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The Deputy Chairman of Committees (Lord Ampthill): Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard.
The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.
Lord Higgins: I rise to oppose the Question that Clause 2 shall stand part of the Bill. I do so in a probing sense as Clause 2 raises various points that ought to be considered before we agree that it should stand part of the Bill.
Perhaps I may make one or two preliminary remarks. I congratulate the noble Lord, Lord McIntosh of Haringey, on his stamina, if not on his versatility, as the Bill is not totally dissociated from that which was debated on the Floor of the House a few moments ago. As we know from Second Reading, the Bill is unusual. Some of the legislation with which it is concerned dates back to 1866. In that context I am slightly unnerved to see the noble Lord, Lord Barnett, in his place as it is probably a quarter of a century since were opposite each other in a committee of either House. I should also like to thank the noble Lord, Lord McIntosh, for the briefing which he has provided for myself and others on what is clearly a technical Bill and one on which, broadly speaking, there is agreement as to the basic purpose, which is to
I turn immediately to Clause 2 and raise a detailed point. Your Lordships' House is a revising Chamber and a number of the points we shall be considering are ones which have already been considered in another place. My concern about the clause relates to appropriations in aid. This procedure goes back into the distant past and probably has rarely been questioned. However, having read the Explanatory Notes, which I should also say are extremely helpful, the proposals which are made with regard to Clause 2 raise one or two particular points.
It is pointed out that, under resource accounting, appropriations in aid will be recorded on an accruals basisthat is to say, it will be recognised when the income is earnedrather than on a cash basis, as is the case at the moment, and additional provisions are required to deal with the cash effects of appropriations in aid. I am not clear what is the rationale for this, because we are going from a cash to an accrual system; but if we look at this clause and the one that follows it would seem that, having decided to do so, we then take proposals that will reverse that and reinstate the original proposition. At all events, there is some concern about the idea that one should have appropriations in aid and effectively net off the amounts of revenue that a department happens to come into before reaching a net figure that Parliament has then approved. One has to ask what precisely is the justification for this arrangement, particularly, as I understand it, we are moving towards a computerised system. If the department receives money, it might be better simply to pay it straight into the Exchequer and, if amounts have to be approved for future expenditure, to have a movement in the opposite direction.
A final point that needs to be made is the extent to which under the new system, any movement of the kind that is now proposed will have an effect on the PSBRpresumably not on a vast scale, but none the less to some extent. That is a detailed point. Many of the others that we shall consider are of much greater importance, but it is worth raising the question of why we are perpetuating a system of appropriations in aid when it may be simpler to deal with the matter more directly.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Higgins, for the explanation of his challenge to Clause 2. I want to try to answer him, although I am slightly puzzled by some of the points that he makes. Perhaps the best thing is for me to set out what Clause 2 does and then seek to answer the points that he raised.
As the noble Lord, Lord Higgins, recognises, under resource accounting appropriations in aid will be recorded on an accruals basis. It will be recognised when the income is earned, in contrast to the current system where appropriations in aid are recognised on a cash basis when the cash is actually received.
The new system and the clause is considerably more complex than the regime it replaces. As well as introducing accruals appropriations in aid it has to include additional provisions to deal with the continuing cash effects of appropriations in aid. It is perhaps those provisions that have caused the noble Lord, Lord Higgins, to say that there appear to be movements in the other direction, which is not the case.
The current process whereby the Treasury directs, by Treasury minute, what can be used as appropriations in aid will be retained. Under resource account budgeting it will direct that income on a resource basis may be applied as appropriations in aid of resources authorised by Parliament to be used for the purposes; that is, "the service" of a particular year. This is subject to the overall limits on the amounts of appropriations in aid that have been approved by Parliament and are set out in the relevant appropriation Act.
Special provisions are needed to deal with the cash consequences of resource amounts that have been authorised for use as appropriations in aid. Timing differences between the recognition of appropriations in aid on a resource basis and the actual receipt of cash require special provisions for dealing with the cash.
Subsection (4) applies in the situationwhich should apply in the great majority of caseswhere cash is received in the same financial year as the resource appropriations in aid is authorised. In this case the cash can be retained by the department, provided it is used for the purpose authorised in the Treasury direction. If it cannot be used in that way, subject to the timing differences dealt with in subsection (5), the associated income being in excess of the amount authorised as appropriations in aid, then the cash must be surrendered to the Consolidated Fund.
Subsection (5) applies in cases where cash is received in a year other than that for which the related resource appropriations in aid is authorised. This might happen where the time between the recognition of the income inclusion as resource appropriations in aid and the payments by the debtor straddle the end of the financial year; or, similarly, where payment is received in advance of the department carrying out the service to which it relatesthe resource appropriations in aid will not be recognised until the service is carried out and the income thereby earnedand these events falling into different financial years. Under those circumstances, subsection (5) will enable the cash to be used towards the authorised purposes of the year in which it is received. If that is not possible, then it will be surrendered to the Consolidated Fund. The ability to use this cash will affect the department's cash flow
This is a complex clause. However, the regime which it will put in place is consistent, in principle, with existing appropriations in aid arrangements and will enable a vital element of the RABthe recognition of income on an accruals basisto be put into place while also ensuring continued parliamentary control over a department's income.
The noble Lord said that parts of the clause, and perhaps parts of the succeeding clauseI am not quite clear on that pointappear to go in the other direction and appear to move from resources to cash. I cannot find them so perhaps he will be able to help me on that point. Before he does, perhaps I may say a few words about the appropriations in aid being netted off. That cannot happen. Parliament approves appropriations in aid and the amounts of appropriations in aid are voted on and approved by Parliament with no loss of parliamentary approval.
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