Orders of the Day — Committee of Public Accounts (Reports)

Part of the debate – in the House of Commons at 12:00 am on 5 December 1968.

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Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames 12:00, 5 December 1968

I beg to move, That this House takes note of the First, Second and Third Reports from the Committee of Public Accounts in the last Session of Parliament and of the Treasury Minute dated 4th November, 1968 on those Reports (Command Paper No. 3818). I understand that the views of the Government on this debate will be given towards its end by the Chief Secretary, whom I should like to take the opportunity of congratulating on his, in my view very belated, promotion to the Cabinet. As the Chief Secretary is the Minister charged with what some of us know to be the peculiarly difficult job of dealing with public expenditure, it may be appropriate if I begin by indicating what it seems to me at any rate is the relationship between the work of the Public Accounts Committee and the great problems of public expenditure.

The House has often heard the quotation from Sir Winston Churchill, "Expenditure is the result of policy". Of course, the Public Accounts Committee is not concerned with policy. It is concerned with the adequacy of systems of financial control and with the avoidance of waste and inefficiency in the public service, and it conducts what is sometimes described as a kind of efficiency audit. It is not concerned with the major questions of policy which determine the major increases or decreases in expenditure.

Nevertheless, as the Reports before the House show, during the course of our investigations this year we have dealt with a number of items some of which involved by any standards very substantial figures of public expenditure. There are two items involving sums in excess of £30 million and one, as the Chief Secretary knows, in which the sum involved is certainly in excess of £100 million. Therefore, although our efforts have sometimes been described in Gladstone's phrase, as "the pursuit of candle ends", they are sometimes substantial candle ends.

The effectiveness of the Committee's work is largely dependent on two things. The first is that it operates, as my colleagues will agree, completely and wholly on non-party and non-partisan lines. The second is that it has the inestimable advantage, unique among the Select Committees of the House, of being served by a complete Department, the Exchequer and Audit Department.

I pay my tribute to the staff of that Department, who, throughout the year, with great devotion to duty, are engaged in detailed and close investigation inside and outside the Departments of State. I acknowledge publicly that we have the very greatest advantage in having in the Comptroller and Auditor General one of the most distinguished public servants of the generation.

I want to make this point, too, because it has some relevance to what was passing in the House a few minutes ago. I suggest from our experience on the Public Accounts Committee that it is very largely a waste of time for anybody to set up numbers of Select Committees unless adequate staffs are provided for them. Our experience on the Public Accounts Committee is that we could not hope to tackle the mass of material which has to be investigated, if Government expenditure Is to be surveyed in this way, unless we were served throughout the year by an effective Department of State. What I have just said has a good deal of relevance to the point made a few minutes ago in a question to the Leader of the House by my hon. Friend the Member for Guildford (Mr. David Howell).

Since the Report in question was submitted, the former Clerk of the Committee, Dr. Eric Taylor, has been transferred to other duties. I know that I express the views of all my colleagues when I say how grateful we are to him for his devoted services over a number of years. Equally, I am sure that I carry my colleagues with me in welcoming his very able successor, Mr. C. J. Boulton.

I must acknowledge, too, the help of the Treasury. I am glad that the Chief Secretary is here. The Committee works very closely with the Treasury. We had the advantage of a Treasury officer of accounts attending the Committee in the person of Mr. A. J. Platt, who, until last summer, when he left the public service, did a great deal of work with the Committee, for the Committee, and for the country, in that capacity. He has a most able successor in Mr. Phelps. I want, through the Chief Secretary, to express our gratitude to the Treasury.

There are about 30 items dealt with in our Report. I should be convicted of repetition which would be intensely tedious, not only for the House, but even for myself, if I were to attempt to deal with all of them. The Motion relates in form to our First, Second, and Third Reports. The Second Report is largely a formality dealing with the exercise of the powers of virement. I am glad to say that it is my understanding that this wholly obsolete procedure is on the way out.

