Select Committee on Public Accounts Minutes of Evidence


Supplementary memorandum submitted by Comptroller and Auditor General (PAC2000-2001/11)


  The purpose of this letter is to comment on the statutory contingent liability, which the Franchising Director of the Shadow Strategic Rail Authority (SSRA), Mike Grant has entered into with the franchisee Midland Main Line Limited—his letter of 10 August to the Chairman refers.

  The guarantee has been entered into an order to secure investment in franchise assets necessary to enable the current train operator to meet their obligations under their franchise agreement. It is in the nature of this investment in station improvements that it will also contribute to the continued operation of the franchise in the future, beyond the term of the current franchise. As such the investment will form part of the "designated assets" of the franchise which the franchising arrangements require to be owned by the franchise operator. If Midland Main Line Limited lost the franchise when it comes up for renewal the benefit of their investment would be transferred to the new franchisee. The guarantee entered into by the Franchising Director secures Midland Main Line Limited's investment against this risk.

  Whilst the maximum value of the guarantee has been set at £19 million, any amount payable would be based on the unpredicted value of the assets at the time the guarantee was called.

  All statutory contingent liabilities exceeding £100,000 must follow the parliamentary reporting rules agreed with the PAC and covered by Government Accounting.

  Under the requirements of Government Accounting (chapter 26), after obtaining Treasury approval, a department must lay before the House of Commons a Minute describing the amount and duration of the guarantee and the body or bodies involved, and any other relevant information. The department should also send copies of the Minute to both the PAC and the relevant departmental Select Committee. The Minute provided by Mike Grant via the PAC complies with these requirements to the extent immediately possible while the House was in recess in August. The Minute was subsequently laid before the House of Commons on 3 November.

  During the course of our audit of OPRAF's appropriation account we obtain assurance on the regularity of transactions with train operators, but there is no separate disclosure of contingencies in these accounts. Outstanding contingencies across all departments are however, set out in the Supplementary Statements in the Consolidated Fund and National Loans Fund Accounts. Subsequently, the accounts of the Strategic Rail Authority, into which OPRAF is to be subsumed, will require disclosure of contingent liabilities and the relevant note to the accounts will be covered by the audit opinion.

  No action is required, however, on Mike Grant's letter or the Minute that he has now laid.

Comptroller and Auditor General

4 December 2000

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