Public Accounts Commission

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1 Public Accounts Commission Oral evidence: NAO s Strategy to , HC 1842 Tuesday 18 Dec 2018 Ordered by the House of Commons to be published on 18 Dec Watch the meeting Members present: Sir Edward Leigh (Chair); Mr Richard Bacon; Jack Brereton; Clive Efford; Meg Hillier. Questions Witnesses I: Sir Amyas Morse KCB (Comptroller and Auditor General), Lord Bichard (Chair) and Daniel Lambauer (Executive Leader, Strategy and Operations) from the National Audit Office. Richard Brown, Treasury Officer of Accounts, HM Treasury, and Naziar Hashemi and Richard Evans from Crowe U.K. LLP (external auditors of the NAO) were in attendance.

2 Examination of witnesses Witnesses: Sir Amyas Morse, Lord Bichard and Daniel Lambauer gave evidence. Q1 Chair: Good morning and welcome to the Public Accounts Commission. Today it is our duty to ask questions about the strategy of the National Audit Office. We are joined this morning by Sir Amyas Morse, the Comptroller and Auditor General; Lord Bichard, Chair of the National Audit Office; and Daniel Lambauer, its Executive Leader for Strategy and Operations. You are all very welcome. There are a few questions that we would like to ask you, but it will not surprise you what the very first is. Despite the Daily Star announcing on its front page that there would be no boring Brexit stories in this paper, I have to ask you about Brexit. What is your assessment of the Government s preparedness for Brexit? Perhaps you would like to make a brief opening statement, and then we will ask a few questions to drill down into how you are making sure that the Government are prepared for all the eventualities. Sir Amyas Morse: Thank you, Chair. I know that members of the Commission will be aware that we have published a lot of reports on the subject of Brexit, but I will give a very quick résumé. I should remind you of what I mentioned last year: we realised that Parliament really did not have much organised knowledge of what was happening on Brexit, so we set out to supply that knowledge. We think that it is part of our primary role to put Parliament in a position to assess value for money, so we thought we really needed to make sure that we lifted the level of information. A lot of that was done with briefings and, more recently, with actual assessments of performance, particularly in the Department for Transport and DEFRA. That is what we have done. Within that, as the possibility of a no deal has become greater, we have inevitably done more work on preparing for it, as have the Departments. Q2 Q3 Chair: On preparing for a no deal? Sir Amyas Morse: On a no deal, yes. Our assessment of preparedness is that despite the fact that very considerable effort has been made by the Departments concerned, which I do not blame for being in a position of having to try to do a great deal very quickly actually much too quickly there are nonetheless an awful lot of projects in systems development and so forth that are all miraculously supposed to be viable towards the beginning of March. I am afraid that there is therefore a significant amount of residual risk. Can I predict exactly Chair: I am sorry; may I interrupt you? Are you saying that a lot of them are saying, We will be ready by the beginning of March? Sir Amyas Morse: Yes. In other words, people have necessarily had to run projects and programmes with a view to getting them ready before we leave the EU, if we do well, we do leave the EU at the end of March. So a lot of things have been set up that are all going for roughly the same date.

3 Q4 Q5 Q6 Q7 Q8 Chair: The beginning of March? Sir Amyas Morse: The beginning of March, or thereabouts early in the new year. Everything has to be miraculously ready by then, which of course means that things have been done very quickly. In some cases, the best courses of action have had to be substituted with courses of action that have a reasonable chance of being done, which means that there remains a lot of risk. Despite the best efforts of the civil service I will put it that way there remains significant risk. Chair: All right. Do you think that sufficient preparations have been made for no deal? Sir Amyas Morse: I don t think it s possible to make sufficient preparations for no deal in the circumstances of such a short timescale. I think they have done a good job in the time available to them, but I m sorry that is not the same as being safe. Chair: Obviously we don t get involved here in whether that is a good idea or a bad idea. Sir Amyas Morse: No, you don t need to. Chair: We are not interested in any of that. Sir Amyas Morse: No, and nor am I. Chair: And nor are you. We are just trying to establish the position in case this happens. We all accept that nobody wants it to happen and that it is not likely all that sort of stuff but you have not actually been terribly clear. What I want to know from you is what you think would happen if there were no deal. We have had a lot of politicians comment, but I really want a non-political view. Sir Amyas Morse: And I am giving it. A number of things might happen, and I don t know which of them it would be. One is that there is a hold-up in the ferry crossings at Dover and, although there is diversion to other ports, it is not enough and you have a whacking great build-up of vehicles in Kent. That is why Project Brock has been put in place to provide additional parking back-up there. We might be able to have a food export regime that is treated reasonably fairly and sensibly by the Europeans, and which lets us carry on with exports of livestock and so forth, or it might be that they will stand on ceremony and it will take a lot longer to get through, which will really stop those exports. It might be that our chemical export regime will continue unchanged it is a big, important industry for us or it might be that, as we will no longer be part of the EU agreement, that will suddenly come to a shuddering halt. I am not Mystic Meg: I don t know what might happen in these cases, but I am simply pointing out that there is a significant possibility that things could go wrong. I am not saying that they will all go wrong, but it is equally unrealistic to say that they will all go right. Q9 Chair: Let s assume there is a deal. Have you drilled down into how much money will be wasted on preparing for no deal, which might never happen?

