§ ".—(1) The Treasury shall by order designate an Independent Body, which shall have the functions assigned to it in this Act.
§ (2) The Independent Body shall be either—
- (a) an existing body serving the accounting profession in the UK; or
- (b) an existing international body serving the accountancy profession; or
- (c) a new body, established for the purpose, whose members are appointed solely upon the basis of their expertise in
217 accounting practices and who are not subject to dismissal by the Treasury or by any Minister.'.—[Mr. Letwin.]
§ Brought up, and read the First time.
§ Mr. Deputy Speaker
With this, it will be convenient to discuss the following amendments: No. 1, in clause 5, page 2, line 41, leave out "the Treasury" and insert "the Independent Body".
No. 2, in page 3, line 1, leave out "the Treasury" and insert "the Independent Body".
No. 3, in clause 9, page 5, line 7, leave out "the Treasury" and insert "the Independent Body".
No. 4, in clause 10, page 5, line 15, leave out "the Treasury" and insert "the Independent Body".
No. 5, in page 5, line 17, leave out "the Treasury" and insert "the Independent Body".
§ Mr. Letwin
After the hors d'oeuvre of the previous debate, we now come to the main meal, the central feature of all our arguments over the Bill so far. New clause 1 has been moved, in the irenic spirit of compromise, to make the Government change their mind. We have been joined in that endeavour by Liberal Democrat Members. I hope that we shall garner support also from those members of the Public Accounts Committee who are present. If the Government do not accept the new clause, I am confident that, in due course, we shall garner support from many in another place, from all parties.
When the Economic Secretary studies new clause 1, she will see that it has gone a long way to accommodate the valid points that she made in Committee. I hope that she will accept it. If she does not, I fear that the Government will be in the bizarre position of having to employ the Parliament Acts to force through a measure to achieve stable and transparent Government accounting that should be based on consensus.
The new clause has attracted cross-party support in both Houses of Parliament. All hon. Members, of all parties, agree that transparent resource accounting should be implemented as quickly as possible, so it would be extraordinary if the Government had to railroad through the Bill as drafted because they were unwilling to accept an amendment that has commanded such cross-party support.
Conservative Members, in conjunction with Liberal Democrat Members and members of the Public Accounts Committee, first signalled our concern about the matter addressed by new clause 1 on Second Reading. The Economic Secretary will know that we made very clear our unease that the Bill provides that the Treasury, rather than some independent body, should determine the definitions governing all the accounts set up by the Bill.
Our attempt to draw attention to that matter on Second Reading can be found at column 581 of Hansard of 6 December. In repeated debates, we tried to draw the attention of the Standing Committee to the need for an independent body. At that time, we suggested a particular form for that body, to which we remain marginally attached. It is the form of independent body specified in new clause 1(2)(c), to which I shall turn in a moment.
218 However, our main purpose in all the debates on this matter, on Second Reading and in Committee, was not to establish some deep-seated preference for the form of independent body that we were recommending—an independently formed national accounts commission. Our purpose, rather, was to bring to Ministers' attention the inherent conflict of interest in the public policy sense between a Government who are seeking, inevitably, to satisfy an electorate and are bound to present themselves, quite legitimately, in the best light possible, and their need under the Bill as drafted—without new clause 1—to be the monitor of the accounting standards against which their performance as a Government will, in part, be judged. We argued with irrefutable logic that there was a public policy conflict of interest for the Government to set the standards, accounting for themselves, according to their own standards, when they had the proper, democratic incentive to present themselves in the most favourable light.
I say that our logic was irrefutable because I had the opportunity, in preparation for this stage of our debate, to read the Committee proceedings in which that point came up day after day. I do not think that the Economic Secretary can deny that there was an occasion on which she even took that argument head on. She said many things; she said some true things. Yet she never said anything that suggested that she had an argument against the fundamental proposition—shared, as I repeat, between my right hon. and hon. Friends, Liberal Democrat Members and members of the Public Accounts Committee—that there was a conflict of interest.
Perhaps tonight we will, for the first time, hear a genuinely reasoned argument from the hon. Lady that refutes our fundamental proposition. Perhaps we will hear why the conflict of interest that we see does not exist, but I doubt it. I do not think that such an argument can exist, because our fundamental proposition is unambiguously true. However, I am prepared to be proved wrong on that point.
If there is no argument against that proposition, and if there is a conflict of interest, how is it best addressed and will addressing it carry a penalty greater than any benefit to be derived? The Economic Secretary did not make that argument in Committee either. She did not say that she accepted that there was a conflict of interest and that that was a problem about working in a democracy. She did not say that she accepted that there was a deficiency in the proposals, whose cost in public policy terms would outweigh the advantage of addressing the conflict of interest. That would have been a reasonable structure for an argument. I do not feel so confident that we could have defeated it as I do that we could defeat any argument purporting to show that there was no conflict of interest. However, as I say, the Economic Secretary never put that argument either. I do not know what her argument would be; perhaps we will hear it tonight. I hope that if she refuses to accept new clause 1 tonight, we will hear her reasons. It would be by far the most powerful way in which she could justify such an attitude.
I doubt whether we will hear that argument tonight, because if it can be heard tonight, it could have been heard in Committee. If there is an identified cost in public policy terms to addressing this conflict of interest, it surely would have been identified in the many months that have passed while the Government have been considering these matters.
219 Resource accounting is not, after all, a newborn babe. It was first conceived four or five years ago. My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) knows better than I when the previous Government first began to discuss it.
§ Mr. Letwin
My right hon. Friend says six years, from a sedentary position. I should have thought that in six years, whatever the public policy cost of addressing this conflict of interest, it would have been identified. If it had been identified, given the merciless grilling that, to my shame, we gave the Economic Secretary in Committee, I think that she would have told us what that cost was and would have put her argument in those terms.
I think that the Economic Secretary will probably not tell us this evening that there is no conflict of interest of the kind that we assert, or that there is one but the cost of addressing it is too great. I do not think that we shall hear either argument. What, then, could be the hon. Lady's argument for not addressing the problem addressed in new clause 1?
§ Mr. Edward Davey
May I caution the hon. Gentleman not to be too hard on the Minister? She said in Committee to the right hon. Member for Swansea, West (Mr. Williams):I am promising to continue to think about the matter…-[Official Report, Standing Committee A, 11 January 2000; c. 65.]Perhaps the hon. Gentleman will reflect on that. Does he think that the Minister, having promised to continue to think about the matter, is in a position not to advance arguments against new clause 1 but to accept it?
§ Mr. Letwin
The hon. Gentleman has spotted something which, in my perusal of the Committee proceedings, I overlooked. I am delighted that he did not. As the Minister promised to think about this, I may well be proved wrong and she will have thought sufficiently either to accept the compromise or to come up with one of the two arguments that I described. I remain slightly sceptical about the latter possibility. I attach my hopes to the former possibility—that the Minister has thought sufficiently to accept the compromise in new clause 1.
We discovered in Committee that it is profitable to eliminate arguments in advance—at least, those that are not good. Therefore, I want to eliminate a third argument that the Economic Secretary might be tempted to bring up this evening if she intended to refuse to accept new clause 1. She might argue what she half began to argue, I now see, in Committee—that somehow or other it is impossibly inflexible for the Government if there is to be an external setter of the standards and definitions in the accounts. I say that she half began to argue that because what she argued in Committee was that by and large the Government were going to apply the standards set up by the accounting standards body. She pointed on several occasions to the long lists that had been prepared by the Treasury on her behalf, indicating the particular reporting standards that were going to be applied that had derived from the accounting standards body.
220 The hon. Lady's line of argument was that those would be applied and there would be a few exceptional cases in which it would be necessary—she talked of necessity rather than desirability—to adapt the accounting standards of the accounting standards body, derived as they are for the private sector, when applying them to the public sector. I hope that I am not travestying her remarks by saying that that was the only argument that she used for supposing that it was not necessary or desirable to have an independent body set the standards. Taken at face value, that is no argument at all. The fact that there are only a few occasions on which it may be necessary to depart from the accounting standards body's reporting standards does not imply that it is not worth having an independent body deciding on which occasions it is necessary to depart from the accounting standards and on which it is neither necessary nor desirable to depart from them. There is no implication from one to the other. So the Economic Secretary's sole argument was no argument at all.
To be generous to the hon. Lady, as I have tried to be, I think that she was trying to get at the idea that it would be insufficiently flexible for the Government if the Treasury was not in a position to determine for itself these few occasions on which it was necessary to depart from the accounting standards body's standards.
That is the beginning of a recognisable logical form. It looks like an argument for the case; it has the right shape to be an argument for the hon. Lady's position. The problem is that it is not compelling because it does not acknowledge the force of the conflict of interest argument. The problem is mind-numbingly boring to most Members of Parliament and probably to most people sitting in the Chamber at present and certainly to most of our fellow countrymen. Nevertheless it is acute and profound. A working democracy needs transparent Government accounts that cannot be fiddled to present the Government as well as possible.
If democracy is reduced to being an argument about whether the data presented are an accurate or inaccurate reflection of what is going on, democracy becomes a shouting match rather than a rational discussion.
§ Mr. Andrew Tyrie (Chichester)
Does my hon. Friend agree that it is not merely whether the accounts are fiddled, but whether there is a perception that they could be fiddled? That in itself would be enough greatly to erode the value of any numbers.
§ Mr. Letwin
My hon. Friend is right. We are talking about the Caesar's wife phenomenon. Not only do the accounts need to be transparent, they need to be seen to be transparent. Nobody in their right mind will be confident—to put the case at its weakest—that the accounts are transparent if the people who are responsible for setting the standards, or rather for setting the deviations from the independently set standards, are the very people who have an interest in ensuring that the deviations occur when it is convenient for the Government, and do not when it is not.
§ Miss Julie Kirkbride (Bromsgrove)
My hon. Friend is an acknowledged expert on such matters. For those of us who are newer to the debate, will he speculate on how 221 wide the Government could make the figures that would not apply if our amendment were accepted? Will he help us to understand just how wide their scope could be?
§ Mr. Letwin
I shall not be by tempted by that intriguing sedentary intervention from my right hon. Friend. Instead, I shall answer my hon. Friend the Member for Bromsgrove (Miss Kirkbride). She is right to draw attention to the point that she raised. She is too polite to put it in these terms, but, in effect, she asked whether I was wittering on about a row of beans—a matter that need not concern us—or whether fundamental issues were at stake. The answer is that, abundantly, there are fundamental issues at stake. Before I return to my argument, I shall retail some of them for the benefit of the House.
We are talking about whether the public sector pension funds—unfunded liabilities—are to be recognised as liabilities. Nobody knows the amount at present, but it is many billions of pounds. We are talking about whether the basic state pension liabilities are to be recognised as liabilities. Some assessments suggest that the present value of those liabilities may be about £300 billion.
We are talking about whether the PFI liabilities—an unquantifiable number of billions of pounds over the period—are to be on the balance sheet as liabilities. We are talking about whether the liabilities of new bodies and of half-extraneous, non-departmental public bodies will be on the balance sheet, if they are in the form of contingent guarantees. We heard an example of that this evening, when the Economic Secretary failed to tell us—because she does not know—whether the assets or liabilities of a body she is creating under the Bill will be accounted on the balance sheet.
So far, I have totted up a figure that is probably broadly equivalent to the gross domestic product of this country. That is the scope of the lack of clarity as to how far things will be accounted on the liability side. However, I have not mentioned the biggest question. That relates to those things that are, or are like, benefits. Public concerns and private companies typically account for certain kinds of sickness benefit, for example. A question arises that is deeply material to public policy and to the whole structure of accounting: should disability benefits, in some form, be on the liabilities side of the whole of Government accounts, or should they not? That is an enormous potential sum.
On the assets side, we are talking about how far Government accounting ultimately includes all sorts of contentious items, some of which are currently included while others are not such as schools, hospitals or large elements of the Ministry of Defence estate. How are the latter to be accounted for? What does one do with tanks or nuclear missiles?
We then come to revenue and expenditure and the notorious question of whether the working families tax credit is a tax credit, and hence a negative tax, or a piece of public expenditure. Which side of the income and expenditure and cash flow statements should it be on?
There are many similar items—not least because the Chancellor of the Exchequer has shown us that he intends to expand, if possible, the scope of tax credits, perhaps 222 widely. It is not inconceivable that, without an independent body, most of the non-pension public expenditure of the benefit sort might be transferred to being a negative tax. Some £70 billion a year could be removed from both sides of the income and expenditure account.
I hope that my hon. Friend the Member for Bromsgrove is beginning to get the picture. We are not talking about a row of beans. We are talking about the shape of the whole public economic system. We have not the slightest idea of what the Treasury will decide when making critical decisions about the definitions that will govern the public policy debate on most of the items that are most contentious in that debate. That is a sorry state of affairs.
§ Mr. Edward Davey
The hon. Gentleman is well aware that I share many of his concerns. However, I caution him not to overstate the case. That sorry state of affairs has existed for many years. The Bill is about modernising Government accounts. The Government talk to us about modernising government, so surely the argument that the Conservatives and Liberal Democrats should be making is that the Government should take this opportunity to modernise the public finance system properly and thoroughly.
§ Mr. Letwin
The hon. Gentleman is right. It is a sorry state of affairs, but that is not the fault of the Labour Government; it is the fault of our predecessors in Parliament and in government, of both parties over a prolonged period.
§ Mr. Letwin
I hope that the hon. Gentleman will forgive me—all parties, of course. It is the collective failure of our democracy to address the issue since Gladstone took a large step forward. Broadly speaking, Gladstone took that step and the rest of us—collectively—held our breath from that date to this. The hon. Gentleman is right. In effect, we are saying that a glorious and golden opportunity is being missed to put the matter right.
§ Mr. Letwin
That is more than a richesse. I give way to my right hon. Friend the Member for Haltemprice and Howden.
§ Mr. Davis
That was a rush of assistance to my hon. Friend.
I agree, as I said in Committee, that the matter is one for which the blame—if that is the right word—falls on a series of successive Governments of all parties, but there is an acute problem at present. My hon. Friend touched on the tax credit issue and the calculation of tax burden. If the amendments proposed by him and the hon. Member for Kingston and Surbiton (Mr. Davey) are accepted, it is almost certain that the Government's judgment on the calculation of tax credits would be overturned. Every other 223 western country takes a different stance on that matter, because when there is no tax liability, a payment is made. That is the test—whether it is a payment rather than a negative tax. The tax credit system fails that test. As a result, it is almost certain that, were such an independent body to exist, the Government would have to account in the same way as the rest of the Organisation for Economic Co-operation and Development. In that sense, there is a large price tag on the amendment, which makes it much more difficult for the Government to accept.
§ Mr. Letwin
I was trying not to prejudice the chances of the Minister accepting the amendment by drawing out the implications that, I am afraid, my right hon. Friend has with great perspicacity made abundantly clear. He is right to say that the position has been made significantly worse by the fact that there has been an accounting fiddle, if I can put it in those terms without being unduly prejudicial.
However, if I had to judge, I would say that the biggest cause for concern is not the Government's fault. It is something that goes back a long way and has plagued the public policy debate to the extent that it has distorted the entirety of our policy on the matter. That concern is the treatment of pensions. I believe profoundly that an independent analysis of the definitions would bring pension liabilities in some way into recognition, whether as a note or as an item in the balance sheet. If those liabilities were included in the accounts, the nature of the discussion on social planning and social provision would change.
