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Mr. Letwin: My hon. Friend has cheered me up no end. I had thought that this debate--not least my speech--might be dull, but now I know that it will be lively. The subject was not debated in Committee and I look forward to hearing his remarks on it. The Bill, wide though its scope is, does not extend to forcing our comparator countries into the paths of righteousness on accounting liabilities. The problem of comparability might arise even
if we cure the accounting problem here. None the less, I look forward with bated breath to my hon. Friend's analysis of these important matters.
If the Economic Secretary wants to expand the argument that she half began to make in Committee--that it would be unduly inflexible if the Government were forced into a straitjacket by an independent body and were unable to decide on the deviations from the accounting standard practices that were proposed by the accounting standards body--she should resist that temptation. She should resist it because it would be to misunderstand what the ability to play with definitions does to Government. Part of our argument is about the rights of a democracy as represented in Parliament. My right hon. Friend the Member for Haltemprice and Howden is principally concerned with those issues, and rightly so as Chairman of the Public Accounts Committee.
However, part of our argument--we have this in common with those on the Liberal Democrat Benches--is about the effect on the Government's making of policy. It is not to their advantage, except in the very shortest term--a few weeks or a few months--to put themselves in a position where they may be tempted to conceal from themselves the real effects of their actions. They can do that by adjusting accounting definitions so that they purport not to be doing what they are in fact doing. That is not in the long-term, or even medium-term, advantage of the Government because they will be doing what they are doing. In the end, pension liabilities will exist whether they are on the balance sheet or not; the Government will have obligations under the PFI whether they are on the balance sheet or not; public sector pensions will or will not be funded; and there will be expenditure under the working families tax credit. All those things will happen. They are economic facts that will hit taxpayers, the macro-economic system, interest rates and, ultimately, the Government.
Mr. Edward Davey:
After the election.
Mr. Letwin:
It may be before or after an election, but those facts will certainly hit the Government at some time. That is not in the interests of government as conceived narrowly. However, I accept that the hon. Gentleman is right. If a Government are just this side of an election that they think they will lose--I wonder whether the Government think that they will lose the next election--they might try to conceal from themselves, and from their successors, the effects of actions that will be visited upon their successors.
Mr. Cash:
I am a mere novice in this subject, but my hon. Friend made a bold and justifiable remark on the volumes of moneys that would be involved if public sector pensions, state pensions, PFI liabilities and contingency guarantees were aggregated. He said that that was equivalent to the whole gross domestic product of this country. I am developing my thinking on this issue, so I wish to ask him a simple question. He has referred to the integrity of the accounts and democratic accountability, so is the calculation of the 3 per cent. deficit of GDP in relation to the Maastricht criteria a figure that could be distorted by eliminating the items that he mentioned from the calculations? We might get a completely different figure that might well suit the
Mr. Letwin:
As ever, my hon. Friend is eagle-eyed as to the implications of Maastricht. He is right that such accounting changes could have a significant impact on our deficit and its relationship to the Maastricht rules. When I tried to illustrate for my hon. Friend the Member for Bromsgrove the scale of the implications, I was consciously confusing stock with flow. Some of the items that I mentioned are flow, or current spending, items; some are the present values of long-term liabilities, and some are assets. I tried to give a sense of the scale by adding them all up and wondering what they might all amount to. Once the figures have been so illegitimately added together, I do not know whether they would come to half, one, or one and a half times GDP. However, it would be of that order of magnitude.
In practice, on a flow basis and in terms of the annual deficit, the figure is nothing like that big. As a consequence, it is unlikely--although it is possible--that adherence or failure to adhere to the Maastricht criteria on a given occasion would be decisively influenced by such matters. However, public policy choices made in ignorance of the real liabilities could lead you to fail or succeed in meeting Maastricht or other criteria.
Mr. Deputy Speaker (Mr. Michael Lord):
Order. I am aware the that the hon. Gentleman is responding to an intervention from a Back Bencher, but he should address the Chair.
Mr. Letwin:
I apologise, Mr. Deputy Speaker. Moreover, you were kind not to mention the fact that I may have departed to some degree from my observations on new clause 1, to which I speedily return.
I was trying to argue that the Economic Secretary should resist the temptation to complain about the inflexibility that might be imposed on Government by an independent body's setting the definitions. She should recognise that, although in some particular circumstances--the hon. Member for Kingston and Surbiton (Mr. Davey) and I were beginning to expose them--there might be a political advantage in cooking the books, shifting the definitions is dangerous for Government when conceived as something that goes on for a year or so, as well as for the operation of our parliamentary democracy. It is just as dangerous for Government because they have terrible difficulty knowing what is going on. That is their biggest difficulty.
Most of the time, most people in Government do not know much about the effects of their actions or the circumstances in which they are operating. The last Administration discovered much of what was happening in the miners' strike by turning on the television in No. 10 Downing street. Governments are often ill informed and find it difficult, however brilliant their Ministers or officials, to get a grip on what is really going on with the immensely complicated beast of public spending, tax and the economy. If Government allow themselves to be flexible, they end up being confused about the effects of their own actions and making decisions that they did not intend, which often rebound on them.
