53. Dockyard Expense Accounts. In previous reports the Public Accounts Committee has suggested a simplification of the published Dockyard Expense Accounts. We understand that this question is still under the consideration of the Departmental Committee which is investigating certain aspects of the Navy accounts.

AIR SERVICES.

54. Claims upon the Government of India.—The delay in settling various contributions to be paid by the Government of India on account of Royal Air Force Units employed in that country, to which the attention of this Committee was called last year, still continues, and the Accounting Officer was unable to hold out any early prospect of a final decision. Your Committee trust that no effort will be spared to arrive at a final and speedy solution of the outstanding questions.

55. Cinemas.-Your Committee are glad to learn that steps are being taken to regularise and put on a systematic footing the financing of Cinematograph exhibitions given for the instruction and recreation of the

Force.

56. Store Accounts and Stocktaking. The Committee note with satisfaction that in certain directions the Comptroller and Auditor General is able to report improvement in the Store Accounts of the Royal Air Force. Nevertheless, it appears that large discrepancies, disclosed by stocktakings, have come to notice since last year. These are attributed largely to errors in previous stocktakings and to accounting and store-keeping irregularities due to inexperience of personnel.

In Egypt, the condition of the Store Accounts has continued to be unsatisfactory, and it became necessary for the Air Ministry to detail an officer to go out to Egypt with special powers to reform the Accounts and to close past transactions.

Amended regulations of the Air Ministry for stocktaking were published in April, 1923, and are now in force.

The Committee hope that this unsatisfactory chapter in the history of the Royal Air Force is drawing to a close, and that in view of the amended regulations and the gradual improvement in the quality of the personnel a much higher standard of store accounting will before long be attained.

TRADING ACCOUNTS.

57. The Public Accounts Committee, in previous Reports, has outlined the origin and development of the practice of preparing "Trading Accounts," i.e., accounts which attempt to record the complete cost of various activities of Government Departments in a form similar to that usually adopted in analogous commercial undertakings (see 3rd Report, 1920, paras. 1-6, and 3rd Report, 1921, paras. 39-44). Certain accounts of this kind were prepared even before 1914, but the necessity for an extensive use of accounts in this form arose during the war in connection with the war services undertaking by His Majesty's Government, which fell, broadly speaking, into four classes:

(a) The supply and control of foodstuffs and materials.

(b) The restriction of enemy supplies.

(c) The safeguarding of food products.

(d) The maintenance of shipping and freight facilities.

The war services have disappeared, or are disappearing, from the accounts, but the experience gained in connection with them has suggested that this particular form of account should have a wider application and be used, in suitable cases, as a supplement to the cash Appropriation Accounts, to record the outcome of transactions which are conducted as part of the normal peace activities of Government Departments.

58. This policy received statutory endorsement by Section (5) of the Exchequer and Audit Departments Act, 1921, which directs that there shall be prepared in each financial year in such form and by such Government Departments as the Treasury may from time to time direct or approve Statements of Account showing the Income and Expenditure of any shipbuilding, manufacturing, trading or commercial services conducted by the Department. The section further directs that these accounts shall be audited by the Comptroller and Auditor General on behalf of the House of Commons, and be presented to Parliament.

59. It may be well to emphasise the fact that the implication of the word trading in connection with these accounts is somewhat misleading. The object of a trading undertaking, in the ordinary sense of the term, is to obtain a profit on the undertaking or a fair return upon the capital invested. In the case of the public undertakings to which the Trading Accounts relate, the element of profit, if present at all, has been a subsidiary consideration. In some cases the object of the transactions has been at most to supply certain commodities to the community as nearly as possible at cost price. Other accounts (and these, indeed, form the majority of the accounts which have come before the Committee) relate to services which have been undertaken solely by way of experiment or research, or in pursuance of some general measure of public policy, e.g., Land Settlement.

60. It should also be realised that the Trading Accounts which are intended to supplement the Cash Appropriation Accounts, contain certain entries, e.g., interest on capital and insurance, which are statistical in that they do not represent any transactions in the cash accounts of the Departments concerned. None the less, in the opinion of your Committee, they do attain the purpose which they are intended to fulfil, that is, to exhibit as nearly as possible in the commercial form the total cost of any given set of operations.

61. Trading Accounts, covering various periods up to the 31st March, 1920, have been examined by Public Accounts Committees of previous years. Your Committee in this session has examined the Accounts for the years 1920-21 and 1921-22. The Accounts for the year 1922-23 were not presented to the House in time to enable us to examine them. As the Accounts have now to a great extent become standardised, and their number, with the disappearance of war services, is being reduced, your Committee express the hope that it will be possible in future for the volume of Trading Accounts to be issued in time to enable them to consider it pari passu with the Appropriation Accounts of the various Votes.