4 Sir Amyas Morse: Well, it rather depends what happens next. Should there be a withdrawal agreement and therefore an 18-month extension and then we leave the EU, quite a lot of this work will turn out to have been highly relevant. Eighteen months will go past in a flash, and a lot of the current preparation will be relevant and will have to be followed up. Just one practical example is the update on the CHIEF border system, which was going to be phased out and replaced with a new system. Given the pressure of time, HMRC has decided to upgrade the old system while still developing the new one. Now that we have an upgraded CHIEF system, I suspect that they will use it for some years to come. They will not just switch it off should we have a withdrawal agreement; they will make use of it. I don t think that there will be a lot of waste. To be frank, the downside of not preparing is far more serious than the risk of small amounts of money being spent. You might find it odd for me to say that to you, but as an insurance policy it is probably good value for money. Chair: Okay. Do other colleagues want to come in on Brexit? Q10 Q11 Meg Hillier: Yes. Under the last Budget settlement, Sir Amyas, you received an extra 1 million to look at Brexit. How much of that have you spent so far? Sir Amyas Morse: That came in two parts, if I may remind you. There was 700,000 for staff, and 300,000 for external contracting on specialist advice. We are on track to spend all of the 700,000, as far as we can tell. That is more questionable for the 300,000, but it is still quite likely. Meg Hillier: In your strategy, you are looking for higher funding in future years. Although you won t be there the whole time, what plans do you have in place? What do you think the NAO should be looking at in terms of Brexit spending, and, crucially, when will you have an understanding of what it has cost to leave the EU? Sir Amyas Morse: Obviously that is contingent on events. We have done scenario planning, looking at different scenarios. There are two that are worth taking your time on one of them is that we leave without a withdrawal agreement, and in that case I can predict that the Government will have a massive amount to do. Just to name three things: they will need to move into hyper drive on negotiating international trade treaties, because we won t be part of the EU trade treaty system; they will need to work out very quickly what the World Trade Organisation terms of trade mean to us, because they are quite complicated and technical; and there will be a need to negotiate with the EU on the sum of money that is expected by way of a separation payment. I have named just three that occurred to me off the top of my head. I think the Government will have a huge amount of work to do in response to that situation, and we will obviously have a lot of work to do to report to, and to assure, Parliament on what is being done. In that case, we would be asking you for more money, not just what I have indicated.

5 In the case where there is a withdrawal agreement, and therefore we move forward in a more steady way, we will be examining how the contingency plans that have been put in place get switched over effectively to look forward to that 18-month target. That is what we would be examining. We will still be looking for progress on trade in particular, progress on trade negotiations with the EU, which will be primary in everyone s mind. I am quite sure that we will be asked to report to Parliament on what we can see there. Depending on what you look at, our resource budget is really based on thinking that there may be a withdrawal agreement that is our planning base but what I can predict, from thinking and looking at the scenario on that, is that there will be a lot more work if that does not happen. Q12 Q13 Q14 Q15 Meg Hillier: Okay. If it does not happen, and there is no withdrawal agreement, there will obviously be a big legal argument about what, if anything, the UK owes the EU. Sir Amyas Morse: Yes. Meg Hillier: Or indeed the other way round. Is the NAO geared up for that? You talk about the extra expertise you can buy in. Have you got access to the expertise to look at what is a kind of crossover between legal and financial information? Will you be the place where we will actually be able to get some information about whether that is correct? Sir Amyas Morse: I think we are well placed, actually, for this reason: we have already reported, as you know, and done an update report on the amount that would be paid over under the withdrawal agreement. Strange to tell, I think the EU is going to think that the amount it is due, if there is not a withdrawal agreement, is very similar. The reason for that is that the way in which that sum of money was calculated was by looking at the EU unexpired budget period that we are part of and measuring what our participation would be if we continued in it. If we suddenly just drop out of it, there will be a similar reasoning on the EU s side I am not saying on our side about what we are due to pay. I think the character will change rather than the numbers. Of course, we are very familiar with how those numbers are made up, because we have already audited them. Meg Hillier: Part of my question is that there will be legal argument about some of that, potentially, which will be costly. Will you be looking at that element of it as well the cost of the legal challenge? Sir Amyas Morse: We would do that bit. We have already taken independent legal advice. We would do that bit by looking at the advice that the Treasury was getting and by getting corroborating advice if that was necessary. We would not be assuming that we knew how to do the legal advice. I never do that. Jack Brereton: I wanted to ask about our post-brexit trade remedies regime. You have mentioned the issues with trade already. I am not sure whether you have looked into whether we could be at risk of not having a trade remedies regime in place by 29 March. Particularly because of the passage of the Trade Bill, which has seemingly stalled, do you think there

