Alignment (Clear Line of Sight) Project

Edward Leigh Excerpts

Monday 5th July 2010 Commons Chamber

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

I beg to move,

That this House approves the proposals for simplifying the Government’s spending controls and financial reporting to Parliament, as set out in the paper, Alignment (Clear Line of Sight) Project, Cm 7567, of March 2009, and the response of October 2009 to the relevant report of the Liaison Committee (Second Special Report of the Liaison Committee, Session 2008-09, Financial Scrutiny: Parliamentary Control over Government Budgets: Government Response to the Committee’s Second Report of Session 2008-09, HC 1074).

The motion seeks the authority of the House to implement changes to the structure and content of the Supply estimates that set out departmental spending plans and are subject to approval by the House. These changes stem from work that began under the previous Government, and which has enjoyed cross-party support throughout. The aim of the changes is to provide a simpler and more effective system of public spending control.

As hon. Members will remember, the previous Government announced in the Green Paper, “The Governance of Britain”, in June 2007 that they would simplify the spending control framework and the Government’s financial reporting to Parliament further to enhance consistency and transparency at all stages of the process—budgetary spending plans, parliamentary Supply estimates and expenditure outcomes in resource accounts. That will lead to the following: a simpler and more transparent system, making it easier for Parliament to understand and challenge Departments; a strengthening of the existing budgeting framework by underpinning it with parliamentary control; and the streamlining of Government spending documents, making it easier to understand what is happening with public money.

Government’s and Parliament’s control and scrutiny of public spending is currently managed against four different frameworks. First, there are the national accounts, an integrated set of economic accounts covering the whole of the economy. Those accounts are produced by the Office for National Statistics in accordance with the European system of accounts 1995. National accounts are used to determine fiscal performance. Secondly, there are budgets, which are defined by the Treasury and used to control public spending. Budgets are allocated by the Treasury in spending reviews and reported on to Parliament at successive pre-Budget reports and Budgets. Certain elements of budgets are aligned to national accounts definitions. Others, such as those introduced with the move to full resource accounting and budgeting in 2003-04, relate to commercial-style accounting concepts and are designed to improve value-for-money incentives in Departments.

Thirdly, there are Supply estimates, which seek annual parliamentary authority for the expenditure of individual Departments following the plans set out in spending reviews. Estimates are largely, if not entirely, aligned to generally accepted accounting practice—GAAP—accounting definitions, rather than to national accounts, although they do not encompass all of the departmental expenditure and income that would be accounted for under GAAP. There are significant differences between estimates and budgets: about a third of departmental spending in budgets is not included in estimates, and about a sixth of what is included in estimates is not in budgets. Fourthly, there are resource accounts, which report Departments’ actual spending during a particular financial year, following GAAP, as adapted for the public sector. That means that there are some substantial differences compared with budgets and national accounts.

Those four frameworks have developed in different ways over the years for good reasons, since they serve different purposes. However, the result is significant misalignment between the different frameworks, with only two thirds of Government expenditure fully aligned across budgets, estimates and resource accounts.

Current misalignments can broadly be broken down into two categories. First, there are differences in the various boundaries—the entities and spending included in budgets, estimates and accounts. Those cover both different types of income and expenditure within the budgets and the different treatment of entities within respective boundaries. For example, the spending of non-departmental public bodies scores in budgets, but the grant-in-aid paid to those bodies scores in estimates and resource accounts, not their total spending. Secondly, there are differences in the policies. Specific transactions are often treated differently between the three frameworks. Examples include capital grants, provisions and other non-cash items within budgets.

At present, there are significant differences between the ways in which the three main elements of the public spending control framework define and treat expenditure. Those three elements are: departmental budgets as set by the Treasury; departmental Supply estimates as authorised by this House; and departmental resource accounts presented to this House after the year-end. To give just one of many potential examples, departmental estimates and accounts currently include only the spending of the relevant Government Department, whereas budgets also include the expenditure of any non-departmental public body for which the Department is responsible. This means that Departments have different controls against which to manage, and that it is very difficult to track spending from plans through to out-turn. That, in turn, limits the scope for effective parliamentary scrutiny and adds to the complexity of managing public money; it also requires time and effort to reconcile the frameworks.

