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4.8 pm

Mr. George Osborne (Tatton): I congratulate my hon. Friend the Member for South Norfolk (Mr. Bacon) on his speech and, in particular, on yet again mentioning his local hospital. He is truly adept at getting his local hospital into almost any speech and Committee sitting, and as a result he will no doubt get good coverage in the Eastern Daily Press tomorrow morning.

Like my hon. Friend and other Members who have spoken, I am extremely honoured to be a member of the Public Accounts Committee and to take part in this debate. I was a Government special adviser at the late lamented Ministry of Agriculture, Fisheries and Food in the days when "special" and "adviser" were not dirty words, which my hon. Friend the Member for Aylesbury (Mr. Lidington) will remember. I remember discussing with Ministers the introduction of multi-billion-pound BSE compensation schemes. I remember the permanent secretary telling the Ministers, "It's all right for you; you just have to go before the departmental Select Committees. I'm the one who has to appear before the PAC." It was at that moment that I decided that, should I get into Parliament, I would try to become a member of the PAC, as it seemed like the right place to be. I was delighted when, by the mysterious powers of selection that the House uses to choose members on Select Committees, I found myself serving on the PAC.

I genuinely feel that serving on the PAC has been about the most rewarding aspect of my work at Westminster since being elected. It is not only I, a Member for just seven months, who thinks so; refreshingly, the hon. Member for City of Durham (Mr. Steinberg), who has been a Member for 15 years, takes the same view. That shows what interesting and valuable work the PAC does. Like other Committee members who have spoken, I pay tribute to the people who support our work including, obviously, the National Audit Office, the Comptroller and Auditor General and their large staff, but also the people who service the Committee directly. Everyone has paid tribute to Ken Brown, but I also thank Nicholas Wright, who has stepped into his shoes. The Committee Clerk has an important function in servicing our work, and I pay tribute to both men.

I thank Committee members, a couple of whom are still in the Chamber, for their friendly and generous welcome of new Committee members, The bipartisan—tripartisan, I should say, since the hon. Member for Newbury is here—nature of the Committee is its greatest strength. In our party-political world, the fact that all parties are represented on the Committee and that we agree reports together gives us enormous authority. Serving on the Committee is even more pleasant now that we are under the chairmanship of my hon. Friend the Member for Gainsborough (Mr. Leigh). He had a hard act to follow, it is fair to say, but he has done so with great aplomb and humour; I wholly approve of his relaxed and sceptical approach. I fully support people who, in seeking to reform

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Parliament, say that the Chairman of the PAC should be paid the same as Cabinet Ministers and get a Government car. I very much hope that my hon. Friend bears that in mind when he is deciding whom to call in the next meeting.

Finally, I pay tribute to my right hon. Friend the Member for Haltemprice and Howden (David Davis) for raising the profile of the PAC. He has gone from the difficult job of sorting out the civil service to the almost impossible job of sorting out my party, in which I wish him every success, since the future of Conservative Members depends on it. When I was thinking of applying to become a Committee member, he told me that it would be a crash course in government. He was right; even though I have previously worked as a Government adviser, it is fascinating to see different aspects of Government work in Committee.

In the seven months in which I have served on the Committee, we have examined the intricacies of air pollution policy and what it is like in the royal train, and we have witnessed some major successes. Despite problems with the hearing itself, the introduction of income tax self-assessment was an example of a massive project that was delivered on time and to budget, with savings in advance of those that were originally planned. I am afraid that we have also witnessed woeful failures, as Members have already mentioned. Most Committee members would probably agree that the most shocking and alarming hearing in recent months was the one last week on inappropriate adjustments to NHS waiting lists. That is a soft description of a shocking report on a gross abuse in the NHS.

