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Mr. Andrew Tyrie (Chichester): Does my hon. Friend agree that it is not merely whether the accounts are fiddled, but whether there is a perception that they could be fiddled? That in itself would be enough greatly to erode the value of any numbers.
Mr. Letwin: My hon. Friend is right. We are talking about the Caesar's wife phenomenon. Not only do the accounts need to be transparent, they need to be seen to be transparent. Nobody in their right mind will be confident--to put the case at its weakest--that the accounts are transparent if the people who are responsible for setting the standards, or rather for setting the deviations from the independently set standards, are the very people who have an interest in ensuring that the deviations occur when it is convenient for the Government, and do not when it is not.
Miss Julie Kirkbride (Bromsgrove): My hon. Friend is an acknowledged expert on such matters. For those of us who are newer to the debate, will he speculate on how
wide the Government could make the figures that would not apply if our amendment were accepted? Will he help us to understand just how wide their scope could be?
Mr. Eric Forth (Bromley and Chislehurst): What does Caesar's wife have to say about it?
Mr. Letwin: I shall not be by tempted by that intriguing sedentary intervention from my right hon. Friend. Instead, I shall answer my hon. Friend the Member for Bromsgrove (Miss Kirkbride). She is right to draw attention to the point that she raised. She is too polite to put it in these terms, but, in effect, she asked whether I was wittering on about a row of beans--a matter that need not concern us--or whether fundamental issues were at stake. The answer is that, abundantly, there are fundamental issues at stake. Before I return to my argument, I shall retail some of them for the benefit of the House.
We are talking about whether the public sector pension funds--unfunded liabilities--are to be recognised as liabilities. Nobody knows the amount at present, but it is many billions of pounds. We are talking about whether the basic state pension liabilities are to be recognised as liabilities. Some assessments suggest that the present value of those liabilities may be about £300 billion.
We are talking about whether the PFI liabilities--an unquantifiable number of billions of pounds over the period--are to be on the balance sheet as liabilities. We are talking about whether the liabilities of new bodies and of half-extraneous, non-departmental public bodies will be on the balance sheet, if they are in the form of contingent guarantees. We heard an example of that this evening, when the Economic Secretary failed to tell us--because she does not know--whether the assets or liabilities of a body she is creating under the Bill will be accounted on the balance sheet.
So far, I have totted up a figure that is probably broadly equivalent to the gross domestic product of this country. That is the scope of the lack of clarity as to how far things will be accounted on the liability side. However, I have not mentioned the biggest question. That relates to those things that are, or are like, benefits. Public concerns and private companies typically account for certain kinds of sickness benefit, for example. A question arises that is deeply material to public policy and to the whole structure of accounting: should disability benefits, in some form, be on the liabilities side of the whole of Government accounts, or should they not? That is an enormous potential sum.
On the assets side, we are talking about how far Government accounting ultimately includes all sorts of contentious items, some of which are currently included while others are not such as schools, hospitals or large elements of the Ministry of Defence estate. How are the latter to be accounted for? What does one do with tanks or nuclear missiles?
We then come to revenue and expenditure and the notorious question of whether the working families tax credit is a tax credit, and hence a negative tax, or a piece of public expenditure. Which side of the income and expenditure and cash flow statements should it be on?
There are many similar items--not least because the Chancellor of the Exchequer has shown us that he intends to expand, if possible, the scope of tax credits, perhaps
widely. It is not inconceivable that, without an independent body, most of the non-pension public expenditure of the benefit sort might be transferred to being a negative tax. Some £70 billion a year could be removed from both sides of the income and expenditure account.
I hope that my hon. Friend the Member for Bromsgrove is beginning to get the picture. We are not talking about a row of beans. We are talking about the shape of the whole public economic system. We have not the slightest idea of what the Treasury will decide when making critical decisions about the definitions that will govern the public policy debate on most of the items that are most contentious in that debate. That is a sorry state of affairs.
Mr. Edward Davey:
The hon. Gentleman is well aware that I share many of his concerns. However, I caution him not to overstate the case. That sorry state of affairs has existed for many years. The Bill is about modernising Government accounts. The Government talk to us about modernising government, so surely the argument that the Conservatives and Liberal Democrats should be making is that the Government should take this opportunity to modernise the public finance system properly and thoroughly.
Mr. Letwin:
The hon. Gentleman is right. It is a sorry state of affairs, but that is not the fault of the Labour Government; it is the fault of our predecessors in Parliament and in government, of both parties over a prolonged period.
Mr. Letwin:
I hope that the hon. Gentleman will forgive me--all parties, of course. It is the collective failure of our democracy to address the issue since Gladstone took a large step forward. Broadly speaking, Gladstone took that step and the rest of us--collectively--held our breath from that date to this. The hon. Gentleman is right. In effect, we are saying that a glorious and golden opportunity is being missed to put the matter right.
Mr. William Cash (Stone):
Will my hon. Friend give way?
Mr. Tyrie:
Will my hon. Friend give way?
Mr. David Davis:
Will my hon. Friend give way?
Mr. Letwin:
That is more than a richesse. I give way to my right hon. Friend the Member for Haltemprice and Howden.
Mr. Davis:
That was a rush of assistance to my hon. Friend.
I agree, as I said in Committee, that the matter is one for which the blame--if that is the right word--falls on a series of successive Governments of all parties, but there is an acute problem at present. My hon. Friend touched on the tax credit issue and the calculation of tax burden. If the amendments proposed by him and the hon. Member for Kingston and Surbiton (Mr. Davey) are accepted, it is almost certain that the Government's judgment on the calculation of tax credits would be overturned. Every other
western country takes a different stance on that matter, because when there is no tax liability, a payment is made. That is the test--whether it is a payment rather than a negative tax. The tax credit system fails that test. As a result, it is almost certain that, were such an independent body to exist, the Government would have to account in the same way as the rest of the Organisation for Economic Co-operation and Development. In that sense, there is a large price tag on the amendment, which makes it much more difficult for the Government to accept.
Mr. Letwin:
I was trying not to prejudice the chances of the Minister accepting the amendment by drawing out the implications that, I am afraid, my right hon. Friend has with great perspicacity made abundantly clear. He is right to say that the position has been made significantly worse by the fact that there has been an accounting fiddle, if I can put it in those terms without being unduly prejudicial.
However, if I had to judge, I would say that the biggest cause for concern is not the Government's fault. It is something that goes back a long way and has plagued the public policy debate to the extent that it has distorted the entirety of our policy on the matter. That concern is the treatment of pensions. I believe profoundly that an independent analysis of the definitions would bring pension liabilities in some way into recognition, whether as a note or as an item in the balance sheet. If those liabilities were included in the accounts, the nature of the discussion on social planning and social provision would change.
Mr. Cash:
Does my hon. Friend agree that there is another dimension to the subject that may have been considered earlier in the debate or when the Bill was in Committee? I refer specifically to the interaction between our public accounts and the accounts of the European Union. Just in case anyone should be surprised that I raise the matter, I note that my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, rightly surmises that that is an issue of enormous importance.
8 pm
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