supported by the NAO, with that body's statutory powers of access to documentation and witnesses, to strengthen the work of other Select Committees. Perhaps we should consider whether the PAC's model might be transposed to other Select Committees.
Whatever we think about Lord Hutton and his report, the House cannot deny the degree to which he had access to information. Well over £100 million was spent on exploring one subject to produce one report. At least 12 members of staff were working for Lord Hutton to obtain information. He had moral rights of access that probably mirrored the statutory rights of the NAO.
Select Committees in this place do not have such powers or resources. The PAC produces about 60 reports a year. It has the support of the NAO, which has 800 staff. Most Committees have only four members of staff working for them, and produce about 12 reports a year. The NAO reports cost about £190,000 per report, compared to Hutton's £1 million for one report. If the House is really to hold the Executive to account, as it should do, and if Parliament is to become the cockpit of the national debate once more, as it has not recently been, we need to examine the Select Committee system seriously. Perhaps there are lessons to be learned from the way in which the PAC works, how it is resourced, and the fact that it has the benefit of the NAO's statutory powers, if we are to bring the Chamber and the debates that take place within it alive again.
Moving on to the work of the PAC, I shall focus on the relationship between the private and the public sectors in terms of procurement and in relation to the PFI. The PFI and the nature of public sector procurement of services and goods from the private sector are inevitably surrounded by ideological debates, and they should also be surrounded by debate about the details of procurement activities. The PAC regularly encounters what appear to be breakdowns in the procurement process, and I suggest that there are some systemic problems in the process, which lead to those breakdowns.
The way in which the public sector procures major contracts from the private sector is flawed to some extent. The Government are paying attention to that, and have begun to remedy some of the problems raised in the report that has already been referred to. In the process used to submit tenders for contracts worth hundreds of millions of pounds the question of competition is not addressed rigorously enough. There are a number of barriers to competition. Without competition, one cannot be certain that the best price and the best quality service will be attained. We have encountered a number of barriers, the most important of which is probably the cost of tendering. We have heard from witnesses that tendering for a single contract can cost the contractor £5 million to £10 million. There are a limited number of companies, contractors and Government partners that can invest £5 million to £10 million in preparing tender documents to win a tender, and that is a barrier to competition.
On Tuesday, the Office of Fair Trading announced that it would conduct research on competition and procurement, as it believes that there is a great deal of work that small and medium-sized companies—even large companies—are incapable of tendering for. That is troubling, particularly because a number of contractors in the construction industry have come together to form a main contractors group, which I have mentioned before. It consists of representatives from all the building contractors big enough to be able to bid for works, and they debate tendering policy and practice. If competition is already limited by the investment needed simply to submit a tender, it is greatly troubling to discover that the people who are capable of tendering meet regularly to debate tendering strategy. That suggests that we are moving from the oligopoly of a limited number of competitors to a quasi-monopolistic position. I do not know how that should be dealt with, but it is a big problem.
What happens in almost all the tendering that the PAC has looked at is that eventually—usually sooner rather than later in the tendering process—the number of contractors is de facto down to two, or more often one. The pressure of competition on the tenderer is lost, and competitive tension disappears. The single tenderer is almost in a position to dictate terms, and we frequently found that that leads to "deal creep"—a strange expression that refers to the propensity of contracts let by the Government to the private sector to exceed the original price. Let us imagine that a deal for a contract worth £150 million is ostensibly sealed with a single tenderer. Once the contract is completed, its value will have crept or even galloped up. We have seen cases in which the final outcome was a doubling or more of the original price, which partly results from the fact that competitive tension is frequently lost.
The Committee examined a number of examples of such practice, some of which have already been mentioned, so I shall deal with them briefly. Our seventh report looked at the immigration and nationality directorate, and we found that key figures on which future increases in productivity would be measured and payments to the contractor calculated were not finally agreed until more than a year after the contract was signed. In the case of Dartford and Gravesham hospital, the NHS trust selected two firms to submit final bids, but one of them failed to bid. The trust ended up with a single bidder. Guess what? The final bid was 33 per cent. higher in real terms than the indicative bid. In the case of West Middlesex hospital, the preferred bidder agreed to hold its price for seven months but the trust took 11 months to close the deal. The price increased after the commitment period expired, so the original undertaking had only a limited effect.
With the Libra contract, the client was left with a sole bidder. It chose not to go out to further competition and as a result, within four years the cost of the project increased from less than £200 million to about £400 million.
Those examples might be thought anecdotal, were it not for the universal experience of so-called deal creep. There is something systemically wrong in the relationship between the public procurement and tendering processes, which deeply troubles me, and the rest of the Committee.
In the delivery of contracts, there is often a breakdown in the relationship between the public and private sectors—although not as frequently as in the tendering process. Almost invariably the same names—EDS, Capita and one or two others—are mentioned in connection with a breakdown in the delivery of a contract. Today the Paymaster General released the information that EDS has paid a penalty for failure to deal with its Inland Revenue contract properly every year from 1998 to 2003–2004—£282,000 the first year, £313,000 the second, and £105,000 in 2003–2004.
The PAC inquired whether the Government keep a record of contractors and their performance, so that we can all learn the lessons of a contractor failure. I was startled to discover that no such list exists. Capita, EDS and others have failed disastrously in some contracts, have let down the public and distinguished civil servants, and may have been penalised to the extent of hundreds of thousands of pounds—but they continue to be permitted to tender. The Office of Government Commerce says that it does not hold any information about contractors' failures. That must be wrong, and something needs to be done.
Is the hon. Gentleman aware that at the very time ICL was being accepted as a contractor for the Libra project, it was very publicly making a mess of the Post Office benefit card project? The oligopoly problem to which the hon. Gentleman referred is broader. Almost every major contractor has a black mark against it, but even if they know that, who else can they go to?
Mr Jon Trickett (Hemsworth, Labour)
I take the hon. Gentleman's point. I entered the House eight years ago, but I come from local government, which would not allow such situations to arise. In local government, any contractor is able to apply to be placed on a list of those that may bid for work in a certain category—IT, street sweeping, or whatever—and a record will be kept of its capacity to perform. If a contractor were to fail so badly as to have a cataclysmic effect on the service—and it sometimes comes close to that—it would not be allowed to tender until it could demonstrate that it had improved its performance capacity.
I am not suggesting that the Government should immediately introduce a blacklist, nor even that a blacklist should necessarily be introduced, but it is deeply disturbing to have no list at all of the performance capacity of particular contractors. That appears to be the situation that we have uncovered. The Government have decided to increase the amount of work that they do with the private sector through the private finance initiative and so on. Frankly, I have reservations about that. Although I entirely accept that PFI has delivered enhanced services, we need to reflect carefully in going down the track of increasingly employing the private sector to provide services that hitherto were provided by the public sector. We must get our act together in terms of tendering practice and the monitoring of contractors' performance to ensure that lessons can be learned for the future.
I hope that I shall be able to remain a member of the Public Accounts Committee. It is a fascinating Committee on which to serve, and it is a great privilege to do so. I shall be interested to hear the Minister's response to the debate.
Mr Richard Bacon (South Norfolk, Conservative)
It is a great pleasure to follow Jon Trickett. In his book on the Treasury, David Lipsey says that when watching a hearing in the Public Accounts Committee, it is impossible to tell from Members' questions which party they come from. When I read that, I thought of the hon. Member for Hemsworth, because I listen with great interest to his contributions and questions, and have on occasion abandoned my planned line of questioning to take up where he left off.
I listened to the hon. Gentleman's speech with great interest. He is right that problems are involved in tending towards oligopoly in suppliers: that applies not only to PFI contracts, but to bank finance. A financial journalist who covers capital markets recently told me that he was worried about the capacity of the financial markets to absorb the Government's huge pipeline of social infrastructure projects. That means, of course, that prices are likely to go up. There are legion examples of the City and financial advisers running rings around the Government, perhaps the most extraordinary being that of the Ministry of Defence building. The most extraordinary aspect, which is not mentioned in our report, is that the MOD went into the swaps market without a swaps adviser, and was of course taken to the cleaners.
