Westminster Hall
Wednesday 2 April 2003
[Mrs. Irene Adams in the Chair]
Listed Sporting Events
Motion made, and Question proposed, That the sitting be now adjourned.—[Charlotte Atkins.]
9.30 am
Alan Keen (Feltham and Heston): I am looking forward to the debate, and I am pleased that the Minister for Tourism, Film and Broadcasting will be responding. For a few hon. Members here, football is pretty high on the agenda, and they may just slip in the odd word about football. However, the subject of the debate is the broadcasting of listed sporting events, and that is what I intend to begin with.
It is fitting that the Minister responsible for broadcasting is here, because the results over the past couple of months show that football is moving ahead of rugby in Wales. I understand from the Welsh Rugby Union that rugby is developing well and building for the future, but it would be a shame this morning not to congratulate Mark Hughes and the Welsh football team, who have done magnificently—and what a great time it is for Ryan Giggs to have the opportunity to apply his skills in a major international tournament.
It crossed my mind this morning to invite the Minister to watch our parliamentary football team, but I remembered his comments on the shortlist for the Turner prize and I thought it best not to let his literary talents free on our football.
The principle of listed events is established, and it is vital that everyone should have the opportunity to watch the main international sporting events. We may occasionally debate what events should be included in that list, but I am confident that the principle will always be adhered to, whatever changes occur in the delivery package or in television broadcasting technology. I leave it to others to go into detail about the attempt, in the Communications Bill, to strengthen the listed events.
I shall not forget the first game that I saw on television. I remember gathering with my family, friends and other teenagers around the only TV set within 3 miles of my home to watch the Stanley Matthews cup final. I am still playing football more than 44 years later, and not only because of that inspirational match, although it illustrates the effect that major events can have on young people.
It is vital that we retain the principle that the main events should be available for all to see. I do not have time this morning to go into the whole argument, but we must never forget the fantastic individual satisfaction and personal enjoyment that sport can bring. Even if we did ignore that, however, we should never forget the resulting benefit to the economy of the reduction in health care and criminal justice costs. Let us all hope that it will be no more than a handful of years before the only conflicts on the globe are those to be seen in its arenas and stadiums.
Those events need to be available to all—for the inspiration of young people, and to give the more mature of us, such as the Minister and possibly one or two other hon. Members, the chance to watch major events from our old people's rest homes should we be unable to afford to travel to the games. I am sure that someone will respond to that comment. In talking about the need to involve older people and veterans in sport, we must remember that that segment of the population tends to have surplus money. I am sure that if we looked into the matter in the near future, we would find that some of that money could be channelled into sport to help those who are much less well off. Nevertheless, the televising of world sporting events has a most valuable and ongoing benefit.
I move on to football, just by coincidence. As chairman of the all-party football group, I have several supporters here today, among whom are a number of experts on listed events. I want to illustrate the effect that football can have on individuals, and I apologise to those who heard me tell this story yesterday at the Football Supporters Federation lobby. Yesterday was April Fool's day. I have a close, but sometimes fiery, relationship with my own Member of Parliament, my hon. Friend the Member for Brentford and Isleworth (Ann Keen), and the first thing that she said to me yesterday morning, clearly trying to be pretty vindictive, was that she had just heard on the news that Juninho had had another serious injury. I did not believe her, but I put on the teletext to make sure that it was not true.
My hon. Friend has every reason to be nasty to me occasionally, and to the little fellow too. A few years ago in Dublin, on a new year weekend, she broke a leg. When we got home to Brentford, I was speaking on the phone to her mother, who was extremely worried about her daughter. She asked, "Is it bad?" I said, "It could have been a lot worse." She replied, "Oh, my God, why's that?" I said, "It could have been Juninho's leg." Football is important and has a big effect on many people.
I want to outline some of the points that the FSF made at yesterday's lobby. As a member of the Culture, Media and Sport Committee I have many opportunities to ask questions of, and make points to, the top executives in our television companies. I am full of praise for the way in which Sky, the BBC and other companies present football, but I keep reminding some of those executives that it is not their money that does so; it is our money—supporters' money—which comes through gate receipts, season tickets, the sale of merchandise and replica shirts, and subscriptions to the television companies. We must remember that.
