Public Service Agencies' Accounts: Scrutiny

Orders of the Day — Government Resources and Accounts Bill – in the House of Commons at 10:45 pm on 29th February 2000.

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'.—(1) This section applies to any public service agency of the sort described in subsection (11), unless otherwise provided—

  1. (a) by any order made under subsection (8), or
  2. (b) in any enactment passed after this section comes into force.

(2) On the prescribed date for each public service agency to which this section applies subsections (3) to (6) shall apply to that agency.

(3) Every public service agency shall prepare accounts in respect of each financial year and shall send them to the Comptroller and Auditor General.

(4) The Comptroller and Auditor General shall examine accounts sent to him under this section with a view to satisfying himself

  1. (a) that the accounts present a true and fair view, and
  2. (b) that any public money provided to the agency has been expended for the purposes intended by the body by which the money was paid.

(5) Where the Comptroller and Auditor General has conducted an examination of accounts under subsection (4) he shall—

  1. (a) certify them and issue a report,
  2. (b) send the certified accounts and the report to the Treasury, and
  3. (c) if he is not satisfied of the matters set out in subsection (4)(a) and (b), he shall report to the House of Commons.

(6) The Treasury shall lay accounts and reports received under subsection (5)(b) before the House of Commons.

(7) Subsections (3) to (6) do not apply to any body to the extent (but only to the extent) that any of its accounts are or become subject to audit—

  1. (i) by the Auditor General for Scotland, or
  2. (ii) by the Auditor General for Wales.

(8) The appropriate Minister may by order designate a public service agency as one in relation to which this section does not apply for so long as the designation remains in force.

(9) An order under subsection (8) shall be made by statutory instrument, and shall not be made unless a draft of the instrument has been laid before and approved by resolution of the House of Commons.

(10) "Appropriate Minister" means, as regards any public service agency to which a designation relates ("the designated agency"), a minister in the department responsible for that agency.

(11) "Public service agency" means a body—

  1. (a) which is not a government department or comprised within a government department,
  2. (b) which exercises public functions of a governmental nature which might otherwise fall to be exercised by central government, and
  3. (c) as respects which an accounting officer has been designated,
but does not include a public service agency which is a company registered under the Companies Act 1985.

(12) In this section "prescribed date" means, as regards each public service agency, the first day of the first full financial year of that agency commencing after the expiry of the term of appointment of the person who is the auditor of the agency when this section comes into force!.—[Mr. David Davis.]

Brought up, and read the First time.

Mr. Deputy Speaker:

With this, it will be convenient to discuss Government amendments Nos. 32 and 33.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

New clause 2 deals with the audit of executive non-departmental public bodies. I am sorry to inflict such an ungainly phrase on the House, but it is a term of art in government; it means quangos. It has no statutory definition, and that is why the term does not appear in the new clause. Its practical definition is contained in the annual Cabinet Office publication, "Public Bodies"—

Mr. Deputy Speaker:

Order. Would hon. Members who do not intend to participate in or listen to the debate please leave the Chamber and allow us to hear the hon. Gentleman who is addressing the House?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

Thank you, Mr. Deputy Speaker. The practical definition in "Public Bodies" is: The set of bodies which exercise public functions of a governmental nature which might otherwise fall to be exercised by Government. They are more familiarly known as quangos. The new clause uses the definition in "Public Bodies".

Audit arrangements for executive non-departmental public bodies are arbitrary and illogical. A substantial minority are audited by auditors other than the Comptroller and Auditor General. The decision about who will audit each newly established body is made by the individual sponsoring Department when the body is established. Consequently, there is a lack of consistency in the information that is provided to Parliament, and unnecessary waste and duplication of audit effort.

That contrasts with what happens when the Government of the day choose to reorganise or create a new Department. The Exchequer and Audit Departments Act 1866 currently provides automatically for the Comptroller and Auditor General to audit the new Department. The Bill would maintain that principle.

11.15 pm

The new clause is the first step in obtaining for public bodies the same systematic audit coverage as has been in place for Departments for over 130 years. I say that it is the first step, because it does not deal with those executive non-departmental public bodies established as companies. The Companies Acts prevent the Comptroller and Auditor General from auditing a company, even where it has been established by central Government and is responsible for the stewardship of public funds. I have been advised that it would be outside the scope of the Bill to seek to amend the Companies Acts, but I shall be pursuing that matter in the context of the Government's review of companies legislation.

Leaving aside the issue of companies, I would point out that the new clause would provide a single accountability structure, appointing the Comptroller and Auditor General as auditor of all executive non-departmental public bodies already in existence and of any new bodies of this nature created in the future.

I should make it clear that I am talking about non-devolved bodies. I do not seek to reverse the clear—

Photo of Mr Gerry Bermingham Mr Gerry Bermingham Labour, St Helens South

May I ask the right hon. Gentleman, through you, Mr. Deputy Speaker, a simple question? He is an experienced Member of this House, as indeed I am. Does he need to read his speech?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

In fact, on this occasion I need to stay close to the notes, and there is a good reason for that. These amendments have been drafted by the National Audit Office, and it is important that the issues that I put before the House reflect accurately both the report that the Public Accounts Committee put to the House and the drafting. For that reason, I am staying close to the notes, just as the Minister will stay close to the notes. That is the reason, and I make no apology for it. I would not seek to comment on the motivation behind the hon. Gentleman's intervention.

I do not seek to reverse the clear decision of Parliament in placing accountability of certain bodies within the audit committees of the Scottish Parliament and the National Assembly for Wales. The new clause specifically excludes those bodies.

At this point, I should like to take the opportunity to congratulate the Government on their record to date in appointing the Comptroller and Auditor General to audit nearly all the non-executive departmental bodies that they have created—19 out of the 21 so far, I think. They have a good record, and I hope that it will continue.

The new clause would make that pattern systematic, rather than the subject of myriad individual decisions, and would deal with the legacy of existing anomalies. I have developed a new clause that I tabled in Committee specifically to address concerns that the Government expressed there. The Chief Secretary told the Public Accounts Committee that the Government would need a period of consultation before changing statutory arrangements that affected other bodies. I have allowed for that by deleting from the proposal that I tabled in Committee the provision that would have brought the new clause into effect immediately the Bill took effect. As a result, the Treasury can delay the implementation of the new clause to a time of its own choosing. That reflects the discussions that the Chief Secretary had with the Committee, because he was concerned to be able to consult and seek the opinions of Departments up and down Whitehall and of the other bodies involved.

Such a statutory approach is not only right in principle but essential in practice. The Chief Secretary gave the Committee a commitment to explore the possibility of appointing the Comptroller and Auditor General as auditor when appointments came up for renewal. Such appointment would be impossible in all but a handful of cases, because statutory provisions restrict the Comptroller and Auditor General from doing just that.

The Government now appear to have acknowledged the problem. They have tabled an amendment which allows the Treasury, if it chooses at some future date, to remove the statutory bars and provide for the Comptroller and Auditor General to be appointed as auditor. The decisions would still be in the hands of Government. My amendment seeks to establish the general principle that all such bodies, both those already established and those to be established in the future, should be audited by the Parliament's own auditor, and that these decisions should not be at the whim of Government—whether the present Government or any future Government.

My new clause also allows the Government a right of veto in regard to anyone whom they identify as not appropriate for audit by the Comptroller and Auditor General. I cannot imagine what such a body would be, but the reassurance is there for the Government. Hon. Members may ask what is the point of the new clause if it allows such a veto. The point is that it would establish in statute the principle that the CAG should be the auditor, except when the Government can show that he should not be. It reverses the burden of proof. That is why 1 prefer my new clause to the Government's proposal.

We had a useful debate in Committee until, I believe, 9.45 pm on the occasion of the final sitting. Detailed amendments covering a representative selection of individual bodies, tabled by the right hon. Member for Swansea, West (Mr. Williams) on behalf of the PAC, gave the Economic Secretary an opportunity to explain the Government's concerns by reference to specific cases. That helped to clarify my understanding, and showed me how to draft a new clause dealing with reservations that had hitherto been difficult to pin down.

In explaining why the new clause is important, I want to alert hon. Members to the large amounts of money involved, the illogicality of the present position, and the problems that have arisen in bodies not subject to audit by the CAG. I do not want to repeat what has already been said; rather, I want to develop it. I intend to summarise some facts that show why there is a point at issue, and then deal with what I now understand more fully to be the Government's concerns.

Let me deal first with the question of money. The Housing Corporation—one of the bodies about which I am talking—receives nearly £1 billion of public money every year, while English Heritage and the Environment Agency receive about £100 million each. Those are just three of the biggest spenders outside the CAG's remit; many others escape his audit. The total comes to some £3 billion a year.

Secondly, the illogicality involved means that some bodies escape. The CAG audits the Countryside Agency and English Nature, but not the Environment Agency.

He audits the British Council and the Arts Council, but not English Heritage. As we have seen, some of the exceptions are big spenders.

Thirdly, in Committee I gave examples of bodies outside the remit of the CAG, to which he was alerted by leads from whistleblowers and others. For example, events leading to the resignation of the chief executive of English Heritage following conflicts of interest were brought to Parliament's attention by the CAG. Serious failures in management by the then National Rivers Authority, including a badly managed relocation project that cost the taxpayer millions, were also thus brought to Parliament's attention. The Merseyside development corporation lost £700,000 on the grand regatta Columbus and the fanfare for a new world concert. The chief executive of the Student Loans Company—not, unfortunately, covered by my new clause, because it is a company—was cleared of malpractice by internal and departmental investigations, but was sacked following a subsequent investigation by the CAG.

Those matters were not discovered by the private and other auditors that covered the bodies concerned; they were revealed by whistleblowers and others, followed up by the CAG and, as a result, brought to the attention of Parliament. I hope that my observations convince hon. Members that the fact that some non-departmental public bodies escape audit by the CAG gives cause for serious concern.

Let me now deal with the Government's arguments about why the current uneven situation should continue to exist, and their concern, as expressed, about changing it. I shall begin by analysing explanations given in debate about specific bodies, before turning to more general concerns that have been raised.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Does my right hon. Friend agree that the Government cannot have much confidence in the arguments that they have advanced? If they did, they would accept his reversal of the burden of proof, and would be willing to demonstrate, case by case, why particular bodies should not be audited by the CAG.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

My hon. Friend is right. That was the logic behind the analysis. What I had in mind was that the Government would come to the House with an affirmative resolution procedure to demonstrate whatever good reason there was. That struck me as a perfectly good filter.

In Committee, the Economic Secretary referred to 22 specific bodies. She identified three categories into which they fell: those which no logical reason prevents the CAG from auditing; those that he "probably should not audit"—her words—because they are levy funded; and those that he should not audit because they are subject to competitive pressures.

I thank the Economic Secretary for her frankness in identifying the first category and for agreeing that, in some cases at least, there is no logical reason why the CAG does not audit certain bodies. I counted eight entries in that category, more than a third of the sample, including two large bodies that I have already mentioned: English Heritage and the Environment Agency.

Of those two, the Minister said: I cannot say why the Comptroller and Auditor General does not audit those NDPBs … We accept that there is no apparent rationale to some of the anomalies. The other bodies in the category were the Football Licensing Authority, the Gas Consumers Council, the British Hallmarking Council, the Museum of London, the Oil and Pipelines Agency and Food from Britain. It is clear that progress must be made to bring at least those eight executive non-departmental public bodies under the CAG's remit.

I turn to the second category: levy-funded bodies, which had nine entries, according to my count. Six related to agriculture and fisheries: the Meat and Livestock Commission, the Sea Fish Industry Authority, the British Potato Council, the Horticultural Development Council, the Milk Development Council and the Home-Grown Cereals Authority. The other three were the Construction Industry Training Board, the Engineering Construction Industry Training Board and the Policyholders Protection Board.

On that category, the Minister was equivocal. She said: We can debate whether it would be right to appoint the Comptroller and Auditor General as auditor of such bodies.—[Official Report, Standing Committee A, 20 January 2000; c. 288.] The hon. Member for Newbury (Mr. Rendel), who is my colleague on the PAC, took up the offer of debate. I can do no better than to quote him: A case has already been made for saying that although some bodies may he funded by levy, it is nevertheless money from the public and it is Parliament's job to decide on the amount. It is a good reason for supposing that it is also Parliament's job to ensure that that money is being properly used; how do we know at what level the levy should be set in the following year if we are not sure that the levy set in the previous year was properly used'?—[Official Report, Standing Committee A, 20 January 2000; c. 309.] That is an insuperable argument. Those who pay statutory levies have no choice about whether and how much to pay. In those cases, levies are raised not in a commercial environment, subject to competitive pressures, but under the authority of Parliament. 'The CAG audits Departments' expenditure of money that is raised under Parliament's authority through the taxation system. It is clearly appropriate for him to audit the expenditure of money raised under Parliament's authority through levy.

In any event, the CAG already audits several levy-funded bodies—the Data Protection Registrar, the Land Registry, the Pensions Compensation Board and the Trinity House Lighthouse Board—as well as the gas levy account and the industrial organisation levy account.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

Does the right hon. Gentleman understand the term "levy" to cover the television licence fee? According to his argument, should the BBC fall under the NAO's jurisdiction?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

The hon. Gentleman is ingenious in returning to the point that was ruled out of order. I recognise that in those terms. There are special considerations about maintaining the BBC's independence. The NAO has been effective at maintaining the independence of, for example, universities and academic freedom, where precisely the same pressures are involved, but he is right.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Does my right hon. Friend agree that the independence that is treasured is independence of the Executive and that the CAG is not an arm of the Executive and does not compromise independence?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

That is right. That is one of the reasons. The CAG is in a peculiar position. He is incapable of being dismissed by the Executive because he is appointed, effectively, by the PAC Chairman, in conjunction with the Prime Minister. He is funded separately. All the protections that he has mean that he cannot be influenced by the Executive. As such, he is appropriate to do the job that the hon. Member for Kingston and Surbiton (Mr. Davey) suggested.

