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Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2008

Volume 700: debated on Thursday 20 March 2008

rose to move, That the draft order laid before the House on 26 February be approved.

The noble Lord said: My Lords, the order is being made under the Government Resources and Accounts Act 2000 and is intended to make the Comptroller and Auditor-General the statutory auditor for four non-departmental public bodies and for the NHS Direct NHS trust. I am grateful for the assistance that we received from the National Audit Office in preparing these provisions.

This is the fourth time that we have taken such an order through Parliament since 2003, although it is the first time that we have used the order-making powers in the Government Resources and Accounts Act to give the Comptroller and Auditor-General statutory audit responsibility for an NHS trust. It might be helpful if I set the draft order in context.

In 2003, the Government implemented key recommendations made by the noble Lord, Lord Sharman, on audit and accountability in central government. In particular, the Government responded to concerns expressed in Parliament by strengthening the statutory powers of the Comptroller and Auditor- General in two ways: first, by making the Comptroller and Auditor-General the statutory auditor of certain non-departmental public bodies, where he is not already the statutory auditor; and, secondly, by giving the Comptroller and Auditor-General greater powers of access to documents held by bodies in receipt of grants or in relation to contracts with organisations where the Comptroller and Auditor-General is the statutory auditor.

The House may recall that in 2004 and 2005, the Government continued this policy by extending the Comptroller and Auditor-General’s statutory powers in respect of a further six non-departmental public bodies. Since the policy was established, new primary legislation to set up a non-departmental public body usually includes provision for the body to be audited by the Comptroller and Auditor-General. The four non-departmental public bodies affected by the order have either recently been reclassified as non-departmental public bodies or were established under arrangements or legislation in which no provision for audit by the Comptroller and Auditor-General was included. The Treasury has worked with the affected non-departmental public bodies to prepare them for the Comptroller and Auditor-General’s audit. In line with policy, current audit contracts need to run their course before the Comptroller and Auditor-General begins auditing the non-departmental public bodies.

This order is intended to continue the process that Parliament approved in 2003, 2004 and 2005. It provides for the Comptroller and Auditor-General to be made the statutory auditor for the Royal Ulster Constabulary George Cross Foundation, the Independent Living Fund (2006), the Ombudsman for the Board of the Pensions Protection Fund and the Pensions Ombudsman. In doing so, the draft order applies a long-standing policy, endorsed by all sides of the House, that non-departmental public bodies are to be audited by the Comptroller and Auditor-General.

The order also provides for the Comptroller and Auditor General to retain statutory audit responsibility for NHS Direct, even though it has become an NHS trust. I thought that it would be helpful to explain the Government’s reasoning behind this, given that this body is not specifically a non-departmental public body. NHS Direct was formerly a special health authority. Indeed, it was made subject to Comptroller and Auditor- General audit in an earlier order under the Government Resources and Accounts Act. NHS Direct became an NHS trust on 1 April 2007 as part of the implementation of the review into the Department of Health’s arm’s-length bodies. But the National Health Service Act 2006 provides that all NHS Trusts are to be audited by the Audit Commission.

In the Government’s view, however, NHS Direct remains a national body, as opposed to all other NHS trusts that provide services locally. It is right that NHS bodies that provide services locally should be subject to audit by auditors appointed by the Audit Commission. But NHS Direct NHS trust provides services at a national level. Like other similar bodies, it should continue to be audited by the Comptroller and Auditor-General, and this order provides for that.

The proposals in the draft order continue the Government’s commitment to improve parliamentary accountability. I beg to move.

Moved, That the draft order laid before the House on 26 February be approved. 12th report from the Joint Committee on Statutory Instruments.—(Lord Davies of Oldham.)

My Lords, I thank the Minister for introducing the order. I also thank the Minister and the Government Whips Office for their efforts this morning to ensure that we debate the right order. There was some confusion as to whether it included the Churches Conservation Trust, but a revised order, which we understand was laid before your Lordships’ House, was located. The Churches Conservation Trust was within the first order laid but is not within the order that we are debating this afternoon, and we are content with that. I am sure, however, that the Minister will share my concern that those responsible for managing the paperwork processed in your Lordships’ House—admittedly a large task—should identify and learn the lessons from what went wrong in relation to this order.