I want to make some of the points that the FSF wants the Government and industry to understand and act on. The supporters understand the difficulties, and they know that these matters are not straightforward. I know that there is a battle between the financiers outside football in the public limited companies and some of the enthusiastic financiers inside football, many of whom would not have become financiers had they run their own companies in the same way as they have run the football clubs that they have taken over. The FSF and I know that serious negotiations are taking place in Europe, and we understand the competition issue, which I hope the Government are addressing extremely seriously. Football as we know it could come to an end in a short time if that matter is not tackled properly.
We also understand the difficulties that the premier league, the football league and the Football Association administrators face; they are not in control. Football is not a top-down organisation controlled by people who can impose rules on the clubs. We know which major clubs would be guilty of being enticed into Europe, as they nearly were a few years ago, to form a European league with no promotion or relegation, but that would be of short-term benefit to only a few clubs. We all know that what keeps football going is the dream factor—the pyramid. We all dream that our club can climb from the lower divisions, or even from outside the league, and reach the top. I shall not go into the Wimbledon issue, as we have already debated that in this Chamber, but I have only to mention the name for hon. Members to know what I mean.
I shall finish by listing what the FSF wants. It wants a better, fairer distribution of the revenue to retain the dream factor. To help to achieve that, it wants one free evening a week for the football league and smaller sides to play their games, without the competition of major games on television. Finally, it wants consideration to be given, during negotiations for televising the premier league, to the needs of travelling supporters. It has been three months at least since some clubs last played at 3 o'clock on a Saturday. As many MPs who have to come down early after the weekend know, travelling on Sundays is absolutely dreadful, and extra cost can be involved for supporters who have to stay overnight to watch their team play.
We must never forget that football supporters' money pays for football—for the wonderful foreign players who play here and the standards that have now been achieved. The premier league is the outstanding league in the world, and supporters' money, and no one else's, pays for that. More importantly, however, the supporters provide the atmosphere at the games. We all know that no sponsor will give people free tickets and entertain them, or put money into the game, if the grounds are empty and there is no atmosphere. We owe that to the football supporters, and we need to take notice of it.
9.40 am
Mr. Derek Wyatt (Sittingbourne and Sheppey): I congratulate my hon. Friend the Member for Feltham and Heston (Alan Keen) on tabling a debate on listed sporting events, a matter that interests me enormously. Although it may be a little premature to mention my hon. Friend the Minister's winding-up speech, I should be interested to know whether Ofcom is complete in the sense of including all the regulations about listed events, and perhaps he can address that when he winds up. I was discussing Ofcom yesterday and discovered that some aspects of internet broadcasting are not included in it.
Mr. John Greenway (Ryedale): That is in the Communications Bill.
Mr. Wyatt : It is in the Bill.
The European Commission has embarked on a review of the television without frontiers directive. How are we going to react to that? Does it come within my
hon. Friend the Minister's or my right hon. Friend the Secretary of State's duties, or is there a role for MPs to play in going to Europe, meeting the Commission and making a presentation to it? How would that role start?
Mr. Greenway : The hon. Gentleman has made an extremely good suggestion. I should be very happy to go with him to visit the Commission.
Mr. Wyatt : I thank the hon. Gentleman for that. It is always good to find cross-party support when we have debates on sport. It is a genuinely cross-party subject.
Looking at the A list of events, I want to discuss the Olympic games, the football World cup, European football and the rugby World cup. I am still at a loss to understand how a United Kingdom Government can list events that they do not own and over which they have no jurisdiction or control. The headquarters that run those events are not in the UK. I am sure that at some stage there will be a challenge. In response to my comments, someone may say that those events are held under the European broadcast rules, but that is a cartel, as we know, and under investigation. Can my hon. Friend the Minister tell us what legal advice he has had that permits him to list events that are not owned or controlled by UK broadcasters or UK sports rights holders?