§ Mr. Cash
Does my hon. Friend agree that there is another dimension to the subject that may have been considered earlier in the debate or when the Bill was in Committee? I refer specifically to the interaction between our public accounts and the accounts of the European Union. Just in case anyone should be surprised that I raise the matter, I note that my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, rightly surmises that that is an issue of enormous importance.
If there is a fiddle, such as that which occurred with the convergence criteria, and if the pension liabilities are not properly taken into account, we cannot make any useful complementary analysis of what is happening in this country vis-a-vis the economic rules established under Maastricht and what is going on in other countries. I have every intention of exploring that point a little further, but will my hon. Friend enlighten me on whether that subject has been thoroughly investigated—or will I have an opportunity to do that this evening?
§ Mr. Letwin
My hon. Friend has cheered me up no end. I had thought that this debate—not least my speech—might be dull, but now I know that it will be lively. The subject was not debated in Committee and I look forward to hearing his remarks on it. The Bill, wide though its scope is, does not extend to forcing our comparator countries into the paths of righteousness on accounting liabilities. The problem of comparability might arise even 224 if we cure the accounting problem here. None the less, I look forward with bated breath to my hon. Friend's analysis of these important matters.
If the Economic Secretary wants to expand the argument that she half began to make in Committee—that it would be unduly inflexible if the Government were forced into a straitjacket by an independent body and were unable to decide on the deviations from the accounting standard practices that were proposed by the accounting standards body—she should resist that temptation. She should resist it because it would be to misunderstand what the ability to play with definitions does to Government. Part of our argument is about the rights of a democracy as represented in Parliament. My right hon. Friend the Member for Haltemprice and Howden is principally concerned with those issues, and rightly so as Chairman of the Public Accounts Committee.
However, part of our argument—we have this in common with those on the Liberal Democrat Benches—is about the effect on the Government's making of policy. It is not to their advantage, except in the very shortest term—a few weeks or a few months—to put themselves in a position where they may be tempted to conceal from themselves the real effects of their actions. They can do that by adjusting accounting definitions so that they purport not to be doing what they are in fact doing. That is not in the long-term, or even medium-term, advantage of the Government because they will be doing what they are doing. In the end, pension liabilities will exist whether they are on the balance sheet or not; the Government will have obligations under the PFI whether they are on the balance sheet or not; public sector pensions will or will not be funded; and there will be expenditure under the working families tax credit. All those things will happen. They are economic facts that will hit taxpayers, the macro-economic system, interest rates and, ultimately, the Government.
§ Mr. Letwin
It may be before or after an election, but those facts will certainly hit the Government at some time. That is not in the interests of government as conceived narrowly. However, I accept that the hon. Gentleman is right. If a Government are just this side of an election that they think they will lose—I wonder whether the Government think that they will lose the next election—they might try to conceal from themselves, and from their successors, the effects of actions that will be visited upon their successors.
§ Mr. Cash
I am a mere novice in this subject, but my hon. Friend made a bold and justifiable remark on the volumes of moneys that would be involved if public sector pensions, state pensions, PFI liabilities and contingency guarantees were aggregated. He said that that was equivalent to the whole gross domestic product of this country. I am developing my thinking on this issue, so I wish to ask him a simple question. He has referred to the integrity of the accounts and democratic accountability, so is the calculation of the 3 per cent. deficit of GDP in relation to the Maastricht criteria a figure that could be distorted by eliminating the items that he mentioned from the calculations? We might get a completely different figure that might well suit the 225 Prime Minister, come July, if he makes an announcement on the amount of money that he will make available in the public sector.
§ Mr. Letwin
As ever, my hon. Friend is eagle-eyed as to the implications of Maastricht. He is right that such accounting changes could have a significant impact on our deficit and its relationship to the Maastricht rules. When I tried to illustrate for my hon. Friend the Member for Bromsgrove the scale of the implications, I was consciously confusing stock with flow. Some of the items that I mentioned are flow, or current spending, items; some are the present values of long-term liabilities, and some are assets. I tried to give a sense of the scale by adding them all up and wondering what they might all amount to. Once the figures have been so illegitimately added together, I do not know whether they would come to half, one, or one and a half times GDP. However, it would be of that order of magnitude.
In practice, on a flow basis and in terms of the annual deficit, the figure is nothing like that big. As a consequence, it is unlikely—although it is possible—that adherence or failure to adhere to the Maastricht criteria on a given occasion would be decisively influenced by such matters. However, public policy choices made in ignorance of the real liabilities could lead you to fail or succeed in meeting Maastricht or other criteria.
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. I am aware the that the hon. Gentleman is responding to an intervention from a Back Bencher, but he should address the Chair.
§ Mr. Letwin
I apologise, Mr. Deputy Speaker. Moreover, you were kind not to mention the fact that I may have departed to some degree from my observations on new clause 1, to which I speedily return.
I was trying to argue that the Economic Secretary should resist the temptation to complain about the inflexibility that might be imposed on Government by an independent body's setting the definitions. She should recognise that, although in some particular circumstances—the hon. Member for Kingston and Surbiton (Mr. Davey) and I were beginning to expose them—there might be a political advantage in cooking the books, shifting the definitions is dangerous for Government when conceived as something that goes on for a year or so, as well as for the operation of our parliamentary democracy. It is just as dangerous for Government because they have terrible difficulty knowing what is going on. That is their biggest difficulty.
Most of the time, most people in Government do not know much about the effects of their actions or the circumstances in which they are operating. The last Administration discovered much of what was happening in the miners' strike by turning on the television in No. 10 Downing street. Governments are often ill informed and find it difficult, however brilliant their Ministers or officials, to get a grip on what is really going on with the immensely complicated beast of public spending, tax and the economy. If Government allow themselves to be flexible, they end up being confused about the effects of their own actions and making decisions that they did not intend, which often rebound on them.
It is not true that there is no conflict of interest. There is, because short-term interest is at stake in fiddling the figures from time to time. It is true that there is no 226 long-term conflict of interest. If the Government view the matter from enlightened long-term self-interest, they will accept the straitjacket imposed by new clause 1, not unwillingly but joyously—seeing it not as a restriction on flexibility but as a way of ensuring that they know what is going on in the multitude of affairs over which they have control.
I want next to explain the differences between new clause 1 and our amendments in Committee, to demonstrate to the Economic Secretary how far we have gone to accommodate the points that she made. The Minister said in Committee that she was concerned about the prospect of a national accounts commission, and argued that there were already bodies sufficiently well equipped to deal with accounting standards. Subsections (2)(a) and (2)(b) recognise that such bodies exist. We have offered an olive branch to the Minister by abandoning our preference—which we shared with the Liberal Democrats and the PAC—for a new, independent national accounts commission and have opted instead for the existing body. Any practical difficulties otherwise associated with an independent national accounts commission thereby evaporate. No extra costs would be entailed. I am sure that the Accounting Standards Board, if asked, would be perfectly willing to take on that extra task without charging the Treasury a huge amount of money.
The ASB has every possible expertise. It is not lacking in any kind of knowledge or skill required. We have a body that exists, would not be expensive to run and knows what needs to be done—and we are saying that will do nicely. We have gone further. As we recognise that the Economic Secretary might think that, in the world of increasing global convergence, it would be retrograde to insist on standards in the UK, we have offered a second option. The International Accounting Standards Committee or some other such international body could be chosen in place of the Accounting Standards Board.
§ Mr. Letwin
My hon. Friend will not be surprised to hear that my personal first choice for a body would not be a European-level body. Mirabile dictu that he should say it, but my hon. Friend is right. That could be a solution encompassed by subsection (2)(b). If I had to accept that as a means of getting the Minister to concur with the general proposition in new clause 1, I would do so.
We recognise that the Economic Secretary might have difficulty with the particular shape of the body we proposed. She gave us some cause for concern, referring on several occasions in Committee to the Financial Reporting Advisory Board. She thought that body already did a good job of determining deviations from standards set by the ASB. As a third option, we have redesigned our proposal by making it more general. Subsection (2)(c) expressly allows for a new form of the FRAB as an alternative to our national accounts commission.
227 8.15 pm
Surely the Economic Secretary's resolve on the technical issue must crumble at this point. Surely she cannot maintain that the body she argued in Committee was doing a good job cannot do the job. If she accepts new clause 1, all she need do is take the FRAB, re-establish it as a new body, ensure that all its members are appointed solely on the basis of their expertise in accounting practices and make the change that those people cannot be dismissed by the Treasury or any Minister. That could be done in a trice.
We have tried to provide in subsections (2)(a), (2)(b) and (2)(c) the widest possible latitude to the Minister and the Treasury in implementing any form of independent body. The only thing they all have to be is specified in subsection (1)—independent. The Minister cannot argue that there is a conflict of interest because there is not—and she has not tried to argue that. The Minister cannot argue that there is a conflict of interest but public policy cost outweighs it because that is not true—and she has not tried to argue that. The Minister should not argue that which she was half tempted to argue—that the proposal would be too inflexible for Government—because flexibility will be an advantage in the medium and long term.
If the Minister is compelled to accept the logic of an independent body, and given that we have offered every form of independent body that anyone could imagine as a range of options—including the body to which she referred to first and second as an option—I am genuinely stumped as to why she should object to new clause 1.
I draw attention to the amendments that flow from new clause 1, particularly for the benefit of hon. Members who were not in Committee, and to the scope of the discretion restricted by the application of new clause 1 through amendments Nos. 1 to 5. Clause 5(2) states:Resource accounts shall be prepared in accordance with directions issued by the Treasury.No limitation, no control, no transparency—entirely unfettered discretion to decide how reporting will be done. The Economic Secretary repeatedly informed hon. Members on Second Reading and in Committee that it was the Government's intention merely to amend existing standards as necessary for the public sector. That is not reflected in subsection (5)(2) or any Government amendment or new clause tabled in Committee or now. She has never sought to limit the Treasury's discretion in any way.
By replacing the words "the Treasury" with "the Independent Body", we are making up for that gross lack. That is exactly how we have gone about amendments Nos. 2, 3, 4 and 5—each of which replaces the Treasury, as the body with total discretion to decide its own accounting standards, with the independent body.
I refer to another element of great importance, to which we shall return later this evening. There is no doubt that the independent body that sets the accounting standards will be the natural locus of decision making on the form in which the performance measures are to be embodied. The Comptroller and Auditor General is a natural office for enforcement, but the natural body to decide what performance measures will measure the policies that the 228 Government have announced is the independent body that we recommend. That would solve two problems at a stroke: the conflicts of interest that would otherwise muddy Government accounts, and the measurement of performance by the Government of the Government.
If the Minister sensibly accepts the new clause, that will represent a great improvement in the operation not only of parliamentary democracy, but of Government. If she does not, we shall argue that our friends and colleagues of all parties in the other place should seek to obtain the result that I mentioned at the beginning of my speech and send the new clause or a similar measure back to the House—for as long as is necessary and no matter how arduous that is—to draw the Government's attention to the fact that they would be using a parliamentary majority and the Parliament Acts to achieve a result that would be wholly at odds with the proper functioning of our democracy.
§ Mr. Edward Davey
Let me begin by discussing how this issue is likely to be dealt with in the other place if the Government reject the new clause—which is where the hon. Member for West Dorset (Mr. Letwin) ended. Although I have been a Member of the House for a only short time, it is clear that these events are almost unprecedented. I have served on a number of Finance Bill Committees, as well as on the Committees that brought independence to the Bank of England and set up the Greater London Authority. The Liberal Democrats often found common cause with the Government—with whom we voted fairly often against amendments tabled by the Conservatives—but that has not occurred on this occasion because the issues to which the Bill gives rise go above party politics: as many members of the Committee said, they are constitutionally important, so taking a party line and playing party politics is not appropriate.
Conservative Front Benchers and Liberal Democrats have together tabled the new clause, and I pay tribute to the ingenuity of the hon. Member for West Dorset for dreaming up a measure that gives the Government so many options and so many ways out of the predicament in which they have managed to land themselves. Their lordships will read our proceedings and note that the new clause is wide-ranging and that Members of different parties have come together to support it. Not only Liberal Democrat and Conservative peers but independent-minded Labour peers and Cross Benchers will place some weight on the fact that we are witnessing a rather unusual process, and will recognise why we have agreed on it. As the hon. Gentleman said, when they recognise that, they will act accordingly to uphold Parliament's powers and rights in relation to Government accounts.
§ Mr. Letwin
I thoroughly agree with the sentiments that the hon. Gentleman is expressing. Does he agree that we are also considering Executive control? This is a case not of the Labour party voting in a certain way but of a Government using their majority in the House of Commons to assert Executive power. We are looking to our friends and others in the other place to reassert the power of Parliament against the Executive.
§ Mr. Davey
The hon. Gentleman is exactly right. It is important that those in the other place realise that that is what we are about, because, as he said, they may have to fight hard and be prepared to push the Government to the 229 wire. We should give the Government due warning that if they remain completely inflexible, we shall encourage our colleagues in the other place to stare them in the face and challenge them to invoke the Parliament Acts to get the Bill through. As the hon. Gentleman said in a previous debate, the Government have legislated hastily—perhaps because they want to make progress with the Partnerships UK proposals—but it should be borne in mind that such a delay would substantially undermine aspects of their programme. Neither he nor I want those aspects to be delayed, even though we have mentioned our concerns about them. If that is the unintended effect, we shall have to bear the cost, because the principles are so important: I believe that we are prepared to do so to win through on this key issue.
§ Mr. Letwin
I am grateful to the hon. Gentleman for giving way again. His remarks are of the greatest importance because they will be read by those in the other place. With that in mind, does he share my experience, which is that some Labour Members who shall remain nameless have said privately that they have considerable sympathy with our position? For the sake of causing them no embarrassment, I shall not name those hon. Members, but is the hon. Gentleman also aware that one or two have said in open court—on television—that they have some sympathy with our position?
§ Mr. Davey
The hon. Gentleman is right. I have had similar conversations with Labour Members, and I am tempted to suggest that even Ministers have some sympathy with our arguments, although they have not put that on the record. When we were debating clause 5 and an amendment similar to new clause 1 in Committee, the Minister said that she was open-minded and would think about the issue. She made no promises or guarantees, but she was at least prepared to think about it, and I like to believe that that is because she and her Treasury colleagues have some sympathy with our case.
The Chief Secretary spent many years in opposition and he is probably well aware of the frustrations felt by an Opposition trying to do their job and hold the Executive to account without having the proper information. On Budget day and when the public expenditure plans are published, we are given figures. We have great difficulty in understanding or believing what the Government are trying to tell us, so we cannot do our job properly. That is the crux of the issue.
If we vote to establish an independent body, we will improve the way in which individual MPs on both sides of the House can do their jobs, not only on macro-issues of public spending but on constituency spending issues. With an independent framework for accounts, we will be able to see more clearly what is going on and—most important—to have faith in the figures that purport to show us what is going on.
§ Mr. Letwin
Does the hon. Gentleman agree that, oddly, the situation that he so vividly describes will worsen if the Bill is passed without the new clauses and amendments? Members of this House and the other place will then have before them a balance sheet and details of cash flow and profit and loss, and will think that they understand what is going on as we do not because we do not have such clear information. They will not in fact 230 know, however, because they will not know whether the definitions on which their understanding is founded are fair and consistent.
§ Mr. Davey
The hon. Gentleman is trying to push his argument slightly too far. I want the House to be in no doubt that Liberal Democrat Members believe that moving to resource accounting and budgeting is a major step forward, and that the information will assist us in our work. The hon. Gentleman is right to say that the information will come with the same caveats and problems as all the information that we have received from previous Governments, as it will be the Government who set the definitions and frameworks. However, the quality of the information will be better. It will not be perfect, and that is why new clause 1 is needed, but the hon. Gentleman goes too far in suggesting that we will be in a worse position if the Bill is passed.