6 is a risk that we would not have a trade remedies regime in place, which is quite important, of course, for a number of industries in this country? Sir Amyas Morse: I am not trying to be clever with you, but I will put it the other way round and say that I think there are risks to getting a trade remedy regime into place. In other words, I am quite sure that the Government will move heaven and earth to have a trade remedy regime in place, and I have confidence, actually, in how much effort and talent will go into that, but it is actually not easy you are right about that. Q16 Clive Efford: I am just a bit surprised by your answers, so I am wondering whether I am following you correctly. You seem to be talking about negotiations or preparations for trade agreements as if they are about to happen in the future. What assessment have you made of the progress and the effort that the Government have been putting into preparing for trade agreements now? Sir Amyas Morse: We have already done some work on that. I understood if I have misunderstood the position, do tell me. We have done some work on it, but my understanding is that we cannot enter into formal trade negotiations while we are still a member of the EU. Is that not right? Clive Efford: Absolutely correct, which is why Sir Amyas Morse: That is what my answer is based on. Q17 Q18 Q19 Q20 Q21 Clive Efford: But we have had the International Trade Secretary saying that there will be at least 40 trade deals ready to sign the day we walk away from the European Union. We have had the former Brexit Secretary saying in July 2016 that, within the next two years, we would be able to negotiate a free trade area more massive than the European Union, and that that would include China and the USA. That alone would be bigger than the European Union. That suggests that there is work going on now in preparedness for the day that we leave the European Union. Sir Amyas Morse indicated assent. Clive Efford: What progress is being made now on those statements made by the Government? Sir Amyas Morse: I am aware of feasibility work going on. Yes, I am aware of that. Have I gone into the Board of International Trade and examined it against each of those public statements? I haven t done that. Clive Efford: You are not in a position to say whether they are realistic or not? Sir Amyas Morse: No. Clive Efford: that we will have completed trade negotiations to that at all? Sir Amyas Morse: I could not say that. Chair: I think that is probably the end of our questions on Brexit preparations, but without wanting to get involved in the discussions about

7 Q22 Q23 Q24 Q25 Q26 whether it is a good idea or not obviously the Government have to prepare for all eventualities; that is their duty. Sir Amyas Morse: Yes. Chair: Is it your view that they are preparing for all eventualities? You cannot predict exactly what will happen, and I do not want to put words in your mouth, but I want to give you an opportunity to sum up this very important discussion as somebody who is independent. Looking at this, are sufficient preparations being made and do you think it could be all right? You see my point. I just want you to sum up this discussion. Sir Amyas Morse: Okay. When I am writing reports on Brexit, I put a little statement from me on the report, saying that I don t blame the Department. I am pointing out risks and problems, but I am not blaming the Department for them because it did not actually ask to be given this assignment in the first place okay? The reason I am taking that line is because it really is very difficult to have a short period of time to do a whole lot of things that would normally take much longer. They can t make those risks entirely go away, and I can t pretend that they have been managed away. I think that the civil service has made a great effort; I am not critical of their effort, but the effort doesn t result in low risk. I think the risk of you know, if we find ourselves at the end of March and we go out then without an agreement, I think there are significant risks. I gave that testimony in just those terms to the Brexit Select Committee. Chair: Thank you. Mr Bacon: Sir Amyas, you referred to the fact that you have taken independent legal advice. In April 2017, the Prime Minister was very clear at a meeting with the President of the Commission, Jean-Claude Juncker, which was leaked in Frankfurter Allgemeine Zeitung, that the UK did not have any legal obligation to pay any money at all in the absence of a withdrawal agreement. The House of Lords came to a similar conclusion based on the text of article 50 and the Vienna Convention on the Law of Treaties. Is your independent legal advice saying something different from the conclusion of the House of Lords? Sir Amyas Morse: It wasn t on that subject. It was on our construing of the term we took the legal advice to interpret the effect of the settlement agreement; that was the financial settlement. Mr Bacon: Even if there is a withdrawal agreement? Sir Amyas Morse: Yes. So it really wasn t on that point, I m afraid. I do not have any special knowledge on that point. Mr Bacon: Because there is a very important value for money question around the 39 billion payment in the absence of a withdrawal agreement. Sir Amyas Morse: Yes. Mr Bacon: Which may be within the scope of the NAO to opine on I don t know, but it is a big payment. Sir Amyas Morse: Yes, it is.

