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8.51 pm

Mr. Philip Hammond (Runnymede and Weybridge): I am grateful for the opportunity to make a brief contribution to the debate. Debates on such subjects tend to attract specialists: members of Select Committees, including the Public Accounts Committee, and people with banking or accountancy experience. I claim no such expertise. My interest in the Bill derives from the specific references to the national health service in clauses 12 and 13. I want to ask one or two simple questions about the way in which the Bill will treat the Department of Health and the NHS.

I understand the desire for greater openness, authenticity and transparency in public accounts, and especially the importance of having a sense of the way in which we consume the capital that is used in providing public services. That is a laudable objective, and I note the consensus on it. However, we must consider whether the Bill will achieve that objective. There is a danger that the large measure of discretion that the Bill grants the Treasury will create a mere illusion of greater openness, which could lead to a sense of false security.

The reaction of Departments and parliamentary draftsmen to difficult or seemingly intractable problems is often to grant themselves unfettered discretion. My hon. Friend the Member for West Dorset (Mr. Letwin), whose return to the Chamber is timely, mentioned unfunded state pension liabilities and their exclusion from the Bill. That exclusion highlights the problem of trying to examine the public sector and Government activity as parallel to that of the private sector. The unfunded obligations of the state for future state pensions are unquantifiable because the state reserves, as many pensioners would say that they know to their cost, the right to change its obligations unilaterally and without notice. It would be problematic to quantify those liabilities. That underlines the nature of the state as a contracting party and highlights one of the difficulties of trying to view the state's liabilities as parallel to those of the private sector.

A major point of having standard and codified accounting practices is to allow continuity and also comparability, both between different systems and across different periods. People who use accounts in the real world will readily acknowledge that that is one of the most important uses to which they put them. I suggest that the discretion that the Treasury will have under the current proposals will undermine the core--the very point--of the exercise. Another important point of producing accounts in a standard and recognisable form is to have clear sight of the assets that are employed and measure their effective use and consumption--the consumption of capital.

I am not unmindful of the mood of consensus surrounding the debate, but I feel obliged to say that, since May 1997, we have seen a consistent and deplorable manipulation of figures and the presentation of public accounts. The most notorious example is the misclassification of the working families tax credit as a negative tax with flagrant disregard for the Office for National Statistics and all international conventions.

Mr. Andrew Love (Edmonton): The hon. Gentleman seems to be arguing the case as outlined in the Opposition amendment, but does he accept that the Government's introduction of resource accounting is consistent with

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generally accepted accounting practices and that they have set up the independent Financial Reporting Advisory Board in order that what he is suggesting will not happen?

Mr. Hammond: As my hon. Friends have said from the Front Bench, we welcome the principles involved and if we were convinced that what the hon. Gentleman has referred to would be achieved by them we would be very happy indeed. However, the large degree of discretion that the Treasury is retaining for itself gives us cause to doubt that that will be the case.

On the basis of our experience over the past two and a half years, we have little reason to accept that transparency is the Government's principal objective. The explanatory notes that have been made available with the Bill say that its purpose is to take the focus awayfrom cash and on to resources, but Government announcements, particularly since the completion of the comprehensive spending review, have wilfully and deliberately focused on large sums of cash. They were presented in an extremely misleading way and, on some occasions, there was double or triple counting, which enabled them to magnify in the public eye the significance of what they intended to deliver in terms of public spending. I suggest that they exploited the ignorance of the vast majority of us, who do not understand the complexities of accounting and high finance, and after the comprehensive spending review announcements the early indications were that most of the serious press had been effectively deceived.

My hon. Friends have said that, on the basis of what is in the Bill and the resource accounting manual, large and important assets, liabilities and activities are to be excluded from this initiative. I intend to focus for a few moments on the Department of Health and how the Bill will affect the role of the national health service in departmental and whole of Government accounts. Obviously, we are considering only a framework and we have to work from the latest version of the resource accounting manual, which tells us that Department of Health accounts will broadly be drawn up on the basis that the purchasers in the NHS will be included within the resource accounting boundary, but the providers will be excluded. That analysis is slightly too simplistic, because clause 12 tells us that health authorities, primary care trusts and special health authorities will be included within the boundary.

Primary care trusts are both providers and purchasers, and special health authorities are providers of services. It is clear, however, that national health service trusts--the 430 or so bodies that hold and operate hospitals throughout the country--will be beyond the resource accounting boundary. Thus, by what the right hon. Member for Swansea, West (Mr. Williams) described as "an accident of restructuring", the biggest holders of assets and the biggest spenders in the national health service will be excluded.

I ask myself whether there has been a genuine decision to exclude bodies that operate at arm's length from the Secretary of State, but that is not the case. The Secretary of State has and uses considerable powers to direct national health service trusts, and the tendency in recent years has been to centralise that power and to bring those trusts increasingly under central direction from Whitehall.

It could be that there were technical problems in bringing NHS trusts within the scope of resource accounting. I understand that there are genuine technical

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problems in the education sector in relation to schools. The hon. Member for Broxtowe (Dr. Palmer) expressed the concern that the best might become the enemy of the good. That is not the case with NHS trusts, because they produce accounts using standard accounting procedures. They are even aggregated in a document. I am not sure whether they are consolidated in the technical sense of the word, but they are certainly all available in aggregated form. As an outsider on the financial technicalities of the debate, I believe that those accounts could relatively easily be incorporated into the Government's proposals.

I wonder whether the politics of this is that the Government like to announce revenue and capital spending by Ministers--sometimes two, three or four times--but are less keen to accept that the outturn of those announcements is a direct part of the departmental responsibility for which the Secretary of State for Health answers. By this "accident of restructuring", a significant part of the activity of a major spending Department is to be beyond the boundary of departmental resource accounting and budgeting. That is an incoherent and unjustifiable split of the Department's responsibilities, and an artificial divide that the Government can easily, and should, avoid.

This matter is of great importance. There are 430 or so national health service trusts with a total spending of about £20 billion, and they hold assets in excess of£20 billion. I am afraid to say that not all those assets are effectively utilised. In 1991, capital charges were introduced into the NHS with the intention of increasing awareness at trust level of the cost of holding assets, especially estate assets. The available evidence to date is that that has not been a particularly effective tool, and there is a strong argument for a greater focus on the assets held within the NHS at national level. I focus my remarks on land and buildings, but I would not like to give the impression that no other classes of assets in the NHS are under-utilised.

I suggest to the Minister that part of the problem is the concept of ownership. The body on whose balance sheet the asset sits will pay a capital charge. It is often, for historic reasons, a small sum in relation to the current value of the asset. That body will often not stand to gain the benefit of a disposal of that asset. Whereas a private sector holder of an asset will seek to earn a return on it or dispose of it, that is not always the case in the national health service.

The NHS is Europe's largest landowner, holding some £23 billion-worth of land and building assets. Anything that we can do to focus on the effective use of those assets and to concentrate on the way in which they are used would be greatly to the benefit of the NHS and the nation as a whole.

I consider it inconsistent and incoherent, in terms of what the Government say they are trying to do, to exclude the provider side of the national health service entirely. There is no good reason for that in principle, and no good reason in practice, as the information is already available in a form that the Government could use. I hope that the Economic Secretary will tell us that she will consider including the entire NHS in resource accounting from the outset, in order to give genuine coherence to what the Government seek to do for the NHS and the Department of Health's resource-based accounts.

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