I agree with the hon. Member for Hemsworth about the worries that should arise if there is only one bidder for a contract. I, too, was struck by the fact that the Libra project had only one bidder. That should automatically set alarm bells ringing, as the National Audit Office told me a long time ago. Three or four weeks ago, I had a meeting with the mobile phone company, O2. It was a congenial meeting and they were a nice bunch of fellows. They told me, with some pride, that the company was bidding for the ambulance contract and that there was a good chance that it would get it—not least because it was the only bidder. They were very pleased about that, but it nearly turned my blood cold. I have not had the chance to raise that with the National Audit Office, but I hope that it will take notice of this debate. I say to the Economic Secretary that I would not suggest for one minute that, assuming that it was done legally, the contract should be removed from the company on the ground that it was the only bidder. However, in such a situation it is incumbent on the Treasury, the Office of Government Commerce and all the other players involved to take a particular interest in the contract to ensure that it does not go wrong.
Like other Members, I hugely enjoy being a member of the Committee. I pay tribute to Sir John Bourn and his team at the National Audit Office. I pay particular tribute to those in the press office, who are unfailingly helpful to me; and to the Committee staff here. They are ably led by Nick Wright, who is extremely good humoured when I send him e-mails at three o'clock in the morning. The other day, I suggested that if he did not like that, I could telephone him at three o'clock in the morning, but for some reason he said that he would prefer to carry on receiving the e-mails.
I wish to refer to several issues. I have served on the Committee for two and a half years and, as we consider the various projects and reports, I sometimes tend to feel that we are listening to a scratched record. The most startling example of that was our hearing on tackling benefit fraud. The National Audit Office report on the subject includes a chart, which refers to previous studies. Indeed, it stated that our Committee examined the matter in 1998. Under the heading "On the scale and nature of Housing Benefit fraud", our report stated:
"It is totally unacceptable that seven years after we last looked at this issue"—
that is in 1998, so the report is referring to 1991—
"Housing Benefit fraud should exceed £900 million, and the Department still did not have information to show whether fraud is increasing, or all the information they need on the types of fraud, including landlord fraud, and variations at regional and local level. The absence of reliable information must cast doubt over the decisions the Department have taken to invest in anti-fraud work and over the achievements they have claimed."
The helpful appendix of the NAO's recent report, "Tackling Benefit Fraud" places previous recommendations in the left-hand column and action taken by the Department in the right-hand column. In most cases, something is written in the right-hand column, but in the case that we are considering, it is blank. In other words, we made a recommendation in 1998 and the Department has done nothing about it. When we questioned Sir Richard Mottram about whether housing benefit fraud was increasing or decreasing, he could not tell us. He had an idea, but he could not tell us the exact position five years after we said that it was unacceptable—and that was seven years after we had previously considered the matter. That is one of the essential worries about the work of our Committee. However many good reports we publish, the Government do not listen hard enough.
In the famous agricultural fraud case involving Joseph Bowden, we had published a previous report on the business of the then Ministry of Agriculture, Fisheries and Food—now the Department of the Environment, Food and Rural Affairs—and the permanent secretary had had to admit that he had not read it. We had previously recommended that the Department could learn lessons on dealing with agricultural fraud from the way in which benefit administration fraud had been handled. The permanent secretary was not even aware of the report, even though it related directly to his responsibilities and was addressed effectively to his Department as well as Parliament.
In paragraph 32 of our 31st report, "Tackling Benefit Fraud", we concluded that the
"Department were unable to assure us that the number of people committing fraud, its overall value or the level of landlord fraud were reducing, although they believed this to be the case."
Paragraph 33 states:
"The Department acknowledged that the pace of change had been less than desirable."
That is one way of putting it. It continues:
"Despite efforts over the years to drive up performance, the results of their comprehensive performance assessment review in autumn 2002 had been very mixed, and the Department considered that the record of local government in administering housing benefit was not defensible."
That is an interesting sentence because it is the point where our responsibilities as a Committee end. I said to Sir Richard Mottram that if local government's record in administering housing benefit was indefensible, surely that was the point at which policy itself caused Government expenditure to be uneconomic, ineffective and inefficient. There is no way round that.
Sir Richard Mottram, who is an able mandarin, simply smiled in a delphic manner and replied that that was policy. I then tackled the Secretary of State for Work and Pensions, whom I bumped into in the coffee queue in Portcullis House. Although I would not describe his answer as delphic, it was difficult to understand. However, it boiled down to the contention that, by the time we shifted to a better system, the people whom we would need to make it work would have left. We could not therefore make changes, even though we recognised that the housing benefit fraud system, as administered by local government, was indefensible. I find that a weak reply and I should like a little more effort to be made.
It is not obvious that housing benefit must be administered by local government simply because it relates to housing, which is based in local areas. I hope that the Treasury is beginning to consider that, because too much money is at stake and too many mistakes have been uncorrected for too long.
The second theme that I want to mention is transparency. The Treasury will know that I have always taken a great interest in professional fees, not least for the Treasury building. I will not labour the point, as I made it in last year's debate, about the £25.2 million for professional fees for the Treasury building. I have a letter on my desk from the Financial Secretary—so it must be true—saying that that is apparently very good value compared with other projects. The reason I am slightly sceptical is that when we ask witnesses about the level of fees, they are not always completely candid. When we had as a witness the chief executive of Bouygues UK, which is working on the Home Office building in Marsham street right now, I asked him what the level of professional fees in relation to that building was. He said that they were £9 million, and he repeated it two or three times. I asked him two or three times whether £9 million was all. Finally, through gritted teeth, he said in his French accent, "No, £25 million." I had to ask him three or four times to get the right answer out of him.
When we had a hearing on Wembley stadium, I was struck by an article in the Evening Standard which said that professional fees in relation to Wembley national stadium were £82 million. I therefore asked Ms Sue Street, the permanent secretary at the Department for Culture, Media and Sport, whether that article was accurate. Her reply was,
"I am very sorry, I am advised that we do not know."
I asked her if she would send us a note, and she kindly did so. The report has been published extremely recently, so we have not yet debated it, but I refer to it because it makes the general point about professional fees. When it came out earlier this week, it elucidated the facts: professional fees relating to Wembley stadium were indeed £81 million, which covers
"Fees, Fixtures, Fittings and Equipment",
and—this is one I like—"inflation for delayed start", whatever that means; and there is no breakdown so one cannot see how much of it is inflation for delayed start. It also covers "contingency", for which there is also no breakdown, so one cannot see how much of it is contingency, and
"other costs in the Multiplex construction contract".
That alone is £81 million. That is not the half of it, however—actually, it is slightly more than half of it—because there is another line,
"Bank arrangement fees/finance costs",
which were a further £22 million. Then there are
"Legal and other professional fees",
which were a further £11 million, and perhaps the best line of all, "WNSL"—Wembley National Stadium Ltd.—"management fee", which is a further £19 million. That makes a total of £133 million.
Hon. Members may recall that the lottery grant to the football stadium at Wembley was £120 million—all of that and more went on paying the professional fees. That is why it is a subject that we need to keep under review and on which the National Audit Office needs to keep an eye.
The reason I referred to transparency is that I sometimes get the sense that we are not given as much information as would be helpful to enable us to reach considered judgments on these matters. One notable exception was the report on the redevelopment of the Ministry of Defence main building. Page 24, one of my favourite pages in any recent National Audit Office report, sets out with startling clarity how the public sector comparator is arrived at. Again, I referred to that in the debate last year, so I will not dwell on it, but it simply sets out the base costs for each item, the extra cost because of the risk, and, in the final column, the risk as a percentage of the base costs. How it is worked out is therefore transparently clear. It is obvious how easy it is to manipulate the figures, to which we referred in our report when we alluded to the fact that just by changing the risk factor for one item—capital expenditure—from 29.5 per cent. down to 29 per cent., the public sector comparator can be changed so that instead of it being £100,000 more expensive it is £1 million cheaper.