62. Turning to the Accounts for the two years 1920-22 your Committee notice that complete uniformity has not yet been attained as regards the basis on which charges in the Account should be calculated. In some cases no debit has been raised for interest on capital, etc., etc. In others, insufficient allowance has been made for administrative expenses or overhead charges. These defects are, however, mainly confined to the Accounts which were instituted during the war period and before any general directions were given by the Treasury as to the basis on which they should be prepared. The more recent Accounts have been prepared on a uniform and coherent plan, following the directions given by the Treasury Circulars of 26th February and 20th June, 1921 (see page vii of Cmd. 1368 and Appendix 32 to Public Accounts Committee's Reports, 1921).

63. The Trading Accounts for the different undertakings contain, under Treasury instructions, a charge for "Interest" representing simple interest on the net cash advances from the Exchequer and on administrative expenses, while the Balance Sheets record the accumulated liability under this head as Interest Reserve."

The undertakings do not actually make any payments of interest to the Exchequer but the entries are included in order that the accounts may show to the public and to Parliament what has been the total cost of the particular concern to the public Exchequer. The result is to diminish the apparent profit or more usually to increase the loss shown by the account, and the question has been raised, notably in connection with the accounts relating to Land Settlement, whether the charge for the accumulated interest should not be eliminated from the account and written off. In the view of the Treasury, the accounts, as prepared on the present basis, represent a complete record of the cost of the operations to which they relate. They are compiled on a basis of fact and the Treasury strongly deprecate the periodic writing-down of the capital invested in the business and periodic revaluation of the assets. While the witnesses who gave evidence on behalf of the Treasury agreed that sooner or later, when some degree of stability has been obtained, it might be necessary to write off charges for interest in arrear and to write down the capital, they represented strongly to your Committee that their policy in this matter must be very conservative and that they should only depart with great caution from a form of account which, as far as possible in the circumstances, records actual cost. In the circumstances your Committee do not suggest that there should be any immediate modification as regards these items and they are content to leave it to the Treasury to determine the moment at which it may be appropriate to relieve the accounts of these accumulated charges for interest. Such an opportunity might perhaps present itself in 1926, when, as stated below, there will be a financial settlement between the Ministry of Agriculture and the County Councils in regard to the Small Holding undertakings carried on by the latter.

64. Up to now the interest charge has been calculated at the Bank of England rate current at the time when the original capital was issued to the undertaking by the Treasury, except where capital was specifically raised for the service, in which case the Trading Account has been debited with the actual rate of interest paid. This practice has resulted in certain anomalies and we understand that in preparing the accounts for the year 1923-24 the interest charges are to be re-assessed on the following basis: As regards (a) borrowings for capital expenditure, the rate of interest shall be that fixed for local loans (minimum rates). As regards (b) borrowings for working expenses, the average Bank of England rate for the financial year will be adopted.

ADMIRALTY.

65. Construction of Merchant Ships in His Majesty's Dockyard.—In 1920 the Admiralty contracted to construct two oil tank vessels for a private company at a fixed price of £310,000 each. This work, like the construction of locomotives at Woolwich, to which reference is made elsewhere in this Report, was undertaken primarily with a view to finding employment for dockyard employees who otherwise would have been dismissed, and followed upon a recommendation of a Committee, presided over by Lord Colwyn, appointed to consider how far it might be possible to utilise any facilities which the Admiralty might have available in the Royal Dockyards for the construction of merchant ships. The Accounts submitted to your Committee in respect of these services for the period ended 31st March, 1922, are provisional only, but we are informed that so far as can be seen at present there is likely to be a total loss, including interest, of £208,000 on this transaction. The construction of these ships gave employment to some 2,000 men. At the time the contract was undertaken the company had produced evidence that these tankers could be built elsewhere at the price accepted by the Admiralty. The high cost of construction is to some extent accounted for by the following reasons: (1)

The work in many respects was so arranged as to give the greatest amount of employment possible, i.e., some of the work was divided between different yards which might have been concentrated if economy had been the sole object in view. (2) It was carried out by men who were used to high class warship work and was of a high standard, and (3) the output was prejudiced by the fact that shortly after the work was taken in hand the Government decided that short time should be worked in the dockyards.

MINISTRY OF AGRICULTURE AND FISHERIES.

66. Land Settlement.-The position of Land Settlement in England was outlined in paragraph 17 of last year's Report. It may be convenient to bring the figures up to date.

It will be remembered that in England and Wales small holdings are provided in the great majority of cases by County Councils, the number provided directly by the Ministry of Agriculture being relatively small.

The capital already expended or commitments incurred on small holdings provided by the Councils under the Land Settlement (Facilities) Act, 1919, appears to be upwards of £15,000,000, and the Ministry do not at present propose to enter into any further commitments.