11.30 pm

The House may have noted that many of the bodies that I mentioned were Ministry of Agriculture bodies. Recently, we had in front of the PAC Richard Packer, who was having his valedictory meeting with us. We asked him whether he thought that the National Audit Office should audit all of those agricultural bodies. He not only thought that there was no argument whatever against doing so, but was entirely in favour of them being audited.

I started my comments on this category by saying that the Economic Secretary was equivocal about whether the Comptroller and Auditor General should audit levy-funded bodies. I hope that she, or at least the Financial Secretary, has now heard enough evidence to conclude that, without doubt, the Comptroller and Auditor General should audit them. Those further nine executive non-departmental bodies must be brought under the Comptroller and Auditor General's remit.

The Minister's third category comprised bodies that operate in a competitive or commercial environment. She identified five bodies in the category: Remploy, the Student Loans Company, the Housing Corporation, housing action trusts and English Partnerships. The first two were not the subject of tabled amendments, because they are companies and, therefore, are excluded. However, it was helpful for the Minister to mention them, as it enabled us to debate more thoroughly the Government's concerns about the third category.

The Minister stated that the first two bodies operate "in a competitive environment". My hon. Friend the Member for West Dorset (Mr. Letwin) challenged the idea that those two bodies were subject to competitive pressures in the sense that most of us understand them. The Student Loans Company has the characteristics of a monopoly, being organised in such a way that it is the only body in England that is able to offer subsidised loans to students. Remploy would not be sustained by public money if its market niche was well occupied by competitors. Therefore, it, too, must be close to being a monopoly.

The arguments about the absence of true competitive pressure apply also to the other bodies that the Minister placed in the third category. To be fair to her, she did not claim competition in relation to them, referring to the Housing Corporation simply as "a commercially focused organisation" and to English Partnerships as operating "in a commercial environment".

Those bodies are not normal commercial organisations that are subject to regulation by the demands of a competitive market, and the Minister, to be fair to her, did not claim that they were.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Is not my right hon. Friend slightly understating the case on the Housing Corporation? Is it not true that no aspect of its activities bears the remotest resemblance to anything commercial, as it is essentially a regulatory body for housing associations?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

It is more than regulatory, as it handles quite a lot of funds, too, but I am trying not to overstate the case. To make the point rather more directly, all those bodies are public bodies delivering against a serious public social policy objective and using public funds to do so.

Why is it not only appropriate but essential for the Comptroller and Auditor General to audit those bodies?

Photo of Charles Wardle Charles Wardle Conservative, Bexhill and Battle

I have been listening carefully to my right hon. Friend's comments. He has been talking very persuasively about extending the CAG's audit responsibilities, but, these days, does not the CAG also have a wider responsibility in value for money assessments? Is not that role of growing importance in ensuring accountability of taxpayers' money?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

My hon. Friend, who is a colleague on the Public Accounts Committee, is exactly right. To put it crudely, the audit function very often serves as an intelligence-gathering function in much of the value for money work that is done, and also carries with it a function that commercial auditors often do not test: the function of regularity, which is concerned with the proper expenditure of public money. The function deals not only with whether the sums add up and money is not stolen, but with whether the money is spent on the right things.

That brings me to why it is essential for the Comptroller and Auditor General to audit those bodies. If a body is funded by money provided by Parliament to deliver on behalf of a sponsoring Department public policies approved by Parliament, the question of regularity comes to the fore. If the money has been used other than to pursue the policy objectives laid down for it, its use is irregular. Regularity is an issue on which the CAG frequently reports to Parliament, but it is a concern with which commercial auditors are less familiar.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

The right hon. Gentleman is dealing with a serious new clause at 11.35 pm. It should have been properly debated earlier. We have spent six hours playing around in the Chamber on nonsense amendments that did not mean anything. Is it not incredible that Parliament has been abused in this way—

Mr. Deputy Speaker:

Order. The hon. Gentleman is an experienced Member of Parliament. He knows that we do not play around with amendments that mean nothing.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

I have a great deal of respect for the hon. Gentleman. I am glad that he recognises that the new clause deals with a serious matter. Unfortunately, I do not choose the time at which my amendments are called. I hope that all hon. Members recognise how serious the issue is. I agree with at least that point that the hon. Gentleman made.

The CAG reports regularly to Parliament on regularity, but commercial auditors are less familiar with the issue. In some cases, they are entirely unfamiliar with it. We have some examples of that. The examples that I quoted earlier of the serious failures in bodies not audited by the CAG included the Housing Corporation and the Student Loans Company. It is clear that those bodies need to be subject to his audit.

The Minister suggested that the Comptroller and Auditor General might not audit bodies operating in a commercial environment as well as auditors who deal regularly with commercial organisations.—[Official Report, Standing Committee A, 20 January 2000; c. 289.] Leaving aside the fact that the bodies in question do not operate in a commercial environment in the way in which one would normally interpret the expression, the contention that the CAG is not competent to audit them has no substance in fact. As the hon. Member for Newbury put it:

there is little argument to suggest that some special expertise is hidden away in the private sector that is not available to the Comptroller and Auditor General.—[Official Report, Standing Committee A, 20 January 2000; c. 310.] There are three reasons for that. First, the Comptroller and Auditor General is free to use private sector auditors with specialist expertise if necessary, and he does. Secondly, his staff have undergone the same training process and earned the same qualifications as those in the private sector. Indeed, some of the senior staff are drawn from partners in the major firms. Thirdly, the evidence that we have seen in the PAC shows that private sector auditors are not invulnerable. In some cases, fraud or impropriety have come to light only when the Comptroller and Auditor General has become involved. The examples that I gave earlier show that. I hope that the Minister accepts that the bodies placed in the third quasi-commercial category must be audited by the CAG and that he is perfectly capable of doing that job.

There are good reasons why the Comptroller and Auditor General should audit bodies that fall within each of the categories. I should like to deal briefly, given the time, with four further matters that the Minister raised in Committee. She said: We do not have a one-size-fits-all policy—[Official Report, Standing Committee A, 20 January 2000; c. 288.] and later added, confusingly:

The Government do not view it as sensible to tackle the issue piecemeal.—[Official Report, Standing Committee A, 20 January 2000; c. 300.] I think that I understand what the Minister meant and I have developed my new clause in a way that I believe is consistent with her wishes. It is manifestly not piecemeal. It defines a consistent structure under which the CAG would audit every executive non-departmental public body, just as he audits every Department. In recognition of the Minister's concerns, I have included a veto clause that would allow the Government, by order, to specify any body to which they believed that the standard arrangement should not apply. That allows for the possibility of appointing an auditor other than the CAG if the Government identify that such an alternative would be appropriate. The veto addresses the one-size-fits-all issue.

Secondly, the Minister may have given the impression that she considered that an appropriate alternative to appointing the CAG by statute might be for him to bid for audits put out to tender. That would not be ideal. The CAG's audit should not be allowed only where the price is right or at the whim of the Departments and bodies that should be subject to scrutiny. The CAG must audit on behalf of Parliament by statutory right.

Thirdly, the Minister pointed out in the context of one body that there is already an auditor, who has been appointed for five years.— [Official Report, Standing Committee A, 20 January 2000; c. 299.] I accept that that circumstance probably applies in respect of a number of other bodies, although with differing numbers of years of appointment remaining. I developed the new clause to allow appointed auditors currently serving to complete their full terms, so no damages or costs would be incurred in that respect, and the CAG could take over after that. I hope that the Minister accepts that there is no longer an issue here in respect of my revised new clause.

Photo of Mr Jonathan Sayeed Mr Jonathan Sayeed Conservative, Mid Bedfordshire

My right hon. Friend will be aware that one of the dodges used by companies that perpetrate fraud is to change their auditors quite frequently. Is it not important, therefore, that there is consistency of audit? The CAG would provide that consistency.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

My hon. Friend is entirely right. However, I do not think that it has been a problem in the public sector. More of a problem has been the varying standard of audit and sometimes too cheap an audit, as occurred in respect of further education colleges where there was significant serial weakness of auditing, which allowed certain problems to arise. I am sure that Treasury Ministers are aware of that, as the Public Accounts Committee reported on the sector. I take my hon. Friend's point that that is a potential risk, but not one that is very material in the public sector.

Photo of Mr Tam Dalyell Mr Tam Dalyell Labour, Linlithgow

As one who has served under three Chairmen of the Public Accounts Committee, may I ask the right hon. Gentleman whether, as a fair-minded man, he thinks that at 11.40 pm any of us should be asked to take in his speech, which instinct tells us is extremely consequential and important? Would it not be better that we should at least be allowed to see it in print before making any contributions?

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

I thank the hon. Gentleman for his implicit compliment, but I have to tell him that I have no such opportunity. The Government must choose the timetable on this matter. It is only for me to present the amendments and I am seeking to make the best argument. However, the Bill was debated at length in Committee and many of my points, although not all of them, have been touched on. The debates are available in the Committee Hansard.

Photo of Mr David Rendel Mr David Rendel Liberal Democrat, Newbury

The right hon. Gentleman may wish to point out that there are now more Labour Members present in the Chamber than there were for the earlier debates. Perhaps this is a rather better time for the debate.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

The hon. Gentleman is right, but I shall not pursue his point as I am almost at the end of my speech and I do not want to be accused of filibustering.

Finally, the Minister said: if the Comptroller and Auditor General is concerned about what is happening in an NDPB, he can investigate and make a report."—[Official Report, Standing Committee A, 20 January 2000; c. 289.] He does indeed have access to all executive NDPBs by virtue of administrative agreement struck only after years of pressure from the Public Accounts Committee. However, access is a poor substitute for audit, for reasons that I touched on in answer to my hon. Friend some moments ago.

The Minister's point also begs the following question: how does the CAG know whether to be concerned if he is not the auditor? It is a matter of information flow and intelligence. Where he is not the auditor he relies on tip-offs from whistleblowers and others and that is an intrinsically haphazard method of gathering information. Surely we cannot rely for the probity of our civil service and our public service on the luck of having a whistleblower in the appropriate organisation.

The alternative is to increase the CAG's regular presence, but that is an avoidable duplication of audit, which the Minister quite properly dislikes. The reliable and best-value solution is to appoint the CAG to audit all executive NDPBs.

I conclude by expressing the hope that my explanations and clarifications, and my development of the new clause from the version tabled in Committee, will cause the Government to agree that it should be incorporated in the Bill. I should be very pleased if the Government offered to discuss my proposals further, with a view to tabling a further version in the House of Lords. However, I hope that I have dealt with all the issues that arose in Committee systematically, and that I have eradicated all of them.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset 11:45 pm, 29th February 2000

Before I try to amplify some of the points made by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), I shall respond to the point made by the hon. Member for Linlithgow (Mr. Dalyell). If he thinks that our debates about setting independent standards for the public accounts were footling, his understanding of the relationship between Parliament and the Executive is more lacking than I had thought. It is a matter of the utmost importance. [Interruption.]

Mr. Deputy Speaker:

Order. Regardless of the time, the debate will not be helped by sedentary interventions from hon. Members.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

In our prolonged Committee discussion of the matter incorporated in new clause 2, the Financial Secretary and the Economic Secretary objected to the previous versions of the new clause. Their objections included the proposition that the remit of the Comptroller and Auditor General could not be extended to a wide range of non-departmental public bodies because those bodies were governed by statutes that barred the CAG.

It is with some surprise, therefore, that we find that the Government have come forward with their own amendment allowing them to circumvent a problem that they claimed in Committee to be insuperable. The amendment would permit the operation of what is in effect a Henry VIII clause by order. There is nothing wrong with that mechanism—there never was, apart from some constitutional implications. However, there was certainly something wrong with the Government's argument that the statutory consideration rendered it impossible to extend the remit.

That much was clear—to Conservative and Liberal Democrat Members, and to members of the Public Accounts Committee, at least. We were passing a piece of primary legislation that would undo previous legislation. Our view was that that could be better done by positive enactment, but we joined my right hon. Friend the Member for Haltemprice and Howden in welcoming the Government's conversion to the evident truth that the CAG's remit could be extended.

That is important. In Committee, the problem was that the Government's objections were based on arguments rather than real reasons. They have now admitted that those arguments were specious, so I hope that Ministers will tell the House the real reason why the Government persist in their objections to the gist of new clause 2. The problem cannot be technical, as I am sure that Conservative and Liberal Democrat Members would all accept that the new clause could be revised and tabled in an amended version, without technical deficiency, in another place.

What is the difference between the Government's amendment and my right hon. Friend's new clause? As my right hon. Friend identified, it is a difference in the position of the burden of proof. The Government's amendment allows the Government to decide to introduce the Comptroller and Auditor General. The new clause would allow the Government to come forward with reasons why, in a particular case, the Comptroller and Auditor General should not be introduced. The presumption in the new clause is that the Comptroller and Auditor General will have general oversight. We must therefore ask what is the real reason for the Government's belief that it is advantageous for the burden of proof to rest on Parliament. Why do the Government believe that Parliament ought to show the Government the need to extend the remit of the CAG case by case? Why is it not clear to the Government that there is a presumption, a prima facie case, for having the CAG oversee the whole of government, non-departmental public bodies and the rest? Why are the Government resisting the reversal of the burden of proof?

In Committee, hon. Members from all parties, including members of the Public Accounts Committee, were involved in the common endeavour of identifying the advantages—I think that they came into clearer focus in my mind—of having the CAG as an auditor. We identified in particular the great advantage that the CAG is the platonic ideal of an auditor. He does not suffer from the problem that all auditors in the private sector suffer from necessarily, because they are employed by the people whose accounts they are auditing. While many auditors in the private sector struggle heroically with that problem and overcome it, offering honest and sometimes damning verdicts on their own clients, it is asking a lot of them to rat on the company that employs them. It is remarkable, in fact, that so often the system works. It is an inevitable feature of private sector auditing. One cannot think of anyone who would employ the auditors rather than the directors, but it is the directors that the auditors are ultimately auditing.