It is not true that there is no conflict of interest. There is, because short-term interest is at stake in fiddling the figures from time to time. It is true that there is no
long-term conflict of interest. If the Government view the matter from enlightened long-term self-interest, they will accept the straitjacket imposed by new clause 1, not unwillingly but joyously--seeing it not as a restriction on flexibility but as a way of ensuring that they know what is going on in the multitude of affairs over which they have control.
I want next to explain the differences between new clause 1 and our amendments in Committee, to demonstrate to the Economic Secretary how far we have gone to accommodate the points that she made. The Minister said in Committee that she was concerned about the prospect of a national accounts commission, and argued that there were already bodies sufficiently well equipped to deal with accounting standards. Subsections (2)(a) and (2)(b) recognise that such bodies exist. We have offered an olive branch to the Minister by abandoning our preference--which we shared with the Liberal Democrats and the PAC--for a new, independent national accounts commission and have opted instead for the existing body. Any practical difficulties otherwise associated with an independent national accounts commission thereby evaporate. No extra costs would be entailed. I am sure that the Accounting Standards Board, if asked, would be perfectly willing to take on that extra task without charging the Treasury a huge amount of money.
The ASB has every possible expertise. It is not lacking in any kind of knowledge or skill required. We have a body that exists, would not be expensive to run and knows what needs to be done--and we are saying that will do nicely. We have gone further. As we recognise that the Economic Secretary might think that, in the world of increasing global convergence, it would be retrograde to insist on standards in the UK, we have offered a second option. The International Accounting Standards Committee or some other such international body could be chosen in place of the Accounting Standards Board.
Mr. Cash:
My hon. Friend is aware that accountancy proposals and directives have been compiled and applied in respect of the European Union. I wonder whether he has taken account of those directives in relation to the other international bodies to which he referred and the criteria applied there.
Mr. Letwin:
My hon. Friend will not be surprised to hear that my personal first choice for a body would not be a European-level body. Mirabile dictu that he should say it, but my hon. Friend is right. That could be a solution encompassed by subsection (2)(b). If I had to accept that as a means of getting the Minister to concur with the general proposition in new clause 1, I would do so.
We recognise that the Economic Secretary might have difficulty with the particular shape of the body we proposed. She gave us some cause for concern, referring on several occasions in Committee to the Financial Reporting Advisory Board. She thought that body already did a good job of determining deviations from standards set by the ASB. As a third option, we have redesigned our proposal by making it more general. Subsection (2)(c) expressly allows for a new form of the FRAB as an alternative to our national accounts commission.
8.15 pm
Surely the Economic Secretary's resolve on the technical issue must crumble at this point. Surely she cannot maintain that the body she argued in Committee was doing a good job cannot do the job. If she accepts new clause 1, all she need do is take the FRAB, re-establish it as a new body, ensure that all its members are appointed solely on the basis of their expertise in accounting practices and make the change that those people cannot be dismissed by the Treasury or any Minister. That could be done in a trice.
We have tried to provide in subsections (2)(a), (2)(b) and (2)(c) the widest possible latitude to the Minister and the Treasury in implementing any form of independent body. The only thing they all have to be is specified in subsection (1)--independent. The Minister cannot argue that there is a conflict of interest because there is not--and she has not tried to argue that. The Minister cannot argue that there is a conflict of interest but public policy cost outweighs it because that is not true--and she has not tried to argue that. The Minister should not argue that which she was half tempted to argue--that the proposal would be too inflexible for Government--because flexibility will be an advantage in the medium and long term.
If the Minister is compelled to accept the logic of an independent body, and given that we have offered every form of independent body that anyone could imagine as a range of options--including the body to which she referred to first and second as an option--I am genuinely stumped as to why she should object to new clause 1.
I draw attention to the amendments that flow from new clause 1, particularly for the benefit of hon. Members who were not in Committee, and to the scope of the discretion restricted by the application of new clause 1 through amendments Nos. 1 to 5. Clause 5(2) states:
By replacing the words "the Treasury" with "the Independent Body", we are making up for that gross lack. That is exactly how we have gone about amendments Nos. 2, 3, 4 and 5--each of which replaces the Treasury, as the body with total discretion to decide its own accounting standards, with the independent body.
Resource accounts shall be prepared in accordance with directions issued by the Treasury.
No limitation, no control, no transparency--entirely unfettered discretion to decide how reporting will be done. The Economic Secretary repeatedly informed hon. Members on Second Reading and in Committee that it was the Government's intention merely to amend existing standards as necessary for the public sector. That is not reflected in subsection (5)(2) or any Government amendment or new clause tabled in Committee or now. She has never sought to limit the Treasury's discretion in any way.
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