The principal aims of the proposed changes are therefore to increase the transparency of public spending information; to improve accountability to this House and to the wider public; to make it easier for Government Departments and other public bodies to understand the controls to which they are working; and to provide a more efficient control framework that builds in the right incentives to deliver better value for money.

As I have said, the different frameworks have developed in different ways over the years, and for a range of reasons. For example, international standards have helped determine the definitions of expenditure currently applied within both accounts and budgets, with budgetary definitions being determined by Government but supporting internationally recognised fiscal definitions, and accounting policies reflecting international financial reporting standards adapted for the public sector context. Some misalignments between those frameworks will inevitably remain. What matters most is that they occur only where there is good reason, and that they are properly understood and kept to a minimum.

Budgets and estimates will be fully aligned under the new framework. The remaining misalignments will be with resource accounts—amounting to about £22 billion—where enforcing alignment would be contrary to the principles of the alignment project. By far the largest example, amounting to £19 billion, is the treatment of capital grants paid by Departments to the private sector, local authorities and public corporations. That is because capital grants are treated as resource spending in departmental accounts, reflecting international financial reporting standards, but as capital spending in budgets, reflecting national accounts treatment. As hon. Members will recognise, this is not a straightforward area.

Nevertheless, there is much improvement that can be made while adhering to these standards, and the alignment project represents an excellent opportunity to achieve greater consistency between the different frameworks. The main changes designed to achieve the aims of alignment are the extension of the departmental estimates and accounting boundaries to accommodate non-departmental public bodies and other bodies classified to the central Government sector, bringing their expenditure within the coverage of estimates presented to Parliament for approval. The power to do that, through a Treasury Order listing the bodies to be consolidated into estimates and accounts, was provided in part 5 of the Constitutional Reform and Governance Act 2010.

It is worth spending a couple of minutes reflecting on the different nature of non-departmental public bodies, which vary enormously in size and in the functions they carry out. Consolidation will include bodies that spend very large amounts of public money, such as the Environment Agency and the Legal Services Commission, which will be consolidated within the estimate and accounts of, respectively, the Department for Environment, Food and Rural Affairs, and the Ministry of Justice. Both those bodies spend over £1 billion per annum. Some of these bodies are charities—the national museums and galleries, for example—and others have statutory independence, so it is important that we create alignment in a way that neither constrains their freedom to act nor puts their status at risk. The provisions of the 2010 Act, approved by this House earlier this year, include protection for that independence, so that we can combine operational freedom with financial accountability.

[Mr Edward Leigh (Gainsborough) (Con)]

Does my hon. Friend recall that in 2007, the Treasury Committee acknowledged

“that the requirements of the alignment project mean that it is not possible for Parliament to maintain control over gross totals. We are concerned that without adequate levels of information regarding income, Parliament’s authority may be diminished.”

How can the Minister reassure Parliament that our authority over Supply will not be diminished in any way following alignment?

[Mr Hoban]

My hon. Friend makes an important point and I will come later to the treatment of income in the clear line of sight project, to address in particular the issue he raises.

--- Later in debate ---

[Mr Hoban]

No, I want to make some more progress. A number of Members on both sides of the House wish to participate in this debate, and I am conscious that there is also private business after this.

I want to talk now about the next stage of the alignment process: the coverage of estimates and budgets by including all non-voted budgetary expenditure and income in the estimates presented to Parliament. Parliament will not be asked to approve this spending as it will already have separate legislative authority, but Members will see the full picture of departmental budgetary expenditure. For example, spending financed from the national insurance fund will now be included in the accounts and the estimates, even though it does not have to be voted on annually. Going back to the point raised by my hon. Friend the Member for Gainsborough (Mr Leigh), we will align the treatment of income in estimates with budgetary controls. Income will be retained by the Department, provided it is of a type allowed to be netted off budgets and included in the description of income in estimates. To this end, a new description of all relevant categories of income will be included in estimates and replicated in Supply legislation. That will ensure that such information is disclosed in the estimates, and those bodies will therefore be accountable for those sums.

We will simplify the presentation of expenditure information by fully aligning budgets and estimates, reducing remaining differences with accounts to those that are absolutely necessary, and providing clear reconciliations between any necessary misalignments that remain.

