New Clause 1 - Accounts and audits

Civil Aviation Bill – in a Public Bill Committee on 13th March 2012.

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‘(1) Section 15 of the Civil Aviation Act 1982 (Accounts and audit) is amended as follows.

(2) In subsection (1), leave out paragraph (c) and insert—

“(c) to send copies of the statement of accounts to the Secretary of State and the National Audit Office before the end of the November following the accounting year to which the statement relates.”.

(3) In subsection (2), leave out paragraph (a) and insert—

“(a) The National Audit Office shall examine, certify and report on each statement of accounts received under subsection (1) and shall lay copies of the statement of accounts and of its report thereon before each House of Parliament.”.’.—(Jim Fitzpatrick.)

Brought up, and read the First time.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport) 4:00 pm, 13th March 2012

I beg to move, That the clause be read a Second time.

It is a pleasure to see you in the Chair again this afternoon, Mrs Riordan. I am happy to be speaking to the new clause, which is the start of the last leg of the Committee’s discussions—unless, of course, Government Members decide that the expertise and wisdom of my excellent colleagues need to be kept out of the Chamber for another day, in which case they might begin to filibuster, although I doubt that that would be in order.

The new clause is straightforward in that it would introduce oversight of the Civil Aviation Authority’s accounts by the National Audit Office. I will not detain the Committee by reading out the details but, as the amendment paper states, the new clause would amend the Civil Aviation Act 1982 so that copies of statements were sent to the National Audit Office, and provide that the NAO should examine, certify and report on each statement of accounts that it receives.

The new clause outlines clearly that we believe, as does the Select Committee, that it would be useful if the Minister explained why the CAA, uniquely among major economic regulators, is not subject to audit by the National Audit Office. Will she also say why the Bill contains no references to audit or value-for-money arrangements, despite the significant changes to the powers and governance arrangements of the CAA, mentioned by my hon. Friend the Member for Blackley and Broughton when he spoke to previous amendments? Ofgem, Ofwat and Ofcom are all economic regulators and funded by private companies, but will still be subject  to National Audit Office oversight. I should be grateful if the Minister explained why the Civil Aviation Authority should be an exception; that seems somewhat anomalous.

In oral evidence to the Select Committee, Dame Deidre Hutton, the chair of the CAA, noted that the NAO had approached the Department for Transport on several occasions about the CAA not being within its remit, although it had not approached her.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

The shadow Minister is being generous in allowing me to intervene. The Bill’s view that the CAA does not need to be subjected to NAO scrutiny was reflected in the conclusions of the Pilling review. My understanding is that the hon. Gentleman was aviation Minister when the previous Government responded to that review. Perhaps he will share with the Committee what worries he expressed at the time about the proposal to exempt the CAA from NAO scrutiny.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

The right hon. Lady refers back to my time as aviation Minister, which was three years ago; the world has moved on a little in three years. We now have the Bill. As I said earlier, my hon. Friend the Member for Blackley and Broughton said that the CAA has been given additional powers in respect of aviation, and that it will obviously have to have additional staff to deal with those additional powers, which will incur additional costs. When we discuss value for money and new clause 2, which complements the new clause that we are debating, we will argue that the CAA should have a new remit that is appropriate to its new powers.

The world has moved on since we were in government and reached our conclusion, and the Minister has introduced changes in the Bill; it is not exactly the same level playing field as it was a few years ago. It is not inappropriate to suggest that what is proposed for the CAA is anomalous to the position of Ofgem, Ofwat and Ofcom. Even the chair of the CAA said that she had been in touch with the DFT about such matters and that the NAO seemed to consider itself capable of and suitable for conducting audits of the CAA’s activity.

Furthermore, yesterday I received the British Air Transport Association’s view, which I am sure was circulated to other members of the Committee. Dr Barry Humphreys, who gave evidence to the Committee, wanted in particular to raise the matter prior to today’s debate. He referred to the Minister’s evidence that addressed CAA efficiency; she gave evidence on the same day as he did. The Minister noted—this is me quoting Dr Humphreys quoting the Minister, so there are three sets of parentheses—that

“The CAA is already subject to audit and scrutiny… The simple fact is that the CAA is not dealing with public money”— that is an important point—

“it is dealing with the money of the aviation and airline industry.”

