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Audit and Accountability (Central Government)

3.31 pm

The Chief Secretary to the Treasury (Mr. Andrew Smith): With permission, Mr. Speaker, I should like to make a statement on the Government's response to Lord Sharman's report, "Holding to Account", which made recommendations about audit and accountability in central Government. Copies of our response are available in the Vote Office.

The structure of audit and accountability, springing from the Gladstonian reforms, is an important matter. The House and the country have benefited enormously from the work of the Comptroller and Auditor General and the National Audit Office. While they are accountable to the House, they have a remit that is independent of both Government and Parliament.

Over the years, Members of the House, and particularly the Public Accounts Committee, have expressed concern that the remit of the Comptroller and Auditor General has become artificially restricted. It has been the policy of the Government to appoint the CAG to audit each non-departmental public body set up since 1997, but despite that commitment to openness, there are still significant areas of central Government where the CAG is not the auditor, including about 50 non-departmental public bodies that had been established previously with auditors appointed by individual Secretaries of State. In a number of areas, the CAG is also dependent on negotiated administrative access.

In debates on the Government Resources and Accounts Bill, the subject of the CAG's remit was raised and I undertook to review the position. Accordingly, I set up an independent review of audit and accountability in central Government to look at all areas of the accountability framework and to take evidence from interested parties. I am grateful to Lord Sharman for leading that review, and to all members of the steering committee, including, when he was Chairman of the Public Accounts Committee, the right hon. Member for Haltemprice and Howden (David Davis), my right hon. Friend the Member for Swansea, West (Mr. Williams) and the hon. Member for Newbury (Mr. Rendel).

Lord Sharman reached independent conclusions and made recommendations that were addressed to the Government, the Comptroller and Auditor General, the Public Accounts Committee and the Public Accounts Commission. The response that I am publishing today sets out the Government's position on Lord Sharman's report. In considering Lord Sharman's recommendations, I have been mindful that reforms need to command confidence on both sides of the House. They also need to be workable, and I am very grateful for the constructive discussions that have taken place with the CAG and his staff and which are reflected in the response.

I am pleased to inform the House that the Government have accepted the main recommendations that Lord Sharman directed to the Government and that we support those addressed to others. There are five central recommendations. First, the Government agree that the Comptroller and Auditor General should audit all non-departmental public bodies. That will make him the auditor of bodies such as the Environment Agency, English Partnerships, English Heritage and the Housing

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Corporation. Secondly, subject to legislation, that extension to non-departmental public bodies will include those that are established as companies, for example the Student Loans Company, the Film Council and the National Consumer Council. Thirdly, the Government agree that the Comptroller and Auditor General should have statutory access to the documents needed for his audit work in place of the current non-statutory arrangements. We welcome arrangements to ensure that that right of access is exercised to minimise any additional burdens on either public or private sector bodies.

Access by the Comptroller and Auditor General to documents will be extended by right, for example, to registered social landlords, train operating companies and contractors, including those in private finance initiative contracts. Fourthly, the Government accept that information underpinning reports on progress against targets on public service agreements must be reliable. We therefore propose the extension of external validation of departmental data systems relating to those targets. The Government intend to invite the Comptroller and Auditor General to take responsibility for the validation of such data systems, usually on the basis of a three-yearly review.

Finally, the Government welcome Lord Sharman's acknowledgement of the steps being taken to promote strong management and innovation across government in the delivery of public services. Before implementing those proposals, the Government will consult bodies affected by the changes. I am confident that the proposals that we are setting out today will strengthen audit and accountability and improve transparency in the interests of this House and all those we represent. I commend the new arrangements to the House.

Mr. John Bercow (Buckingham): May I begin by thanking the Chief Secretary to the Treasury for his statement and for allowing me advance sight of it? I warmly welcome, as I suspect do many right hon. and hon. Members on both sides of the House, the initial establishment of the Sharman committee which, the right hon. Gentleman will acknowledge, followed insistent pressure during the passage of the Government Resources and Accounts Bill from my immediate predecessor as shadow Chief Secretary, my hon. Friend the Member for West Dorset (Mr. Letwin) and, importantly, my right hon. Friend the Member for Haltemprice and Howden (David Davis), now the chairman of the Conservative party but then, of course, the respected Chairman of the Public Accounts Committee.

