---

Public Accounts

I beg to move,"That this House takes note of the 1st to the 6th, the 8th to the 11th, the 13th to the 23rd and the 31st Reports of the Committee of Public Accounts of Session 2008-09, and of the Treasury Minutes on these Reports (Cm 7568, 7622 and 7636)." It gives me great pleasure to move this motion, which stands in my name and that of other honourable members of the Public Accounts Committee. Whatever else the election will bring—we do not know—it will call time on my chairmanship, and I will have to make way for whoever is fortunate enough to become the 46th Chairman of the Public Accounts Committee. Our next bi-annual PAC debate is not scheduled until next April, and I suspect hon. Members may have other things on their mind rather than being in this Chamber to attend that debate. This will probably be the last such debate of this Parliament, so it provides a good opportunity to reprise on what we have tried to achieve in this Parliament and to reflect on what we might achieve during the rest of it. Our special position in Parliament, which is reflected in these debates, stems from our focus, which is completely unlike that of any other Committee. We focus on the actions of senior civil servants in implementing policy, rather than those of Ministers in deciding it. We never interview Ministers; we only ever interview civil servants—no doubt to the relief of many a Minister. Talking of Ministers, I must welcome the Exchequer Secretary to her place. I hope that she enjoys her current incarnation as much as she did her previous time as a very valued member of our Committee. I am sure that her personal experience on the PAC convinced her, as has mine, of the desire of all members of the Committee to maintain our independence of thought and to divorce ourselves from the murky old waters of partisanship. One of the nice things about this three or four-hour debate is that we do not get involved in party politics at all. One thing that I am most proud of in the 391—or whatever number it is—Committee meetings I have chaired is that we have never had a single vote, not one. I shall thank all members of the Committee later, but at this point I would like particularly to thank the Father of the House, the right hon. Member for Swansea, West (Mr. Williams), who cannot be here today as he has had to go back to Swansea for constituency engagements. He is a long-term member of the Committee who has given me invaluable advice for many years. I am very grateful to him for what he has done for the Committee and I particularly want to put my thanks on record. So what is our purpose? It is simple—to demand that taxpayers’ money is well spent in the pursuit of better public services. Whichever corner of whichever political party one sits in, how could one disagree with such objectives, especially in the face of the fiscal tsunami that is breaking around us? We are all aware of our difficult financial plight, as national debt has reached worrying levels and small businesses and ordinary people are struggling to keep their heads above water. So, whichever party finds itself occupying the Government Benches after the next election, then, sensible ways to reduce public spending will be all the vogue. The current talk of cuts and savings highlights the importance of the Committee. There is spin and there is counter-spin, but those are not our department: it is to protecting the taxpayer’s money that the Committee dedicates itself, week in, week out. I believe that the reports we are debating, and the many other reports that we have produced for this Parliament, shine an unbiased light on how Government can save literally billions—thousands of millions—of pounds by applying good sense and common practice to public services. There are no radical new ideas; it is simply a case of plain common sense in the way in which public services are run. Sometimes our hearings leave me wondering whether too many people ignore the basics of good administration because it all seems too obvious, or because it has all been said before. Perhaps it has been said before, but that does not necessarily mean that it has been applied. Civil servants do not need to reinvent the wheel. Simply by looking at the problem, taking on board sound advice and acting in a planned, considered and thorough way, they can save themselves time, money, and a grilling from the PAC. Whoever wins the next general election, I hope that we shall not immediately see a blaze of new initiatives and new policies. The first thing that we should do is do well what we have already undertaken. According to information that I have received from the National Audit Office, over the eight years since I took over the chairmanship of the Committee in 2001 the action taken by Departments in response to our recommendations, including those in some of the reports that we are considering today, has saved the taxpayer, at a conservative estimate—that is "conservative" with a small "c"—more than £4 billion. I wish that all the members of the Committee could have received a 1 per cent. commission. I do not know whether The Daily Telegraph is listening to this, but that would have given each of us the tidy sum of £40 million. I think that we would have been cheap at the price. We have heard so much bad publicity about Parliament over the past six months; what a pity that newspapers are so uninterested in the solid hard work of Committees such as ours. I do not think that £4 billion is a record to be sneezed