Budget Responsibility and National Audit Bill [HL]

Lord Touhig Excerpts

Monday 8th November 2010 Lords Chamber

[Lord Touhig]

My Lords, I am delighted to follow the noble Baroness, Lady Browning. She and I served for a number of years on the Public Accounts Committee in the other place. She was a formidable inquisitor; woe betide any senior official from any department who came before us and who did not really get to the point and answer her questions. I am sure that the Minister will take note of that.

As your Lordships will be aware, the Public Accounts Committee works very closely with the National Audit Office and the Comptroller and Auditor General produces his value-for-money assessments for the committee. As a result of the experience which I had in serving on the committee, I have been able to witness at first hand and appreciate the tremendous work that the National Audit Office does and how important the audits carried out by the Comptroller and Auditor General are in keeping a check on how the Government spend taxpayers’ money. As a result, I am mindful that when we are considering reforming the way in which the National Audit Office and the Comptroller and Auditor General operate, we must ensure that we do not undermine the independence of their capacity to scrutinise public spending.

In considering the Bill, we must satisfy ourselves that the measures which it contains will strengthen the independence and internal governance of the National Audit Office and not undermine them at all. Crucial to that is the operational independence of the Comptroller and Auditor General. As the Public Accounts Commission noted in its 15th report, the Comptroller and Auditor General’s independence is an,

“absolute requirement for effective audit, and … is the cornerstone of integrity in public finance”,

in the United Kingdom. It is therefore vital that nothing is allowed to prevent the Comptroller and Auditor General from forming independent judgements and deciding what value-for-money assessments it is appropriate to make.

It would therefore be unacceptable if the NAO board were able to prevent the Comptroller and Auditor General from conducting certain audits or were to constrain his audit decisions, not least as this would lead to the relationship between the board and the Comptroller and Auditor General becoming untenable. I therefore welcome the fact that this legislation does not infringe on the Comptroller and Auditor General’s freedom to decide how to conduct value-for-money assessments of government departments. In that respect, the legislation preserves the vital operational independence of the C&AG, while seeking to improve internal systems of governance within the NAO.

However, while the Comptroller and Auditor General must have operational independence, he must still be capable of being held to account for his decisions. That is the proper role of the NAO board. In setting out how the board will carry out this function, the legislation sensibly separates the Comptroller and Auditor General’s statutory and non-statutory work. We should be rightly proud of the international reputation of the National Audit Office, which is such that it is asked to carry out work in other parts of the world and for organisations other than the Government. However, by giving the board the power to veto such work, the legislation places a check on the C&AG to ensure that the core function of the NAO and its public work are not undermined by any other activities. That is a sensible precaution and precisely the sort of function that the board should be carrying out.

It is entirely logical that the NAO board should set the overall strategy for the National Audit Office. This will allow the board to guide the balance of the Comptroller and Auditor General’s programme of work, which complements its power to veto non-statutory work and so ensure that the NAO properly fulfils its role in protecting the tax payer. It also allows the board to challenge the Comptroller and Auditor General if he departs from what has been agreed, and to call on him to explain why an audit has or has not taken place. Clearly, we hope that there will be a harmonious relationship between the Comptroller and Auditor General and the NAO board, but these arrangements make proper provision where such harmony is absent.

Protecting the independence of the Comptroller and Auditor General means not only preventing others from influencing which audits are and are not carried out, but ensuring that the Comptroller and Auditor General is seen to be independent. This clearly means that none of his decisions should be seen as being born out of self-interest. With the introduction of the 10-year term limit for the Comptroller and Auditor General there will be a real prospect that, on leaving office, former Comptrollers and Auditors General will seek alternative employment rather than simply retiring. If former Comptrollers and Auditors General were to be able to accept a position in any body that had been audited by the NAO or that was in the gift of the Government, then there would be a danger that some people could perceive such an appointment as being a reward for actions while in office. This would clearly undermine the integrity of the Comptroller and Auditor General and lead to actions in office being called into question through speculation about his future.

The Public Accounts Commission suggested in its fifteenth report that Comptrollers and Auditors General should be prohibited from accepting any post that the NAO has audited or that is in the gift of Government. It is proposed that, where conflicts of interest could arise if he were to accept any other position, the Comptroller and Auditor General should abide by the view of the Advisory Committee on Public Appointments on the appropriateness of his taking such a post.

The Bill, however, waters those two proposals down. It prevents the Comptroller and Auditor General from providing services to the Crown or to a body that is required to open its accounts to the NAO for audit only for a period of two years, rather than the lifetime envisaged by the commission. On some levels it is understandable that we should not wish to put such a restrictive limit on former Comptrollers and Auditors General, but I suggest that two years may be too short a period of time. If we accept that the greatest risk is of attempts by the Executive to influence the Comptroller and Auditor General, then the sensible course would surely be for the time limit to be of five years so that there was the real prospect of the Government having changed by the time that the Comptroller and Auditor General was eligible to be appointed to another position. Such a time limit would mean that the Comptroller and Auditor General would not be able to rely with any certainty on the then current Government still being in office at the time he was eligible to accept Crown appointments, and hence he could prevent any suggestion of political interference in his report.

The Bill also reduces the obligation that former Comptrollers and Auditors General must abide by the decisions of the Advisory Committee on Public Appointments. Instead, it states only that former Comptrollers and Auditors General should consult with such people as are specified by the Public Accounts Commission. The original, firmer objective is preferable, otherwise a former Comptroller and Auditor General could take up a post that was wholly inappropriate for him to do so. If the Bill is not amended to include such provisions, it would be sensible for provisions having that effect to be introduced in any contract of employment drawn up for a new Comptroller and Auditor General. With the exception of these reservations regarding the employment of former Comptrollers and Auditors General, I am broadly in favour of the Bill as it relates to the National Audit Office and I encourage the Government to address the concerns that I and others are expressing today.

I also welcome the measures in the Bill that grant legislative competence to the Welsh Assembly in relation to the Auditor General for Wales. The new competence would allow the Assembly to put in place new governance arrangements in relation to the Auditor General for Wales that could be similar to those which the Bill will introduce for the NAO and Comptroller and Auditor General. This is a sensible step, which will allow the Assembly to take the necessary action in order to ensure that there is a thorough and properly operating Auditor General in Wales, auditing areas that operate in Wales alone. The Bill introduces provisions to protect the Auditor General's independence from the Assembly. That, too, is to be welcomed. With such safeguards, we are enabling the Assembly to have a Comptroller and Auditor General fit for the 21st century.

Independence is vital for the Office for Budget Responsibility; we have heard a number of comments from noble Lords about that already today. Earlier this year we saw the reputation of that office being called into question when figures that assisted the Government were released before a session of Prime Minister’s Question Time. I therefore welcome the fact that the Bill requires the Treasury Committee of the other place to consent to the appointment of members of the Office for Budget Responsibility.

This is a good Bill in principle and it does many sensible things. However, our role is to question it and improve it where we can. I hope that the Government will listen to the views expressed today and will seek to amend the Bill accordingly. If they do that, we can be content that the legislation that is now being considered by your Lordships’ House will be fit for the 21st century.