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Lord Higgins moved Amendment No. 4:

(a) a statement of income and expenditure of the department for the year,
(b) a balance sheet showing assets and liabilities of the department for the year which complies generally with accepted accounting practice,
(c) a cash flow statement of the department for the year highlighting the significant components of cash flow in accordance with generally accepted accounting practice, and
(d) a statement of the department for the year showing, as regards each voted item, any amount authorised to be used in the year, the amount actually used, and an explanation of any difference between authorised use and actual use.
(1A) A statement of income and expenditure provided under subsection (1)(a) shall give a true and fair view of the net income and expenditure of the department in the year to which the statement relates and a balance sheet provided under subsection (1)(b) shall give a true and fair view of the state of affairs of the department as at the end of the year to which the balance sheet relates.").

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The noble Lord said: We come now to Clause 5 which is obviously a very important provision. In moving Amendment No. 4 it will be convenient to speak also to Amendments Nos. 5 and 7. Clause 5 is concerned with the preparation of resource accounts. Effectively, we suggest that as drafted the clause, which extends to almost a whole page of the Bill, includes some very important aspects. If I may turn to the main part of the Bill, as opposed to the technical matters which we debated earlier, I should like to make one or two rather general points. As I said at Second Reading, there is here a missed opportunity. Although the Government put forward proposals on resource accounting, in a number of instances in this and subsequent clauses they could well have incorporated other ideas, particularly with regard to auditing. At Second Reading the Minister said that a study group was to be set up under the chairmanship of the noble Lord, Lord Sharman. That in turn will report to a group which consists of the Chief Secretary, the chairman of the Public Accounts Committee, and presumably others, to deal with these specific points. At this or perhaps a later stage the Minister may be able to indicate whether the terms of reference of that body are yet known; and, if so, what they are.

Even at this early stage of the Bill perhaps one may ask for an indication about timing, which is important. We welcome the fact that the Government are to proceed with resource accounting. However, they are subject to a fairly tight schedule. One is aware from the reports of the Public Accounts Committee that a timetable has been set. There are doubts as to whether the provisional timetable will be met. For that reason I said at Second Reading that there might be a case for considering whether the changes proposed in particular by the National Audit Office and the Public Accounts Committee should be incorporated in this Bill. The noble Lord was kind enough to express the view in writing that, because of the timetable relating to the technical aspects, it would be inappropriate to delay the passage of the Bill in order to ensure that some of the proposals which might be made by the study group under the chairmanship of the noble Lord, Lord Sharman, by the Chief Secretary and by the chairman of the PAC were incorporated in the legislation. I understand his concern about that matter. However, the Committee might be assisted to have the Minister's view on timing.As far as concerns this particular set of amendments, we suggest that the Bill, as drafted, is not quite as specific as perhaps it might be. Our proposals suggest more specific terms for the way in which the departmental accounts might be prepared in line with commercial accounting practice, but with any necessary adjustments.

The Bill as it stands, and in particular most of page 3 of the Bill, would seem to be somewhat incomplete with regard to the specification of the way in which the accounts will be prepared. We will return to consider who might reasonably define the various accounting concepts involved. Having said that, there would be some case for amending the Bill in the way in which the three amendments to which I have referred seek to do.

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There is also the question of cash. Clearly cash control remains a vital aspect. It is one matter for the House to have the advantage of resource accounting, but cash will remain a key control. We are not precisely clear how that will operate within the context of Clause 5. I beg to move.

The Deputy Chairman of Committees: If this amendment is accepted I cannot call Amendment No. 5, which will have been pre-empted.

Baroness Sharp of Guildford: I join the noble Lord, Lord Higgins, in regretting the timing of the Bill. It is somewhat unfortunate that the Sharman committee is being set up at a time when the Bill is being pushed through, but I also understand that the Government are anxious to see the Bill on the statute book and in many senses feel it is long overdue on the statute book. If I may say so, it has taken quite a time to get through.

On the specific amendment, one of the features of the Bill, as the noble Lord, Lord Higgins, said, is the wide interpretation that can be put on some of the words that are used. We are moving over to accruals accounting and yet the terms used in Clause 5(1)(a) are,

    "resources acquired, held or disposed of by the department during the year".

