Grand Committee Report of 12 June 2000

Official Report of the Grand Committee on the Government Resources and Accounts Bill
Monday, 12th June 2000.
The Committee met at half-past Four of the clock.
[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]
The Deputy Chairman of Committees (Lord Ampthill): Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard.
The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.
I should explain what will happen if there is a Division in the Chamber while we are sitting. This Committee will adjourn as soon as the Division Bells are rung and will then resume after 10 minutes.
Title postponed.
Clause 1 agreed to.
Clause 2 [Appropriation in aid]:
On Question, Whether Clause 2 shall stand part of the Bill?
Lord Higgins: I rise to oppose the Question that Clause 2 shall stand part of the Bill. I do so in a probing sense as Clause 2 raises various points that ought to be considered before we agree that it should stand part of the Bill.
Perhaps I may make one or two preliminary remarks. I congratulate the noble Lord, Lord McIntosh of Haringey, on his stamina, if not on his versatility, as the Bill is not totally dissociated from that which was debated on the Floor of the House a few moments ago. As we know from Second Reading, the Bill is unusual. Some of the legislation with which it is concerned dates back to 1866. In that context I am slightly unnerved to see the noble Lord, Lord Barnett, in his place as it is probably a quarter of a century since were opposite each other in a committee of either House. I should also like to thank the noble Lord, Lord McIntosh, for the briefing which he has provided for myself and others on what is clearly a technical Bill and one on which, broadly speaking, there is agreement as to the basic purpose, which is to
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introduce into our parliamentary proceedings resource accounting and resource budgeting. Having said that, there is also broad all-party disagreement on a number of aspects of the Bill to which one will be able to return a little later in our proceedings.
I turn immediately to Clause 2 and raise a detailed point. Your Lordships' House is a revising Chamber and a number of the points we shall be considering are ones which have already been considered in another place. My concern about the clause relates to appropriations in aid. This procedure goes back into the distant past and probably has rarely been questioned. However, having read the Explanatory Notes, which I should also say are extremely helpful, the proposals which are made with regard to Clause 2 raise one or two particular points.
It is pointed out that, under resource accounting, appropriations in aid will be recorded on an accruals basis—that is to say, it will be recognised when the income is earned—rather than on a cash basis, as is the case at the moment, and additional provisions are required to deal with the cash effects of appropriations in aid. I am not clear what is the rationale for this, because we are going from a cash to an accrual system; but if we look at this clause and the one that follows it would seem that, having decided to do so, we then take proposals that will reverse that and reinstate the original proposition. At all events, there is some concern about the idea that one should have appropriations in aid and effectively net off the amounts of revenue that a department happens to come into before reaching a net figure that Parliament has then approved. One has to ask what precisely is the justification for this arrangement, particularly, as I understand it, we are moving towards a computerised system. If the department receives money, it might be better simply to pay it straight into the Exchequer and, if amounts have to be approved for future expenditure, to have a movement in the opposite direction.
There are other problems. If we are to have a system where cash flow is achieved on an accruals basis, again the case for appropriations in aid seem to be difficult to appreciate.
A final point that needs to be made is the extent to which under the new system, any movement of the kind that is now proposed will have an effect on the PSBR—presumably not on a vast scale, but none the less to some extent. That is a detailed point. Many of the others that we shall consider are of much greater importance, but it is worth raising the question of why we are perpetuating a system of appropriations in aid when it may be simpler to deal with the matter more directly.
Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Higgins, for the explanation of his challenge to Clause 2. I want to try to answer him, although I am slightly puzzled by some of the points that he makes. Perhaps the best thing is for me to set out what Clause 2 does and then seek to answer the points that he raised.

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As the noble Lord, Lord Higgins, recognises, under resource accounting appropriations in aid will be recorded on an accruals basis. It will be recognised when the income is earned, in contrast to the current system where appropriations in aid are recognised on a cash basis when the cash is actually received.
The new system and the clause is considerably more complex than the regime it replaces. As well as introducing accruals appropriations in aid it has to include additional provisions to deal with the continuing cash effects of appropriations in aid. It is perhaps those provisions that have caused the noble Lord, Lord Higgins, to say that there appear to be movements in the other direction, which is not the case.
The current process whereby the Treasury directs, by Treasury minute, what can be used as appropriations in aid will be retained. Under resource account budgeting it will direct that income on a resource basis may be applied as appropriations in aid of resources authorised by Parliament to be used for the purposes; that is, "the service" of a particular year. This is subject to the overall limits on the amounts of appropriations in aid that have been approved by Parliament and are set out in the relevant appropriation Act.
Special provisions are needed to deal with the cash consequences of resource amounts that have been authorised for use as appropriations in aid. Timing differences between the recognition of appropriations in aid on a resource basis and the actual receipt of cash require special provisions for dealing with the cash.
Subsection (4) applies in the situation—which should apply in the great majority of cases—where cash is received in the same financial year as the resource appropriations in aid is authorised. In this case the cash can be retained by the department, provided it is used for the purpose authorised in the Treasury direction. If it cannot be used in that way, subject to the timing differences dealt with in subsection (5), the associated income being in excess of the amount authorised as appropriations in aid, then the cash must be surrendered to the Consolidated Fund.
Subsection (5) applies in cases where cash is received in a year other than that for which the related resource appropriations in aid is authorised. This might happen where the time between the recognition of the income inclusion as resource appropriations in aid and the payments by the debtor straddle the end of the financial year; or, similarly, where payment is received in advance of the department carrying out the service to which it relates—the resource appropriations in aid will not be recognised until the service is carried out and the income thereby earned—and these events falling into different financial years. Under those circumstances, subsection (5) will enable the cash to be used towards the authorised purposes of the year in which it is received. If that is not possible, then it will be surrendered to the Consolidated Fund. The ability to use this cash will affect the department's cash flow
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for the year—and therefore allow it to make payments early or alternatively reduce the amount it has to draw out of the Consolidated Fund—but it will not increase the level of resources available to the department in that year.
This is a complex clause. However, the regime which it will put in place is consistent, in principle, with existing appropriations in aid arrangements and will enable a vital element of the RAB—the recognition of income on an accruals basis—to be put into place while also ensuring continued parliamentary control over a department's income.
The noble Lord said that parts of the clause, and perhaps parts of the succeeding clause—I am not quite clear on that point—appear to go in the other direction and appear to move from resources to cash. I cannot find them so perhaps he will be able to help me on that point. Before he does, perhaps I may say a few words about the appropriations in aid being netted off. That cannot happen. Parliament approves appropriations in aid and the amounts of appropriations in aid are voted on and approved by Parliament with no loss of parliamentary approval.
Lord Higgins: I am grateful to the Minister for that explanation. One would obviously wish to read it very carefully as this is an extremely technical point. None the less, I am not clear even now—we have probably not considered it for many years—what the argument is for proceeding on an appropriations in aid basis rather than simply paying into the Consolidated Fund whatever is received and allocating funds in the opposite direction.
I take the Minister's point in relation to cash flow. However, we seem to be getting into a situation where the old system is being changed to an accruals basis and one is then making adjustments to get back to the point where one takes account of when the cash is paid. The arrangements proposed in the Bill seem to have some implications for the cash flow of individual departments. If we are to move to a system where cash flow is given greater prominence, then I am not clear what the advantage of that is.
Lord McIntosh of Haringey: There are two alternatives. One is under subsection (4) when the money is received in the year for which it is authorised, in which case the noble Lord, Lord Higgins, may agree that there is no problem. The other is when it is received in a year other than that for which the appropriation in aid is, or is to be, authorised. In that case, we are saying that it is retained and applied as a use of resources authorised under the appropriation Act for the service of the year in which it is to be received. If that is not possible, or if it is not the right thing to do—in other words, if there is a surplus—it goes into the Consolidated Fund where, presumably, it earns interest for the Government.
If we had anything other than that division between those two sections, Parliament would be continuously allocating and authorising in dribs and drabs. By dividing it into those two sections, in and out as it were, we are avoiding the need constantly to refer back to

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Parliament for cash for specific purposes. At the same time, we are achieving the control which Parliament needs to be sure that a department is receiving only what it needs within a year for the expenditure that has been authorised or, if it is receiving it out of the year, that there is a control of it in the sense that it is held for the purposes authorised by the appropriation Act. If that is not appropriate, it is put into the Consolidated Fund.
There does not seem to be a meeting of minds on this matter. I had better write to the noble Lord, Lord Higgins, about it between now and Report stage.
4.45 p.m.
Lord Higgins: It may be helpful to have that as a separate discussion outside the Chamber before Report stage. On that basis, I would not wish to pursue the matter.
Clause 2 agreed to.
Clause 3 [Payments out]:
Lord McIntosh of Haringeymoved Amendment No. 1:
Page 2, line 16, after ("requisition") insert (", request").
The noble Lord said: In moving Amendment No. 1 I shall speak also to Amendments Nos. 2 and 3. These amendments provide for a new clause to replace Clause 4 and minor consequential amendments to Clause 3. The amendments have been agreed by the National Audit Office.
They would permit the Treasury to repay, with the agreement of the Comptroller and Auditor General, money which,
"should not or need not have been paid into the Fund".
"The Fund" is now defined to include the National Loans Fund as well as the Consolidated Fund.
A specific statutory power is needed to make any payment out of the Consolidated Fund or the National Loans Fund. In addition, all such payments, except for transfers between the two funds, require the prior approval of the Comptroller and Auditor General, technically known as "credit", or authority to pay. This presents a problem when sums are credited to either fund in error and ought to be repaid.
As the law stands at present, there is no power to repay any sums of money that are paid into either the Consolidated Fund or the National Loans Fund but should not have been—I do not know how we have got away with that for so many years but perhaps my noble friend Lord Barnett can enlighten me on that point—so any such sums are effectively imprisoned inside the fund concerned. This has occasionally caused problems, so the Government believe that it would be sensible to provide a power to refund such sums from the National Loans Fund as well as the Consolidated Fund.
As our original intention was simply to modernise the provisions of the Exchequer and Audit Departments Act 1866 relating to the Consolidated Fund, we originally sought only a power to repay sums credited in error to the Consolidated Fund. The main example we had in mind was where departments
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surrender receipts that they believe are surplus to their needs, but which subsequently they find they need in order to avoid incurring an excess vote. However, other payments could be credited to the Consolidated Fund in error, so we sought a general power to repay sums credited in error to the Consolidated Fund. That is what the present Clause 4 provides.
We now wish to change this for two reasons. First, there is a need for a similar power for the National Loans Fund. Secondly, discussions with the National Audit Office and our lawyers have led to the conclusion that the term "as the result of an error" would not have provided the desired degree of flexibility—hence the new formulation,
"should not or need not have been paid into the Fund."
I beg to move.
Lord Higgins: The Committee is grateful for that explanation, but it really brings us back to the point we were making a moment or two ago. Would it not be much easier, instead of having appropriations in aid, which are then sometimes hung onto wrongly and sometimes remitted wrongly and in error, simply to allow that whenever there is an amount going from one department to the central Exchequer, even if one needs the money to meet something which has been authorised by Parliament, one does so. It does seem rather complicated to have these amendments. I accept that they have been, apparently, approved by the National Audit Office—that does not worry me at all. The fact that they are approved by the department's lawyers may worry me a little more. It does seem that this is a very complex way of dealing with a problem with which perhaps one could deal in a simpler manner.
I do not wish to oppose these amendments. None the less, it is a strange situation. I am not at all clear what happens to anyone who may have made such a payment in error and whether any penalty is imposed.
Baroness Sharp of Guildford: I join the noble Lord, Lord Higgins, in being somewhat surprised at the sheer complexity of these procedures. We certainly would not oppose this element of modernisation, but I would ask this question. In subsection (2)(a) of new Clause 4, is there any specific reason why the word "requisition" is used rather than "request"?
Lord McIntosh of Haringey: We use both words: "requisition" appears in subsection (2)(a) and "request" appears in subsection (3)(a). In practice there is no difference between the two words but they are used in preceding legislation. It is probable that if we changed them now we would have to change all kinds of other parts of the preceding legislation. The Committee would not wish us to table more government amendments.
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendment No. 2:
Page 2, line 21, after ("requisition") insert (", request").
On Question, amendment agreed to.
Clause 3, as amended, agreed to.
Clause 4 [Payments in by error]:
Lord McIntosh of Haringeymoved Amendment No. 3:
Leave out Clause 4. and insert the following new clause—
PAYMENTS IN BY ERROR
(" .—(1) Where—

(a) money is paid into the Consolidated Fund or the National Loans Fund, and

(b) the money should not or need not have been paid into the Fund,

all or any part of the money may be paid out of the Fund in accordance with this section.
(2) In the case of the Consolidated Fund—

(a) the Comptroller and Auditor General shall on receipt of a requisition from the Treasury grant a credit on the Exchequer account at the Bank of England (or on its growing balance), and

(b) an issue shall be made on orders given to the Bank by the Treasury in accordance with a credit granted under paragraph (a).

(3) In the case of the National Loans Fund—

(a) the Comptroller and Auditor General shall at the request of the Treasury grant a credit on the National Loans Fund, and

(b) a payment out of the Fund shall be made by the Treasury in accordance with a credit granted under paragraph (a).

(4) A payment or issue made under this section shall be recorded in—

(a) the daily account under section 15(5) of the Exchequer and Audit Departments Act 1866 (Consolidated Fund), or

(b) the daily statement under section 1(2) of the National Loans Act 1968 (National Loans Fund).").

On Question, amendment agreed to.
Clause 4, as amended, agreed to.
Clause 5 [Resource accounts: preparation]:
Lord Higginsmoved Amendment No. 4:
Page 2, line 42, leave out from ("year") to end of line 1 on page 3 and insert ("providing—

(a) a statement of income and expenditure of the department for the year,

(b) a balance sheet showing assets and liabilities of the department for the year which complies generally with accepted accounting practice,

(c) a cash flow statement of the department for the year highlighting the significant components of cash flow in accordance with generally accepted accounting practice, and

(d) a statement of the department for the year showing, as regards each voted item, any amount authorised to he used in the year, the amount actually used, and an explanation of any difference between authorised use and actual use.

