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Earl Attlee: My Lords, I should like to speak to my Amendment No. 3 in this group. I am not absolutely sure that I understood everything that my noble friend said. However, when considering public policy, of which NATS is a good example, ideas frequently hit the buffers of Treasury rules. Furthermore, noble Lords will recall my recent Unstarred Question regarding MoD policy to make certain TA personnel redundant and the payback period. Even the noble Baroness, Lady Symons, found the Treasury rules somewhat peculiar. In the case that I raised, redundancy payments were termed "transfer payments". Such payments are not relevant to the calculation of a payback period or the economic case for any particular policy. The noble Lord, Lord Richard, who I see in his place, also took part in the debate. While he implied that he did not understand my Question, he also found the Minister's reliance on Treasury rules bizarre. No one suggested that the Minister was wrong.

My amendment is not party political. Ministers of either party frequently find themselves frustrated by Treasury rules. Can the Minister help the House by shedding light on those rules? For example, are they published anywhere; if so, under whose authority? Finally and generally, is there any way in which Ministers, advisers and opposition spokesmen can check their policies in advance against the Treasury rules without first consulting the Treasury?

Lord McIntosh of Haringey: My Lords, I am grateful to all noble Lords who have spoken, in particular the noble Lord, Lord Higgins, for his acceptance that in practice it is impossible to divide up the issues that are dealt with by these amendments. I shall introduce the government amendments. I shall go on to say a word about the opposition amendments to

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those amendments and then deal with the other opposition amendments which follow from Amendment No. 2.

There are four government amendments in this group. The first three, Amendments Nos. 7, 21 and 29, are in the same form. Amendment No. 7 is perhaps the most important because it relates to resource accounts as we have been debating them in practice. Amendment No. 21 relates to "Whole of government accounts" in Clause 9. The noble Lord, Lord Higgins, has chosen to table amendments to Amendment No. 21 rather than to Amendment No. 7, but I do not think that it matters; the principle is the same in either case. Amendment No. 29 in Schedule 1 relates to "Whole of Government of Wales accounts". However, it has the same wording as Amendments Nos. 7 and 21. Following that, I shall say a word about Amendment No. 26 which introduces the advisory board.

The Bill already provides that resource accounts and whole of government accounts will be prepared in accordance with generally accepted accounting practice and will need to show a true and fair view. The Government believed that these rigorous conditions were sufficient to ensure that the accounts would be produced in accordance with best professional practice and to the highest standard. However, having listened to what was said in Committee, we have tabled amendments--I am grateful to the noble Baroness, Lady Sharp, for her acknowledgement--further to clarify the basis on which these accounts will be prepared.

Government Amendment No. 7 lays down in more detail than we have hitherto provided the financial statements that must be prepared for resource accounts. Rather than do this by reference to current accounting requirements, as proposed by the Opposition in Committee, the amendment relates to the fundamental financial statements as defined by the Accounting Standards Board in its Statement of Principles for Financial Reporting. I confirm to the noble Lord, Lord Higgins, that that includes the preparation and publication of a balance sheet. We hope that it satisfies the concerns in this area which were expressed in Committee while at the same time being sufficiently "future proof" to enable resource accounts to adapt to changes in financial reporting requirements as and when necessary. It would not make sense for us to require primary legislation of this kind every time the ASB changed the description of the accounts or its own name. For example, if that body became the standards board for accounting we would have to introduce a Bill to allow for that.

We must be able to adapt resource accounts to changes in the financial reporting requirements as and when necessary. This amendment makes it clear that the Treasury will have regard to the guidance issued by the Accounting Standards Board, or any of its successors, while ensuring that the resource accounts show a true and fair view and comply with generally accepted accounting practice. Amendments Nos. 21 and 29 apply similar requirements to whole of government accounts. Amendments Nos. 22 and 23 tabled by the Opposition would apply to any of the

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three amendments to which I have just spoken. Amendment No. 22 would require us to accept, rather than have regard to, guidance issued by the Accounting Standards Board.