That is the point that my hon. Friend the Member for Blackley and Broughton made when he moved amendment 6 just before the Committee adjourned. The Minister continued:

“The CAA is funded by the industry, and the NAO’s functions are primarily focused on taking account and keeping track of taxpayers’ money... I find it…instructive that, as far as I can see, not one piece of evidence to the Transport Committee mentioned this as an issue of concern to the people affected by the Bill.”––[Official Report, Civil Aviation Public Bill Committee, 23 February 2012; c. 82, Q185.]

Dr Humphreys says:

“The Minister’s statement raises several issues. First, the CAA is indeed subject to audit and scrutiny, just as any company is. However, such audits focus almost wholly on the application of the correct accountancy standards and the avoidance of fraud. Auditors of company accounts are not normally expected to address whether a company is efficient or wasting money. There is no evidence that the CAA’s auditors have adopted a different approach.

Secondly, just because the CAA is almost wholly financed by private funds, with no taxpayer money involved, is hardly a reason to allow inefficiency and waste.”

That affects new clause 2. He continues:

“There has to be a system of checks and balances to ensure future CAA management is held to account. Originally, the predecessor of the National Audit Office fulfilled this role, but…this was subsequently changed.”

There are clearly strong views within the industry.

Photo of Graham Stringer Graham Stringer Labour, Blackley and Broughton

The point that my hon. Friend makes is overwhelming and takes us back to clause 2, which states that only efficiency and economy, not effectiveness, are expected of the CAA, and one would expect the National Audit Office to bring that forward. The issue is particularly worrying because the CAA will get a lot of powers, particularly affecting airports and the aviation industry as a whole, through which it could accumulate a lot of costs.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport)

My hon. Friend reinforces the point he made when he moved amendment 6 this morning. He suggested that there may not necessarily be an appropriate balance between costs apportioned to airports and costs apportioned to airlines. The CAA is taking on additional powers. When the hon. Member for Amber Valley moved his amendment this morning—I am sorry to raise his excellent group of amendments again—he mentioned the CAA’s additional powers and its additional requirement to collate information. [ Interruption. ] I wish the Government Whip would not look at the hon. Member for Amber Valley in such a warm and friendly way, because he may be misinterpreted.

The CAA will need to recruit staff to build a degree of bureaucracy to meet its new requirements. As my hon. Friend the Member for Blackley and Broughton said, we need to get the balance right and, as Dr Humphreys says, we need to ensure that the CAA is unfettered and that the bureaucracy it has to build to perform the functions that the Government require of it is neither costly nor disproportionately passed on to airports, airlines and, ultimately, passengers.

We believe that the NAO is an appropriate body to fulfil the role of ensuring efficiency and economy, which is why I have moved new clause 1 as the first of our two new clauses. We will be grateful to hear what the Minister has to say. If she cannot persuade us, we will press the new clause to a vote.

Photo of Theresa Villiers Theresa Villiers The Minister of State, Department for Transport

I have listened carefully to the shadow Minister. This is an important issue and he raises some important points. Although I take those concerns seriously, I cannot support new clause 1. I certainly will continue to reflect on this matter and the points made by the shadow Minister, including those he has quoted from BATA and those made by other stakeholders. I will explain why I do not think new clause 1 is appropriate or justified.

First, on a technical matter, to have effect the new clause should refer to the Comptroller and Auditor General rather than the National Audit Office. A consequential amendment would also be needed to schedule 4 of the National Audit Act 1983, which excludes the CAA from NAO scrutiny in respect of the use of its resources in discharging its functions.

I turn now to the important substantive issues raised by the Opposition. I am not convinced that there are compelling reasons to believe that NAO scrutiny would deliver a better result than that delivered by the current mechanisms through which the CAA’s functions are audited and scrutinised. I fully agree that the Comptroller and Auditor General and his staff at the NAO do a highly effective job within their remit. However, I am not persuaded that the current arrangements for scrutinising the CAA are defective or inadequate in a way that would justify new clause 1.

