The National Audit Office and Privatisation
| DOI | http://doi.org/10.1111/j.1468-2230.1991.tb01858.x |
| Published date | 01 November 1991 |
| Date | 01 November 1991 |
The
National Audit Office and Privatisation
J.
F.
McEldowrtey
*
hit
roduc
t
ion
Accounting'
in
thc public scctor has
become
increasingly important
11s
iittentioti
hiis
focused on the control of public cxpenditurc
iis
an ~ss~litiiil wcapon
in
the
battle
agiiinst inflation. Since the inid-
I97Os,
the introtluction of ciish
liiiiits?
and
thc
dispensing with volumc planncd public cxpentliturc
in
IiiVOur of ciish plonning
hiiS
iittenipted
to
avoid
incremental
budgeting
ii~itl
introduce rcstriiints on
thc
costs
01'
goods
ad services
in
the public
SW~W.
Ce11triil gov~rtilii~nt hiis
adopted
ii
wide
rangc
of
techniques such
as
thc Rayner Efficiency Studies
(W79),'
thc Fiiiiiilciiil
Management Initiative (FMI)
(1983y
antl the Next Steps
(
1988),5
dcsignecl
to
reduce cost, improve the econotiiy antl efficiency of governinent, avoid waste
and
provide greater value for money. Accountancy techniques
and
busincss practices
havc been adopted
as
principles of government policy replacing the traditional
Whitehall niodcl
in
the organisation and nianagetiicnt of government departinents.
Since
1979,
the Government's privatisation programme has
also
directed attention
to
inefficiencies and lack
of
scrutiny
in
public ownership. Privatisation
sales
have
gradually become an important source
of
rcvenue
for
the Exchequer. The early
sales
of
shares
in
coiiipanics such as BP, Amershaiii International,
and
Cable
and
Wirclcss
yielded small amounts
in
revenue. Later privatisations such
as
British Telecom,
British Gas and the Water Companies have increased the net rcccipts
to
the Exchequcr
to
sums
in
excess
of
f20
bn." Privatisation salcs have complex econoiiiic
and
*School
ol'
IAW.
Iliiivcrsiiy
of
Wnrwick, Covcntry.
1
itiii
grittchtl
to
Mr
1.
Mwshitll
of
the
NAO
for
help
itnd
itssistimx
in prepitring this iIriicIc.
'l'lic
vicws
cxprcsscd
in this urticlc
itre
iiiy
own
itiid
arc
itol
to
be ittttihutctl
to
the
NAO.
I
itiii
iilso
grittcl'ttl
to
MI
R.
McSwcciicy, Warwick University,
for
his
liclpliil
coiiiiiicnts. criiicisins
ml
opinions. Any
errors
itre
iiiy responsibility
itli~ne.
I
See
gcncritlly Glynn,
AtDlic~
Sc,twr
/*?ricrrrcicd
Coriirol
ctricl
Acwrrri/irig
(0xt1)rtl:
I3itsil
I3l;tckwcll.
IOX7);
Downcy. 'Public Accoitntithiliiy:
fact
or
tiiylli'
(1986)
Pirldic.
Mwrt*y
Vol
0.
No
I
I
Jutic
19x6.
pp
35-30:
Hciilcy,
Holthittii
itnd
Likicrtiiiin,
htlilic~
Swor.
Ac~c*r)trririrrE:
coitl
Firrcorc~icrl
Coiird
(1.ontlon:
Villi
Nostritntl
Reinhold. 1986);
Fulton
Coiittiiittcc.
Citintl
3638
(
1968).
2
Elliott.
'Citsh
Lhits'
(1977) 40 MLR 569.
Also
scc
Elliott, 'The
Coiiirol
of
Pul)lic
~x~~ctidittt~c'
in Jowcll
iind
Oliver
(ctls),
'771~.
Clrctrigirig Coris/i/ic/iori
(Oxford:
Clitrcndon
Press.
1980)
111)
105-
1'1
I
:
Rcv;tti.
'Ciish
Liiiiits,'
1980
Fiscvrl Srrrtlicv
Vol
I,
No
4.
pp
26-43;
'l'ltiiiti
itiid
Wright.