(1A) A statement of income and expenditure provided under subsection (1)(a) shall give a true and fair view of the net income and expenditure of the department in the year to which the statement relates and a balance sheet provided under subsection (1)(b) shall give a true and fair view of the state of affairs of the department as at the end of the year to which the balance sheet relates.").
The noble Lord said: We come now to Clause 5 which is obviously a very important provision. In moving Amendment No. 4 it will be convenient to speak also to Amendments Nos. 5 and 7. Clause 5 is concerned with the preparation of resource accounts. Effectively, we suggest that as drafted the clause, which extends to almost a whole page of the Bill, includes some very important aspects. If I may turn to the main part of the Bill, as opposed to the technical matters which we debated earlier, I should like to make one or two rather general points. As I said at Second Reading, there is here a missed opportunity. Although the Government put forward proposals on resource accounting, in a number of instances in this and subsequent clauses they could well have incorporated other ideas, particularly with regard to auditing. At Second Reading the Minister said that a study group was to be set up under the chairmanship of the noble Lord, Lord Sharman. That in turn will report to a group which consists of the Chief Secretary, the chairman of the Public Accounts Committee, and presumably others, to deal with these specific points. At this or perhaps a later stage the Minister may be able to indicate whether the terms of reference of that body are yet known; and, if so, what they are.
Even at this early stage of the Bill perhaps one may ask for an indication about timing, which is important. We welcome the fact that the Government are to proceed with resource accounting. However, they are subject to a fairly tight schedule. One is aware from the reports of the Public Accounts Committee that a timetable has been set. There are doubts as to whether the provisional timetable will be met. For that reason I said at Second Reading that there might be a case for considering whether the changes proposed in particular by the National Audit Office and the Public Accounts Committee should be incorporated in this Bill. The noble Lord was kind enough to express the view in writing that, because of the timetable relating to the technical aspects, it would be inappropriate to delay the passage of the Bill in order to ensure that some of the proposals which might be made by the study group under the chairmanship of the noble Lord, Lord Sharman, by the Chief Secretary and by the chairman of the PAC were incorporated in the legislation. I understand his concern about that matter. However, the Committee might be assisted to have the Minister's view on timing.As far as concerns this particular set of amendments, we suggest that the Bill, as drafted, is not quite as specific as perhaps it might be. Our proposals suggest more specific terms for the way in which the departmental accounts might be prepared in line with commercial accounting practice, but with any necessary adjustments.
The Bill as it stands, and in particular most of page 3 of the Bill, would seem to be somewhat incomplete with regard to the specification of the way in which the accounts will be prepared. We will return to consider who might reasonably define the various accounting concepts involved. Having said that, there would be some case for amending the Bill in the way in which the three amendments to which I have referred seek to do.
There is also the question of cash. Clearly cash control remains a vital aspect. It is one matter for the House to have the advantage of resource accounting, but cash will remain a key control. We are not precisely clear how that will operate within the context of Clause 5. I beg to move.
The Deputy Chairman of Committees: If this amendment is accepted I cannot call Amendment No. 5, which will have been pre-empted.
Baroness Sharp of Guildford: I join the noble Lord, Lord Higgins, in regretting the timing of the Bill. It is somewhat unfortunate that the Sharman committee is being set up at a time when the Bill is being pushed through, but I also understand that the Government are anxious to see the Bill on the statute book and in many senses feel it is long overdue on the statute book. If I may say so, it has taken quite a time to get through.
On the specific amendment, one of the features of the Bill, as the noble Lord, Lord Higgins, said, is the wide interpretation that can be put on some of the words that are used. We are moving over to accruals accounting and yet the terms used in Clause 5(1)(a) are,
"resources acquired, held or disposed of by the department during the year".
It is so wide, so generalised, that I have a great deal of sympathy with the amendment, which seeks to make the provision far more specific. Indeed, what is interesting is that the Explanatory Notes on this clause ask what resource accounts are. Resource accounts consist of five major statements, including a statement of out-turn, an operating cost statement, a balance sheet, a cash flow statement. This is precisely what we are seeking in the amendment. In other words, the amendment fleshes out the words in the Bill, using the structure suggested in the Explanatory Notes to flesh them out. That seems to be a thoroughly good thing to do.
The aim of the Bill is to bring government accounts into line with modern accounting practice. Terms such as statutes, income and expenditure, assets and liability, balance sheet, are very well understood. When this matter was discussed in Committee in the other place, it was suggested that these are not words that the general public understand. If I may say so, the general public understand these words far better than they understand the words "resource accounting", or the broad term the,
"resources acquired, held or disposed of by the department".
It seems sensible to call a spade a spade and put in precisely what we mean rather than not.
At the centre of all this is the concept of cash flow. We are in the process in the Bill of abolishing appropriation accounts, which is essentially cash expenditure against the supply vote in cash. The latter has not been abolished and we need a very clear statement, therefore, of cash flow. That is what the amendment seeks to do.
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It is not good enough simply to say, as in the other place, when the Economic Secretary to the Treasury responded with the words, "This is what we are going to do anyhow". If that is the case, let us have it on the face of the Bill.
5 p.m.
Lord Naseby: I very much support Amendment No. 4. I do not wish to add to the points that have been made as they were put succinctly. Nevertheless, I wish to add my voice of support. When the Minister responds I hope that he will deal with the points made from both sides of the Committee. I am mindful of the fact that when they were Members of another place three noble Lords were involved in preparations for and revisions to the National Audit Act 1983. The degree of consultation at that time was very considerable. Although there was argument on some of the final details, the preparation for that legislation, and the consultation on it, was quite extensive.
My worry is that, as I understand it, the Sharman committee is to report towards the end of this year and yet the Bill is likely to be on the statute book before the Summer Recess. The difference is only a matter of months. If some important points emerge 1rrom the steering group which address the matters raised by the National Audit Office and Public Accounts Committee, it must be in the interests of Parliament that they are implemented. I ask the Minister how they are to be implemented, bearing in mind that legislative time is always restricted. One wonders, therefore, whether there should be a statement from the Government either that there will be a very short, amendment Bill or that the whole matter will be rolled over to the next Session with a commitment on all sides that the issue be dealt with speedily. However the Minister responds, it is of great importance that whatever comes out of the Sharman review gets onto the statute book quickly, since it is likely 10 be of significance to Parliament in its control of public expenditure.
Viscount Bridgeman: I very much support what my noble friend Lord Naseby has just said about the timing of the report of the Sharman committee. We made that point quite forcefully at Second Reading. At this stage it may be appropriate to consider the question of the valuation of Ministry of Defence assets. Perhaps the Committee will permit me to read paragraph 3.2.13 of Resource Accounting and Budgeting:
"The normal basis of valuation may not be appropriate if a modern substitute is markedly different in its cost, life or output, or where technological advances have resulted in likely replacements having significantly improved quality or quantity of outputs. Under such circumstances, it will be necessary to undertake a 'modern equivalent asset' calculation to arrive at a replacement cost for the asset".
While that is an acceptable accounting treatment, the problem with Ministry of Defence assets is that potentially modern substitutes for military equipment vary enormously in nature, cost and timing depending on the particular defence needs of the country at the time and the military capabilities of potential

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aggressors. For example, a new tank developed by a potential enemy could well render obsolete virtually overnight anti-tank weaponry, and if there is any question of involvement in Star Wars expenditure one is talking about huge numbers. I also refer to intellectual property exchange which is a big feature of co-operation, in particular with the United States. There is also the complicated question of sharing expenditure with other countries whose treatment of it will be markedly different one from the other.
My noble friend Lord Higgins and the noble Baroness, Lady Sharp, are concerned that, as presently drafted, the Bill gives the Treasury wide powers to determine accounting treatment. Ministry of Defence assets are a particular case. It is our strong wish that that appears on the face of the Bill. This is a knotty problem which must not be swept under the carpet.
Lord McIntosh of Haringey: Before I turn to the amendment, I should like to comment on some extraneous matters relating to the Sharman report which were raised first by the noble Lord, Lord Higgins, and then by the noble Lord, Lord Naseby, and the noble Viscount, Lord Bridgeman. These are the matters relating to the Sharman report. The Sharman group will report to a committee which consists not only of the Chief Secretary and the chairman of the PAC, but also other members. Those other members are now being approached and, as soon as we have agreement as to who they will be, we will publish all the details.
The noble Lord, Lord Higgins, asked also about the terms of reference for the group. It has only been in being for a short time, but the noble Lord, Lord Sharman, is working on it. Terms of reference are being agreed and will be made public as soon as possible.
As to when the group will report, we are working on it being towards the end of the year. The noble Baroness, Lady Sharp, will appreciate that, if we were to delay the Bill even by the six months between now and the end of the year, we would in effect lose a whole year of moving towards resource accounting. Not only that, but we would also lose a whole year in which nothing could happen, and we might possibly even have to go backwards because these are cumulative, incremental steps towards the changeover. We cannot simply take a year out and say, "Hold your breath for a year", and hope that it will all work out afterwards. It is important that we go ahead with this Bill, even though the Sharman committee has not yet reported.
As to what action we should take afterwards and whether or not there would have to be separate legislation, that depends of course on what the noble Lord, Lord Sharman, says. We simply do not know what he will recommend. He may say that his report is about government audit and not about resource accounting; he may say that everything is wonderful and that there is no reason for any change. In that case it would be rather foolish of us to indicate now what legislative or other action we would take as a result.
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I turn now to the amendments. The Government already have a robust and professional framework for determining the accounting requirements for resource accounts. This Government also believe that we have put in place important improvements in the amount of available information on departmental performance. These amendments seek to replace general and unchanging references—I know that the noble Baroness, Lady Sharp, does not like them but they are perfectly clear—to,
"resources acquired, held or disposed of",
and resources used. That seems to me to be entirely clear and it is deliberately more general than current accounting practice. The amendments seek to replace those general and unchanging references with a specific reference to current accounting statements. They freeze the Bill with the accounting standards at the date of Royal Assent.
We assume that this legislation, once passed, will last for a long time. The amendments would mean that it could become outdated as accounting standards change and the accounting statements mentioned may not be appropriate to all resource accounts in the future. The Government are committed to following best accounting practice, but they do not have a great deal of freedom to manoeuvre. The financial statements prepared under resource accounting will, as far as is possible taking account of the specific circumstances of departmental accounts, follow the requirements of generally accepted accounting principles. Those can change over time, as shown by the Accounting Standards Board's recent consultation on reporting financial performance. It has been consulting on the proposal to combine the profit and loss accounts with a statement of total recognised gains and losses. If that were to be adopted, the amendment would immediately be out of date and refer to a standard which was no longer generally accepted accounting practice. We never want to find ourselves in a position where we are unable to follow generally accepted accounting practice in order to comply with the requirements of this code.
Having said that, the Government were sympathetic to a number of the proposals contained in Amendment No. 4 when it was originally proposed in Committee in another place. The Government brought forward amendments at Report stage in another place to make the necessary changes to the Bill.
Paragraph (d) of Amendment No. 4 would require differences between the amounts authorised in the estimates and those actually used to be shown and explanations of the variances given. That is, in effect, a restatement of the current requirements as set out in Section 26 of the Exchequer and Audit Departments Act 1866. The Government brought forward an amendment at Report stage to reintroduce it as a legal requirement in Clause 5(3)(c). The amendment would also require the income and expenditure account and the balance sheet under resource accounts to show a true and fair view. The Government have always accepted that they should and indeed we go further in believing that the accounts as a whole should show a true and fair view.

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We have not proposed making this a statutory requirement as we believe that it was implicit in the requirement in Clause 5(3) that resource accounts should comply with G.AAP. However, following the discussion on the matter in Committee in another place, the Government brought forward further amendments at Report stage requiring the resource accounts to show a true and fair view. This is now Clause 5(3)(a) of the Bill.
The Government believe that the existing provisions of Clause 5(3), which require resource accounts to show a true and fair view, comply with GAAP—subject to the adaptations necessary in the context of departmental accounts—and explain variances between estimated and actual amounts, will ensure compliance with best accounting practice while retaining sufficient flexibility to enable resource accounts to adapt as the requirements of GAAP change over time.
I am not at all sure what Amendment No. 5 is intended to achieve. The requirements in Clause 5(3) that resource accounts show a true and fair view and follow generally accepted accounting practice—modified only as necessary—ensure that best accounting practice will be followed. I can assure the Committee that the Government will determine their accounting policies with regard to accounting for liabilities in accordance with relevant accounting standards—in particular Financial Reporting Standard 12. The accounting policies will have to pass the scrutiny of the Financial Reporting Advisory Board and the accounts prepared following the policies will be subject to audit scrutiny by the National Audit Office.
Amendment No. 7 is even more puzzling. I have explained how the requirements of Amendment No. 4 have been achieved by government amendments that introduce Clause 5(3). Amendment No. 7 would take out Clause 5(3). It is this subsection which, for the first time, will place a statutory duty on departments to follow best accounting practice in preparing their accounts. Leaving it out would have the effect of giving the Treasury almost unfettered discretion—which is what the noble Viscount, Lord Bridgeman, thought we had—to determine the form and contents of the resource accounts; precisely what I thought concerned Opposition Peers.
Ultimately the accounting policies adopted by departments must be consistent with the Resource Accounting Manual and will have to stand up to audit by the Comptroller and Auditor General who will, of course, be free to report to Parliament—and, if necessary, to qualify accounts—where he does not consider a particular accounting policy to be appropriate.
The noble Lord, Lord Higgins, asked me about cash control. He is, of course, right that cash will remain a key control. Parliament will continue to vote on an overall cash requirement because it has to raise revenue for that purpose. The initial out-turn against that overall requirement is reported in schedule 1 of the accounts, the statement of out-turn. In addition, the accounts will include a cash flow statement.
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The noble Viscount, Lord Bridgeman, asked me about Ministry of Defence assets. Accounting policies for these have been agreed by the National Audit Office. They must be in accordance with generally accepted accounting practice and they ensure that the accounts show a true and fair view. I appreciate the difficulty of valuing physical assets owned by the Ministry of Defence, but we have taken the right approach in ensuring that we are compliant with accounting standards. I hope that will help noble Lords in considering what to do in future on these amendments.
Lord Higgins: We are grateful to the Minister for that reply. He referred rather pejoratively to extraneous matters. As I understand it, one cannot be out of order in your Lordships' House, as one might have been in another place had they truly been extraneous, but it seemed that, given what was said on Second Reading, it would not be inconvenient for us to ask where we had reached.
Lord McIntosh of Haringey: Extraneous was not in any way a term of abuse, apart from the subject matter of the amendments themselves. It is entirely proper for noble Lords to raise these matters, as they have done. I hope that I have given a suitable answer.
5.15 p.m.
Lord Higgins: We are grateful for that explanation of the particular expression which the noble Lord used. In that context, therefore, perhaps I may ask whether we are likely to get the terms of reference before Report stage. I think there is no reason why we should not, and it would certainly be helpful if we were to do so.
Lord McIntosh of Haringey: I shall try.
Lord Higgins: I thank the noble Lord. We hope he will be successful. As far as concerns the other point which the noble Lord made of a more general nature in reply to the points that I raised as regards the timing, we have asked whether the matter should be delayed in order to incorporate into the Bill the recommendations of the Sharman committee.
We have taken note of what the noble Lord said about that, but what we are not really clear about—and perhaps the noble Lord could now enlighten us—is whether the programme is on schedule. That is to say, the reports of the Public Accounts Committee suggested that the arrangements for introducing resource accounting had been introduced more easily, or preparation for the matter had been carried out more successfully, in some departments than others.
Is the noble Lord now confident that the programme which the Government originally envisaged, despite the setbacks which they appear to have experienced, will actually be completed on time? Obviously his argument about timing turns crucially on whether the Government believe that they can go ahead with their programme on the original schedule.
Lord McIntosh of Haringey: Before the noble Lord. Lord Higgins, leaves that point, he will recall from the