As I said, there will be occasions when, due to the particular nature of central government accounts, we will have to adapt standard practice, and the Government have said so. I believe everybody has agreed in previous debate that that is necessary. So placing a duty to follow the Accounting Standards Board guidance in all cases is not appropriate. It could in certain circumstances conflict with the overriding requirement that accounts show a true and fair view. Normally, of course, following relevant accounting standards is essential to meet the requirements of a true and fair view, but it is an accepted part of accounting practice that if a particular body in complying fully with a standard prevents a true and fair view from being shown, the standard should be departed from in order to ensure that the true and fair view is preserved. That is known as the true and fair override.

Amendment No. 22 would require additional words to be added to the descriptor of Section 256 of the Companies Act.

3.45 p.m.

Lord Higgins: I apologise for interrupting the noble Lord, but I am having difficulty in understanding precisely what he is saying.

Presumably, the point about standards changing can be taken into account if the legislation states that the Treasury shall accept whatever changes are proposed. That would be a dynamic approach. Regarding the point about true and fair view, clearly it would be the case that the Accounting Standards Board would also take that into account.

I have some difficulty in understanding why the noble Lord believes that to be too inflexible to be practicable.

Lord McIntosh of Haringey: My Lords, it is because the Accounting Standards Board itself uses the word "guidance" for the way in which it expects people to conform to the standard which it applies. I believe the noble Lord, Lord Higgins, with his great experience of government, will recognise that it is normal that regard is had to guidance and that guidance is not accepted as such. I will give an explanation at a later stage as to why acceptance is less appropriate.

Regarding the other part of Amendment No. 23, which relates to Section 256 of the Companies Act, "Accounting Standards" is the formal side-heading of that section of the Companies Act and it would not be appropriate to change it in this House.

A reference has been included to Section 256 of the Companies Act to ensure that if the Accounting Standards Board is replaced in the future by a new accounting standards-setting body then regard would automatically be had to the standards issued by that new body.

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I now turn to government Amendment No. 26, which is concerned with the Financial Reporting Advisory Board. The existing provisions of the Bill, further reinforced by the government amendments just referred to, would ensure that resource accounts will be prepared in accordance with best practice and in accordance with the guidance issued by the Accounting Standards Board or its successor.

However, it has always been made clear that there will be occasions where, because of the particular requirements of central government accounts, it will be necessary to adapt standard accounting practice.

The Financial Reporting Advisory Board was set up in 1996 to provide advice on accounting matters generally, but in particular to advise on appropriate accounting treatments in areas where some adaptation of standard practice was required.

It is believed that the current arrangements for the FRAB are working well and that the FRAB is recognised to be independent. Indeed, nobody in this House has suggested anything to the contrary.

An excellent illustration of how the process currently works is the FRAB's newly published report on the 1999/2000 edition of the Resource Accounting Manual. It reports on all the matters considered by the board during the year, together with a commentary on key issues, and the outcome of the board's deliberations. All matters of ongoing concern to the board are also documented.

However, to address the concerns which have been expressed about the way the board works and to reinforce the independence of the process, the Government have brought forward Amendment No. 26 which would place the following duties on the Treasury.

The Treasury, before determining the accounting policies for resource accounts and whole of government accounts, would be required to consult with a group of persons--which is, of course, currently the Financial Reporting Advisory Board--who appear to it appropriate to advise on financial reporting principles and standards.

The Treasury must consult with the Comptroller and Auditor General in determining the composition of the group. Of course that has been done with the FRAB, although in practice the Treasury would also consult with a wider range of other interested parties.

The group would be required to prepare an annual report of its activities, which must be laid before the House of Commons.

The requirements ensure that the Treasury must seek independent expert advice on accounting matters. Furthermore, by requiring the group to report to the House of Commons, the Government will also ensure that where the Treasury does not accept that advice the disagreement would be brought to the attention of Parliament. It is important to ensure that on the face of the Bill, rather than that there should be an acceptance of guidance as proposed in the amendments.