"I'lic
Atlvc~it
in
Cash
Plitnning.'
Fiircrrrcitrl Ac~c~oioirctBiliry
cord
Mcoircgc~iiic~ii/
S(3).
Auiu~iiti
19x9.
pp
149-
162
i111t1
Tliitiit. 'Runiiing
Cost
Controls
iitid
Mitnpowcr Plitntiing.'
tlic
Trcitsury
iit~d
Wliitcli;tll Working
Pitper
NO
0,
Dcccltihcr
1988.
A
conipitrutive iinitlysis tiiiiy
he
found
iit
Wiird.
'Note
Cithh
vs
C'cist
Plitnniiig
of
Public Iix~xtitlitiirc' Appcntlix 4 (26 JittiItitry 1982).
6th
report.
198
1-82.
'I'rcitsury
iind
Civil Service
Cotiiiiiittcc. HC 137. Minutes
of
Evitleticc.
111'
130-
I3
I,
3
Hciitlctl by
I.ortl
Hiiyncr.
Iiitcr
by
Sir Robin
lhbs
iititl
iiow Sir
Angus
Fritscr.
Scc
Flyitti. Grity
it~id
Jcnkiiis. 'The
Next
Stcps
and
the Miinitgctiicnt
of
GOV~~IIIII~~II.'
1990
Airlicorrcvrrccry AJitir.s
vol
43.
no
2.
I)])
159-178.
Also
see
Coiiittiittcc
on
I'tthlic
Accottttls.
39th
Report.
HC
322
(IOXS--XO);
llrc
Rc~yitcr.
Scrrtrirty
Pr,ogrctrrtrirc*s
1970-83,
13111
Report. HC
6
I
(
I
987/8);
'Ilw
Fiiicmiei/
Mtrritr,tyrricvrr
briritr/iir
Ciiiiitl 9297. 1984; Mctciilfc itntl Kichitrds. 'Rityiicristii
itntl
Elficicticy in
it)
Hopwo~cl
ittid
Toiiikiiis
(ctls),
lssiws
iri
Prrblic~
Sewor.
Acwrrtiririg
(0xf1)rtl:
Philip
Allitt~~
19x4)
4
Pn)gri,ss
or)
Firioricicrl
Meiriccgtwcirr/
iri
Goiwrirrrtwr
/~c~/~cirrrric~ri/s.
Cti~iid
9297
(
19x4); Mctcitllc
it~itt
Ricltitrtls.
hiiprovirig Piclilic.
Meorcrgcwrcw
(I.i~ncl~~n:
Siigc.
19x7):
t
Icclo
ittid
Wiltlitvsky.
?%t*
/'riIrt/c*
Goiwirrtcwt
ej'
Pitblic
Moricy
(London: Miiciiiillitn.
198
I
).
Next
Stcps'
110881
PL
505.
.
________.
pp
188-211.
5
DIcwIy.
"l'hc
Next
SICI'S:
Tlic
Pit~
t'itltcrs'
I19901
PI.
322
it110
I~CWIY.
'I'(iI\~it~tl
I'IOIII
I'MI:
'1.11~
6
HC
Dch
vol 171.
cols
357-360 written ;tnswcrs 27 April
1090.
'ilc
Priiiic Minister
stittctl:
'Twctity-
933
711~
Moclcw
I.crii-
Kci~icw~
54:O
Novcitibcr
I991
0026-790
I
political objcctivcs. 'I'hc salcs have greatly expiintled the number of shareholders
ant1
rctlucctl
Stittc
involvciiicnt
in
industrial tlccision taking. The question of whether
privhation has
Icd
to
iniprovctl industrial cfficiency is linkcd to the effectiveness
of
conipctition
and
rcgulation. Strong political and ideological policics have intlucnccd
the Govcrnnicnt's privatisiition programme often with conflicting objectives
so
that
the ovcritll succcss
of
privatisation is difficult to judgc according
to
any precise
c
r
i
t
c
t
iit
.
'I'hc complcxity of bringing such vast undertakings to the market coupled
with
uncertainty
in
the markct has posed new challcnges for the National Audit Office
(NAO), sct up undcr thc National Audit Act
1983.