The Government now say that they have a much more sophisticated method of analysing risk factors and coming up with a sensible arrangement for advising Departments on what sorts of risk factors ought to be applied to their projects. In a recent hearing, when we were told by a witness that the figure for the risk factor was 24 per cent. for capital expenditure, we asked why. The reply came that that was the figure that the Treasury gave. When we asked how the Treasury got that figure, we were told that the Treasury had had a study done by Mott MacDonald, a group of engineering consultants, and that that was the figure with which it came up. Being a bit of anorak, I decided that it would probably be useful to look at the Mott MacDonald report, which is precisely what I did. In that study, the Treasury provided a list of some 60 projects, and Mott MacDonald provided a further 20 projects, making a total of 80, and it analysed them to see what the typical cost overruns had been.
It is interesting to study the Mott McDonald report in detail. The measurement of operating expenditure is covered on page 10:
"There was great difficulty in obtaining information on operating expenditure. Such information was only available on a small number of projects."
It turns out:
"Of the 80 projects initially reviewed, only 50 projects had a reasonable amount of information, and were retained for analysis. Although most of the information required on the retained projects was available, some key data was lacking."
As a result of that analysis, Mott McDonald comes up with an optimism bias, which involves calculating a percentage figure to add to the total cost of a project so as to arrive at the project's actual cost—basically, one begins with the original cost estimate and adds in the optimism bias to calculate what a project will really cost.
The Mott McDonald report contains a helpful chart that explains that for standard buildings the optimism bias is 24 per cent.; for non-standard buildings it is 51 per cent.; for non-standard civil engineering projects it is 66 per cent.; and hon. Members will be relieved to know that for standard civil engineering projects it is only 44 per cent. Having examined the chart, it occurred to me that the figures must derive from the 50 projects that Mott McDonald has studied.
At the back of the report, there is a project list containing standard buildings, non-standard buildings, standard civil engineering projects and non-standard civil engineering projects—for example, Manchester airport; terminal 4 at Heathrow; Salisbury hospital, phase 1; the Limehouse Link road; and the A34 Newbury bypass. I expected to see three columns to the right of those projects. First, a column listing the original cost estimate; secondly, a column listing the actual out-turn; and thirdly, a column listing the percentage overrun. By aggregating the percentage overruns, one could calculate an average cost overrun for standard buildings, non-standard buildings, non-standard civil engineering projects and so on.
One could not calculate the figures in the table without going through that exercise. However, I have examined the report carefully, and it does not contain any figures, so it is a mystery how Mott McDonald calculated the 24 per cent., 51 per cent. and 66 per cent. figures. Bear in mind that the whole purpose of referring to the report is that the Treasury advises Departments on percentage optimism bias as a direct result of it. If one asks a Department why it has included a percentage optimism bias, it will say, "The Treasury told us to".
Mr Jon Trickett (Hemsworth, Labour)
I am listening to the hon. Gentleman's argument carefully. Does he agree that the Mott McDonald report, which is a critical document on which the Government rest much of their case about public sector comparators, measures deal creep within the public sector but fails to take account of deal creep in the private sector, which means that we end up comparing apples with pears?
Mr Richard Bacon (South Norfolk, Conservative)
The hon. Gentleman anticipates my concluding point. I fear that this is simply another way—if a rather more sophisticated way—to provide any number that the Government require for the public sector comparator. Given that the Treasury uses the report and that Departments say that it gives them numbers based on it, it is strange that the report states that
"the study results on their own should not be used directly as a benchmark to assess optimism bias levels in current and future projects."
The report states a number of reasons for that:
"the introduction of risk management, improved procurement practices (based on greater diligence at the project definition stage), partnering"—
that is always a good one—
"more controlled cost monitoring, value management, and the application of concurrent engineering."
In other words, the basis for the numbers that are now being used is itself flawed, but the Treasury still recommends it to Departments.
I turn to the conclusion of the Mott MacDonald report, which states:
"The optimism bias recorded for projects in several recent studies have proved that there is a tendency for project managers and project owners to underestimate costs and time, and overestimate benefits for a project.
Failure to consider and actively manage the causes of optimism bias tends to result in an accumulation of unforeseen cost and time overruns, and benefit shortfalls. However, by developing strategies for the effective management of project risk areas, it is possible to reduce the optimism bias and raise confidence levels in project estimates."
This exercise, which was undertaken on the Treasury's behalf, is in fact a laudable one. Getting some form of scientific measure of what goes on inside large projects, why they go wrong and the precise extent to which they go wrong is very helpful. But I come back to my point about transparency. At the moment, there is no transparency. One cannot go through the report and discover how the figures have been arrived at, so the suspicion remains that the whole exercise is still just another way of manipulating the data, just as the public sector comparator itself too often seems to be a way of manipulating the data, in order to demonstrate the required result.
I turn briefly to the future. As I said at the beginning of my remarks, I worry that our reports and the legion warnings issued about projects in many different areas of government—particularly, but not only, computer projects—are so often ignored. The national health service provides us with an example of huge procurement: the National Programme for Information Technology in the NHS in England. The NPfIT concerns the provision for clinicians of electronic patient records, and it is costing a fortune. Estimates have varied. A recent announcement valued contracts in the region of £2.3 billion. That figure rose to £2.6 billion, and following the recent letting of quite a few contracts, it has reached some £4.2 billion. Indeed, it is expected to rise still higher. The problem is that however much money is spent on the programme, it will not work unless there is buy-in from the users. One of the classic problems with such projects is that the users are not consulted adequately or in time.
The magazine Computer Weekly and the NPfIT itself jointly undertook a study of this issue. A health care market research firm called Medix undertook a survey of people in the health service who might need to have contact with the programme. It asked, "What consultation has there been with you personally about the NPfIT?" One per cent. described such consultation as "More than adequate"; 3 per cent. said it was "Adequate"; 8 per cent. said it was "Barely adequate"; and 11 per cent. said it was "Inadequate". However, 75 per cent. said of such consultation that there had been "None at all", and 2 per cent. were "Unsure".
The NPfIT was so furious about these results that it issued its own press release, in which it completely ignored any of the survey's negative findings. Those who want to check the survey can do so easily, as it has helpfully been made available on the internet. That is one of the few ways in which IT manages to hoist itself by its own petard.
Slightly worryingly, the striking report by the National Audit Office—we are not really debating it; indeed, it was published only today, and we have yet to take evidence on it—says in large letters on page 7:
"Lessons applying more widely from the Bureau's experience are"—
it is referring to the Criminal Records Bureau—
"The importance of consulting with potential users of the service at the earliest opportunity to gain a clear understanding of how they are most likely to access the service, and responding promptly and effectively to such feedback."
In the report on the Libra project, to which other Members have referred, we offer the following warning on page 4:
"Departments will not achieve the full benefits of introducing IT if they do not redesign business processes in parallel."
The NPfIT says that it will begin redesigning the business processes, but it has already let the contracts. The warnings that we are giving are current. We have not even had the chance to consider the NAO report, listen to the evidence and issue our own report. However, the advice is clear: consult early. In respect of the second report, we already know that the NPfIT is ignoring the need to design business processes in parallel while introducing IT.
That brings me to my final point, about the Office of Government Commerce. The NAO's report on the Criminal Records Bureau states, in paragraph 13 on page 3,
"The Office of Government Commerce Gateway Review Team raised questions about the readiness of the Bureau to go live, but accepted that there was 'no turning back'."
That raises the question of whether the gateway reviewers are culturally too close to the people whom they are reviewing.
The Work and Pensions Committee is currently conducting a study on the IT projects under way in the Department for Work and Pensions. I hope that we shall also look at that, and that the Treasury will take account of it. One of the witnesses for the study was Sir Peter Gershon, chief executive of the OGC. He was asked whether he had ever stopped a project, and also whether he had ever advised that a project was too complex. In each case he gave answers that were long, difficult to understand and non-committal, which suggests that the real answer was "No". I hope that the OGC will seriously consider publishing gateway reviews; perhaps the Treasury will give it a nudge in that direction.