The House will know that these Benches have always supported the report by the noble Lord, Lord Sharman. It is logical and right that public sector bodies are audited by the Comptroller and Auditor-General and so we support the order. However, I have a couple of points to raise with the Minister—he would not expect to escape for Easter without a little work.

My first point concerns how it is possible today for a government department to create a public body without, at the same time, creating the appropriate audit arrangements. The Independent Living Fund, for example, seems to have been created by a process that avoided parliamentary scrutiny in 2006. What audit arrangements were made at that time? This order applies the audit arrangements with effect from 2007-08 but what about the earlier period? Who audited that? What was the involvement of the DWP’s accounting officer at the time that the fund was set up?

I do not understand how the Pensions Act 2004, which created the PPF Ombudsman, did not at the same time set up the correct audit arrangements. Do parliamentary draftsmen not have audit arrangements in their checklist for new legislation when creating new public bodies? If not, I suggest to the Minister that, in this post-Sharman age, they should.

Can the Minister explain what audit arrangements were applied to the PPF Ombudsman before this financial year, and, perhaps of more concern, what have been the audit arrangements for the pensions ombudsman in the 15 years since the Pension Schemes Act 1993 was passed?

The second area that I wish to deal with is the NHS. I shall not object to the appointment of the C&AG to NHS Direct instead of the Audit Commission. The Government have put forward a local versus national justification for this but the arrangements for NHS audit, as I have argued in the House before, are odd. The C&AG has always audited the summarised accounts of the NHS, but some clever footwork by the Audit Commission allowed it to grab the bulk of NHS audit work when my party’s NHS reforms in 1990 put an end to the nonsense of the Department of Health itself being responsible for auditing the various authorities within the health service. Since then, both the Audit Commission and the NAO have been involved in both financial and value-for-money work. This is now justified as being at a local and national level, but it involves duplication at the level of the NHS overall. A bolder and more logical approach would be to rationalise the NHS audit by using only one public auditor.

That brings me to my third point: whether it is sensible to continue with two public-sector audit systems. The two have already been combined in Scotland and Wales and I understand that the combined organisations work well. Mr John Tiner, who carried out a review of the NAO last year, recommended that, once the governance arrangements of the NAO have been strengthened, a merger of the NAO and the Audit Commission should be pursued. The report gives a number of powerful reasons in favour of merger. Mr Tiner puts six years as the appropriate timescale for reviewing the arrangements. I hope that the Minister will agree that this area should be looked at on a much timelier basis.

My fourth area is the audit of publicly owned companies. When this order was debated in another place, the Exchequer Secretary said in response to a question from my honourable friend Mr David Gauke that 40 to 50 companies were expected to be brought within a similar order to the one that we are debating today. The ability for the C&AG to audit companies was included within the Companies Act 2006—again with our support, although it was done in a rather complicated way. Will the Minister give a timetable for the new order? I believe that the appropriate supervisory arrangements have now been put in place and that the practical obstacle of the former C&AG's chairmanship of the Professional Oversight Board has been dealt with by Sir John Bourn's retirement. We hope that the Government will now move quickly on this and I ask the Minister to say when we will see the relevant order.

My last point concerns Northern Rock. I am sure the Minister does not expect to escape from Northern Rock in any debate these days. Northern Rock remains a company and the C&AG is now able to audit companies. I am sure that the Minister will say that the Government's ownership of Northern Rock is temporary and that it is, therefore, appropriate to stick with commercial auditors. I will not argue that point with him today. But in the mean time, will the Government ensure that the C&AG has access to Northern Rock so that it can follow the eye-watering amounts of public money that have been poured into Northern Rock and so that C&AG can ensure that taxpayers are getting value for money.

The Government Resource and Accounts Act together with the Companies Act give the Government all the powers that they need. They just have to keep true to their own public audit policies and use those powers.