§ Mr. David Davis
I had not intended to participate in this part of the debate, but the hon. Gentleman's point strikes me as a little doubtful. We all agree that resource accounting, at its broadest, will be a major advance in the way that the country is run. However, we should not ignore that, in moving from what is effectively a cash system of accounting, which is hard to manipulate, to a system that involves many depreciations and other considerations, we are opening up judgments that will, without the new clause, give the Government more scope for manipulation, and therefore for corrupting the benefit that we all desire.
§ Mr. Davey
I take the right hon. Gentleman's point that there is a trade-off between the potential for manipulation and the fact that we will have so much more information. The problem with the existing cash accounting system is that it is almost meaningless, and the data that we have make it incredibly difficult to analyse what is going on in Departments.
The extra information and improvements that we will receive through resource accounting and budgeting, albeit with the problems that we are debating, are of such an order that the Bill is a step forward. That is why we have been supportive of the move and have always tried to persuade the Government that accepting the new clause and the amendments, which have been jointly tabled by Liberal Democrat and Conservative Members, is in their interests and follows the logic of what they are trying to do.
§ Mr. Letwin
I am grateful to my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) for intervening. I wholly accept the point made by the hon. Member for Kingston and Surbiton (Mr. Davey) that the move to resource accounting is overwhelmingly important and that we should not resist it in any way, but does he agree that, if the new clause is not accepted, not only will a golden opportunity have been missed, but until the problem is corrected, the situation will paradoxically have moved backwards? That would be a tragedy. It does not mean that there is an argument for not going ahead with resource accounting—
§ Mr. Deputy Speaker (Mr. Michael J. Martin)
Order. Since I entered the Chamber a few minutes ago, I have noticed that interventions are extremely long. We cannot have such long interventions.
§ Mr. Davey
I understand the point that the hon. Member for West Dorset makes. New clause 1 is designed 231 to deal with the potential danger about which we are both worried. Resource accounting and budgeting brings a distinct advantage.
When the hon. Member for West Dorset introduced the new clause, he explained how independent bodies that already exist in the UK and abroad, and bodies that could be devised, would all fit the terms of the new clause.
§ Mr. George Stevenson (Stoke-on-Trent, South)
I have listened to the debate with great interest, although I was not a member of the Standing Committee, and I have heard the forceful arguments that have been advanced.
As I understand it, the proposed independent body would have the power to move the goalposts if it wished to do so. If that happened, I assume that it would be accountable to no one, whereas if the Treasury had that authority as the Bill stands, at least it would be accountable to Parliament. Do I misunderstand the position and, if so, can the hon. Gentleman help me?
§ Mr. Davey
As we argued in the Standing Committee that established the independence of the Bank of England, the great advantage of an independent body is that its moves are transparent and public. Through that transparency and openness, accountability is improved. The problem that we seek to resolve by establishing an independent body is that the Treasury is often not accountable for its actions on matters such as setting accounts, because it is opaque: it does not report properly to Parliament about what it does. One finds out years down the line, if at all.
Accountability can be exercised in a meaningful way only if those who make the decisions are forced to publish their decisions. Because the independent body would be a separate body, and would have to publish its recommendations and make it clear to Parliament and to the public what it wanted the Government to do, accountability would be increased.
§ Mr. Stevenson
I am grateful to the hon. Gentleman for giving way again. Even with his assistance, I am a little more confused than when I asked the question. Is not his response to my intervention a criticism of the procedures of the House, rather than an exposition of the principle of which he and the hon. Member for West Dorset (Mr. Letwin) have been trying to convince the House? Is it not more important for us to consider the procedures of the House to achieve accountability, rather than setting up a separate body that is not accountable at all?
§ Mr. Davey
I am grateful to the hon. Gentleman for his comments. The cause of reforming the procedures of the House is dear to my heart. My hon. Friends and I tabled an amendment which unfortunately was not selected—for good reasons, no doubt—to set up what we called a resource estimates commission to report on the procedures of the House when it considered the Budget and to make recommendations for improving those procedures.
The Select Committee on Procedure, of which I used to be a member, made recommendations along those lines. It proposed an estimates office to provide hon. Members 232 with the information that they would need to scrutinise the Budget properly. I entirely agree with the hon. Gentleman on that point.
My criticism was not of the procedures of the House, but of the way in which Whitehall works. Often Whitehall is not open and does not tell Parliament what it is doing in the people's name and with the people's money. Unless we can be reassured about the accounting standards and the framework to which it must adhere and on which it must report to the independent National Audit Office, there will always be a suspicion in the minds of hon. Members and of the public that some skulduggery has occurred. It is that perception that is the problem.
§ Mr. Cash
The amendment refers to the functions assigned to the body by the Bill. Those are not specified in subsequent amendments—perhaps the relevant amendments were not selected. That could be redressed in the other place if the matter is taken forward. Accountability and its relation to the functions of the independent body is another matter. Perhaps the body would be similar to the Audit Commission. To a certain extent, I share the view of the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) that the matter could be refined in future debates.
§ Mr. Davey
I would be worried if it were refined in the way in which the hon. Member for Stoke-on-Trent, South suggests. As I said earlier, the hon. Gentleman and his colleagues rightly gave the Bank of England independence to set interest rates. He supported that. That step improved accountability for monetary policy because it set a clear, publicly set goal for the independent Bank of England to undertake monetary operations on a daily basis and to try to hit the inflation target.
The Monetary Policy Committee's actions are recorded in minutes. The Governor of the Bank of England appeared before the Treasury Committee today. My colleagues and I asked the Governor, the Deputy Governor and other members of the Monetary Policy Committee questions that held them to account. That structure has massively improved accountability in the way in which monetary policy is made. A similar framework for setting accounting standards would likewise improve accountability. There has never been accountability for setting standards for Government accounts. To my knowledge, there has never been a debate in the House about the directions that the Treasury gives Departments.
§ Mr. Stevenson
I do not wish to be a nuisance, but I am sure that the hon. Gentleman wants to help me to solve my dilemma. He refers to the Monetary Policy Committee, but I am not sure whether we are comparing like with like. The House sets the terms of reference for the Monetary Policy Committee. If I understand the arguments for the independent body correctly, however, it will change the accounting principles if it believes that that is right, and will be accountable to no one. Surely there is a big difference.
§ Mr. Davey
I do not accept the hon. Gentleman's view. The House is considering a Bill that would establish the framework for the independent body, which will therefore always remain accountable to the House and be subject to the Select Committee procedure. Just as the Monetary 233 Policy Committee is accountable to the Treasury Committee, the members of the independent body could be brought before the Treasury Committee or the Public Accounts Committee and held to account for their actions. Accountability would be greatly enhanced because those actions would for the first time be transparent, public and open.
§ Mr. Flight
There is a close analogy between the independence of the Bank of England in setting interest rates and the subject of our debate. The Government acknowledged the impossible conflict of interest that arises when Governments fix interest rates, and weighed the short-term advantage of elections against the long-term advantage. The Chancellor made his decision to escape that conflict of interest, which is analogous to that which exists when Governments determine their accounting policies.
§ Mr. Davey
The hon. Gentleman is right. When we debated the matter in Committee, I made that comparison. I also made an analogy with the BBC. There is cross-party consensus that politicians should not have their fingers on the BBC's broadcasting policies and approach. It would be improper. The Government's approach must be at arm's length.
Some public policy functions, for example, public broadcasting, setting interest rates, and setting accountancy standards for the public sector are so important that we must be reassured that they are removed from the party political debate.
The effects of some of their decisions last not just for a Parliament, but for decades—indeed, for centuries. We heard from the hon. Member for West Dorset about the pension liabilities. Some of these issues that arose from the matter of accounting standards are just too great to be left to political Ministers who happen to be in office for a short while.
The amendment gives the Government a wide choice of bodies that they could select to be the independent body. In Standing Committee, the Minister seemed to go down the route of preferring the Accounting Standards Board. She said that the Governmentdo not believe that a separate standard-setting body is needed, not least if it implies a body that will be in competition with the Accounting Standards Board. The Government are content to follow the standards issued or approved by the ASB, which already apply to all private and many public sector bodies.—[Official Report, Standing Committee A, 11 January 2000; c. 60.]The Minister was right. I wish she would be prepared to extend the remit of the ASB and give it the independence for which we are arguing in the new clause, which is a vehicle that would enable her to do that.
The ASB already has a sub-committee, the public sector and not-for-profit committee, which looks at many of these issues. Its remit is not as wide as would be required by the sort of body we are talking about in the new clause, but its existence shows that the Accounting Standards Board has already considered some of these issues, and has some expertise and skills in this area. Members of the ASB have sat on the Financial Reporting 234 Advisory Board. If the Minister believes that we need a single standard-setting body, the ASB is probably the sensible one to choose.
Other opinions have been expressed, both here and outside. The Chartered Institute of Public Finance and Accountancy, in a report entitled "Setting Accounting Standards for the Public Services" a few years ago, thought that the sub-committee of the ASB was still too narrow, and favoured a totally new body, which it called the Public Services Accounting Advisory Board. However, it was not quite advisory in the way the name suggests, as CIPFA proposed that there should be a requirement on statutory bodies to follow the board's recommendations. Therefore, I believe that "advisory board" was an inappropriate title for CIPFA' s suggested model.
The point is that there are many views about the sorts of bodies that could take on this role, both natural evolutions from the ASB and other bodies that already exist, such as the Financial Reporting Advisory Board. Therefore, the Government have plenty of bodies that they could turn to. They have to give us good reasons, as the hon. Member for West Dorset argued, for not going down this road. They failed to do so in Committee, which was a shame.
I return to my point about the importance of standard setting and why this issue should be seen on a par with setting interest rates and with broadcasting policy. It is because it goes not just to the heart of the financial management of the public sector, but to the heart of the quality of all decision making by Ministers throughout Whitehall.
The hon. Member for West Dorset talked about how Ministers are extremely busy and often do not have to hand all the information about what is going on in their own Departments. He is clearly right. Both by the activities of the hon. Gentleman's party, through privatisation, and now through the activities of the Government, with devolution, the leviathan state is being trimmed.
§ Mr. Davey
Liberal Democrats would totally disagree with the right hon. Gentleman about that. We believe that the devolution process is helping to ensure that the United Kingdom remains a united kingdom, and that it is assisting better decision making, because it is taking decisions away from Ministers who already have too much to do in this place.
Our proposal would help to transform the leviathan state. It would help ever-busy Ministers, who do not have perfect information at their fingertips, by ensuring that the information with which they were provided was transparent and consistent. It would also ensure that they and their civil servants did not spend time worrying about changing depreciation rates and changing accounting standards, because that would be a given. Instead, they would be able to focus on what they should be focusing on: policy, policy making, making better decisions, and ensuring that the taxpayer is given better value for money.
§ Mr. Letwin
After popping out for a sandwich, I reflected on the hon. Gentleman's answer to an earlier intervention. Does he agree that the answer to the 235 comparison with the private sector advanced by the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) should, in fact, be that directors should set their own accounting standards because they are accountable to shareholders, whereas accountants should not because they are independent?
§ Mr. Davey
I shall deal later with that wider issue, and with the parallel that the hon. Gentleman seeks to make; but I am sure that the hon. Member for Stoke-on-Trent, South (Mr. Stevenson) appreciates the power of his intervention.
The hon. Member for Stoke-on-Trent, South also raised the issue of the procedure of the House with regard to Supply. It is an important issue in the context of accounting standards. As the hon. Gentleman and I seem to agree, the procedures governing Supply in this place are, to say the least, inadequate: they are completely outdated, and effectively mean that the House allows just three days' debate on the subject. Moreover, often no amendment has been tabled to change the proposed spending plans, and the days tend to be taken up with Select Committee reports. Unfortunately, that rarely involves discussion of departmental spending plans. It is left to the PAC to do the real job; however, that is ex post rather than ex ante.
Partly because of existing procedures and partly because of customs that have grown up, the House and its Select Committees do not do their job in scrutinising supply. That is analogous with, and has the same effect as, the problems that we are discussing in respect of accounting standards, because, again, it lowers the quality of decision-making. Ministers do not have to come to the House and fully defend their budgets, and the hundreds and thousands of decisions that Departments make about those budgets.
If Ministers had to do that, they would have to be properly briefed. If they had to be properly briefed, their civil servants would have to ensure that they too were properly briefed, and that questions about their budgets were fully explored with Ministers. I believe that the dynamic that that would create, leading to a reform of estimates procedures, would make Ministers pay more attention to their budgets—that, indeed, Parliament and their civil servants would require them to do so—and that such a hands-on approach would enable them to spot problems. It would form part of the process enabling Ministers to root out poor decisions in respect of value for money for the taxpayer. I think that, if Ministers had such responsibility, there would be far better outcomes in regard to the money that the House votes to the Government through taxes.
The parallel with the supply process is clear. I think that if we could improve supply procedures—I suggested the establishment of a resource estimates commission—and the way in which accounting standards are set, we could make a second leap forward in regard to the quality of policy-making and fiscal policy generally. I describe it as a second leap forward because the first leap forward relates to resource accounting and budgeting. If we can get the supply procedures right, and if we can get the accounting standards-setting process right, I think that over quite a long period—10, 20 or 30 years—we shall see far more effective public spending. That may mean 236 that we can afford to do more public spending, or to reduce taxes. That choice will be open to the Government of the day. What a wonderful choice it would be, arising from the reform of procedures of the House and accounting standards setting.
The hon. Member for West Dorset tried to tempt me to talk about the conflict of interest when the Government set their own accounting standards. He is right. There is clearly a conflict of interest. It parallels the conflict of interest that would arise in the private sector if company directors could set their own accounting standards. A shareholder would not be happy with that. Equally, members of the public and hon. Members should not be happy with the Government proposal to set their own accounting standards.
The hon. Gentleman speculated on the reasons why the Government are prepared to live with that conflict of interest. He got close to their key concern when he said that, with a body such as the Accounting Standards Board setting accounting standards, the system might be seen to be inflexible. I am sure that civil servants in many Departments may be slightly worried that there could be slight delay in changing accounting standards that they think are genuine, rational and necessary for a new policy, or a new area of Government activity, for example, if they had to wait until the ASB had given its approval.
Potentially, that might involve a slight cost, but how large will it be? How often will it occur? As the hon. Gentleman implied, will there always be a cost? Will there not sometimes be a benefit? Having some inflexibility over setting accounting standards seems quite a good idea. Surely, what we want from accounting standards is consistency and fixity. We do not want them to change the whole time. That would be totally inappropriate for such an important part of the financial system. Therefore, the argument that the Government could use against the measure seems weak and could be used against them.
§ Mr. Letwin
The hon. Gentleman is doing an important job in disinterring the internal logic of inflexibility. Does he agree that policy inflexibility is another type of inflexibility that the Government might be worried about? An ostensibly beneficial economic effect might be thought to be prevented by a rigid accounting system simply because it exposed things that the markets, for example, reacted to irrationally. What is the right answer to such a concern?
§ Mr. Davey
Given this country's fiscal position, I would have thought that more transparency over our accounts was beneficial. Presumably, the hon. Gentleman wants me to speculate on a circumstance where greater transparency would not be beneficial. That may lie behind the Government's arguments, although we have not heard them say so. We might have to pay a price. I do not suggest that there is no cost to greater transparency. There is always potentially a political cost to the Government of the day.