CWH 15
Second Reading debate and from all the discussions that we have had that there has been a whole series of triggers. This is a process that goes back to the previous administration and arises not just under a Labour Government. There has been a whole series of triggers such as, for example, the completion of the register of assets. Until we had reached and achieved the triggers, we could not move on to the next stage.
We have reached and achieved on time every figure that has been set down so far, and in that sense we are confident that we are not falling behind. I understand that the Public Accounts Committee met last Wednesday. It has taken evidence and will be reporting, although it has not yet done so. Clearly we will take very seriously what the Public Accounts Committee says about the readiness of departments. As matters stand, we have no reason to suppose that, for the first time in the whole process, we are falling behind our targets.
Lord Higgins: I am sure the Committee will be grateful for that. The two points are, of course, interrelated. If, indeed, the programme falls behind time, the case for incorporating whatever the noble Lord, Lord Sharman, may say—if indeed he does say something quite specific—falls into a different time framework.
I turn to the points made by the noble Lord in regard to the specific amendments. I must say I was puzzled by what he said. He seemed to be saying that if we accepted Amendment No. 4, rather than the wishy-washy contents on page 3, it might set things too much in concrete and would then be inconsistent with subsequent changes which one wished to make to the concept involved. Our amendment simply says that there should be a,
"statement of income and expenditure of the department for the year".
I find it very difficult to believe that that will suddenly be overtaken by events and some other policy will be introduced.
Paragraph (b) states:
"a balance sheet showing assets and liabilities of the department for the year which complies with general accepted accounting practice".
It is very difficult to see how that will suddenly be overtaken by events or how it sets everything too much into concrete. It does, of course, set it more into concrete than the Government's proposals. However, at the same time it seems to us to be more specific and sensible. As far as I can see, it concerns a cash flow statement by the department which highlights the significant components. It is difficult to see what sudden, dramatic accounting change may overtake us which makes this too specific to adjust for any future alterations. As far as concerns voted items, the same argument applies. As to "true and fair view", that reflects the Government's intention, although it relates specifically to the balance sheet, as the noble Lord pointed out. Therefore, I have difficulty in understanding the noble Lord's objection to Amendment No. 4. Amendment No. 5 may have been
CWH 16
more appropriately grouped with the next series of amendments, because it refers to the national accounts commission.
As to defence, in general it is the not the intention of my noble friend Lord Bridgeman and myself to speak to every amendment, which the Committee will be pleased to hear. However, in this case I believe that it is appropriate for my noble friend to deal with this matter which arises out of the amendments that we are considering. Other than that, our Front Bench will divide up the Bill between the two of us. My noble friend was also unhappy about the reply received. As far as I understand it, we are unable to deal with the matter now. We must take into account some of the points raised by the Minister which appear to be plausible. We shall return to this matter when we come to Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 5 not moved.]
Lord Higginsmoved Amendment No. 6:
Page 3, line 3, leave out ("Treasury") and insert ("National Accounts Commission").
The noble Lord said: We come to an important series of amendments. Our concern is that the Bill as now drafted gives far more power to the Treasury than it should have. In financial matters such as these Parliament should be supreme in determining the definitions at a simple level. If we are moving towards a more commercial basis, clearly it is not the case that individual private or public companies can decide what the accounting rules should be. They should be decided by an independent body. It appears that if we go along with what the Government now propose there is a danger that the Treasury will produce rules with which Parliament is not entirely happy. However, the Treasury will be given power to do that if we accept the Bill without amendment.
We suggest, therefore, that a separate body—the so-called national accounts commission—should be set up in order to reach an impartial view as to what definitions the Government should use. We propose that the Comptroller and Auditor General should determine the duties of the commission, which will include the definition of standards of national accounting practice to be applied to all departmental accounts and also in the context of the Bill as a whole.
One of the reasons for our concern is the extent to which under the present arrangements it is possible for the Government—I hesitate to use the expression but it is the simplest one to use—to fiddle the figures. That was certainly the case as far as concerned the working families' tax credit which was suddenly redefined by the Government in such a way as to present something as a tax reduction rather than an increase in public expenditure, even though general bodies outside—for example, the OECD—had expressed the clear view that it should be defined in the opposite sense.
We argue that the Government should be subject to an independent body, and Parliament should be able to ensure, through the workings of the Comptroller

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and Auditor General and the NAO, that that independent body achieves the objective. It may be the case that there are alternative bodies—rather than set up a so-called national accounts commission—which could perform this job adequately. It would, however, quite understandably have to adjust normal accounting practice to conform to the reality of the situation; namely, that the Government as such are not a profit-making, normal commercial organisation. None the less, the need for an independent body to do so seems overwhelming.
It is the case, of course, that the Government could say that the Financial Reporting Advisory Board is sufficiently independent for this purpose and we on this side of the Committee would accept that. However, it would not achieve the objectives that these amendments seek to achieve because it is simply a consultative body. It is not empowered to set down definitions in statute or under a statutory regime, which would ensure that Parliament rather than government should have the power to decide the accounting framework within which the national accounts and the department accounts are produced. I beg to move.
Baroness Sharp of Guildford: I rise to support the series of amendments put forward by the noble Lord, Lord Higgins. The key issue here is parliamentary control of the Executive. The Treasury could be seen as the guardian of the budget which Parliament votes, whereas in many senses it should be the guardian of parliamentary control. Its power over other departments in the Executive derives from its being answerable to Parliament for what is spent. It is, therefore, able in many ways to discipline the other departments because of its powers.
We in the Liberal Democrats would argue that over the course of time it has perhaps abused this power and gone beyond it, to create a grossly over-centralised regime which extends well beyond the moneys voted by Parliament itself. However, that is not directly at issue here.
What is at issue here is the fact that the Treasury may be a guardian, but quis custodiet ipsos custodes?—who guards the guardians? One answer is that it is the Comptroller and Auditor General—the parliamentary watchdog—but what good is a watchdog if the Treasury is setting its own rules? That is precisely the proposal in the Bill. Under Clause 5(2):
"Resource accounts shall be prepared in accordance with directions issued by the Treasury".
As we have made clear, resource accounting is itself a great step forward and long overdue. However, there remain many issues to be decided within the context of resource accounting. How should public sector assets be depreciated and over what time frame? An issue that comes up later in the Bill concerns public finance initiatives and public and private partnerships and contingent liabilities in this case? What about investments in software? Are these to be seen as an investment to be depreciated over time or as a very large expense? These issues are not clear. Guidelines
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have to be laid down. Should this be done by the Treasury itself through Resource Accounting and Budgeting or by an independent authority.
In the private sector we expect to have independent authority; we have the Accounting Standards Board, which lays down standards for the private sector. The Public Accounts Committee called in 1994–95, 1996–97 and 1998–99 for a national accounting commission to be set up. The Government cannot argue that they have not had time to think about it. The Comptroller and Auditor General has drawn attention to the need for an independent commission, not for him to set the guidelines himself. CIPFA has also called for a national accounting commission to be set up and for what could be considered as proper accounting standards for public bodies. CIPFA has also concerned with the whole range of local authorities. In Clauses 23 to 28 we will look further at the extension of those powers to local authorities.
As the noble Lord, Lord Higgins, said, it is possible to argue that the Financial Reporting Advisory Board is sufficient and, while Opposition Peers agree that it may be seen as being an independent authority, it is only advisory. We do not feel that it is strong enough to be able to lay down these guidelines. Therefore, we support these amendments, and feel it is an important issue within the context of the Bill.
5.30 p.m.
Lord McIntosh of Haringey: I have to say at the outset that we do not accept the need for a national accounts commission. The amendments are presumably designed to ensure independence in the standards-setting process. Indeed, both the noble Lord, Lord Higgins, and the noble Baroness, Lady Sharp, have said that.
The Government cannot have made it sufficiently clear that the existing provisions of the Bill ensure that the Treasury has little discretion in the setting of accounting policies. That is in contrast to the present system of appropriation accounts where the Treasury has almost total freedom to determine the policies to be followed.
We believe that our proposals provide a robust and professional framework for determining accounting policies. They require resource accounts and whole of government accounts, which are not covered by the amendment, to follow generally accepted accounting practice, modified only as necessary to take account of the specific context of departmental accounts and to present a "true and fair view", That really means that the Accounting Standards Board, which is the guardian of GAAP and the "true and fair view", sets the rules, not the Treasury.
All accounting policy issues are subject to the oversight of the independent Financial Reporting Advisory Board. I was pleased to have the recognition of the noble Lord, Lord Higgins, that it is indeed independent. This process is designed to ensure that any adaptations to GAAP are fully justified. It provides a further check on Treasury discretion.

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The FRAB prepares reports on its own activities, setting out its views on Treasury proposals that have been put forward. Those reports are submitted to Parliament—this is the issue raised in relation to parliamentary scrutiny—so that all Members can see how the process has been working. The Treasury agreed—again, I am not sure whether we made this adequately clear—that in response to a recent report by the Public Accounts Committee, the FRAB should submit its reports directly to the PAC and Treasury committees rather than through the Treasury.
The requirement that resource accounts present a "true and fair view" is the benchmark against which the Comptroller and Auditor General undertakes his independent audit, providing a further scrutiny of the detailed accounting policies. In order to obtain unqualified audit opinions, accounts will have to satisfy the Comptroller and Auditor General that they meet the highest standards.
The amendment involves the setting up of a new accounting standards-setting body which would be in competition with the Accounting Standards Board. We do not believe that a separate standards-setting body or separate statements of national accounting practice are needed. The Government are content to follow, as far as possible, the standards issued or approved by the Accounting Standards Board, which already apply to all private sector bodies and many parts of the public sector. Introducing separate standards for any government accounts could lead to confusion and a divergence between the requirements placed on departments and those placed on other bodies—precisely the situation that the RAB is intended to end.
The suggestion that the Comptroller and Auditor General should determine the duties of the commission—which is what the amendment requires—would give him powers which it would be inappropriate for an auditor to possess and would threaten his independence. Responsibility for the preparation of accounts must lie with the bodies preparing the accounts. In the case of government departments and whole of government accounts, the responsibility must lie with the Treasury to ensure consistency across departments and the wider public sector.
To abrogate that responsibility to the proposed national accounts commission—which I have already argued is unnecessary—would lead to a confusion of responsibility. It would result in conflicts between the requirements of budgeting and public expenditure control operated by the Treasury and accounting requirements.
Lord Higgins: It is not clear how the giving of this power to the National Audit Office would endanger its independence.
Lord McIntosh of Haringey: Does the noble Lord mean the national accounts commission?
Lord Higgins: This amendment enables the National Audit Office to determine how the national accounts commission operates. I am not clear how that would jeopardise the NAO's independence.
Lord McIntosh of Haringey: It is not the responsibility of the auditor to prepare the accounts; it is the job of the people who sign off the accounts in the first instance. It is then the job of the auditor to consider whether the accounts have been prepared in accordance with generally accepted accounting practice and they present a true and fair view. However, responsibility for preparing the accounts in the first place—this is true of both the public and private sector—must rest with the body whose accounts they are rather than the auditor.
Lord Higgins: Does the Minister agree that here we are talking about who should determine the actual accounting framework? We suggest that it should be an independent body. If the noble Lord wants the Accounting Standards Board to set the structure for the Government as well as for private institutions, fair enough. We had thought that it would be helpful if the NAO expressed how the commission should operate, but I fail to understand how that could endanger the NAO's independence.
Lord McIntosh of Haringey: The noble Lord makes two different points. He appears to believe that it would be satisfactory if the Government accepted the Accounting Standards Board as the body to set the standard, and that is exactly what we have done. That is why in this Bill we are committed to generally accepted accounting practice and the presentation of a true and fair view. Those two commitments tie us irrevocably to the Accounting Standards Board, which is an independent body. The national accounts commission, which the amendment creates, would simply be another independent body. We already have the Accounting Standards Board, and for the interface between public sector and private sector accounts we have the Financial Reporting Advisory Board.
Lord Naseby: In reply to my noble friend the Minister said that the Treasury would, by and large, respond to the Accounting Standards Board. He did not say in his response that the Treasury would definitely abide by the decision of the Accounting Standards Board. A degree of clarification is required here.
Lord McIntosh of Haringey: I cannot remember using the expression "by and large"; if I did, I apologise. I said that our proposals required resource accounts and whole of government accounts to follow a generally accepted accounting practice, modified only as necessary to take account of the specific context of departmental accounts and to present a true and fair view.