The First Report deals with matters of slightly more substance in respect of excess Votes. There is, indeed, quite an important issue which I hope that the Chief Secretary has studied, as to estimates of purchasing by the Army Department in the United States and the Department's conduct of these. I shall not weary the House with this.

I go straight to the Third Report, from which I shall simply select a number of items to which I would invite the attention of the House and on which I seek the reply of the Chief Secretary, conscious of the fact that I must inevitably leave a good many very important topics unmentioned, though no doubt they will be mentioned in the debate.

The Report itself is, I think, in sheer bulk, when taken with the evidence attached, the largest for a number of years. My colleagues and I asked in all 5,119 questions in pursuit of our inquiries. The Stationery Office, with its very nice capacity for putting a price on everything, sells the volume at the rather interesting figure of £3 16s.

Turning to the first of the topics, I will go straight to what was in many ways, as I think all members of my Committee will agree, the most difficult of them all. This is the matter dealt with at the beginning of our Report, of the losses to the Inland Revenue arising from false claims in respect of Income Tax allowances for dependants, mainly for children, by certain categories of immigrants to this country.

The history of the matter, as appears from our Report, is briefly this. In 1966, the Inland Revenue instituted a test check in 20 tax districts about such claims from immigrants from India and Pakistan. A sample investigation, which proved very laborious and difficult, was undertaken, which disclosed that out of a total of 638 such claims for Income Tax allowances for dependants, 332 had either to be disallowed or put on to further investigation, possibly with a view to prosecution. This is a percentage of 52.

The conclusions to be drawn from a sample even of this magnitude must obviously be tentative, but the Inland Revenue, in its evidence to us, put forward as a tenative conclusion based upon this sample that, applying this proportion to the total of immigrants from the two countries concerned, the money in issue amounted to an annual loss to the Revenue of between £5 million and £7 million a year and that up to 1967 it had been proceeding at that rate for four years. In other words, coming only to 1967, we are talking of a sum between £20 million and £28 million.

Equally serious, as I am sure that the House will agree in a matter of this sort, is the possible effect of a state of affairs like this on relations between the immigrants and the indigenous inhabitants of this country, because the House knows that nothing is more sensitive than these questions of taxation and any possibility of a feeling that the burden of taxation is not being fairly shared between different sections.

Therefore, both because of the size of the sum involved, or possibly involved, on the Revenue's tenative conclusion, and because of the broader social and political aspect, the Committee gave as careful study as it could to this very difficult and delicate issue. The social and political aspects appear to have been very well recognised by that great statesman, Field Marshal Ayub Khan, who happened to be in this country shortly after our Report was published and who, in his characteristically robust way, addressed a very strong appeal to his fellow countrymen on the subject.

The evidence relates to immigrants from India and Pakistan, not to other immigrants. The reason is quite easy to see. In the West Indies, for example, the former British administration left behind an extremely efficient system of registration of births, deaths and marriages. Such systems do not exist, at any rate with the same measure of efficiency, or—I am sorry to say—integrity—in the Asian Commonwealth, largely because of the fact, as the House will appreciate, that the numbers involved are immeasurably greater and the administrative problems, therefore, plainly enormously more complex. The problem is, therefore, one related to those countries.

I do not think that I can do better than indicate this difficulty by asking the House to allow me to read paragraph 3 of our Report: The Department" — that is, the Inland Revenue— informed Your Committee that the verifications, either through the High Commissioners or direct, of the documentary evidence had had disquieting results. There were false certificates; genuine certificates falsely attested; affidavits which, while properly attested, included details which appeared to relate to other children; and genuine certificates, prepared by the appropriate officials, which proved to be inaccurate. One of the difficulties was the primitive nature of the registration system, the right to give birth certificates being widely diffused down to minor village officials". In evidence before us the Inland Revenue made it clear that, on the basis of the present law, it was not able to tackle this problem in the immediate future, or perhaps for many years, without an expenditure of manpower and effort which would have been wholly disproportionate.