The losses incurred by the Councils on their holdings are recouped to them year by year until 1926 by the Ministry out of the Small Holdings Account. The amount so paid in 1922-23 was £732,494 as against £512,990 in 1921-22. The number of separate holdings represented by this amount was stated to be upwards of 30,000 (including some 20,000 settled since the Armistice). In 1926 a valuation of the Councils' undertakings will be made with a view to ascertaining and settling the final liability of the Ministry in respect of them.

We are informed that the capital expenditure by the Ministry on their own Farm Settlements was rather less than £1,000,000. Some of these settlements have since been transferred to County Councils, and the Ministry state that they are trying to dispose of other settlements, where they can, in the same way. The number of small holders (including men on profit-sharing settlements) remaining on the Ministry's estates in April, 1924, was 447. The losses incurred by the Ministry on all their farm settlements from the dates of commencement until 31st March, 1923, amounted to £333,000.

As explained above, there will be a final settlement in 1926 of the Ministry's liabilities for the small-holding undertakings carried on by Councils, and your Committee recommend that at the same date the Ministry should give further careful consideration to the question of the continued retention by them of any of their own Farm Settlement Estates that may still be in their hands.

BOARD OF AGRICULTURE, SCOTLAND.

67. Small Holding Colonies.-In Scotland, small holdings are provided directly by the Board of Agriculture.

The advances by the Public Works Loan Commissioners to the Board to 31st March, 1923, for Land Settlement schemes amounted to £1,113,228 out of the total provision of £3,000,000 for this purpose.

The losses on the small holding colonies administered by the Board on estates acquired by them were shown as approximately £200,000 to 31st March, 1923, and were incurred in connection with schemes for 1,099 new holdings and 251 enlargements of existing holdings.

Your Committee are informed that the work of land settlement in Scotland is still being carried on, and that further schemes are being entered into by the Board.

STATIONERY OFFICE.

68. Government Printing Works-Your Committee have examined the Accounts up to the 31st March, 1922, of the printing undertakings now conducted on behalf of H.M. Government. A Trading Account and a Balance Sheet have been prepared for each of the four different establishments conducted by the Stationery Office, viz., the Foreign Office Press, the Hare Street Printing Works, the Harrow Printing Works and the Kingsway Press.

Your Committee are informed that a special Committee appointed by the Treasury is now considering the general question whether or not the Government printing press or presses should be continued, and that this Committee has recently appointed a sub-Committee to consider this question exclusively from the point of view of the results disclosed by the Accounts. In these circumstances, and as it is natural to suppose that the sub-Committee will have access to Accounts completed to the latest possible date, your Committee think it best to abstain from detailed comment on the accounts which they have had before them. Further, the workings of the presses admittedly suffered from difficulties in the earlier and experimental stages, and a review of the Accounts to the 31st March, 1922, does not enable your Committee to arrive at a true view of the results of the undertakings.

In these circumstances, your Committee will confine themselves to making the following observations. First, as indicated above, the operations of the different Presses have been shown in the Account before us as separate concerns, although the distribution of the general work as between Hare Street and Harrow has been settled by considerations of general convenience and without regard to the profit of the particular branch. Your Committee is of opinion that in future there should be one amalgamated Balance Sheet for the whole of these undertakings, though separate Trading Accounts should continue to be kept in respect of each. We understand that this course will be adopted.

Secondly, it appears from the evidence before your Committee that the Accounts relating to the Harrow Works contain no charge for interest on working capital, this charge having been offset by a general credit on account of the trading profits made which have remained in the business, and that the Comptroller and Auditor General is not altogether satisfied with the course which has been adopted.

The Committee have requested the Comptroller and Auditor General to consult with the Treasury in regard to the principles on which these items should be dealt with, and we shall hope to hear next Session that an agreement has been reached.

69. Foreign Office Press. As part of the arrangements under which this Press was taken over by the State in 1918, compensation which amounted in all to £14,282 became payable to the contractor who had previously worked the business. In the balance sheet as at 31st March, 1921, the compensation paid up to that date was shown, but in the account for the succeeding year the item was struck out without being written off out of the profits of the business.

This alteration, which was concurred in by the Chartered Accountant who prepared the accounts at that time, was made on the ground that the payment represented the price which the State had to pay for breaking the previous contract and was not a fair charge against the Trading Account of the Government Press, which stood in the position of a new contractor who succeeded another contrator dispossessed, On the other hand, this payment may fairly be regarded as being to some extent in the nature of a payment for goodwill, and as such it would be a proper charge against the Trading Account. As, however, the Treasury have concurred in the action taken, and the point is somewhat an academic one, your Committee do not suggest that the present basis of the Account should be disturbed.