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Lord Higgins: My Lords, I am grateful to the Minister for giving way. We are concerned that if a such a study group were considered necessary, it should have been set up before the Bill came before the House. The problem is that it will not report until after the Bill has received Royal Assent. If precedents are anything to go by, it could be another half century before we have a chance to incorporate in primary legislation any recommendations that it may make. A timing problem exists and we must be clear about the terms of reference and how we can put into primary legislation whatever may be the group's views.
Lord McIntosh of Haringey: My Lords, it is not necessarily the case that they would have to be put into primary legislation. If we had wanted to agree with the comments made in another place and here today about the role of the National Audit Office, we would not have needed changes on the face of the Bill. We are doing what we believe to be right and are consulting on the issues in as open and independent a way as possible. However, it would not be fair to say that any conclusions which the review body reached must wait another century for primary legislation. It is virtually certain that such issues can be dealt with without primary legislation.
The issue of accounting definitions was raised by a number of speakers. The noble Lord, Lord Higgins, claimed that there is too much Treasury discretion over them. We must look at the process. We are told that an independent body should be responsible for them, but there is already such a body, the Accounting Standards Board. It is not, and never has been, a government body. It has been a body of the accountancy profession which has survived because it has gained the confidence of that profession, of its clients, and of business in this country. The commitment in the Bill is to the generally accepted accountancy practice and to the "true and fair" phrase which is used by the Accountancy Standards Board. That is our starting point and it is entirely independent of government.
However, we are not satisfied with that. We have not done what several other countries have done in introducing resource accountancy; that is, simply to take private sector accountancy standards and apply them wholesale to the public sector. We do not believe that that is the best way to proceed. We have explicitly, openly and transparently set out a resource accounts manual. That is a huge document, which is explicit about the changes necessary for the application of accountancy standards to the public sector.
That manual has been under the oversight of the Financial Reporting Advisory Board. The FRAB was not set up only by government with only government members, but with distinguished members of the business community and the accountancy profession, and with the active participation of the National Audit Office. Therefore, the charge that we do not accept independent oversight of accountancy standards cannot be sustained. The noble Lord, Lord Higgins, asked why there should not be pro forma accounts. There are pro forma accounts in the annexes to the resource accountancy manual. That is the basis on which we are proceeding.
The noble Lord, Lord Higgins, went on to ask--I am not sure that I understood the question--who takes what decisions on the basis of the new accounts. I hope that I am interpreting it correctly, but my understanding is that departments which seek resources for the activities that they wish to pursue in the public sector will have exactly the same role as they have had in the past. However, they will seek resources rather than cash. Again, Parliament will have not only no lesser a role but a greater role than it has had in the past.
In the past, when parliamentary committees looked at the annual report of a department of state, they had one annual report to examine. Now, they will have two annual reports to look at with an entirely different approach: one will cover the plans for the forthcoming year or period of budget--we have, after all, moved from annuality to three-year budgeting--and the second will be the report of what has happened in the past year. That represents an increase in parliamentary accountability and in no sense is there any decrease. Therefore, in so far as decisions are taken other than by the Treasury, they are taken by departments in the application that they make for funding, as they always
I turn to a question from the noble Lord, Lord Higgins, regarding depreciation. When I was told by such a distinguished accountant as the noble Lord, Lord Freeman, that cash accounting is a science and that resource accounting is an art, I asked myself whether he meant that it was a creative art or whether it was perhaps some kind of more respectable art. Of course, there are different definitions of "depreciation". However, the definitions which we are using are those governed by generally accepted accounting practice and by the need to present a true and fair view; in other words, not only are the standards of presentation of calculation of depreciation the same as they are in the private sector, but they are also required to be more explicit than sometimes is the case in the private sector. Of course, they are provided in addition to the cash requirement because of the period of dual running. I shall return to that point in a moment.
The noble Lord, Lord Higgins, then asked why income tax was excluded from the accounts. Because we do not have hypothecated tax in this country, income tax is not included in departmental accounts. However, in due course it will be included in the whole of government accounts, and the whole of government accounts will include all the areas of the public sector to which he referred. They will include local government, schools and hospitals. I believe that in most cases hospitals currently work on resource accounts. In due course, there will be no question of excluding local government expenditure within the whole of government accounts. It is also intended that income from taxation, both central and local, will be included in the whole of government accounts. Therefore, all sources of income to the public sector will be taken into account.