8 Q27 Q28 Q29 Mr Bacon: If there is a legal obligation to pay it, one could say, Well that s that then, and assuming that that is true, you could almost lay the value for money question to rest in the sense that, whether it is value for money or not, one legally has to pay it. But if there isn t a legal obligation to pay it, while there might be good political reasons for paying it or for paying some of it that is not the same thing then there is a value for money question. A question that might arise would be, What do we get for our 39 billion? to which the answer, apparently, so far is that nobody can say, because the future trade relationship has not yet been negotiated. So when you say you have taken legal advice, are you specifically saying that it does not include whether the payment of 39 billion that we have been hearing about is legal? Sir Amyas Morse: Yes, that s right. I have not taken legal advice on that question. I have not taken separate legal advice on that question. Mr Bacon: Do you plan to? Sir Amyas Morse: Not at the moment. Mr Bacon: But if it turns out not be a legal requirement, it becomes a value for money question, doesn t it? Sir Amyas Morse: That, at least, is a reasonable argument. I can see that. Mr Bacon: Thank you. Sir Amyas Morse: If you forgive me just for a second longer, Chair, I just do not think it is quite as simple as that. I am not sure that there is a single legal authority that clearly binds this. It is possible for people to have different points of view all based on legal advice. Q30 Mr Bacon: Also, of course, there is the question of enforceability. If we leave without a withdrawal agreement there will not be a court that could have jurisdiction. Sir Amyas Morse: Not that I know anything about the law, but I do not think it is as clear as that you have or do not have a legal obligation. I would be most surprised if it turned out to be as simple as that. Mr Bacon: We probably need to move on, but in most cases, if there is not a legal obligation, one can understand there might still be some political merit in doing something. Q31 Chair: Why don t you think about it and write to us? It is quite a complicated point. Sir Amyas Morse: Of course. Chair: Richard wants to ask about new audits and the Student Loan Company. Q32 Mr Bacon: Earlier this year you were highly critical of the Department for Education s oversight of the Student Loan Company. How do you hope that taking on the audit of the Student Loan Company can help to address some

9 of those concerns? Sir Amyas Morse: The reason we are taking on the audit is because it is a public sector body and we have been asked to audit it, not because I went in and said, We can do a better job I do not want to imply that at all, but the question slightly leads me in that direction. That is not what we think; we are not critical of the previous auditors nothing like that. However, the fact that we do both VFM work and audit work may give us wider insight than we might have otherwise. I think it is fair for me to say that. It is also worthwhile to remind you that the student loans themselves are accounted for by the Department for Education. We already audit the student loans. Q33 Q34 Q35 Q36 Q37 Mr Bacon: Indeed. That brings me on neatly to my next question: given you now do both the Department for Education and the Student Loan Company, does that put you in a better position to assess the consistency and validity of the assumptions being made? Sir Amyas Morse: Even better, would be my answer. Mr Bacon: Is the cost of the audit fully recoverable, or does it add to your net costs? Daniel Lambauer: We are aiming for full cost recovery of the audit to be made within the first one or two years. We have a slight net cost because we have familiarisation costs and set-up costs, which we usually don t charge the client, but they will be quite minimal. Mr Bacon: Are you bringing in or training new staff for this audit? Daniel Lambauer: No. We think we have the skills in-house to deal with it. Chair: I would like to ask you about the restoration and renewal of this building. Both Meg and I have taken an interest in this and we are on the Joint Committee, looking at setting up the sponsor and delivery bodies. Obviously, you will have audit and access rights to the sponsor and delivery bodies, but I want ask you about your rights to audit contractors and the work they are doing. I foretell there will be Public Accounts Committee hearings about this for the next 20 years about how this delay came about. Sir Amyas Morse: I am very jealous to think of not being present for them. Chair: Why don t you say a bit about restoration and renewal? Sir Amyas Morse: The only thing that remains unsettled is our access to the contractors. We normally have a statutory right to look at contractors books in these cases. We are in a position where we don t yet have that, and while you could argue that we are being previous, we are getting comforting noises but we have a feeling that people are not being as enthusiastic as they could be about it. We think it needs pressing, to be frank, because we don t think the contractors are mad keen on having us looking at their books I may as well be honest with you. Therefore, I would like to say to you that we really need to push on with this and get some clear statement of intent by the House to say, We definitely intend to give

10 them this access. Having it by some other arrangement or voluntarily is not as satisfactory. Q38 Q39 Q40 Q41 Meg Hillier: Are you saying you need it to be legislated for? Sir Amyas Morse: That would be better. Chair: Are you going to come to our Joint Committee? You have not been invited yet. Sir Amyas Morse: If you invite me, I ll come. Chair: I think it is a very important point. Meg Hillier: If it is not done through the legislation that is, we hope, going to be going through the House next spring, what would be the second-best option? Sir Amyas Morse: I believe that the Cabinet Office could place a requirement on the contractors. While that is not as satisfactory as legislation, it has been okay for looking at Motability, so I dare say it would be okay here. Meg Hillier: So there is another way around it, if for any reason Sir Amyas Morse: There is. Meg Hillier: But the Bill would be preferable, in your view. Sir Amyas Morse: Yes. Q42 Q43 Q44 Meg Hillier: What resources do you think you will need to look at this? It is obviously a long-term programme; it is quite specialist. Would you need specialist skills? Sir Amyas Morse: We are accustomed, as you know, to looking at complex projects. We look at the property services and we audit across the massive Whitehall estate, so I don t think there is anything that we feel we are not equipped to deal with. We have good commercial knowledge and so forth, so I think we can offer a good service here, and we are just keen to do so. Meg Hillier: My final question is this: if you had the powers, when would be optimal to get in there and start looking at what the costings and plans are for such a major long-term programme? Sir Amyas Morse: The earlier the better. Most often, as you know, we find that in these projects and programmes, failure is built in at the beginning. Meg Hillier: So would you like to have access as soon as the Act is passed? Sir Amyas Morse: ASAP. Chair: That is very useful. Q45 Mr Bacon: You did a very good report on project management some years ago, which among other things featured the concept of embedded continuous assurance. It was an NAO value for money report, one of those landscape studies, on assurance for major projects I think that was its