The CAG has the inestimable advantage of not being in that position. My right hon. Friend exposed, in very great detail, the huge array of measures that the previous Government had the wisdom to implement which protect the CAG from any accusation that he is an employee of the Executive that he is auditing. Nor is he employed by the particular Department or non-departmental public body that he is auditing in a particular case, by the Treasury or by the Government—he is employed by Parliament. He is employed by Parliament in a real sense because the parliamentary body, the Public Accounts Committee, which has put forward the amendment is, in effect, his employer. The CAG is in the unique position, not available in the private sector, of carrying out the auditing without there being the slightest conflict of interest.

Photo of Charles Wardle Charles Wardle Conservative, Bexhill and Battle

I hesitate to correct my hon. Friend, so knowledgeable is he. But surely in the private sector the shareholders appoint the auditor. Are not the shareholders in exactly the same position as Parliament? Is it not Parliament that is calling for the CAG to play that role so far as public sector enterprises are concerned?

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

My hon. Friend amusingly describes me as the expert, whereas, through his long service on the PAC and in other respects, he is the expert. Technically, he is right—the shareholders appoint the auditors. However, he will know as well as I do that de facto in the private sector, the directors act for the shareholders. [Interruption.] As my hon. Friend says from a sedentary position, they stand in the position of the Executive or the Government. The difference is that in the public sector we have the great luck—not available in the private sector—that the shareholders meet constantly in Parliament. They are thus genuinely able to act—through the PAC—in a capacity that is not available to shareholders in a normal private company. Of course, those shareholders have the right to approve or disapprove the auditor, but they will almost always act on the recommendation of the directors.

However, in the case of the PAC and Parliament, the Comptroller and Auditor General is genuinely distanced from the Executive. I believe that my right hon. Friend—or whoever holds his office as Chairman of the PAC—and the Prime Minister share the appointment. It is unique that the Executive should consciously have given a veto power to an agent of Parliament—by convention, an Opposition Member.

We have a perfect system for avoiding conflict of interest in audit. I return to the question: why, in the light of that, should the burden of proof lie with those who want to extend the remit of the CAG to additional agencies?

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

Before my hon. Friend moves away from the relationship between the CAG and the House, as opposed to the relationship between that person and the Government, may I refer him to the Exchequer and Audit Departments Act 1866, which established that relationship? It states that every relevant account shall be examined by the Comptroller and Auditor General on behalf of the House of Commons.

It is clear that the relationship was direct, as my hon. Friend points out, and that we must not breach it by extending the ability of the Government to interfere in it and sully it.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

I entirely agree with my hon. Friend. He is right to take us back to Gladstone. Part of the essence of the Gladstonian reforms, which have so entranced the hon. Member for Kingston and Surbiton (Mr. Davey) and others, was that they created an indestructible relationship between Parliament, conceived as something apart from the Executive, and the CAG. He is correct to point out that there is a severe danger that the Government's amendment—reversing the burden of proof and making it the case that the Executive have to be persuaded of the need to extend the CAG's remit—might paradoxically introduce the precedent that the Executive should determine the remit.

If that were to be read as the precedent, it is possible that the Government amendment—as opposed to the new clause proposed by my right hon. Friend—would be deleterious. I do not think that is the Government's intention. They have tried to make a move towards the PAC and both the Opposition parties, but, as my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) acutely points out, they may have succeeded in making matters slightly worse.

However, why should the Government prefer their amendment? What is the real reason that they do not want Parliament to have the presumption that the CAG has a universal remit in the public sector? After all, the CAG does not have the problem that he is barred by statute, because the Government have accepted that they can alter that at the whim of an order. Furthermore, we established in Committee—I have tried to re-expose the matter during the debate—that the CAG has a unique position as a perfect audit system, without the inherent conflicts of interest in such systems.

The argument is stronger than that, as my right hon. Friend the Member for Haltemprice and Howden pointed out. I emphasise his comments. There is a real reason why the House of Commons, as the guardian of taxpayers' money, should want as a presumption, or even as an absolute rule—if I have a quibble with my right hon. Friend's amendment, it is that he has gone too far in the Government's direction—that the CAG should be the auditor of each public sector body. Why? Because of my right hon. Friend's point about regularity.

It is not merely that private sector auditors, if they are employed directly by the institutions being audited, do not have familiarity with the concept of regularity. Their whole culture is necessarily different. They are not concerned with questioning whether money has been applied to a particular use allocated by some shareholders. To take the point made by my hon. Friend the Member for Bexhill and Battle (Mr. Wardle). In a private sector company, shareholders never try to tell directors how to allocate their money. They tell directors to maximise profit. Auditors seek to discover whether the profits reported by directors have been reported on a true and fair basis. They are very good at that and, sometimes, they are brilliant. However, they do not attend to the concept of regularity. If someone talks to the best private sector auditors and asks them to check up on regularity, they would, by and large, look at him as if he had asked them to go on a fishing expedition in Norway. They have not the slightest idea where that person expects them to go or what they should do when they get there.

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The person and the body who know about regularity are the Comptroller and Auditor General and the National Audit Office. When they employ private sector auditors—we pointed out in Committee that they often do—they give the auditors a specific remit to investigate not just the propriety of the accounts, but their regularity. Therefore, we have another reason for the presumption that the CAG should have a universal remit. Again I ask the question: why do the Government want to reverse the burden of proof? Why do they not want to accept the most basic presumption that in all but the most exceptional cases the CAG should have a universal remit?

My right hon. Friend the Member for Haltemprice and Howden went through and demolished a series of arguments that were made in Committee. I do not want to bore the House by reiterating them in detail, but he demolished the arguments on levies, on competition and on commercialism. Without wishing to cast aspersions on his speech, those arguments were already demolished in Committee. He had already torn them limb from limb and anything that remained that remotely resembled a body was torn apart by the right hon. Member for Swansea, West (Mr. Williams), who is also a member of the Public Accounts Committee. If any shreds of the body remained, the hon. Member for Newbury (Mr. Rendel)—the Liberal Democrats' representative on the PAC—finished the game off.

There is not even the beginning of an argument to suppose that we should not have the CAG as the presumed auditor of the public sector. Why are we having this debate? Why did the Government not accede immediately to the perfectly sensible—perhaps even too reasonable—new clause tabled by my right hon. Friend the Member for Haltemprice and Howden?

I understand why the Government resisted the strong arguments that many of us made, and that will be made in the other place, for an independent body to set the standards for accounts. I accept that new clause 1 dealt with a centrepiece of government—the ability or inability of the Treasury to present things in a way that is convenient to Ministers of the day. I do not applaud that; in fact, I decry it. I understand that view, but I genuinely do not understand why the Government should resist this new clause. I cannot see why, in the short, medium or long terms, Ministers or their officials have any interest in excluding the CAG. In fact, the Government do not think that they have an interest in excluding the CAG. If they thought that they had that interest, they would not have tabled their own amendment.

I fear that we must be dealing with the Government's pride. They do not want to be seen to be conceding to my right hon. Friend's new clause. They want to be seen doing something of their own making that is a bit different. When the Financial Secretary speaks, he may persuade me and the House that I am wrong, and I am more than willing to change my analysis if it does not fit the facts. However, if he has no good arguments and we are dealing with pride, I should have thought that there must be some means by which the Government's face can be saved. Somebody who is sufficiently close to the Government to make them comfortable could table in the other place a new clause that has exactly the same effect.

Conservative Members would have no objection to such a manoeuvre; we do not want to rub the Government's nose in it or cause unnecessary embarrassment. At the end of the Bill's progress, we want a result that will go along with what I am certain will be the institution of an independent body to set standards. Together with that reform and the rest of the resource accounting process, it will offer the prospect of a robust, sustainable, transparent and decent set of accounts—and an accounting system that will last as long as the Gladstonian system.

Photo of Mr Jonathan Sayeed Mr Jonathan Sayeed Conservative, Mid Bedfordshire

Perhaps I can suggest a face-saving formula that the Government may care to adopt. I have read six press releases from the Government in the past week about value for money. Commercial auditors are good at auditing but not at determining value for money. The CAG is well practised at doing so over many years. Perhaps the Government would adopt my right hon. Friend's new clause on the basis that it will save taxpayers' money and make it go further.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

My hon. Friend is absolutely right. Private sector auditors are not particularly experienced in value-for-money audits. They do not need to be because in the competitive private sector, value for money is forced on companies by the marketplace. The auditor merely needs to check that shareholders are given an accurate representation of the company's responses to market pressures and challenges.

The people experienced in value-for-money audit are the Audit Commission, which deals with it in local government, and the National Audit Office and CAG, who deal with it in central Government. When private sector auditors have become familiar with the concept and have applied it, that is because they have been employed by those bodies to act on their behalf sometimes, but not immensely regularly.

The problem with the public sector is that it has neither a marketplace nor the pressures that force value for money. As the relative inefficiencies of public sectors worldwide have shown, auditors are an inefficient and incomplete replacement for the marketplace. Nevertheless, they are the best we have. Whatever ought to be done by the public sector needs to be done at best value. The only people who will make best value—or a failure to achieve it—come to light are auditors. The CAG is the best body in central Government, so my hon. Friend's argument is robust.

I accept the further implication that the Government could build on that thesis a face-saving device. They could argue that taking everything together and having considered my right hon. Friend's amendment, together with any technical changes they may wish to introduce, the proposal presents such an opportunity for value for money that it makes sense to adopt it. If the Government want to adopt that rhetoric or any other rhetoric or device—here or in the other place—to achieve that result, we will gladly conspire in it.

I doubt that anyone is listening. Notwithstanding the remarks made about the nation by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I doubt that anyone in the nation has the slightest idea that we are doing this or ever will. The Government can rest easy that this is a pleasant and secretive process, well publicised in Hansard, and that nobody will embarrass them for acceding to so reasonable a request from my right hon. Friend.

There is at stake here something far beyond party politicking and embarrassing governments.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

Does my hon. Friend agree that if the public were aware that the Government had acceded to a reasonable new clause, they would be impressed by the Government's good sense and honesty in accepting greater openness in public accounting?

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

My hon. Friend is right. To add to the Christmas stocking that we can offer Ministers, my right hon. Friend the Member for Haltemprice and Howden and other members of the PAC will congratulate the Government in the media without accusing them of having dragged their feet. It is no part of our purpose to make trouble. We want to achieve the right result. We need to do so because we all have an interest in the result being right. We all have an interest in having a set of accounts that have been audited in the best way possible and presented most responsibly to the House of Commons and the Department. That will be achieved by extending the remit of the CAG universally in government, which is the point at which all the anomalies will cease to exist and the clarity will set in.

As long as the accounting standards against which the CAG audits have been independently set, we shall have true, fair and regular accounts that genuinely represent the position as best human beings can represent it. That is the goal and I hope that the Financial Secretary, however he wants to do it, will tell us that he has been persuaded at last that he needs to come round and agree to my right hon. Friend's eminently sensible proposition.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

I hope that I may be the living proof that the hon. Member for Workington (Mr. Campbell-Savours) was wrong to suggest that this is the wrong hour at which to debate this important issue. Had the new clause been considered earlier, I might not have been present.

At this important hour in our proceedings, I was drawn to the Chamber—I notice that several of my hon. Friends have also been so drawn—and the hon. Gentleman would do well to scurry round the various corners of this place, find perhaps hundreds of his colleagues who are lurking in the recesses of Parliament and encourage them to come here to listen to the vital words of wisdom on the new clause. I am much persuaded by my hon. Friends that we have come to the kernel of the argument. I might admit that I have followed the case from a distance but with great keenness because, as a member of the Education and Employment Committee, I have been aware of the arguments about resource accounting from the moment at which this Parliament was elected.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

Indeed, but I shall come on to why it is not and why resource accounting is so important. It affects education as much as anything else.

In Committee, my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), who moved the new clause, said: The Chief Secretary to the Treasury said to the Public Accounts Committee that he was willing to examine the question of amending the legislation to enable the Comptroller and Auditor General to audit those limited companies within the Government's purview.—[Official Report, Standing Committee A, 20 January 2000; c. 301.] It is a matter of regret to me—and, I suspect, to many others who will consider this—that the Student Loans Company and the accounting for student loans are not within the purview of the new clause. Were I tempted to vote against it, I should do so because it is not all-encompassing and does not include the provision of student loans. I shall explain in due course why they are so important, but we must acknowledge that after passing the Bill it would be open to the Government to decide that it would be to their convenience that student loans, instead of being governed by a loan company, should be returned to the Department's remit. Nothing in the Bill would stop them doing so and, without the new clause, there would be nothing to deter them from doing so.

Let me give an example of the morass into which we are likely to lead ourselves if the Bill is passed unamended and explain why that is so significant. The system of student loans was developed under the previous Government, but, in fairness, that was done on a very small scale. When this Government came to power, the value of the student loan book was probably not more than a couple of billion pounds, but under the new student loans system, which they introduced against our advice and that of the Dearing commission, it is increasing by nearly £2 billion a year.

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My point is that one could choose, under one's accounting principles, to account for that extra £2 billion a year entirely as expenditure, partly as expenditure and partly as an addition to assets, or entirely as an addition to assets. In other words, a cumulative figure of £2 billion a year of putative Government expenditure, and certainly of cash outlay, may at the Government's whim be accounted for as expenditure or as part of capital. The scale of that means that even by the end of the Parliament, when the new scheme is barely up and running, the amount of the new student loan book will be nearly £7 billion.

