Skip to main content

The Crown Agents: Fay Report

Volume 387: debated on Thursday 1 December 1977

The text on this page has been created from Hansard archive content, it may contain typographical errors.

4.8 p.m.

My Lords, with the leave of the House, I will now repeat a Statement being made by my right honourable friend the Minister for Overseas Development in another place about the Crown Agents. The Statement is as follows:

"I am today publishing the report of the Committee which I appointed in 1975, under the chairmanship of His Honour Judge Fay, to 'inquire into the circumstances which led to the Crown Agents requesting financial assistance from the Government'.

"These terms of reference involved the Committee in detailed examination of events which were complex and spread over a period of years. I am most grateful to Judge Fay and his two colleagues for the impressive way in which they carried out this heavy task. Their report is of the greatest value, and the Government and the Crown Agents accept the report as a fair and searching investigation into the facts.

"Simultaneously, I have published a Statement giving the Government's reactions to this report. Annexed to the Statement is the report of the earlier inquiry into the Crown Agents under the chairmanship of Sir Matthew Stevenson. This report is relevant to the events described in the Fay Report, and is quoted in that report. The Government has therefore decided, with the agreement of Sir Matthew Stevenson and his colleagues, that it is now right to publish the earlier report. I have, of course, consulted the right honourable Member for Bridlington and the Opposition on this matter.

"Honourable Members will no doubt be studying all these documents, and I do not want to go over the ground again now. But the House will expect me to mention the salient points.

"Firstly, the Fay Report shows that a serious state of affairs was allowed to develop over the years up to 1974. As a result, the Crown Agents incurred losses which are likely to prove to be over £200 million.

"As the Government Statement says, we accept the report's conclusion that there were serious shortcomings on the part of the Crown Agents, and that Departments and other outside agencies contributed to the failure to prevent losses.

"These losses have led the Government to emphasise on several occasions that they stand behind the Crown Agents. A Government grant of £85 million was made in December 1974, and we shall be ready to put proposals to Parliament as and when further assistance is necessary. As a result, the Crown Agents' overseas principals need not fear that any part of the funds which they entrusted to the Crown Agents will be lost.

"I must stress that the Crown Agents' traditional functions played no part in causing these heavy losses. Nor have they been harmed by those losses.

"The losses arose solely from 'an unwise decision to operate as financiers on own-account', to use the words in paragraph 422 of the Fay Report. That course of action has now been decisively reversed.

"The Government Statement summarises the corrective action which my predecessors and I have taken since 1974 in respect of defects in the relations between the Crown Agents and Departments which the report identifies as major factors in the disasters.

"There was uncertainty over the Crown Agents' status and relationship to the Government; these have been defined. The Government were receiving wholly inadequate information on the Crown Agents' affairs—new arrangements now ensure that we get full and regular reports. Whereas there was insufficient control or direction by Ministers, clear directives now exist, and I am consulted by the Crown Agents on all major policy decisions.

"I am therefore confident that nothing like the events described in the report could ever happen again. I lay great stress on this, because the Crown Agents' future in providing their valuable services to their principals depends on it.

"However, we cannot leave past events there. The question of responsibility for what went wrong needs more specific investigation than the Fay Committee were able to give it. My right honourable friend the Prime Minister is therefore setting up a Committee of Inquiry under the chairmanship of Sir Carl Aarvold with the following terms of reference:
'In the light of the Report of the Fay Committee, to assess the nature and gravity of any neglect or breach of duty by individuals which may have occurred in the Crown Agents, the Ministry of Overseas Development, the Treasury, the Bank of England and the Exchequer and Audit Department'.
"That inquiry will mark the end of a sorry chapter in the Crown Agents' long and otherwise distinguished history. Looking to the future, I am confident that under their present Board the Crown Agents can maintain and develop their traditional services soundly and successfully, to the benefit of all their principals."

My Lords, that concludes the Statement.

4.12 p.m.