CWH 21
Everyone, including the Accounting Standards Board, accepts that there are differences between the public and private sectors. To take the most obvious example, there are no shareholders in the public sector and, therefore, some of the provisions of the Accounting Standards Board as they relate to the private sector do not apply. No one claims that they are exactly the same, but the fundamental basis on which the Accounting Standards Board operates is generally accepted accounting principles and a true and fair view. We have tied ourselves in this Bill irrevocably to those standards. That represents independence and accountability to Parliament, and that is what the Bill does. The amendments to set up a national accounts commission do not take us any further.
Lord Lyell: The Minister has done a great service by pointing out the difference between accounting and auditing. At the start of his first comment, and before my two noble friends intervened, he mentioned the Accounting Standards Board. I recall that at the end of his first substantial reply he said that we could not have the Accounting Standards Board as a second level. He seemed to believe that the Accounting Standards Board would be a second set of examining authorities in addition to the others. In his concluding remarks he spoke about "true and fair view". I think the true and fair view is not to do with accounts; it is the view of the auditor. We will certainly come to that, and I have a point in that respect on the next page of the Bill. I do not see a "true and fair view" as being in the Accounting Standards Board. I do see that it is in the auditor's report.
The Minister was clear in pointing out a true and fair view, but it seemed to be that every time he mentioned "true and fair view" he was attempting to ride the two horses at once, both accounting and auditing. In my opinion, and as far as I have been educated, true and fair view is especially an opinion presented by the auditor. The Minister was clear that the true and fair view is not necessarily presented by those making up the accounts, the Treasury, or anyone else.
As the Minister said, the Accounting Standards Board has pointed out the difference between presenting reports in public and private sectors, but I wonder to whom is the auditor reporting? If it is the private sector, we know it is covered under the Companies Act, but if it is under this Bill, to whom is the Comptroller and Auditor General reporting? As my noble friend pointed out, it is to Parliament.
Lord McIntosh of Haringey: This is part of the same process. The accounts must be prepared to show a true and fair view, and the job of the auditor is to report as to whether or not that is the case. The auditor—in this case the Comptroller and Auditor General—reports for departmental accounts to the Treasury, and the Treasury reports to Parliament. We have parliamentary scrutiny of everything that the Comptroller and Auditor General does. We have it through the Treasury in terms of aggregating the
CWH 22
departmental accounts, and we have it directly from the Comptroller and Auditor General through the Public Accounts Committee.
As I said, we have agreed that the Financial Reporting Advisory Board shall report directly to the Public Accounts Committee and the Treasury committees rather than to the Treasury. I do not see how much further we can go in ensuring the independence of the accountancy to audit procedure. It is all part of the same thing.
Baroness Sharp of Guildford: We on the Liberal Democrat Benches would be happy if the Accountancy Standards Board was seen as being the independent authority. What disturbs us is the wording of Clause 5(2). It gives a good deal of discretion to the Treasury because it is in accordance with directions issued by the Treasury. I accept that the Treasury say that they are going to present a "true and fair view", that it is going to be according to generally accepted accounting standards, and so forth, which are those set up by the Accounting Standards Board. But the Minister has also said, quite rightly, that as there are significant differences between the private sector and the public sector there would have to be a different set of accounts.
We would be very glad to see Clause 5(2) read:
"resource accounts shall be prepared in accordance with guidelines issued by the Accounting Standards Board".
That would suit us very well. We are worried about the interface and interpretation between those guidelines set by the Accounting Standards Board and the interpretation placed on these by the Treasury.
Lord Higgins: It may be convenient for the Committee if I intervene at this point. I was going to make exactly the same point as that made by the noble Baroness. We are all agreed that the FRAB is independent but does not have statutory authority. The Minister is arguing that we should not worry as it is all right and the situation is set by the Accounting Standards Board. But, of course, that relates to the normal commercial accounts. What the Accounting Standards Board is not doing—and, as I understand it from the Minister, he does not propose it should do—is to set the standards for the Government.
If the Government are prepared to go along with saying that standards in government shall be set by the Accounting Standards Board on the assumption that they would be prepared to take on this rather onerous task, that would be a very considerable step forward. The Minister says that we should not worry because the restraints on the Treasury under the Bill in terms of deciding what standards should be adopted within government, within the framework of general accounting standards, is very severe. There are a number of points where I do not see that to be the case. To give the example of Clause 5(2),
"Resource accounts shall be prepared in accordance with directions issued by the Treasury",
not in accordance with directions issued by the Accounting Standards Board or a framework established by the Accounting Standards Board. No

CWH 23
doubt the Minister can tell us where else, if not in that instance, the Treasury is restrained in this or that way. It seems to us that this ought to be a matter for an independent body to determine, not the Treasury.
Of course, it is the case, as the Minister rightly says, that the accounts are produced by the Treasury, in this case, and are audited by the NAO, as my noble friend said in his contribution a moment ago. The reality is that there is still a considerable degree of discretion so far as the Treasury is concerned.
I refer, again, to the question about which I have some more specific knowledge as far as the working families tax credit is concerned. If we were to have the Accounting Standards Board setting these standards I do not believe they would enable £15 billion to be shifted away from determining whether or not it should be treated as public expenditure or a tax cut. That example shows clearly that, for the moment, the Treasury has too much discretion and it does not seem to us on this side of the Committee that, without an independent body, that is the case.
If the Minister is prepared to go along with the Accounting Standards Board carrying out the task for the Government as well as the private sector, I gather we would have the Liberal party's support on this and it is worth pursuing at a later stage. However, I really do not understand what the Minister is saying.
Lord McIntosh of Haringey: Clause 5 is under the heading—I believe it is called chapeau—Departmental Accounts. Clause 5(1) states that a government department shall prepare accounts, known as resource accounts, which will detail the,
"resources acquired, held or disposed",
or used. We have dealt with that with the previous amendment. Clause 5(2) states:
"Resource accounts shall be prepared in accordance with directions issued by the Treasury".
That is because the Accounting Standards Board does not want to have one degree of supervision of MAFF, another degree of separate supervision of the Ministry of Defence and a third degree of supervision of the Department of Trade and Industry. It wants the Treasury to set directions in accordance with subsection (3) —and I have to remind the noble Lord, Lord Higgins, that one of his amendments would have taken out subsection (3). It has to present a true and fair view, conform to generally accepted accounting practice and accord with guidance issued by the Treasury about the inclusion of an explanation of the difference between an item appearing in a department's estimate and a corresponding item appearing in a department's resource accounts. In other words, is it reflected in real life?
When I say that the resource accounts are prepared in accordance with the directions issued by the Treasury and that the Treasury is working in accordance with the fundamental rules of the
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Accounting Standards Board, where is the difference between us? The only difference is that the Treasury is responsible for ensuring that there is consistency between the accounts of one department and another, and that seems to be an entirely proper job for the Treasury to do.
This is a quite separate point from the point of the noble Lord, Lord Higgins, which we have argued many times over the past year about working families tax credit. The Bill requires resource accounts and the whole of government accounts to show a true and fair view and to conform to GAAP. So there will be a legal obligation on the Treasury and the department to follow best accounting practice, and there are two additional safeguards which do not exist at the moment for statistically-based national accounts. First, any proposal to depart from GAAP would have to be discussed with the Financial Reporting Advisory Board, which can report to Parliament if it disagrees. Secondly, resource accounts and the whole of government accounts are subject to audit by the NAO. If it disagrees with an accounting treatment, it will qualify the accounts and report to Parliament accordingly. The Treasury is bound hand and foot!
Lord Higgins: There are three separate levels. The accounts are produced by the department and the NAO audits them, but it is all done within a hierarchy whereby someone is setting the overall situation. The Minister is saying that it is done in accordance with best accounting practice. However, we know that best accounting practice in the public sector cannot be the same as that in the private sector. An independent body ought to decide the best accounting practice for the public sector. For the purposes of debate we suggested the commission mentioned in the amendment. However, as stated earlier, we would probably go along happily, if it was prepared to take it on, with the Accounting Standards Board deciding what the standards should be in the public sector. There is at the moment a lacuna that simply to say "best accounting standards" does not in fact make the point; there are bound to be variations that are not determined by an independent body.
Lord McIntosh of Haringey: That is what the FRAB is for. It is apparent that I am not making myself clear.
Lord Higgins: The FRAB is no good for this purpose because it is only advisory. We want somebody with sufficient authority to make sure that its recommendations are accepted, not by the Government, but independently and in turn by Parliament. Subject to anything further that the Minister wishes to add, this is clearly a matter to which we ought to return at Report stage and I welcome the support that I have received on both sides of the Committee. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 7 to 9 not moved.]
5.45 p.m.
Baroness Sharp of Guildfordmoved Amendment No. 10:
Page 3, line 13, at end insert—
("(3A) All directions issued by the Treasury under subsection (2) shall be—

(a) subject to consultation with Parliament, the Financial Reporting Advisory Board and any other bodies the Treasury deems appropriate;

(b) published when issued: and

(c) compiled and published at the start of every financial year in a document to be called "the Resource Accounting Manual".

(3B) The Financial Reporting Advisory Board shall review and report to Parliament on the Resource Accounting Manual every third year after its publication.").
The noble Baroness said: This amendment is really a fall-back position for if the process of setting up a national accounts commission fails. Essentially, it puts on the face of the Bill what we have been told is the process by which the standards are set. The process set out in the amendment, however, is precisely how the Treasury claims to set standards in this area. In effect, it spells out the detail of Clause 5(2) and puts on to the face of the Bill procedures that are already followed. It refers specifically to the role of the FRAB (the Financial Reporting Advisory Board) and of the manual, Resource Accounting and Budgeting. Both are vital components in the Treasury's present procedures and should be referred to on the face of the Bill.
In discussion in Committee in the other place, the Economic Secretary to the Treasury argued that this amendment was unnecessary. Clause 5(3) obliges the Treasury to follow the generally accepted accounting practice, modified as necessary to take account of the specific departmental requirements. Clause 5(3)(c) would mean that it also had to follow the resource accounting manual directions. Moreover, it was unnecessary to put it into the legislation since there may be more than one way to achieve compliance with generally accepted accounting standards. Other bodies, besides the FRAB, should be consulted. The FRAB already conducts ongoing reviews of Resource Accounting and Budgeting and has reported more frequently than the three years envisaged by this amendment. That was another reason that the Government could not accept the amendment.
That may be so, but none of those arguments seems sufficient. If the Government reject the case for an independent commission setting up the guidelines by which Resource Accounting and Budgeting is set, it is all the more important to have, written on the face of the Bill, the procedures which the Government themselves claim give assurances to Parliament and the general public of independence of action. I beg to move.
Lord Higgins: The noble Baroness pointed out, quite rightly, that this is a fall-back position from the matters which we were discussing on the previous amendment. I am now hopeful that we shall succeed
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with the previous amendment at a later stage. If, however, that fails certainly there is much to commend the observations of the noble Baroness. Lady Sharp.
Lord McIntosh of Haringey: The Government and Members of the Committee seek the same end. We seek to improve the transparency of the accounting standard-setting process. The only difference between us is whether or not it should be statutory. Our view is that the non-statutory system works well and does not need to be enshrined in legislation.
Before I reach a final conclusion, I should like to make clear that the directions in Clause 5(2) are not as important as is envisaged in this amendment. They are not detailed documents which set out accounting policies but simply the means by which the Treasury formally instructs departments that they must prepare resource accounts as required by the Bill. Although the mechanics have not yet been finalised, it is possible that in relation to resource accounts there is only one omnibus direction that applies to all departments. The direction is unlikely to say anything other than that the resource accounts must be prepared in accordance with the provisions of the resource accounting manual, which is the concordance between private sector and public sector accounting. In view of that, the requirements within the amendment for consultation on the directions and their publication are unnecessary.
The real issue is whether we are sufficiently transparent in disclosing the accounting practices to be used for resource accounts. That is the purpose of the resource accounting manual which is a publicly available document. Updates will be published annually so that the accounting policies in force in a particular year will always be in the public domain. The resource accounts themselves will, as required by generally accepted accounting practice, contain a detailed note setting out the major accounting policies under which the accounts are prepared.
The amendment would require the Financial Reporting Advisory Board to review the manual and report to Parliament once every three years. Since its creation in 1996 the board has already issued two reports to Parliament, and I understand that a third is in preparation. It is intended that the boa rd will report to Parliament annually and, as the Committee is aware, the Government have already agreed to that. In practice, the board adopts a more rigorous reporting schedule than would be provided for by the amendment.
We are committed to following best accounting practice. The accounting practice policies to be followed by departments will be publicly available and will be in the published accounts themselves. We believe that those are adequate commitments by the Government to transparency and, as at present advised, there would be no advantage in placing them on a statutory basis. I am willing to listen to any representations that may be made on the point,

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without any commitment, to see whether there is any way to improve our mutual understanding of a shared objective.
Baroness Sharp of Guildford: As the Minister says, it is a question of transparency and accountability. We believe that at present the Treasury will pursue matters as it has stated it will. To put something on the face of the Bill has the advantage that it is there for a long period of time. Over the past century or so legislation dealing with public accounts has not been frequent. Sometimes there are advantages in putting matters on the face of a Bill. For example, at times national statistics have not been all that we would expect them to be, and matters have been hidden which ought not to be hidden. It is only for the reason—perhaps a cynical one—that we do not have total faith that these things will be done, as the Minister claims, that we should like to see them on the face of the Bill. This is very much a fall-back amendment. We will have to see how things work out when we come to deal with the national accounting commission at Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6 p.m.
Lord Higginsmoved Amendment No. 11:
Page 3. line 16, at end insert—
("(4A) A department shall send to the Comptroller and Auditor General, with the resource accounts sent to him under subsection (4), a performance statement analysing the performance of the department in achieving (by the use of the resources to which the accounts relate) its measures and targets for the financial year in question.
(4B) Departments shall prepare performance statements under subsection (4A) in accordance with guidelines laid down by the National Accounts Commission.").
The noble Lord said: Amendment No. 11 stands in my name and those of my noble friend Lord Bridgeman and the noble Baroness, Lady Sharp of Guildford. With this amendment it may be convenient to consider Amendments Nos. 13, 17 and 19. I have a sense of dèjá vu about these amendments. We are seeking to ensure that performance measures are established by the Government and by individual departments to show what is achieved as a result of the expenditure of public money on any operation. The argument about such performance measures has been going on for many years, but we have not yet achieved that objective. This is a rare opportunity to put it into practice.
The matter fits in with the general structure of departmental-related Select Committees in another place that has now been in operation for some time. The ambitions of those committees are set out admirably in the first report of the Liaison Committee, published on 2nd March, entitled Shifting the Balance: Select Committees and the Executive. It is, of course, the case that the Select Committees in another place are concerned with the policy, administration and expenditure of the departments that they have the task of monitoring.
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The interests of the Select Committees in policy and, to a lesser extent, administration, far outweigh their normal enthusiasm for looking at the expenditure. I hope that that is not interpreted as a criticism—it is simply that they are burdened with other matters. This is something that committees would be able to do with greater efficiency if they had set performance indicators. Some progress has been made on this as far as departmental reports are concerned. I am slightly out-of-date on that. When they were originally published they mostly featured pictures of the Secretary of State of the day and not much else. Certainly they ought to include this sort of data and, against performance data, targets should be set that the department should seek to achieve.
Will the Minister tell us whether, if we are now to have resource accounts in the form proposed, they will appear as an appendix to the departmental reports or be entirely separate? There is much financial data in the reports as they stand, but the precise relationship between what is now proposed by the Treasury for resource accounts and the departmental reports is something about which I am not entirely clear.
What is surprising is that much of the argument for resource accounting, budgeting, and so on, has been that we shall then be in a position to appraise the performance of individual departments. I hope that the Government will be sympathetic to the amendment, but at the moment that link has been broken. We are seeking to have it restored.
In addition, it is no good having performance measures if they are not validated. Clearly it is important in that context that the NAO and the PAC should take that into account, as well as the departmental-related Select Committees. It is true to say that the NAOs venture some years ago into value for money has been very fruitful, but achieving the aim of the amendment—namely, the establishment of clear measures of performance—will be of considerable value to Parliament.
There are a number of areas—not least in social security, with which I am otherwise concerned when I am not preoccupied on these matters—particularly the lone parent initiative and a number of other measures. We need to know exactly what the Government intend to achieve if there is to be any sensible spin-off from the introduction of resource accounts. I hope, therefore, that the Minister can give us a forthcoming response on this point, which is clearly regarded both by the PAC and the NAO, and indeed by those of us on this side of the Committee, as important.
Baroness Sharp of Guildford: I rise to support the noble Lord, Lord Higgins, on this issue. The amendment he has put forward fills an important lacuna in this Bill as it is at the moment. As he made clear, the whole point of resource accounting is to link resources to performance. The purpose of parliamentary control of supply is to ensure that the public are getting value for money with high quality and effective delivery of public services. Performance measures provide an independent validation that this is being achieved. The whole idea of resource