The Committee, therefore, although we were divided—I think that this is the only point on which we were divided—as to the precise form of action which we should recommend to the Government, was unanimous in the view that the Government should give urgent consideration to the matter, for the reasons which I have stated. I hope that the right hon. Gentleman will, in the light of our view, have something to say on the point. The division of opinion was between those members of the Committee who felt that the responsibility should be placed firmly on the Government, without our recommending any specific action, and those—a minority of members—who took the view that, possibly, a remedy lay, and should be considered by the Government, in a withdrawal of dependants' allowances in respect of children not domiciled in this country. This would, in fact, follow what has for many years been the rule in respect of family allowances.

As Chairman, I took no part in the making of that decision since, mercifully, the only vote which I have is a casting vote and that was not called for. But I thought it fair to both points of view to put the matter before the House. As the Committee was unanimous in asking the Government to give urgent consideration to the matter, I hope that this will be done. I appreciate that, as taxation matters are involved, a precise answer from the Chief Secretary would, I suppose, indicate that he was not himself. However, I hope that he will give some indication of the Government's view on this important issue.

As usual, the Committee had to deal with a number of matters related to defence expenditure. Perhaps the most conspicuous was one not mentioned in the Comptroller and Auditor General's Report, but picked up from the Navy Accounts by members of the Committee, namely, the question of the aircraft carrier "Ark Royal". It appeared in evidence that this famous ship was undergoing a refit at Devonport at an estimated final cost of £30 million—a figure considerably larger than her original cost—and that, on conclusion of this refit, in 1970, she was to be given an operational life of two years and then be phased out. The Committee draws attention to this matter in its Report and also, in fairness, to the evidence given on behalf of the Ministry of Defence that a great deal of this expenditure was involved in the overhead costs of the dockyard.

This brings me to another aspect of the matter to which the Committee referred in a previous Report. Last year, the Committee drew attention to the fact that frigates were being built in the Royal dockyards at a cost of roughly £1 million each in excess of the cost of frigates put out to contract. Then, as on this occasion, evidence was given to the desirability of providing sufficient work for the Royal Dockyards. The House and the Government must face the fact that the modest sized navy of today hardly needs as many Royal dockyards as were required to service the massive fleet with which we entered the war in 1939.

In those days, as the House recalls, there were about 15 capital ships, 50 or 60 cruisers, and comparable numbers of smaller craft—a totally different scale of naval effort that that which, for better or worse, is provided today. There is at least a question—it is particularly appropriate for the Chief Secretary to the Treasury—whether, in these circumstances, the same number of dockyards is required.

The next matter on the defence side, though of infinitely less significance in financial terms, conveys an element of warning. It arises from an issue which aroused a certain amount of rather derisory publicity at the time of publication of our Report. I refer to Army boots. This is an example of what can happen if there is any let-up in strict financial supervision of ordering by a Government department.

The facts are simple. A few years ago, the Army Department evolved a form of Army boot which, on all the evidence, is infinitely superior to that with which some hon. Members were painfully acquainted some years ago. However, despite the proposal to introduce it, the old type continued to be ordered, with the unhappy consequence that, although in 1965–66 issue of the new boot had been made to all Regular units, there were nearly 1 million pairs of the old boot in stock, and, to make matters worse, the stocks were badly balanced in the sense that there were far too many small boots and far too few large.

We had serious evidence to the effect that the soldier's foot has grown over the years, and evidence, also that the Army Department had not observed this fairly gradual medical phenomenon, with the result that by merely ordering again on the basis of previous orders it had amassed a stock which was not only far too big, but was badly balanced. Indeed, had the use of the old boot been continued, it would have been necessary to order in the larger sizes a considerable number more even though there were 1 million in stock.

That is a good example, though the sums involved are not large, of failure by a Government Department to follow changing circumstances and to secure that those ordering supplies on behalf of the Department are aware of such changes. To put it in the context of a literary allusion, there was published not long ago a book called, "At the Feet of the Young Men", but, somewhat unfortunately, the Army Department had not realised that they were getting bigger.