My Lords, the noble Baroness has repeated an important and, in many respects, a grave Statement. It consists really of four parts: the Statement which the noble Baroness has just made, the longer Statement to which she referred and which presumably is being put in the Library, the report of Sir Matthew Stevenson which is contained in the longer Statement, and the Fay Report which accompanies this Statement. I agree with the noble Baroness that it would be imprudent for us to comment in any detail until we have had the opportunity of reading the various reports.

However, one or two things clearly come to mind and one of them is very important: that is, over the years the Crown Agents have performed a remarkable service for Governments overseas, who are their principals, as well as for the British Government. They still, in changed circumstances, perform a remarkable role, and it is to be much regretted that an incident such as this, long and complicated though it may be, should have cast an adverse shadow on such a reputable organisation. The Statement which the noble Baroness has just made, f was glad to see, emphasised again the fact that the Government are prepared to stand behind the Crown Agents to the extent that they will protect the interests of the principals and also protect their confidence. In that respect, they are entirely correct and I would welcome their decision.

However, it is important to keep a correct balance in the affairs of the Crown Agents. It would be wrong if public attention were to be focused on the had points at the expense of the good ones. The fact is that even now they deal with over 100 Governments and manage some £1·75 thousand million. That is a colossal amount of money by any standards. The distinction should be drawn between the growth of the Crown Agents' traditional services, to which the noble Baroness quite rightly referred, as opposed to what is called "the realisation account", where the problems over secondary banking and investment came. The traditional services have indeed improved under the able chairmanship of Mr. John Cuckney, particularly over the last three years.

Having said that, I wonder whether I might ask the noble Baroness questions referring to three particular points. The Statement says that the Crown Agents have made losses in excess of £200 million. Of course, the Government made available in 1974 £85 million. Has that all been used up? Do the Government intend to produce more money and, if so, how will it be produced, by loans or by grants? Clearly, the Crown Agents must be subjected to proper accountability and I wonder whether the noble Baroness can say whether it is the Government's intention to incorporate the Crown Agents and make them, like other statutory authorities, subject to financial disciplines and also responsible to a Minister? If I so, will that be done by means of a Bill or by other means? Perhaps we can be told how it will be done.

The third point is the fact that there is to be another inquiry. I thought the words were impressive, when we were told the terms of reference:
"… to assess the nature and gravity of any neglect or breach of duty by individuals which may have occurred in the Crown Agents, the Ministry of Overseas Development, the Treasury, the Bank of England and the Exchequer and Audit Department".
It appears that the inquiry might be almost like another Crichel Down inquiry. I would not wish to embarrass the noble Baroness and if she does not wish to answer these questions now I can understand. Having said that, may I further ask whether she would not agree that people who are to be interviewed or called to give evidence must have full and proper rights when called as witnesses and that they should be properly represented? I wonder whether such an inquiry will be of a judicial nature or, if not, what form it will take. When inquiries like this occur, a lot of mud inevitably gets flung around and some inevitably sticks unjustly. I hope that the Government will see that all is done to ensure that such an inquiry is as fair, as just and as penetrating as possible.

This problem goes back a long way and I wonder whether in this inquiry there is likely to be any cut-off point in time. Some people involved in the considerations have inevitably retired and some have probably died; so it is very important to ensure that, as it were, the dead are not slandered because they have no possibiility of refuting any arguments which may be put up against them. Much hurt and harm can easily be done against the names and indeed the honour of people who have given a great deal to their organisations and they are unable to stand up and testify against evidence which is given. That can give rise to great harm and hurt to the individuals' relations who are still living. I hope that the Government will take steps to ensure that the rectitude and the memory of those who were involved and who may not now be here will not be unjustly damaged.

4.20 p.m.

My Lords, I should like to thank the noble Baroness for presenting us with this Statement. I sympathise with her in having to express regret so publicly for these huge losses of over £200 million. I do not want to comment on these at this moment, because, clearly, we shall have to have a debate about the Fay Report and its implications. But what I should like to ask the noble Baroness is about the inordinate delay in our getting these papers. They have just arrived today, 1st December. The Committee was appointed in 1975 and the Stevenson Report was completed on, I think, 24th March 1972. I have just had a moment merely to glance at the papers, but it is because there has been this inordinate delay in presenting the facts and figures that this situation arose in the first place. So I should like to ask the noble Baroness why we have had to wait so long to hear this bad news.

