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Mr. Edward Davey: May I say how much I agree with that statement? It was an extremely important reform. However, as the hon. Member for Arundel and South Downs (Mr. Flight) said, in Committee we debated the way in which the Government treat contingent liabilities. Neither Conservative nor Liberal Democrat Members were happy about the way in which contingent liabilities were being treated under resource accounting and budgeting. This is not a new point, thereforewe have been arguing this for some time.
The Government Resources and Accounts Act 2000 was passed as a result of the transformation of public accounts under resource accounting and budgeting. Section 5(3)(b) provides that a Department's accounts must
We have an independent statutory advisory boardthe financial reporting advisory boardto advise us on the application of GAAP to the public sector. It was this Government who put that independent advisory board on a statutory basis, and we have never rejected its advice in the five years of its existence. We have a system for public sector financial reporting that is among the most advanced and transparent in the world. I believe that this part of the new clause is therefore superfluous, but it is also confused.
There is a wealth of data in the Red Book not covered by GAAP, because GAAP cannot say anything about unemployment assumptions, for example, or oil revenues. Instead, under the very Finance Act that the new clause seeks to amend, we subject changes to these assumptions to the audit by the independent National Audit Office. In practice, the new clause would require these numbers to conform to GAAP, which is silent on these issues.
Ruth Kelly: The new clause wants a figure for possible liabilities, but PFI rarely gives rise to contingent liabilities. PFI deals are contracts for the provision of a service. We pay only for the services received. In the event of a default, the financiers are required to look for alternative service providers. If that fails, which would be very rare, termination proceedings would begin. That is the course of normal businessit does not give rise to a contingent liability in any proper sense of the term.
In a small number of specific cases involving public-private partnerships, we have provided for some sort of public formal guarantee to the financiers. One example is London Underground, where a letter of comfort sets out different sets of circumstances whereby the Government would underwrite some of the financiers' commitments. That letter was of course put before Parliament, as we are required to do and as happens in the normal course of events. The Government report to Parliament all such letters of comfort and all contingent liabilities that arise which account for more than £100,000.
Mr. Jack: If a PFI hospital deal ran into trouble and there was a gap between the originator of the project and the successor body taking over that required some degree of financing, would that not be a liability? If so, how do the Government account for it?
Ruth Kelly: If a genuine contingent liability exists, the Government publish that contingent liability as part of the supplementary statement to the Consolidated Fund accounts. Details by Department are available in the notes to Departments' audited accounts, which, again, are laid before the House. It is hard to see how the system could be any more transparent than it is at the moment.
Ruth Kelly: I will come to the treatment of Network Rail in a moment, but I should point out that Network Rail does not actually count as a PFI and, strictly speaking, is not within the terms of the debate. However, I shall be happy to deal with it in a moment.
Opposition Members have charged us with using the PFI and the PPP as a ruse to keep numbers off the balance sheet so that they do not show up in the Government's accounts. That is utterly untrue and complete nonsense. Balance sheet treatment in this country has to be confirmed by independent audit. Recent PFIs and PPPsincluding the London Underground, prisons and the second Severn river crossingare all on the balance sheet; the trend increasingly is to put them on the balance sheet. The issue of whether or not there is a transfer of risk is decided independently. We take independent
Ruth Kelly: I will have to check that point and write to the hon. Gentleman. If contingent liabilities arise in UK Departments, they have to be reported to Parliament, as is clear in the treatment of those liabilities in Departments' accounts.
Rob Marris: I confess that I used to be a solicitor before entering this House, and not an accountant[Hon. Members: "Oh!"] I am quite proud of that, although others may not be. There are differences of opinion, so could my hon. Friend explain what the Government understand by the term "contingent liability"? I confess that I do not exactly understand it. I thought I did before the debate began, but I am not sure now whether it has to do with the probability of a risk occurring, a possibility or a tiny possibility. Could my hon. Friend elucidate?
Ruth Kelly: The word "contingent" has different meanings in different contexts and contingent liability for a PFI is slightly different from contingent liabilities arising in other contexts. We have consistent treatment, in which if a liability is possible or likely, it is reported to Parliament. If a liability is remote, it is treated differently, as the hon. Member for Arundel and South Downs has said.
The important thing is that we have a statutory independent financial reporting advisory board, and a framework within which the decisions are taken. In considering the case of Network Rail, we have an independent statistical bodythe Office for National Statisticswhich applies internationally recognised national accounting standards that are used to compare economies internationally.
Clearly, in the treatment of complex statistical issues other bodies and individuals will take different views in certain circumstances. That is precisely what has happened in the case of Network Rail. The National Audit Office made a different judgment about how liabilities arising should be treated. Do hon. Members really want me to say that we should go against the recommendation of the Office for National Statistics and use a system for Network Rail that does not apply internationally recognised accounting standards, and which treats the matter in a different way?
To reassure the House that we take this issue seriously, we have set up an independent statistics commission that examines our treatment of accounting and whether we treat these issues in an unbiased, objective and professional way. In due course, it will reach a conclusion on whether the treatment of Network Rail is the appropriate one. I suggest that we wait for the commission's review before jumping to a premature conclusion that is based on what Opposition Members have said today.