Sixth Standing Committee on Statutory Instruments, &c.


Tuesday 26 March 1991


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The Committee consisted of the following Members:

Chairman: MR. JAMES HILL

Abbott, Ms. Diane (Hackney, North and Stoke Newington)

Baker, Mr. Nicholas (Dorset, North)

Butterfill, Mr. John (Bournemouth, West)

Carlile, Mr. Alex (Montgomery)

Devlin, Mr. Tim (Stockton, South)

Gregory, Mr. Conal (York)

Johnson Smith, Sir Geoffrey (Wealden)

Lee, Mr. John (Pendle)

Maples, Mr. John (Economic Secretary to the Treasury)

Marek, Dr. John (Wrexham)

Miscampbell, Mr. Norman (Blackpool, North)

Montgomery, Sir Fergus (Altrincham and Sale)

Primarolo, Ms. Dawn (Bristol, South)

Rowlands, Mr. Ted (Merthyr Tydfil and Rhymney)

Squire, Mr. Robin (Hornchurch)

Wilkinson, Mr. John (Ruislip-Northwood)

Wray, Mr. Jimmy (Glasgow, Provan)

Young, Mr. David (Bolton, South-East)

Mr. B. M. Hutton, Committee Clerk

3 Sixth Standing Committee on Statutory Instruments, &c. Tuesday 26 March 1991

[MR. JAMES HILL in the Chair]

Draft Central Office of Information Trading Fund Order 1991

10.30 am

The Economic Secretary to the Treasury (Mr. John Maples): I beg to move, That the Committee has considered the draft Central Office of Information Trading Order 1991. The Central Office of Information provides publicity and advertising services to Government Departments on a repayment basis. When the COI was established as an executive agency on 5 April last year, it was intended that it should become a trading fund on 1 April 1991. The order gives effect to that earlier intention. It provides for the setting up of a trading fund to finance the operations of the COI. It designates the national loans fund as the authorised lender to the fund, imposes a limit of £100 million on the sums that may be issued to the fund by way of a loan and provides that part of the capital of the trading fund amounting to £265,000 is to be public dividend capital. Schedule 1 describes the operations of the COI that are to be funded by the fund; the schedule embraces all its existing operations. Schedule 2 describes the assets and liabilities that are to be appropriated to the fund. For reasons to which I shall come shortly, schedule 2 does not include all the COI's existing assets and liabilities. Since 1984, the COI has operated on a repayment basis and has developed management and financial systems that allow it to do so in a businesslike manner. The disciplines brought about by the repayment regime have led, over the past seven years, to significant gains in the efficiency with which the COI delivers its services. For all services except advertising, news distribution and the regional network, the COI's clients are free to consider alternative suppliers for their requirements. Therefore, the COI's services are subject to competition. Advertising, news distribution and regional network services are provided by the COI so that best value for money in those areas is obtained. In the case of advertising, the discounts obtained by the COI outweigh any advantage that might flow from Departments seeking tenders independently. In the case of news distribution and regional network services, avoidance of duplication justifies that approach. With the passage of time, it became increasingly clear that the nature of the COI's business under repayment did not sit easily with Supply procedure. If the COI is to continue to deliver improvements in efficiency, it will be necessary to align the method of funding more closely with its business. That has led us to set up a trading fund and to introduce the order. One difficulty is that, as a result of the COI's move to repayment in 1984, it no longer had direct control over the level of publicity that was carried out on its vote. The procedure since then has been for the COI's client Department to decide whether publicity will be used in 4 support of a policy objective and for the COI then to provide it. The result has been that the COI has had no accurate idea at the time it has prepared its estimates of the expenditure that it would incur. Consequently, the COI has often had to submit supplementary estimates to allow it to satisfy a demand already approved by Parliament in a client Department's vote. Another difficulty has been that the COI's receipts and payments of cash do not readily align within financial years. In the vast majority of cases, the COI places its customers' work with third party contractors. The COI bills the customer Department when the job is delivered, but that is often before the contractors present their bills. Under the annuality principle, any money that the COI has in hand from Departments at the end of a financial year must be surrendered even though it still has to pay its own contractors when their bills are presented early in the next financial year. In that way, the COI has surrendered cumulatively more than £19 million over a period of years to the Treasury. The Department has been able to cope only by using money from customers for new work to pay old bills. That has worked while turnover has been increasing, but in preparing an opening balance sheet for the trading fund, the COI has debts in excess of £19 million without any credit to bring the balance sheet into balance. For that reason, the excess liabilities have been excluded from schedule 2. provision is sought in the 1991–92 main estimate presented to the House earlier this month to settle the excess liabilities. Subject to parliamentary approval of the main estimate, I shall seek the House's authority in the summer to appropriate to the trading fund the excess liabilities and the associated voted moneys. The COI will retain, outside of the fund, a small voted provision in respect of publicity services provided without charge to the House, another place and the royal household and the cost of providing central and media advisory services to the Government. The new funding arrangement will in no way diminish the COI's accountability to Parliament, which will remain as set out in the agency framework document. I commend the order to the Committee in the interest of securing greater efficiency in the provision of publicity services.

