PAYMENTS FOR SERVICE OF NATIONAL DEBT (Hansard, 1 July 2003)

§ Mr. Flight
I beg to move amendment No. 5, in page 138, line 41, leave out subsection (3) and insert— (3) For subsection (3) substitute— '(3) For the purposes of making their determination under subsection (1)(b) the Treasury shall be required to apply generally accepted accounting practices in determining whether all or part of any payments represent such interest as is referred to in that subsection.'.".

§ Madam Deputy Speaker (Sylvia Heal)
With this it will be convenient to discuss the following amendments: No. 6, in clause 208, page 139, line 10, at end insert— , such determination to be made in accordance with generally accepted accounting practice.'.". No. 7, in clause 209, page 139, line 17, leave out 'the Treasury consider appropriate' and insert conforms with generally accepted accounting practice.".

§ Mr. Flight
There was not time in Committee to address the amendments, which contain important points of principle. Clause 207 allows the Treasury to determine which payments should be classified as payments of interest on the national debt to allow the existing out-of-date definition to be updated, but there is no indication of the way in which the Treasury will decide what should be treated as interest. There is no obligation to determine whether the true nature of a payment is in whole, or in part, disguised interest. Indeed, is it envisaged that part of the payments to Departments should be recategorised as interest when they are effectively borrowing, for example, through the private finance initiative? It can be argued that that should be the case.
Amendment No. 5 would set an obligation on the Treasury to make any determination on the basis of generally accepted accounting practice. The national debt should be accounted for to the same standard as any other liability. In the wake of the Government's tricks to keep Network Rail off balance sheet, so causing the appalling management problems that have ensued, I regret to say that the good faith of the Government cannot be taken for granted. It is necessary to ensure that they are not tempted to disguise the extent of the cost of servicing the national debt.
260 Clauses 208 and 209 allow the Treasury to determine the assets of the national loans fund and the form and content of the accounts of the Consolidated Fund and the national loans fund. Again, that needs to be subject to appropriate constraint. Those are national accounts and the basis of their preparation should not be left to the determination of the Treasury without any requirement to adept generally accepted accounting practices. It should not be possible to move assets and liabilities off balance sheet. Accounts should be accurate and prepared in accordance with accepted principles. I hope that the Minister will at least address those issues by putting on the record an undertaking on both counts.

§ John Healey
I welcome the generally sober way in which the hon. Member for Arundel and South Downs (Mr. Flight) has approached these matters. The amendments are directed to clauses that are of central importance to Parliament and the ability of Parliament to hold the Executive to account, and they deserve that recognition.
I shall explain why the amendments will compromise the objectives that we have for the clauses and why, if the hon. Gentleman wishes to press them to a vote, I would ask my right hon. and hon. Friends to resist. The amendments would require the Treasury to conform to generally accepted accounting practice—GAAP—when counting for the operations of both the Consolidated Fund and the national loans fund. There are three reasons for asking the House to resist the amendments that would put that requirement in the Bill.
First—I hope that the hon. Gentleman will welcome and accept this—the Government are committed to preparing their accounts in accordance with GAAP, subject to such adaptations that are necessary in the context of the public sector. That is as true for the national loans fund accruals-based account as it is for departmental resource accounts. However, as GAAP is not designed with either the particular needs of Government accounts or the complex legislative framework governing the NLF in mind, the Treasury needs the flexibility to depart from it where strict adherence to GAAP would not be sensible. This is in line with the position already accepted for the debt management account, with which the NLF is closely linked.
I can assure hon. Members that the Treasury will use its discretion responsibly and will use it in the public interest. Also, Parliament's position is properly protected because the NLF account will still be audited by the Comptroller and Auditor General, who can bring any matters of concern to the attention of Parliament.

§ Adam Price (East Carmarthen and Dinefwr)
Will the Minister give way?

§ John Healey
The hon. Gentleman has only just come into the Chamber but I will of course, give way to him.

§ Adam Price
That is kind of the Economic Secretary. Will the Treasury publish reasons for departing from general accounting practice where it needs to do so?

§ John Healey
If the hon. Gentleman holds his fire and has a little patience, he will find that I shall go further than that.
261 First, the Treasury is currently discussing the format of accounts in detail with the National Audit Office, which is content with the structure of the amending clauses in the Bill. Secondly, the Government see no need at present to draw up the accounts for the Consolidated Fund on an accruals basis. As the hon. Member for Arundel and South Downs knows as well as anyone, the Consolidated Fund is essentially a bank account that receives the proceeds of taxation and funds the spending of Government Departments. The Treasury will therefore continue to account for those flows on a simple receipts and payments basis. Again, the NAO is content with this proposition, which reflects the nature of the account.
I shall give the House a further reassurance. The Treasury will set out its detailed proposals for the Public Accounts Committee and the Treasury Select Committee before making an order to abolish the requirement to produce the supplementary statements.
Thirdly, in the context of amendment No. 5, the law currently allows the Treasury to define income items as if they were interest receipts for the purposes of determining the transfer from the Consolidated Fund to the national loans fund in respect of net debt costs. However, there is no flexibility at present within the law whereby expenditure items are similarly treated. Hence we cannot at present treat discounts on gilt issues as expenditure items for the purpose of the standing service payment from the Consolidated Fund to the NLF. The proposed change rectifies that. We have discussed the proposed legislative changes and the income expenditure treatment of individual types of transaction with the NAO, which, once again, is content. In this context, GAAP has no bearing on whether a particular payment should be treated as interest for the purpose of calculating the deficit on the NLF's net debt servicing flows, as that is met by the consolidated fund. The amendment would therefore not achieve the desired effect, so I encourage the hon. Member for Arundel and South Downs not to seek to press it to a vote.

§ Mr. Flight
I thank the Minister for his comments. In view of our wish to discuss schedule 21, I shall not respond further, and beg to ask leave to withdraw the amendment.