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accounting is to bring the two sides of the equation—the resources on the one hand and performance on the other—into focus, yet this Bill is totally silent on this issue.
The Government have indeed proceeded with setting up a number of performance indicators. We have public service agreements which set up many measures across many departments—arguably too many, with something like 6,500 since the Government came into office. Various performance measures have been introduced over the past three years and some departments now feel that they have rather too many. Indeed, I believe that the Treasury is also beginning to rail back a little on these burgeoning performance indicators.
At the moment there is absolutely no linking between the two, which is what we are concerned about. There is also an anomaly that, so far as local government is concerned, it is now rigorously audited on performance standards. The Audit Commission has been expanded very considerably to take account of this work. It provides a check on performance standards and external validation of the standards that are set. We believe that the National Audit Office should be doing exactly the same for Government departments. It is very odd that what we are preaching at local government we are not actually carrying through in central government.
The Government response, when this was debated in Committee in the other place, was totally inconsistent. The Economic Secretary to the Treasury said that those out-turn statements would be included in departmental reports and under resource accounting and budgeting, alongside departmental accounts as planned. She then went on to say that the amendments would break the essential chain of accountability by requiring performance indication to be included with the accounts and prepared by the accounting officer. I feel that she was muddled and inconsistent in her reply at that time and I shall be interested to hear what the Minister has to say today.
Lord McIntosh of Haringey: The noble Lord, Lord Higgins, says we need to know exactly what the Government want to achieve. I may turn this back to him. He also says he has a sense of dájè vu about these amendments. Indeed, I have a sense of dájè vu. Amendments Nos. 11 and 13 arise from Committee in another place; Amendment No. 19 was put forward by Mr David Davis at Report stage in another place; Amendment No. 17 was put by Mr Davis to me in a letter in April of this year, which I received in May of this year. I have to ask the noble Lord, Lord Higgins, which of them he wants. I am not saying that he can have any of them, but rather than having three or four alternatives it would be easier if we were debating a single proposition from the Opposition.
Lord Higgins: I believe in choice, but this is also a team effort, so it may well be that these are not entirely original compared with some of the other amendments.
Lord McIntosh of Haringey: Be that as it may, they would all require departments to produce
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performance information. In the case of some of the amendments, they would require the Comptroller and Auditor General to examine that information.
As I have made clear, we have already committed ourselves to reporting annually to Parliament and the public on out-turn against performance targets. We shall be doing this through departmental reports and the Government's annual reports, published in the summer. The structure of reporting will be that, in the spring, there will be the publication of forward-looking information, including performance data and estimates. Then in the autumn, there will be the backward looking information including performance data. It cannot really be said, therefore, that we are doing anything other than enormously improving the quality of the reporting to Parliament from departments.
The noble Lord, Lord Higgins, said that some earlier departmental reports consisted of the photograph of the Secretary of State and not much else. I am reminded of the grand old man of advertising, David Ogilvy, who said that,
"If the client moans and sighs,
show his logo twice the size.
If he still should prove refractory,
show the picture of his factory. But only in the direst case
should you show the bastard's face!"
Anyway, in the light of what we are actually going to do, there is no need to make it a statutory requirement and doing so would lead to inflexibility. For example, Public Service Agreements relate to a three year period, mirroring spending plans, so performance assessments tied narrowly to a particular financial year may not be as useful as giving Parliament the very latest outturn.
We recognise that for public service agreements to have the effect on accountability and in raising public service performance that they are aimed at, the information which supports them must be credible. The new, independent, statistics commission has been set up with the express purpose of commenting on department systems and commissioning independent audits in areas of concern. It is likely to cover a wide range of performance data and its new role should be firmly established before consideration is given to introducing a similar role in statute for the Comptroller and Auditor General.
We are currently drawing up a performance information strategy—
Lord Higgins: Perhaps the Minister will be kind enough to repeat his last two sentences.
Lord McIntosh of Haringey: Yes. We have set up a new, independent, statistics commission with the express purpose of commenting on departmental systems and commissioning independent audits in areas of concern. It is likely to cover a very wide range of performance data and its new role should be firmly established before consideration is given to introducing a similar role in statute for the Comptroller and Auditor General. We are also drawing up a performance information strategy and

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we are looking at the future need for validation of performance data. National Audit Office officials and others from outside government are being involved in this work. There are a great many issues to consider, including what data should be validated, what validation should entail, the right timescale for introducing changes and the best bodies to carry out validation.
I am very reluctant to impose a new requirement on departments when the role of the new statistics commission is not fully established and the nature of validation and the burden this would impose has not been fully thought through.
I hope I have shown that we are moving very actively in the direction in which, I am sure, noble Lords wish to move, but that it is premature to introduce any statutory requirement at this stage.
Lord Higgins: We seem to have the usual problem, which we have had on other issues, as to whether or not it should be a statutory requirement. I have obviously listened carefully to what the Minister said about the new statistics commission but the NAO has now had experience over a decade or more—in fact, probably two decades—of value-for-money inquiries, which were in a sense related to the question of performance measures.
I am not clear why the Government consider it better to have a statistics commission with no statutory basis, rather than have it dealt with by the NAO with all the experience that it now has in this area; also the case for saying that they will validate the actual figures. My understanding is that the statistics commission will not actually have the task of validating whether the performance measure has been met, but merely what it is. No doubt the Minister can clarify that point.
Lord McIntosh of Haringey: Perhaps I should not seek to clarify that now. I will instead write to the noble Lord, Lord Higgins, and to the noble Baroness, Lady Sharp, about what the statistics commission will actually do. It does meet the requirements of the amendment but that ought to be clarified in writing.
Lord Higgins: We are grateful to the Minister and look forward to receiving his comments in writing. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 agreed to.
6.15 p.m.
Clause 6 [Resource accounts: scrutiny]:
[Amendment No. 12 not moved.]
Lord Higginshad given notice of his intention to move Amendment No. 13:
Page 4, line 14. at end insert—
("(3A) The Comptroller and Auditor General may examine any performance statement which he receives from a department under section 5 and report thereon.").
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The noble Lord said: I do not intend to move Amendment No. 13.
Lord Lyell: The Minister and his department have been extremely kind in providing some helpful notes on clauses. There is one particular aspect on which the Minister may be able to enlighten me; if not today perhaps, helpfully, in writing, although I hope not at a later stage of the Bill. Clause 6(2) provides:
"If resource accounts appear to the Comptroller and Auditor General to suggest that a material use of resources required but did not receive the authority of the Treasury—

(a) he shall inform the Treasury, and

(b) if the Treasury sanction the use of resources, he shall treat it as always having had the Treasury's authority".

I immediately thought that there was something odd here. However, the Minister and his advisers and "winged counsel" will see that the Explanatory Notes to the Government Resources and Accounts Bill are most helpful. Paragraph 34 on page 7 contains an explanation of subsection (2) which goes back to the Exchequer and Audit Departments Act 1921. The paragraph states:
"The Treasury cannot use this power to authorise illegal or improper expenditure—it can only retrospectively authorise expenditure that was itself legal and proper but which required Treasury approval".
Can the Minister explain whether Treasury approval is part of the duties of the Comptroller and Auditor General? If so, I believe that paragraph (b) of subsection (2) somewhat negates the power of the Comptroller and Auditor General. If he discovers something that he believes requires the sanction and approval of the Treasury he is expressing his views when he reports to the Treasury. Paragraph (b) seems to suggest that the Treasury can say that something is all right because it has approved it. It may be that it has done so, and perhaps that is the case under the 1921 Act. However, can the Minister explain to me what the Comptroller and Auditor General then does as part of his job as auditor? Does this not cut the legs from under his examination of the matter as part of his duties as auditor? Perhaps the noble Lord can explain the matter to me—if not today than at a later date.
Lord McIntosh of Haringey: The noble Lord, Lord Lyell, has gone a long way to answering his own question. The role of the Comptroller and Auditor General is that of a whistle-blower. He states that something has been spent here for which there is no Treasury approval. If that happens there are two possibilities. The first is that it should not have been spent, in which case all hell breaks loose. The department is brought to account and all the procedures which apply when departments overspend begin. The second possibility is that the Treasury says that it is legal and proper expenditure which should have had Treasury approval but by an oversight it did not receive it. If that is the case it will be approved retrospectively. I believe that that is all right.
Lord Lyell: The Minister is very complimentary towards me. I did not believe that I had necessarily answered my own question. He referred to the

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possibility of the Treasury suggesting that something should have received approval but by an oversight had not. In that case, what is the role of the Comptroller and Auditor General? In an earlier reply, the Minister said to me that the Comptroller and Auditor General reports to the Treasury. If he is a whistle-blower, he cannot do the two things. To whom is he reporting as Comptroller and Auditor General?
Lord McIntosh of Haringey: He is reporting to Parliament.
Lord Lyell: What is the purpose of paragraph (b)? If he is blowing a whistle, he should say to Parliament, "I think there is a problem here"; that should be part of his audit report.
Lord McIntosh of Haringey: This is like the signs on the buses. If you have a complaint about the service, you first try to resolve that complaint with the bus company and, if you are not satisfied, you go to the London passengers committee. The same applies here. The Comptroller and Auditor General finds something that, on the face of it, is wrong—in other words, money has been spent without Treasury approval. The first thing he asks is whether it is a formal technical problem and the Treasury omitted to approve something which was itself legal and proper—in which case that is the end of it, and no doubt there can be rapped knuckles for failing to obtain Treasury approval when there should have been Treasury approval. The Comptroller and Auditor General can report on that to Parliament if he wants to. The more serious case is the money should not have been spent at all., which is where he reports to Parliament through the Public Accounts Committee, and it is Parliament that has the ultimate responsibility.
[Amendment No. 13 not moved.]
Clause 6 agreed to.
Clause 7 [Other departmental accounts]:
Lord Higginsmoved Amendment No. 14:
Page 4, line 20, leave out ("Treasury") and insert ("Comptroller and Auditor General").
The noble Lord said: I shall add only one brief postscript to the previous remarks. It is some while now since the accounting officer paid up where there was improper expenditure; and perhaps that is rather sad. A sanction of that kind would encourage accounting officers not to do the kind, of thing that seems to be envisaged in the previous clause.
Turning to Clause 7, I forget the amount but I believe that at the time it was quite large; allowing for inflation, £12,500. Here we have a fascinating clause, in light of the remarks that were made earlier by the Minister; namely, that the Treasury is bound hand and foot by this situation and there is no need to have an independent commission and so on, because one has only to look at Clause 7(1) and (2) which states:
"(1) The Treasury may direct a government department to prepare for each financial year accounts in relation to any specified matter.
(2) Accounts under subsection (1) shall be prepared in accordance with directions issued by the Treasury".
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This, of course, relates to other departmental accounts. However, once again it gives the Treasury considerable powers and, while we would be prepared to accept that our amendment is not perfectly drafted and that perhaps the Comptroller and Auditor General may not be the best person to issue such instructions, nonetheless there would seem to be a case for some independent body to do so rather than the Treasury which, so far as this clause is concerned, seems to have complete discretion as to how it sets about the matter. I beg to move.
Lord McIntosh of Haringey: We come here to the same difficulty that we had in relation to earlier amendments. To agree to these amendments would be compromising the responsibility of the preparers of the accounts for what is contained in the accounts, and we would be giving the Comptroller and Auditor General powers which it is inappropriate for an auditor to possess and which threaten his independence. In private accounts the directors of the company prepare the accounts and they submit them for audit and the auditor audits them. If the auditor has been involved in the preparation of the accounts and what is contained in the accounts, how can the auditor provide an independent view of whether the accounts provide a true and fair view of the circumstances of the organisation? The Treasury can consult the department and the Comptroller and Auditor General. Surely therefore it is best placed to know what accounts are required and to determine the most appropriate and useful format for them. The Treasury and the preparing department can then be held responsible for the accounts. If the preparers of the accounts have no role in deciding what accounts they should prepare, or what information is included in them, they cannot be expected to take responsibility for them.
Auditors must be able to comment independently on the accounts they audit. For them to be made responsible for determining what accounts al e to be prepared and the basis on which they are to be prepared is simply not acceptable. It compromises their ability to take an independent view.
I should also point out that these amendments are inconsistent with the proposal for a national accounts commission. Why should there be a national accounts commission which sets out the standards for departmental accounts, but allows the Comptroller and Auditor General to determine them for those departmental accounts covered by this clause?
The noble Lord, Lord Higgins, said that Clause 7 is too widely drafted. It is indeed true that the Treasury has discretion. That is because the clause is designed to cover accounts which are not covered elsewhere. They may be cash accounts as well as resource accounts, so it is not appropriate to refer them to the generally accepted accounting practice or the true and fair view. Directions issued under the clause will, of course, be agreed with the National Audit Office before they are issued.
Lord Higgins: The Minister is right in saying that this is the same problem as we had before. Perhaps the

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amendments are rather confusing inasmuch as we have in this case suggested that the matter should be decided by the Comptroller and not the Treasury. For that we must obviously take responsibility. But it is still the case that the Treasury is going to decide the form of the accounts. That does not happen in normal private or public companies. The form of the accounts is decided by the various accountancy bodies, not by the company. What is lacking here is an independent body which will decide that. Of course the auditor does so within that framework. But we are on much the same point as before and we will delay the Committee unnecessarily if we go over the same ground again.
It seems to us that the Treasury has virtually unfettered discretion in this case and, except for the Minister's final few words, we are not happy about it. However, I do not wish to pursue this matter and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 15 not moved.]
Clause 7 agreed to.
Lord Higginsmoved Amendment No. 16:
After Clause 7, insert the following new clause—
PUBLIC SERVICE AGENCIES' ACCOUNTS: SCRUTINY
(" .—(1) This section applies to any public service agency of the sort described in subsection (8). unless otherwise provided in any enactment passed after this section comes into force.
(2) On the prescribed date, for each public service agency to which this section applies subsections (3) to (6) shall apply to that agency.
(3) Every public service agency shall prepare accounts in respect of each financial year and shall send them to the Comptroller and Auditor General.
(4) The Comptroller and Auditor General shall examine accounts sent to him under this section with a view to satisfying himself—

(a) that the accounts present a true and fair view, and

(b) that any public money provided to the agency has been expended for the purposes intended by the body by which the money was paid.