at. I must thank all Committee members past and present. Later, of course, I shall be delivering my usual thanks to the National Audit Office. Let me say straight away that we on the Committee claim absolutely no credit for this. The reason why ours is the most effective Committee in Parliament is that we have 800 civil servants working for us. They provide us with the bullets and we fire them. However, I must thank all the Committee members who work so hard firing those bullets at the civil servants who appear before us. In debates such as this, there is a danger of our becoming too self-satisfied. Let me quickly come down to earth, and say that we have not achieved nearly enough. We can still do much more. If we extrapolate the savings that have already been achieved in some areas, or examine the scope for bringing the costs of functions that are common across Government into line with the best, we see that billions more could be saved. There is absolutely no doubt about it. That is not me speaking. According to the National Audit Office, whose members are not politicians and are not trying to make a political point, we could save billions more without changing a single policy, simply by doing better what we are already doing. I have written to the Chancellor of the Exchequer, and I shall place the letter in the Library because it is a public document. It will also be copied to my hon. Friend the Member for Tatton (Mr. Osborne), the shadow Chancellor, and the hon. Member for Twickenham (Dr. Cable), the Liberal Democrat shadow Chancellor. It will come as no surprise that in writing the letter, I received some help from the National Audit Office. It contains the accumulated thinking of myself and the NAO on how we could save more money by doing things more efficiently. I hope that it will serve as a useful adjunct to public debate over the next six months. It sets out five areas where savings and improvements have been made, and where we think that more could be achieved: better financial management, better information management, reducing complexity and improving processes, exploiting the scale of spend, and improved outcomes. I hope that the House will forgive me if I go through them one by one. I think it terribly important, because I am not sure that anyone else has conducted a study of this kind independently. We believe that £560 million has already been achieved by Government implementation of some of our recommendations. Effective financial management helps Departments to manage their budgets, to allocate resources to achieve priorities, and to deliver services cost-effectively. The introduction of resource accounting in 2001-02 was intended to realise those benefits, but the financial management of Departments remains a long way short of the world-class aspirations of Government. Basic management actions can result in considerable financial savings. Here are just a few examples of what can still be achieved. As I said, we believe that we have saved about £4 billion. What can still be achieved? The sum of £29.2 million is still to be saved through improvements in Ministry of Defence stockholding. The MOD has a long history of holding too much stock of the wrong type, and of shortages of key items needed on deployed operations. We have produced numerous reports on that. We concluded that the MOD needed to take radical action to tackle its inventory management and bring it up to the standards of modern supply-chain management. Following our report, the MOD agreed an impact of £29.2 million. As for museums and galleries’ commercial operations, £15.3 million could be saved. Museums and galleries’ poor business skills meant they were making losses on activities that were supposed to generate income. The Committee recommended that they set five-year targets for income growth with milestones supported by plans based on a systematic review of their assets and opportunities, an appreciation of which areas are most profitable, and an assessment of the risks. We can give further examples of what could be achieved. For instance, there are potential savings of £1.3 billion in reducing running costs. Benchmarking costs would enable Departments to see how they compare with others. That is a very simple thing which does not happen enough in Whitehall. Considerable scope for savings exists in other running costs. For example— this calculation is based on the 2007-08 figures— £464 million could be saved if the Department for Communities and Local Government, the Home Office, the Department for Environment, Food and Rural Affairs and the Department for Transport brought their accommodation costs per staff member down to the same level as those of the former Department for Business, Enterprise and Regulatory Reform, while £85 million could be saved if the accommodation costs of the Department for Work and Pensions were brought down to the level of those of Her Majesty’s Revenue and Customs, and £813 million could be saved if the DCLG, DEFRA, the DWP and HMRC brought their IT costs per staff member down to the level of those of the Ministry of Justice. I am sorry to rattle through those figures. They are all in writing and they will all be in the Library, but it is important for me to put them on the record to show that by means of simple benchmarking—if every Whitehall Department performs at the level of the best—we can achieve enormous savings in Government. The next big area of potential saving is, of course, staff numbers. I am not talking about