As I said, I do not want to dwell on the figures at this stage, but there are points in the noble Baroness's Statement with which I must disagree, and with which I believe my noble friends on these Benches also disagree. The noble Baroness said that:
"The losses arose solely from an unwise decision to operate as financiers on own-account'."
I do not accept that at all. I feel that there were very major factors at work internally in the audit department, in the accounting procedures and in the presentation of operating figures, which do not in any way justify the statement that it was merely bad investment or poor business judgment.

The noble Baroness went on to say that the Government Statement summarises the corrective action, but it seems to admit a very important change in procedure of the Crown Agents' accounts which took place in 1975. If she looks at the 1975 accounts, she will see that they were separated into a realisation account, the account with all the bad news, so to speak, and an operating account. Then there is a very interesting statement:
"The object of preparing the accompanying accounts has been to show substantially the same amount of information as if' the body were corporate and subject to the requirements of the Companies Act."
What I want to ask is: what on earth were they using before that? If the Auditor-General was quite happy to prepare accounts which bore no relation to the requirements of the Companies Act, then I think we are beginning to see where the trouble started to arise with the Crown Agents. They were not proper books or accounts in any way like those kept by a normal company in law.

This, at least, is a major step forward and I should like to emphasise what has already been said in answer to the noble Baroness: this distinction should be clearly made between the Operating Account and the fine work that the Crown Agents are doing today, and will continue to do, and the problems that occur on the Realisation Account. If the noble Baroness can reassure us on these Benches that this distinction has been made clear in these accounts, it will be most helpful. I am afraid I cannot share the confidence of the noble Baroness that nothing like this will ever happen again, certainly until she is able to clarify my mind and the minds of my colleagues about proper accounting procedures—

My Lords, I do not wish to intervene too much and stop Members, but I hope the noble Lord will appreciate that this is only a Statement and is not a debate, though one can ask suitable questions.

My Lords, with the leave of the House, may I make one final point concerning the announcement that the noble Baroness's right honourable friend the Prime Minister intends to set up a Committee of Inquiry to look into this matter? I should merely like to say that I wonder whether this could be reconsidered: first, for the reasons already given this afternoon, and, secondly, because I do not see any value in kicking over old leaves in the hope that they may fall back on to the tree. I do not see that any value can be gained by producing yet another report in perhaps another two years' time.

My Lords, I shall do my best to answer the barrage of questions which I have received from both noble Lords. But may I start by thanking the noble Earl, Lord Ferrers, very warmly indeed for what he said about the work of the Crown Agents? They do the most splendid work, and have done for more than 140 years. I am most grateful to him for what he said, because it is very important to this country, as well as to the Principals who use the Crown Agents. So that for that I am most grateful. If I may deal with his last point first, I can assure him completely that on the Committee of Inquiry, which we feel to be necessary because there has been so much said, so many innuendoes and, indeed, so much revealed, there will be no slander of the dead, and people who cannot answer back will not be dishonoured. I can give the noble Earl that assurance. I am quite sure that my right honourable friend the Prime Minister would not set up such an inquiry.

I believe that the noble Earl's first question was about the £85 million grant and the answer is, No, that is still there. Small amounts have been taken out temporarily, but it is there because there is no problem of liquidity, as the deposits are continuing to come in. As he himself said, the traditional business goes on even better than it did before the appointment of the new Board. So the noble Earl can be quite clear about that. We may have to come and ask for more money, and of course we must come to Parliament for that. Thtat is the way in which it will be done—properly. Yes, we propose to have an incorporation, and that will be done in the form of a Bill as soon as we can. I cannot, of course, promise it for this Session, but we shall do it as soon as we can, because, in answer to the noble Lord, Lord Tanlaw, we believe that that is the proper way to run the Crown Agents. I am also confident in what my right honourable friend has said that it will not happen again, precisely because we propose to incorporate the Crown Agents. The methods of accountability, of responsibility to Parliament and dealings with Ministers—all those things will be settled once and for all, and I am confident that it will not occur again. As a matter of fact, I am confident that it will not occur now, before incorporation, because of the excellence of the new Board which has been set up and the instructions which my right honourable friend has given to them.