[Mr Leigh]

Let us get this absolutely clear. Although the Treasury originally said that there might be a problem with this information coming to Parliament, the Financial Secretary is going to make sure that it is fully available because he appreciates that this is an incredibly complicated and difficult matter for Members of Parliament to come to grips with. There is no point in having an alignment project if less information ends up coming to Parliament and the situation is less clear than it was before. I think that my hon. Friend has given us the necessary reassurance, but I wish to press him, so that there is no doubt that we will get just as much information as we have always had.

[Mr Hoban]

My understanding is that that is the case. What we will also be able to do—this deals with something that frustrated me when I first came into the House—is track information from budgets set by the Treasury to estimates and to the out-turns. That consistency of information will help Members of this House to hold the Government to account on how public money is being spent.

These changes have been the subject of constructive cross-party consultation over the past three years. During the previous Parliament, the then Chief Secretary to the Treasury submitted three memorandums on alignment to the Chairmen of the Treasury Committee, the Public Accounts Committee and the Liaison Committee, in November 2008, March 2009 and February 2010. The March 2009 memorandum contained detailed proposals for achieving alignment and was published as a Command Paper. All the Committees indicated their support for the proposed changes, and the Liaison Committee took the lead in providing detailed responses. I am grateful to that Committee for its engagement with, and support for, the alignment proposals throughout. The Committee noted in its report on financial scrutiny published in April 2008 that the alignment project was “potentially an historic development”. I fully endorse that view.

The Liaison Committee published a further report in July 2009, which was, again, strongly supportive of the proposed changes. It also made reference to wider issues related to the parliamentary scrutiny of public spending, including the number of days available for debates on the estimates and the outcome of spending reviews, and the scope of such debates. This Government’s establishment of the Backbench Business Committee represents a significant step forward in this area. That Committee has at its disposal 35 days in each Session, some of which are taken in Westminster Hall, to schedule debates on subjects of its choosing, including the scrutiny of public spending.

This Government are fully committed to enhancing transparency in public spending and supporting effective scrutiny by this House. We have already published data held on the Treasury’s public spending database going back to 2005-06. Further measures are being taken that will see details of all new spending of more than £25,000 published from November 2010.

--- Later in debate ---

[Mr Andrew Tyrie (Chichester) (Con)]

The hon. Member for Harrow West (Mr Thomas) strayed rather a long way out of the line of sight of the line of sight project, if I may say so. His points about the importance of the Office for Budget Responsibility are well made and well taken, and that is something that I hope my Committee will consider and something that I am not yet convinced we have achieved. However, I think that that is a debate for another day.

These proposals will significantly improve parliamentary scrutiny of spending. The previous Labour Government deserve a lot of credit for having put this work in train, just as the coalition Government deserve some credit for acting on what they inherited. I also want to pay tribute to the Liaison Committee and its staff and, in particular, to the work of the Treasury Sub-Committee under the chairmanship of my hon. Friend the Member for Sevenoaks (Michael Fallon). He put in a great deal of hard work on all this, some of which is now bearing fruit. I understand that he intends to catch your eye in a moment, Mr Deputy Speaker, and he will no doubt make these points in more detail. However, in the 2007 report he expressed a number of concerns, and two main concerns in particular. One was about the timetabling of publications and the other was about the treatment of income lines in the estimates. On the first, the Government have proposed to publish their departmental reports and accounts by mid-June of each year and to publish the main estimates earlier. That is a step forward. On income streams, the Government’s original proposal—this has been mentioned—was that the House of Commons would vote only on the net estimate. That would have been a step back from the current arrangements whereby Parliament at least votes on both the gross and net figures.

The Treasury Sub-Committee, when considering this matter, acknowledged that with alignment it would not be possible for Parliament to maintain controls over gross totals, but it argued strongly that adequate information should none the less be provided. That is the point that my hon. Friend the Member for Gainsborough (Mr Leigh) made a moment ago.

On the question of income streams, I think that the Government’s latest plans are a great step forward. Let me explain why. If I get this wrong, the Minister can intervene and tell me. As I understand it, under his proposals any income used by Departments to support spending must be of a type specifically approved by Parliament. That is the first key point, of which there are four. The second is that tax receipts cannot be used as income by Departments to boost spending. In other words, the tax receipts must still go to the Treasury in the normal way. The third is that information on estimated income will still be presented to Parliament and the fourth is that Departments will still be required to explain variations between planned income and actual income at the year end. The Minister has not intervened on me yet, so I have high hopes that I have got that right. If I have, the Government have gone a long way towards satisfying the concerns of the Sub-Committee’s report of the previous Parliament.