The NAO provides audit for
Central Govcrnmcnt undcr the direction
of
the Comptroller and Auditor General
(Auditor General), who rcports
to
Parliament. The Committee of Public Accounts
(PAC) takcs cvidcnce from the departmental Accounting Officer, usually the top
civil scrvant
in
the dcpartment, on the basis of the Auditor General's report. The
PAC subsequently publishes its own report
to
which the Government replies
in
a
Trcasury Minute which is also published. Together, the Auditor General and the
PAC offer
a
combination of independent audit and parliamentary control as a means
of
external accounting over public expendi~ure.~ The Treasury exercises internal
itudit of government departments through various internal controls and Accounting
Officcrs."
The NAO
has
itn
iinportant role
in
overseeing the Government's privatisation
progrmmc and has otteniptcd to cnsurc that privatisation sales have been well
inanagctl.
In
certifying the accounts of govcrntnent departments the NAO examines
receipts and cxpcnscs from privatisations.
At
the discretion
of
the Auditor General
the NAO may carry out Value For Money (VFM) audits
of
the major privatisations
to
ensure that the taxpayer has receivcd
good
value for
the
assets sold.y The NAO
is
the first national audit institution faced
with
the challenge of privatisation sales
of
such variety and complexity, undertaken
in
such a short
This article is focused on the NAO's responsibilities to Parliament
in
preparing
its rcports on privatisation salcs and the difficulties facing the NAO when judging
whcthcr thc salcs havc been well managed. The article explains the limitations of
VFM
investigations, especially the tensions between measuring the 'economy and
cfficiency' and 'the effectiveness' of departmental decisions over the sales. The
boundtirics of the NAO's investigations are reviewed, especially the restriction that
the NAO may not question the merits
of
Government policy and that the focus of
the invcstigation is on the
&portment's
rule
in
privatisation. Some of the limitations
apparent
in
the recoininendations made by the NAO
in
respect of sales are examined
in
thc light
of
the complexity, scale and contlicting objectives set by privatisation
soles. This raiscs the question of Parliament's ultimate role
in
providing accountability
ovcr Govcrnment policy.
In
a constitutional sense,
the
techniques of accounting
its
it
1nc;ins
of
overseeing Government decisions are subject
to
political control beyond
thc remit of the NAO. The article is
in
three sections. The article begins with
a
__
.
iiiiic iiiiijor husiiicsscs hiivc hccii priviitiscd
iiiid
cirouiid
800,0(K)
jobs
hiivc hecii trcinsfcrrctl
to
the
priviitc
sector.
Rcccipts
so
fair
iilnolint
to
sonic
f27.5
hillion with
future
siilcs
projcctctl
ill
11
rcitc
of
iihoiit
Pi
billioii
ii
yciir.'
7
Scc
gclicriilly
Cotrtrol
ofl'Prrl)/ic.
.h~~,c~rrc/itrtIc~:
I'loitrlivr
lic~11ort
1111
tlrr
Mdrirlc*r:y
oJ'Gotrlr.rl/trc,trt.
Ciiind
1432
(
196
I);
Rcyort
by
t/ic
Cottrl~trolli~r
mi/
Aitclitor
Grriiwtl
(London:
HMSO,
April
IY87).
8
See
Cliiiptcr
6
of
Goiwtiitimt
Ac~c~orortitrg: A Ciricke
otr
Ac*c~orrrrttrric~y
crtid
Fitrirticictl
Procw/rtri.s
j)r.
tlw
1J.v~~
oj'
Goiwrrtriiw/
Dcptr?rrrcwts
(lmndon:
HMSO.
1989).
0
A
Friritrcwork
$1~
Vcrlrrt
For
Mowy
Aicdits
(Londoii:
Ncitioiiiil Audit
Office.
uiidiitcd).
I0
I3caucliiiiiip.
*N;itioiiiil Audit
Office:
its
role
iii
priviitisiitioii,'
Pirblic
Moiiqy
cord
Mtrtrtr,qcwrc*rrt.
Suiiiiiier
I990.
pp
55-58.
934
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