I turn now to another defence matter. There are paragraphs in the Report dealing with the sale of land at Woolwich Arsenal to the Greater London Council. No one disputes the merits of the decision, which will give, I believe, considerable relief to housing problems in London. Nevertheless, in view of the magnitude of the sale, the business seems to have been conducted in an extraordinarily amateurish fashion. Anyone who sold his own back garden by the same methods as those adopted by the Ministry of Defence to sell land valued even some years ago at £6½ million would be subject to considerable criticism on grounds of negligence.

All those who have read our Report will know that even in a transaction of this magnitude there was no firm written agreement undertaking that the land would be taken at any particular time or be paid for at any particular time. As a result of changing developments, including restrictions on building, the Greater London Council required less land, and, less early, than had been expected. The Army Department had no firm contractual rights to enforce. As a result, the Exchequer lost the interest on a substantial sum of money for some years and suffered further loss on a sale of land years after it had been contemplated and at a price, no doubt, appropriate years ago although, obviously, with rising prices, less adequate now.

I hope that the right hon. Gentleman will be able to tell us that, in dealing with public assets of that kind, the Treasury has secured that the same rather cheerful but distinctly amateur approach will not be adopted again.

The matter goes even further. At a time when there was no certainty that the G.L.C. could be compelled to take up the land, the Ministry of Defence went straight ahead and spent £3 million on building elsewhere facilities to replace those being lost on the land which it was proposed to give up. I make no criticism of the general concept of the transaction, which was sensible. I am directing attention to the manner in which it was conducted and the lack of the normal safeguards which any hon. Member would himself adopt in dealing with his own property, even though for most of us that property is likely to be of considerably less value.

Inevitably, aircraft figured conspicuously in our dealings with witnesses. The biggest financial issue in the Report, the purchase of American aircraft, is dealt with in paragraphs 53 to 62. Leaving out the 50 F111s, which were subsequently cancelled and, therefore, do not come into the picture, the transaction which we reviewed concerned the purchase of 170 Phantoms and 66 Hercules transport aircraft at the not inconsiderable price of £610 million. There is a very clear lesson to be gathered from these two transactions taken together. That is—I express no opinion on the merits of it—that would not be appropriate on this occasion—that if a decision is taken to purchase foreign aircraft for the Royal Air Force it is enormously more economical to buy the aircraft "off-the-peg" and to take it as it is produced for and by the manufacturing country than to buy it and make substantial modifications in it.

On the evidence before us, the Hercules transport aircraft, although there had to be some minor modifications, I understand, in the navigational apparatus, was bought for the Royal Air Force at substantially the same price as the American Air Force pays for it. For that and other reasons, we made no criticism of the transaction.

In respect of the Phantom, however, the position was very different. In the first place, a decision was taken to incorporate a good deal of equipment which was required on operational grounds for the Royal Air Force planes which differed from that required for the American aircraft. Secondly, a decision was taken that some of the aircraft which were bought for this country should be equipped with Rolls Royce engines. This involved substantial research and development costing, we were told, about £100 million, and the incorporation of a new engine inevitably involved substantial and expensive modifications to the airframe. As a result, the cost escalated substantially.