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The hon. Gentleman is speaking in great detail about the student loan scheme. He may mention that the scheme could be better scrutinised if the new clause were adopted or rejected, and he has made the point that the scheme could be scrutinised by the auditors if the new clause were passed, but I cannot allow him to talk about the scheme at such length and in such detail.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

I very grateful for your advice, Mr. Deputy Speaker, and I will take it to heart.

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. It was not so much advice as an instruction.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

Indeed. You will appreciate more than anyone, Mr. Deputy Speaker, that in a Government Budget of over £300 billion a year, £6 billion is 2 per cent. of expenditure and a significant figure. Hon. Members are making the point that sums of that magnitude should be subject to external scrutiny. The Government should not be able to magic such sums out of thin air, perhaps in the run-up to a general election, and say that it is extra money that they have discovered through their ingenuity—or rather their creative accounting—and which they may spend in areas that are helpful to them in that election.

We seek to resist that insidious process, but there is another issue. It is a fact of life that when people can hide their problems, they tend to ignore them. The great virtue of the admittedly old-fashioned system of cash accounting is that no one could hide the fact of where cash was coming from or going to. Under resource accounting, without independent judgment on the fairness of the accounting methods being used, it will be possible to hide problems.

Without wishing to test your patience too far, Mr. Deputy Speaker, I will simply say that the example of the student loan book is a good one because the Government have developed a thoroughly bad system for that, and they should reform it. If they could not hide those problems under the guise of resource accounting, they would be forced to address the anomalies, the inefficiencies and the cost to students, which will result from their carrying on such a poor, Mickey Mouse system for funding students, which is unlike that adopted by any other country in the advanced world.

As a long-standing member of the Education and Employment Committee, I am now familiar with that system, and if what I have said is true of that, how true must it be of other areas of Government expenditure, about which I am the first to admit that I have very little knowledge? I know, however, from my business experience and my time as a banker and a student of the principles of accounting, that false accounting can go on for several years before it is discovered. False accounting can certainly tide a Government over a critical election period, and it could change the way in which we are governed.

That is why I believe that my hon. Friends are absolutely right, even at this late hour, to raise this arcane issue. It may not attract a leader column in The Sun tomorrow, but sadly, in irresponsible hands—I am afraid that sometimes the Government have proved themselves to be irresponsible—it could have as much influence on an election result as a leader in the national press, if not a great deal more influence.

As I said, I am struck by the fact that the purview of the new clause is limited. I hope that before the end of the debate, someone will explain to me and other hon. Members why it is so limited.

The case of Remploy was mentioned earlier. I am familiar with that company, having been a customer many years ago. It supplied me with excellent products for incorporation in a product that I was selling on the market. Given the subsidies and the special circumstances of Remploy, I am aware that it needs careful accounting and scrutiny to ensure that its accounts are fully in order.

I have no quarrel with the framework proposed by my hon. Friends and have heard nothing from the Government to suggest that it is defective. I therefore add my voice to those who ask why the Government are being so unreasonable. This is not the first time, even this week, that we have witnessed pigheadedness, if they will forgive me for the phrase, in the response from those on the Government Benches to suggestions from the Opposition.

We are not always trying to be partisan. Earlier in the week, I put forward a proposal backed by the teaching unions—not a group that usually supports the Conservative party—but the Government would not give the proposal a minute of the House's time, which we are using up tonight on the new clause. If they wished, Ministers could intervene to explain that while their purpose is honourable, they cannot accept amendments that were tabled in good faith and that are fully supported by those outside the House who understand the issue.

Photo of Mr David Rendel Mr David Rendel Liberal Democrat, Newbury

In speaking to the amendment, I am tempted to go back through a number of the arguments made in Committee, but you will be pleased, Mr. Deputy Speaker, to hear that I shall try my best to resist the temptation, partly because the right hon. Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, has already repeated some of my arguments on that occasion, very flatteringly quoting from my remarks.

It seemed to me on that occasion that the argument was won for greater powers for the National Audit Office and the Comptroller and Auditor General, except in one particular. One argument produced by the Government struck me as being a strong one to which attention had to be paid.

For a number of bodies, an auditor had already been appointed and a contract had been set up for a significant period—five years, perhaps. To break that contract might involve considerable expense for Government or a duplication of resources, which was a silly way to proceed. I took that argument on board and I did not immediately see what the reply to it was.

However, the new clause tabled by three of us who are members of the PAC answers that point. The new clause gives the Government the right to choose not to go ahead straight away with appointing the Comptroller and Auditor General as the auditor for all those bodies, but to move to that system when the current contracts come to their natural end. That demolishes the last argument that the Government had for carrying on, at least temporarily, with the current way in which the bodies are audited.

It seems to me that the Government have given no good reason yet—and the issues were debated for a long time in Committee—for not accepting the new clause. The Government's amendments are not nearly strong enough to answer the points that were made in Committee and on Second Reading.

As has frequently been said, the National Audit Office was established as Parliament's watchdog. One of the delights of taking part in the proceedings from the Liberal Democrat Benches is that so many complimentary comments have been made about one of our predecessors, William Ewart Gladstone, and his work on behalf of Parliament almost a century and a half ago. We are proud of his work and pleased that it has been so widely acknowledged.

Gladstone established the important principle that the National Audit Office and the Comptroller and Auditor General should be responsible to Parliament, and that Parliament should have an external aid to keep a check on the Executive. People often say how great it is that we live in a democracy. I reply that it is not a strong form of democracy because we are ruled constantly by a minority. However, one of the strengths of our democracy is that Parliament has the opportunity to have some control over the Executive. That opportunity is not shared by many societies in our world. It is good news for us that we live in such a society.

The strength of the system is that Parliament has an external aid to enable it to keep good control over the Executive. That principle held for more than 100 years before it was gradually diminished. Sadly, it lost some ground as Parliament established bodies that were not under the control or audit authority of the Comptroller and Auditor General. That is a pity.

The Bill gives us an opportunity to repair the damage and to return to the audit authority of the Comptroller and Auditor General all those bodies whose affairs he had lost the right to audit and report on to Parliament. The current opportunity may have come to us by chance because the Government did not originally intend the Bill to amend the fault that had arisen. Nevertheless, that opportunity should have been grasped, and I hope that it will be grasped tonight.

The important principle that we are considering was reasserted in the Public Accounts Committee's latest report. Some of its words are worth repeating. It states: the Committee believes that Parliamentary accountability will be enhanced if the Comptroller and Auditor General is able to audit on behalf of Parliament all public bodies carrying out central Government functions, and has statutory access to bodies and contractors delivering services on behalf of Government departments … We believe in the principle that the Comptroller and Auditor General should have full access to all Government expenditure. I hope that I do not reveal any state secrets when I say that those phrases were discussed at some length when we discussed that report in the Public Accounts Committee. It is clear that the Committee wished to reiterate clearly in its unanimous report that it believes in the principle that we are discussing. It is important and strengthens Parliament enormously against the Executive.

If the new clause is resisted by the Government tonight hon. Members on all sides should not see it as a battle between Government and Opposition, because it is not. If the Government resist it, the battle will be between the Executive and Parliament, a battle that Parliament has to win.

Photo of Alan Williams Alan Williams Labour, Swansea West 12:30 am, 29th February 2000

The new clause is in effect in the name of the Public Accounts Committee, and it is just that; it is not one side of the House against the other.

We are not talking about accounts. We are talking about a process—a process of control, a process of accountability. We live in an illusory democracy, and democracy is only as effective as the House is. The Executive have to be subject to continuous scrutiny. This is the only place where it can occur. Many people think that we achieve it through our great debates, Question Times and so on. That is nonsense. Anyone who thinks that oratorical wizardry will sway a Government is living in the world of fiction. Mr. Speaker Weatherill made the point that he could remember in his 10 years as Speaker just three speeches that swayed a debate. They may have swayed a debate, but I doubt whether they swayed a Government.

As for parliamentary questions, anyone who has been a Minister knows very well that they are largely ritualistic. By the time one has dealt with half the planted questions from one's own side and the three other supplementary questions from the other side, that particular subject is over and done with for the next month, and one can go away and forget the House of Commons again.

In so far as there is continuous accountability or accountability anywhere in this democratic system, it is in the Select Committees. I give credit to Opposition Members and to Lord St. John of Fawsley, who introduced the departmental Select Committees, which were, in the democratic sense, one of the great innovations of the last century.

One of the most fundamental rights of Parliament, established as far back as 1866, is the right to monitor the money. The money is where the power is. If one monitors the money, one discovers whether there is waste, misuse or corruption. The importance of this control was reflected in the fact that, more than a century ago, the precursor of the NAO and the Public Accounts Committee was set up, at a time of corruption and waste, to play this role on behalf of the public and Parliament.

Underlining the difference involved in monetary control is the fact that we have set up a unique institution, the NAO. It has become unique over time, because in recent years it has been given the absolute independence from Government that it now has, so that it is not subject to any pressure or appointment by Government. We have this organisation with 750 staff and a budget of £55 million a year. That is different from any of the other bodies. Why? It is because controlling and monitoring the money is so fundamental to monitoring the Executive.

I wish to tell Ministers that I am pleased. I thought that we had wasted our time in Committee, in that we had so little response. Today there has been a bit of a response, and I am grateful for that. Their amendment is a step in our direction and at least justifies the efforts that we made in our meetings. Its weakness is that it still leaves the rights of Parliament's watchdog dependent on the whim of the Executive. The extension of any of the powers to the NDPBs, about which our Committee's Chairman spoke, is utterly dependent on the arbitrary whim of one Department of Government.

We are told that we should rely on the good will of the Treasury. We have been through these arguments before, and I am sure that officials will welcome the fact that I will not go through them all again. However, I will remind the House of something, and draw it to the attention of some hon. Members who may not be aware of it.

One of the reasons that we are debating this issue at this silly time—it should have been sorted out by now—is that more than seven months ago a catch-all amendment was submitted to the Treasury by the NAO, on its behalf and that of the PAC, and for seven months the Treasury did not respond. It then produced a Bill that should have had a pre-legislative stage in the PAC but never did. The Bill was produced out of a hat, and the amendment was not there. All that we were given instead of an amendment—after several Committee sittings and a lot of moaning—was one apology for the fact that we had never had an answer. The good will of the Treasury is therefore not something that the PAC entirely takes for granted.

When we wanted to ensure that Camelot was paying the correct amount to Parliament, and we were depending on the support of the Treasury—which one would have thought would be on our side in that respect—it took us five years to establish that right for the PAC.

In Committee, when we presented a version of the catch-all amendment that had originally been submitted seven months earlier, the Minister said, "We are all in favour of this; we want to do the right thing; but each proposal must be dealt with on its merits." So, obliging as I am, I tabled 19 amendments just to test the market—market testing being "in", although it may have been more "in" during the past 15 years than it is now. Anyway, I tested the market, and the market was found wanting. Having tested the depth of the Government's commitment to judging proposals on their individual merits, I was told by the Minister, "Yes, but we must not deal with them piecemeal."

I concluded that perhaps the Government were opposed to doing anything at all, and that is why I am still worried about leaving ultimate control in their hands. They—not as individuals, but as Ministers and officials—are the Executive; we are the House of Commons. We should not have to go to them and beg to be allowed one more crumb on our national audit table as one more quango is thrown to us. They should have to come to us—to Parliament—to justify, on any occasion, a deviation from our right to monitor and audit the finances of the whole of Government. If Ministers want to curtail the power of Parliament in any way, they should not throw us crumbs; they should move a motion for an order at the Dispatch Box and justify their wishes in debate.

Let me say sincerely to Ministers that I welcome their attempt to join us on our route. Just one more step, and we shall have unanimity—so will they, even at this late stage, reconsider the PAC amendments?

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

I want to discuss three issues: discretion, trust and missed opportunity.

We should see the debate in two contexts. The first is the obvious one of the Government's somewhat tarnished reputation with figures. Few would now doubt that their reputation in that regard has been damaged by hospital waiting lists, police numbers and a number of other issues. I say nothing about the integrity of the Financial Secretary—he is a man of the greatest integrity—but that is bound to be the context in which people outside this place will see the debate and, indeed, the Bill.

The second context is the history of these matters. I spoke earlier about the Exchequer and Audit Departments Act 1866, and that brings me to the first of my three key points—discretion. There is no doubt that, although the 1866 Act did not explicitly define the CAG's role in the terms that my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the PAC, has used, giving the CAG a power of general competence, that was the intention of those who introduced the Bill. I do not want to be too kind to Gladstone. I am not a great fan of his, but every swallow has its summer, or is it that one swallow doth not a summer make? I am not quite sure about that, but certainly, it was one aspect of Gladstonian influence that was desirable.

The architects of that Act doubtless saw the CAG's brief as a broad one. That is clearly reflected not only in the debate at that time, but in the Act itself. It states: the Comptroller and Auditor General shall have free Access, at all convenient Times, to the Books of Account and other Documents relating to the Accounts of such Departments, and may require the several Departments concerned to furnish him, from Time to Time, or at regular Periods, with Accounts of the Cash Transactions of such Departments respectively … Therefore, those who introduced the Act and the Act itself assumed that the discretion would be wide. People who have considered these matters carefully will immediately think of the changes that were made to the original Act by the Exchequer and Audit Departments Act 1921. Although the 1921 Act in some ways limited what the CAG did, it did so on the basis of giving him extra discretion. The irony is that, although that Act narrowed the CAG's activities, making it explicit that he should not have to examine every detail in every case in every Department to come to conclusions about the overall probity of Government activities, it extended his discretion to make such judgments, following the recommendations of the PAC of the day.

The point is made clearly in the Second Reading debate in 1921. Members talked about the Public Accounts Committee considering the matter and the pronouncement of the Committee in the report that had been issued to the House and was appended to the Bill. They said that the Bill as laid before the House followed the recommendations of the Committee. There is no question but that the report from the PAC which explicitly recommended extending the CAG's discretion was "bought" by the then Government and formed the basis of the Bill, which in itself was a significant addition to the history of these matters in that it built on the Gladstonian foundations of the 1866 Act.