I agree with the hon. Gentleman about the effectiveness of the gateway review process. I have looked into it myself, and my impression is that the process has no power to stop projects. If a red light is thrown up, it is for the Department or the public body to decide whether to proceed.
Mr Richard Bacon (South Norfolk, Conservative)
That is true. What is also true is what I thought the hon. Gentleman was going to say: the gateway process does not apply to the health service or the NPfIT.
The central point is this. If these matters were in the public domain and MPs, members of the public and journalists could read about them, the Department might be helped to conclude that it should take a slightly more robust view, and perhaps occasionally stop projects in their tracks.
I think the OGC does a great job, and that it negotiated a fine deal with Microsoft. Sir Peter Gershon's recently conferred knighthood is well deserved. If the title "Hero of the Taxpayer" existed, he would be worthy of it, because he does a tremendous job—but he does it in very difficult circumstances. His only real power is one of suasion. He cannot point at Departments and tell them what to do.
Mr Richard Bacon (South Norfolk, Conservative)
I am disappointed to hear that, because I think he was just getting into his stride.
One of the central aspects of the problems we face is the fact that the civil service is constantly on the move. Permanent officials actually move far more often than Ministers. I had the opportunity to have a chat with Mr. Cook the other day. I gave him a lift in my car. I was picking up my laundry from the launderette, as you do, and there he was walking along. As his office is in Norman Shaw South, I decided to give him a lift. He said that when he was Leader of the House one of the most extraordinary things he discovered from talking to parliamentary counsel was that when drafting Bills parliamentary counsel almost never get to talk to the same civil servant twice about the same subject, because civil servants move on so quickly.
I was delighted to hear that Sir Andrew Turnbull is thinking of introducing four-year posts for civil servants. That will be a very interesting development, if it actually happens. I was also delighted to hear from Sir David Omand, when the Chairman and I went to Heathrow airport to visit Customs and Excise, that the Government's approach to risk management will in future be tied not just to the statements of internal control that permanent secretaries must sign, but to the spending review process. If they can get traction on that, it will be very interesting.
Another point made by David Lipsey in his book was that the Treasury and the PAC ought to be allies. I sometimes feel that we are not nearly as close allies as we should be, and I believe that one of the reasons is the fact that the information that would enable us to work more closely together is held too closely. The Whitehall culture is the same in other Departments as it is in the Treasury: "Your job is to defend your Department against outsiders". From the Treasury's point of view, Parliament is just another outsider.
As the NAO has pointed out, we are about to spend an extra £61,000 million of taxpayers' money over the next three years in the spending round. A 1 per cent. improvement would lead to an extra £14 billion going into front-line services. I have considerable scepticism about whether that will happen, but if we are to see the changes that we want and achieve the fundamental shift in the way that the Government deliver services to the public, which Sir Peter Gershon spoke about in his ongoing efficiency review, we need to use every lever at our disposal. I believe that the most important lever is transparency—and oxygen—to enable the people of this country to govern themselves, to criticise their Governments more effectively and to ensure that taxpayers get value for money.
Mr Jon Cruddas (Dagenham, Labour)
I greatly enjoyed the speech of Mr. Bacon, which was consistent with his contributions in the Committee—based on a solid bank of research and technical confrontation with the important issues. Like Mr. Allan, I speak as a junior member of the Public Accounts Committee, having sat on it only since the end of the summer recess, but from the standpoint of a relative novice I would like to make some brief observations about the workings of the Committee and its reports.
First, the sheer scale of the work carried out by the Committee is staggering. It covers literally the whole spectrum of Government policy and ranges from the most specific examination of Government activities on a case-by-case basis to the broadest possible issues of expenditure and finance. That allows the Committee to draw unique conclusions regarding the shape of Government activity and the efficiency of expenditure. As such, it makes a major contribution to this country's public life.
Secondly, the quality of the research and advice supplied by the National Audit Office is also a credit to public service in this country. As the Chairman said, its work has been estimated to have saved the Government some £1.5 billion over the past few years: it saves £8 for every £1 it spends. The rigour of its approach is extraordinary and it remains the cornerstone of financial accountability in the House.
Thirdly, as mentioned earlier, the work of the NAO and the Committee is greatly aided by the Clerk, Nick Wright, and his staff. Speaking as a new member of the Committee, I want to place on the record my thanks to them for showing me around the proceedings, pointing me in the right directions and continuously replacing my lost papers.
I should like to make a couple of somewhat impressionistic comments about the workings of the Committee based on my brief time sitting on it. First, I want to record my respect for the civil service. Let us consider the rather bruising hearing that we had yesterday afternoon about the sequence of events leading to the reconstruction of British Energy. It was the most robust meeting that I have attended since being a Committee member, but the conduct of the permanent secretary at the Department of Trade and Industry, Sir Robin Young, reflected a proud tradition within our civil service.
We were examining the truly shocking chronology of events leading to British Energy finally approaching the Government for rescue aid on
The flipside is that we do not hear from the people who were, more often than not, responsible for taking the decisions that we are investigating and analysing. It seems to me—this may have been considered before—sensible to have the capacity to question those directly responsible for decisions as opposed to those currently in charge who are imbued, as I said, with the honourable predisposition for collective civil service responsibility.
My second point focuses on how the Committee works. I am impressed by the whole operation. The core political battleground between the major parties has to do with public expenditure issues and the Government's effectiveness in utilising tax revenues. For example, this morning's newspapers are awash with stories about the Conservatives trying to sort out their policy agenda with regard to taxation, spending and the public services. However, the Committee is not partisan: tribal political loyalties tend not to inform its workings, but are left at the door.
The Committee confronts issues in a non-partisan manner, but that does not mean that its members leave their ideological approaches outside the Committee Room. Rather, those approaches inform the nature of the Committee's scrutiny. By avoiding partisanship, the Committee enhances its role in scrutinising the Government. Its conclusions are thereby rendered even more compelling and penetrating.
At the same time, different members can reach different conclusions from the Committee's work, which they can use in their other political activities as Members of the House. My hon. Friend Mr. Steinberg referred to an article by the hon. Member for South Norfolk, published in The Daily Telegraph on
It could be assumed that PAC reports do no more than criticise Government Departments over matters to do with fraud and the inefficient use of resources. For example, the ongoing saga of the Child Support Agency computers is again in this morning's newspapers, with reports suggesting that the agency is ready to ditch kit worth £450 million. The Committee has scrutinised that matter closely. Also in this morning's papers is the NAO report on the effectiveness of the Criminal Records Bureau.
More proof of the PAC's effectiveness can be found in the evidence that it secures at its hearings and in the findings contained in its reports. As both my hon. Friend the Member for City of Durham and the hon. Member for South Norfolk noted, the auditors have criticised the Department for Work and Pensions every year since 1988 for the volume of fraud that is reported.
Another example is what we learned in our hearing yesterday afternoon: that British Energy issued a dividend worth £420 million in 1999, even though it knew that electricity prices would fall with the introduction of the new electricity trading arrangements. By 2002, British Energy was requesting urgent state aid to prevent collapse.
The Committee has also learned that Customs and Excise loses between £7 billion and £10 billion every year on unpaid value added tax, and that the benefits payment card cost about £1.1 billion before it was scrapped. We know, too, that the new GCHQ building cost £400 million, whereas the GCHQ management board was told that it cost £20 million. The managers at GCHQ thought that it would cost £40 million. The list goes on, and it is a tribute to the PAC that those problems receive an airing.
I return to the article in The Daily Telegraph by the hon. Member for South Norfolk. He ended it by stating:
"If we stopped the haemorrhage of cash from our public sector we would have to worry less about extra taxes and borrowing."
That is correct, and I pay tribute again to the hon. Gentleman for his rigorous research and activity. However, if we stopped at this point in our consideration of the PAC's work, we might be tempted to argue that money is simply being lost down a black hole, and that good money is chasing after bad. The PAC's reports might convince us that the attempt to rebuild public services is an inherently flawed economic and political strategy. The significance of that cannot be overstated, given that the Government are systematically reinvesting some £61 billion extra in our public services over the next three years.