We have had that debate more generally with the Freedom of Information Bill, which is before the Houses of Parliament at the moment. When one considers such costs, one has to examine the wider picture and whether the benefits far exceed them. Having listened to the hon. Gentleman and other hon. Members in 237 Committee, I am left in no doubt that the benefits outweigh the costs to an extraordinary degree. I have no second thoughts.
§ Mr. Flight
If there were some powerful argument for a particular accounting principle that was, for example, different from that in the private sector and that was in the national interest, could not the Government present that argument to the independent body? That body might even judge that that was the case, so the measure does not rule out the Government having a separate accounting principle from that of the private sector, where it is appropriate.
§ Mr. Davey
The hon. Gentleman is exactly right. I expect that the body established in new clause 1 would ensure that there are different standards, as different policy problems have to be dealt with by the Government, from nuclear missiles to the extent of pension liabilities. The problems faced by the Government, compared with those faced by private sector companies, are different only in degree—although it is quite a large degree.
I should think that, on many issues, the independent body will treat accounting standards for public accounts differently from the treatment of private sector accounts, and that those standards will entail moves away from generally accepted accounting practices. I also think that that would be acceptable. As the different standards would be transparent, published and debated, and as members of the independent body could be brought before a Select Committee and questioned on them, I do not see a problem with them. Indeed, they would ensure that difficult public sector dilemmas could be solved more efficiently.
§ Mr. Letwin
Does the hon. Gentleman agree that the example of New Zealand—which is far more exposed than the United Kingdom to the markets, and is perhaps the most transparent example—shows that it is possible to get away with transparency perfectly well, even in such an exposed economy, and realise the long-term benefits?
§ Mr. Davey
Indeed; in this sphere, New Zealand is so far ahead of us that we can only struggle to catch up. Its example should be a lesson to the Government. In Committee, I referred right hon. and hon. Members to the New Zealand Government's website, at www.gov.newzealand. With a few clicks, one can access New Zealand's Acts of Parliament, including the Financial Reporting Act 1993, which established the type of independent accounting standards body that we propose in new clause 1.
Subsequently, the New Zealand Act has been amended several times, based on New Zealand's experience of some of the matters that we have been debating. It started off by saying that the board should simply adhere to generally accepted private sector accounting practices, but, because of experience, it has seen fit to amend those instructions. However, we could learn lessons from New Zealand. We could ensure that, in establishing the board, its remit goes slightly wider than New Zealand originally envisaged.
§ Mr. Cash
Is the hon. Gentleman aware that the original advice given to the New Zealand Government on 238 its new independent banking arrangements, and undoubtedly also on financial control, derived from Professor Charles Goodhart, who is a member the Monetary Policy Committee? If the Government sought to do so, they undoubtedly could have access to the type of advice that the hon. Gentleman is mentioning.
§ Mr. Davey
I have always admired Professor Charles Goodhart and thought that he was a great authority on monetary policy, but I did not realise that his expertise and skills have been sought on those aspects of fiscal policy. I am grateful to the hon. Gentleman for enlightening me on that.
The Treasury seems to have a problem in relation to the Accounting Standards Board and Departments' internal accounts. In evidence—I think to a Select Committee—Professor Likierman really focused on that issue. He said that he believed that the ASB had little experience in dealing with private sector internal accounts, and that it would therefore be inappropriate for the ASB to consider public sector internal accounts. However, I do not think that the two cases are related. The House could develop the ASB as we want it to be developed.
In the private sector, the various regulatory bodies are increasingly passing regulations, guidelines and advice on how internal management accounting should be performed within companies. The public sector could benefit from that information and learning, and from those processes in the private sector. The arguments against our proposals—to the extent that we have heard any from advisers or Ministers—do not stand up to analysis.
I conclude by reiterating the importance of the new clause. This place ought to take financial accountability far more seriously than it does and should realise its significance in the life of the nation. If we do not ensure that the information provided to the House is of the highest quality and has the mark of legitimacy and credibility so that we can have faith in the accounts, the whole process will be undermined.
§ Mr. Letwin
Does the hon. Gentleman agree that, shamefully, we have something to learn from local government? We would never tolerate the arrangements that are being proposed for this place and the Government being applied to local government.
§ Mr. Davey
The hon. Gentleman is right. Local government has had aspects of resource accounting for some time. Local government financial scrutiny is far from perfect, but it is better than in this place. On my local council, the royal borough of Kingston, the opposition parties—I am sure that this is true for all local authorities—table amendments to move resources from one spending area to another. The House does not have procedures for such amendments. We do not examine accounts properly. Local government is way ahead in accounting standards practice and the way in which debates take place. I hasten to add that there is massive room for improvement, but the room for improvement in central Government accounting and reporting is so huge that it does not compare.
We come down to an issue of democracy. Are the Government happy for their policies to be properly reported on and accounted to Parliament? It will be a great 239 shame if they do not accept the new clause and questions will increasingly be asked about what has happened to their modernising agenda.
§ Mr. David Davis
I had not intended to speak on the subject, largely because the Public Accounts Committee has not opined on it recently, but I have been provoked to offer a few words, however briefly, because this is a constitutional issue of some magnitude.
Democracies live on a diet of truth. Indeed, they die when they get the opposite. That is why the House spends a great deal of time battling over what is the real information in front of us. When the previous Government were in power, the battle tended to be about whether the unemployment figures were correct and whether the multiple changes in calculating them were properly founded. Now there are battles about issues such as tax burdens and hospital waiting lists.
Unfortunately, the battle in the Chamber does not serve to ground the real truth in the statistical areas that we are talking about, be they accounting numbers or performance numbers. That falls to a much more technical process. To some extent, the Select Committees do a better job. That is why they have been the jewels of this faded House in recent times. We are dealing with the fundamentals of the figures that will be in front of us if we are to see the public service revolution that the hon. Member for Kingston and Surbiton (Mr. Davey) referred to.
Labour recognised that in opposition. One of the jewels of the Labour manifesto was the notion of an independent national statistics office with an independent director of statistics. That has not yet come about, but its inclusion was a measure of the importance of the issue, particularly to Oppositions, but also to Governments and democracies in general. It is of course a pity that, if the figures are left subject to political influence of Ministers of whatever party, there is always a temptation to alter the numbers to suit the Government of the day.
§ Mr. Letwin
Does my right hon. Friend agree that whatever logic gave rise to making the statistics function more independent must also apply to the accounting functions?
§ Mr. Davis
That is my general point. Whatever the argument—and it is one based on the importance of accurate factual data for a democracy—it applies to all data, whether they are accounting numbers or performance figures.
One of the few conversations with my right hon. Friend the Member for Henley (Mr. Heseltine) in which I have agreed with him 100 per cent. was when he and I agreed that when we first became Ministers we were both shocked by the complete absence of decent management information in Whitehall. Ministers arrive and are interested in the effect of their policies, but they find it almost impossible to get a measure of it. I see the Chief Secretary smiling at me. He probably recognises the syndrome—certainly most Ministers do. When I was at the Cabinet Office trying to make the citizens charter work, I remember asking for examples of how it was working, only to be told by the civil servants that it was not possible to get those examples or the aggregate data 240 that would tell us whether we were delivering a performance for the citizens. That is a disgrace in a small organisation; it is a total disgrace in an organisation as large, complex and public service oriented as the Government.
Resource accounting offers the first step towards that. Eventually, the existence of resource accounts, in conjunction with public service agreements, will mean that there will have to be management information systems within Whitehall. However, we face a serious risk if something like the amendments proposed today—I am concerned not so much with the amendments, but with the principle that they encompass—is not espoused by the Government or their successors. The temptation to bend the figures or to choose one set of figures rather than another because they are more favourable to the Government of the day will have the effect in due course of corrupting not just the numbers, but the belief in the numbers. That is very important. If the people who run the public service do not believe the information or it has no credibility for them, their actions on the basis of those numbers will be weakened. They will worry more about the perception than the reality.
Back in the 1960s there was a wave of creative accounting in the private sector, partly as a result of changes in accounting standards with which the hon. Member for Kingston and Surbiton will be familiar. That had a massively deleterious effect on the operation of British business, which in my judgment was just as bad as some of the trade union problems that existed at the time. It was the capitalist half of the equation. All those factors undermined the entire decision-making mechanism in British industry. If we do not have some external standard, be it an independent FRAB, the ASB or some other body, we shall be taking a risk with that standard.
§ Mr. Letwin
Does my right hon. Friend agree that in a sense the situation is even worse in the public sector because the Government necessarily have to deal with highly inadequate data on the macro-economic front? The only aspect of macro-economics which they could account for properly is their own income and expenditure if there were an independent body.
§ Mr. Davis
Of course my hon. Friend is right. However, I wish to focus on the single issue of the effect on the amount of information within the Government. The hon. Member for Kingston and Surbiton spoke eloquently about the prospective revolution in public service delivery that we face in the next couple of decades arising directly from resource accounting and its associated measure of performance—output-related government and outcome- oriented government. They offer a massive transformation. I think that was rather too reticent about that. New Zealand is a good example, but it is only half way there. If the set of numbers that we are about to create in the next two or three years is not founded in such a way that it has the entire confidence of the public service and the public behind it, that threatens to undermine that transformation, which will be a massive cost to pay for what is in my view a short-sighted perspective on the proper approach to this method of resource accounting.
§ Mr. Cash
I am intrigued by the title of the Bill. Before now, I had not taken great notice of it, but by chance some hon. Friends mentioned to me that I might find it interesting, and I do.
For some time I have been an adviser to the Institute of Company Accountants, and the Bill makes some reference to accounting standards. However, I am concerned about the way in which the Treasury would acquire vastly increased power under proposals whose principal I otherwise endorse.
For example, the resource accounting system would deal with income—which, in this context, means tax. It would also deal with expenditure, which here means expenditure on public services. The question of assets and liabilities depends on the balance between what is acquired by the private sector, and what remains in the public domain. That raises complex questions.
Clause 5(1) states:A government department for which an estimate is approved by the House of Commons in respect of a financial year shall prepare accounts (to he known as resource accounts) for that year detailing…resources acquired, held or disposed of by the department during the year, and…the use by the department of resources during that year.That is the balance that has to be struck. However, clause 5(2) states:Resource accounts shall be prepared in accordance with directions issued by the Treasury.The hon. Member for Stoke-on-Trent, South (Mr. Stevenson) spoke about how independence could be affected by the procedures of the House and so on. However, I am realistic enough to know that the Government's huge majority will ensure that the Bill will be approved at the end of our debate, despite the manful attempts of Conservative and Liberal Democrat Members to prevail against it. Although I do not know what the House of Lords will do, I assume that clause 5(2) will remain in the Bill when it leaves this House.
However, the words "in accordance with directions" raise several questions. First, will the directions be general or specific? We do not know. In my past legal career, I spent some time advising many bodies, including public bodies, about the nature of directions, and about remedies in judicial law with respect to them. Is it intended that the directions will be subjected to judicial review? If so, the questions that arise are closely related to the objectives of new clause 1.
§ Mr. Letwin
Is my hon. Friend aware that the Bill talks about both general and specific directions? The general directions are contained in manuals; no doubt, the specific directions will be the interpretation of the manuals. If it comes to judicial review, how will the courts respond?
§ Mr. Deputy Speaker
Order. The hon. Gentleman has mentioned clauses other than new clause 1. He has also referred to the Bill in its entirety. We are dealing with a specific amendment, which is the new clause before us.
§ Mr. Cash
I am grateful to you, Mr. Deputy Speaker, because I am mindful of the fact that we are dealing with new clause 1. However, the group also contains 242 amendments Nos. 1 to 5, and it is to those amendments that I address my comments, because they are relevant to the points that I am making.
I do not know whether the provisions have been devised in accordance with rules that have been concocted, not necessarily exclusively in-house within Her Majesty's Treasury, but in respect of the European Union as well. To achieve the degree of convergence that some claim should be achieved—which I prefer to deny—between the member states to enter the single currency arrangements, there are rules which are, in common, devised at a European Union level. Will the directions to be issued by the Treasury be connected with rules that go outside purely domestic considerations, but are devised within a framework of law that is devised by directives produced by the Central Bank, which we might be shadowing, or by specific directives that apply to us? What is the relationship between the Bill and our economy, having regard to the fact that considerable amounts of our taxpayers' money comes back into the British economy and is then called European money? In relation to achieving targets such as the 3 per cent. deficit rule of gross domestic product imposed by the Maastricht arrangements, will those directions seek to achieve the degree of convergence that is necessary between our economy and those of other member states? This must be relevant, because it is about the question—
§ Mr. Deputy Speaker
Order. The hon. Gentleman's point is not really relevant; it goes wide of the amendment, which is about changing from replacing "the Treasury" with "the Independent Body". That is far more constrained than the matters which the hon. Gentleman is raising.
§ Mr. Deputy Speaker
Order. The hon. Gentleman is referring to the amendments that we previously mentioned. Those amendments would delete the word "Treasury" and replace it with "the Independent Body". Therefore, we cannot take the whole clause relating to that amendment and say that that is what will be discussed. All we can do is speak to the amendments. If the hon. Gentleman wishes to have a clause stand part debate, we cannot do so.
§ Mr. Cash
I am extremely grateful to you, Mr. Deputy Speaker, as ever, for your guidance in these matters. However, if one is to substitute the nature of the body that will issue the directions, it follows that one must be able to make a comparison between the proposed body that is being put forward—in this case described as the independent body—and the Government's proposal that the body should be the Treasury. I am simply seeking to point out that comparing those two proposals means that we have directions issued by the Treasury—
§ Mr. Deputy Speaker
Order. If the hon. Gentleman confines his remarks to new clause 1—and there is plenty of meat in new clause 1—he will be able to go along with my ruling. He is concerning himself too much with what 243 is further along the line, saying that under the amendments "Treasury" is replaced with "the Independent Body". Of course that is so, because they are consequential amendments, as the hon. Gentleman is well aware.
§ Mr. Letwin
Will my hon. Friend help me? Is the burden of his argument that an independent accounting body, identified under new clause 1, would not have the temptation so to adjust the standards that the Government would be able to meet—for example—Maastricht criteria?
§ Mr. Cash
I shall be happy to do so, but perhaps the hon. Gentleman will allow me to finish the sentence.
Any such independent body would have regard to the fact that many fiddles go on in the EU—fraud has a significant impact on public resources and accounting. That independent body would thus be exceedingly vigilant in ensuring that those matters were thoroughly investigated. I shall come to that matter in a moment, but first I give way to the hon. Member for Stoke-on-Trent, South—I would almost like to call him my hon. Friend.
§ Mr. Stevenson
I am grateful to the hon. Gentleman for giving way. I am sure that Hansard would have corrected his slip.
The hon. Gentleman referred to the possibility of judicial review against the Government and to European accounting directives. If the independent body were to deviate from accepted practices, would it not follow that it too could be open to judicial review?
§ Mr. Cash
That is true. Furthermore, if I were right when I pointed out that there was some connection between the provisions of the Bill and more generalised European jurisdiction, there would, ironically, first be a judicial review in this country at the High Court and in the House of Lords and then a review at the European Court of Justice. That is the point I am trying to make.
If we have now entered a new world—a brave new world of European financial controls and economy, central banks and so on—it follows that it is essential to have the highest degree of impartiality, transparency and analysis at every stage, right up to the Court of Justice, if the provisions could be reviewed by that court.