10.35 am

Dr. John Marek (Wrexham): The order is interesting. I am grateful to the Minister for his explanation. Sometimes Ministers come to Committee and read out two terse paragraphs; instead, the Minister read nearer to 22 paragraphs and, consequently, Opposition Members have a better appreciation of why the order is thought to be necessary. I have several questions. First, I refer to the £100 million limit. The order designates the national loans fund as the authorised lender and imposes a limit of £100 million on the sums thay may be issued by way of loan. Why should the maximum sum be so high? The COI provides information, hospitality and news distribution services for the Government, so why does it need £100 million? Presumably, there is a good explanation. It might help me to understand the Government's proposals, if the Minister were to enlarge on the activities of the COI, 5 My second question relates to the public equity of £265,000. Why has that figure been chosen as the public equity in the trading fund? Why is it not a lot more? Why should there be any public equity at all? Thirdly, I wonder whether the order is preparing for privatisation if the Government win the next general election—which looks less and less likely. One had only to listen to the radio this morning to learn that things are looking extremely black for the Conservative party. But nothing is impossible, and it may just survive against all the odds. I certainly will not put my money on the Conservatives at Ladbrokes, but anything can happen. In view of the Prime Minister's remarks a few days ago, when he was speaking to some of his diminishing band of party faithful, it seems that the privatisation programme will continue if the Conservative party wins the next general election. British Coal and British Rail will be privatised. Mention was made in the press of large sections of the civil service being privatised. I wonder, therefore, what plans the Government have for privatising the COI or any other part of the civil service that has a trading fund.

The Chairman: Order. I trust that the hon. Member will not pumue that line of questioning too far.

Dr. Marek: No, I shall not, Mr. Hill. I shall keep to the order, but it is part of a group of three or four others on trading funds which have been before the House recently. As so many have appeared in the past three or four weeks, the Department may have some general policy encompassing the order. Fourthly, has there been any consultation with the unions representing the COI employees? If there has, have the employees, or their union, made any suggestions or comments? If so, have they been taken into account in drafting the statutory instrument? A few words from the Minister on that point will be a great help. My final question concerns the commercial activities of the COI as a result of having a trading fund. I expect that some hon. Members occasionally come into contact with the COI when visiting Ministers who wish to talk to parliamentarians are invited to lunch in the Strangers Dining Room. On occasions, I have been able to talk to Ministers from many different countries. If the commercial activities of the COI are pressed a little too far, instead of a meal, the authorities may provide sandwiches or beer simply because the COI says that it has had to undercut a firm. What rate of return is the COI expecting on the capital that will be deployed? How will its commercial activities be undertaken? It would be wrong if we adopted the pervasive philosophy much advocated by the previous administrator: that public expenditure is bad and that if we can get away with savings on it—never mind what it does to the infrastructure or to our standing abroad—that is a good thing. If that is what is behind the order, I shall vote against it. Will the Minister assure me that that is not the case and that the activities of the COI—certainly in disseminating information—will be carried out properly, accurately and with integrity? As for the COI extending hospitality to other parliamentarians and leaders of other Governments, will that, too, be done properly? Britain should be seen in the eyes of the world as a country that respects other Governments, looks after their representatives properly and does not expect them to undergo various privations 6 when they are here on official visits. That question—in two parts—is possibly the most important one that I have asked, I hope that the Minister can reassure me.