The Chief Secretary was right to acknowledge the importance of the work of the steering committee, to congratulate my right hon. Friend the Member for Haltemprice and Howden and, in addition, to acknowledge the important contributions of the right hon. Member for Swansea, West (Mr. Williams) and the hon. Member for Newbury (Mr. Rendel). I cannot help wondering whether the Chief Secretary should be subjected to a little independent audit himself. After all, Lord Sharman reported on 13 February 2001, 393 days ago. There has been justifiable consternation at the inordinate delay in the Government's reply. Lord Sharman has complained, as has the Chairman of the Public Accounts Commission, the right hon. Member for Swansea, West, bemoaning a delay which he described as "abnormally long". Baroness Noakes, a distinguished

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former president of the Institute of Chartered Accountants in England and Wales, lamented Ministers sitting on their hands. Lord McIntosh of Haringey, as recently as 26 February, was under the misapprehension in a debate in the other place that the report had been published; he said that he was "completely astonished" to discover that it had not been.

As for the substance of this important issue, no one can overstate the importance of strong and independent audit of public expenditure or, indeed, of accountability for the way in which public money is used. The Chief Secretary was right to pay warm tribute to the Comptroller and Auditor General and to the National Audit Office. I echo that tribute. Their work is invaluable, and so is the important report of Lord Sharman.

I shall pose a number of questions to the Chief Secretary. We welcome the extension of the power of audit to all non-departmental public bodies. Does the right hon. Gentleman agree that as there are 1,025 such bodies the length and breadth of the United Kingdom, which employ 30,000 people and spend approximately £25,000 million, it is right that they should be comprehensively audited and investigated? Transparency is of the essence.

Does the Chief Secretary agree that there are other routes to effective scrutiny? For example, my right hon. Friend the Leader of the Opposition has urged that the heads of such non-departmental public bodies should appear before Select Committees for confirmation hearings. Does the Chief Secretary agree, or will he at least undertake to consider the suggestion?

Does the right hon. Gentleman agree that the suggestion that the National Audit Office should audit companies which are established by public bodies could usefully have been applied to the New Millennium Experience Company? That is a striking example of a body which, if so scrutinised, would itself have benefited and hugely relieved the overburdened and long-suffering taxpayer.

We endorse the call for external validation of performance information for central Government. Such validation should be progressively developed, not least in relation to public service agreement targets, of which there are about 160 covering key areas of government. Those targets are intended, as the report says,

Does the Chief Secretary agree, therefore, that so far as is possible, the agreement on the credibility of their measurement is of the utmost importance?

Both the report and the new Chairman of the Public Accounts Committee, my hon. Friend the Member for Gainsborough (Mr. Leigh), have argued that access rights of the CAG should be extended to the BBC. After all, in 2000-01, it spent £2,425 million. Gavyn Davies, a very distinguished figure in our national life, having reviewed the funding of the BBC in 1999 and before he became its chairman, recommended that

Why are the Government ignoring that recommendation? Does not the Chief Secretary recognise that there will be widespread disquiet? Has he cooked up a cosy deal with the director-general of the BBC at the expense of licence payers and taxpayers alike?

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We would suggest that the Financial Services Authority should be included in extended audit. Will the Chief Secretary consider extending the Comptroller and Auditor General's access rights to the FSA? Although it is a company limited by guarantee, the FSA is funded by a compulsory levy on firms in its sector and in many ways it resembles a public body. Does the Chief Secretary therefore agree that the grievous distress suffered by many of our constituents as a result of the Equitable Life saga makes a compelling case for greater transparency?

Of course there should be consultation, but can the right hon. Gentleman offer us some reassurance that the consultation will begin at once and that it will be conducted expeditiously?

The Sharman report is a step towards greater transparency in public sector accounting, but does the Chief Secretary agree that there is a great deal further to go? Can he undertake to look at the presentation of Government liabilities under private finance initiative and public-private partnership contracts, so that it is clear what the scale of liabilities is? Is he aware that the Government accounts do not always make it perfectly clear how much is spent on what, particularly when responsibility for a function is divided between different levels of government, and that the public have a right to expect greater transparency?

Does the Chief Secretary agree that the Government have a liability in the form of pensions to be paid in the future that are not reflected in the Government accounts? Has not the Chancellor obscured the presentation of the tax burden through his treatment of the working families tax credit as a tax cut rather than benefit expenditure?

The report and the Government's largely sensible response to it herald an advance in the scope of audit and in the capacity of the legislature to hold the Executive to account. Nevertheless, more needs to be done. The debate will continue. The Opposition will participate in it with the seriousness and resolve that it merits.

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