(5) Where the Comptroller and Auditor General has conducted an examination of accounts under subsection (4) he shall—

(a) certify them and issue a report,

(b) send the certified accounts and the report to the Treasury, and

(c) if he is not satisfied of the matters set out in subsection (4)(a) and (b), he shall report to the House of Commons.

(6) The Treasury shall lay accounts and reports received under subsection (5)(b) before the House of Commons.
(7) Subsections (3) to (6) do not apply to any body to the extent (but only to the extent) that any of its accounts are or become subject to audit—

(a) by the Auditor General for Scotland, or

(b) by the Auditor General for Wales.

(8) "Public service agency" means a body—

(a) which is not a government department or comprised within a government department,

(b) which exercises public functions of a governmental nature which might otherwise fall to be exercised by central government, and

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(c) as respects which an accounting officer has been designated,

but does not include a public service agency which is a company registered under the Companies Act 1985.
(9) In this section "prescribed date" means, as regards each public service agency, the first day of the first full financial year of that agency commencing after the expiry of the term of appointment of the person who is the auditor of the agency when this section comes into force.").
The noble Lord said: This is an important amendment. It is concerned with the extent to which the existing arrangements will cover public service agencies of the kind described in Clause 8. It effectively relates to whether or not the National Audit Office will be able to extend its remit to cover executive non-departmental public bodies. At the moment the situation seems to us to be arbitrary and illogical. A substantial minority are audited by auditors other than the Comptroller and Auditor General, but the decision of who will audit each newly established body is made by the sponsoring department when the body is established. It does not seem to us that that is appropriate. There is a lack of consistency in the information provided to the department, and waste and duplication of audit effort.
The new clause seeks to say that, given the vast change that has happened in the quangos and non-departmental public bodies of one kind or another, the Comptroller and Auditor General ought to be appointed as auditor for all such bodies, both those already in existence and those which are newly created. That is what the amendment seeks to do.
This is effectively a tidying-up exercise, and it is the view of Opposition Peers that it ought be done on a uniform basis. There are a number of examples on which one could expand. Housing receives around £1 billion a year, while English Heritage and the Environment Agency receive £100 million a year. But they are three of the biggest spenders outside of the Comptroller and Auditor General's remit and they are not subject to the same degree of public scrutiny. Given that they receive public money, there is a strong case for extending the remit of resource accounting to bodies of this type on a universal rather than a selective basis.
6.30 p.m.
Baroness Sharp of Guildford: Although my name is not attached to the amendment I support it because it is a key issue. It relates to the question that we have previously debated of the extent to which Parliament is able to control the Executive. The National Audit Office is the eyes and ears of Parliament if it is to achieve proper scrutiny of public affairs. The problem arises because of the vast range of providers of public services today that are paid from the Exchequer.
In the old days it used to be simpler. One had Government departments and they were normally the providers of services. Today, with the division between purchasers and providers, there are a range of contractors working for government departments which are being paid with public money and it is necessary for us to make sure that we get good value

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for the benefit of the public. The noble Lord, Lord Higgins, has already mentioned the Housing Corporation; Camelot is another. Issues have arisen where the National Audit Office has looked at further education colleges where there have been difficulties.
Such non-departmental public bodies should, like departments, be answerable to Parliament. Therefore the National Audit Office and the Comptroller and Auditor General should have access to and scrutinise their accounts as they do departments of state. There are at the moment big gaps in public scrutiny and the Bill is an opportunity to fill them.
The arguments raised against that in Committee in another place were that the Bill is not an audit Bill, but merely transposes existing accounting arrangements into resource accounting space and that it is therefore an inappropriate vehicle to make good gaps in the current range of public scrutiny. That does not stand up well. This clause repeals Sections 16 and 17 covering the audit in the 1866 and 1921 Acts and to a degree it throws the powers of the Comptroller General and Auditor into doubt because it deliberately confines the National Audit Office to departmental walls. The Government did not need the Bill to introduce resource accounting. They could have moved ahead without it. They themselves are introducing an extraneous affair in the sense that the latter part of the Bill deals entirely with the PFI and the PPP arrangements.
Last, and by no means least, Bills on public accounting seem to emerge approximately once every 50 years. Therefore, it is appropriate to take the opportunity provided by the Bill to make good any gaps. The Government's arguments do not stand up. They also suggested that the matter had been raised too late. Although I have come to it fairly recently, I have done some homework and find that it is something that the Public Accounts Committee has been raising for many years, so the Government have therefore had plenty of notice.
Lord McIntosh of Haringey: To adapt what I said to the noble Lord, Lord Lyell, the noble Baroness, Lady Sharp, has to a considerable extent answered her own argument. She acknowledged that the amendment is nothing to do with resource accounting. It is about provisions for government audit and she is entitled to argue that since we do not often have legislation on government audit, it might be argued that it should be included in the Bill, as has Partnerships UK. But we have, of course, also set up the Sharman review. This is certainly one of the matters into which the noble Lord, Lord Sharman, will be looking and we will have to take his views on it very seriously. I deny, however, that there are any big gaps in public scrutiny because some non-departmental public bodies are audited privately rather than by the National Audit Office. All national non-departmental public bodies are accountable through ministers to Parliament and it does not matter whether the accounts are audited by NAO—they are still laid before Parliament by Ministers. That is their statutory responsibility. It is not a matter of parliamentary scrutiny but whether it is indeed
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appropriate to adopt a "one size fits all" policy for audit of non-departmental public bodies. I assume that the amendment means non-departmental public bodies—the phrase used is "public service agencies", which is not a phrase with which I am familiar.
I do not deny that the Chief Secretary said, in another place, that the present situation is a hotchpotch. Historically, it cannot be justified, although I should point out that it is a hotch-potch that has been inherited from the previous government and this Government, for all new NDPBs set up, has appointed the Comptroller and Auditor General as the auditor of these departments. At least we have been consistent. even if we have not thought it necessary to change what happened in the past.
It is a fairly good conservative principle: "fit ain't broke, don't' fix it". What is actually wrong with what happens at the moment? There is nothing wrong in terms of accountability to Parliament. It is not claimed that there is anything wrong in terms of the quality of audit. The amendment proposes a nationalisation of a considerable part of the accountancy profession and I would be interested to know whether the accountancy profession generally would be sympathetic to that view.
We are not convinced that it would be right in principle to make the Comptroller and Auditor General automatically the auditor of all executive NDPBs. For example, some departments think the competitive tension secured by the periodic tendering of audit appointments can bring better service, or that the NAO may not have the depth of specialist expertise to handle a particular audit. Reference to thy:: list of NDPBs, and at how specialised some of them are, shows that it is not necessarily true that all auditors have the expertise to do it.
The Comptroller and Auditor General may subcontract commercial auditors in order to deal with particular aspects of an auditing assignment, but this may not provide the best solution for the department, who may find it cost-effective for related services to be carried out during the audit of a particular NEIPB for monitoring purposes. It is not the case that private sector auditors are unable to audit for regularity and proper conduct—private sector auditors are quite capable of providing assurance on these matters. Their letters of appointment require them to report every year on regularity and propriety within the audit and the Auditing Practices Board has done a great deal to ensure that they are alert to these issues.
The new clause goes much too far in making the Comptroller and Auditor General automatically the auditor of all NDPBs which are not companies. It would be wrong in principle to rule out the option of appointing private sector auditors, which is why the Bill contains a provision to meet this concern.
I am sorry to give what might seem a rather conservative—with a small "c"—reply but the amendment is looking for consistency at the expense of common sense.
Lord Higgins: My right honourable friend in another place, Mr Hague, has made it clear that we are

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all in favour of common sense. However, it is very often common sense to be consistent. It seems to me that the Minister's reply is not only conservative, but excessively so. I am surprised, therefore, at his reply on this particular amendment.
It was a very strange reply. No one is proposing to nationalise the accountancy profession. The Minister has pointed out that all the new bodies that have been set up under government have been subject to the NAO. It is true, as he rightly says, that the previous Government did not extend the NAO's remit to all such bodies. There is no reason, given that we have Bills like this so rarely, that we should not consider now whether it is appropriate to be consistent in the matter. These are non-departmental but nonetheless public bodies. They are not private plcs or whatever. It seems to be an argument—to use the Minister's phrase—for "one size fits all". As I understand it, basically the auditors report to the Minister and the Minister to Parliament. The NAO is not in the loop so far as concerns a number of these bodies. It would seem important that he should be in that loop.
The other point seems to be that on many individual cases the Comptroller and Auditor General has to become involved in negotiations as to whether or not he will be responsible in a particular case, which does not seem satisfactory. We will not pursue the matter now but a degree of consistency is needed. Otherwise, the control which Parliament exercises in some instances of non-departmental public bodies—I accept the point made by the Minister about the inadequacy of our drafting, which we will try to put right by Report stage—is something which is of importance and where the role of the NAO should be extended to include all such bodies. Subject to those comments, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 17 not moved.]
Clause 8 [Comptroller and Auditor General: access to information]:
Lord Higginsmoved Amendment No. 18:
Leave out Clause 8, and insert the following new clause—
COMPTROLLER AND AUDITOR GENERAL: ACCESS TO INFORMATION
(" .—(1) This section applies in connection with the examination by the Comptroller and Auditor General of the accounts of any government department or other body under or by virtue of—

(a) any enactment, including this Act, or

(b) in the case of a body other than a government department, any arrangement which provides for the accounts of that body to be subject to examination by the Comptroller and Auditor General.

(2) Subsection (3) applies only to the following records, that is to say—

(a) records which are in the custody or under the control of the department or body to which the examination relates, or to which that department or body has or can obtain access;

(b) records of a receiving body to which any paying body has or can obtain access.

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(3) In connection with such an examination as is mentioned in subsection (1), the Comptroller and Auditor General shall, subject to subsections (2), (4) and (5). have a right to access at all reasonable times to any record relating to—

(a) the accounts of the department or body to which the examination relates.

(b) any money originating in the Consolidated Fund.

(c) any liability or contingent liability that will or may be met out of monies originating in the Consolidated Fund, or

(d) tax credits under the Tax Credits Act 1999.

(4) The right of access conferred by subsection (3) shall not be exercisable in relation to any record relating to accounts which—

(a) are subject to audit by the Auditor General for Scotland or the Auditor General for Wales, and

(b) are not also subject to audit by the Comptroller and Auditor General.

(5) A person who holds or has control of any record to which the Comptroller and Auditor General has a right of access under subsection (3) shall give the Comptroller and Auditor General any assistance, information or explanation which he requires in relation to the matters recorded in it.
(6) In this section "paying body" means any body which pays to a receiving body money originating in the Consolidated Fund, and a "receiving body" means any body which receives from a paying body money originating in the Consolidated Fund, but does not include in either case a body the accounts of which are subject to audit under section 2 of the Audit Commission Act 1998 or section 97 of the Local Government (Scotland) Act 1973 unless it is a body specified in section 98(1) of the National Health Service Act 1977.").
The noble Lord said: This is a question of access. We are concerned with the fact that, at the moment, the NAO does not have the degree of access we feel to be appropriate. The chairman of the Public Accounts Committee in another place stressed the importance of this. The intention of the legislation being amended by Clause 8 was that there should be effective parliamentary scrutiny of all departmental expenditure. If we do not amend Clause 8 in the way suggested, we will not achieve that object. For that reason, we consider that the amendment should be accepted. I beg to move.
Baroness Sharp of Guildford: I rise briefly to give our support to this amendment, which links up very much with the amendment we have just been discussing. Indeed, the two might well have been taken together because one leads on to the other. The issue is one of the accountability of the executive to Parliament and the spending of money that Parliament votes. This is why these non-departmental public bodies should be subject to scrutiny. There are differences between the standards of scrutiny required for public sector—as distinct from private sector—organisations. This is the case for the first amendment we debated, Amendment No. 16. This amendment is concerned with the whole issue of access and it is because, on quite a number of occasions, the National Audit Office has rights of access but they have to be negotiated independently.
Each act creates a separate arrangement for audit. For example, the National Audit Office had to spend five years negotiating the required access for the Housing Corporation, four years with Camelot. It has been having a lot of difficulty with the private train operators. All this takes time and money resources out

