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Mr. Flight: "Off balance sheet" can mean two different things, but, at least, if these matters are not part of the national balance sheet, the notes to the balance sheet should clearly record everything that is in place. That is what transparency is about.

Mr. Davey: The hon. Gentleman is right, and if the Government do not do what he is asking, and do not respond to this kind of debate more fully, the Treasury will be acting as the Andersen to the Department for Transport's Enron.

Mr. Mark Field: With great respect to the hon. Members who spoke earlier, this is the most important debate on Report. I appreciate that we need to move on, so I shall make just a few comments. I entirely agreed with the contribution of my hon. Friend the Member for Arundel and South Downs (Mr. Flight). I share his grave concerns about the Government's off balance sheet approach, and about the way in which, as a result, headline public expenditure is reduced for the purposes of the public accounts.

I might be able to pre-empt the hon. Member for Wolverhampton, South-West (Rob Marris) by saying that, while I shall not pledge to scrap PFI—in the highly unlikely event that I ever hold office in this place—I have always had grave reservations on the subject, going back to the early 1990s, when I practised as a lawyer in the City of London. The whole PFI project—now superseded by PPP and enhanced, specifically in the last five years, by a considerable number of projects that are now in train and will be for some years to come—was made highly attractive to public sector investors, the construction industry, and the vast number of advisers in the City of London, many of whom I represented, in a pastoral way, at least. Often there has been little evidence of a substantial risk being transferred. That is one of the concerns mentioned by both the previous contributors to the debate. The real test, and the cost to the taxpayer in the longer term, may become apparent only in the second decade of this century, as the projects come to an end.

My great fear is that we will find that many of the PFI projects have not been well structured and are not good value to the taxpayer. That may become evident, as I said, only in the second decade of the century, which may unfortunately also be a time when, for whatever reason, we are going through a recession. If, in those circumstances, we suddenly have significant expenditure from the public purse, it would be a nightmare.

I entirely agree with my hon. Friend the Member for Arundel and South Downs that we need greater transparency. I also agree with the hon. Member for

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Kingston and Surbiton (Mr. Davey) that we must ensure that substance, rather than legal form, is the test of any transaction.

Rob Marris: Will the hon. Gentleman give way?

Mr. Field: I hope that the hon. Gentleman will forgive me; I know that others want to speak. I hoped that I had pre-empted at least one of his questions.

I hope that the Minister will make a statement in relation to the new clause. It is unlikely that the clause will win through today, but it is at the core of the grave concerns that have been expressed about the manner in which the Government seek to present their finances. If Government finances and finances generally are to be trusted, it is crucial that they are accompanied by increasing transparency, security and trust. It is clear from the events of recent months around the world that we need a greater degree of trust. It is incumbent on the Government to ensure that the finances and accounts that they present to the country warrant full trust.

Mr. Hoban: We are fortunate to have the example of Network Rail to illustrate the arguments in favour of the new clause moved by my hon. Friend the Member for Arundel and South Downs (Mr. Flight). As someone who has practised as an accountant in the past, it is clear to me that the Government are exploiting the difference between accounting standards to create a transaction and a structure that get them off the hook in terms of accounting for the liabilities of Network Rail as a debt on their balance sheet.

As the hon. Member for Kingston and Surbiton (Mr. Davey) observed, the Comptroller and Auditor General recognised that Network Rail was a subsidiary of the Strategic Rail Authority and should therefore be included on the SRA's balance sheet, and on the Government's balance sheet as a public body that should be counted as such. Of course, the Comptroller and Auditor General is not the first to identify that. There was an article in the Financial Times on 20 June, I believe, which reported that the SRA's own auditors, PricewaterhouseCoopers—the firm for which I used to work—had also identified that the debt should be on the SRA's balance sheet and therefore be counted as part of public sector borrowing, and that the Department for Transport had confirmed that.

Transactions are being deliberately structured to ensure that they are not counted as part of the public borrowing, by ensuring that the Office for National Statistics uses the European standards of accounts 1995. The art form of structuring transactions to meet the form of regulation, rather than ensuring the substance of the transaction that is being accounted, underpins the problems that we have witnessed in the US with Enron. We have seen a rules-driven approach trying to ensure that liabilities are kept off the balance sheet.

It is important for the Government to recognise that if we require, rightly, the accounts of private companies to present a true and fair view of their assets and liabilities, it is right that the Government's accounts show the very same thing. They should recognise that the definitions used in UK general accounting practices should be used to determine their own liabilities. It is the view of both the CAG and PricewaterhouseCoopers that the SRA has

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dominant control or influence over Network Rail. In its report, the ONS tried to justify this accounting treatment. The SRA is a strategic partner and funder of Network Rail, and its influence is clear. Cleverly structuring transactions so that the majority of board members are from the private sector is not the right way to go about accounting for a £9 billion liability.

9.15 pm

We need to accept and recognise the reality of this transaction, which is that the SRA controls Network Rail through its funding and its role as a strategic partner. That is how the transaction is structured at the moment. However, we should also recognise, as the Government did last year, that if things go wrong they will pick up the bill. The Government will act as the lender of last resort, so it is clear that there is a real liability to the taxpayer. That may be seen to be contingent now, but it could well be actual, and the public accounts should recognise that fact.

This debate is well timed. The example of Network Rail is highly appropriate. The transaction has been structured in such a way as to focus on its form and to get the liability off the public sector balance sheet. That is not the way in which accounting should be done for these transactions. We should ensure that our public accounts are honest, transparent and open.

Ruth Kelly: It was interesting to listen to this debate, especially to the impassioned defence of the new clause by the hon. Member for Arundel and South Downs (Mr. Flight). I was slightly surprised by the colourful and, dare I say it, slightly intemperate language that he used to describe Government accounting. I am sure that many hon. Members agree with me that the accounting issues that Enron and WorldCom have exposed in the United States are extremely serious and should be dealt with across the globe as well as in the US. They could have serious consequences for investor confidence and for ordinary people working in and around those companies. I do not think that such language is appropriate to describe genuine differences in the United Kingdom in the accounting treatment of various liabilities, some of which have to do with the PFI, but many of which have absolutely nothing to do with it or with the words of the new clause.

Mr. Flight: I hope that the Minister heard what my hon. Friend the Member for Fareham (Mr. Hoban) said. He is a qualified accountant, and he made the point that the approach that is being followed, which is to exploit the rules rather than the substance, is precisely what Enron off balance sheet accounting was about.

Ruth Kelly: That is absolutely not the case. I found much of this debate confused. When the hon. Gentleman considers the arguments as I respond to the debate, perhaps he will withdraw this completely unnecessary and muddled new clause.

The new clause would require the Government to follow generally accepted accounting practice in preparing the Red Book in addition to the code of fiscal stability. It would also require us to publish an aggregate figure for liabilities under the PFI. I intend to deal with each of those points in turn.

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First, I should like to point out to hon. Members, especially Opposition Members, that the Government already follow GAAP. Spending data in the Red Book, including commitments under the PFI, come from Departments' accounts. We are one of the few Governments in the world to require by law Departments' accounts to follow GAAP.

I am also surprised that the hon. Gentleman has suddenly decided to retreat from the Bill that was introduced with bipartisan agreement—now the Government Resources and Accounts Act 2000—which was part of a process that started in 1994 and was described by the then Chancellor and the Conservative Government as the most important financial reform since Gladstone. I am delighted to see that the hon. Member for Kingston and Surbiton (Mr. Davey) accepts that fact.


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