We spoke earlier about the balance of proof. I should like to speak about the balance of discretion. Does discretion lie with the Executive, or with that independent person who is explicitly given the role of holding the Government to account—or at least of holding the Government's financial probity to account in the way that the right hon. Member for Swansea, West (Mr. Williams) suggested? This lies at the heart of our consideration of the new clause and the Bill. The Government are in the business of changing that balance, to the detriment of Parliament and against the spirit that pervades much of the earlier legislation.

The second issue that I want to discuss is trust. I do not go so far as Chesterton, who said: it seems easier to die in battle than to tell the truth in politics. I would hardly admit to that.

However, there is a good deal of sense in the comments of my right hon. Friend the Member for Haltemprice and Howden, who—in Standing Committee—said with incredulity that the basis of the Government's argument could be summed up in two words: "Trust us." Ministers expect us to trust them to do the right thing in all circumstances. My right hon. Friend went on to say—very much in the spirit of the comments of the right hon. Member for Swansea, West—that Parliaments cannot trust Governments.

12.45 am

My point is nothing to do with party, but has to do with the relationship between Parliament and Government. It is simply not acceptable for the Government to say, "Trust us, you can be assured that we will always act with appropriateness and integrity." The structures that we create must allow for the fact that Governments occasionally do not act either appropriately or with integrity. As I said, that is no reflection on the Financial Secretary, or even on the Economic Secretary—although I do not know much about her. Perhaps she went to Cheltenham Ladies college, which would prejudice her to those of us who have made our own way in the world. However, I do not wish to be unkind or discourteous. Nevertheless, I might say something similar about the hon. Member for Newbury (Mr. Rendel)—but perhaps I might not.

The issue of trust is fundamental. It has been already been highlighted by the right hon. Member for Swansea, West and lies at the very heart of our consideration of this part of the Bill. I simply do not trust any Government sufficiently to allow them to extend their discretion at the expense both of Parliament and of the independent scrutiny that I have described.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

On the issue of trust, has my hon. Friend studied the recent speech of the Archbishop of Canterbury, who said that our understanding of politics and of public life should be rooted in our grasp of the weakness of the human condition, implying that one really should not trust too much anyone in public life? Does not that go to the heart of the point that my hon. Friend is making?

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

I shall make only two comments in reply to that. First, I do not intend to stretch your indulgence, Mr. Deputy Speaker, beyond its extremely generous limits by responding to a theological point. Secondly, I remind my hon. Friend that Chesterton also said: he who has the impatience to interrupt the words of another seldom has the patience rationally to select his own. The third issue on which I should like to alight is that of missed opportunity, which was referred to earlier by the hon. Member for Newbury. He said that, for all the good things that are embodied in the 1866 Act, the 1921 Act and the Finance Act 1975, those Acts could not reasonably have anticipated the growth in the extent of Government. The 1866 Act, which was passed long before the advent of quangos, of course makes no reference to the type of bodies that are now well outside the competence of the Comptroller and Auditor General, but that, none the less, are very substantial bodies in relation to the amount of public money that they spend.

We may be more critical of the 1975 Act and of more recent legislation. At that stage, we could have anticipated that the problem of bodies that were not Government Departments, but which absorbed a great deal of Government money and did important things on behalf of the Government, Parliament and people, should have been drawn into the orbit of the Comptroller and Auditor General. We should therefore be more critical of modern legislators than we can reasonably be of politicians in 1866 or 1921.

Surely we must be most critical of the Government of the day. The Bill was a golden opportunity to extend the scope of the Comptroller and Auditor General's scrutiny. Three arguments have been advanced against doing so. The first is that many of the bodies are too small to be worthy of the Comptroller and Auditor General's attention. That suggestion was made by the Economic Secretary when she was speaking on the subject in Standing Committee.

The second argument is that the Comptroller and Auditor General would require some specialist understanding or knowledge, because some of the activities dealt with by the bodies that we are discussing are commercial or specialist in nature. That is a specious argument, given that the Comptroller and Auditor General has particular powers to take on any additional commercial skills and resources that he might need to deal with such bodies. The third argument, which is self-fulfilling, is that some bodies are statutorily excluded from the Comptroller and Auditor General's competence by the terms under which they were established or by subsequent legislation.

None of those arguments is persuasive or forceful. The Bill was a golden opportunity to strengthen rather than weaken the power of independent scrutiny by changing the balance of discretion and to extend its scope. Both the depth and the breadth of the Comptroller and Auditor General's remit could have been addressed, but the Government have chosen to address neither.

That takes me back to the first point that I made. There is an issue of image. If the Government wish to be regarded as fair, reasonable and honourable, they must be seen to be all those things. If they wish to publish information that is not just useful to the House and to the wider public but scrupulously fair, they must go the extra mile by putting in place arrangements that prove them to be of the greatest integrity and the utmost honesty. In contrast, the image that will be broadcast from the House as a result of the Government's failure to take advantage of this opportunity will worsen the tarnished reputation that they have developed in a very short time for fiddling figures.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

I shall intervene briefly. I spoke on Second Reading and, if this debate were taking place at a reasonable hour, I would have delivered the speech that I spent some time working out, which I have now had to discard. [HON. MEMBERS: "Why?"] The answer is simple: I have no desire at 12.52 am to keep 300 Members of Parliament here. I think that what is going on this evening is an abuse.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

I have no intention of giving way.

National Audit Office officials, who have spent a lot of time working on the issue, should know what has happened this evening. A series of amendments—amendments that we are not discussing now—were debated at great length. They were debated at such length because the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) was having a dinner—

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I cannot allow the hon. Gentleman to go over a previous group of amendments. The reason why earlier amendments were debated has nothing to do with us at the moment. We must deal with the group before us.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

I shall not refer to those amendments, Mr. Deputy Speaker—simply to the reason why we are debating the new clause at this late hour. An arrangement was made that Conservative Members would debate the previous group until 11 pm, when there would be a Division.

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

I seek your guidance, Mr. Deputy Speaker. The hon. Member for Workington (Mr. Campbell-Savours) is talking about arrangements that were made for Members to debate matters until 11 pm. No arrangements were made with me. I am sure that I speak for my hon. Friends. What is the hon. Gentleman referring to?

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I called the hon. Member for Workington (Mr. Campbell-Savours) to speak to the new clause before us. He must not refer to any arrangements that were made, because that has nothing to do with the Chair or with the business before us.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours Labour, Workington

On the new clause that we are now considering, Mr. Deputy Speaker, National Audit Office officials should know that many of my hon. Friends who wished to speak have been prevented from doing so by Conservative Members' conduct tonight. That is all I have to say.

Photo of David Heath David Heath Shadow Spokesperson (Environment, Food and Rural Affairs)

I share the hon. Gentleman's disappointment that we should be debating an extremely serious issue at this hour in the morning. Having said that, I feel that the new clause deals with a matter of principle that is worthy of a substantial debate irrespective of the hour, because there are issues that need to be addressed. Having listened to the speeches of the three members of the Public Accounts Committee who have spoken, I think that the arguments that they have adduced are almost unanswerable.

I hasten to add that I am not an accountant; indeed, I suspect that I am almost the antithesis of an accountant. However, I have some experience of public audit, having been an audit commissioner before being elected to the House. I take an old-fashioned and perhaps simple view of the proper control of public funds. Where Parliament has granted moneys from the public purse for public purposes, that should be subject to checks for probity and regularity to ensure that there is accountability to the House and not simply to the Executive. There should be no gap between the province of the National Audit Office and that of the Audit Commission or the territorial bodies that carry out identical functions in respect of various parts of the United Kingdom. If there are gaps in the present arrangements—and my strong suspicion is that there are—they should be filled. The new clause goes a long way towards that.

I have been pursuing this matter ever since I was elected to the House. As hon. Members can see in the Official Report, I have put a series of questions to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I am sorry that he cannot be here this evening because of his recent illness and I very much hope that he will soon be restored to health. I am advised by the right hon. Member for Haltemprice and Howden (Mr. Davis) that he has received a letter from him saying that he wishes to be back even sooner than the doctors, the Whips or Madam Speaker wish him to be.

I put a series of questions to the right hon. Member for Ashton-under-Lyne about the resources that might be necessary to enable the National Audit Office to plug some of the gaps in the arrangements for non-departmental public bodies and about the extent to which he has been able to promote a dialogue with the Chancellor of the Exchequer or other Treasury Ministers on the subject. In a way, there has been a conspiracy between us, as I know perfectly well that the view that the right hon. Gentleman has expressed in private and in public is very much along the same lines as mine, which is that we should find a mechanism to bring some of those bodies within the province of the National Audit Office.

I do not particularly like quangos. I have long argued that they proliferated under the previous Government and that it would have been a good thing had the present Government reversed the trend. Sadly, I do not believe that sufficient progress has been made in that direction. I do not like quangos because of the democratic deficit. That is a serious matter, but in some circumstances I can live with it: we can perhaps deal with the deficit in accountability through Ministers who are accountable to the House. However, I will not put up with a deficit in probity or regularity, and that danger exists under the present arrangements, particularly in respect of NDPBs that deal with substantial amounts of public money. The non-municipal public housing sector has already been mentioned. It seems essential that the Housing Corporation, which performs an audit function yet is not directly open to scrutiny by the Comptroller and Auditor General, should be brought within the province of the National Audit Office.

1 am

I have some concerns about the wording of the new clause. I am concerned about the definitions; I always worry about the definitions of non-departmental public bodies and the extent to which it is possible to devise new government structures that still manage to fall outside any definition that is provided. I am indebted to Lord Falconer, who suggested in another place that there was no difference in terms of definition between an NDPB and a taskforce and that it was simply a matter of the temporary nature or otherwise of the body that had been formed. If that is the case, there is a potential problem with taskforces that perform an executive function. I hope that they will be covered by the fact that they are absorbed within the departmental accounts, but it is a potential problem that may need to be better defined under proposed subsection (11). Proposed subsection (8) is over-helpful to the Government in accommodating their objections before they have even been raised in the debate.

This is a very important new clause for Parliament. As the hon. Member for Guildford (Mr. St. Aubyn) said, if the Government choose not to accept the new clause, it is not a case of their resisting the Opposition, because the new clause does not come from the Opposition Benches: it was drafted by those right hon. and hon. Members on both sides of the Chamber who are most intimately acquainted with the need for proper scrutiny—those who serve on the Public Accounts Committee. They have put their finger on a very important issue and it is right that the House should debate it. The Government would be wrong to display obstinacy. They have already yielded the principle in amendments that they have tabled. It is only the matter of form that they are resisting. I believe that the form of our proposal is much more acceptable for Parliament than the alternative, and that the Government would be well advised to accept it.

Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury

Having been only seven months in the House, I am perhaps closest to those outside who have expectations of accountability. It is not a claim that I would seek to advance, but others might suggest it.

In looking at the provisions, I have been particularly concerned about the separation of powers, which, as a principle, should run through this, of all pieces of legislation, between Parliament and the Executive. I have looked in vain and with great disappointment for that principle to be applied with consistency and clarity. It has therefore been of the utmost seriousness for me, fresh from the outside world, to find that hon. Members from all parties represented on the most important of Committees—the Public Accounts Committee—have tabled a new clause to address the perception of accountability, the trust that is implicit in the requirement that the Government be transparent in their stewardship of public money and, above all, the confidence of the public that that is being done with the greatest integrity.

I have looked at the PAC's recommendations and have listened with great care to all the members of that Committee who have spoken this evening, in particular my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the PAC. It seems that the Bill misses the opportunity to remedy the steady erosion of the central role of the Comptroller and Auditor General that has taken place as a result of the introduction of new public spending institutions.

Many examples of that have already been cited this evening, so I shall not try your patience, Mr. Deputy Speaker, by going into as much detail as I had originally intended. There is no provision to give the National Audit Office full access for the examination of new service providers. The number of such providers is increasing—as is the amount of public money involved. They include private contractors who handle Government pay and the management of some prisons. They even handle one of the Government's own flagships—for which the Government want complete accountability and transparency—the new deal training opportunities, even though some of us might regard those opportunities as a smokescreen.

Under the Bill, the detailed auditing of such providers would be off-limits. They should have been included. What are the Government afraid of? Subject to the Minister's comments, which we shall welcome, what makes the Government resist the approach taken by my right hon. Friend, the Chairman of the Public Accounts Committee? He wants to reverse the burden of proof required by the Bill, and to make it a presumption that all such bodies should be open to audit. There should be a requirement that they are audited, rather than that the Treasury determines which ones should be included.

Ever since the Government came into office, they have advanced the principle of inclusivity. That sits ill with the measure, because it does not promote inclusivity. However, new clause 2 would be in line with that principle.

Quangos are another example. The Housing Corporation has been mentioned. It is critical that there is trust in such bodies. People outside this place perceive organisations such as the Housing Corporation to be instruments of Government, so they expect the same standards of transparency and accountability to be applied to them as to Departments. However, the Housing Corporation is not included.

The situation of limited companies set up by the Government has been extensively and eruditely explained by my hon. Friend the Member for Guildford (Mr. St. Aubyn)—a fellow member of the Select Committee on Education and Employment. My right hon. Friend the Member for Haltemprice and Howden also referred to the matter. Tomorrow, my hon. Friend the Member for Guildford may be somewhat surprised by a reference in the leader column of The Sun to his impressive contribution to the debate. However, I shall not dwell on that matter, Mr. Deputy Speaker, because, even as a recently elected Member, I would strain your patience too far.

