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Lord McIntosh of Haringey: I shall try.

Lord Higgins: I thank the noble Lord. We hope he will be successful. As far as concerns the other point which the noble Lord made of a more general nature in reply to the points that I raised as regards the timing, we have asked whether the matter should be delayed in order to incorporate into the Bill the recommendations of the Sharman committee.

We have taken note of what the noble Lord said about that, but what we are not really clear about—and perhaps the noble Lord could now enlighten us—is whether the programme is on schedule. That is to say, the reports of the Public Accounts Committee suggested that the arrangements for introducing resource accounting had been introduced more easily, or preparation for the matter had been carried out more successfully, in some departments than others.

Is the noble Lord now confident that the programme which the Government originally envisaged, despite the setbacks which they appear to have experienced, will actually be completed on time? Obviously his argument about timing turns crucially on whether the Government believe that they can go ahead with their programme on the original schedule.

Lord McIntosh of Haringey: Before the noble Lord, Lord Higgins, leaves that point, he will recall from the

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Second Reading debate and from all the discussions that we have had that there has been a whole series of triggers. This is a process that goes back to the previous administration and arises not just under a Labour Government. There has been a whole series of triggers such as, for example, the completion of the register of assets. Until we had reached and achieved the triggers, we could not move on to the next stage.

We have reached and achieved on time every figure that has been set down so far, and in that sense we are confident that we are not falling behind. I understand that the Public Accounts Committee met last Wednesday. It has taken evidence and will be reporting, although it has not yet done so. Clearly we will take very seriously what the Public Accounts Committee says about the readiness of departments. As matters stand, we have no reason to suppose that, for the first time in the whole process, we are falling behind our targets.

Lord Higgins: I am sure the Committee will be grateful for that. The two points are, of course, inter-related. If, indeed, the programme falls behind time, the case for incorporating whatever the noble Lord, Lord Sharman, may say—if indeed he does say something quite specific—falls into a different time framework.

I turn to the points made by the noble Lord in regard to the specific amendments. I must say I was puzzled by what he said. He seemed to be saying that if we accepted Amendment No. 4, rather than the wishy-washy contents on page 3, it might set things too much in concrete and would then be inconsistent with subsequent changes which one wished to make to the concept involved. Our amendment simply says that there should be a,


    "statement of income and expenditure of the department for the year".

I find it very difficult to believe that that will suddenly be overtaken by events and some other policy will be introduced.

Paragraph (b) states:


    "a balance sheet showing assets and liabilities of the department for the year which complies with general accepted accounting practice".

It is very difficult to see how that will suddenly be overtaken by events or how it sets everything too much into concrete. It does, of course, set it more into concrete than the Government's proposals. However, at the same time it seems to us to be more specific and sensible. As far as I can see, it concerns a cash flow statement by the department which highlights the significant components. It is difficult to see what sudden, dramatic accounting change may overtake us which makes this too specific to adjust for any future alterations. As far as concerns voted items, the same argument applies. As to "true and fair view", that reflects the Government's intention, although it relates specifically to the balance sheet, as the noble Lord pointed out. Therefore, I have difficulty in understanding the noble Lord's objection to Amendment No. 4. Amendment No. 5 may have been

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more appropriately grouped with the next series of amendments, because it refers to the national accounts commission.

As to defence, in general it is the not the intention of my noble friend Lord Bridgeman and myself to speak to every amendment, which the Committee will be pleased to hear. However, in this case I believe that it is appropriate for my noble friend to deal with this matter which arises out of the amendments that we are considering. Other than that, our Front Bench will divide up the Bill between the two of us. My noble friend was also unhappy about the reply received. As far as I understand it, we are unable to deal with the matter now. We must take into account some of the points raised by the Minister which appear to be plausible. We shall return to this matter when we come to Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 5 not moved.]

Lord Higgins moved Amendment No. 6:


    Page 3, line 3, leave out ("Treasury") and insert ("National Accounts Commission").

The noble Lord said: We come to an important series of amendments. Our concern is that the Bill as now drafted gives far more power to the Treasury than it should have. In financial matters such as these Parliament should be supreme in determining the definitions at a simple level. If we are moving towards a more commercial basis, clearly it is not the case that individual private or public companies can decide what the accounting rules should be. They should be decided by an independent body. It appears that if we go along with what the Government now propose there is a danger that the Treasury will produce rules with which Parliament is not entirely happy. However, the Treasury will be given power to do that if we accept the Bill without amendment.

We suggest, therefore, that a separate body—the so-called national accounts commission—should be set up in order to reach an impartial view as to what definitions the Government should use. We propose that the Comptroller and Auditor General should determine the duties of the commission, which will include the definition of standards of national accounting practice to be applied to all departmental accounts and also in the context of the Bill as a whole.

One of the reasons for our concern is the extent to which under the present arrangements it is possible for the Government—I hesitate to use the expression but it is the simplest one to use—to fiddle the figures. That was certainly the case as far as concerned the working families' tax credit which was suddenly redefined by the Government in such a way as to present something as a tax reduction rather than an increase in public expenditure, even though general bodies outside—for example, the OECD— had expressed the clear view that it should be defined in the opposite sense.

We argue that the Government should be subject to an independent body, and Parliament should be able to ensure, through the workings of the Comptroller

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and Auditor General and the NAO, that that independent body achieves the objective. It may be the case that there are alternative bodies—rather than set up a so-called national accounts commission—which could perform this job adequately. It would, however, quite understandably have to adjust normal accounting practice to conform to the reality of the situation; namely, that the Government as such are not a profit-making, normal commercial organisation. None the less, the need for an independent body to do so seems overwhelming.