I believe that I have already answered the specific points raised by the noble Lord, Lord Taverne. Therefore, perhaps I may move on to those raised by my noble friend Lord Lipsey. I echo the tribute paid to all who have taken part in the preparation for this change. They include not only Treasury officials but financial officials in all departments who have a very difficult role to perform. My noble friend said that there was a question as to whether Parliament moves at the same speed as government. I believe that he referred primarily to the House of Commons, although he suggested that this House might have a wider role. The rules which govern this House in respect of comity between the two Houses prohibit me from making comments about the adequacy of scrutiny of financial matters by the House of Commons.
The noble Lord, Lord Freeman, asked a number of most interesting questions. The first related to the timing of the change. I believe that he was moving in the opposite direction to the noble Lord, Lord
I believe that I dealt with the scope issue because I made it clear that the whole of government accounts will include the entire public sector. I hope also that I dealt with the question raised by the noble Lord, Lord Freeman, with regard to the basis of depreciation coming from GAAP and from "true and fair". Of course, the issues are hugely difficult, as they have been in the private sector in moving from historic cost to modified historic cost to the ultimate dream of some people of current cost accounting. Those difficulties exist no less in the public sector and may, to some extent, be greater than in the private sector. However, I believe that the noble Lord's accusation that we are stuck with annuality is not fair because, with the Comprehensive Spending Review and now with SR 2000, we have, after all, moved to a three-year horizon. That has been widely welcomed by the public sector and by those who are affected by it.
The noble Lord's fourth point concerned the nature of the set of accounts to be produced. The Bill covers accounting requirements. Of course, the supply procedure is, and has always been, non-statutory. Changes to the procedures of voting supply and of scrutinising Estimates are a matter for Parliament rather than for legislation. I believe that that goes back to the point raised by my noble friend Lord Lipsey.
On the same matter, he suggested that the role of Select Committees in the Commons should be extended to a power to vote on resource Estimates. Again, that is a truly revolutionary proposal. It is one which raises the whole issue of the separation of powers between the legislature and the executive. Since it is primarily a matter for the other House, I hope that he will forgive me if I do not venture into what I see as very dangerous territory. His final point concerned the Treasury determining the form of the accounts. Again, I believe that I have dealt with that matter.
In reply to my noble friend Lord Desai, who asked for an eventual move to social resource accounting, I can say only that if that is where we want to go, this is the only way to get there. I am not saying that it achieves what he wants, but I do not see how we could take into account the social concerns that he very properly raises except by the route that we are adopting. I do not say that the route is being adopted for that purpose.
I was asked by the noble Baroness, Lady Hogg, about the link between Partnerships UK and resource and account budgeting. She made the point quite legitimately that inevitably public/private partnerships build up liabilities. Of course, those liabilities will have
I was extremely interested in what the noble Baroness said about the upstream and downstream activities role of Partnerships UK. She was happier about the facilitation role of PUK than about its downstream role. But there is still a public sector skill deficit in that area. It is not just a matter of being another body of advisers. Advisers exist--at a price. But PUK could act as a co-sponsor of projects and sit alongside the public sector project team, taking decisions with it and, to some extent, sharing responsibility for it. That is why we have included in the Bill, which I understand the noble Baroness welcomes, the limit of £400 million at any one time in relation to PUK involvement.
I should love to engage in a long debate with the noble Baroness, Lady Sharp, about the PSBR. I have always agreed with what she said about, for example, the £20 billion needed by British Telecom for investment which had to be ruled out in the old days under the public sector borrowing requirement.
But I believe that the noble Baroness is being unfair about this Government's policies, for two reasons. First, the golden rule, which is set out in the fiscal strategy document, says that over the economic cycle, we would borrow only for revenue purposes. We have set up distinct investment funding and we have doubled our capital investment expenditure over that period, quite apart from PPP. That is additional to PPP. There is an additional £10 billion of public investment without any partnership involvement whatever.
It was suggested that there is no Public Accounts Committee/NAO scrutiny of Partnerships UK. Any money which goes from the Treasury to Partnerships UK comes out of voted money. It comes out of appropriation or resource accounts which have been audited by the NAO. Of course, it is always possible for the NAO to undertake value-for-money studies under the auspices of the National Audit Act 1983.
I have spoken for longer than I intended. I accept that the debate on the role of the National Audit Office and the Public Accounts Committee will be raised in Committee. I acknowledge that and am prepared for it. We believe that we have good answers to the questions which have been raised but we are grateful that they have been expressed in the terms in which they have. We are grateful for the general support for the Bill expressed by your Lordships. I look forward to further consideration at later stages of the Bill and I commend it to the House.
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