As I pick up some of the threads made in contributions this evening—not least that of the hon. Member for Somerton and Frome (Mr. Heath)—I find that I am speaking to a former university colleague, the Financial Secretary to the Treasury. Indeed, he and I shared not only a university but a college. I know him to be a man of great intelligence, and a reasonable man of great integrity. It would not be in his character to resist an eminently reasonable proposition, objectively put. The proposal is not partisan, because of its provenance in the PAC.

Perhaps I am wrong about the Government's resistance to the proposal. Perhaps they will accede to a reasoned and informative debate and will be pleased to accept our fine parliamentary tradition of trying to improve Government proposals. Like many other hon. Members, I have experience of international manufacturing industry in a private enterprise, albeit a public company in the FTSE 100. For many years, I have had responsibility for compiling annual reports and I look behind the Government's proposals to try to understand what motivates them not to want to extend the audit to so many governmental organisations.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

I have listened to my hon. Friend with interest, because I have great respect for his experience of handling the accounts of public companies. Has he considered the words of George Bernard Shaw? He said: There is nothing so bad or so good that you will not find Englishmen doing it; but you will never find an Englishman in the wrong. Does that not encapsulate why we need the new clause and why the Government are not prepared to admit that they need to accept it?

Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury

My hon. Friend makes an extremely important point through his literary allusion. Of course, when George Bernard Shaw was given a book, he said that he would lose no time in reading it. I shall lose no time taking that intervention any further; it was so ably put.

Anything that is audited in annual reports receives proper and objective treatments that are certified. Accountants, in the case of public companies, and auditors must present their reports fully and make them public. The Government's policies have often been misplaced. The Government have sought to do down our enterprises and public companies by treating all those who may be in the top teams of such companies as fat cats. Therefore, they would be the first to expect full transparency and accountability, and for a full audit of all aspects of an enterprise to be covered in an annual report.

I hope that I am wrong—I do not think that it is in the Financial Secretary's character to defend something on the ground of pride alone—but I wonder whether the Government are anxious to prejudge the contents of annual reports. Perhaps the raft of organisations that have been identified so ably by so many Members are a little less predictable and would fall a little less out of the Government's direct control, even though they involve the expenditure of taxpayers' money. Therefore, there is the risk that an annual report might not say what the Government predicted or wanted it to say. That may be the true reason for the Government's objection to allowing all organisations to be audited and for them wanting, as my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) pointed out, a veto or the discretion not to allow an audit to be applied. I look forward to the Financial Secretary's reply in the hope that the doubts that I share with the House are proved wrong.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

I was not going to speak in the debate, but I have listened to the arguments made in the Chamber and beyond the Bar. I am disturbed by several incidents that have been mentioned in the debate. I suspect that we need new clause 2 because there is a feeling in the nation that the Government have contempt for Parliament. Did we not witness that earlier when an hon. Member—I shall not name him—said that he had prepared a detailed argument as to why the new clause should be adopted, but then added that he would not read it? He would not read it because there are 300 or more Labour Members who want to go to sleep. All the arguments that he had prepared to make the Bill better were not expressed. The hon. Gentleman has now left the Chamber, which is why the arguments need to be emphasised and re-emphasised.

1.15 am

My hon. Friend the Member for South Holland and The Deepings (Mr. Hayes) described in considerable detail the history of the Bill, starting with the 1866 Act under William Ewart Gladstone. I argue that its true genesis is November 1993, when my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), then Chancellor of the Exchequer, announced a White Paper on the introduction of this form of accounting. He said: This will put departments on to a similar accounting basis not only to commercial organisations but to many other parts of the public sector.—[Official Report, 30 November 1993; Vol. 233, c. 931.] Surely that is the point of new clause 2. Subsection (4) states: The Comptroller and Auditor General shall examine accounts sent to him under this section with a view to satisfying himself—

  1. (a) that the accounts present a true and fair view, and
  2. (b) that any public money provided to the agency has been expended for the purposes intended by the body by which the money was paid.
As my hon. Friend the Member for Eddisbury (Mr. O'Brien) eloquently said, that is a mirror of what happens in commercial organisations when they are audited by chartered and certified accountants. It is important to audit not only the funds flow but—as my hon. Friend the Member for Guildford (Mr. St. Aubyn) pointed out—the difference between expenditure on capital amounts and revenue amounts, because investments in capital amounts accrue value and are not amortised. If one confuses the two, it is all too easy to confuse the general public in persuading them that the state of the economy is better or worse than it is.

Many of my hon. Friends and Government Members have said that it is a question of trust and accountability. Why have auditors in the commercial sector? They are there to safeguard shareholders and the broader public interest, to ensure that taxes are paid to the benefit of society. It is right that the Executive should accept auditing of all its aspects. It is extraordinary that the Executive should be able to say, "We shall choose what will be audited and what will not." That is like a large public corporation or conglomerate—I will not name an example but one can use one's imagination—saying "We will not have our ice cream side audited, but we don't mind having our soap powder side audited.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

My hon. Friend said something from a sedentary position that was not too far from the truth, but which I hope will not be recorded in Hansard.

Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury

The equivalent is even more serious—where a company would resist allowing any kind of audit treatment of a joint venture or some form of minority participation. That is clearly laid down under "general accounting principles"—a phrase that, interestingly, appears in the Explanatory Notes and the Bill, and is therefore directly to be applied. My hon. Friend's point is well made.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

My hon. Friend makes a marvellous point. It is particularly apposite, given that the Government talk about private-public partnerships and building on the private finance initiative, which was introduced by the previous, Conservative Government. Is not that a joint venture and does it not therefore warrant independent audit? However, the Government say, "No, we will not allow an independent auditor to investigate for the benefit of the state and society as a whole."

We are going through a period in which there is mistrust of the Government's motives. We hear about financial initiatives that are merely launches of relaunches of previous launches involving fresh money that turns out not to be fresh. [Interruption.] We read about that not only in The Times, but in The Guardian, which is read by the hon. Member for Brent, North (Mr. Gardiner). We realise that there is disquiet in society as a whole. The Government could easily allay that by saying, "We will allow independent auditors into all aspects of government. They can report to the Public Accounts Committee and lay reports before Parliament." The Treasury could also lay before Parliament information that would make all audit reports open and file it in the Library of the House of Commons. [Interruption.] The hon. Gentleman laughs, but his seat is marginal. Would not it be to his benefit and that of society as a whole for the Government to be seen as open and honest? Is not it dishonest for any Government to introduce an incomplete Bill that does not consider the universal practice of auditing, but says that audits will not be permitted in certain barred areas?

The Executive should not be allowed to choose which areas may be audited and which may not. If I may coin a phrase, this should be the people's audit. Is not any audit the people's audit? The people's audit concerns the welfare of the people as a whole. Are they not the people's Government? Perhaps no longer.

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

To firm up some of my hon. Friend's slightly vague remarks, may I refer him to the Second Reading debate on the Exchequer and Audit Departments Act 1921? This was stated explicitly: The general trend of the changes proposed— to the 1866 Act— is to give greater discretion to the Comptroller and Auditor General as to the extent of his audit, and to make his measures more elastic.—[Official Report, 5 August 1921; Vol. 145, c. 1883–84.] Is not my hon. Friend saying that this should be an opportunity to extend the scope—the elasticity—of the CAG's remit, not to give more power to the Government to decide precisely where, how and when he goes and how that information is published?

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

My hon. Friend, with his customary charm and politeness, makes a powerful point. The discretion should lie in the hands of the auditor, not those of the Government.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

Oh, the hon. Gentleman awakes. I am delighted to give way.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I have been in the Chamber for considerably longer than the hon. Gentleman. If he can recall the remarks he has just made, can he justify them against the new clause in favour of which he purports to be arguing? It allows the Executive precisely that power of veto, which he has spoken against.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

Not at all. If the hon. Gentleman reads the new clause, he will see that that is up to the CAG. Although he is in the Chamber, I can assume only that he has allowed his attention to lapse.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

I shall not give way again; the hon. Gentleman is wasting my time and that of the House. He sits there either not listening or giggling. Either way, he is not concentrating. This is a complicated Bill, and the hon. Gentleman should listen, and then his interventions would be pertinent rather than irrelevant.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

The hon. Gentleman should read the new clause.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

The hon. Gentleman tells me, from a sedentary position, to read the new clause. I am doing so—[Interruption.] I will not accept sedentary interventions. The new clause makes it clear that the CAG will examine accounts, and the Government will not tell the CAG which accounts to examine.

As my hon. Friend the Member for South Holland and The Deepings said, the discretion should lie with the CAG, precisely as it does with an auditor who investigates any commercial operation and has independence in doing so. The point of new clause 2 is to give the CAG independence. He will have no independence if the Government tell him that there are areas that he may investigate and areas that he may not investigate.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

It is a point of fact, which should be put on the record, that the hon. Member for Brent, North (Mr. Gardiner) is entirely mistaken, as the Minister can lay an order to exclude a given public body with the approval of Parliament. We have been debating precisely the point that those powers should reside with Parliament and the CAG as an agent of Parliament, rather than with the Executive.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

My hon. Friend is absolutely right. It is up to Parliament and the Public Accounts Committee to determine, through the CAG, those areas that ought to be audited. It would be wrong for the Executive to determine that because the CAG would not be independent. I hope that the Minister can satisfy me that if I am wrong, the Public Accounts Committee and hon. Members on both sides of the House who have been arguing for new clause 2 are also wrong. However, I do not think that I am wrong. Surely the whole point of an auditor is that he should be independent. I hope that the Minister will address that point in his reply.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

It is a privilege to participate in what has been an excellent debate, albeit at this late hour. I echo the remarks of my hon. Friend the Member for Lichfield (Mr. Fabricant), because I was looking forward to one more in a series of excellent and incisive speeches when the hon. Member for Workington (Mr. Campbell-Savours) trailed the fact that he had prepared a speech and given great thought to it. I am sure that it would have been a speech of great consequence. We have had several excellent contributions to the debate.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

Does not my hon. Friend think that it is a bit rich for the hon. Member for Workington to criticise—

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. We shall forget about the hon. Member for Workington and get on with the new clause.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

I had forgotten about him already, Mr. Deputy Speaker.

We have heard from many right hon. and hon. Members on both sides of the House how important the provisions are. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, said that in discussing the amendment we are dealing with matters of public expenditure amounting to some £3 billion a year. My hon. Friend the Member for Guildford (Mr. St. Aubyn) suggested that the figure might be greater if we included companies in the new clause as well as non-departmental public bodies.

Even though we have not included companies, we are dealing with a large sum of public expenditure, and it is a serious matter that is appropriate for debate by the House, whatever the hour. I wonder whether Liberal Democrat Members agree that it would have been a great tragedy if Gladstone had decided in 1866 that, because it had got rather late in the day, he would not bother introducing the vital legislation that allows Parliament to hold the Executive to account and which introduced the proper audit and control of public expenditure that we have today.

It is essential that we extend the powers of proper audit and scrutiny of expenditure throughout the public sector. As my right hon. Friend the Member for Haltemprice and Howden suggested, that should be done in a way that takes proper allocation of the burden of proof and puts the onus on the Government to prove the case that something should not be subject to public audit as suggested by the new clause.

1.30 am

The hon. Member for Brent, North (Mr. Gardiner) was wrong to suggest that the new clause gives Ministers unfettered discretion. It does not. It gives some powers to Ministers, subject to approval by Parliament, which is entirely right.

We have heard important contributions. I do not want to speak for long in this short debate, but I want to comment on the remarks of the right hon. Member for Swansea, West (Mr. Williams) who, I thought, made the most telling contribution, albeit a brief one. It was a devastating account of the way in which the Treasury has dealt with the progress of the Bill. It did not accept at an early stage, as it could have done, important recommendations from Members of all parties with proper independent backing. That was a great tragedy.

The right hon. Member called for one more step from the Government. He argued that the Government had conceded the point in their amendment, but that they fell short of what they could achieve if they bowed to the wishes of the Public Accounts Committee by accepting new clause 2. I entirely agree with what the right hon. Gentleman said.

The Government should come to Parliament to explain why we should not have the right to scrutinise public expenditure in particular areas. It is fundamental to the rights and privileges of the House, and to the duty that we owe to the British people, that we should have the power to scrutinise and audit public expenditure.

Photo of Mr Nick St Aubyn Mr Nick St Aubyn Conservative, Guildford

I have been listening carefully to my hon. Friend, and I agree with what he says about those fundamental rights. Is not the problem the fact that the Treasury, having discovered the dark arts of stealth taxes, is now practising to perfection the art of stealth accounting?

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

My hon. Friend puts it well. [Interruption.] Does the hon. Member for Hove (Mr. Caplin) wish to intervene?

Photo of Mr Ivor Caplin Mr Ivor Caplin Labour, Hove

I certainly do not.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

I am sorry, Mr. Deputy Speaker. I thought that the hon. Gentleman was seeking to intervene, but he was not.

My hon. Friend the Member for Guildford makes an important point. The Government are clearly seeking to avoid proper scrutiny of public expenditure and of the way in which public funds—taxpayers' money—are pushed out through the public sector in various guises. Like my hon. Friend the Member for West Dorset (Mr. Letwin), one must ask why. Why do the Government refuse to accept an eminently sensible new clause, which has support on both sides of the House and from distinguished members of the Public Accounts Committee?

The Government have accepted the new clause in principle in their amendment, yet, for their own reasons, which the Minister will no doubt try to explain, they seek to avoid the discipline that new clause 2 would impose on them. There would be a presumption that there was a right to proper public audit unless the Government could demonstrate a compelling reason why that should not be the case.

I shall not detain the House, but, in the light of the remarks of the right hon. Member for Swansea, West, and given that we are debating the most fundamental role of Parliament and the most fundamental duty that we must discharge by calling the Government to account, it is supremely ironic that if the motion is pressed to a Division, the Government will whip Labour Members to support their stance, and to oppose a new clause that would extend the right of Parliament to scrutinise what the Executive does. That is at least an irony and possibly a perversion of the purpose of Parliament. That is unfortunate.

