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  The government's financial management  

This speech was given in the House of Commons on 23 October 2008 as part of the Public Accounts Committee debate

Mr. Richard Bacon (South Norfolk) (Con): It is a great pleasure to follow the hon. Member for Southport (Dr. Pugh), who is a forensic member of the Public Accounts Committee; his contributions are always appreciated by its members, of whichever party.

I endorse the Chairman of the Committee’s comments about public expenditure, and the recent bank recapitalisation, in particular. It is entirely appropriate for the Comptroller and Auditor General to examine the huge sum involved on behalf of taxpayers, and I very much hope that the Treasury agrees with that and will assist the National Audit Office in every way.

Secondly, I wish to comment on the issue of financial management, which has been to the fore in many of the Committee’s reports. When I first starting asking what proportion of principal finance officers—finance directors, as they are now called—in Departments have an accountancy qualification, the answer was 23 per cent. The Treasury recently told us that the answer is now 91 per cent, and although that figure excludes the big exception of the Ministry of Defence’s finance director, who is in charge of 32 billion of expenditure, enormous progress has been made. I congratulate the Treasury and other Departments on starting to realise that the topic is important and that they have to do something about it. The progress should not go unremarked; the Treasury has understood the importance of the matter.

That makes it all the more important for the Treasury to give a sensible account of tax credits, the subject of the Committee’s eighth report. It stated that

“there is little evidence the Department has the scheme”—

the tax credits scheme—

“under control. Many claimants continue to struggle to understand tax credits and why they are overpaid. There have been many complaints about the process for recovering overpayments and the Ombudsman continues to receive and to uphold a large number of complaints...This level of error led the C&AG to qualify his opinion on the HMRC Trust Statement for the fifth year running. The Department still has no targets for reducing error and fraud.”

If we think that financial management is important, and if the Treasury thinks it is important enough to ensure that qualified finance directors are in place across Whitehall, surely it is important enough to ensure that the department that comes directly under the Treasury’s own control—Her Majesty’s Revenue and Customs, which has the task of collecting the money that we then spend on various public expenditure programmes—is itself under sufficiently tight financial management that it can account for how it spends its money. At the moment, it is unable to do so—it has not been able to do so for several years. I hope that we will be told when the Treasury expects the Comptroller and Auditor General to be able to sign off HMRC’s accounts as clean, because it is only right that what is good for other Departments should be good for the Treasury and its subsidiary departments.

I wish to make another quick point about tax credits. A settlement was reached between EDS and HMRC concerning the tax credits fiasco. The Treasury originally
claimed that EDS should pay it 209 million, but that was later cut to an agreed settlement figure of 71 million. Only about 44 million of that was paid in cash or near cash, the remainder, 26.5 million, was to come from future revenues on contracts that EDS had not yet won with government. In other words, it is to come from future business. Apart from the fact that that gave Government Departments a rather strong incentive to award EDS further business despite, rather than because of, its track record, it has been clear that over the past two and half to three years since the agreement was reached hardly any money has been paid. Most of the 26.5 million is still unpaid; a few hundreds of thousands have been paid and there was one payment of 20,000. The chairman of HMRC for the time being knows that every time he comes before the Committee—unfortunately, I was abroad when he came before us last time, in early October—I shall ask him how much money he has had. He always comes prepared with the answer. Indeed, his distinguished predecessor Paul Gray, who honourably resigned over the issue of the missing discs, said that he would have been most disappointed had the question not been asked. I will continue to ask the question.

Dr. Pugh: I am sorry that the hon. Gentleman missed the last occasion, but the question was asked in one form or another and litigation was threatened by the chief executive of HMRC. I do not think that we believed him, but the hon. Gentleman might be interested in that observation.

Mr. Bacon: I am grateful to the hon. Gentleman, who brings me to the point that I was about to make, which is that the various representatives of HMRC have made it very clear that they have been documenting millions of pages of material relating to the case so that they can, if necessary, litigate. But they really ought not to have to. It is in the nature of large scale computer contracts that they hardly ever go to litigation because, at the end of the day, the only people who win are the lawyers. It is much better to avoid litigation. However, EDS should recognise its responsibilities in this area.

If one goes to the Vote Office and asks for the PAC bundle, one is given all this material I have beside me. My hon. Friend the Member for Tiverton and Honiton (Angela Browning) said that she was rather intimidated by it; after all, it was Fidel Castro who said that any speech of less than four hours cannot be doing any good. I was tempted to be a little more expansive, but the Chairman reminded me that it is impolite to speak for longer than the Chairman himself. He only spoke for 20 minutes, so I will have to restrain myself.