I would like to read one or two passages from our Report, first, from paragraph 57: Your Committee were informed that the production cost of the United Kingdom versions of the Phantom is about 50 per cent. more than it would have cost to purchase the U.S. version, and that if the development costs amounting to some £100 million are taken Imo account the unit cost of the 170 United Kingdom Phantom aircraft ordered becomes nearly double that of the U.S. version. In paragraph 58, we say: When the increased estimates for developing and producing the aircraft incorporating the Spey engine"— that is, the Rolls Royce engine— and other United Kingdom requirements were reviewed in the summer of 1965 the Navy and Air Departments both stated that in view of its high cast they would be prepared to accept the U.S. Phantom with the American engine which by that time had been improved. It was decked, however, to go ahead with incorporation of the Spey engine in view of its superior performance, its potential for further development and the technological and industrial advantages to be gained. And in paragraph 59 Your Committee have no wish to question the decision to continue with the Spey-engined Phantom in spite of the large increase in unit cost, but they regret that the earlier decisions, and in particular that made in 1965, to purchase the United Kingdom versions should have had to be made on the basis of totally unreliable estimates and before the costed technical programme for the engine was received There appear, therefore, to be two clear lessons from this very unhappy affair. One, which I have ventured to put, is that if one buys a foreign aircraft, one should accept its limitations as well as its qualities and buy the aircraft substantially as it stands. Secondly—this is a matter which the House has discussed before and may well consider again—it is unfortunate when Ministers are placed in the position of having to take decisions involving large expenditures on the basis of estimates which, in the event, turn out to be completely inadequate.

Compared with the expensive questions of the Phantom, the question of the Basset aircraft is a relatively light relief. None the less, your Committee was very critical of a decision to impose upon the Royal Air Force—which, we were told, would have been perfectly happy to continue to use the Devon as a communica- tions aircraft—the Basset aircraft, a militarised version of the Beagle.

In the event, as our Report brings out, once military equipment was put on board the Basset turned out to be incapable of meeting the specifications. Indeed, to meet the specifications and put the Royal Air Force load on board, under certain conditions of temperature its effective range was nil. It seems a pity that this money should have been spent on the development of this aircraft when the Royal Air Force was satisfied with the Devon.

Perhaps the only redeeming feature of the whole matter is the question of nomenclature. Those familiar with Beagles and Bassets, know that as compared with the Beagle the Basset is slower, heavier and feels the heat, and it seems to me that there must have been a humorist with canine knowledge in one or other of the Departments at the relevant time.

We dealt also with the provision of married quarters for officers. The Minister of Defence is now in a wholly illogical position. It still insists on the provision of these quarters being in accordance with rank rather than family responsibilities everywhere except in London, where, I have no doubt, the Chief Secretary could tell us—although he will not—as the result of pressure from the Treasury. the Department has accepted that family responsibilities should play a more important part.

The Committee fully accepted that in the case of commanding officers of units, there are obviously special circumstances which require them to be adequately and appropriately housed. But we criticised strongly in our Report a system under which a childless major has to be provided with quarters including four bedrooms whereas a more philoprogenitive captain has considerably less accommodation at his disposal.

I hope that the Chief Secretary will be able to tell the House that with all proper regard for military tradition, and with complete regard for the special position of commanding officers, none the less a more sensible attitude in the second half of the 20th century will be adopted by the Ministry of Defence in this respect.

The only other item in our Report to which I desire to refer is the evidence, which appears at pages 26 to 46, of a laxity in financial control by the Department of Education for Scotland. I have no doubt that the Treasury must have been as concerned as was the Committee at the state of affairs which was revealed.

Briefly, grants were being paid to the managers of schools for buildings, works, and so on, without taking proper steps to ascertain whether payments needed to be made. The money was paid over and in many cases invested, substantial balances being held by some of the schools. On the evidence, the Department, so far from trying to keep any check on the money or to secure that interest was obtained on the balances, was, on the contrary, particulary towards the end of the financial year, urging the managers to take additional payments. Although the sums involved are not large, I am bound to add the personal opinion that, with some experience of Whitehall, I have never seen a similar attitude towards the handling of public funds adopted by any other Department as that which on its own evidence, was shown by the Scottish Education Department in respect of this matter.

Inevitably, I have had to leave out, or I would have wearied the House, a good many other of the important issues which the Committee discussed. We report in substance on 30 matters ranging in financial importance from sums in excess of £100 million down to sums directly involving small amounts, but often involving important questions of principle and control.

This is the occasion on which it is our duty to report these matters to the House, to ask the House to consider whether this is the way it wishes the business of the Committee to be conducted, and to seek from the Government some indication of their views on these matters.