HL Deb 21 March 1977 vol 381 cc241-3

2.57 p.m.

Lord CULLEN of ASHBOURNE

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government whether they are in favour of inflation accounting, and if so, whether they propose to adopt it in the nationalised industries.

Lord ORAM

My Lords, the Exposure Draft of a Current Cost Accounting standard produced by the Morpeth Committee was published on 30th November last year. On the same day the Government reaffirmed their support for the system of Current Cost Accounting and their desire that this should become the basis for the preparation of company accounts as soon as practicable. The Government also agreed that the system should apply to nationalised industries and public trading bodies, subject to any necessary adjustment to meet their special circumstances.

After the end of its consultative period on 31st May, the Morpeth Committee will consider, in the light of views expressed, whether changes will need to be made in the Draft Standard.

Lord CULLEN of ASHBOURNE

My Lords, I thank the noble Lord for that reply. Will he agree that an article in The Sunday Times on 13th March made it clear that nine of the largest firms of chartered accountants had very varying views about this matter and said that a great deal more study was needed? Secondly, will he agree that to adopt this system for nationalised industries, with the obvious result that higher prices would ensue, particularly in the case of electricity, would be unfortunate until we get the rate of inflation down to the single figure that we are all so eagerly awaiting?

Lord ORAM

My Lords, it is true that considerable interest is being shown in this proposal by the organisations to which the noble Lord referred and by many others. It is these expressions of opinion that the Morpeth Committee will be considering. On the question of the application of this system in the nationalised industries during a period of rising prices, subject to the advice that they will receive, the Government are of the view that this proposed system will give a more realistic financial picture and will help both the private sector and the nationalised sector to reach better commercial decisions. I ask the noble Lord to bear this side of the picture in mind as well as the aspects to which he drew attention.

Lord AVEBURY

My Lords, would not the alterations in the accounts of both the nationalised industries and private companies to take into account the effects of inflation, cause an increase in the amount of fees charged by auditors which would then have to be passed on to consumers? Would it not be better if we could eliminate inflation?

Lord ORAM

My Lords, I think that a number of bridges have to be crossed before the auditors raise their fees. I do not think that there would be any automatic raising of fees as a result of this. I agree that it is a point that needs looking at.

Lord ORR-EWING

My Lords, would the noble Lord agree that it is desirable to introduce some inflation accounting to take a more realistic view of profits? Is he aware that there is considerable controversy about Exposure Draft No. 18, and that if this was applied, particularly in the heavy capital goods industries, many firms making slender profits would be making substantial losses under the present scheme? Would it not be wise, therefore, to wait until there is more general agreement about a system and particularly, as said by previous noble Lords, until the inflation rate is reduced remarkably and markedly below the 16 per cent. now prevailing?

Lord ORAM

My Lords, I accept what the noble Lord said about the consideration of capital intensive industries, and that is something which we shall have to weigh up. Historic cost accounts, the existing system, have become dangerously misleading, and this problem has to be tackled, and the timing of it of course is one of the things that the Government will have to consider. We have made up our minds about the principle of it.

Lord HAWKE

My Lords, until a proper method of inflation accounting is agreed upon, would it not be best if firms were encouraged to put a note to their accounts stating the cost of replacing their assets? Would not that be a reasonable interim substitute for the real thing?

Lord ORAM

My Lords, I will take note of what the noble Lord said, and I am sure that that will be put before the Morpeth Committee.