I should be trespassing too far if I went into an enlarged argument as to the merits or demerits of the European Court. However, the hon. Gentleman's point has substance. As I pointed out earlier, when the Bill moves to another place—the hon. Member for Kingston and Surbiton (Mr. Davey) told us that they even intend to take it as far as the Parliament Acts, if necessary—some adjustment to new clause 1 may be needed, in order to clarify the extent to which the proposals for an 244 independent body could be changed, in line with the points made by the hon. Member for Stoke-on-Trent, South to take into account the public functions and procedures and the degree of accountability and parliamentary control that would be needed over that body. Such provisions would, indeed, be needed for the Treasury itself. A body can hardly be described as independent, if it is not subject to the higher surveillance of those who are elected.
I do not criticise the new clause; I am trying to offer some constructive help. It raises some important questions. I asked whether the words,which shall have the functions assigned to it in this Act,referred to subsequent functions that may have been included in amendments that were tabled, but which were not selected—no doubt because of the wisdom of the Chair.
§ Mr. Letwin
Perhaps I can help my hon. Friend. That phrase refers to the functions that are assigned under amendments Nos. 1 to 5, which systematically replace the word "Treasury" with the phrase "the Independent Body".
§ Mr. Cash
I am grateful to my hon. Friend. That is one of the points on which you, Mr. Deputy Speaker, prevailed on me not to pursue too far.
My point is slightly different. Irrespective of whether those functions are referred to in amendments Nos. 1 to 5, the difficulty is that the independent body would have a degree of statutory authority that would exceed that of any other body or person that I can think of, except perhaps the Comptroller and Auditor General, whose functions are circumscribed by an Act of Parliament. Therefore, it is necessary to consider the position of the independent body in relation to its accountability to Parliament. It would be a little odd to find that the independent body was not subject to any surveillance by those who are elected even though it would have a role in tax, public expenditure, resource accounting and analysis and other complex matters, as well as in the labyrinth of European financing, accounting, pension liabilities, convergence criteria and all that goes with that. The New Zealand model was mentioned and that might be a subject for consideration as the Bill progresses.
§ Mr. Letwin
Is my hon. Friend thinking of the possibility that a Select Committee, a new Joint Committee, a Special Standing Committee, the Public Accounts Committee or some such body should scrutinise the activities of whatever independent body is designated under the Bill?
§ Mr. Cash
It might be such a Committee. However, it might be possible for a new schedule to be added to the Bill. That could more closely define the nature of the independent body, so that we have a clearer picture of its functions in relation to the fabric of parliamentary procedure. It is difficult for me to try to come up with ideas off the cuff, so I will not do so now. However, my hon. Friend's point is worth considering.
The relationship between the independent body and the Comptroller and Auditor General is another issue. The proposals for the body take me back to the time when some of my hon. Friends lost the Whip, not over Maastricht, as is sometimes suggested, but over a 245 subsequent Finance Bill. The issue was what resources should be made available to the Government of the day from the European Union and what the balance between income and expenditure should be.
At that time, I was very much engaged in trying to identify fraud. In a nutshell, my amendment to that Finance Bill tried to demonstrate the necessity for other member states to have similar bodies to our own. By extension, the independent body in the new clause would require a series of analogous of bodies in other members states to complement it. It would be ludicrous—as I argued in Committee—to have public accounts committees in other member states performing the same function for the sake of maintaining the democracy that is at the heart of new clause 1. At the same time, if there were to be such a thing as an independent body subject to the reservations I have expressed, it would be necessary to have a similar body in other member states. Given the acquis communautaire and all that goes with economic and monetary union, we may say that we will have one set of standards and analysis and the consequences of forming the adjustment as between resources and accounting in this country will be X. However, that will not be complemented by similar requirements in other member states.
§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
Is the hon. Gentleman seriously suggesting that if other European Union countries do not want to maintain high accounting standards, we should not do so ourselves? That is an interesting reversal of his normal position.
§ Mr. Cash
I am making exactly the other point. Consistent with all that I have ever said on the subject, if we do not know that other member states will insist on the same standards that we expect, we will end up being cheated and gipped by them. A degree of equivalence is essential. I am not advocating that because I do not want the extension of powers to other member states. But if we are to have an independent body as proposed by new clause 1, I would want to know that the same degree of probity, transparency and accountability will apply in other member states. For sure they cheat us now. With proposals of this kind, we can manage to prevent that happening.
§ Mr. Stevenson
Is the hon. Gentleman saying that unless similar bodies are established in other member states or the EU accepts the proposed independent body, it would lack any credibility?
§ Mr. Cash
I am saying that the independent body would be able to provide—with the adjustments and reservations that I have described—a degree of objective transparency, provided that it was ultimately subjected to surveillance by elected politicians and Parliament. That is the burden of my argument. I agree with the idea that there should be a degree of independence as reflected by the principles that underlie new clause 1. If that is good enough for this country and if over my dead body—and that is probably true—we were to go into the single currency, we became absorbed by a megastate and our accounts were totally intermingled with those of the EU, it is essential that the same degree of transparency and accountability be applied to other member states, to ensure they do not cheat on us. That has been going on.
246 I tabled an amendment to a Finance Bill to be sure that we would achieve a degree of correlation between our PAC and the committees of other member states. Sitting more or less where the hon. Member for Stoke-on-Trent, South is seated now, I had an arrangement on that very question, through the Government Whips, with the then Prime Minister.
§ Mr. Cash
I accept that. If I do not have the opportunity to recount it in the House, I shall have to include it in my memoirs. It has often been said that the best way to keep a secret is to make a speech in the House of Commons.
I much agree with the remarks of my hon. Friend the Member for West Dorset (Mr. Letwin), who made a superb speech, and of the hon. Member for Kingston and Surbiton, who addressed the question with a balance between technicalities and constitutional objectivity, which is essential.
On the face of it and by any reasonable standards the Bill is as boring as a Bill can be, until one considers the principles that underpin it. They are the key issue and I pay tribute to my hon. Friend the Member for West Dorset for drawing attention to the democratic principles that lie at the root of the new clause to emphasise the necessity of achieving objectivity, transparency and accountability. The Government ought to give serious consideration not only to the arguments that have been made, but to what will happen when the House of Lords gets its hands on the proposals.
Notice has been given that the Parliament Acts will be invoked, but if they are and if the Liberal Democrats, the Cross Benchers and Opposition Members in the House of Lords combine—as they have, to considerable effect—the Government will experience increasing difficulties. Whether they accept the new clause or not, in the context of these myriad arguments they will find themselves required to consider the necessity for greater objectivity in relation to these provisions.
§ Mr. Tyrie
I am delighted to have listened to the speech of my hon. Friend the Member for Stone (Mr. Cash), which was an impressive tour de force that raised a number of interesting issues that I had not thought about at all. I have three main points to make: the first concerns the relationship between obtaining better numbers and ensuring that there is public confidence in them, which is central to the new clause; secondly, I shall develop the argument that only an independent body can deliver that public confidence; and, thirdly, I shall argue that some of the benefits of an independent body would go way beyond the narrow intentions of the new clause to the benefit of macro-economic policy as a whole.
However, I want to touch on some of what has been said by others, although not at length, as it is worth considering further, if only as questions. For example, 247 might it be possible that the courts, through judicial review, could achieve some of what we hope an independent body would achieve by another route? That interesting idea had not crossed my mind, but should have done. My guess is that it would be extremely difficult for them to achieve that because they would be unlikely to be able to obtain the detailed information that would be required. Much of it will simply never surface in the public domain and always stay in the Treasury. A challenge would be difficult to mount, but I am not a legal expert and it would be helpful to hear a view on that.
§ Mr. Letwin
I agree that an interesting question has arisen. In the absence of the new clause, if a citizen felt aggrieved because of a particular accounting decision and if that citizen persuaded the High Court that the decision on the accounting principle had been taken unreasonably might there not indeed be grounds for judicial review?
§ Mr. Cash
Under the new clause, my point—which takes us back to the point made by the hon. Member for Stoke-on-Trent, South (Mr. Stevenson)—also applies. The independent body's activities could be subject to judicial review. I am not certain, but I believe that the superior jurisdiction—which could give rise to an action in the High Court initially and subsequently in the European Court of Justice—may apply, given that those provisions fall in the general remit of economic and monetary union.
§ Mr. Tyrie
Again, I could not possibly answer the question, but it is well asked because the possibility of judicial review of the independent body itself could have significant implications.
My hon. Friend mentioned the EU budget in his speech. It had not crossed my mind until this evening that the Bill's scope might stretch as wide as the EU budget. Does the Bill's scope in any way influence the requirements for scrutiny of EU spending in the UK? That is an interesting question, and I should be grateful for an answer from the Minister.
My hon. Friend asked whether accounting fiddles that might take place in the absence of new clause 1 could be used to meet the terms of the Maastricht treaty. The answer must be no, because the European central bank, in conjunction with the Commission, sets its own definitions and accounting standards for meeting the terms of the treaty. I cannot think of any circumstances in which those standards would not apply, and meeting the terms of Maastricht will therefore be dependent on those, and not on resource accounting standards.
§ Mr. Tyrie
In a moment.
248 It is true, however—I shall not dwell on this point—that Italy and Germany in particular managed to fiddle their terms of entry. Whether or not the terms of the Bill applied would be scarcely relevant in trying to work out what damage could be done in respect of the Maastricht treaty.
§ Miss Kirkbride
My hon. Friend has made the point that I was about to make. Why does he suggest that the EU would impose standards that could not be contravened when we know that when countries were seeking to meet their Maastricht convergence criteria, they fiddled their books? What gives him confidence that everything will be all right?
§ Mr. Deputy Speaker
Order. I am pleased to hear that the hon. Gentleman will not dwell on that—he read my thoughts.
§ Mr. Tyrie
I shall not pursue that intervention because I foresee all sorts of trouble if I do so.
I shall move on to an equally interesting point made by the hon. Member for Stoke-on-Trent, South (Mr. Stevenson). He asked whether the independent body would be able to move the goalposts without any political scrutiny. That is a concern about new clause 1 which had not crossed my mind. The hon. Member for Kingston and Surbiton (Mr. Davey) did not give the hon. Gentleman a full answer on that point. There are two possible answers. One is that it would be possible for the Government to include a clause in the Bill to enable the Treasury, with a good deal of public scrutiny, to override the independent body.
§ Mr. Stevenson
In view of the hon. Gentleman's reputation and expertise, his last remarks are significant. Is he saying that the independent body would have to have some override from the Treasury to ensure that it acted in the public interest on all occasions?
§ Mr. Tyrie
There is an override clause in the Bank of England Act 1998, for example. I am not sure whether it is a good idea, but no one is suggesting now, after some 249 years of practice, that the Bank of England has not been able to exercise a measure of independence. Perhaps it should be given more independence. I am in favour of that. I thought that the 1998 Act was inadequate. The override approach could be taken with respect to new clause 1.
I do not, however, favour the override route. An alternative route would be to make the independent body accountable to a Committee of the House—probably the Public Accounts Committee—and for the PAC to scrutinise an annual report from the independent body on its work.
§ Mr. Letwin
I assure my hon. Friend, and, through him, the Minister, that if the Government introduced either of those possibilities, provided that in the first case that the override was sufficiently transparent and difficult to achieve, and that in the second case the scrutiny was properly conducted, it would be entirely acceptable to the Opposition.
§ Mr. Tyrie
I am glad that, while sitting in the Chamber, I have been able to think of two answers to what I thought was an interesting point from the hon. Member for Stoke-on-Trent, South.
I want to get on with my speech, rather than dealing with interventions. The first point with which I said I would deal was the relationship between getting good numbers and making sure that the public were aware that they were good and that there was public confidence in the numbers. That is the main purpose of new clause 1.
I am not sure that resource accounting is worth having without new clause 1 or a similar measure. The benefits of resource accounting include better information about what is going on. We have heard from several speakers how difficult it is to find out what is going on in government, and I agree with them on the basis of my experience. We will get more information as a result of the Bill.
However, if that does not inspire public confidence—indeed, if it erodes public confidence—that will be worse than the present situation. It is worth having resource accounting only if it is accompanied by an increase in the transparency of the numbers. Both the hon. Member for Kingston and Surbiton and my hon. Friend the Member for West Dorset (Mr. Letwin) made that point.
The main reason why we need transparency is straightforward. If one does not get good numbers in the private sector, the penalty for failure or for misinterpreting them is business death—bankruptcy. The reward for success is higher profits.
In the public sector, there is no such direct reward or penalty mechanism. Unless there is powerful scrutiny and transparency, the gains theoretically available from the better numbers are unlikely to materialise. That is because the incentives for the Government to reap them will almost certainly not be strong enough.
It is often said that the price of freedom is eternal vigilance. The price of avoiding growing public sector waste is also public vigilance about where the Government's money is going.
§ Mr. Tyrie
Resource accounting will work only if we get better numbers and they are better scrutinised. That is the nub of my first point. That is why, as has been said, the Bill is about the relationship between the Executive and Parliament. It is our job to exercise that scrutiny. If we are unable to do that because we do not have sufficient confidence in the numbers that we are given, we weaken the relationship between the Executive and Parliament and erode a fundamental part of our democracy.
§ Mr. David Heath
I shall try again. The Treasury would be exempted from providing information whereas the independent body would not. That is a problem with the class exemptions that have been suggested. The new clause is important because it provides the transparency that the hon. Gentleman seeks.
§ Mr. Tyrie
The hon. Gentleman is probably right. He also made a point about the relationship between new clause 1 and other means by which to obtain much of the information. So much information is technical and requires judgment and a great deal of expertise to analyse it that, even with an effective Freedom of Information Act, which we do not have, or powerful judicial review, I am not convinced that we would get the benefits that new clause 1 would provide.
In the absence of new clause 1, it is relevant to ask how much confidence we can have in the numbers that we are given. I worry that, as matters stand, we cannot rely on the National Audit Office alone to do the scrutiny job. Clause 11 grants a great deal of power of scrutiny to the NAO. It sounds good. Clause 11 states:The Treasury shall send accounts … to the Comptroller and Auditor General.The Comptroller and Auditor General shall examine accounts sent to him under this section with a view to satisfying himself that they present a true and fair view.The problem is that the Treasury controls the standards and definitions that lie behind that auditing process.
The nub of the need for new clause 1 can be found in clause 5(2) and (3), which state:Resource accounts shall be prepared in accordance with directions issued by the Treasury.The Treasury shall exercise the power to issue directions under subsection (2) with a view to ensuring that resource accounts conform to generally accepted accounting practice subject to such adaptations as are necessary in the context of departmental accounts.In other words, the Treasury can do more or less what it likes. We have only assurances to protect us from the Treasury's exercise of almost arbitrary power.
Lest there be doubt about the Treasury's arbitrary power, it is worth considering clause 9. I did not serve on the Standing Committee that considered the Bill. I started to come to the view that I am expressing this evening 251 through reading the clause carefully recently. Hon. Members should take its phraseology into account. Clause 9 states:The accounts shall contain such information in such form as the Treasury thinks fit, and be designed to conform to generally accepted accounting practice—
§ Mr. Deputy Speaker
Order. I have difficulty with the hon. Gentleman's reading various clauses. We are considering new clause 1, and the hon. Gentleman should refer to that.
§ Mr. Tyrie
The purpose of new clause 1 is to ensure that the Treasury cannot merely decide that theaccounts shall contain such information in such form as the Treasury thinks fit, and be designed to conform to generally accepted accounting practice subject to such adaptations as are necessary in the context,but that it should be subject to what an independent body says. That is nub of the argument. Far from straying from the point, Mr. Deputy Speaker, I believe that I was right on the button when I read out clause 9(2).