changing a single policy. I am not talking about affecting any efficiency in the front line. I am not talking about taking away a single nurse, doctor, teacher or soldier. We believe, however, that there are potential savings of £2.5 billion to be made. Some Departments have cut staff numbers in recent years, and they are to be congratulated. I am thinking particularly of the DWP, HMRC and the MOD. Savings in the staff bill have, however, been offset by salary increases above inflation, redundancy payments and increased staff numbers in the health sector, the Home Office and the Ministry of Justice. We believe that an estimated £1.7 billion could be saved across Government if all Departments matched the level of staff reductions achieved by the DWP, HMRC and the MOD. If the higher-cost Departments reduced their average costs to the level of those of the Ministry of Justice, the saving across Departments would be about £800 million. We believe that those savings could be achieved without any impact on the front line. Talking of not affecting the front line, what about back office costs? We believe that there are potential savings of £1.4 billion. In 2007, the Cabinet Office estimated that £1.4 billion of the £7 billion that central Government spend annually on finance and human resources—is that not an incredible figure?—could be saved if Departments shared back-office functions. Despite considerable discussion and planning, so far we regret that achievements have been limited. So far £1.2 billion has been saved as a result of the work of the Committee but better quality information and better use of information can improve the quality of services and stem the leakage of public money through fraud and poor compliance. Our work to improve information management has led to impacts totalling £1.2 billion. These are some examples of what has been achieved, but the scope for Departments to do more is considerable in terms of better information management. By following our recommendations, HMRC has increased corporation tax yield by improving the way in which it interacts with businesses. HMRC implemented a more structured approach to risk assessment and engages directly in the management boards of businesses that pose higher risks. Levels of television licence fee evasion fell following our recommendations to ensure that the related database was complete and accurate and that anti-evasion activity was better targeted. A total impact of £50.2 million was agreed. The next big area on which we believe more work can be done is reducing complexity and improving processes. Badly designed and overly complex services waste resources and frustrate the citizens who have to use them. From 2001, a total financial impact of £812 million has been agreed including, for example, £110 million from DWP following our recommendations on how to reduce errors, appeals and delay in the medical assessment of sickness and disability benefits. We have identified further areas where simplification can result in significant savings; for example, there is a potential saving of £2.6 billion in public sector construction. Improved processes include reduced volatility and uncertainty in work, funding to allow the supply side to invest in skills and innovation and appointing fully integrated supply chains. These are some of the basic steps needed to release at least £2.6 billion of annual savings in public sector construction. I am sorry to blind the House with all these figures but they are important; we are not talking about cutting the real work of Government but about making Government so much more efficient so that we can all do more to help ordinary people to get on with their lives. Benefits reform is a huge area on which I can touch for only a minute or so. There are potential savings of more than £110 million. Options for reform that should generate efficiency savings over time include simplification of the overall system, on which we could have a three-hour debate alone. We have a hugely complex benefits system in which at least £100 million could be saved. Greater efficiency and innovation in helping people into work and improving the administration of housing benefit and tackling bureaucracy have a potential saving of £10 million. The next area is exploiting the scale of spend. We believe that we have achieved about £1.1 billion-worth of savings so far. As the UK’s biggest customers, the Government have considerable scope to exploit their purchasing power and to improve how they finance and handle commercial contracts. There is virtually no debate about this, but the scale of potential savings is huge. The Committee has published more than 70 reports on private finance initiative deals, and the cumulative effect of our recommendations has led to improvements in the PFI procurement. We do not simply believe that; we know it. Departments are significant consumers of private sector goods and services but have been slow to exploit their bulk purchasing power. They must demonstrate capability in managing large commercial contracts. The Government have not done that very well. Our reports on procurement have generated agreed impacts of £1.1 billion. Implementation of the recommendations across Government led to impacts in 2007 and 2008 totalling £142 million. Prescribing is another huge area. The pharmaceutical industry spends £850 million a year on marketing products to GPs—an incredible sum. We found that the NHS was spending at least £200 million more each year because