I will try to cover all the points, and hope not to take too long. It is, of course, for the Committee to determine how it will carry out its investigation, but I am quite sure that any person coming before it will be entitled to bring along whatever legal advice, in the shape of a representative or of written evidence, he or she wants. It is, of course, for the Committee to decide how it will operate. It will be held in private, but the results will be published. I can assure the House of that, too. The noble Lord asked whether there would be a debate. If I put my other hat on, I am quite sure that the noble Earl, Lord St. Aldwyn, will be coming along and asking me whether we can have a debate, and of course we should like one.

The noble Lord asked about the delay. I have no conscience about the delay. As soon as the Government discovered in 1974 a lot of the truth of what had been going on, we set up the full, proper Board under Mr. John Cuckney. We did that very quickly indeed and a few months later, when we saw what was happening, we set up the Fay Committee. Two and a half years is not a long time for a committee such as the Fay Committee to take. Ordinary company inquiries often take that long, and sometimes even longer. That was not a long time. There was practically no delay on publication, because we felt that Parliament had taken such an interest in this matter that it must be published when Parliament was in Session Furthermore, we felt that it should be published in such a way that it protected from privilege and that Parliament could look at it and debate it in full. So we do not feel that there was a delay in the setting up of the report, in the reporting of the report or in the publication of the report. We have no bad conscience at all about that.

I hope that I have not missed out anything. There is one other point which I must make to the noble Lord, Lord Tanlaw. He said that he did not accept the Fay Report's view that the losses were solely on own-account. But what I quoted was from the Fay Report and I can give him one more quotation from page 2:
"… what went wrong was a part only of the Crown Agents' financial activities".
The troubles affected only their own-account operations. I think that that answers him.

My Lords, I wonder whether I may ask the noble Baroness one question, although first I should like to say that Sir Carl Aarvold is very acceptable to everybody in this House and is known to most of us. The noble Baroness very rightly said that anybody who may be adversely affected by this new inquiry would be allowed to bring legal representation. Of course, legal representation costs a great deal of money. Where tribunals of a different kind are set up, it is very often the case that the Government are prepared to meet the whole or part of the costs of representation. If the noble Baroness is not prepared to answer that question now, I wonder whether she would consider the possibility of assisting those who may be adversely affected if they feel it necessary in their own interests to obtain legal representation, which can cost hundreds or even thousands of pounds?

My Lords, I am grateful to the noble and learned Lord for raising that point. I am not optimistic about the Government providing money for that kind of assistance, but I will go into the matter and let the noble and learned Lord know.

My Lords, although this is not the place to denigrate the Crown Agents, I should like to ask my noble friend whether we shall have the opportunity ultimately of a constructive discussion on the basis of this report. Secondly, as somebody who a few years ago put down Questions and then withdrew them when I heard about what had been happening, may I ask my noble friend whether or not she is aware that there seems to be error on the accountancy side of both the Bank of England and the Treasury in not noticing the secrecy and the manifestation of ingrown bureaucracy in the Crown Agents in the distant past? I have never seen a report before in a Blue Book. It states: "The office had lost its sense of direction in the spiritual sense." Although it may be unfashionable to use the phrase "the spiritual sense", nevertheless there is quite a lot of it in the world today and we could replace that spiritual sense in this debate when the opportunity occurs.

My Lords, I have already told the House that we shall hope to have a debate at some point. Perhaps I may add to the very apt quotation that my noble friend has just given. Judge Fay also used the words "folly and euphoria", which sometimes apply in this House, too.