I am a junior member of the Committee, but my impression is that the NAO and the PAC have also highlighted profound changes in the management of resources in the public sector. Its general analysis suggests that until recently resource management in the public sector had a number of long-standing inherent weaknesses: insufficient focus on delivery, which meant a preoccupation with the management of inputs; endemic short-termism, whereby Departments were funded on an annual cash basis, with money being handed back at the end of the year, which provided scant predictability in terms of future departmental resources and strategy; perverse incentives to spend cash before the year end; incomplete cost information, due to cash accounting procedures; insufficient measurement of performance outcomes, and a preoccupation with process; and poor project management and capabilities.
The NAO and the Committee have studied the Government's responses to those inherent problems; for example, public service agreements were introduced in 1998 and set out for each Department the aims, objectives and quantified targets needed to deliver over the spending period. The spending and control regime was also introduced in 1998, which includes a three-year comprehensive spending review period and the allocation of three-year resource budgets for Departments, plus the flexibility to carry forward unspent funds.
Another example is the move to full resource accounting and budgeting for Departments, which came into effect in 2001–02. The move to accruals-based accounting gives better information on expenditure and the analysis of Government accounts. As the hon. Member for South Norfolk pointed out, we are also aware of the efficiency review being carried out by Sir Peter Gershon, chief executive of the Office of Government Commerce. The review covers the whole public sector and will feed into and inform the spending review of 2004, to be announced in the summer.
The Committee also touched on the study of procurement led by Sir Peter, which gave rise to the formation of the OGC. I can testify to the OGC's work in its dealings with Microsoft, which the Committee discussed in one of its private meetings. The OGC deployed a systematic and effective strategy. As the NAO has stated,
"new flexibilities and changes in the way resources can be managed, if used effectively, should make an important contribution to improving public services."
Obviously, those new frameworks and disciplines are critical at a time of massive investment in public services—as I said, the amount over the next three years will be about £61 billion above previous levels.
Departments and their agencies currently spend about £421 billion, a significant proportion of which is used to deliver key services to the public. The simple point is that, while highlighting waste and inefficiency, the PAC also has a critical role in studying the relative effectiveness of new disciplines. In the private sector, discipline and efficiency pressures arise from the very nature of competition, but in the public sector, by comparison, alternative frameworks have to be developed. It will be fascinating to track Departments to see whether real change occurs over the next few years. I make these points to emphasise the Committee's role in scrutinising the changes that will import new disciplines and incentives to the public sector to safeguard the new investment to which the Government are committed.
The final brief point in my impressionistic take on the work of the PAC concerns the private finance initiative. In many of the Committee's meetings, many members—from different ideological perspectives—scrutinised the financial underpinnings and assumptions of PFI, as we have heard from other Members this afternoon. We looked at the MOD main building, the PFI refinancing regime, delivering better value for money from PFI projects, the new GCHQ building and so on.
When I joined the Committee I had no intuitive in-built hostility to PFI in principle. Harnessing private finance capital for public service priorities is self-evidently a good idea. At the same time, it allows for a more robust investment programme without jacking up direct taxation rates. Furthermore, to make a party political point, the PFI has, in theory, a critical role to play in establishing the possibility of a durable Labour Government who want to rebuild public services. Indeed, it has already played an important role.
My only real concern about PFI before I joined the Committee was that it would be used as a device to ensure that the Government's fiscal framework was reconciled with the rules of the eurozone, thus enabling early entry. Given the events and developments of the past year, that concern seems slightly out of date, which I am extraordinarily happy about.
Moreover, in theory, the PFI offers a seductive risk-transfer package for local authorities and Departments charged with delivering such services. Since serving on the Committee—in particular, since listening to my hon. Friend Jon Trickett and the hon. Member for South Norfolk—I admit that I am less convinced than I was initially about the intrinsic merits of the PFI. As I say, that conclusion is not ideologically driven; it is simply based on what I have heard. More specifically, the concern is the method by which the private sector is deemed cheaper than the public sector owing to the aforementioned public sector comparator—in effect, the tender price that the public sector would offer for any given project.
Again, as far as I can see from my limited experience on the Committee, the origin of that comparator, with its project-specific flexibility, remains a mystery. My concern is that it can become an accounting lever to ensure that large-scale capital projects are not handled by the public sector. That is legitimised by the comparator's econometrics, whereas the real objective behind it is simply promoting a belief that the public sector does not exist to achieve such building work, so a regime or infrastructure is created to legitimise such departure points.
Mr Jon Trickett (Hemsworth, Labour)
Is my hon. Friend aware—this may have been said before he joined the Committee—that a senior member of the NAO staff described the public sector comparator, as it then operated, as "pseudo-scientific mumbo-jumbo"? I wonder whether my hon. Friend has a view on that.
Mr Jon Cruddas (Dagenham, Labour)
I am aware of that because I read the report of the annual PAC debate last year—when, I think, my hon. Friend mentioned it. It says an awful lot about the pseudo-scientific rigour attached to the device. It is an eminently flexible device whose elasticity is very useful for politicians, but it is difficult to ascertain the merits and anchorage of a body that produces theory and analysis objectively. So I have problems with it, and the remark by a member of the NAO clarifies my thoughts on the way in which I consume information in the Committee. I very much look forward to the Committee subjecting the PFI to scrutiny in the future because I am worried that the accounting mechanism may simply be used to lever work from the public sector.
To put it simply, I personally find the PAC's work extraordinarily rewarding. The Committee provides unrivalled scrutiny of the state for the benefit of the House of Commons. More importantly, it provides unrivalled scrutiny of the state for the taxpayer, and long may it continue.
Mr Howard Flight (Arundel and South Downs, Conservative)
I pay tribute to the Chairman of the Committee and all its members and to Sir John Bourn and the NAO for fantastic work on 54 reports. All hon. Members here this afternoon must agree that this has been a fascinating and incisive debate. The PAC and the NAO are very much the unsung heroes of Parliament and the civil service.
Dare I say that it is perhaps a pity that we are having the debate today, when we are about to break up for half term? It is certainly a great pity that more hon. Members have not attended. We are debating some £250 billion of public expenditure, and without wishing to sound patronising, I feel that it is pathetic that there are not more MPs here to learn something about how that money is spent. At the end of the day, if Parliament is not to be just a theatre of performance, surely its most crucial role involves that very item. The thought occurred to me—perhaps not seriously—that attendance should be made compulsory.
I am sure that the Government are somewhat disappointed that the massive increase in spending since 2000 has not, as yet, delivered more. Figures from the Office for National Statistics suggest that something like 85 per cent. has gone into public sector inflation, which is now running at 8.5 per cent.—that is up from 1.6 per cent. in 1997. The big question of our time for the Government, the Opposition and all mature economies of western Europe is how the public sector is to become more efficient. It is fairly clear that there is no great appetite throughout Europe for further tax rises, but with populations growing older, there is an increasing demand for services. The efficiency of the public sector is thus right at the centre of politics everywhere.
I shall comment briefly on the excellent speeches that have been made. I liked enormously the robustness of the Committee's vice-chairman, Mr. Steinberg. I wholly agree with several key points that he made—namely his tactful criticism of the occasional arrogance of the civil service. He also highlighted the Ministry of Defence's frequent failure to manage equipment and problems with asset tracking.
Mr. Allan focused on a matter about which he has a great deal more technical knowledge than I, although I have endeavoured to give it some attention over the past two years: the pretty poor record on public sector information technology projects. He quoted from the Committee's 44th report on the Libra project—we have all focused on that. We all know that such matters have been the Committee's territory for a long time because it has produced many reports on IT projects. The problems remain substantially unsolved. I learned from my prior career experience that top-down IT projects never work. Unless they start with the people concerned at the cutting edge, and work upwards with people being prepared to adapt, one ends up with a top-down system that fails.