This is a complex area with a lot of unknowns still as we develop these changes. We must be realistic about what is achievable and we must be clear that there was no golden age when Government estimates were routinely rejected or reduced. The House of Commons abandoned any attempt to debate estimates in that sort of detail not in the post-war era, as many people suppose, but sometime in the 19th century.

I am also clear that great care needs to be taken before pressing for dramatic increases in powers for Parliament in this area as they can have unforeseen consequences. It is certainly worth considering, for example, ensuring that supplementary estimates are approved by the relevant Sub-Committee, but I am wary of anything that could create the conditions for the growth of a pork barrel style of politics in Britain through the back door. I have been an advocate of stronger Select Committees for many years and we have a lot to learn from our counterparts in Congress, but I do not think that we have much to learn by importing pork barrel politics.

[Mr Leigh]

Will my hon. Friend give way?

[Mr Tyrie]

If my hon. Friend will forgive me, I am near the end of my remarks and I would rather get to the end because I have discovered—surprisingly on this subject—that quite a few people want to speak.

We will have to see whether the proposals provide better opportunities for the Select Committees that shadow spending Departments and we will soon see whether they can start to scrutinise better the spending decisions taken by them. We will have to wait to find out whether these Committees take up those opportunities—that includes the Treasury Committee, which also monitors spending Departments.

I warmly welcome these proposals from the Government. We now need to monitor them carefully.

--- Later in debate ---

[Mr Edward Leigh (Gainsborough) (Con)]

Thank you, Mr Deputy Speaker, for calling me in this important debate.

The effective monitoring of Government expenditure and the exercise of control over it by the House of Commons is crucial to why we are here at all, but over the centuries it has become virtually impossible for ordinary Members of Parliament to understand what is going on. It is like the classic Schleswig-Holstein question—only three people understand it, and one of them is mad and one is dead. It is so complicated and so difficult.

That is why I was happy to attempt to serve on the Liaison Committee in the last Parliament with Michael Jack, who was the Chairman of the Environment, Food and Rural Affairs Committee and John McFall, who was the Chairman of the Treasury Committee. We tried to gets our own heads around the subject, and it made our heads hurt to try and understand what was going on. I hope that some of the comments in our Liaison Committee report have found their way back into what the Government are trying to do—indeed, I know they have, because the previous Government replied to our report. There is nothing partisan about this. Both sides of the House are agreed that the present system is broken and we must do something about it.

As we made clear in our report, the present arrangements present obstacles to sensible and informed scrutiny of public expenditure. It is extraordinary that we have estimates days, but we never discuss estimates. When I tried to interest the Liaison Committee in this work in the last Parliament, there was a collective groan from the Chairmen of the other Select Committees. They said that their people were interested in policy not money, but money is all-important. Policy flows from money. How extraordinary that after centuries of accumulation, like barnacles on the ship of state, we never discuss the Budget in detail.

The Budget process is a farce—not the Budget statement, although in previous years, as we know, much of it was hidden in the Red Book. In the Finance Committee— the Committee that considers the Budget—there is only a matter of seconds available to consider each amendment. Scores of amendments are tabled, the Government swat them all away, and there is no proper debate, and the estimates days do not deal with estimates.

My hon. Friend the Member for Chichester (Mr Tyrie) spoke about the American process, which works. The Office of Budget, a presidential body, proposes a budget. The President may propose, but Congress disposes. In our system, the Chancellor and the Prime Minister propose, and the Chancellor and the Prime Minister dispose. Parliament has very little effect on the process.

In America, there are hundreds of hours of meetings on the budget process. I know that my hon. Friend mentioned pork barrel politics. That is a regrettable aspect of the process but it is often much exaggerated. Recently, Senator Byrd died at the grand old age of 90. I might still be here at the age of 90, boring the House with these matters. We know that Senator Byrd showered largesse on West Virginia, whereas it is impossible for me to give a single penny to Gainsborough, or in the case of my hon. Friend, to Chichester, but surely there is a sensible halfway house, so to speak, whereby the House can receive reasonable, sensible information, we can know what is going on, we can have estimates days that discuss the estimates, and we can make a difference.