The Government have an opportunity to show that they have nothing to hide and that they wish to be open and allow proper scrutiny of all aspects of public expenditure and the public sector. They have an opportunity to demonstrate that, contrary to recent criticism, they are not arrogant. They have an opportunity to show that they are not interested in grubby fixes or withholding information and to move towards proper openness and accountability. They have an opportunity to strengthen the role of Parliament and to show, as good Governments have done in the past, that the Executive can recognise that their activities should properly be limited.

The Minister should accept that tonight. I hope that he will bow to the arguments of senior colleagues on both sides of the House. I cannot understand how the Government can devise a cogent, reasonable argument for not accepting the new clause.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

I had not intended to speak in the debate, but I have been stung by the attitude of Labour Members. As a Shropshire Member of Parliament, I am deeply conscious that the first Parliament was called at Acton Burnell and then in Shrewsbury to hold the King to account for the moneys that he levied on the people. The Minister laughs, but we are sent here and paid by the general public to hold the Executive to account. One of the biggest surprises to me as a new Member of Parliament was that we do not sit terribly long hours. We frequently go home at 10 o'clock.

It was outrageous that the hon. Member for Workington (Mr. Campbell-Savours) had prepared a speech on new clause 2—

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The hon. Gentleman should confine his comments to the new clause.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

The hon. Member for Workington had prepared on new clause 2 and did not make it out of pique. Nothing could have been more interesting than his comments on new clause 2, which goes to the heart of our role as Members of Parliament who hold the Government to account on the way in which they spend moneys that do not belong to them in their temporary executive role, but to the people.

After listening to the debate, I feel naive. I honestly believed that the Comptroller and Auditor General audited all Departments, as established in the 1866 Act. I had not realised until I heard my hon. Friends' speeches that there were extraordinary gaps in auditing public expenditure and holding the Executive to account. It is astonishing that 200 bodies, which deliver public services and are funded by Departments from money that Parliament provides, are not fully audited by the Comptroller and Auditor General.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

It is even more surprising that it is not up to the Comptroller and Auditor General whether he audits those 200 companies. The Government tell him that he cannot audit those companies and organisations.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

With his usual prescience, my hon. Friend has made my next point. According to the Public Accounts Committee's fourth report, my hon. Friend is right. Eighty bodies spent £3 billion, but their auditors are appointed by Ministers and they report to Ministers. That is extraordinary. I almost feel guilty that, as a Member of Parliament, I did not know about that.

Photo of Mr Brian White Mr Brian White Labour, North East Milton Keynes

Does the hon. Gentleman accept that the previous Conservative Government established bodies without accountability and that this Government ensured that 19 out of the 21 bodies that might not have been audited by the Comptroller and Auditor General are so audited?

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

I find that a bizarre intervention. Numerous Opposition Members have made it clear that they are not happy with the status quo. I am making it clear that I am not happy with the status quo, that I am astonished by the status quo, and I entirely endorse the hon. Gentleman's comments that a new regime should be introduced. Surely the Bill gives the very opportunity. This is the time and place to debate it. This is a clause that he should support, because it would bring in every body: Every public service agency shall prepare accounts in respect of each financial year and shall send them to the Comptroller and Auditor General. That is in new clause 2(3). How can the hon. Gentleman not support that? He apparently is not happy with the regime left by the previous Government. It is quite clear that several of us are astonished by the lacunae. So why does he not support it?

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

My hon. Friend will recognise that it is a tradition in this House that the Chairman of the Public Accounts Committee is always drawn from the Opposition party. He will also be aware that the Public Accounts Committee is an all-party Committee. Is it not extraordinary in the history of the House that the Committee is putting forward a new clause which is being opposed by the Executive? Is not this a major constitutional conflict between Parliament and the Executive?

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

That point is forcefully put and quite correct. I am reading evidence from reports from an all-party Committee which is led by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) specifically to hold the Government's expenditure to account. We have the new clause proposed by three leading Members of the House, and the Government oppose it. They will have to come up with some very good reasons.

How can it be that the Housing Corporation, spending £1 billion pounds a year, and the Environment Agency, spending £150 million, are outside the remit of the Comptroller and Auditor General?

Photo of John Hayes John Hayes Vice-Chair, Conservative Party

I do not want to put my hon. Friend off, but I would like him to return to the issue of the relationship between the Bill and the recommendations of the Public Accounts Committee. I spoke earlier of the 1921 Bill, which was based on the recommendations of that Committee. I do not want to go as far as the hyperbole of my hon. Friend the Member for Lichfield (Mr. Fabricant), but it is true that this Bill is quite different from those of 1866, 1921 or 1975, in that it does not simply ignore the recommendations of the Public Accounts Committee; it frustrates them.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

That is an excellent point. With similar foresight to that of my hon. Friend the Member for Lichfield, my hon. Friend has also moved on to the next point that I was about to make.

In its fourth report, the Public Accounts Committee said quite clearly, in recommendation (vi), in paragraph 7: We urge the Government to extend this [audit] to all existing executive non-departmental public bodies. It could not be a clearer recommendation from an all-party Committee, which goes on to say, in recommendation (vii): We consider that it is questionable, in principle, whether those whose accountability is being examined should appoint the external auditor of non-departmental public bodies. We recommend that the Bill should address this issue by specifying that all such bodies established in the future will be audited on behalf of Parliament by the Comptroller and Auditor General. Also the Bill should amend existing legislation to appoint the Comptroller and Auditor General as auditor to those bodies for which he is not already statutorily appointed. It could not be clearer.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

Has my hon. Friend been following the Committee stage of the Utilities Bill, on which I am sitting? It is surprising to me that Ministers very often do not know what bodies are spending. I wonder whether my hon. Friend is being a bit unkind to the Government, because this would allow Ministers to know what the civil servants are hiding from them in many cases. He is on an extremely good point—that we should make sure that these reports are produced to Parliament, and then Ministers will have to read them and know what is being spent on their behalf.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

That is also an excellent point. It gets right back to the 13th century, when the role of Parliament was to try to get a grip on royal patronage. If the bodies in question are not audited properly, and effectively are allowed to appoint their own auditors, there will be a cosy inner circle, which inevitably leads to the evils of patronage outside Parliament's control. That is a real danger.

My hon. Friend is absolutely right to mention the gaps and anomalies. There are some extraordinary facts and figures in the Public Accounts Committee's ninth report. I must admit that I would not have read them if it had not been for this debate, which shows the value of these lengthy sittings. On housing associations, the report says: Despite many years of negotiation since 1991 with the Department and the Housing Corporation, the Comptroller and Auditor General can still only examine housing associations that volunteer to submit to his scrutiny although these are unlikely to be the bodies where problems arise. That is bizarre, in view of the amounts involved.

1.45 am

As for Camelot, four years apparently elapsed before the CAG was able to provide assurance to the Committee that public funds raised through the national lottery were being handled properly and correctly passed on to Government by Camelot. Its auditors refused to pass on the information he needed. That, too, is an extraordinary lacuna in public accounts.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

Does my hon. Friend suppose that, under these rules, Bob Maxwell would allow auditors to audit him, or does he think that Maxwell might decide that, in this instance, the pensions scheme ought not to be audited? [HON. MEMBERS: "He is dead."] I know that.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

I think we all know that. I think we should try to confine our discussions to public bodies spending public funds.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

No, not dead bodies. We are talking about public bodies spending other people's funds that are not properly accounted for. That is a perfectly fair point.

Let me give another couple of examples—briefly, because time is moving on. Apparently, it took several years of negotiation for the CAG to be allowed access to training and enterprise councils, and the report clearly states that there was poor financial management in some of those bodies.

Photo of Stephen O'Brien Stephen O'Brien Conservative, Eddisbury

One of the most extraordinary omissions is that of the Environment Agency, which spends about £150 million a year. In this day and age, when there is such public concern about the environment—when, rightly, all Members of Parliament are keen to give due consideration to all environmental issues—the actions of the agency, involving the use of public money, are of prime importance. If new clause 2 were accepted, the agency would, by presumption, be included.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

That is very well put.

One would think that prisons would have been properly audited by the Government, but the CAG had to negotiate access to prisons run by private contractors. Surely there is a prima facie case for believing that new clause 2 would end that anomaly.

I am delighted that the hon. Member for Workington has returned to the Chamber. Perhaps we shall have an opportunity to hear his penetrating comments on the new clause. As far as I am concerned, however, this is fundamental. We are sent here by the public to control public expenditure—to see how taxes levied from the benighted citizenry are spent, and spent properly. [Interruption.] Members laugh. I find that extraordinary, for I can think of no more important role for an MP. That is why we are here, and that is why every one of us should support new clause 2.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I shall speak to amendments Nos. 32 and 33.

As my hon. Friend the Member for Workington (Mr. Campbell-Savours) has said, it is regrettable that such a serious debate has been left until so late as a result of time-wasting earlier.

Photo of Michael Fabricant Michael Fabricant Conservative, Lichfield

On a point of order, Mr. Deputy Speaker. If there had been time-wasting, would the Chair not have called the House to order? In that case, there cannot have been time-wasting.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

I think that all such matters can be safely left to the Chair.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

These are important matters, which warranted more serious consideration.

In his evidence to the Committee on 12 January, my right hon. Friend the Chief Secretary said that he recognised the force of the argument for extending audit by the NAO, at least in some cases. As the Committee has recognised, he noted that the Government had appointed the Comptroller and Auditor General to audit every non-departmental public body that we had set up since May 1997. We might argue about whether one or two institutions count as NDPBs, but that is the position. The right hon. Member for Haltemprice and Howden (Mr. Davis), who chairs the Committee, has made the point that that is in stark contrast with the record of the previous Government.

The Chief Secretary acknowledged that the present arrangements for the audit of executive NDPBs were something of a hotch-potch and not easy to justify. The Economic Secretary made the same point in Standing Committee. There seems to be no clear reason for the CAG being auditor of some bodies and not of others in the same sector.

I had hoped that we might have some justification from Conservative Members for the practice of the previous Government, who put most of those arrangements in place. Former Ministers in the previous Government have contributed to the debate. I had hoped that they might shed some light on the rationale behind what the previous Government did: whether it was a Thatcherite aberration, which all right-minded people now abhor, or whether there was a more substantial basis for their decisions.

Many Conservatives Members have spoken in the debate. Not one has sought to defend the previous Government's decisions. The hon. Member for Lichfield (Mr. Fabricant)—who was here until a moment ago—as perhaps a defender of the true faith, might have explained, or given some justification for their actions. None was forthcoming.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

No, I will not.

No attempt was made to justify what the previous Government did. In fact, it was quite the opposite. All the Conservative Members piled in to condemn what was their regular practice. It is interesting how hard it is to find anyone to defend that practice.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I will and then I will move on rapidly.

Photo of Graham Brady Graham Brady Opposition Whip (Commons)

In a spirit of generosity, perhaps the Minister will care to note that not a single Labour Back Bencher has defended the Government's refusal to accept the eminently sensible new clause?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

We are moving on to resolve these issues, as the House should have done earlier in the day.

The Chief Secretary said that he believed that some reform could be accomplished administratively. For example, where current statute for a particular NDPB provides for the Minister to appoint the auditors, the Minister could appoint the CAG at the next opportunity. That is possible as things stand. At the same time, he did not rule out amendments, where they would be sensible, but said that he wanted to reflect further as part of the dialogue that he had invited the Committee to join him in.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

No, I will not.

It is clear from both the evidence that the Chief Secretary gave the PAC and the Economic Secretary's words in Standing Committee that any approach must provide for circumstances that make it sensible to appoint an auditor other than the CAG. In our view, a blanket one-size-fits-all approach is not right. In Government amendment No. 33, subsections (6) and (7) provide an order-making power to enable the Treasury to appoint the CAG to audit an NDPB that he does not audit at present, even if he is barred by statute from auditing the NDPB concerned. That is a big step in the direction that PAC members have been urging us to take.

The order-making power will allow amendment of the statute setting up the NDPB by, for example, removing the requirement that the auditor has to be a Companies Act auditor, thus freeing the way for the CAG to be appointed. The amendment would not apply in respect of NDPBs that are companies. That issue needs to be addressed separately, as the right hon. Member for Haltemprice and Howden said in his very good speech. The Treasury would be able to propose such an order only after consulting the CAG. The order would need to be approved by affirmative resolution in both Houses of Parliament.

The Government's amendment goes hand in hand with the proposal by the Chief Secretary to set up a study of all aspects of central Government audit. That was announced in his answer to a parliamentary question on Monday. He has also invited the Chairman of the Public Accounts Committee to join the steering group, and I very much hope that the right hon. Member for Haltemprice and Howden will feel able to accept that invitation.

The study would cover not only issues of concern to the PAC—such as the audit of NDPBs, rights of access and validation of performance information—but issues such as how central Government audit should participate in modernising government, and particularly the issue of how audit impacts on risk taking and innovation, which is a topic that has occasionally cropped up in our debates on the Bill. The study would also have to examine other important issues, such as the quality of audit, links with other auditors, duplication of the work of inspectors and regulators, and experience overseas.

The amendment will leave open the possibility of appointing at some stage in the future the CAG as the auditor of an NDPB, which he is currently prevented from auditing by statute, if it is agreed on the basis of a recommendation in the study that the CAG should be so appointed.