My Lords, I have very little to add to the discussion. If there is a sensible, more coherent way of doing this that avoids two forms of auditing, why are we not using it, as the noble Baroness asked? I wonder whether the Royal Ulster Constabulary George Cross Foundation is the smallest body in the order. Other than that comment, we have no fundamental objection.

My Lords, as always I am grateful to noble Lords for contributing to the debate. I am grateful to the noble Baroness, Lady Noakes, on two grounds. First, she has asked sufficient questions to make for a lively exchange in the last business before the House before Easter and, therefore, has guaranteed that neither she nor I are doing anything else except being entirely constructive about public policy. Secondly, I thank her for her understanding approach to the problems with this order. For a short time, we had the wrong order in the office. I hasten to add that my department, the Treasury, was not at fault, for which I express the greatest relief. The noble Baroness is right that that mistake should not have happened and I have taken steps to ensure that it does not happen again. I apologise for that.

On the general issues that she raises, I begin by saying that the new audit arrangements for several of the bodies to which she refers reflect that they have rather diverse histories. She asked why they were not previously subject to that form of audit. The independent living fund has had a fairly modest and fixed budget over the period and it has been adequate to make awards to all the qualifying applicants. She will appreciate that in that framework there has not been enormous strain on ensuring that the resources are adequate and spent effectively. Nevertheless, we have taken this opportunity to ensure that the fund will now have increasing resources—we have taken steps to account properly for expenditures and its work.

The noble Baroness mentioned the pensions’ body. This is the first time that the Pensions Ombudsman and the Pension Protection Fund Ombudsman have been required to provide annual accounts under the arrangements established on 1 April 2007. Therefore, this is the first time that this issue has arisen in this way. Prior to that, they were within the framework of a department and subject to the departmental budget, which did not give rise to this independent form of accounting. We have taken the opportunity of the order to make sure that, now that they have that independence, they should have it so far as the accounts are concerned as well.

I hear what the noble Baroness says about the NHS trusts. There is a judgment call on the other trusts and how they are audited. She said—with a slight note of regret, I think—that the Audit Commission had been involved early on with regard to the establishment of the trusts under a previous Administration. All along NHS trusts have been identified as providers of local services, as they properly are. Therefore, it is entirely right that they should stay within the framework of the Audit Commission and not be brought under the Comptroller and Auditor-General. NHS Direct provides a national service, which is why we think it is separate and different from all other NHS trusts and have taken the opportunity to put it in the order.

The noble Baroness mentions the merger. Mr Tiner certainly supported the need for closer co-operation between the National Audit Office and the Audit Commission and recommended an exchange of board membership between the two bodies. We want strengthening of their relationships. Further work is to be done on the concept of the merger. She pressed me for some indication of when we would reach conclusions on that matter. I do not have a date for that, but on the other area she talked about—companies—I can be a little more forthcoming. We certainly intend to bring that order through this year, although not in the next few months, and to respond to the point that was well made by her and others.

On that basis—

My Lords, the Minister would not want to forget Northern Rock, and whether the C&AG can have access to it in order to pursue public money wherever it goes.

My Lords, I thought that the day would never arrive when Northern Rock passed me by, but it did momentarily. Now it is sharply back in focus. The noble Baroness conceded that Northern Rock was a company operating at arm’s length from the Government in temporary public ownership, so it will not be subject to government audit in the way a government body would be. However, she knows only too well that the Government need to safeguard big or small amounts of taxpayers’ money. Northern Rock comes into the first category—it is a fairly big amount. She will have to wait until the arrangements for the relationship between the Treasury and Northern Rock are put before the House. That will follow the work done in relation to the Commission and the submission under state aid to Brussels. We have indicated all along that one will follow the other. We will present that position in the fairly near future, and the business plan of Northern Rock will also become clear. If she can exercise her usual patience, I have no doubt that we will have plenty to discuss in the fairly near future on Northern Rock.

On Question, Motion agreed to.

My Lords, in view of the season, I beg to move that the House do now adjourn.

Moved, That the House do now adjourn.—(Lord Bassam of Brighton.)