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of the public sector. It seems absurd that there is no consistency of standards here. For that reason we very much support the amendment.
6.45 p.m.
Lord McIntosh of Haringey: This is an extraordinary amendment which seeks to replace the current access clause in the Bill. However, it will increase very considerably the statutory right of access by the Comptroller and Auditor General, and I wonder whether the implications of the amendment have been thought through. The amendment would allow the Comptroller and Auditor General to follow public money through a chain of grants, even where the final recipient was very remote from government, and have access to anyone who was allowed to keep money that would otherwise go to the Government. Therefore, it would allow the Comptroller and Auditor General to follow public money wherever it went. On the face of it, that may sound a desirable objective but let us see how it would work.
The new clause would give the Comptroller and Auditor General the same right of access to the records of a body receiving public money as is available to the body paying over the money. Therefore, where the Department of the Environment, Transport and the Regions pays grant to the Housing Corporation, which passes it on to social landlords, which may in turn pass it on to construction firms, which may in turn pay sub-contractors, the Comptroller and Auditor General will have access to all of those bodies simply for the purpose of auditing the DETR. Even the department does not have such sweeping powers of access. The new clause allows him access to the books and records of private sector firms, on the same basis as the Inland Revenue, to investigate whether tax credits have been properly calculated. That simply doubles the scrutiny process. The Inland Revenue already operates a pretty tough regime of oversight in these areas.
The new clause also provides the Comptroller and Auditor General with statutory access to the accounting records of all public service contractors. Government guidance is already perfectly clear on the need for government contracts to allow the Comptroller and Auditor General access to the books and records of contractors for the audit of the department concerned. The Comptroller and Auditor General has reported on a large number of contracting out situations, including the Inland Revenue contract with EDS and the contracted-out Wolds remand prison. As for PFI contracts, separate Treasury guidance makes it absolutely clear that access should be routinely included in those contracts.
There are other problems. The clause would impose a potential regulatory burden on all the firms concerned. The British Chambers of Commerce and the Federation of Small Businesses have said that to enhance the Comptroller and Auditor General's access in the manner proposed will increase the burden of red tape on small and medium-sized enterprises. To give him a statutory right of access when such a right is not necessary in practice may well deter suppliers from
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competing for government contracts, thereby pushing up costs. It could lead to excessive scrutiny, particularly in relation to regulatory functions which Parliament has asked other bodies to undertake, such as the Housing Corporation in respect of social landlords or the rail regulators in respect of the train operating companies. If we agreed to this amendment I do not believe that we would ever get it passed my noble friend Lord Haskins and the Better Regulation Task Force.
The burden on employers and contractors to the Government would be absolutely extraordinary. This is a classic case where it is not a matter for the Bill but the Sharman review. All of the agenda for modernising government has important implications for audit. We can and will consider the possibility of extending the Comptroller and Auditor General's access by administrative means where it can be shown to be necessary to provide effective audit and where it will help to promote well thought through innovation and risk-taking. However, we need to look at matters in the round, and that was why we appointed the Sharman committee in the first place.
I do not believe that outside the Committee the Conservative Party and Liberal Democrat Party would be pleased to see an amendment of this kind included in their election manifestos; nor do II believe that it would be welcomed by those in the business community who deal with government.
Lord Higgins: I listened carefully to the Minister. In short, he seems to be saying that this amendment is not well targeted. Obviously we need to consider the points he made, which we will do between now and Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
[Amendment No. 19 not moved.]
Clause 9 [Preparation]:
Lord McIntosh of Haringeymoved Amendment No 20:
Page 5, line 31, leave out subsection (3) and insert—
("(3) The accounts shall contain such information in such form as the Treasury think fit.
(4) In determining the form and content of the accounts the Treasury shall aim to ensure that the accounts—

(a) present a true and fair view, and

(b) conform to generally accepted accounting practice subject to such adaptations as are necessary in the context.").

The noble Lord said: This amendment would require the whole of government accounts to present a full, "true and fair view". We are bringing forward this amendment in order to bring the requirements for the whole of government accounts into line with those for resource accounts. An amendment requiring resource accounts to present a true and fair view was made at Report stage in the other place. The Companies Act requires that the profit and loss account and the balance sheet present a true and fair view. We go further and extend it to the whole of government

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accounts. It is an overriding requirement in company legislation and we are content for it to apply to the accounts which we produce. I beg to move.
Lord Higgins: We shall come to the whole of government accounts in a moment. I do not wish to comment further on what the Minister said.
On Question, amendment agreed to.
On Question, Whether Clause 9, as amended, shall stand part of the Bill?
Lord Higgins: We come to Clause 9 of the Bill, which is concerned with whole of government accounts. This clause raises some important issues and one understands why it is being moved. One great advantage of what the Government are now proposing—I have already indicated that we support generally the move towards resource accounting—is that, in addition to the equivalent of a profit and loss account, it includes the provisions for balance sheets. As I understand it, that is not only the balance sheets of individual departments but also, under this clause, a balance sheet for the whole of government accounts. That is a major change; it raises extremely complex and difficult issues. Nonetheless, it is an objective that we on this side of the Committee feel should be pursued.
It has long been the case that the traditional objectives of government economic policy are to achieve a high level of employment, low inflation, equilibrium in the balance of payments and so forth. It has always seemed strange that, while in the private sector we have a profit and loss and a balance sheet, as well as a cash flow statement, we do not have a government balance sheet. Crucially, that enables one to get some sense of what is happening across the generations. One has only to look at such preliminary estimates—we have made some progress over the past 10 or 15 years as to what a national or government balance sheet will look like—to realise the importance of this point.
It ought perhaps to be an explicit objective of government policy to have some view as to whether the balance sheet should go up or down in relation to what is happening to the general level of economic activity. It has certainly been the case that in the past the value on the balance sheet has been run down or increased beyond what is justified by the normal dynamics of the economy. As a result, people in particular generations, leaving aside the problem of dividing up generations, have gained or lost. If we can make some progress in this area, and it would need to extend beyond Government balance sheets towards balance sheets for the economy as a whole, then a declaration by the Government that they would not penalise the present generation at the expense of future generations—or the other way about—is certainly very important indeed. Of course, in this context that is the most relevant issue as far as pensions are concerned.
We are in a situation where, as far as company pensions are concerned, despite what the Government did on ACT, I believe the value of our company
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pensions—I declare an interest here since I am chairman of one—is equal to that in the rest of Europe, with nasty implications for the future of interest rates and the single currency argument and so on, which I do not propose to go into now. If we have a serious set of figures as far as balance sheets are concerned, then we can make considerable progress.
As regards pensions, I remarked on Second Reading that we had a splendid document which showed the Government's assets but did not indicate the extent of government liabilities.
I do not know whether the Minister could tell us to what extent, for example, given my other responsibilities, the Department of Social Security is likely to produce a balance sheet showing how it is likely to change over time. Certainly that would be something of considerable importance.
The Committee has been sitting for some while now. I will not ride my particular hobbyhorse any longer, but we believe that the proposals which are made here are very much to be welcomed. What I have been saying is relevant in building up the whole of government accounts' balance sheets from the balance sheets of the individual departments.
Perhaps the Minister can indicate over what time we are likely to make progress on this matter. Of course, the whole of government accounts also propose that for each financial year there should be separate accounts for groups of bodies, each of which appear to the Treasury to exercise these various functions.
On the nitty-gritty detail of the clause I am a little puzzled by the use of the expression "groups of bodies", each of which appears to the Treasury to fulfil these various functions. One criterion is that it should appear to the Treasury to be an activity of a public nature. Whether that includes football teams, for example, I am not clear. Indeed, the criteria as set out seem to be a little wide at times. Perhaps we ought to look at that in rather more detail.
Nonetheless, overall the proposal for the whole of government accounts is of value, and it is the view of Opposition Peers that it should be encouraged.
Baroness Sharp of Guildford: I support what the noble Lord, Lord Higgins, said in terms of welcoming this move towards the whole of government accounts. It is a very important issue. Opposition Peers are anxious to see fixed assets in addition to the pension side. One aspect that would be revealed by producing the balance sheet would be the running down of fixed assets in the public sector and the public sector infrastructure over the course of the past 20 or so years, which is very much a question of what one generation passes on to another. It would be a very valuable exercise and we thoroughly endorse it.
7 p.m.
Lord McIntosh of Haringey: As the noble Lord, Lord Higgins, knows, I share his hobbyhorse on pensions in particular, and on inter-generational equity. I hope that in due course the preparation of the whole of government accounts will make it easier for

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us to look at long term liabilities as well as assets, although whether that will be possible in the short or medium term, I am far from sure.
I was asked about the timing of the whole of government accounts. Our present view is that we think it will be possible to publish audited central government accounts for 2002 to 2003 onwards, with full audited whole of government accounts perhaps—and I have to say perhaps—from 2005 to 2006 onwards. It is clear that this is a long and very difficult process indeed, and some of it depends not on central government but on the other public sector organisations that are going to have to be brought into it.
The noble Lord, Lord Higgins, and the noble Baroness, Lady Sharp, are entirely right about the way in which whole of government accounts fit into our strategy. It is part of the commitment in the code of fiscal stability; it is part of all of our thinking about taking a realistic view about what works and what does not work, rather than about ideology.
I should kill any suggestion that this means that the existing national accounts are defective, because national accounts are produced within the internationally agreed system of national accounts. They provide an adequate basis for the conduct of fiscal policy, and I do not think we should opt out of our international obligations in this way. We are committed to strengthening the fiscal framework, and we believe that accounts based on generally accepted accounting principles for the public sector offer an improved basis for monitoring developments and taking decisions.
We plan that ONS statistics will be used to produce and publish unaudited whole of government accounts from 2001 onwards. I very much welcome the tone in which this clause has been debated.
Clause 9, as amended, agreed to.
Clause 10 [Obtaining information]:
Lord McIntosh of Haringeymoved Amendment No. 21:
Page 6, line 18, after ("body") insert ("or giving a direction under subsection (5)").
The noble Lord said: These are all what I call Welsh amendments; they are on slightly different subjects but they have all been requested by the National Assembly for Wales. They provide for consultation with the National Assembly and they amend the Government of Wales Act to bring it into line with the Bill. Let me say immediately that we do not need similar amendments for Scotland because Scotland has a parliament and they are introducing their own equivalent of the Government Resource and Accounts Bill. Indeed, I rather think they are ahead of us.
Amendment No. 21 extends the requirement for the Treasury to consult the National Assembly for Wales on the form, audit and delivery of accounts that form part of the whole of government accounts. The National Assembly will he using the information to produce whole of government for Wales accounts to he laid before the Assembly.
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Amendment No. 24 amends Clause 14 to provide for the Treasury to consult the National Assembly and the Auditor General for Wales before disapplying the requirement for a health body in Wales to be included in summarised accounts for a particular year. Amendment No. 25 to Clause 15 is an amendment to the Government of Wales Act. It uses the word "resources" which does not otherwise appear in the Government of Wales Act. Amendment No. 34 amends Clause 28 to provide for the Treasury to consult the National Assembly for Wales before designating Welsh bodies for inclusion in the "dry-run" whole of government accounts. Amendment No. 37 amends the Health Service Commissioners Act to extend the time for preparation of the commissioners' accounts in Wales and bring these into line with other accounts covered by the Bill. Amendment No. 40 provides the necessary powers in the Government of Wales Act for the National Assembly to have whole of government of Wales accounts to be produced and audited. Amendment No. 42 provides a power for the Treasury to amend, after consultation, the date by which the National Assembly for Wales and its associated bodies must produce accounts.
Because of the complexity of producing whole of government and whole of government of Wales accounts, all accounts preparation timetables are being extended to 30th November. Once they settle in, we propose to shorten the timetable for preparation. The Bill already provides the Treasury with powers to amend the timescale for England, and this amendment parallels the situation for Wales after consultation with the National Assembly and the Auditor General for Wales. I beg to move.
On Question, amendment agreed to.
On Question, whether Clause 10, as amended, shall stand part of the Bill?
Lord Higgins: This clause, as amended, is concerned with obtaining information in relation to the whole of government accounts. It seemed to us that there were a few points which ought to be made on this and I hope this is an appropriate point to do so.
With regard to the provision of information, there are a number of issues with which we are concerned, such as the cost of capital and depreciation. Until now, we have not found an appropriate point to raise that. The Minister may feel that it is not appropriate at this stage, but at some point we need to consider—because the earlier clauses deal with it—what estimate of the cost of capital would be made available. Perhaps I might consider that, because I suddenly realise that there is a gap in the point I was concerned about. I would not wish to oppose the clause as it now stands.
Clause 10, as amended, agreed to.
Clause 11 [Scrutiny]:
[Amendment No. 22 not moved.]
Clause 11 agreed to.
[Amendment No. 23 not moved.]
Clauses 12 and 13 agreed to.
Clause 14 [Summarised accounts.]:
Lord McIntosh of Haringeymoved Amendment No. 24:
Page 9. line 17, at end insert—
("( ) Where the function under section 98(4) of the National Health Service Act 1977 is exercisable in respect of a body by the National Assembly for Wales—

(a) the Treasury shall consult the National Assembly for Wales and the Auditor General for Wales before making an order in respect of the body under subsection (1) above, and

(b) subsection (3) above shall not apply.").