§ Mr. Gerald Bermingham (St. Helens, South)
On a point of order, Mr. Deputy Speaker. If the Chair makes a ruling that a point is out of order, is it right for an hon. Member to challenge the Chair without having the decency to allow the Chair to answer?
§ Mr. Tyrie
I have never doubted that, Mr. Deputy Speaker. For the sake of the record, I should like to say that I was not for one moment seeking to challenge your authority or your ruling, as I think you will understand.
It being Ten o'clock, the debate stood adjourned.
Motion made, and Question put forthwith, pursuant to Standing Order No. 15 (Exempted business),That, at this day's sitting, the Government Resources and Accounts Bill may be proceeded with, though opposed, until any hour.—[Mr. McNulty.]Question agreed to.
As amended in the Standing Committee, again considered.
Question again proposed, That the clause be read a Second time.
§ Mr. Tyrie
I would describe clause 9(2) as the ultimate "Trust us" clause: "Do whatever the Treasury thinks fit, and we can just jog along."
In fact, the situation is much worse than that, because in other parts of the Bill, the NAO's powers of access are being restricted: access to service providers to find out information, access to information on quangos, access to enable it to audit departmental performance measures and much else that we shall come on to later and that I shall not discuss at any length now. The fact that the NAO does not have unfettered powers of access is a further cause for concern and a further reason why the new clause may ameliorate the situation.
252 Clause 9 says, "Trust the Treasury". Why should we? I used to work in the Treasury, and I can assure every hon. Member that it is a great place, full of stout chaps and chapesses, full of very able people. But, although the Treasury is Whitehall's policeman, it is ultimately an institution which itself needs to be policed.
It was partly with that in mind that after I worked in the Treasury I started to write a long pamphlet, or a short book, on the control of public spending, in which I proposed a new clause 1. Of course, it was not called "new clause 1". The paper was finally published in 1996. I wrote:A further safeguard … would be to create a small independent fiscal policy committee with a few full-time staff. Answerable to the Public Accounts Committee,—that answers the point raised a moment ago—… its primary role would be to police the definitions—that is, the standards—in the public accounts (including 'capital accounts'),which is a crucial issue in the whole debate.
So the idea of new clause 1 is not new. I did not invent it; I picked it up off ideas that were floating around in New Zealand at the time. I did not use the internet to find that out; I dropped them a line. The idea of having an independent body to police parts of fiscal policy and the accounts is of very long standing and is one that should commend itself to the House.
I hesitate to read out the new clause, because I do not want to be ruled out of order. Subsection (2)(c) is targeted specifically at the deficiencies of an institution that already exists, the Financial Reporting Advisory Board. The main weaknesses of that body are that the Treasury appoints its members and that it reports not to Parliament, but to the Treasury.
§ Mr. Letwin
The body could be the FRAB in a new form—I am sure my hon. Friend is about to come on to that—or to a specially constituted national accounts commission, which is where we started.
§ Mr. Tyrie
As I understand it, the FRAB has a very worthy role. It advises the Treasury on how to reconcile public and private accounting practices, but in my view it cannot do much to bolster the credibility of the numbers in resource accounting, because it is not independent of the Treasury. Clearly, it cannot be independent if it is appointed by the Treasury and answerable to it.
I do not want to suggest that all these problems have suddenly developed out of thin air. The Bill has not suddenly created a huge new crisis in the accounts. The existing system is not perfect, which is why the Bill is being brought forward. It is worth bearing in mind the system that we have in place—the Gladstonian system of scrutiny, which would be partly replaced by the new clause.
§ Mrs. Dunwoody
I hope that it will not come as too much of a shock to the hon. Gentleman to learn that hon. Members are often not astonished when the Treasury manages to fiddle the figures. We are only astonished that it ever does anything else.
§ Mr. Tyrie
Having worked in the Treasury, I can assure the hon. Lady that, although fiddles may occasionally have happened, they were the exception 253 rather than the rule. I shall say more shortly about how these ghastly practices get going in the Treasury, and about whether they are more prevalent now than they were in the old days; but I shall take her intervention as well meant, which I am sure it was.
Let me say something about the existing system. Earlier, I asked whether, if we could not have new clause 1, it was worth having resource accounting at all. The alternative to resource accounting is the existing system, which is at least fairly clear and understood by most Members. Incidentally, I thought that that was what the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) was going to say. Under the existing system, Parliament votes annual cash amounts, Departments explain how they are spent in appropriation accounts, the NAO checks that those Departments have done what they said they would do with the money, and the PAC reports to Parliament on the reports produced by the NAO.
As I said, the system of cash accounting is fairly clear and well understood, although it has led to many problems historically, largely as a consequence of inflation. Gladstone devised the system in a deflationary era, but it did not stop a lot of ripping wheezes getting into the accounts. I use the phrase "ripping wheezes" because it was used in a book by Joel Barnett, now Lord Barnett, called "Inside the Treasury", in which he described how he used to engage in such activities. He would sit down with a group of officials, and work jolly hard at getting as many ripping wheezes as possible into the accounts to fiddle the public sector borrowing requirement.
It is not just coincidence that no such passages will be found in the memoirs of Nigel Lawson or Geoffrey Howe. As far as I know, no such committees were convened to fiddle the accounts at that time. I believe that, on the whole, the problem of ripping wheezes has been more prevalent under Labour than under Conservative Governments. There is a good reason for that. On the whole, during most of the post-war era, Conservative Governments have been keener to see a lower PSBR than Labour Governments. That does not mean that the PSBR has not sometimes become unacceptably high under Conservative Governments, but it reflects a difference of intent, and a different level of concern about the PSBR, which has led, partly, to the package of confidence-building measures that the incoming Labour Chancellor felt obliged to introduce as soon as he took office in 1997.
§ Mr. Bermingham
I sit here quietly amazed—indeed, I have sat here for years, although mostly on the Opposition Benches, quietly amazed—at the misleading information that has been given. Am I to understand that the hon. Gentleman, a former employee of the Treasury, is blatantly admitting that over the years the Treasury has fiddled the figures time and again? If so, I—who declare an interest as a prosecuting counsel—shall be only too happy to call him as a witness against his own Government.
§ Mr. Tyrie
Hansard will reveal whether I am right, but I thought that I was saying that ripping wheezes—itself a phrase used by a former Labour Chief Secretary to the Treasury—were very prevalent under Labour Governments, and far less prevalent under Conservative Governments. As far as I can recall, when I was an adviser to a Conservative Chancellor I never sat at a table with others trying to work out ripping wheezes, but when 254 I consult the memoirs of former Labour Treasury Ministers, I find that they are happy to describe their participation in just such events. Indeed, they are proud to have been inventive enough to find ways in which the PSBR could be massaged down to stave off yet another crisis in the markets.
Ripping wheezes are still prevalent in the existing system. One that has carried on under both Conservative and Labour Governments is export credit guarantees. I have had a serious go at looking at the accounts of the Export Credits Guarantee Department. They are completely impenetrable; they are utterly incomprehensible. Why? Because they often conceal several billion pounds a year of public money, which is being poured down the drain for purposes that I have not yet fully been able to fathom.
The PFI is another ripping wheeze. It can easily turn into a means of passing to future generations the cost of benefits that we are enjoying now. It is a dangerous precedent.
§ Mr. Desmond Swayne (New Forest, West)
On the PFI, does my hon. Friend share my scepticism about the PFI attempting to draw the private sector into the provision of finance at which the state is much better? The taxpayer often gets a worse deal.
§ Mr. Oliver Heald (North-East Hertfordshire)
Would my hon. Friend like to comment on the concept of the year-end?
§ Mr. Tyrie
I am at risk here. I think that I will leave the year-end for another week, if not another year.
I could mention one other little fiddle that the Government have engaged in: the working families tax credit. As it has been talked of in some detail, I will not develop it further.
I have argued that we need independence and the drawing-up of standards and definitions in accounts. That is already a significant problem in the system that we have now, but it is likely to become much worse under a system of resource accounting. I wish to cite a few areas where there is a risk of the problem becoming more serious.
How will some of the Government's assets be valued—for example, recreational facilities such as public parks? How will we score parks under resource accounting? Does that not leave huge scope for massaging the figures? How will defence assets be scored under resource accounting? How much confidence can we have in the assumptions that the Government make when putting them into resource accounts? Would it not be better if an independent body scrutinised the definitions and standards that were applied?
The key PFI issue with respect to resource accounting is: are PFI projects to be on the balance sheet of the Department? Huge future commitments are involved with the PFI. There is a clear case for putting them on the balance sheet.
What about provisioning, which has not been raised at all? How will the public sector be protected from the pernicious effects of what is known as teaming and lading? I cannot possibly expect the Minister to know the 255 answer off the top of her head, but I should be grateful for some response from her via the Box on provisioning, which is central to time-sensitive issues in public accounts. That is what resource accounting is intended to improve.
Resource accounting can all too easily become a means for getting future generations to pay for present spending. We should be extremely cautious about that. That is why new clause 1, which creates an independent body, will be such a help.
I said at the start of my speech that I wanted to discuss briefly some of the wider benefits that I think will come from the creation of an independent body. There are several such benefits, which will go far beyond merely clamping down on the scope for creative accounting.
The body could, for example, give much greater credibility to the Red Book and assist in giving the public a wider understanding of macro-economic policy. I have not met anyone who understands the current Red Book. I do not understand it, although I used to try to help to draft earlier ones. I used to sit down with late drafts of the Red Book and try to improve them.
I do not have a clue about the current Red Book. It does not matter which way up it is held, it is basically gibberish. All the definitions have been changed, there is no continuity in the series, and many of the phrases and much of the language is impenetrable. It has become a glossy apology for the lack of an explanation of what is going on in the economy.
Without an independent body to keep an eye on all that, I can easily see how resource accounting will make the Red Book even more difficult to understand, as we shall have a series of resource accounting standards built into a whole host of numbers. For a start, we shall have several sets of parallel accounts that could be extremely difficult to cope with.
I should give an example of one crucial concept that could get badly mucked around by resource accounting in the Red Book. The golden rule is a key notion in which the Government place great store. I think that it is a lot of nonsense, and, these days, so do the German Government, who more or less invented it. Nevertheless, just as the German Government have more or less abandoned the notion, the Labour party has discovered it.
On Second Reading, when I asked the Economic Secretary—who is having a chat at the moment—whether resource accounting would affect the calculation of the golden rule, which will be applied in the Red Book, she said:I should not imagine that it would.—[Official Report, 6 December 1999: Vol. 340, c. 650.]I must admit that I was a bit perplexed by that answer. Much nearer to the right answer is one that I received, via the Library, from the Office for National Statistics, which states:Initial estimates, based on dry run resource accounts for 1998/99, suggest an upward revision of the estimated capital stock of central government at end-1998 of around £6 billion. However, this is offset by downward revisions to the figures for local authorities and public corporations based on evidence from other sources. Overall the public sector depreciation charge for 1998 might be revised up by around £¾ billion.256 Resource accounting will therefore have huge effects—£5 billion or £6 billion in one direction, and £5 billion or £6 billion in the other—on the calculation of the golden rule. Although the Government say that the golden rule is one of the most fundamental concepts that they have introduced—I believe that it is a nonsense concept—the Minister was not even aware that it might be seriously affected by the introduction of resource accounting.
The independent body could, because it would truly be independent, decide to examine such issues. It could thereby give much greater credibility to the accounts, including the accounts provided in the Red Book. It could also help to establish a commonly agreed set of public accounting concepts by which Government performance could be judged, not only on individual spending programmes, but on overall macro-economic policy.
I fear that, far from moving in that direction, we are moving in the opposite direction. We are seeing the National Audit Office being used to give an air of respectability and stamp of approval to a whole range of tasks and issues, including the national accounts, when in fact no such respectability is deserved. The Government pretend that the fiscal forecast, for example, is being properly vetted by the NAO. However, in truth, the NAO does not examine the revenue or the expenditure assumptions in any detail at all. It cannot do so, it is not authorised to do so, and it does not have the resources to do so. In any case, the Treasury would not want it to.
The truth is that there is no real scrutiny of the fiscal forecast at all. It is just the type of function that a truly independent body, once created, could get its teeth into, and that would be immensely beneficial to assist with an understanding of what is going on in the public accounts, in enabling a wider public debate, and, ultimately, in strengthening democracy. That is why I favour an independent body with a name along the lines of "Fiscal Policy Committee". That would be preferable to some of the other names that have been suggested.
As I have tried to explain, the existing code for fiscal stability is meaningless, because the numbers are so easily subject to manipulation by the Treasury. That is true even before resource accounting. I shall give one example of how easy it is to fiddle the numbers. I should be fascinated to know what assumptions are built into the forecast for the oil price. Perhaps the Minister will be able to tell me—or perhaps she will decide that she does not want to. Do the Government assume that the oil price next year will he the same as it is today? Have they taken an average of the past three months, six months, nine months or 12 months, or is the price for oil in the futures market being used? Each of those assumptions will have dramatically different effects on the bottom line—the public sector financial deficit, as we now have to call it, although it is nearly the same as the public sector borrowing requirement. It is one of those numbers that has been put in the Red Book more to confuse than enlighten us. The NAO is not authorised to go into such detail, but an independent body along the lines suggested in the new clause could eventually do so. That would be all to the good.
The case for an independent body is overwhelming. I cannot think what possible reasons the Government have for opposing the new clause, unless it is that they want to retain the freedom to carry on with the ripping wheezes and fiddles. I understand that by accepting the new clause, the Treasury would be passing up the 257 opportunity for a good deal of leeway for creative accounting, but the Government must realise that not just all the logic but much accounting practice worldwide points to the creation of such an independent body.
I said at the start of my speech that resource accounting without full public scrutiny and transparency would not deliver enough public confidence and might not be worth having. Ministers need to think carefully about that issue. I strongly urge them either to accept the new clause or to come forward with a similar proposal to ensure public confidence and bolster democracy.
§ Mr. Swayne
I came late to the debate from Standing Committee F. I came with some suspicion, because I do not normally support consensus. I am normally particularly suspicious when there are such strange bedfellows as those who tabled the new clause. However, having listened to the debate, I am increasingly persuaded of the merits of the new clause. The Bill would be a poor affair without it.
In the interests of brevity, I shall deal with subsection (2) and then go on to the purpose of the new clause outlined in subsection (1). Whatever those who have framed the clause might be accused of, it cannot be of not presenting sufficient choice to the Government. The Government have a wide range of options to debate on how the independent body should be constituted.
I shall run briefly through the three options. Subsection (2)(a) refers toan existing body serving the accounting profession in the UK.One of my annual pleasures in this place has been to chair parliamentary gatherings of the Southern Society of Chartered Accountants. A finer body of men there could not be. They might well fulfil the function outlined in the paragraph, but their concerns might lack the national focus that would be required.
Equally, paragraph (b) identifiesan existing international body serving the accountancy profession…That would be a fundamental requirement, as the international angle is very important. However, such a body would lack the proper focus of the Southern Society of Chartered Accountants with its parochial concerns. There has to be a balance between the two, so undoubtedly we are led by a process of elimination to paragraph (c), which identifiesa new body, established for that purpose,as such a body would have the advantages of the Southern Society of Chartered Accountants and the international accountancy profession, with their national and regional perspectives and, I would suggest, the parliamentary gate-keeping role of the Public Accounts Committee, chaired by my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis). Only a combination of all those attributes would produce a body that was truly fitting of the term "Independent Body" as set out in subsection (1) of the new clause.