11 title. Would it be your expectation and hope that embedded continuous assurance would be part of the warp and weft of the restoration and renewal project for the Palace of Westminster? Sir Amyas Morse: Yes. Chair: Thank you for that. I think Jack wants to ask you about pressure on local authorities. Q46 Jack Brereton: I refer the Committee to my entry in the Register of Members Financial Interests. You have particularly raised concerns about the potential impacts for local authorities, and have said that you are increasingly concerned about the pressures on local public bodies, particularly around the number of qualified conclusions that have been seen of late. Could you please comment on that, in terms of what your fears are about value for money for local authorities? Sir Amyas Morse: Certainly. Just to step back, of course we know there has been a high-profile failure of a local authority in Northampton, which is very serious. The reduction in funding to local authorities is very substantial, so it is not surprising that these pressures are coming on. We also see what I will describe as novel revenue-raising ideas being much more prevalent than they were before, and these are things that may or may not bring risk with them. It is understandable, of course they are trying to get more out of the resources they have but unless you have got the right expertise, you have to watch that very carefully. In that context, I am concerned that most of these qualifications that we have seen increasing are in the space of having proper arrangements in place to assure value for money. There is that pattern, and frankly, it could indicate weaker control in the authority, but the other very concerning thing that it indicates and we have this fed back to us by auditors is a relative lack of interest and not-botheredness, if I can use that expression, about the fact that there is a qualification. It is just seen as Well, so there is a qualification. Now, you are paying auditors to come in and look at the state of your affairs, and it is not satisfactory. That should put people on inquiry straight away, not be something which is regarded as general background noise. I am not happy about that at all, and I have tried to make that very clear. Q47 Mr Bacon: The National Audit Office disclaimed the Home Office s accounts I think. The permanent secretary at the time, Sir John Gieve, who was responsible, was then promoted to be deputy governor of the Bank of England, in charge of financial stability in the banking system. Despite those 10 or 12 years of learning, why do you think so little has changed in terms of the attitude you describe? I remember when the accounts of Shell were qualified not disclaimed, which means that there is no information at all that you can rely upon, but simply qualified and the whole board of Shell resigned. This was seen as a very, very significant matter. Culturally, what is it about Whitehall that has meant that there has been no change and no learning over that long a period?

12 Sir Amyas Morse: Bear in mind that we are talking about local government here. Q48 Mr Bacon: Yes, but local government or national Government. Sir Amyas Morse: It would be unfair on national Government to say that they are they can be less bothered by regularity qualifications and sometimes those are somewhat technical. I don t think they are relaxed about a true and fair qualification at all. It would not be fair to say that. I don t think it involves people being fired. I think the problem with local government is that they feel under so much pressure in so many different ways. That may be why, but I still think it is really important more so now than at any other time to create pressure on this. For that reason, we have a Report coming out on auditing in England, very originally and excitingly entitled, Audit reporting in England, and it is about this subject, because I am trying to lean out of my position to put as much pressure on as possible. I am not finished with this. I am really not happy about this situation. If I add on the information that of the NHS foundation trusts, almost half have qualifications almost half I think that is a disgraceful situation. Someone that is me needs to champion the auditors, instead of just saying, Well, it s the auditors fault. These situations are not the auditors fault. They have given the messages and they are not being listened to. That is not good enough. Q49 Q50 Q51 Q52 Jack Brereton: You said that nearly half NHS trusts are in this situation. Sir Amyas Morse: Yes. Jack Brereton: Do you have a proportion of the local authorities who are in it? Sir Amyas Morse: I am pursuing this, believe me. I am really not happy about this. Apart from anything else, it is such a waste of money to have auditors if you are not going to listen. They have already spent ages taking the fees down as low as possible and then you are not listening to what they have to say. It is just not good enough. Jack Brereton: If you could perhaps write with some figures on the proportion of local authorities in that situation. Sir Amyas Morse: I am happy to do it. Thank you for your interest; of course I will. Jack Brereton: Do you think that this is having a real impact on those services that local authorities are providing to individuals in our constituencies? Sir Amyas Morse: Well, it is evident that if you reduce the funding what we see happening in local authorities is that the reduced funding level means that they are having to contract on to the statutory services only. That means different things in different authorities and even those are under pressure and going down in terms of spend.