It is the case, of course, that the Government could say that the Financial Reporting Advisory Board is sufficiently independent for this purpose and we on this side of the Committee would accept that. However, it would not achieve the objectives that these amendments seek to achieve because it is simply a consultative body. It is not empowered to set down definitions in statute or under a statutory regime, which would ensure that Parliament rather than government should have the power to decide the accounting framework within which the national accounts and the department accounts are produced. I beg to move.

Baroness Sharp of Guildford: I rise to support the series of amendments put forward by the noble Lord, Lord Higgins. The key issue here is parliamentary control of the Executive. The Treasury could be seen as the guardian of the budget which Parliament votes, whereas in many senses it should be the guardian of parliamentary control. Its power over other departments in the Executive derives from its being answerable to Parliament for what is spent. It is, therefore, able in many ways to discipline the other departments because of its powers.

We in the Liberal Democrats would argue that over the course of time it has perhaps abused this power and gone beyond it, to create a grossly over-centralised regime which extends well beyond the moneys voted by Parliament itself. However, that is not directly at issue here.

What is at issue here is the fact that the Treasury may be a guardian, but quis custodiet ipsos custodes?—who guards the guardians? One answer is that it is the Comptroller and Auditor General—the parliamentary watchdog—but what good is a watchdog if the Treasury is setting its own rules? That is precisely the proposal in the Bill. Under Clause 5(2):


    "Resource accounts shall be prepared in accordance with directions issued by the Treasury".

As we have made clear, resource accounting is itself a great step forward and long overdue. However, there remain many issues to be decided within the context of resource accounting. How should public sector assets be depreciated and over what time frame? An issue that comes up later in the Bill concerns public finance initiatives and public and private partnerships and contingent liabilities in this case? What about investments in software? Are these to be seen as an investment to be depreciated over time or as a very large expense? These issues are not clear. Guidelines

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have to be laid down. Should this be done by the Treasury itself through Resource Accounting and Budgeting or by an independent authority.

In the private sector we expect to have independent authority; we have the Accounting Standards Board, which lays down standards for the private sector. The Public Accounts Committee called in 1994-95, 1996-97 and 1998-99 for a national accounting commission to be set up. The Government cannot argue that they have not had time to think about it. The Comptroller and Auditor General has drawn attention to the need for an independent commission, not for him to set the guidelines himself. CIPFA has also called for a national accounting commission to be set up and for what could be considered as proper accounting standards for public bodies. CIPFA is also concerned with the whole range of local authorities. In Clauses 23 to 28 we will look further at the extension of those powers to local authorities.

As the noble Lord, Lord Higgins, said, it is possible to argue that the Financial Reporting Advisory Board is sufficient and, while Opposition Peers agree that it may be seen as being an independent authority, it is only advisory. We do not feel that it is strong enough to be able to lay down these guidelines. Therefore, we support these amendments, and feel it is an important issue within the context of the Bill.

5.30 p.m.

Lord McIntosh of Haringey: I have to say at the outset that we do not accept the need for a national accounts commission. The amendments are presumably designed to ensure independence in the standards-setting process. Indeed, both the noble Lord, Lord Higgins, and the noble Baroness, Lady Sharp, have said that.

The Government cannot have made it sufficiently clear that the existing provisions of the Bill ensure that the Treasury has little discretion in the setting of accounting policies. That is in contrast to the present system of appropriation accounts where the Treasury has almost total freedom to determine the policies to be followed.

We believe that our proposals provide a robust and professional framework for determining accounting policies. They require resource accounts and whole of government accounts, which are not covered by the amendment, to follow generally accepted accounting practice, modified only as necessary to take account of the specific context of departmental accounts and to present a "true and fair view". That really means that the Accounting Standards Board, which is the guardian of GAAP and the "true and fair view", sets the rules, not the Treasury.

All accounting policy issues are subject to the oversight of the independent Financial Reporting Advisory Board. I was pleased to have the recognition of the noble Lord, Lord Higgins, that it is indeed independent. This process is designed to ensure that any adaptations to GAAP are fully justified. It provides a further check on Treasury discretion.

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The FRAB prepares reports on its own activities, setting out its views on Treasury proposals that have been put forward. Those reports are submitted to Parliament—this is the issue raised in relation to parliamentary scrutiny—so that all Members can see how the process has been working. The Treasury agreed—again, I am not sure whether we made this adequately clear—that in response to a recent report by the Public Accounts Committee, the FRAB should submit its reports directly to the PAC and Treasury committees rather than through the Treasury.

The requirement that resource accounts present a "true and fair view" is the benchmark against which the Comptroller and Auditor General undertakes his independent audit, providing a further scrutiny of the detailed accounting policies. In order to obtain unqualified audit opinions, accounts will have to satisfy the Comptroller and Auditor General that they meet the highest standards.

The amendment involves the setting up of a new accounting standards-setting body which would be in competition with the Accounting Standards Board. We do not believe that a separate standards-setting body or separate statements of national accounting practice are needed. The Government are content to follow, as far as possible, the standards issued or approved by the Accounting Standards Board, which already apply to all private sector bodies and many parts of the public sector. Introducing separate standards for any government accounts could lead to confusion and a divergence between the requirements placed on departments and those placed on other bodies—precisely the situation that the RAB is intended to end.

The suggestion that the Comptroller and Auditor General should determine the duties of the commission—which is what the amendment requires—would give him powers which it would be inappropriate for an auditor to possess and would threaten his independence. Responsibility for the preparation of accounts must lie with the bodies preparing the accounts. In the case of government departments and whole of government accounts, the responsibility must lie with the Treasury to ensure consistency across departments and the wider public sector.

To abrogate that responsibility to the proposed national accounts commission—which I have already argued is unnecessary—would lead to a confusion of responsibility. It would result in conflicts between the requirements of budgeting and public expenditure control operated by the Treasury and accounting requirements.


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