From what I have seen as a Committee member—I hasten to add that I have served as one for only seven months—the PAC works best when it fulfils what, I imagine, was its primary function when it was established by Gladstone, and operates as a forensic watchdog on behalf of the taxpayer, with a deterrent effect on the misuse and waste of public money. Returning to my anecdote about my days as a special adviser, when accounting officers are forced to approve an item of Government expenditure, somewhere in the back of their mind they should ask whether they could justify it to the PAC if they had to. That is our primary function. When Customs and Excise allowed hundreds of millions of pounds to be lost in alcohol duty fraud in a period of just three years because of lax enforcement and inadequate controls, its chairman must account for its failure before the PAC.

We also looked at the NIRS2 information technology project and the cost of that overhaul. Tens of millions of pounds were spent because the people in charge did not anticipate changes to the welfare system; the project was not flexible enough to allow those changes to be built in without a massive sum being spent. As the hon. Member for Newbury said, by the time those people finally realised that that was problem, they had only one option, which was to stay with the existing contractor.

Those are examples of the primary function of the PAC. At the risk of creating more disunity in the Conservative party, I disagree with my hon. Friends the Member for South Norfolk and for Bognor Regis and Littlehampton (Mr. Gibb) about looking at relatively small items of Government expenditure, as well as large

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items. Whatever the size of the budget that accounting officers manage, the fact that they may have to appear before the PAC has a great deterrent effect.

Mr. Bacon: I do not believe that we should not look at small items. On the contrary, important lessons about openness, transparency, accountability and the right way to go about procurement and risk management can be learned from small cases just as much as large ones. I was merely pointing out that there are huge gaping holes in government which are not getting enough attention.

Mr. Osborne: I am grateful to my hon. Friend. I fully support what other Members have said about Lord Sharman's recommendations. One gaping hole is the BBC; another is the Financial Services Authority. It will be interesting to see if the Financial Secretary to the Treasury says something about the Sharman report in his reply, but perhaps we shall have wait even more months for a response. However, my hon. Friend made a good point.

The PAC is less successful when we try to get to grips with broad and nebulous issues, when there are not hard facts and figures, and there is not someone who is clearly accountable. I enjoyed our recent hearing on modern policy making in government—I enjoyed cross-examining the permanent secretary at the Cabinet Office about how many strategy units were looking at transport policy—but, nevertheless, we were not dealing with hard facts and a proper accounting officer. That was a less successful hearing. Perhaps we can look at that when we are sipping champagne and eating caviar on our away day; I hope that that away day does not come before the PAC, as we would have a bit of a constitutional crisis if it did.

There is a genuine issue at stake: how do the PAC and the National Audit Office stay on top of the Whitehall landscape, which is undoubtedly changing, with a profusion of targets, initiatives, such as the private finance initiative, strategy units, aspirations, agencies and so on? As someone said to me, it has more units than the British Army and more tsars than the Russian empire. The PAC must get to grips with that and do what we do best—concentrate ruthlessly on a certain target or agency, examine the facts and see whether the benefits outweigh the costs. We should get behind the rhetoric, find out whether public money is being well spent and pore over the accounts. We should draw general lessons from the particular, rather than trying to do it the other way round. We should bear that general point in mind when considering the future of our work.

The general lesson that has struck me most in the work of the PAC concerns the danger of arbitrary targets; I shall concentrate on that for the rest of my speech. There is a tendency in government—this is not a party political point, as this happened under previous Conservative Governments—to pluck arbitrary targets from the air and impose them on the civil service. Such targets often sound very nice—the obvious example is cutting waiting lists—but the result is often huge distortion in the way in which public services are delivered, as perverse incentives can emerge through attempts to meet them.

The Committee saw such effects during our recent consideration of air quality. The Government have a reasonable aspiration to reduce pollution in the atmosphere. No one could disagree with that aim, but in

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seeking to achieve it, they have produced nine arbitrary targets. They want to reduce carbon dioxide by X amount, particles by Y amount and so on. When one considers how the targets were arrived at, one sees that, in this particular case, those who were responsible for them used pretty uncertain emissions forecasts that depended on unreliable factors such as projected economic and transport growth and all sorts of things that people find difficult to predict. Using that information, they produced a forecast of emissions and fed it into a computer model that was in itself extremely complicated and prone to error.