of GPs prescribing too high a proportion of higher-cost branded medicines. Our recommendations that primary care trusts take steps to ensure GPs prescribe more cost-effectively and on the introduction of benchmarking between primary care trusts resulted in a switch from branded to generic drugs and a saving for the NHS of £157 million—money that can be applied to the front line. We have identified further areas where Government could better exploit their purchasing power. For instance, on food procurement there are potential savings of £220 million. By developing commercial skills and knowledge about the specialist food and catering markets and more joint purchasing, savings of £220 million in food procurement are possible by 2010-11. On goods and services there are potential savings of £520 million. The Office of Government Commerce’s Buying Solutions enables Government to buy goods and services for their portfolio of products and reports, which can result in significant savings, but by driving performance across all activities and enhancing staff skills and incentives, there is potential for at least £520 million of extra savings. We have had reports on the use of consultants and there are potential savings of £408 million. We agree that the Government have made progress in achieving efficiency gains in the use of consultants, but there is a lot further to go. By combining reduced spending with better value for money, there is scope to find £408 million. Our recommendations to improve social and environmental outcomes have resulted in a total agreed impact with the Treasury of £217 million, but there is scope for public bodies to do a lot more. For instance, a fifth of all car crime happens in car parks, but only a small proportion of public bodies across the country has established secure car parks. We recommended actions for the Home Office to raise police detection rates, improve the effectiveness of automated number plate recognition and make car parks more secure. Implementing those actions resulted in a fall of vehicle crime that produced a total agreed impact of £23 million. That is a tiny example in one small area of achieving an impact of £23 million. In 2001, DEFRA estimated that 8 per cent. of the land area in England was at risk from flooding from rivers, tidal rivers and estuaries, and we have all had many representations on that. We recommended that the Environment Agency improve its urgency on flood warning systems to protect life and property. We also concluded that the agency should take action to ensure the most effective use of the funds available for inland flood defences. After DEFRA acted on the Committee’s recommendations, a financial impact of £21 million was agreed in 2006. I apologise for rattling through that and hope that I have not bored the House too much, but I felt that it was terribly important to put on the record what we have achieved so far and what we believe could be achieved. No matter who wins the election, the Treasury has been given a potential saving of £9 billion—not by me, but by the expertise of the NAO officials behind what I have said. There is more we could go through were we allowed more time. What I have read out is by no means a definitive list. For instance, our 14th and 20th reports—on Chinook and on the major projects report—suggest plenty of scope for further improvement in the MOD. There are plenty of other areas on which I have not touched. My quick calculations show more than £9 billion of potential savings waiting to be grasped by the Treasury. That may not have been scrutinised rigorously, line by line, in the Committee, but it indicates clear potential. On this the PAC and the Treasury are on the same side. The Treasury knows that there is great potential to make savings from better administration. Indeed, it has previously set targets to save tens of billions of pounds, not least in the operational efficiency programme, but potential and targets amount to nought without action that realises them, and in many cases the action needed is nothing more radical than effective administration—simply getting the basics right, every time in every Department. I do not claim that that is an original thought, but that does nothing to diminish the value behind the thought. The Committee’s 17th report found another area where getting the basics right would reap rewards. We found that central Government Departments spent a huge amount—more than £12 billion in 2007-08 alone—buying in services such as IT and facilities management. If we buy a service in business, or in real life, we look out for every single pound because we know the other guy is doing just that, but cosy relationships and a lack of control prevail. After analysing those huge contracts, the National Audit Office advised the Committee that about £300 million could be saved each year. It is high time that Departments subjected suppliers to the public sector to the same pressures that those suppliers face in business. No taxpayer’s pound should be an easy pound of profit, but too often it is. In order to show how that can be done, let me give an example that was presented to the Committee. In 2003, the Committee investigated how the Prison Service bought goods and services. To be honest, we were not very impressed, but the Prison Service dealt with our report with sound common sense. It paused, acknowledged the situation, took expert guidance and set about putting things right. The Committee returned to the Prison Service in our