Jon Trickett was wonderfully straightforward. He articulated his frustration and sadness at the waste of public expenditure; I share that motivation myself. He suggested that parliamentary scrutiny bodies were generally inadequately resourced, and pointed out systematic problems in the procurement process. Indeed—dare I say it?—it seems to both the Government and the Opposition that relatively straightforward savings could be achieved by introducing a considerably more professional procurement process throughout the public sector. He said that private finance initiative costs of tendering were too high, which is clearly what experience shows, and he pointed out problems of an oligopoly, if not a monopoly, of supply to the public sector.
I give personal thanks to my hon. Friend Mr. Bacon for helping me to get on top of 54 reports in a relatively short time. I was interested to hear his identification of the way in which the MOD had been caned in the swaps market because it did not seek adequate advice. He also focused on the problem of having a single bidder for Government contracts, and not only on the PFI side. If one suddenly increases spending on public sector investments massively, one runs the risk of driving up prices because too few providers are available. My hon. Friend also pointed out the major problem that attempts to address housing benefit fraud, and fraudulent benefit payments in general, have been given up.
My hon. Friend also made the important point, in relation to IT, that the mandate of the Office of Government Commerce does not give it the power to prevent projects, in good time, from going off the rails. I have learned that, perhaps surprisingly, Italy is the EU country with the most effective record in managing IT projects. One reason for that is that a very small body at the centre of government, comprising partly the private and partly the public sector, has precisely that power. That body has to vet a project initially and then monitor it, and it has the power to stop public sector IT projects if they go off the rails.
Jon Cruddas, as a new member of the Committee, made a valuable contribution in which he stressed the problem of the natural lack in the public sector of the discipline that competition and the market bring to the private sector. He stressed the need to rethink how optimum efficiency can be achieved with the additional £61 billion that the Government are spending in the public sector.
I step back to ask what the PAC and its processes are all about. To me, the PAC's function is analogous to the internal audit function in a business. The PAC, with the NAO, is the internal auditor, although many businesses use an outside party in conjunction with their own to perform that internal audit. The PAC functions as the non-executive directors, while the House of Commons functions as the body that represents the shareholders, but the recommendations of the internal audit are essentially for the civil service and Ministers, so that they can improve the delivery of public services and learn from all the work done.
In a business context, the board's normal response to the findings of an internal audit is to continue to require information from management until it can see that the lessons learned have been implemented and the problems thrown up have been resolved. My main disappointment, from all that I have read, is the relative lack of effective implementation of all the lessons that the PAC and NAO have learned from all the work done. All that excellent work is recorded, and is there for the public sector, the Government and civil servants to learn from. As pointed out, that work has saved £1.5 billion, but everyone reading the reports of recent years must have stepped back and said, "My goodness me; far more than £1.5 billion could have been saved if what the PAC found had been implemented."
Of the reports before us today, I have counted 10 in which the PAC says, "We have said this before and nothing has happened," and another 20 that make the same point in essence. Many of the reports that deal with PFI and the problems associated with it repeat criticisms that have been made before.
Mr Andrew Love (Edmonton, Labour/Co-operative)
Does the hon. Gentleman accept that a considerable number of the failures mentioned in the reports are failures of the private sector, where it has been contracted to the public sector? If we could be more vigilant over how the private sector delivers some public services and some PFI contracts, we could save a lot of public money.
Mr Howard Flight (Arundel and South Downs, Conservative)
As, I trust, a reasonable man, I accept that there are faults on all sides.
Perhaps I may summarise some of the operative problems with PFI. Public participation has not been sufficiently on its toes to enjoy the benefits of refinancing. There have been what the PAC itself described as the complete charade of the public sector comparator, which involves paying large fees to accounting firms for demonstrating whatever one wants them to demonstrate; the excessive costs of advisers and professionals; and the issue of whether PFI is suitable for particular areas, which is largely observable from past experience.
It is a question of issues of principle rather than of laying blame on the Government or others. Those managing PFI know very clearly the problem issues to be resolved. I simply ask myself, "Why the hell not get a move on and resolve them?" We have all known for quite a long time what they are.
I shall be as speedy as possible in running through the areas where the PAC is in essence saying that its advice hitherto has been unheeded.
The 66th report dealt with progress in putting the Government on the web. Again, the Committee said that previous recommendations had not been implemented.
The 68th report, on the collection of fines in the criminal justice system, showed that still only 59 per cent. were being paid, at a cost of £387 million, with very little done since the problem was first highlighted.
On the management of substitution cover for teachers, the Committee reported that the Department had failed to live up to what had been requested of it in the 1992 report; effectively, nothing had been done.
On delivering better value for PFI, I have just set out the areas that need attention. The lead report was the 28th, but the 64th, 4th, 19th, 22nd, 35th, 40th and 49th all deal with the same issues, which have in different ways been raised before.
The 31st report, on tackling benefit fraud, in essence says that nothing has been done since the Committee's two previous reports about abuse within the housing benefits system. On the wider issue, it says that attempts to address such fraud seem to have been given up on, and that Sir Richard Mottram spoke in 1998 of £3 billion to £7 billion. What is actually going on to tackle the problems? Apparently, little or nothing.
The 32nd report, on the Highways Agency, comments that the data on maintenance history on motorways and trunk roads are still incomplete.
The 34th report, on progress by the Office of Fair Trading in protecting consumers' interests with regard to licensing and unscrupulous lenders says that no notice has been taken of previous comments.
The 37th report says of the Ministry of Defence and the construction of the nuclear submarine facilities at Devonport that no notice has been taken of the PAC on the cost overrun, now 62 per cent.
The various other reports concerning the MOD—the 13th, 46th and 6th—and the comments that other hon. Members have made illustrate precisely the same points, which are that the MOD takes very little notice of the PAC's warnings, including its pointing out of unnecessary cost overruns, poor management of stocks and all the problems of bad procurement illustrated by both the Apache helicopter saga and the Challenger tank saga.
The 44th report, already referred to with regard to Libra, illustrates all the problems of cost escalation of IT. Again, there is failure to take any heed of the PAC's advice, on the basis of past experience, about the contractor selected.
The Government are clearly starting to face up to the challenge of achieving better value and seeking to cut waste in the public sector. That is what the Office of Government Commerce has been about. The Opposition share its objectives. I am concerned that Sir Peter Gershon is stepping down. I feel that there is an element of disillusionment despite the degree of effort that is being put in. I am concerned that the four areas that have been selected are by no means central and do not cover much of the territory where there is scope for greater efficiency.
I well recollect that in the 1980s, when Lord Rayner had a similar task, he was to a large extent frozen out by the civil service and prevented from getting into those areas that he should have entered.
The Conservatives initiated the investigations that David James and his team of auditors and 30 professionals have started. It will be no surprise to Members that a major challenge is to obtain the necessary information about public sector management structures, processes and decision taking. We should all be calling for an improvement in the transparency of information that comes from the public sector.
I urge the PAC and the NAO in future to pursue explanations of why the various lessons of the past have not been learned and why their recommendations have not been put into operation more effectively. I urge them to quantify the costs of that not having been done, and to get to the bottom of why their recommendations have not been implemented. To return to my business sector analogy, where people fail in their management job, it is normally time for them to leave the business, to be replaced by people who are more competent. It is perhaps time to change business structures.
Mr Andrew Love (Edmonton, Labour/Co-operative)
I endorse the hon. Gentleman's comments about people leaving the business. As a former member of the PAC, I can remember that that is a constant frustration. Let me pick up a comment made by the Chairman of the Committee. There is an essential difference between providing a public service, given the complexity of so doing, and providing a private service, which may be much more focused. We must recognise that before we will ever get to the bottom of the real productivity challenges in the public sector.
Mr Howard Flight (Arundel and South Downs, Conservative)
I thank the hon. Gentleman for his comments. With respect, I think that it is the other way round. I believe that everyone is well aware of the differences between the public and private sectors, and equally well aware of the democratic element of public sector services. There have been no fundamental reforms since the second world war, and we have a public sector and a civil service that seem to lack the discipline and organisation to ensure accountability and efficiency which were not evident in the private sector 20 years ago—there were often ad hoc arrangements with people climbing ladders of seniority—but which have now become commonplace there.There are huge lessons to be learned from the private sector—here, in America and in Europe—about how to run public sector activities more efficiently. Rather than defining the differences—we all know what they are—we should stress that what we all want is a public sector that is run on an enormously more efficient basis.