Using that model, those involved formulated targets for air quality that depended in turn on variables such as the state of the weather. They then mish-mashed those targets with evidence of the health effects of pollution on individuals—more information that was pretty uncertain and unreliable—and suddenly produced nine targets. When they were doing that work, they had no idea about the targets' impact on society, the economy, public services, industry and so on. The one study that they carried out, which considered the cost of trying to achieve one of the targets in London alone, found that it would cost £100 million—and even then, the target would not be achieved.

That is the danger of picking arbitrary targets. As I said, we saw it most powerfully in terms of NHS waiting lists. As we all know, the waiting lists initiative imposed the arbitrary target of reducing in-patient waiting lists by 100,000. I shall not get into a party-political argument about whether that was the right thing to do. None the less, I should like to mention an anecdote of the right hon. Member for Swansea, West (Mr. Williams), who is a wily dog in the Committee and a great source of entertainment. He said that Tony Crosland had told him that Governments spend four years trying to cover up the mistakes that they make in the first six months in office.

It is tempting to apply that principle to the waiting list initiative, but I shall stick to the simple issue of its administration and deal with how it affected hospital admissions. The National Audit Office took a detailed look at the matter, on which the Committee has already had two hearings. The relevant report has been mentioned today. It is clear that immense pressure was exerted from the centre to ensure that the targets were met. It was probably political pressure. The targets gave rise to a range of very perverse incentives. Out-patient lists mushroomed. These so-called waiting lists for the waiting lists almost doubled to 450,000 people. Obviously, that happened because the pressure to produce the in-patient lists meant that people were pushed on to out-patient lists.

Even more seriously, the National Audit Office found that there had been a significant distortion of clinical priorities. In producing its report, it surveyed more than 550 consultants. It found that 52 per cent.—more than half of all those who were sampled—said that working to meet the NHS waiting list targets meant that they had to treat patients in a different order from that which their clinical condition properly indicated. Some 20 per cent. of consultants said that they gave such treatment regularly. Indeed, when the NAO report was published, one orthopaedic surgeon, Dr. Gordon McLellan, from Oldchurch hospital in Essex, said:

which was that clinical distortion was occurring.

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Distortion was also evident at GP level. We considered in a hearing the effect of the North Staffordshire NHS trust giving £1,000 incentives for GPs to meet out-patient referral targets. In other words, there were incentives for GPs to stop referring people to hospitals so that those hospitals would have a better chance of meeting their waiting list targets. As is widely known, in at least nine trusts, that abuse went far beyond the distortion of clinical priorities and involved deliberate fraud and manipulation of waiting lists. Patients' records were altered and patients were inappropriately suspended. Some were not added to the list until the month of their appointment. Most scandalously, people were deliberately offered admission dates when it was known that holidays had been scheduled. The NAO found that at least 6,000 patients in nine trusts had been affected.

When the chief executive of the trust came before the Committee, I did not find his answers very satisfactory. Frankly, I did not find convincing his assurance that the practice that I have described was not widespread, but was limited to the nine trusts that the NAO happened to investigate. Indeed, when I tabled a written question to the Health Secretary asking about the number of trusts in which more than 10 per cent. of patients were suspended from the in-patient list at any one time, I was told that there were 35 such trusts, including my own, the East Cheshire NHS trust. In one trust in Walsall, more than 30 per cent. of patients are suspended from the list at any one time. Although the Health Secretary says that on-the-spot inspections will now take place, I think that the Department of Health should adopt the NAO report's recommendation and conduct a proper investigation into trusts where evidence—on, for example, suspension percentages—suggests that there is a likelihood that some distortion might have taken place.

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