§ Mr. Graham Brady (Altrincham and Sale, West)
Is not my hon. Friend concerned that the process of appointment to a new body might be suspect, or not as rigorous as one would wish, whereas paragraphs (a) and (b) would allow the designation of an existing body of undoubted standing and repute?
§ Mr. Swayne
That is entirely true, but the possibilities outlined in paragraphs (a) and (b) are simply too narrow. 258 They do not fit the bill, so inevitably we shall have to take the risk that my hon. Friend has quite properly drawn to our attention. If the new clause was tabled because we do not trust the Treasury, one of the drawbacks of establishing a new body is that we do not trust the Treasury to make appointments to it. Nevertheless, to fulfil properly the challenge presented by the new clause, we have to choose option (c), despite the clear risk in respect of appointments to that body. However, if we take elements of (a) and (b) and merge them into a new (c), we shall end up with a body that will command the respect that subsection (1) of the new clause demands of it.
I now move briefly into my analysis of subsection (1), which goes to the heart of the Bill and provides a remedy to the problem that emerges from the Bill and our distrust of it, and to the problem that the Bill attempts to address—namely, our concern about resource accounting within the wider concept of national accounting.
Ever since the national accounts were first framed, we have argued about what they meant and what they were supposed to mean. We needed to draw up those accounts within the perspective of resource accounting because we wanted a measure of economic activity rather than just numbers. We wanted to know that economic activity represented genuine economic welfare. Initially, there was a requirement for an independent body to calculate what constituted economic activity in the first place, and that role was taken by academics at the universities. However, they could not agree what constituted the economic accounts, taking into account resource accounting.
Many hon. Members will remember the study by E. J. Mishan, which pointed out that the accounts meant the reverse of what they purported to mean, that many of the benefits of economic growth were in fact costs, and that therefore the accounts were meaningless because of their inability to provide a true measure of the resource in resource accounting. As a result, the Treasury found itself responsible for calculating the national accounts.
The national accounts grew out of the desire to measure economic activity at a time when it was fashionable to believe that the Government could determine the level of economic activity. That was the essence of the science of macro-economic management, and the national accounting procedure was a means of measuring the effectiveness of Government policy. However, giving the Treasury the means of measuring the effectiveness of Government policy makes nonsense of independent scrutiny—the poacher is thereby turned gamekeeper.
§ Mr. Edward Davey
I am slightly perplexed. Is not the hon. Gentleman confusing the national accounts that measure economic activity with those that measure the state of the public finances?
§ Mr. Swayne
No, I do not believe that I am. The purpose of resource accounting is to take into account the wider concept of assets and liabilities. They are the essence of the national accounts, in terms of the measurement of economic activity and welfare.
However, I want to concentrate on the problems with the Bill. There was always considerable debate about what constituted the national accounts, and how they should be interpreted. Over recent years, the order of that debate has 259 changed. What was once an academic and proper dispute is now based on distrust. I trace that to our entanglement with the European Union.
Much of the negotiation that takes place in the EU is clouded with the proper secrecy of diplomacy. No one can reveal his hand in negotiations, because neither adversaries nor partners should know what that hand contains. A culture of secrecy and deceit—
§ Mr. Swayne
I accept your stricture, Mr. Deputy Speaker. However, my point is that the tendency towards secrecy and clouding true meaning in all aspects of policy was typified by the Treasury. The result is that we now dispute any figure that the Treasury or any other Government Department produces. At Question Time every day bar Friday, for at least an hour hon. Members in this Chamber dispute what figures mean and argue about their accuracy. That is symptomatic of the problem that new clause 1 attempts to resolve.
I suggest that the new clause is absolutely desirable for that reason alone. The requirement for an independent body to scrutinise the figures would at least mean that we could agree what the figure was. We could then concentrate our arguments on the interpretation of that figure. However, people everywhere believe that Governments—of all parties—set out to deceive them.
A number of hon. Friends have mentioned examples of how that phenomenon manifests itself. I do not want to go down that road, but in a brief intervention on my hon. Friend the Member for Chichester (Mr. Tyrie), I took up his example about the private finance initiative. That is an area on which an independent review body would shed a great deal of light. My view is that the Government can raise finance rather more cheaply than any other body in the realm. Therefore, it is unlikely that they will be bettered by private initiatives, which are normally required for management rather than financial purposes.
§ Mr. Deputy Speaker
Order. We are talking about an independent body, and I should be grateful if the hon. Gentleman would refer his remarks to that.
§ Mr. Swayne
My suggestion was that the independent body would clarify issues of resource accounting where they are currently unclear.
§ Mr. Robert Syms (Poole)
Does my hon. Friend consider that any independent body should have both gender balance and ethnic representation?
§ Mr. Swayne
No, I do not, because as my hon. Friend knows, I am gender blind. I have never divided humanity into two antithetical categories whose interests differ. However, I think that it is now proper to return to the discussion of what should constitute that independent body.
I have already rehearsed the arguments with respect to the opportunities afforded by new clause 1(2)(a), (b) and (c). I reiterate my preference for paragraph (c), which would shed a great deal of light on the issues that have been brought before the House this evening.
§ Miss Melanie Johnson
I have listened very carefully to the points raised by Opposition Members and by my hon. Friends. Very few of the points made by Opposition Members had not been made before, and at considerable length. We heard some very reiterative speeches. Perhaps it was typical of the standard of some of the contributions to the debate that the hon. Member for Chichester (Mr. Tyrie), in discussing ripping wheezes—which was probably a ripping wheeze itself—referred to that as an expression that Joel Barnett had used in his book: although it was used and quoted by Joel Barnett, it was dreamed up by Harold Lever. I presume that that was symptomatic of the accuracy of the hon. Gentleman's general grasp of this whole area.
§ Miss Johnson
No, I am giving way to no one.
The Government do not accept that it is necessary to designate an independent body to specify the detailed accounting requirements for resource accounting and budgeting and whole of Government accounts. We believe that our proposals to follow the generally accepted accounting practice gap, modified only as necessary to take account of the specific requirements of resource accounts and the requirement for accounts to present a true and fair view, provide a robust and professional framework for determining departmental accounting policies. All accounting policy issues are subject to the oversight of the Financial Reporting Advisory Board which provides an independent scrutiny and which can, and does, report to Parliament.
My hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) made a good point about Conservative Members' failure to explain the difficulties of the new clause. The Treasury, unlike the proposed independent body, is accountable to Parliament. It is simply not feasible to put Parliament in charge of accounting policies. The Treasury is accountable to Parliament; obviously the independent body would not be. No one managed to address that point in the lengthy speeches in favour of the new clause and the amendments. The Government's policies—
§ Miss Johnson
No, I am sorry; I am not giving way.
The Government's proposals will mean that the Treasury has little discretion in the setting of accounting policies. That is in contrast to the present system, in which the Treasury has almost total freedom to determine the policies to be followed. The proposed system does not require the designation of either an existing body, or a new body, to determine those policies.
A framework has already been put in place—indeed, it was established by the Conservative Government—to ensure that there are limits on the Treasury's discretion. That framework is working—unlike some of the other measures introduced by the Conservatives.
The Maastricht—[Interruption.]—The hon. Member for Ribble Valley (Mr. Evans) asks whether I am taking interventions. He has only just entered the Chamber—no 261 doubt, he has just come back from dinner. I took many interventions during my previous summing-up but given the quality of the debate on this group, I propose—
§ Mr. Deputy Speaker (Mr. Michael Lord)
Order. Hon. Members must not enter the Chamber and shout remarks from sedentary positions.
§ Miss Melanie Johnson
In response to the points made by the hon. Member for Stone (Mr. Cash), who is no longer in the Chamber, the Maastricht convergence criteria are measured on the basis of the European system of accounts definitions. The national accounts prepared by the Office for National Statistics are, and will continue to be, prepared according to those definitions. The problems that the hon. Gentleman foresees are non-existent.
§ Miss Johnson
No, I shall not give way.
On the points made by the hon. Member for Chichester, provision in the resource accounts will be determined in accordance with strict criteria laid down in financial reporting standard No. 12, issued by the Accounting Standards Board.
The hon. Gentleman referred to the place of judicial review. Clause 5 should not give rise to an action for judicial review. It covers only the preparation of resource accounts by Departments. It would be impossible for an individual to identify a decision taken by the Treasury in issuing directions in respect of departmental resource accounts affecting him or her personally that could give rise to such an action.
§ Miss Johnson
I have already pointed out to Opposition Members that I gave way many times earlier. Unfortunately, the quality of the debate does not merit my giving way during its conclusion.
The amendments also specify that the independent body should be given the duty of issuing accounts directions to Departments for resource accounts. That is unacceptable to the Government. Responsibility for the preparation of accounts must lie with the bodies preparing the accounts. In the case of Departments, that responsibility must lie with the Treasury to ensure consistency across Departments. Giving the responsibility to an independent body would lead to a confusion of responsibility. It might 262 also result in conflicts between the requirements of budgeting and public expenditure control operated by the Treasury and the accounting requirements.
It was interesting that several Opposition Members were pushed into difficulties by my hon. Friends. My hon. Friends referred to the independence of the Bank of England and to the fact that the Monetary Policy Committee still operated under guidelines, and pointed out that Opposition Members could cite no parallels in their proposals.
In the "Foreword to Accounting Standards", the Accounting Standards Board acknowledges that prescription of accounting requirements for the public sector in the UK is a matter for the Government. Even the board accepts that.
The new clause and amendments have little to recommend them. I trust that, when they are put to a vote, hon. Members will oppose them.
§ Mr. Flight
The Government are being what I would describe as extremely 18th century on this subject. It is extraordinary to move towards the greater complication of resource accounting without accepting what New Zealand accepted seven years ago and what the overwhelmingly body of opinion in this country accepts. It is in the country's and the Government's interests to move, at the same time, to an independent body to determine accounting principles.
The case made for the new clause and amendments, especially by my hon. Friend the Member for West Dorset (Mr. Letwin), was overwhelming. The hon. Member for Kingston and Surbiton (Mr. Davey) correctly pointed out that we would think it extremely strange if companies' accounting policies were determined by their directors. It was also said that we would not tolerate in local government the approach that is being argued for in respect of national Government. It will be strange if, as is likely, the Government end up using the Parliament Acts to enable the Treasury to continue to cook the books. That will not enhance their reputation.
The point that emerged above all others is that it is in the national interest to take party politics out of public policy on matters such as interest rates, the BBC and the subjects covered by the Bill. It is inevitable that Governments are motivated to cook the books just as they are motivated—if they can—to pursue an interest rate policy in the short term that is designed to help win elections. It is a compliment to this Chancellor of the Exchequer that he has made an art form of that.
New clause 1 is a compromise and would give the Government substantial choice as to how they might constitute an independent body. As the Minister has pointed out, they are halfway to the requirement with the Financial Reporting Advisory Board, although the central issue is that that body remains advisory, so that, without new clause 1, the Treasury will still have the power to do what it wants.
The onus is on the Government to tell us why it is not appropriate and in the national interest to have an independent body. They have not made any convincing arguments of principle either in Committee or in this debate. Their one argument was that there was concern that an independent body might not give proper attention to the public interest. Opposition Members have said that 263 we would accept a reasonable transparency of override by the Treasury. We have also said that it would be appropriate for an independent body to receive the scrutiny of the Public Accounts Committee.
An independent body would offer the proper resolution of the many accounting issues in the public sector which are increasingly difficult to resolve. As others have pointed out, the same logic applies to the new statistics commission, which has been widely welcomed across the nation. It is disappointing that the Prime Minister is now trying to restrict the independent scope of that commission. The Government appear to wish to limit its comments to topics that Ministers have requested it to examine, which means that key issues such as police numbers and hospital waiting lists, which are currently outside the scope of national statistics, will remain excluded.
It is clear that the public are utterly fed up with being given questionable data. They do not believe the data that they are fed. They want accurate, independent data on the Government's performance against their targets, and on the basis of national statistics.
§ Mr. Gordon Marsden (Blackpool, South)
That is an extraordinary argument from a Front-Bench member of a party that fiddled unemployment statistics 21 times during its period in office.
§ Mr. Flight
If the hon. Gentleman had been in the Chamber longer, he would have noted the to and fro on both sides. It is generally conceded that the current Government have made that into an art form, as compared with the previous Government' s attempts. The reason why we want an independent body is that there is an irresistible temptation for all Governments to endeavour to massage data and statistics in any problematical area. New clause 1 is essentially about preventing that from happening.
Democracies need the truth. The public are fed up. I participated in a TV debate on the subject a week ago and was pleased to note that one of the brightest rising members of the Labour party utterly supported the case for an independent body. The risk is that Governments will start misleading themselves, will believe data that are misrepresented and will take wrong policy decisions.
The House might give some thought to the massive new accounting issues that will arise as a result of resource accounting, which should be resolved in a transparent manner: it is in the interest of Governments that they be so resolved. My hon. Friend the Member for West Dorset drew attention to pension liabilities and growing PFI liabilities, as the volume of PFI activity increases. There are the difficult territories of contingent liabilities, Crown immunity and potential NHS liabilities—now running at close to 10 per cent. of budget. There is the issue of whether to account for welfare benefits on a gross or net basis. There are military depreciation and IT depreciation policies, and differences in depreciation policies as between different Government Departments. There is the growing territory of how we account for intellectual property or depreciate it as an asset.
264 As to tangible assets, there are the issues of valuation and revaluation. As current events demonstrate, there is a big accounting issue in relation to BNFL.
§ Mr. Wardle
If resource accounting takes the ultimate form of a consolidated balance sheet for the whole of Government, can my hon. Friend imagine what the notes to the balance sheet would look like with all the contingent liabilities that he has just described? Is it not vital that the CAG has access to every aspect of the spending of taxpayers' money—particularly in respect of contingent liabilities?
§ Mr. Flight
Absolutely right. We will come to that aspect later. It is essential not only that the CAG should have such access but that there should be independent accounting and depreciation policies under which vastly more complicated accounts can be kept. As system that simply relies on an advisory role, when the present system allows different Departments to have different depreciation policies, is non-operable.
Eventually, there will be consolidated resource accounts that are relatively meaningless. Therefore, I would argue that it is not only against the national interest but foolish for Governments not to see the advantages of having the many difficult decisions of principle that need to be taken resolved for them on a properly transparent and open basis. Governments have to take decisions in difficult areas, many of which involve self-evident conflicts of interest between what might be good for them and what might be correct, and a Government who keep them unto themselves will be accused of taking the wrong decisions—indeed, they could be blamed for decisions wrongly taken for wrong reasons, which may prove embarrassing subsequently.
The move to resource accounting will be completely untenable unless the new clause is accepted. Cash accounting has remained for nearly 140 years since being established by Gladstone, largely because it is much less complicated. It is much less difficult to cook the books under cash accounting than under resource accounting, which is why the Government sector is out of date in having reached the millennium with cash accounting—but we are moving to all the complications of resource accounting while leaving decisions to the 18th-century approach whereby the Treasury ultimately says what the accounting principles will be. It will have the power to change depreciation policies during the course of the year: to my mind, that simply does not stand up. In essence, it is absurd not to have the one without the other.
I repeat the point with which I started: the onus must surely be on the Government to put good arguments for not making both changes and for not following the rational route taken by New Zealand, but we have not heard any such arguments from them.