I repeat the tribute to the PAC, which has done so much of the work. It seems pathetic that Members and, candidly, Governments of both hues and civil servants take so little notice of what the PAC has found.
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
Our debate has demonstrated the special contribution that the Public Accounts Committee makes to our system of parliamentary scrutiny of the Executive. I pay tribute to its work, and in particular to its Chairman, Mr. Leigh, for ensuring that it searches out the reasons why projects and schemes fail or succeed, and what lessons can be learned for the future. I also pay tribute to the commitment of other Committee members. The hon. Member for Gainsborough said that they did not have an easy role, and a relative novice, my hon. Friend Jon Cruddas, said that the sheer scale of the work was staggering. When I served on a Select Committee, I used to collect my papers from the Select Committee pigeonholes in the Members Lobby. The envelopes in the PAC boxes were always bigger and fatter than those for other Select Committees. Those pigeonholes were always full, whereas ours were more often empty.
To amplify the point, as the Minister with responsibility for Customs and Excise, I had a discussion with its new acting chairman after his first appearance before the PAC. When I asked him what struck him most about that experience, he said that that the Committee members expected of its witnesses an extraordinary knowledge of specific subject areas. Of course, PAC members generally demonstrate such expertise themselves when cross-examining witnesses. It was once said that history is a vast early warning system, and it should certainly serve as such. The PAC's collected judgments over the years stand as a historical record on which Departments can draw if they are to avoid repeating the mistakes of the past. To pick up the point made by my hon. Friend Mr. Steinberg, there may also be lessons for other Select Committees and their Chairmen.
Before I comment on the relationship between the PAC and the Treasury and respond as fully as possible to a wide range of points made in our debate, I pay tribute to the assistance that the Comptroller and Auditor General and his staff give the Committee and their support for the wider good conduct of Government. Their role as independent scrutineers of Government spending and decisions is central to the accountability of the Executive. The financial audit work by the National Audit Office and its value-for-money studies continue to make an important contribution both to efforts to improve standards of financial stewardship in Government Departments and to the effectiveness of public spending. The Treasury shares that and other interests with the PAC and the NAO. We have a responsibility to ensure that taxpayers' money is used economically, efficiently and effectively. We want public services to be delivered to a high standard, and we want Departments to manage projects professionally and learn from best practice both within Government and in the private sector.
In many ways, the PAC has had common cause with the Treasury since its inception in 1862. In its first report, which I checked when preparing for our debate, it declared:
"It will be the duty of a Department, when any unexpected expenditure shall become necessary . . . to apply to the Treasury and state in writing the reasons for such application".
The new audit liaison group, which is jointly chaired by the Comptroller and Auditor General and the permanent secretary to the Treasury, takes that co-operation into the modern age. I recently talked to the permanent secretary, Gus O'Donnell, about the new group and the way in which it worked. He is a proud economist by profession, but confessed to trepidation about its first meeting and the prospect of being bamboozled by accountancy, auditing and accountability experts. In the event, his fears were unfounded, but he said that he learns a lot at those meetings—I suspect that in some ways he treats them as part of his continuing professional development. That group is proving a successful forum for resolving audit and accountability matters of interest to the NAO, the PAC and the Treasury.
Mr Richard Bacon (South Norfolk, Conservative)
While the Minister is on the subject of little groups at the centre, will he comment on the Italian central unit that has the power to stop IT projects—and contrast that with the relative lack of power of the Office of Government Commerce?
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
I am not familiar with the finer points of the Italian system, but as a Minister with responsibility for seeing one or two major projects through the OGC process, I can say that although it may be principally designed for the guidance and scrutiny of project managers and sponsors, that process is observed in a way consistent with best practice elsewhere. Speaking as both a project sponsor and a Treasury Minister, I think that it is virtually impossible for a project given the red light by the new OGC process to secure the resources and support required for its implementation.
Mr Richard Bacon (South Norfolk, Conservative)
Does the Minister agree that the gateway review process, which I welcome as a great development, could be further strengthened by publishing gateway reviews?
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
I do not accept that suggestion. The process's principal purpose is to provide project managers and sponsors with an informed peer review. To that extent, the sharpness of criticism and degree of analysis can be protected and enhanced by the fact that review reports are not made public.
Mr Howard Flight (Arundel and South Downs, Conservative)
My understanding is that the Italian unit has the power not just to approve projects but, crucially, to stop projects in their tracks when the perception is that they are coming off the rails. PAC reports on IT going off the rails suggest that that is a necessary power. Although the OGC may have a strong influence on approving projects, it does not have a continuing monitoring role or any effective power once a project is up and running. If it were perceived that, as I fear, the National Health Service IT project is coming off the rails, the PAC would not have the power to halt it.
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
If the Italian unit has the power and role that the hon. Gentleman describes, its nature is different from that of the OGC. Judgments about relative effectiveness are more complex.
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
The contributions to this debate have been detailed, reflective and important. I want to reflect that in my answers—but I will give way again to the hon. Gentleman.
Mr Richard Bacon (South Norfolk, Conservative)
The Minister is extremely generous. He said that relative effectiveness was more difficult to judge, which is precisely why we need the oxygen and the transparency for gateway reviews. Then, irrespective of the OGC's power, more people would be able to see what had been said. The Arthur D. Little study on National Air Traffic Services was published by the Transport Select Committee—a brave decision. That report contained harsh criticisms and it did some good.
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
I shall bear the hon. Gentleman's points in mind.
The Chairman of the Public Accounts Committee, the hon. Member for Gainsborough, emphasised the Committee's concerns, shared among Members of all parties, about standards of public sector procurement and management and ensuring that the much needed extra investment now being made in public services leads to significant improvements that the public need and deserve, and which, some would argue, are long overdue. My hon. Friend the Member for Dagenham outlined his concerns about that. Mr. Allan emphasised the same point about resources being devoted to front-line operations and delivery, citing the failure of the Libra project.
The Office of Government Commerce is working hard to improve project management, and procurement arrangements and procedures, across Departments. It is worth highlighting three developments. First, a project and programme management centre of excellence has been established in each Department. Those centres are there to provide internal support and the right expertise to help more junior project managers who may require it to deliver programmes and projects.
Secondly—this will be of direct interest to the Public Accounts Committee—the accounting officer is required to confirm that major IT-enabled projects do not suffer from the common causes of failure that the Committee, the OGC and the National Audit Office have highlighted in the past. The contribution of the NAO is particularly welcome in that context.
Thirdly, proposed "big bang" projects now have greater scrutiny at an earlier stage to challenge the need for the approach and, if necessary, to ensure that more comprehensive testing takes place before operations commence. In addition, the OGC recently reinforced the gateway process, which, as I said, is based on well proven techniques and improves the chances that the projects that go through it will be successful in the long run.
Over the years, the Committee has been concerned about, and has revisited, some of the problems involved in the procurement and management of IT projects. These measures, taken with the OGC initiatives, should go some way towards tackling and dealing with the Committee's concerns.
The second major area that the hon. Member for Gainsborough discussed was the central question of how to ensure that extra spend in the public services gets to the front line. Together, the Prime Minister and the Chancellor set up the efficiency review that Sir Peter Gershon, to whom all hon. Members paid tribute, is leading within Government. The review has two principal objectives: first, to release major resources to the front line; and secondly, to reduce the bureaucracy faced by those on the front line.
In tackling the general point made by the hon. Member for Arundel and South Downs, I shall be specific about some of the changes that are being considered and what will flow from the review. First, Sir Peter Gershon is targeting procurement, building firmly on the work that he has already undertaken in the OGC. Secondly, he is concentrating on back-office functions, looking at the scope for serious and radical rationalisation. Thirdly, he is considering transactional services in terms of the degree to which better use of IT, perhaps to collect tax or to pay out benefits, can improve the efficiency of services. He is also ensuring that we focus not only on provision of access, but on take-up—an issue about which the hon. Member for Sheffield, Hallam expressed concern.
