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Mr. Edward Davey: May I say how much I agree with that statement? It was an extremely important reform. However, as the hon. Member for Arundel and South Downs (Mr. Flight) said, in Committee we debated the way in which the Government treat contingent liabilities. Neither Conservative nor Liberal Democrat Members were happy about the way in which contingent liabilities were being treated under resource accounting and budgeting. This is not a new point, therefore—we have been arguing this for some time.

Ruth Kelly: I accept the point made in good faith by the hon. Gentleman, and will deal with the treatment of contingent liabilities under PFI projects in due course.

The Government Resources and Accounts Act 2000 was passed as a result of the transformation of public accounts under resource accounting and budgeting. Section 5(3)(b) provides that a Department's accounts must

The adaptations are necessary because GAAP, desired in the main for the private sector, does not have to deal with issues such as military assets or nuclear decommissioning liabilities that we have to deal with in the public sector.

We have an independent statutory advisory board—the financial reporting advisory board—to advise us on the application of GAAP to the public sector. It was this Government who put that independent advisory board on a statutory basis, and we have never rejected its advice in the five years of its existence. We have a system for public sector financial reporting that is among the most advanced and transparent in the world. I believe that this part of the new clause is therefore superfluous, but it is also confused.

There is a wealth of data in the Red Book not covered by GAAP, because GAAP cannot say anything about unemployment assumptions, for example, or oil revenues. Instead, under the very Finance Act that the new clause seeks to amend, we subject changes to these assumptions to the audit by the independent National Audit Office. In practice, the new clause would require these numbers to conform to GAAP, which is silent on these issues.

The second part of the new clause would require the Government to publish an aggregate figure for all financial liabilities actual and contingent under the PFI.

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Again, I believe that that is misleading. First, the Opposition should look at table C19 of the latest Red Book, in which the Government published their estimated payments under the PFI going up to 2028, consistent with the audited data in Departments' accounts.

Mr. Flight: I readily acknowledge that the totals add up to £98 billion, as I mentioned.

Ruth Kelly: The new clause wants a figure for possible liabilities, but PFI rarely gives rise to contingent liabilities. PFI deals are contracts for the provision of a service. We pay only for the services received. In the event of a default, the financiers are required to look for alternative service providers. If that fails, which would be very rare, termination proceedings would begin. That is the course of normal business—it does not give rise to a contingent liability in any proper sense of the term.

In a small number of specific cases involving public-private partnerships, we have provided for some sort of public formal guarantee to the financiers. One example is London Underground, where a letter of comfort sets out different sets of circumstances whereby the Government would underwrite some of the financiers' commitments. That letter was of course put before Parliament, as we are required to do and as happens in the normal course of events. The Government report to Parliament all such letters of comfort and all contingent liabilities that arise which account for more than £100,000.

Mr. Jack: If a PFI hospital deal ran into trouble and there was a gap between the originator of the project and the successor body taking over that required some degree of financing, would that not be a liability? If so, how do the Government account for it?

Ruth Kelly: If a genuine contingent liability exists, the Government publish that contingent liability as part of the supplementary statement to the Consolidated Fund accounts. Details by Department are available in the notes to Departments' audited accounts, which, again, are laid before the House. It is hard to see how the system could be any more transparent than it is at the moment.

Mr. Flight: How on earth could the Minister say to me earlier that a £9 billion guarantee on Network Rail would not need to be disclosed as a contingent liability?

Ruth Kelly: I will come to the treatment of Network Rail in a moment, but I should point out that Network Rail does not actually count as a PFI and, strictly speaking, is not within the terms of the debate. However, I shall be happy to deal with it in a moment.

Opposition Members have charged us with using the PFI and the PPP as a ruse to keep numbers off the balance sheet so that they do not show up in the Government's accounts. That is utterly untrue and complete nonsense. Balance sheet treatment in this country has to be confirmed by independent audit. Recent PFIs and PPPs—including the London Underground, prisons and the second Severn river crossing—are all on the balance sheet; the trend increasingly is to put them on the balance sheet. The issue of whether or not there is a transfer of risk is decided independently. We take independent

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advice from our advisory body, which we put on a statutory basis. We could not have a more transparent system.

Adam Price: Are the devolved Administrations free to enter into their own contingent liabilities, or must they seek Treasury approval?

Ruth Kelly: I will have to check that point and write to the hon. Gentleman. If contingent liabilities arise in UK Departments, they have to be reported to Parliament, as is clear in the treatment of those liabilities in Departments' accounts.

Rob Marris: I confess that I used to be a solicitor before entering this House, and not an accountant—[Hon. Members: "Oh!"] I am quite proud of that, although others may not be. There are differences of opinion, so could my hon. Friend explain what the Government understand by the term "contingent liability"? I confess that I do not exactly understand it. I thought I did before the debate began, but I am not sure now whether it has to do with the probability of a risk occurring, a possibility or a tiny possibility. Could my hon. Friend elucidate?

Ruth Kelly: The word "contingent" has different meanings in different contexts and contingent liability for a PFI is slightly different from contingent liabilities arising in other contexts. We have consistent treatment, in which if a liability is possible or likely, it is reported to Parliament. If a liability is remote, it is treated differently, as the hon. Member for Arundel and South Downs has said.

The important thing is that we have a statutory independent financial reporting advisory board, and a framework within which the decisions are taken. In considering the case of Network Rail, we have an independent statistical body—the Office for National Statistics—which applies internationally recognised national accounting standards that are used to compare economies internationally.

Clearly, in the treatment of complex statistical issues other bodies and individuals will take different views in certain circumstances. That is precisely what has happened in the case of Network Rail. The National Audit Office made a different judgment about how liabilities arising should be treated. Do hon. Members really want me to say that we should go against the recommendation of the Office for National Statistics and use a system for Network Rail that does not apply internationally recognised accounting standards, and which treats the matter in a different way?

To reassure the House that we take this issue seriously, we have set up an independent statistics commission that examines our treatment of accounting and whether we treat these issues in an unbiased, objective and professional way. In due course, it will reach a conclusion on whether the treatment of Network Rail is the appropriate one. I suggest that we wait for the commission's review before jumping to a premature conclusion that is based on what Opposition Members have said today.

9.30 pm

This country has one of the most transparent accounting frameworks in the world. Under this Government, we

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have taken an enormous step forward in the treatment of accounting. We have introduced resource accounting legislation and put the financial reporting advisory board, which advises us, on a statutory basis. As I said, we have also set up a statistics commission, which can take an independent view of our accounting and of our statistical processes and treatment. Hon. Members should give the Government some credit for taking this process forward. They should acknowledge the reforms introduced by this Government to ensure that our public sector financial statements are among the most sophisticated and transparent in the world. Those statements fully accord with generally accepted accounting practice and with some of the highest standards in the private or public sector anywhere in the world. On that basis, Opposition Members should withdraw the new clause.

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