Moreover, as I said in evidence, the National Audit Office is tasked with keeping track of taxpayers’ money, and the income that the CAA receives from the aviation industry is not public spending. The vast majority of the CAA’s income is not from the taxpayer; only about £3 million came from the taxpayer in 2010-11. Parliament recognised the funding status of the CAA in removing the NAO’s role in 1984. The issue was considered again, as I said in my intervention, in 2008 by Sir Joseph Pilling in the strategic review of the CAA that the previous Government asked him to carry out. Sir Joseph concluded:

“In the light of the CAA’s existing audit arrangements and the opportunity to build on them in the way I have described… I see no need for the National Audit Office to be involved directly with the CAA.”

The previous Government appeared to give a fairly broad welcome to Sir Joseph’s conclusions and we have no indication that at the time Ministers raised concerns about the NAO point. I have certainly taken on board the response of the shadow Minister and his view that matters have changed, but I cannot see that the changes put forward in the Bill would have a material impact on those decisions. I cannot see a justification for taking a different approach from that adopted by Labour Ministers.

It is true that other industry-funded regulators come under the scrutiny of the NAO, but, unlike the CAA, those are generally either non-ministerial Government Departments or rely on Government funding for a significant proportion of their income. The CAA’s situation is different from regulators such as, for example, the Office of Rail Regulation. Although the ORR is funded by industry licences, it is distinct because of the high level of public funding that the rail industry receives. The aviation industry, by contrast, does not receive a public subsidy. The income of the CAA from the aviation industry comes through fees and licences and not from public spending.

I have not heard evidence to convince me that the existing arrangements for financial scrutiny of the CAA are defective. Perhaps I can provide some reassurance by going through the robust mechanisms available for scrutiny of the CAA. The Secretary of State appoints the CAA’s external auditors; presents the CAA’s accounts to Parliament by placing the annual reporting statement in the Library; is involved in the development of the corporate plan; approves, with the Treasury’s consent, the CAA’s national loans and overdraft each year; sets  the CAA’s required rate of return on capital; and approves the remuneration of the chairman and non-executive members of the CAA board. That oversight, combined with the work of the CAA’s independent auditors themselves, gives a strong incentive to secure value for money and offers accountability to Parliament.

In addition, as we discussed earlier in the debate on clause 100, the CAA consults on its charges and fees. That provides ample opportunity for industry to raise concerns, with judicial review as an option where appropriate.

The CAA has implemented the Pilling recommendation on value for money audits. Value for money considerations are now integrated into the CAA’s audit programme, and the CAA’s audit partners provide the expertise to ensure that those considerations are explored fully. Furthermore, the efficiency, effectiveness and economic issues are specifically identified in reports submitted to the Department for Transport.

As I have said, in the light of those conclusions I am unable to conclude that the current arrangements for scrutiny of the CAA’s activities are inadequate, which is why I cannot support new clause 1. However, I will continue to reflect on the matter and consider whether further reassurance can be given to Parliament on Report.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport) 4:15 pm, 13th March 2012

I am grateful to the Minister for her explanation. She teased us this morning when she said she fully agreed with our amendment—and then proceeded to demolish it; however, there is a little more encouragement here. She said she will reflect on what we said, and said again before sitting down that she will continue to reflect on what we said. However, we want to press new clause 1 to a vote to demonstrate the strength of feeling on this side of the Committee. Notwithstanding the technical details, Sir Joseph Pilling did not formally recommend any oversight or technical arrangements for the Comptroller and Auditor General or the National Audit Office. The principle is valid and relevant. The Minister says that the money is from not the taxpayer, but the industry. The taxpayer pays the fares and charges, and feeds the industry, so it is an indirect association. The taxpayer would expect us to be mindful of trying to keep travel costs down.

I hear what the Minister says about the Secretary of State’s role in reviewing the accounts and appointing non-executive directors, which we discussed earlier. I am not persuaded by the point about parliamentary scrutiny, because so much material goes through Parliament. The NAO looks at the accounts of other regulators, and could very easily do a similar job for the CAA. That would provide the Secretary of State, when she is signing off on the accounts, with the certainty that not only departmental officials but the people responsible for overseeing public finances generally had examined them. That would give a stronger incentive to the CAA to stay on the right side of efficiency.

With respect to the Minister and her explanation, we do not wish to withdraw the new clause.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 9, Noes 14.

Division number 12 Decision Time — New Clause 1 - Accounts and audits

Aye: 9 MPs

No: 14 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.