13 That takes different forms in different authorities, but it is quite clearly there. If you add on to that, people taking slightly more risk to try and raise money, there is a risk that that already restricted funding might be lost by risk-taking. So I think this is a time when, oddly enough, they really need help to keep straight and they need to be listening to their auditors. Q53 Jack Brereton: But the NAO has quite a limited role in terms of local authorities. What more do you think the NAO could do? Sir Amyas Morse: I am exploring as far as I can go with our role. One further thing is that we issue guidance to all auditors and that guidance now reflects the circumstances much more. I have deliberately had our foreword in that changed to do that. We will be putting forward a new full code in First, we may bring that forward, and secondly, it will be much more strongly focused on risk. In the meantime, I intend to make as much noise about this as I reasonably can. It is not a matter I am relaxed about at all. The other thing is, I am entitled to do cross-cutting studies across local authorities and I am entitled to information access for that purpose. That is what I have used to write the report I referred to earlier. It won t probably come from me, but there will be more on this subject from the NAO, believe me. Instead of sitting back and saying, I don t have the scope, I have quite a lot of scope and I am making sure I use it. Q54 Q55 Chair: Lord Bichard, if you ever want to come in and comment on what has already been said on Brexit or local government Lord Bichard: I usually do, Chairman, but there is no need so far. Chair: No need so far, but feel free. Meg now wants to ask you about digital transformation and technology. Meg Hillier: Sir Amyas, the NAO has produced some very useful Reports about major digital transformation programmes, which often have the common theme that they do not save the money they set out to save. You understandably flagged that in your strategy. What would you say that Government is getting wrong, and why is it repeatedly getting it wrong? Sir Amyas Morse: You know that we recently published a Report on driving value in public spending. I know you are very familiar with what we had to say. I am appreciative of how closely you look at these Reports. I am afraid it is the litany that we have been saying for many years. A lot of it is driven by bad-quality management information and then optimism bias, inconsistent challenge, assumptions made because they help get a decision through, rather than because they have really been tested. I am amazed by the fact that people don t sit down and go through the critical path of a project and think, Somebody can stop us here. If we can t find the solution to this, we won t start until we can solve it. Just not starting until you have got things right is a really good idea, and we don t find that sort of thing.

14 There is quite a lot of entryism, where people have a pet project and they want to get that in at any price, and they know perfectly well it can t be delivered for the price, but they still get it into the programme and then start expanding the budget. I m afraid I ve seen plenty of that, too. These are not original or fascinating, but they are still there. Lord Bichard: I think we have also pointed to a lack of capability and skills, and that still is a problem. The civil service have done a good deal to try to address that, but it is still a big problem. The underlying culture of the civil service and Whitehall is still about policy rather than delivery, execution and management. That is what I think is at the root of some of these problems. Q56 Meg Hillier: Do you think part of that is the cap on salaries in the civil service? Do you think there is an issue there about not being able to buy the right expertise into the civil service? There was a lot of talk by John Manzoni and others about upskilling the famous Government Digital Service and the Rural Payments Agency issue, which I will touch on. Do you think there is a salary issue there as well? Lord Bichard: My feeling, from my experience, is that it is more important to develop the skills in-house. One of the problems with buying in expensive management skills and we have seen it in the National Health Service over decades is that actually there is a resistance. You have got to try to develop those skills in-house, and you have got to give recognition to the people who are managing the big projects. That means giving them opportunities for promotion and career enhancement, which has never been a strength in the civil service. I don t know whether you would agree with that. Sir Amyas Morse: I would, but it is a little too easy to say it is just a matter of money. If you bring in skilled people from outside and then don t let them operate properly, strangely enough, they won t stay. You have to create the conditions for people to work their skills. If you find that their skills may be overruled, that is a problem. I think we need to be clear that, while the Government and Ministers indicate that they want a good news culture, that is what they get. Civil servants do what Ministers want. As far as it is in them to do it, they do it. If you say, I want you to be very positive and jolly about everything that I suggest, that is what will happen. Q57 Q58 Meg Hillier: So, you are saying that politicians are really one of the biggest problems in this. Sir Amyas Morse: Ministers are in charge of Departments and they have the power. Based on them is the progress and the career of people. Meg Hillier: I wonder if you are thinking of any particular projects. Sir Amyas Morse: No, I m not. There is a limit to how far I d let you take me. Lord Bichard: Without getting too broad in this discussion, we put Ministers in a position where they are bound to be thinking short term. Most Ministers survive for only 12 or 15 months. As a former civil servant, I always