On Question, amendment agreed to.
Clause 14, as amended, agreed to.
Clause 15 [Finance]:
Lord McIntosh of Haringeymoved Amendment No. 25:
Page 9, line 26, after ("resources") insert ("(within the meaning of the Government Resources and Accounts Act 2000)").
On Question, amendment agreed to.
Clause 15, as amended, agreed to.
Clause 16 [Expenditure]:
Viscount Bridgemanmoved Amendment No. 26:
Page 9. line 31, after ("on") insert ("upstream").
The noble Viscount said: With permission, I will speak also to Amendments Nos. 27 to 32. They arise largely from a point made by my honourable friend, Mr Howard Flight, in the early stages of the Bill in another place. I would also refer members of the Committee to the private finance initiative report in which there was a very strong recommendation that no equity stake should be taken by PUK in the PFI projects.
We feel that the investment powers of Partnerships UK are at present too loosely drawn. We have therefore sought to spell out on the face of the Bill that the role of Partnerships UK is that of initial facilitator and provider of initial expertise. It introduces the definition, which we consider very important, of upstream. I suggest that Amendments Nos. 31 and 32 meet the objectives of Partnerships UK. I hope that this reflects the thinking of the Government to date and the result of their consultations with industry, lawyers and the PFI team in the Treasury as to what constitutes reasonable activities.
The Government referred to an upper limit of £1 billion expenditure on these projects. We feel that that is too much and seek to introduce a cap in the Bill of £500 million.
Finally, there are two housekeeping amendments, Amendments Nos. 28 and 30, that reflect the spirit of the Committee this afternoon. I beg to move.
Lord McIntosh of Haringey: Am I right in thinking that the noble Viscount referred to Amendments Nos. 26 to 32—the whole group?
Viscount Bridgeman: Yes.
Lord McIntosh of Haringey: That is fine by me because I am happy to treat all the issues relating to
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Partnerships UK although, having read the amendments, I have to say that I am somewhat puzzled by them, particularly the amendments to Clause 17. The amendments to Clause 16 are only subsidiary amendments. They appear to provide a new definition of public/private partnership business, which is unnecessary as the present definition in Clause 17 is suitable for a pioneering business that is expected to grow over time.
Let me begin by outlining the role of Partnerships UK. It will not be an adviser—there are plenty of those in the market already. Its primary aim is to address the skill deficit on the public sector side of the PFI/PPP procurement process. It will build on the work of the Treasury taskforce, which has been set up for a finite time, and accelerate the flow of value for money public/private partnerships.
Partnerships UK will operate by working with departments and other public sector bodies in a unique way; that is, as a co-developer of projects, sitting alongside public sector project teams and taking decisions with them. Partnerships UK and public sector procurers will act as joint venture partners with the object of the joint venture being the delivery of a value for money procurement on time.
Partnerships UK will not operate as a bank. It will not provide long-term debt for PFI projects. Instead, in support of its core co-developer role it will provide development funding where appropriate to get PFI deals off the ground where existing forms of private finance are not available. Partnerships UK will therefore enhance existing flows of private finance.
For example, Partnerships UK might help to bundle together projects that are individually too small to be economically viable for private sector bidders. It might provide support for contractors' bidding costs on large or novel projects. The scope of public/private partnerships is widening all the time with new forms of partnership such as wider markets being developed. In this context, Partnerships UK can only remain effective as an organisation over the medium and long term by developing and changing its business so that it stays at the cutting edge.
The amendments would restrict the scope of Partnerships UK and take away its flexibility to adapt and evolve over time. They are inconsistent with our aims to create an innovative organisation capable of making a significant contribution to the Government's modernisation programme.
Amendments Nos. 28 and 30 both seek in similar terms to open Partnerships UK's accounts to scrutiny by the Comptroller and Auditor General. The noble Viscount described them as "housekeeping". However, Partnerships UK will be a risk-taking public sector body. It will have a majority of private sector investors who will expect a return on their investment and it will, of necessity, need to act commercially in order to raise finance and make a success of its business.
It is not appropriate or necessary for PUK to be inspected by a public sector audit body. This is a job for a Companies Act auditor who is appointed in the

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normal way to deal with private companies. Accountability for PFI and PPP projects will, as now, remain with the Whitehall departments and other public bodies who commission them. The NAO has already reported on a number of private finance schemes. Last July the Treasury issued guidance on the standardisation of private finance contracts which makes clear that PFI contracts should include clauses to ensure appropriate NAO access. I hope that that provides the assurance that the noble Viscount, Lord Bridgeman, seeks.
There should not, therefore, be any problem in practice about the NAO securing necessary access to assess PFI projects; indeed, the Public Accounts Committee will undoubtedly ask it to do so. Under the provisions of this Bill any government investment in Partnerships UK will come out of voted money. Therefore, it will be covered by appropriation or, soon, by resource accounts which are audited by the NAO. That is no different from other payments by departments to the private sector. I conclude, therefore, that the Comptroller and Auditor General has the access that he needs to do his job effectively.
Finally, I turn to Amendment No. 29 which is possibly out of date. It provides for a limit of £500 million. However, at Report stage in the other place we tabled a new clause, which is now Clause 18, to limit the investment to £400 million. I hope that that satisfies the noble Viscount.
7.15 p.m.
Viscount Bridgeman: Before the noble Lord sits down, I request clarification. Does Clause 18 totally absorb my amendment?
Lord McIntosh of Haringey: The new clause is more restrictive than the noble Viscount's amendment.
Viscount Bridgeman: I am sure that the whole Committee will be very grateful to the noble Lord for his comprehensive explanation of the thinking behind Partnerships UK. We shall study his remarks very carefully. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 27 to 30 not moved.]
Clause 16 agreed to.
Clause 17 [Section 16: interpretation]:
[Amendments Nos. 31 and 32 not moved.]
Clause 17 agreed to.
Clauses 18 and 19 agreed to.
Clause 20 [Supplies by Government Departments]:
On Question, Whether Clause 20 shall stand part of the Bill?
Lord Higgins: I rise to speak to the Question whether Clause 20 stand part of the Bill. This clause is concerned with value added tax. I am always concerned about any amendment to VAT legislation. A long while ago I had the interesting task of steering the original VAT legislation through the other place.
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I have always regretted any change to what I regard as a perfect piece of legislation! When we introduced the legislation we went to considerable lengths to deal appropriately with supplies made by government departments, which is why I am not clear as to the reason for the inclusion of this clause in this Bill. The clause appears to enable the Government 10 amend Section 21 of the Finance Act 1999 (accounting for VAT by government departments). That will no longer have effect. If that is so perhaps it is not a matter appropriately dealt with by the Committee. I am puzzled, therefore, as to why the clause appears at this precise point in the Bill. No doubt the Minister can explain it.
Lord McIntosh of Haringey: The simple answer is that it has not been certified as a money Bill, which is a matter for the Speaker rather than the Committee. As to the purpose of the clause, I should make clear that it does not make any changes to VAT legislation; it would be impertinent to do so. It ensures that. government departments comply with the relevant accounting standard for VAT, which is the Statement of Standard Accounting Practice 5. This treatment is set out in Resource Accounting and Budgeting and has been endorsed by the Financial Reporting Advisory Board. It is only to make sure that the new system of accounting applies across all the areas of government accounts, which include VAT, that this clause is necessary.
Lord Higgins: Can the Minister explain what Statement of Standard Accounting Practice 5, to which he refers, actually does?
Lord McIntosh of Haringey: Let me see if I can. This enables departments to account for VAT in the same way as other bodies and in accordance with standard accounting practice. The proposal to account for practice VAT in accordance with Statement of Standard Accounting Practice 5 is already included in Resource Accounting and Budgeting and I refer the noble Lord, Lord Higgins, to this manual of which I know he has received a copy. It has been agreed with the Financial Reporting Advisory Board.
In practice, the VAT element of the departmental income is appropriated in aid but doing so would require it to be accounted for gross, thereby making compliance with the Statement of Standard Accounting Practice 5, which requires netting-off of VAT, impossible. So that is what SSAP5 does. It requires netting-off of VAT and we want to make sure that we comply with that.
Lord Higgins: That has a strangely distorting effect on the expenditure of certain departments, in particular as far as health departments are concerned, but I will read with care what the Minister said. It may be he would wish to add to it or perhaps write to me about it.
Lord McIntosh of Haringey: I will do better than that, I shall write to the noble Lord, Lord Higgins. I am not totally confident that I have covered the water-front.
Lord Higgins: I thank the Minister and I look forward to being reassured in correspondence.
Clause 20 agreed to.
Clauses 21 to 26 agreed to.
Clause 27 [Amendments and repeals]:
Lord McIntosh of Haringeymoved Amendment No. 33:
Page 13. line I, leave out from ("2") to second ("are") in line 2.
The noble Lord said: In moving Amendment No. 33 I shall speak also to Amendments Nos. 35, 36, 38, 39 and 41, which are all technical drafting amendments. I first speak to Amendments Nos. 33 and 35. Section 37 of the 1866 Act is utterly obsolete (it says here). It has been included in the list of repeals (Schedule 2) since the first draft of the Bill. However, uniquely among the provisions repealed by the Bill, its repeal has not been formally set out elsewhere in the Bill. Instead, reliance has been placed on a phrase in Clause 27 that the repeals include "enactments that are no longer of practical utility".
We have decided that, for the sake of consistency, Section 37 of the 1866 Act should be repealed explicitly and this is done by Amendment No. 35. This means that the phrase in Clause 37 about "enactments that are no longer of practical utility" becomes redundant as no repeals in the Bill are now dependent on it and so it can be deleted. This is done by Amendment No. 33. That is very sad—I like enactments that are no longer of practical utility.
Amendment No. 36 refines the interaction between the general audit provisions of the Bill and the audit of NAO's own accounts. The current wording of the Bill applies Clause 6 in its entirety to the audit of NAO's own accounts. That is inappropriate because the other parts of Clause 6 are not relevant to NAO's situation. The amendment, therefore, limits the application to Clause 6(1) together with Clause 23(2). NAO is content with that change.
Amendment No. 38 corrects a reference to another clause in the Bill.
Amendment No. 39 amends the Tax Credits Act 1999 to bring it into line with the Bill. The reference to "account" rather than "accounts" occurs because the Bill removes references to Bank of Ireland accounts.
Amendment No. 41 expands a change to the Food Standards Act 1999 to include a reference to the paragraph heading as well as the text of the Act, bringing it into line with another similar reference. I beg to move.
Lord Higgins: We shall need to study very carefully the large number of amendments on specific issues, and particularly the Tax Credit Act.
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I share the Minister's sadness that the part of Clause 27(2), which includes enactments that are no longer of practical utility, should be deleted, even though he made specific provision for the particular enactment, which he thought was no longer of any practical utility. I have only one question for him: is he 100 per cent sure that there are no other enactments which are no longer of practical utility?
Lord McIntosh of Haringey: I think I shall leave that to the Law Commission.
On Question, amendment agreed to.
Clause 27, as amended, agreed to.
Clause 28 [Commencement]:
Lord McIntosh of Haringeymoved Amendment No. 34:
Page 13. line 16, at end insert—
("( ) Before specifying a body in an order under subsection (3) the Treasury shall, where they think it appropriate, consult the National Assembly for Wales.").
On Question, amendment agreed to.
Clause 28, as amended, agreed to.
Clause 29 agreed to.
Schedule 1 [Minor and consequential amendments]:
Lord McIntosh of Haringeymoved Amendments Nos. 35 and 36:
Page 15, line 33, at end insert—
(" . Section 37 (unstamped vouchers) shall cease to have effect.").
Page 17. line 3, leave out ("section 6") and insert ("sections 6(1) and 23(2)").
On Question, amendments agreed to.
Lord McIntosh of Haringeymoved Amendment No. 37:
Page 17, line 11, at end insert—
("The Health Service Commissioners Act 1993 (c. 46)
17A. In paragraph 11(1) of Schedule IA to the Health Service Commissioners Act 1993 (Welsh Commissioner: accounts) for "no later than five months after the end of that financial year" there shall be substituted "no later than 30th November of the following financial year".").
On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 38 and 39:
Page 17, line 17, leave out ("(6)") and insert ("(7)").
Page 17. line 18. at end insert—
("Tax Credits Act 1999 (c. 10)
.In section 5(2) of the Tax Credits Act 1999 (deductions before payment under section 10 of the Exchequer and Audit Departments Act 1866) for "accounts" there shall be substituted "account".").
On Question, amendments agreed to.
Lord McIntosh of Haringeymoved Amendment No. 40:
Page 17. line 18, at end insert—
("The Government of Wales Act 1998 (c. 38)
18A. The Government of Wales Act shall be amended as follows.
1811. In section 96 (Auditor General for Wales: miscellaneous) after subsection (7) insert—
"(8) If the Treasury designate the Assembly in respect of a financial year for the purposes of section 10 of the Government Resources and Accounts Act 2000 (whole of government accounts), the Auditor General for Wales shall carry out the audit required by section 10(2)(c) of that Act.
(9) Where the Treasury make arrangements with the Assembly under section 10(8) of that Act, the Auditor General for Wales shall carry out the audit required by section 10(8)(c)."
18C. In the following provisions (which require the submission of accounts to the Auditor General for Wales) for "no later than five months after the end of that financial year" substitute "no later than 30th November of the following financial year"—

(a) section 97(4) (Assembly),

(b) paragraph 6(1) of Schedule 6 (Chief Inspector of Schools in Wales),

(c) paragraph 6(1) of Schedule 7 (Forestry Commissioners), and

(d) paragraph 10(1) of Schedule 9 (Welsh Administration Ombudsman).

18D. After section 101 (examinations by Comptroller and Auditor General) insert—
"Whole of Government of Wales accounts.
101A. — (1) This section applies in respect of a financial year for which the Treasury make arrangements with the Assembly under section 10(8) of the Government Resources and Accounts Act 2000 (whole of government accounts: consolidation of Welsh accounts).
(2) The Assembly shall prepare a set of accounts for the group of bodies which provide information to the Assembly in accordance with the arrangements under section 10(8).
(3) Accounts prepared under this section may include information referring wholly or partly to activities which—

(a) are not activities of bodies falling within subsection (2), but

(b) appear to the Assembly to be activities of a public nature.

(4) 'The accounts shall contain such information in such form as the Treasury may direct.
(5) The Treasury shall exercise the power under subsection (4) with a view to ensuring that the accounts—

(a) present a true and fair view, and

(b) conform to generally accepted accounting practice subject to such adaptations as are necessary in the context.

CWH 54
(6) The Assembly shall send accounts under this section to the Auditor General for Wales.
(7) The Auditor General for Wales shall examine accounts sent to him under this section with a view to satisfying himself that they present a true and fair view.
(8) Where the Auditor General for Wales has conducted an examination of accounts he shall—

(a) certify them and issue a report. and

(b) send the certified accounts and the report to the Assembly.

(9) A person who acts as auditor for the purpose of section 10(2)(c) or (8)(c) of the Government Resources and Accounts Act 2000 shall give to the Auditor General for Wales such information and explanations as he may reasonably require for the purposes of this section.
(10) The Assembly shall by order specify dates by which the duties under subsections (6) and (8)(b) shall be performed.
(11) Before making an order under subsection (10) the Assembly shall consult the Auditor General for Wales.").

On Question, amendment agreed to.
Lord McIntosh of Haringeymoved Amendments Nos. 41 and 42:
Page 17, line 22, at end insert ("(and in the heading to the paragraph)").
Page 17, line 30, at end insert—
("Wales: alteration of timetables for accounts.
. — (1) The Treasury may by order substitute a new date for a date for the time being specified in any of the elrovisions mentioned in paragraphs 17A and 18C.
(2) An order under sub-paragraph (1) —

(a) may specify a new date for all purposes or for specified purposes only,

(b) may specify different dates for different purposes, and

(c) shall be made by statutory instrument.

(3) Before making an order under sub-paragraph (1) the Treasury shall consult—

(a) the National Assembly for Wales, and

(b) the Auditor General for Wales.").

On Question, amendments agreed to.
Schedule 1, as amended, agreed to.
Schedule 2 agreed to.
Title agreed to.
Bill reported with amendments.
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): That concludes the Committee's proceedings on the Bill.
The Committee adjourned at twenty-nine minutes past seven o'clock.