Photo of Mr David Rendel Mr David Rendel Liberal Democrat, Newbury

Will the Minister confirm that the Comptroller and Auditor General is there to audit on behalf of Parliament and not on behalf of the Government? Is the study a study into what audit should be done on behalf of Government or on behalf of Parliament?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

The position is absolutely clear: the audit is on behalf of Parliament. Our amendments make that very clear, and I am grateful to the hon. Gentleman for giving me the opportunity to put that on the record.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

I welcome the study. Although the Minister will understand that we would prefer the approach of putting the provision into statute now, and that I am a little disappointed that the amendment does not apply also to the other two spheres—performance validation and access—I welcome the study and am minded to take part in it. I shall have to talk to the Chief Secretary about several matters, such as remit, membership and the types of issues that have just been raised, but I shall do all that as quickly as possible. I hope that we shall be able to resolve a way forward on the matter.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I am grateful to the right hon. Gentleman, and am glad that I took his intervention. It has taken us significantly forward.

The amendment meets a concern expressed in Committee that, unless action were taken in the Bill, it might not be possible for many years to introduce any changes to the audit of NDPBs, even if the dialogue proposed by the Chief Secretary recommended that that change would be sensible. The key action that we are taking in the amendment is to remove the statutory obstacle to what the PAC Chairman and other Committee members, including my right hon. Friend the Member for Swansea, West (Mr. Williams), are seeking to achieve. I was grateful to my right hon. Friend for acknowledging that point in his speech.

New subsection (3) in the amendment makes it clear that examinations conducted by the CAG under clauses 5, 7 and 11 are conducted on behalf of the House of Commons. I reiterated that point in replying to the hon. Member for Newbury (Mr. Rendel) a moment ago. In Committee, we debated a similar amendment tabled by the right hon. Member for Haltemprice and Howden, and we undertook further to consider the point. The amendment is the result of those considerations, after further discussions between the Treasury and National Audit Office officials.

We think that it is sensible to include the amendment now, as the CAG does not conduct some of his audits, mainly of international bodies, on behalf of the House. We therefore have to make it clear that all his audits under the Bill are indeed on behalf of the House.

New subsections (4) and (5) give the CAG the same rights of access when he acts as the auditor of other bodies, mainly NDPBs, as he has under clause 8(1) when he audits Departments. That replaces section 9(2) of the Exchequer and Audit Departments Act 1921, about which we have heard a certain amount in the debate.

2 am

On the new clause tabled by members of the PAC, I said earlier that any approach must provide for circumstances that would make it sensible to appoint an auditor other than the Comptroller and Auditor General. In our view, a blanket, one-size-fits-all approach is not the right way to proceed.

The right hon. Member for Haltemprice and Howden proposed a blanket approach with his new clause 2 in Committee, but, after lengthy exchanges, he withdrew it and promised to bring forward an amended version on Report. The new clause that we now have would provide for the CAG to be the auditor at the expiry of the term of the existing auditor of all NDPBs except those designated by the relevant Minister. Ministerial designations would be subject to the approval of the House by affirmative resolution.

Our view is that the revised new clause would go too far in the direction of making the CAG automatically the auditor of all NDPBs. Before reaching a conclusion we need to have regard to a range of issues, not least the particular concerns of the Departments responsible to Parliament for overseeing the bodies in question. Some Departments take the view that the competitive tension secured by the periodic tendering of audit appointments brings a better service. Some believe that the NAO may not have the specialist expertise necessary to handle a particular audit. All those issues need to be considered carefully before decisions are made about a number of the NDPBs that we have been talking about.

Let us not forget, too, that, under the Government amendment, Treasury designations will reflect the concerns not only of Departments, but of the CAG, as the Treasury is expressly required to consult him before proposing a designation to Parliament.

All the issues need to be addressed as a whole.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I ought to conclude now, but I shall take a final intervention from the right hon. Gentleman.

Photo of David Davis David Davis Chair, Public Accounts Committee, Chair, Public Accounts Committee

I thank the hon. Gentleman for his patience. The reason for putting in a timetable was to enable those consultations to take place. If it was decided at the end of the period that the situation was inappropriate, for whatever reason, it would be possible for the Minister to come back to the House and, by affirmative resolution, exempt the body in question from the CAG's audit. That was the purpose of the structure of the new clause.

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

Our amendment deals with that. I accept that the right hon. Gentleman has done some work since he drew up his original proposals, as have we.

The study that my right hon. Friend the Chief Secretary has proposed is very important. I am pleased that the right hon. Gentleman is minded to take part in it. Once that study has been completed, we can consider what further changes might be appropriate.

I urge the House to accept the Government amendments and to reject the new clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 27, Noes 253.

Division No.92][2.4 am
AYES
Atkinson, Peter (Hexham)O'Brien, Stephen (Eddisbury)
Brady, GrahamÖpik, Lembit
Bruce, Malcolm (Gordon)Rendel, David
Davey, Edward (Kingston)Russell, Bob (Colchester)
Davis, Rt Hon David (Haltemprice)St Aubyn, Nick
Fabricant, Michael
Flight, HowardSanders, Adrian
Foster, Don (Bath)Stanley, Rt Hon Sir John
Gray, JamesSwayne, Desmond
Hayes, JohnTyler, Paul
Heath, David (Somerton & Frome)Wardle, Charles
Howarth, Gerald (Aldershot)Webb, Steve
Laing, Mrs Eleanor
Letwin, OliverTellers for the Ayes:
Lewis, Dr Julian (New Forest E)Sir Robert Smith and
McLoughlin, PatrickMr. Owen Paterson.
NOES
Abbott, Ms DianeFlint, Caroline
Ainger, NickFlynn, Paul
Ainsworth, Robert (Cov'try NE)Follett, Barbara
Allen, GrahamFoster, Michael J (Worcester)
Atherton, Ms CandyFyfe, Maria
Atkins, CharlotteGardiner, Barry
Austin, JohnGeorge, Bruce (Walsall S)
Barnes, HarryGerrard, Neil
Barron, KevinGibson, Dr Ian
Bayley, HughGilroy, Mrs Linda
Benn, Hilary (Leeds C)Godman, Dr Norman A
Bennett, Andrew FGodsiff, Roger
Benton, JoeGoggins, Paul
Berry, RogerGolding, Mrs Llin
Best, HaroldGordon, Mrs Eileen
Betts, CliveGriffiths, Jane (Reading E)
Blackman, LizGriffiths, Nigel (Edinburgh S)
Blears, Ms HazelGriffiths, Win (Bridgend)
Blizzard, BobGrogan, John
Borrow, DavidHain, Peter
Bradley, Keith (Withington)Hamilton, Fabian (Leeds NE)
Brown, Russell (Dumfries)Hanson, David
Browne, DesmondHeal, Mrs Sylvia
Burden, RichardHealey, John
Burgon, ColinHenderson, Doug (Newcastle N)
Butler, Mrs ChristineHenderson, Ivan (Harwich)
Campbell, Ronnie (Blyth V)Hepburn, Stephen
Campbell-Savours, DaleHeppell, John
Caplin, IvorHesford, Stephen
Caton, MartinHoey, Kate
Cawsey, IanHope, Phil
Chapman, Ben (Wirral S)Hopkins, Kelvin
Chaytor, DavidHoyle, Lindsay
Clapham, MichaelHughes, Ms Beverley (Stretford)
Clark, Rt Hon Dr David (S Shields)Hughes, Kevin (Doncaster N)
Clark, Dr Lynda (Edinburgh Pentlands)Humble, Mrs Joan
Hurst, Alan
Clark, Paul (Gillingham)Iddon, Dr Brian
Clarke, Rt Hon Tom (Coatbridge)Illsley, Eric
Clarke, Tony (Northampton S)Jackson, Ms Glenda (Hampstead)
Clelland, DavidJackson, Helen (Hillsborough)
Coaker, VernonJenkins, Brian
Coffey, Ms AnnJohnson, Alan (Hull W & Hessle)
Cohen, HarryJohnson, Miss Melanie (Welwyn Hatfield)
Coleman, Iain
Colman, TonyJones, Rt Hon Barry (Alyn)
Connarty, MichaelJones, Helen (Warrington N)
Cook, Frank (Stockton N)Jones, Ms Jenny (Wolverh'ton SW)
Corbyn, Jeremy
Corston, JeanJones, Jon Owen (Cardiff C)
Cousins, JimJones, Dr Lynne (Selly Oak)
Cox, TomJones, Martyn (Clwyd S)
Crausby, DavidKeeble, Ms Sally
Cryer, Mrs Ann (Keighley)Keen, Alan (Feltham & Heston)
Cryer, John (Hornchurch)Kemp, Fraser
Cunningham, Jim (Cov'try S)Khabra, Piara S
Dalyell, TamKidney, David
Darvill, KeithKilfoyle, Peter
Davey, Valerie (Bristol W)King, Andy (Rugby & Kenilworth)
Davidson, IanKing, Ms Oona (Bethnal Green)
Davies, Rt Hon Denzil (Llanelli)Kumar, Dr Ashok
Dawson, HiltonLadyman, Dr Stephen
Dean, Mrs JanetLaxton, Bob
Dobbin, JimLepper, David
Donohoe, Brian HLeslie, Christopher
Doran, FrankLevitt, Tom
Dowd, JimLewis, Ivan (Bury S)
Drew, DavidLloyd, Tony (Manchester C)
Eagle, Angela (Wallasey)Love, Andrew
Edwards, HuwMcAvoy, Thomas
Efford, CliveMcCafferty, Ms Chris
Ennis, JeffMcDonagh, Siobhain
Field, Rt Hon FrankMacdonald, Calum
Fisher, MarkMcDonnell, John
Fitzpatrick, JimMcFall, John
McGuire, Mrs AnneSmith, Angela (Basildon)
Mackinlay, AndrewSmith, Miss Geraldine (Morecambe & Lunesdale)
McNulty, Tony
MacShane, DenisSmith, Jacqui (Redditch)
Mactaggart, FionaSmith, Llew (Blaenau Gwent)
McWalter, TonySouthworth, Ms Helen
Marsden, Gordon (Blackpool S)Spellar, John
Marshall, David (Shettleston)Squire, Ms Rachel
Marshall, Jim (Leicester S)Starkey, Dr Phyllis
Martlew, EricStevenson, George
Meale, AlanStewart, David (Inverness E)
Merron, GillianStewart, Ian (Eccles)
Miller, AndrewStinchcombe, Paul
Moran, Ms MargaretStoate, Dr Howard
Morgan, Ms Julie (Cardiff N)Strang, Rt Hon Dr Gavin
Mountford, KaliStringer, Graham
Mudie, GeorgeStuart, Ms Gisela
Mullin, ChrisSutcliffe, Gerry
Murphy, Rt Hon Paul (Torfaen)Taylor, Rt Hon Mrs Ann (Dewsbury)
Naysmith, Dr Doug
O'Brien, Bill (Normanton)Taylor, Ms Dari (Stockton S)
O'Brien, Mike (N Warks)Taylor, David (NW Leics)
O'Hara, EddieTemple-Morris, Peter
Olner, BillThomas, Gareth (Clwyd W)
O'Neill, MartinThomas, Gareth R (Harrow W)
Organ, Mrs DianaTimms, Stephen
Palmer, Dr NickTipping, Paddy
Pearson, IanTodd, Mark
Pendry, TomTouhig, Don
Perham, Ms LindaTrickett, Jon
Pickthall, ColinTruswell, Paul
Pike, Peter LTurner, Dennis (Wolverh'ton SE)
Plaskitt, JamesTurner, Dr Desmond (Kemptown)
Pond, ChrisTurner, Dr George (NW Norfolk)
Pope, GregTurner, Neil (Wigan)
Prentice, Gordon (Pendle)Twigg, Derek (Halton)
Primarolo, DawnTwigg, Stephen (Enfield)
Prosser, GwynTynan, Bill
Purchase, KenVis, Dr Rudi
Quin, Rt Hon Ms JoyceWalley, Ms Joan
Quinn, LawrieWard, Ms Claire
Rammell, BillWatts, David
Rapson, SydWhitehead, Dr Alan
Roche, Mrs BarbaraWilliams, Alan W (E Carmarthen)
Rooker, Rt Hon JeffWilliams, Mrs Betty (Conwy)
Rooney, TerryWinnick, David
Ruane, ChrisWise, Audrey
Ryan, Ms JoanWoodward, Shaun
Savidge, MalcolmWoolas, Phil
Sawford, PhilWorthington, Tony
Sedgemore, BrianWray, James
Sheerman, BarryWright, Anthony D (Gt Yarmouth)
Simpson, Alan (Nottingham S)
Singh, MarshaTellers for the Noes:
Skinner, DennisMr. David Jamieson and
Smith, Rt Hon Andrew (Oxford E)Mr. Mike Hall.

Question accordingly negatived.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

On a point of order, Mr. Deputy Speaker. Can you give us some guidance as to what will happen if, as a result of tonight's debate, we lose tomorrow's business? That has already happened once before in this Session. Perhaps we could do without Prime Minister's Question Time, but more important, at 3.30 pm tomorrow, there is to be a debate on the report of the Select Committee on Standards and Privileges on the hon. Member for Billericay (Mrs. Gorman). She is accused of lying and of deceiving the House. [HON. MEMBERS: "Ah!"] We can see—[Interruption.]

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman must take his seat when I am on my feet. He asks a hypothetical question; it is not a matter for the Chair at this time. [Interruption.]

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman will remain in his seat.

Photo of Andrew Miller Andrew Miller Labour, Ellesmere Port and Neston

On a point of order, Mr. Deputy Speaker. Would it be in order for anyone who has any association with any of the companies referred to in the report that is scheduled for debate tomorrow—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. That is not a matter for the Chair, or for debate at this time. The hon. Gentleman should know better.

Photo of Ivan Lewis Ivan Lewis Labour, Bury South

On a point of order, Mr. Deputy Speaker. The integrity, probity and good conduct of Members are important, and, as a relatively new Member of the House, I seek your advice as to whether it is important for us to be kept up through the night, with the possibility of delaying—

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman may be a new Member, but the first thing that he needs to learn is that when I am on my feet, he must sit down. I have already dealt with that point of order.