15 understood the pressure that was on them to deliver. I think everyone has to take responsibility for that. I would make two other points. We have had this discussion in the context of digital. I think what you are saying is that it is not just a digital issue. Sir Amyas Morse: No, it is not. Lord Bichard: It certainly isn t. The second point I would make is that we have had our own little business improvement project within the NAO. One of the things that happened there, which I haven t seen happen as much across Whitehall, is the engagement of users to specify the project and to be involved in delivering the project. Again, if you do not get that involvement, you get resistance. Q59 Meg Hillier: Like with the Rural Payments Agency. Lord Bichard: Yes. Sir Amyas Morse: What you really need is this. You must know all this, Chair. Whenever you hear the words world-beating innovative project you know we re in trouble. Q60 Meg Hillier: The blood runs cold. Sir Amyas Morse: What we actually need are low-ego, low-risk projects, which give no surprises, don t astonish anyone and actually deliver the minimum functionality needed to meet the need. I see a lot of that; that is how things happen in business, generally. When it doesn t happen that way, people are fired. So you need to stop thinking, Wow! We re really going to wow them with this one, because the chances are that you will get suckered. Frankly, we need to be a lot harder-nosed about that. Lord Bichard: Also, the courage to set realistic milestones and the honesty to appraise them, so that you are never expecting something that is not going to happen. You have got to keep looking. That is what we did, in the small project that we had: constantly look at the progress being made against realistic milestones, and have the courage to own up when it is not happening. Q61 Meg Hillier: And I know that is partly, as you said, Lord Bichard, because Ministers are often standing for a very short term. Are there any thoughts you have had taking it a little bit further, perhaps, than your remit to what support may be offered? Any politician around this table could be a Minister tomorrow, potentially, especially at the moment. Do you think that there is anything that should be done to support politicians to think longer term? Is that a possibility, Lord Bichard particularly as a former permanent secretary? Lord Bichard: It takes us well beyond this hearing. I was responsible for setting up the first development training programme for incoming Ministers, back in It amazed me at the time that that was not available to people coming in to very big jobs. We could do with more of that, even now. It is not actually teaching people well, it is teaching about helping them to do it more effectively, and I think we could do more of that.

16 Sir Amyas Morse: Can I just add one thing? I absolutely agree with what you said. Just at the start, and prior to the start, of the coalition Government, we published a report on machinery of government changes. We showed how massively wasteful they were and how paralysing they were to the Departments concerned. Partly as a result of that and the coalition Government referred to it they adopted a policy of not moving Ministers about. So Ministers had tenure for long periods of time. If they knew their subject and cared about it, that generally had a positive effect. If you have got musical chairs going on, the chances of anyone really deeply understanding what they are deciding on it is just a very big ask. Q62 Mr Bacon: There s a good book about this. Chair: I have been working it out that Richard, Meg and I have 23 years joint service on this Commission and something like 22 years on the Public Accounts Committee. So that is 50 years that we have been working on this subject. Have we wasted our time on IT, then? Sir Amyas Morse: No I deeply believe in what we all do together. Chair: Sorry? Sir Amyas Morse: I deeply believe that what we do makes a difference. I m not saying it to be polite to you; I really believe it. Q63 Q64 Q65 Chair: Things are better than they were in 2001, when we started Sir Amyas Morse: Well, things still go wrong but they go wrong at a much more complicated level. The easy stuff has been taken out; that is why, if you look at transformation projects people have to enter into complex things like transformation projects, which involve doing things differently in order to try to save money, because it is not so easy to save money in government any more, after all these years of austerity. We have actually kept pushing on a lot of things that easily could have got a lot worse than they have done. So no, I don t think so; I am a great believer in what we do and a great believer in transparency in government. Whenever you say that people want to keep something quiet, the motivation is rarely one of really making it turn out better. Mr Bacon: Can I ask one more question? I agree with everything you have said. The book that I wrote on these subjects came out five years ago and was based on information I had gleaned over the previous 12 years. Chair: An international world bestseller. Mr Bacon: And still in print. In fact, it was reprinted. Sir Amyas Morse: And on my desk, too. Mr Bacon: What really interests me about it actually, I don t want to go on about my book, strangely but it was not until I had written it that I realised I had written a book about organisational behaviour. On what Lord Bichard was saying earlier about the training that he instituted for Ministers, I think there have been previous iterations in one shape or another it certainly happened in the lead up to the 97 Government taking

17 office under Tony Blair. What surely needs to happen is that that needs to become so institutionalised and so embedded that the default position is that it is available as a norm for every new Member of Parliament, on the basis that there is a significant chance that a Member of Parliament will become a Minister at some point. The knowledge you wish people to have about the way decision making affects the management of large organisations is there for all Members of Parliament, and in turn for all Ministers of any party, by definition. How far are we from getting to that point? What can you do as a value-for-money audit body which is, among other things, what you are to inculcate or bring about that position? Lord Bichard: I don t think it happened in 97 in quite the same way. It does need to happen, and I agree entirely with your end point, towards which we ought to try to move. What can we do about it? If we are honest we often talk about this we have to think about ways of presenting our material so that it is more likely to be taken on board, listened to, and learned from. We cannot just say that the problem is that Whitehall, in particular, does not have a learning culture. I still do not believe that it does. That is a problem for us, because if you do not have a learning culture then you are not listening to justifiable criticism. We also have to keep asking ourselves, How do we make this material more usable? How do we draw out the lessons across Whitehall and across Westminster, and enable people to learn the lessons more easily? They are deep things and difficult to achieve. I do not think that we have all wasted our time. I am getting to the stage of life when I have that same internal discussion with myself. Things have improved, but I still think there is quite a long way to go and I agree with you: we can play a part in that, and we want to play a part in that. Chair: That is most interesting. Clive wants to ask you about commercial and contracting. Q66 Q67 Clive Efford: What will be the impact of the Government s decision not to let any further private finance initiative contracts? Sir Amyas Morse: Not much. It will not have much impact because there are only about three examples of PF2 actually being used. Nowadays, very few people come forward suggesting that something should be a private finance initiative contract. I honestly do not think it will make much difference. Clive Efford: What assessment have you made of existing PFIs? Are you able to look into the finances of the special purpose vehicles that own the debt at the top of the PFI companies, and the structures they use to minimise tax and maximise profit? Sir Amyas Morse: Back in the day, when there was a lot of PFI, we did this work. Interestingly, what we found was that there was a complex set of entities that bought into PFI contracts for different reasons. An example might be a hospital: there were those doing the building contract who then sold it, having established it as an income source. Institutions would come