10.42 am

Mr. Maples: I should like to deal with the questions in the order in which the hon. Member for Wrexham (Dr. Marek) raised them, The hon. Gentleman referred to the £100 million limit. The COI needs a great deal of working capital at different times of the year, as its business is seasonal. The indications are that it needs up to £40 million towards the end of the year. By the end of the financial year, the end of March, it must have repaid all its short term debt. It can do that because the seasonality of its cash flow allows it not to have any short-term borrowing at the end of the financial year. However, it needs between £30 and £40 million towards the end of the calendar year. The order refers to £100 million so that the Government do not have to come back to Parliament every time they want to raise the borrowing limit. The Treasury will set £50 million as an interim borrowing limit, so the COI cannot borrow more than that from the national loans fund without Treasury approval. Another problem is that a large order because of a privatisation, involving £10 million or £20 million of advertising expenditure, could throw the seasonality of the cash flow out and require additional borrowing, even though the level of the COI's activities might not have changed enormously. I hope that that is a satisfactory explanation. There are two reasons for the £265,000 of public dividend capital. The total capital—reflecting the net assets that have been transferred—is £1,770,000, which is the difference between the two figures in schedule 2. The Government require a 6 per cent. real return on that total capital before interest is paid on the long-term debt. Interest on the long-term debt is 11 per cent. To achieve those targets, £265,000 must be set as the public dividend capital and the balance as long-term debt. Perhaps I can tie in the question of commercial activity as it deals with whether the pressure on the COI to achieve targets will impinge on the quality of service that it provides for Departments. I can confidently say that that is not so. It is up to client Departments of the COI—all its clients are other Government Departments—to decide what they want. The hon. Member for Wrexham referred to entertaining visiting foreign statesmen and politicians, and I am sure that we have both been to many COI lunches. However, I am afraid that there will be no more COT lunches. They are now organised by the Foreign and Commonwealth Office, and have been for some months. I accept the hon. Gentleman's point, but the amount of money that is spent on those activities is now solely a decision for the Foreign and Commonwealth Office. Its staff like to be well looked after when they go abroad, and I am sure that they would not skimp on entertaining foreign dignitaries who come to Britain. The same argument applies to the pressure that is put on the COI to reduce the quality of other services. The demand that the Government are making of the COI—that it achieve a 6 per cent. real return on the public capital that has been invested in it—seems reasonable from the taxpayer's point of view. Taxpayers are entitled to a proper return on their £2 million investment. 7 The Government are compelling the COI to reduce its real costs to its clients by 1 per cent. a year by improving internal efficiency and by using its buying power more efficiently when buying television advertising or newspaper space. The COI has exceeded that target in the past few years. However, that is an internal COI target. Its client Departments decide, after consultation with the COI, what they want to spend and to achieve. The job of the COI is to advise the Departments how best to achieve that in terms of the effectiveness of their campaign and value for money. Therefore, how much the Foreign and Commonwealth Office spends on its activities is entirely a matter for itself. A Department that has responsibility for a nationalised industry which it wishes to privatise decides for itself how it will set about the task, with COI advice. The Government have considered whether to privatise all sorts of government organisations. The fact that the COI became an executive agency and is becoming a trading fund means that the Government have decided not to privatise it, for the moment. I cannot guarantee that it will never be privatised, but there are no plans to do so at present. It may eventually be decided that it will be appropriate to privatise part or all of the COI. I am told that the trade unions have been consulted and that their comments have been taken into account. I understand that they have no objection to the proposals. I hope that I have satisfactorily answered the hon. Gentleman's questions. If he has any more, I shall answer them.

10.48 am

Sir Geoffrey Johnson Smith (Wealden): I do not wish to detain the Committee, but I have had some experience of the COI, both as a former employee of the British Information Services in the United States, which extensively used material from the COI, and at one time as a junior Minister with responsibility for the presentation and co-ordination of Government information, which brought me into contact with the COI. Both those experiences occurred some years ago. I admire the standards of excellence that the COI achieves—its objectivity and its quality of service. However, as time went by and as the Government developed a much more commercial approach to services, there was little doubt that the private sector could provide advertising and public information. Despite that development, it was clear that if the COI was to improve its service to clients and its opportunities to buy from the market, it should be given a wider remit that 8 was more financially based and allowed greater opportunities to buy and sell competitively. The order achieves that.

Mr. John Lee (Pendle): Will my hon. Friend make his public relations and co-ordination services available to the Government at this time?

Sir Geoffrey Johnson Smith: I thank my hon. Friend for his sincere flattery. The Government arc not doing too badly and I am sure that everything will come right. We shall all contribute to that. Indeed, I want to get away soon so that I can take part in two broadcasts which I hope will remedy some of the nonsense that was put out by one of my right hon. Friends in a debate yesterday. I was reassured by the steps that the Government have taken and also by the comments of my hon. Friend the Minister on privatisation. Much as I respect the value that privatisation has had for many industries and services, the Government are right in this case to reserve their hand. They have already brought the COI into the market place. The ability to buy in services from the private sector will introduce an element of competition and a sense of commercial realism. The Government have achieved the right balance and I congratulate them.

Dr. Marek: I agree with the general thrust of the speech by the hon. Member for Wealden (Sir G. Johnson Smith). I wish to put on record my worry about the COI having to make a 1 per cent. efficiency saving year in, year out without looking at the business. The Government have tried that in the past. In time, all the fat will be off the bone and there will be no more to trim. Although there may be ample scope for a 1 per cent. efficiency saving for the next year, or even the next two or three years, eventually more realistic and individual attention will have to be paid to the workings of the COI. I thank the Minister for his explanation. I wish the COI every success in its operation as a trading fund.

Question put and agreed to.

Resolved, That the Committee has considered the draft Central Office of Information Trading Fund Order 1991.

Committee rose at nine minutes to Eleven o'clock.


Hill, Mr. James (Chairman)

Baker, Mr. Nicholas

Butterfill, Mr.

Devlin, Mr.

Gregory, Mr.

Johnson Smith, Sir Geoffrey

Lee, Mr.

Maples, Mr.

Marek, Mr.

Wilkinson, Mr.