Fourthly, Sir Peter is considering the funding and regulation of devolved services—for instance, the inspection and regulation regimes in schools and hospitals. Fifthly, he is considering the funding and regulation of the private sector and the way in which that may, in some cases, be subsidised. Sixthly and finally, he is considering the question of productive time—for instance, how form-filling, bureaucracy and reporting can be reduced.
The conclusions on the work of the efficiency review and the requirements that it places on Departments will be published as part of the spending review. The hon. Member for South Norfolk referred to the traction, as he put it, that can sometimes be achieved by such disciplines when they are linked to the spending review. I hope that I have given him some confidence by making it clear that Sir Peter Gershon's work on the efficiency review is an integral part of the current spending review round.
The spending review will focus especially on increasing devolution to the front line, thereby enabling public service providers to respond more flexibly to local needs. Sir Peter's efficiency review is complemented by the independent review of public sector relocation, which Sir Michael Lyons is leading. The potential benefits of public sector relocation out of London and the south-east include not only cost savings to Departments through improved recruitment, retention and lower labour and accommodation costs, but better service delivery to the public whom they are there to serve.
Let me consider the speech of my hon. Friend the Member for City of Durham. I must say that my hon. Friends do not often quote Bernard Dineen favourably and approvingly.
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
That is news indeed.
My hon. Friend the Member for City of Durham reminded us of the PAC hearing on
Let me consider the contribution of the hon. Member for Sheffield, Hallam. I welcome the fact that he has joined the PAC, fresh from the Information Committee. All hon. Members and our staff have cause to thank him for his work in revamping the IT support system for hon. Members. His experience of and interest in IT were a hallmark of his contribution this afternoon. He will bring that to the PAC's proceedings.
The hon. Gentleman is right to say that the challenge of gathering sufficient evidence and data to evaluate with confidence the effectiveness of call centre operations and web-based services remains unmet. He focused especially on risk in private finance initiative information technology. He argued that it is ultimately impossible to transfer risk fully out of the public sector in IT projects. That is a valid observation and criticism, and it is one of the reasons why the Government confirmed in the summer that the PFI will no longer be used in IT. One could argue that the fast pace of change and the high level of integration of any IT system in the mainstream core business of a Department mean that it is difficult to move the risk out of the public sector and into the private sector.
Our revamped approach to PFI also included individually procured small projects, where the transaction costs and procurement time perhaps outweigh the benefits. Instead, we will establish appropriate minimum threshold values. We are introducing reforms because we, like the Committee, want PFI to be used only when it can offer the taxpayer value for money.
My hon. Friend Jon Trickett explained vividly how all Members from all parties share a hatred of waste, as he put it, whatever their belief in the proper role and scale of the state. I was particularly interested in his points about the Public Accounts Committee's unique powers and the unique support that it has in the National Audit Office. The points that he makes about the possible lessons for other Select Committees in that regard are, of course, ultimately a matter for Parliament, but I will make sure that my right hon. Friend the Leader of the House is aware of the points that he made.
My hon. Friend was concerned, too, about the question of penalising contractors and contractor failures. The Office of Government Commerce maintains what could be described as contact at a high level with all the main suppliers of central Government contracts. It does not, however, keep detailed information about each contract, which is properly a matter for the Department responsible. We need to bear in mind that problems with individual contracts are not always the fault of the contractor. As PAC report after PAC report has also pointed out, in some cases the initial project specifications and management could be improved, which could reduce the risk of failure.
My hon. Friend was also concerned about competition for contracts and the excessive cost of tendering. Those are valid points. As he recognised, Government are aware of those issues and are trying to make improvements by simplifying the tender processes, especially for PFIs. If he wishes me to do so, I will write to him about increasing the opportunities for small and medium-sized firms to tender.
The hon. Member for South Norfolk made four principal points and arguments. The first related to fraud, to which I will return later. The second was on professional fees. He will know that the publication produced by the Treasury in July last year, "PFI: meeting the investment challenge", includes measures to reduce the costs of consultancy fees.
The third area to which the hon. Gentleman referred was risk management. He mentioned the visit that he and other members of the Committee had paid to Heathrow recently to see how Customs and Excise implements risk management at the airport in practice. As the Minister responsible for that department, I am glad that it has been able to assist the Committee in that way. The steps that have been taken at the centre, however, are worth pointing out. In 2003, we strengthened the disclosure requirements for accounting officers to sign statements on internal control, confirming that they have discussed their review of risk management with their board and their audit committee. We have also issued guidance for those audit committees, building on the Higgs and Smith reviews for the private sector. I can confirm to the House that the NAO is currently working closely with Treasury officials on a study of risk management within Departments, and that risk management and statements on internal controls will, as the hon. Gentleman asked, be tied into the current spending review process.
The fourth major area on which the hon. Gentleman touched was cost overruns and the question of optimism by us. As for cost escalation, I am sure that all Members would accept, as one or two have pointed out, that sometimes this reflects unrealistically low initial estimates rather than unjustified cost increases. The Mott MacDonald work is an attempt to quantify that optimism by us. It is not a fudge to make projects more viable; it is not a fiddle to produce a set of comparators that will give the result that people wish. It is a sensible way of trying to make estimates more reliable, to reduce the risk of subsequent cost escalation. The hon. Gentleman at least describes that as a laudable project. There may well be scope to refine the process still further, but it is a serious attempt to tackle a serious problem, and I encourage him not to impugn the motives of those involved in trying to do so.
My hon. Friend the Member for Dagenham set out a clear and convincing case about the important and proper role for PFI. Investment under PFI currently represents between 10 and 15 per cent. of total investment in public services. It is important that we get it right because, as he argued, it has an important role to play. If he has not seen it, I refer him to the Treasury report that I mentioned earlier, "PFI: meeting the investment challenge", which was published in July last year. The report includes specific steps to reform the investment appraisal process, which he is concerned about, to ensure that there is no inherent bias in favour of one procurement option over another. Crucially, the assessment must also be made at the earliest practical stage—when the overall decisions are made—to ensure that there is maximum flexibility to pursue other options if they offer better value.
I am glad to say that although the Committee is ready to criticise where it considers it due, it is also willing to give credit where it is due. The 35th report on PFI in the construction service recognises that there is greater certainty on timing and cost through the delivery of PFIs. On the 22nd report on PFI refinancing, I welcome the approval and congratulation that it offers the Office of Government Commerce in negotiating agreement with providers.
I do not go along with the recommendation by the hon. Member for Arundel and South Downs that attendance for debates such as this should be compulsory. The implication is that the Whips would conduct truancy sweeps during the course of proceedings, which I am not keen on. His contribution from the Front Bench was reflective and non-partisan in precisely the same way as other hon. Members' contributions to this afternoon's debate were, and I applaud him for that. He correctly identified the fact that how the public sector can become more efficient is a central issue for our times.
I am running out of time, and I apologise for that—time has overtaken me more rapidly than I thought it would. The debate shows that the PAC, backed by the NAO, continues to provide a highly effective continual challenge to the Executive, which is essential to the proper conduct of government and parliamentary democracy. It continues to provide evidence and cross-examination for those on both sides of this House and beyond who are actively concerned about the effective conduct of government, and it also continues to provide sleepless nights for departmental accounting officers. In that respect, this year's 54 reports, and this debate, continue the PAC's proud and professional tradition, which now stretches back nearly one and a half centuries.
Question put and agreed to.
That this House takes note of the 64th to 68th Reports of the Committee of Public Accounts of Session 2001–02 and the 1st to 49th Reports of the Committee of Public Accounts of Session 2002–03, and of the Treasury Minutes and the Northern Ireland Department of Finance and Personnel Memorandum on these Reports (Cm 5728, 5770, 5789, 5801, 5802, 5823, 5849, 5953, 5961, 5962, 5963, 5984, 6016, 6051, 6105, 6110).