It is so wide, so generalised, that I have a great deal of sympathy with the amendment, which seeks to make the provision far more specific. Indeed, what is interesting is that the Explanatory Notes on this clause ask what resource accounts are. Resource accounts consist of five major statements, including a statement of out-turn, an operating cost statement, a balance sheet, a cash flow statement. This is precisely what we are seeking in the amendment. In other words, the amendment fleshes out the words in the Bill, using the structure suggested in the Explanatory Notes to flesh them out. That seems to be a thoroughly good thing to do.

The aim of the Bill is to bring government accounts into line with modern accounting practice. Terms such as statutes, income and expenditure, assets and liability, balance sheet, are very well understood. When this matter was discussed in Committee in the other place, it was suggested that these are not words that the general public understand. If I may say so, the general public understand these words far better than they understand the words "resource accounting", or the broad term the,

    "resources acquired, held or disposed of by the department".

It seems sensible to call a spade a spade and put in precisely what we mean rather than not.

At the centre of all this is the concept of cash flow. We are in the process in the Bill of abolishing appropriation accounts, which is essentially cash expenditure against the supply vote in cash. The latter has not been abolished and we need a very clear statement, therefore, of cash flow. That is what the amendment seeks to do.

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It is not good enough simply to say, as in the other place, when the Economic Secretary to the Treasury responded with the words, "This is what we are going to do anyhow". If that is the case, let us have it on the face of the Bill.

5 p.m.

Lord Naseby: I very much support Amendment No. 4. I do not wish to add to the points that have been made as they were put succinctly. Nevertheless, I wish to add my voice of support. When the Minister responds I hope that he will deal with the points made from both sides of the Committee. I am mindful of the fact that when they were Members of another place three noble Lords were involved in preparations for and revisions to the National Audit Act 1983. The degree of consultation at that time was very considerable. Although there was argument on some of the final details, the preparation for that legislation, and the consultation on it, was quite extensive.

My worry is that, as I understand it, the Sharman committee is to report towards the end of this year and yet the Bill is likely to be on the statute book before the Summer Recess. The difference is only a matter of months. If some important points emerge from the steering group which address the matters raised by the National Audit Office and Public Accounts Committee, it must be in the interests of Parliament that they are implemented. I ask the Minister how they are to be implemented, bearing in mind that legislative time is always restricted. One wonders, therefore, whether there should be a statement from the Government either that there will be a very short, amendment Bill or that the whole matter will be rolled over to the next Session with a commitment on all sides that the issue be dealt with speedily. However the Minister responds, it is of great importance that whatever comes out of the Sharman review gets onto the statute book quickly, since it is likely to be of significance to Parliament in its control of public expenditure.

Viscount Bridgeman: I very much support what my noble friend Lord Naseby has just said about the timing of the report of the Sharman committee. We made that point quite forcefully at Second Reading. At this stage it may be appropriate to consider the question of the valuation of Ministry of Defence assets. Perhaps the Committee will permit me to read paragraph 3.2.13 of Resource Accounting and Budgeting:

    "The normal basis of valuation may not be appropriate if a modern substitute is markedly different in its cost, life or output, or where technological advances have resulted in likely replacements having significantly improved quality or quantity of outputs. Under such circumstances, it will be necessary to undertake a 'modern equivalent asset' calculation to arrive at a replacement cost for the asset".

While that is an acceptable accounting treatment, the problem with Ministry of Defence assets is that potentially modern substitutes for military equipment vary enormously in nature, cost and timing depending on the particular defence needs of the country at the time and the military capabilities of potential

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aggressors. For example, a new tank developed by a potential enemy could well render obsolete virtually overnight anti-tank weaponry, and if there is any question of involvement in Star Wars expenditure one is talking about huge numbers. I also refer to intellectual property exchange which is a big feature of co-operation, in particular with the United States. There is also the complicated question of sharing expenditure with other countries whose treatment of it will be markedly different one from the other.

My noble friend Lord Higgins and the noble Baroness, Lady Sharp, are concerned that, as presently drafted, the Bill gives the Treasury wide powers to determine accounting treatment. Ministry of Defence assets are a particular case. It is our strong wish that that appears on the face of the Bill. This is a knotty problem which must not be swept under the carpet.

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