18 and buy it, and the next development was that companies would specialise in improving the yield on PFI contracts by variation orders and that sort of thing. They bought up loads of PFI contracts, and that had a sort of roll-up effect. We recommended that the Government do something similar on their side, so as to oppose professional management with professional management, but it was not taken up. We have looked at this in the past. To be honest, it is a bit redundant to go back and look at it now, years later. Nothing has happened for quite some time, but we did look at it at the time in quite a lot of detail, and we had people running those companies before the Committee. Q68 Q69 Q70 Clive Efford: Do you fear that PFI might resurrect itself in some other form? Sir Amyas Morse: I think that the Government s use of private sector lending is going on in different forms. Hinkley Point, for example, is funded by private sector or by inter-government lending, certainly not all by Government funding. There will be forms of private sector lending that will be a constant feature of getting things done. That is not unreasonable. They are an alternative tool. I think the particular combination of long-term service contracts and long-term lease-and-sale-back deals was always a pretty odd construct, and I don t think that we will see its like again in such a form. Clive Efford: So you don t see a future for schemes such as Design-Build- Finance-Operate as a PFI in another form? Sir Amyas Morse: For a start, PFI was so prevalent because it was mandated by central Government. Unless central Government have a very short memory, the chance of their mandating something similar again, and pushing it as the only solution that is likely to be approved I remember that being the case I don t think that will happen in the foreseeable future. There will no doubt be other things, but not that. Clive Efford: I want to push you a bit more on that. How can we be sure that those sorts of contracts won t be revisited and set up again? Sir Amyas Morse: Well, you can t be certain of anything. I should add that not every single PFI deal was bad. There are circumstances where you get the asset life right and you tie in a really good provider of services, where a PFI deal can work and is a good deal. There have been such things; they have not all been bad deals. This is not a Ponzi scheme or something similar it is not fraudulent. What tended to happen was that people imagined that the life of an asset would be much longer than it turned out to be. They assumed that you build something and have it for thirty years, when in fact not many modern buildings last that long without need for major refurbishment. Think about a hospital, where there are always building works going on and changes in departments. They didn t think ahead to that, so they walked into deals where whenever they changed things, they were going to get taken to the

19 cleaners. I think it is quite feasible for us to ensure that nothing like that happens again. Things have become more sophisticated in Government commercially, so I don t see that happening again. Q71 Clive Efford: On the new leases standard IFRS 16 what extra work do you think that will create for you? Sir Amyas Morse: It will create a lot more work for Government than for us, to be frank. Government Departments that have a lot of relevant leases will have to think very carefully about how they value them and how they hold them on their balance sheet, and we will liaise with them. There are a couple of Government Departments that have decided to go next financial year. For most Departments, the Treasury has given them an extra year to prepare for this. We will liaise with them and see what their preparation work is, but we are really concerned that Departments think this through. The Departments prepare the accounts and we audit them. When we are doing the audit, we need to know whether this things are being properly valued. That is not a monstrous task for us; it is something we need to do. On the idea that we have a massive amount of work, we understand what the new standard means and will talk to our audited bodies about it very early on. I don t see it as a massive threat to us. Q72 Clive Efford: Do you think that the new standard is likely to reduce the scope of creative accounting, such as leaseback or further PFI? Sir Amyas Morse: No doubt, although we try to discourage creative accounting in the public sector anyway. Chair: I think Meg wants to ask you about devolution now. Q73 Meg Hillier: Yes. The ongoing saga of the development of a framework for accountability arrangements for powers devolved from this Parliament to the Scottish Parliament rumbles on without resolution. Can you tell us where it is at from your perspective? Sir Amyas Morse: Right, well my understanding of it is that we are on a quite remote contingency, which is the reason we get on very well with the Scottish Parliament and with Audit Scotland. Should the Scottish Parliament want to have a piece of work done on a body that we audit not a devolved body but one that might be relevant to Scotland, such as the BBC head office rather than BBC Scotland, which is audited by Audit Scotland in the first instance they would agree that they should ask us to do the work on their behalf, and we are perfectly happy to do that. What they want to able to do, if we say that for some reason we don t think it is right to do that work, is knock at the door of the BBC, having had no previous audit relationship with it, and then walk in and do the work themselves. I think the only case in which I would not agree to do a piece of work would be if there were a very substantive reason for example, if the thing that Audit Scotland wanted to look at were in the middle of being changed. If that were the case, or if there were some other very serious reason why I thought it was not the right thing to do, I would be very happy to be called before the Scottish Parliament to explain why.