Rugby league currently has only one offer on the table, which is from the BBC. Is it fair for the future finances of rugby league always to depend on a single broadcaster? Because the event is listed, rugby league is between a rock and a hard place. If the rugby league people decided, in their wisdom, that they wished to go for the highest bidder, what leeway would Ofcom be able to give them? The situation seems terribly unfair.
We shall no doubt hear later that things are difficult for some soccer clubs because of the way in which rights are divvied up, but what happens when people own the sporting rights and do not want an event to be listed? We ought to have a vehicle for the sporting organisations to review the list regularly, so that a via media can be found. Perhaps that should be every two or three years. There should be some way of reviewing the list.
I have investigated how often the list has been reviewed. It has happened only four times in almost 50 years; the first listing was in 1954. We need some way of getting a more regular update into the codicil, because the pace of television and what we see is so fast that legislation cannot keep up with it.
The Minister for Tourism, Film and Broadcasting (Dr. Kim Howells) : I appreciate my hon. Friend's point. I sense, however, that he is talking theoretically and not as a consequence of having spoken to the various parties involved. I am not aware that we have received a single request from any sporting organisation for a review of listed events—certainly not since June 2001.
Mr. Wyatt : The Minister is probably right. He would know better than me. I sense that we are having a rock-and-a-hard-place discussion on rugby league. I shall move on to category B—the non-universal channels. The original purpose of the listed events legislation—that a listed event should be broadcast on a channel with universal coverage—is being flouted by some public
service broadcasters with multi-channel interests. The loophole allows the broadcaster of a category A service, such as BBC 1, BBC 2, ITV or Channel 4, to acquire rights to listed events ostensibly for its category A service, and broadcast them on a category B service, such as BBCi or ITV2.Last year, ITV broadcast some World cup matches exclusively live on ITV2, which does not have universal coverage, and the BBC has done the same with its interactive service BBCi. That occurred despite the fact that other category B broadcasters were not given a reasonable opportunity to bid for the rights to those matches, which were subsequently not broadcast either by BBC or ITV on a category A service. It would be helpful if the Government clarified why that continues to be allowed to happen, and how the Communications Bill will protect against that.
In relation to the number of events on the list, the Independent Television Commission gave approval for BSkyB to broadcast the cricket World cup—a B list event—exclusively live, even though no category A universal free-to-air terrestrial broadcaster had acquired any secondary rights. The ITC was satisfied that those services had a reasonable opportunity, but it is a listed event.
I would like to query the number of events on the list. It is one of the longest in the European Union. Why does it protect events of so-called national interest when some of the public service broadcasters are not even interested in showing the highlights or choose to cherry-pick what they want at a later stage, impacting on the planning of sports bodies and, more important, their revenue streams?
I conclude with two points. First, on cricket, I hope that many politicians will come out against the Zimbabwean cricket tour to England this summer. It was clear from all the polls that no one wanted England to play Zimbabwe in the cricket World cup that has just ended. I find it appalling that the England and Wales Cricket Board should invite Zimbabwe so quickly. It would have been much better if it had invited Kenya, and I hope that hon. Members will make their opinions known about the tour.
Lastly, on athletics, in the past year we have seen the Commonwealth games on the BBC, which was spectacularly covered, and the World indoor championships in Birmingham, which was also wonderfully covered by the BBC. I am concerned about the future of UK athletics on the BBC. I wondered whether the Minister has been in touch with UK: Athletics regarding the progress of coverage of UK athletics.
9.45 am
Ms Joan Walley (Stoke-on-Trent, North): I congratulate my hon. Friend the Member for Feltham and Heston (Alan Keen) on securing this timely debate. I am aware that it is a debate about broadcasting of listed sporting events, and I am equally aware that, of all sports, there is a particular concern about football at the moment. I hope that hon. Members will forgive me for emphasising football more than other sports.
Throughout my time in Parliament I have tried hard to follow this whole debate. The debate has taken place in the UK Parliament, in sporting authorities and in
Europe, and trying to unravel and fathom the ways of ensuring that we end up with access to the major national sporting events in our country has been a complex process.I welcome the fact that the Minister with responsibility for broadcasting is present. I hope that his grasp of the whole agenda will enable him to work in his Department and across other Departments to ensure that, through a co-ordinated policy, we are able to deal with broadcasting rights and sporting events, to recognise the part that sport plays in our national fabric and all the economic, recreational and educational issues that stem from that. This debate is not just about broadcasting; it is about the need to adopt a joined-up approach to the effect that broadcasting rights have on all our lives and on everyday life in our constituencies continuing as normal. I hope that the Minister will be able to emphasise that there is a joined-up approach to sport across all Departments.