sixth report, and we found that changes to its procurement approach had saved £120 million over five years. That is a great achievement, and I am very pleased to give the Prison Service the credit it deserves today. I would say this to officials: "Don’t be shy. When you save money, change a process or control a system and find efficiencies, shout about it." We had the Foreign Office in front of us yesterday; the permanent under-secretary Sir Peter Ricketts appeared before us. It had one of the poorest financial management systems, but it has achieved a great deal. The Treasury must ensure that such good practice is spread around Whitehall. Departmental counterparts must be told how they can achieve it too, to help make it common practice, not best practice. There are too many examples of best practice in Whitehall, in the sense that often what we suggest in a report might be acted on by the Department concerned but other Departments do not take up the recommendations. We have the bundle of reports on the Table before us, and I do not want to go through all of them, because I have taken up enough time. [Interruption.] No, no; it would take too long, and other Members wish to speak. Let me offer a couple of examples, however. I am proud of what we have done in trying to shine a light on some of what I call the Cinderella areas in the NHS—those areas of medicine that were not given the priority that perhaps cancer or heart services were given. The Committee has achieved a great deal in bringing to light deficiencies in how we deal with stroke patients and hospital-acquired infections, for example, and we produced a very good report on end-of-life care. The fact is that most people would prefer not to die in hospital, but because of a lack of NHS and social care support services many people do so when there is no clinical need for them to be there. There is a lack of training in basic end-of-life care among front-line staff. The Department acknowledged in its reply that such care has not always had the priority it should have had and recognised the need to improve the provision of care for adults. I hope that we can make progress on that, therefore. Let me turn to the Commonwealth Development Corporation—I am chopping and changing from one issue to another, as we deal with every part of Whitehall. The level and nature of CDC executive remuneration is relevant to its efficiency. The remuneration of the chief executive—of what is, after all, a public body—increased from £383,000 in 2003 to £970,000 in 2007. We were not very impressed. Admittedly, that huge increase in his public sector salary, now amounting to the best part of £1 million a year, reflected CDC’s exceptional financial performance, and advisers concluded that CDC executives were paid below the median for such a group. That is fair enough in that they could probably earn even more in the private sector. However, CDC does not compete for cash to invest, offers high job satisfaction and has since 2004 successfully recruited and retained talented staff, so why are we paying so much to the chief executive? On Her Majesty’s Revenue and Customs, tax credits and income tax, it is true that policy changes have helped HMRC to reduce recoverable overpayments from about £1.9 billion to £1 billion annually, but it has not given claimants the support that they need in making claims and reporting changes in circumstances, and it is planning to introduce new measures again. HMRC estimates that in 2006-07 claimant error and fraud led to incorrect payments of between £1.31 billion and £1.54 billion. That shows the amount of work that has to be done. We should also remember that these are only a few examples taken from across Whitehall. The Ministry of Defence’s ability to sustain its nuclear deterrent in the future is dependent on the collaboration of the United States. We found that the new class of submarine is likely to remain in service beyond the extended life of the existing Trident D5 missile, which will be renewed in 2042, and must therefore be compatible with any successor missile developed by the US. The MOD has received a series of assurances from the US that any new missile will be compatible with the UK’s new submarine class, but assurances are not enough. Nevertheless, the concern remains that the MOD has no direct control over the development of new missiles. The Chinook mark 3 helicopter project has been a catalogue of errors from the very start. We reported on it several times. The original contract is ill defined, preventing easy access to software source coding that was key to enabling certification of airworthiness. Further operational requirements and difficult commercial negotiations led to a protracted five-year negotiation period and slow decision making under a contract known as "fix to field". We have reported on that many times, and we hope things are finally coming right. I shall offer one final further example, taken from the bundle of documents on the Table, to show what we are trying to achieve. Last but not least, I turn to the national programme for IT in the NHS. We could have a debate on that alone. The Care Records Service is at least four years behind schedule, with the Department’s latest forecast putting completion at 2014-15. By the end of 2008, Lorenzo, the care records software for the north, midlands and east had not been deployed throughout any acute trust and in only one PCT. Given that we are now talking of spending £12 billion, that is not good enough.