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Opposition Amendment No. 27 is an amendment to Amendment No. 26 and would require the Treasury to accept any recommendations made by the group. It is much too prescriptive. It would turn what is an advisory body into the standard-setter. The amendment requires the group to prepare a report which will be laid before the House of Commons, ensuring that disagreement and the reasons for it are in the public domain.

There has been a good deal of give and take between the Treasury and the board, and an example of that can be found in the new report at paragraphs 2.7 and 2.8 regarding the treatment of non-operational heritage assets. The board believes, as a matter of accounting principle, that all these assets should be valued and should appear on departmental balance sheets. But the Treasury, in consultation with the National Audit Office, has argued that the case for doing that is unproven as the cost of obtaining reliable valuations may outweigh the benefits of including such assets on the balance sheet. Imagine if the Victoria and Albert Museum were told to obtain valuations for all of the many thousands of items in its possession. The board therefore accepts that the current treatment of these assets should remain for the present.

The Government believe, as the noble Baroness, Lady Sharp, indicated in Grand Committee, that the Government's amendments cover the essence of the points made in very useful debate, and do not need further amendment.

I turn now to other opposition amendments. The most important of those are Amendments Nos. 5 and 20, which would require balance sheets in both resource accounts and the whole of government accounts. It is to be hoped that the Opposition will accept that Amendments Nos. 7, 21 and 29 go further than these proposals by requiring a statement of financial position, including a balance sheet and a cash flow statement.

Furthermore, the Opposition proposals specify that contingent liability should be included in balance sheets. That, of course, would contravene the ASB's financial reporting standard 12, which makes it clear that contingent liability should not be recognised in the financial statements but should be disclosed in the notes to the account. The Government have adopted the requirements of FRS No. 12 in the Resource Accounting Manual.

Amendment No. 28 attempts to place the Financial Reporting Advisory Board on a statutory basis. It is entirely unclear what the effect of that would be. The clause states nothing about who the members should be; who should appoint the members; how it should go about its work; or to whom it should report. It is believed that the clear duties which the Government have placed on the Treasury in Amendment No. 26, and the transparency of those duties, will ensure that in the accounting policy setting that is in contrast with Amendment No. 28.

The many amendments which replace the Treasury with the FRAB would also give rise to some illogical effects. Amendments Nos. 15 and 16 would make the

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FRAB itself responsible for preparing the whole of government accounts and determining which bodies should be included in those accounts, as well as determining the accounting standards to be followed. That is strange since the objection to the Bill is that it allows the Treasury both to set the rules and to prepare the accounts. Again, the amendments have not been offered to Clause 10, so the FRAB would prepare the accounts but it would be for the Treasury to determine what information should be included in the accounts, and it would be for the Treasury to collect the information. That is not logical.

Finally, perhaps I may comment on whether the ASB or the FRAB should set the standards. That is the crux of the matter. The noble Lord, Lord Higgins, said that we have mixed up the two issues. That is not the case. The presumption is that the Accounting Standards Board standards will apply to the Government's accounts unless they do not apply to the public sector as there are good public expenditure control reasons for adopting a different treatment. All matters dealt within the Resource Accounting Manual must be reviewed by the Financial Reporting Advisory Board. Our Amendment No. 26 makes those powers transparent and will require the board to report on the manual's compliance with generally accepted accounting practice and the steps to be taken to address any departures.

That also answers the question posed by the noble Earl, Lord Attlee. What he calls "Treasury rules" are the Resource Accounting Manual. That substantial document is published annually and he is welcome to have a copy in order to study it in advance of his contribution to our debates on the Transport Bill.

I believe that the government amendments address the essential issues debated in Grand Committee. I believe that they are preferable to the Opposition's amendments and I commend them to the House.


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