Question proposed, That the clause stand part of the Bill.

Clause 38 deals with the status of the Comptroller and Auditor General. Subsection (8) highlights and signposts the provisions in clause 43 and schedule 6, and in clause 44 and schedule 7. It may be helpful to the Committee and reduce the time that we need to debate subsequent points if we address some concerns that have been expressed about the new governance structure. Those concerns have been raised in particular by Professor David Heald, who is a former adviser to the Public Accounts Commission. Perhaps, in the spirit of Kelvin Hopkins, I can provoke a debate.

Professor Heald's concern is that the role of Parliament may well be diminished by the creation of the NAO board. In an article he stated:

"This insertion of the NAO Board between the Public Accounts Commission and the CaAG creates dangers. Governments might use the chair and board as a means of curtailing the activities of the comptroller, particularly in the more judgmental value for money sphere and in relation to the outsourcing of audit work."

His concern is that that body will have some influence on the CAG. The Chairman of the Public Accounts Committee made it clear how important it is that there is independence for the CAG and how important, therefore, the appointment structure is. There is a role for the NAO in the approval of strategy and in the provision of resources. The concern is whether the Executive, through the chair of the NAO board, could influence the CAG.

The other concern is that if the chairman of the NAO board is strong, there is a risk of interference. If he or she is weak, what is the point? Is this merely a distraction of management effort-of effort by the CAG-that could otherwise be focused on other things? I hope it is helpful to the Committee for me to put those concerns on the record and give the Chairman of the Public Accounts Committee an opportunity to respond, although in some respects he addressed those concerns in his earlier remarks.

Under the Bill, the CAG retains his absolute discretion in relation to his statutory duties. It cannot endanger his statutory duties at all.

Indeed. The Father of the House states the essence of that case. The alternative case, as advocated by Professor Heald, is that there is still a body that has influence with respect to the provision of resources in establishing the strategy for the NAO, and that that body could be used to influence. The Father of the House rightly makes the argument against that and I suspect that the Committee will be satisfied by that, but it is helpful to put it on the record and for him to put the counter-argument.

As hon. Members have said, we are dealing with an important organisation. Other countries often look to what we do as an example of an effective means of scrutinising public expenditure. We must get it right, because it is important both in the UK and internationally. The concern is that the private sector corporate governance structure that we are putting place may not be appropriate for the very particular needs that exist in this area. I am not endorsing that line of argument, but it should be stated. I look forward to others addressing those concerns.

I endorse my hon. Friend's tentative concerns and shall start where he finished-on the extent to which international bodies look to the NAO as a beacon of light in the scrutiny of public expenditure. I have personal experience of the issue from my time on the Public Accounts Committee and, latterly, as a governor of the Westminster Foundation for Democracy. We have entered the Westminster Consortium, a relationship with several other parties that are involved in parliamentary strengthening, and one of them is the NAO. Earlier today, we had an away-day to talk about how we can do more, working together, to spread best practice from this Parliament to other Parliaments throughout the world. It is very valuable work, and the Foreign and Commonwealth Office, the Department for International Development and Governments throughout the world recognise it as such. Although we may think that we are dealing with legislation in isolation, we should not forget that others will look at and, perhaps, imitate the structures that we are putting in place to provide for the NAO's corporate governance over, I hope, the next decades. In that context, it is right that we raise concerns about the proposal.

I do not have concerns in principle, because they were well addressed earlier in the debate by my hon. Friend Mr. Leigh, the Chairman of the Public Accounts Committee. However, we must recognise that, essentially, we are introducing a corporate governance structure to an entity that is not a corporate: it is an entity with a chief executive, in the form of the Comptroller and Auditor General, who quite rightly has enshrined in statute a degree of independence and autonomy in terms of his work on audit and value for money, as my hon. Friend and Mr. Williams, the Chairman of the Public Accounts Commission clearly explained.

May I clarify that it was in that very area of work, throughout the world and so on, that some of the trouble arose? It is non-statutory work. In that respect, it is true that the board can circumscribe the activities, because that is part of its role and duty; however, it must not and cannot interfere with the statutory duties.

I completely understand that point and am grateful for that clarification. Indeed, as the Father of the House has just made clear, the purpose of the proposals was to deal with deficiencies in the oversight and scrutiny of two simple things-the expenses and the duration of appointment of the Comptroller and Auditor General. To deal with those two relatively minor aspects, however, we have this substantial piece of legislation, and a new panoply of corporate governance that will be injected into the NAO.

All I seek to do is point out to the Minister that we are establishing a panoply of corporate governance that could lead to confusion in the NAO, when all that is required is the scrutiny of those two aspects: the longevity of appointment, about which there is no disagreement at all; and, the board's oversight of expenses and NAO organisation, which may be rather more demanding than was intended of the organisation's time.