§ Mr. Flight
Not one, as my hon. Friend says. We fully support the new clause, which has cross-party support and wide support outside the House. I suggest that it has wide support in the nation. The Government are misleading themselves if they believe that the considerable increase in the massaging and misrepresentation of figures has been accepted by the voters. I repeat, for the third time, 265 that people are fed up with data on which they cannot rely. In a democracy, they expect accurate data and good figures. We urge the House to support the new clause.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 152, Noes 311.268
|Division No. 91]||[10.58 pm|
|Ainsworth, Peter (E Surrey)||Heald, Oliver|
|Amess, David||Heath, David (Somerton & Frome)|
|Arbuthnot, Rt Hon James||Heathcoat-Amory, Rt Hon David|
|Ashdown, Rt Hon Paddy||Hogg, Rt Hon Douglas|
|Atkinson, David (Bour'mth E)||Horam, John|
|Atkinson, Peter (Hexham)||Howard, Rt Hon Michael|
|Baker, Norman||Howarth, Gerald (Aldershot)|
|Baldry, Tony||Hunter, Andrew|
|Ballard, Jackie||Jack, Rt Hon Michael|
|Bercow, John||Jackson, Robert (Wantage)|
|Beresford, Sir Paul||Jenkin, Bernard|
|Blunt, Crispin||Keetch, Paul|
|Body, Sir Richard||Key, Robert|
|Boswell, Tim||King, Rt Hon Tom (Bridgwater)|
|Bottomley, Peter (Worthing W)||Kirkbride, Miss Julie|
|Bottomley, Rt Hon Mrs Virginia||Kirkwood, Archy|
|Brady, Graham||Lait, Mrs Jacqui|
|Brake, Tom||Lansley, Andrew|
|Brand, Dr Peter||Leigh, Edward|
|Brazier, Julian||Letwin, Oliver|
|Breed, Colin||Lewis, Dr Julian (New Forest E)|
|Brooke, Rt Hon Peter||Lidington, David|
|Browning, Mrs Angela||Lilley, Rt Hon Peter|
|Bruce, Ian (S Dorset)||Lloyd, Rt Hon Sir Peter (Fareham)|
|Burnett, John||Loughton, Tim|
|Burns, Simon||Lyell, Rt Hon Sir Nicholas|
|Campbell, Rt Hon Menzies (NE Fife)||MacKay, Rt Hon Andrew|
|Chapman, Sir Sydney (Chipping Barnet)||Malins, Humfrey|
|Chope, Christopher||Maude, Rt Hon Francis|
|Clappison, James||Mawhinney, Rt Hon Sir Brian|
|Clarke, Rt Hon Kenneth (Rushcliffe)||May, Mrs Theresa|
|Michie, Mrs Ray (Argyll & Bute)|
|Collins, Tim||Moore, Michael|
|Cotter, Brian||Moss, Malcolm|
|Cran, James||Nicholls, Patrick|
|Curry, Rt Hon David||Norman, Archie|
|Davey, Edward (Kingston)||Oaten, Mark|
|Davies, Quentin (Grantham)||O'Brien, Stephen (Eddisbury)|
|Davis, Rt Hon David (Haltemprice)||Ottaway, Richard|
|Dorrell, Rt Hon Stephen||Page, Richard|
|Duncan, Alan||Paice, James|
|Evans, Nigel||Pickles, Eric|
|Fabricant, Michael||Portillo, Rt Hon Michael|
|Fallon, Michael||Prior, David|
|Feam, Ronnie||Redwood, Rt Hon John|
|Flight, Howard||Rendel, David|
|Forth, Rt Hon Eric||Robathan, Andrew|
|Foster, Don (Bath)||Robertson, Laurence|
|Fox, Dr Liam||Roe, Mrs Marion (Broxbourne)|
|Fraser, Christopher||Ruffley, David|
|Gale, Roger||Russell, Bob (Colchester)|
|George, Andrew (St Ives)||St Aubyn, Nick|
|Gibb, Nick||Sanders, Adrian|
|Gillan, Mrs Cheryl||Sayeed, Jonathan|
|Gray, James||Shephard, Rt Hon Mrs Gillian|
|Green, Damian||Simpson, Keith (Mid-Norfolk)|
|Greenway, John||Smith, Sir Robert (W Ab'd'ns)|
|Grieve, Dominic||Soames, Nicholas|
|Gummer, Rt Hon John||Spelman, Mrs Caroline|
|Hamilton, Rt Hon Sir Archie||Spring, Richard|
|Hammond, Philip||Stanley, Rt Hon Sir John|
|Hawkins, Nick||Streeter, Gary|
|Hayes, John||Swayne, Desmond|
|Syms, Robert||Wells, Bowen|
|Tapsell, Sir Peter||Whitney, Sir Raymond|
|Taylor, John M (Solihull)||Whittingdale, John|
|Taylor Matthew (Truro)||Widdecombe, Rt Hon Miss Ann|
|Taylor, Sir Teddy||Willetts, David|
|Tonge,Dr Jenny||Willis, Phil|
|Townend, John||Wilshire, David|
|Tredinnick, David||Winterton, Mrs Ann (Congleton)|
|Trend, Michael||Winterton, Nicholas (Macclesfield)|
|Tyler, Paul||Young, Rt Hon Sir George|
|Wardle, Charles||Tellers for the Ayes:|
|Waterson, Nigel||Mrs. Eleanor Laing and|
|Webb, Steve||Mr. Peter Luff.|
|Abbott, Ms Diane||Cook, Frank (Stockton N)|
|Ainger, Nick||Corbett, Robin|
|Ainsworth, Robert (Cov'try NE)||Corbyn, Jeremy|
|Alexander, Douglas||Corston, Jean|
|Allen, Graham||Cousins, Jim|
|Armstrong, Rt Hon Ms Hilary||Cox, Tom|
|Atherton, Ms Candy||Cranston, Ross|
|Atkins, Charlotte||Crausby, David|
|Austin, John||Cryer, Mrs Ann (Keighley)|
|Barnes, Harry||Cryer, John (Hornchurch)|
|Barron, Kevin||Cummings, John|
|Bayley, Hugh||Cunningham, Jim (Cov"try S)|
|Beard, Nigel||Dalyell, Tarn|
|Beckett, Rt Hon Mrs Margaret||Darling, Rt Hon Alistair|
|Benn, Hilary (Leeds C)||Darvill, Keith|
|Bennett, Andrew F||Davey, Valerie (Bristol W)|
|Benton, Joe||Davidson, Ian|
|Bermingham, Gerald||Davies, Rt Hon Denzil (Llanelli)|
|Berry, Roger||Dawson, Hilton|
|Best, Harold||Dean, Mrs Janet|
|Betts, Clive||Denham, John|
|Blackman, Liz||Dismore, Andrew|
|Blears, Ms Hazel||Dobbin, Jim|
|Blizzard, Bob||Donohoe, Brian H|
|Boateng, Rt Hon Paul||Doran, Frank|
|Borrow, David||Drew, David|
|Bradley, Keith (Withington)||Dunwoody, Mrs Gwyneth|
|Bradley, Peter (The Wrekin)||Eagle, Angela (Wallasey)|
|Brinton, Mrs Helen||Eagle, Maria (L'pool Garston)|
|Brown, Russell (Dumfries)||Edwards, Huw|
|Browne, Desmond||Efford, Clive|
|Buck, Ms Karen||Ellman, Mrs Louise|
|Burden, Richard||Ennis, Jeff|
|Burgon, Colin||Ewing, Mrs Margaret|
|Butler, Mrs Christine||Field, Rt Hon Frank|
|Caborn, Rt Hon Richard||Fisher, Mark|
|Campbell, Ronnie (Blyth V)||Fitzpatrick, Jim|
|Campbell-Savours, Dale||Flint, Caroline|
|Cann, Jamie||Flynn, Paul|
|Caplin, Ivor||Follett, Barbara|
|Caton, Martin||Foster, Rt Hon Derek|
|Cawsey, Ian||Foster, Michael Jabez (Hastings)|
|Chapman, Ben (Wirral S)||Foster, Michael J (Worcester)|
|Chaytor, David||Foulkes, George|
|Clapham, Michael||Fyfe, Maria|
|Clark, Rt Hon Dr David (S Shields)||Gapes, Mike|
|Clark, Dr Lynda (Edinburgh Pentlands)||Gardiner, Barry|
|George, Bruce (Walsall S)|
|Clark, Paul (Gillingham)||Gerrard, Neil|
|Clarke, Rt Hon Tom (Coatbridge)||Gibson, Dr Ian|
|Clarke, Tony (Northampton S)||Gilroy, Mrs Linda|
|Clelland, David||Godman, Dr Norman A|
|Clwyd, Ann||Godsiff, Roger|
|Coaker, Vernon||Goggins, Paul|
|Coffey, Ms Ann||Golding, Mrs Llin|
|Cohen, Harry||Gordon, Mrs Eileen|
|Coleman, Iain||Griffiths, Jane (Reading E)|
|Colman, Tony||Griffiths, Win (Bridgend)|
|Connarty, Michael||Grogan, John|
|Hain, Peter||Mahon, Mrs Alice|
|Hall, Mike (Weaver Vale)||Marsden, Gordon (Blackpool S)|
|Hamilton, Fabian (Leeds NE)||Marshall, David (Shettleston)|
|Hanson, David||Marshall, Jim (Leicester S)|
|Heal, Mrs Sylvia||Martlew, Eric|
|Healey, John||Maxton, John|
|Henderson, Doug (Newcastle N)||Meacher, Rt Hon Michael|
|Henderson, Ivan (Harwich)||Meale, Alan|
|Hepburn, Stephen||Merron, Gillian|
|Heppell, John||Michie, Bill (Shef'ld Heeley)|
|Hesford, Stephen||Miller, Andrew|
|Hewitt, Ms Patricia||Moonie, Dr Lewis|
|Hill, Keith||Moran, Ms Margaret|
|Hinchliffe, David||Morgan, Ms Julie (Cardiff N)|
|Hoey, Kate||Morley, Elliot|
|Hoon, Rt Hon Geoffrey||Morris, Rt Hon Ms Estelle (B'ham Yardley)|
|Hopkins, Kelvin||Mountford, Kali|
|Howells, Dr Kim||Mowlam, Rt Hon Marjorie|
|Hoyle, Lindsay||Mudie, George|
|Hughes, Ms Beverley (Stretford)||Mullin, Chris|
|Humble, Mrs Joan||Murphy, Denis (Wansbeck)|
|Hurst, Alan||Murphy, Rt Hon Paul (Torfaen)|
|Hutton, John||Naysmith, Dr Doug|
|Iddon, Dr Brian||O'Brien, Bill (Normanton)|
|Illsley, Eric||O'Brien, Mike (N Warks)|
|Jackson, Ms Glenda (Hampstead)||O'Hara, Eddie|
|Jackson, Helen (Hillsborough)||Olner, Bill|
|Jamieson, David||O'Neill, Martin|
|Jenkins, Brian||Organ, Mrs Diana|
|Johnson, Alan (Hull W & Hessle)||Palmer, Dr Nick|
|Johnson, Miss Melanie (Welwyn Hatfield)||Pearson, Ian|
|Jones, Rt Hon Barry (Alyn)||Perham, Ms Linda|
|Jones, Helen (Warrington N)||Pickthall, Colin|
|Jones, Ms Jenny (Wolverh'ton SW)||Pike, Peter L|
|Jones, Jon Owen (Cardiff C)||Pond, Chris|
|Jones, Dr Lynne (Selly Oak)||Pope, Greg|
|Jones, Martyn (Clwyd S)||Pound, Stephen|
|Jowell, Rt Hon Ms Tessa||Prentice, Ms Bridget (Lewisham E)|
|Keeble, Ms Sally||Prentice, Gordon (Pendle)|
|Keen, Alan (Feltham & Heston)||Primarolo, Dawn|
|Kemp, Fraser||Prosser, Gwyn|
|Kennedy, Jane (Wavertree)||Purchase, Ken|
|Khabra, Piara S||Quin, Rt Hon Ms Joyce|
|Kidney, David||Quinn, Lawrie|
|Kilfoyle, Peter||Rammell, Bill|
|King, Andy (Rugby & Kenilworth)||Rapson, Syd|
|King, Ms Oona (Bethnal Green)||Reed, Andrew (Loughborough)|
|Kumar, Dr Ashok||Roche, Mrs Barbara|
|Ladyman, Dr Stephen||Rogers, Allan|
|Laxton, Bob||Rooker, Rt Hon Jeff|
|Lepper, David||Rooney, Terry|
|Leslie, Christopher||Ross, Ernie (Dundee W)|
|Levitt, Tom||Rowlands, Ted|
|Lewis, Ivan (Bury S)||Ruane, Chris|
|Lewis, Terry (Worsley)||Russell, Ms Christine (Chester)|
|Lloyd, Tony (Manchester C)||Ryan, Ms Joan|
|Llwyd, Elfyn||Savidge, Malcolm|
|Love, Andrew||Sawford, Phil|
|McAvoy, Thomas||Sedgemore, Brian|
|McCafferty, Ms Chris||Sheerman, Barry|
|McCartney, Rt Hon Ian (Makerfield)||Short, Rt Hon Clare|
|Simpson, Alan (Nottingham S)|
|McDonagh, Siobhain||Singh, Marsha|
|Macdonald, Calum||Skinner, Dennis|
|McDonnell, John||Smith, Rt Hon Andrew (Oxford E)|
|McFall, John||Smith, Angela (Basildon)|
|McGuire, Mrs Anne||Smith, Miss Geraldine (Morecambe & Lunesdale)|
|McNulty, Tony||Smith, Jacqui (Redditch)|
|MacShane, Denis||Smith, Llew (Blaenau Gwent)|
|Mactaggart, Fiona||Snape, Peter|
|McWalter, Tony||Southworth, Ms Helen|
|McWilliam, John||Spellar, John|
|Squire, Ms Rachel||Turner, Dr Desmond (Kemptown)|
|Starkey, Dr Phyllis||Turner, Dr George (NW Norfolk)|
|Steinberg, Gerry||Turner, Neil (Wigan)|
|Stevenson, George||Twigg, Derek (Halton)|
|Stewart, David (Inverness E)||Twigg, Stephen (Enfield)|
|Stewart, Ian (Eccles)||Tynan, Bill|
|Stinchcombe, Paul||Vis, Dr Rudi|
|Stoate, Dr Howard||Walley, Ms Joan|
|Strang, Rt Hon Dr Gavin||Ward, Ms Claire|
|Stringer, Graham||Watts, David|
|Stuart, Ms Gisela||Whitehead, Dr Alan|
|Sutcliffe, Gerry||Williams, Rt Hon Alan (Swansea W)|
|Taylor, Rt Hon Mrs Ann (Dewsbury)|
|Williams, Alan W (E Carmarthen)|
|Taylor, Ms Dari (Stockton S)||Williams, Mrs Betty (Conwy)|
|Taylor, David (NW Leics)||Winnick, David|
|Temple-Morris, Peter||Winterton, Ms Rosie (Doncaster C)|
|Thomas, Gareth (Clwyd W)||Woodward, Shaun|
|Thomas, Gareth R (Harrow W)||Wray, James|
|Timms, Stephen||Wright, Anthony D (Gt Yarmouth)|
|Tipping, Paddy||Wright, Dr Tony (Cannock)|
|Todd, Mark||Wyatt, Derek|
|Trickett, Jon||Tellers for the Noes:|
|Truswell, Paul||Mr. Jim Dowd and|
|Turner, Dennis (Wolverh'ton SE)||Mr. Kevin Hughes.|
§ Question accordingly negatived.