I wanted to comment briefly on QinetiQ, which seems to have displayed some unwelcome tendencies among civil servants. Lord Gilbert, the former Labour Defence Minister, said on the “Today” programme about Sir John Chisholm, the boss of QinetiQ:

“Never once in my presence did Sir John Chisholm indicate that he might have a conflict of interest or he was going privately to be enriched by what was going on.”

In the Defence Committee, the hon. Member for Crawley (Laura Moffatt) also quizzed Sir John Chisholm at great length about whether or not there was a financial gain for him and whether he was likely to get shares.

The transcript can be seen on page 19 of the evidence. It was absolutely clear that he evaded telling anyone that he was going to benefit financially or through shares. The Chairman of the Defence Committee said:

“You know what I am getting at. I do not want to see people leaving the Ministry of Defence who have been part of the negotiation... and within 6 months 12 months or so ending up on a tripled salary.”

We know that, for an investment of 130,000, Sir John Chisholm ended up with 25 million of equity in the business. It is probably a bit less than that now, but the principle still applies. No safeguards were put in place. The permanent under-secretary, Bill Jeffrey, made it clear to us that there were no safeguards. The Treasury must revisit the whole issue of QinetiQ and make sure that in any future transactions of that kind, better safeguards are put in place. Many of our constituents are very angry about it and many parliamentary colleagues were very angry about the fact that such a transaction was allowed to occur.

I wanted briefly to mention the progress on the Rural Payments Agency, which the right hon. Member for Islwyn (Mr. Touhig) mentioned. Johnston McNeill, the chief executive of the agency, came before us and I was quite impressed by his evidence. He gave quite a good account of himself. I have read in detail the Environment, Food and Rural Affairs Committee report on the whole fiasco and he did have a lot of responsibility. But it is also clear that that should have been shared more widely.

I find it extraordinary that an agency with the title of the Rural Payments Agency had the job of making payments but was unable to tell farmers either the date when they would get their payments or how much they had already been paid. I once worked out the number of payments per employee of the agency, and I think that it was 29. The employees could have been sent out to the farms, with a day for travel there, a day on the farm and a day for travel back, and the whole thing could still have been done and dusted in three months if the payments had been made by personal visit and manually. If people phone their banks, they can find out if they have received a payment and for how much, but that so-called payments agency was unable to provide those figures, which speaks eloquently of the scale of its failure.

I hope that the Treasury studies the reports from the PAC and the Environment, Food and Rural Affairs Committee and tries to learn the lessons. I agree with the right hon. Member for Islwyn that not enough effort is always made to learn the lessons, and that must change.

There is a hopeful straw in the wind, because the Treasury has appointed Mr. Martin Read, the former boss of Logica, to try to teach it how to run IT projects and to jettison them as quickly as possible when it becomes apparent that they have gone wrong, again. There was a tremendous headline in a story in an online magazine about the appointment, although it may not be entirely parliamentary:

“Ex-Logica boss to teach UK.gov how to identify crap IT”.

The project apparently involves Mr. Read looking at how to keep

“dedicated teams on projects from start to finish”

and at

“not being afraid to abandon a project just because it’s high profile”.

However, the article points out:

“Both those aims would run totally counter to the traditional...way of doing things. The very essence of politics and public sector work is to never finish a project and to get out while the going’s good. And because no one has a start to finish view of a particular project, no-one can really see how crippled it is, so the chances of anyone sticking their neck on the line and saying it should be pulled are next to zero.”

I hope that that is too cynical a view and that Mr. Read’s work will yield some benefits. The fact that he was forced out of Logica after a profit warning following a European buying spree in 2007—so that he presumably bought the companies involved at the top of the market—causes me some concern, but I wish him well.

My final remarks concern the national programme for IT in the health service. We do not have a report on that before us, although it is a long-term project that has been running for some six years, and is therefore now six years late. Two years ago it had been running for four years and was four years late, so little change there. There has been a development since we last had a chance to discuss it—the withdrawal of one of the major contractors, Fujitsu. Baroness Thornton described its departure in the other place as “a sign of strength”, which is an interesting way to put it. Essentially, Fujitsu was prepared to fulfil the terms of its contract, but the Government have said that they would rather keep the project money than have that happen, thus risking a 700 million lawsuit, which—according to the press—Fujitsu is now threatening. And that is a sign of strength, apparently. It reminds me of Tom Lehrer’s comment when Henry Kissinger received the Nobel peace prize that it was the end of satire. If that is a sign of strength, what would be a sign of weakness?


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