That is why I suggested in the last Parliament that there should be a triple lock on the scrutiny process. The right hon. Member for Barking (Margaret Hodge), the present Chairman of the Public Accounts Committee, has already spoken in the debate. We have a superb post-audit system in the UK, perhaps one of the best in the world. Although we have one of the best audit systems in the world—actual audit systems through the National Audit Office, and parliamentary audit through the Public Accounts Committee—we have one of the weakest Budget processes. When the Hansard Society produced a report before the Liaison Committee examined the matter in the last Parliament, in terms of effective parliamentary scrutiny we were at the bottom of the heap, together with New Zealand, ranked lower than any other democratic Parliament in the world, bar none. Such was the weakness of our parliamentary control.

What I suggested was a triple lock. We already have, as I say, a good audit system. Is it not surprising that it is so difficult to interest the other Select Committees in money? On education, for example, we had an hour and a half on a statement today with people battling over policy, yet it is difficult to get the Education Committee to get to grips with the education budget, from which those policies derive.

I think we need a specialised Budget committee, which will be a Select Committee of the House and have a permanent membership, like other Select Committees. When, under the alignment project, the Government bring forward various proposals, there would have to be a trigger mechanism when any Department sought to increase its budget by a certain amount. That could trigger a potential inquiry by the Budget committee, which would have to be resourced by the scrutiny unit of the House and by the National Audit Office.

Thus we would have a particular committee, a kind of appropriations committee, which is the most powerful congressional committee. It would have to have real teeth, not just be a talking shop. I hope my hon. Friend the Member for Chichester will not mind my relaying our private conversation earlier. He said that once we gave such a power to any Select Committee, pork barrel politics would inevitably flow from it. There would have to be safeguards, a process and gradual reform, as we always have in the House. No Government will suddenly surrender to a Select Committee or to Select Committees of the House the kind of powers that congressional committees have, but surely there is no harm in our waving the flag, as parliamentarians, for greater parliamentary control.

We would have the PAC as a kind of audit system, and a Budget committee looking at the Budget in detail in a way that the Finance Bill Committee cannot do. The third part of the triple lock on wasteful spending in Government should be some kind of Star Chamber within Government. The Treasury do a fantastic job, but when spending was increasing very rapidly during the past 10 years, it was overwhelmed by the sheer volume of decisions pouring on to officials’ desks. It was perhaps too much of a paper-based exercise. Perhaps the Chief Secretary could not get adequate control of it.

I believe that Ministers and their officials who were proposing the expenditure of large sums of money should have to come before a Star Chamber to justify their proposals and to be questioned in private and give honest answers. I have served on four Select Committees of the House in more than 20 years. Do we ever have Ministers and officials giving entirely honest answers to our Select Committees? No, because those are held in public and Ministers and officials deal with questions by playing a dead bat. I am not denigrating the role of Select Committees and I quite understand the game that Ministers and officials play in front of them, but there has to be some equivalent process privately within Government, so that as expenditure plans are being dreamed up, there is proper control and reform.

Such scrutiny will continue to be a dry subject which nobody understands or is interested in unless the Government, in the alignment process, listen to what we were trying to say. We said:

“To be properly effective improvements in presentation need to be accompanied also by improved opportunities for Members—as individuals and through select committees and front benches—to debate the figures (both in the form of the formal Estimates for the current year and the spending plans for future years).”

That is absolutely vital.

We want a clear line of sight and to know in simple terms, whether from the Department for Education or the Ministry of Defence, what they spent last year and plan to spend next year. There would be a day in Parliament when we could debate it and vote on it, and that would start to bring Parliament back into the process. In doing so, that would surely restore Parliament to what it should be about: Members acting on behalf of their constituents to control public money, so that very large sums of money are never again spent without adequate controls. That is a great prize. For all the technicalities of our discussion, for all the difficulties and for all the talk of “moving from cash to resource accounts”, “the introduction to Government budgets” and “the concept of departmental expenditure limits”—all those words that, frankly, leave most Members cold—in the end, this is not a technical process. It is a process of real parliamentary democracy, and is therefore to be warmly welcomed.