The hon. Gentleman must have covered the point by now, but will he clarify that he did not mean that there was any doubt, from the legislation's drafting, that the Comptroller and Auditor General's functions of audit, examination and inspection, which are central to his job, would be in any way compromised? They are specifically preserved by the drafting of schedule 7.

Indeed. If I have given the impression that I am concerned about that, I would like to correct it. The hon. Gentleman has made that clear, and I agree with him.

The hon. Gentleman is right in what he said about expenses. We virtually dealt with that by having the CAG look at the expenses proposals and come to see me about them. However, the problem of governance was not just about expenses-it was about the staff of the organisation, who, as the Chair of the Public Accounts Committee indicated, were dependent on the good will of the CAG for their advancement, salary increases and so on. There was a much wider and more dangerous governance problem that could damage the organisation.

I am grateful for that clarification. I understand the need to put in place structures to help the internal career progression for senior people in the organisation, if that is what the right hon. Gentleman is seeking to achieve.

I am not as concerned about what the role of the CAG will be in this new construct as about what the role of the chairman of the board will be. Of course, there is already a chairman in place; he was appointed before the Bill was drafted, so although he may have had some idea of what would be in the legislation, he took on the position without knowing for certain what was involved. My concern-this comes back to the definition in schedule 6 rather than Clause 38-is about how the chairman is going to find a worthwhile function for himself in chairing a board where he has very little power other than to check the expenses of the chief executive.

Perhaps I can explain how the National Audit Office will work as a corporate entity. As such, it will be constituted as a board comprising five non-executive members, including its chair, and four executive members, including the Comptroller and Auditor General, who will also be its chief executive. The board's role, in essence, will be to develop a strategy for the office as a whole, not a strategy for audit judgments or to tell the CAG what to investigate: that is absolutely clear. The board's role will be to secure funding for the Public Accounts Commission, to monitor the delivery of the overall strategy and to report publicly on what is being achieved.

As I have already said-but it is worth putting it on the record because Professor Heald has made these comments-the CAG's statutory audit responsibilities are completely ring-fenced; they are not transferred to the board. The board has nothing to say about or to do with his statutory audit functions. The Bill will merely ensure that in future these activities are carried out within the governance of the NAO as a whole, as a modern and robust organisation. The relationship with the CAG and the board will be regulated by code, which, under the terms of the Bill, will be approved by the Public Accounts Commission.

I believe that the CAG-this is what he has told me-will benefit from the engagement of non-executives. Indeed, in so far as has been possible, the CAG has started to operate the new arrangements on a voluntary basis. The non-executives have already been appointed, and I understand from the CAG that they have already made a helpful contribution to the development of the strategy. In relation to the establishment of the NAO as a corporate entity, I am satisfied that sufficient safeguards are in place to reconcile sound governance with audit independence.

I want to put on the record an important point made by Professor Heald. Let us think of the fantastical notion that the Government might put some sort of pressure on the chairman of the board to circumscribe the independence of the CAG. That is extremely unlikely. However, even if the Government attempted it, and even if the chairman listened to their advice, which is also extremely unlikely-why should he?-the CAG could ignore it. I do not know where Professor Heald is coming from.

Even if there were a problem, the CAG would have the right of access straight to the commission. We are not circumventing the commission's powers. It, not the Government, sets the budget of the NAO. Say the CAG were to make critical remarks about the Government. Would the Government have any say over the budget of the NAO? No. Uniquely for a Government body, its budget is set by an independent Committee of this House, the Public Accounts Commission, which by the way is not the client of the NAO. The client of the NAO is the Public Accounts Committee, and that is why the commission sets the budget.

I am afraid that I have to put it on record-it is very important-that Professor Heald is wrong. We are not in any way circumscribing the independence of the CAG, and I am glad that we have had this debate so that we can put that on the record.

It is indeed important that we have had this debate and put that on record. Of course, the Public Accounts Commission took evidence from Professor Heald and disagreed with him. The CAG will continue to have complete independence. The recruitment of the chair is intended to enable the appointment of a strong adviser to support and challenge the CAG, but it will not be the job of the chair to hold the CAG to account. That, of course, is the job of the commission. The Clause ensures that the CAG will continue to be independent of outside influence and interference, as is currently enshrined in the National Audit Act 1983, the relevant provisions of which the clause reproduces.

As the Chairman of the Public Accounts Committee, Mr. Leigh, mentioned, schedule 7 provides that the NAO and the CAG should jointly prepare a strategy for the approval of the commission. That strategy is to set out the national audit functions, a plan for the use of resources and a maximum amount of resources to be provided by the NAO in a particular financial year. It is for the CAG to decide what resources are needed for his core statutory functions, and the NAO has to provide him with those resources. The hon. Gentleman also mentioned the fact that the relationship between the NAO and the CAG will be set out in a code of practice, which must be approved by the commission.

We have had a useful debate, and we have all managed to get on record the importance of the complete discretion and independence of the CAG.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.