At this time, given the situation in Iraq, many of us find it difficult to concentrate on everyday issues. However, once a war ends and some semblance of reality and normality returns, sport is often a means of rebuilding things. I am very much aware of the context in which the debate is taking place.
I am also aware that there is a sense of urgency about the debate. In the European context, our rules work in the best interests of UK viewers and enable us to tune into the World cup or other sporting events on free television. It is vital that the forthcoming review of the TV without frontiers directive takes account of the views that hon. Members express this morning. I would welcome from the Minister a timetable or road map relating to how he will deal with the directive, how, for example, the European Scrutiny Committee will deal with the matter in the House, and how we, as parliamentarians, can influence that debate.
I want to concentrate on how the broadcasting of listed sporting events affects football. I make no apology for highlighting that matter. Many of us are concerned about the European Commission's statements of objection to the FA premier league television contracts. I am glad about the presence of the hon. Member for Ryedale (Mr. Greenway), who is the Conservative Front-Bench spokesman on this matter and has a great interest in football, like everybody present. I am grateful to see him nodding his head. The 90 days relating to the European Commission's objection are ticking away, and it is vital that the Government, through their defence of broadcasting rights, ensure that we safeguard the arrangements in this country. I want the Minister to be aware that, in the defence of broadcasting rights and his response to the directive, he should set out how we can safeguard football across the board. That is important.
The FA premier league, which holds the joint broadcasting rights on behalf of its member clubs, needs to persuade the Commission of the significant benefits of the current joint arrangements. Those joint arrangements are what is at stake; the Commission has indicated that it may prevent the premier league from selling its broadcasting rights on that basis. If that were to happen, it would cause considerable and irretrievable harm not only to the top level of football in the United Kingdom, but to the wider game, and ultimately to fans and viewers everywhere.
I have a sense of déjà vu. My good friend Joe Ashton is a former Member of the House. My hon. Friend the Member for Feltham and Heston is his successor as chair of the all-party group on football. Joe Ashton and I were involved the last time the joint issuing of broadcasting rights was in jeopardy. In 1999, we represented the all-party group on football at the restrictive practices court. Many football fans from across the country were also present. Along with many other witnesses, we gave evidence. We joined other representatives of stakeholders in the English game in making the case that the joint arrangements were in the public interest. The court finally decided that joint broadcasting rights should be exempt from the Competition Acts.
The clock is now ticking, and it will be full time before we know where we are. Our problem is that the Commission argues that the UK court and EC competition law applied different legal tests, but that misses the point. In dealing with this whole agenda, my hon. Friend the Minister must consider what the impact on soccer as we know it will be if we are unsuccessful.
The Minister is a great lover of rugby, so perhaps I should remind him, for the benefit of football, how much money the football league receives from the joint broadcasting arrangements. There is £5 million for youth development and £36 million for the parachuting arrangements, which apply when clubs are relegated from one division to another. My good friend Gordon Taylor of the Professional Footballers Association does wonderful work with many clubs that are in administration. The association receives £38.7 million of premier league funding, which goes towards providing education, medical insurance and welfare payments for players in lower divisions.
Most importantly, however, income from the joint broadcasting arrangements makes a significant contribution to the Football Foundation—formerly the Football Trust—which is admirably chaired by Lord Pendry. I am acutely aware of the fact that if we lose this battle, there will be a huge shortfall in the funding available to the foundation to support grassroots football. Foundation funds have been used to provide pitches in all our constituencies and to bring our stadiums up to acceptable standards following the Taylor report. The let's kick racism out of football campaign is also financed by money from collective broadcasting rights.
Where will the money come from if we lose this battle? Will it come from the Government? Will they take a joined-up approach? Supporters Direct is currently facing problems because it is desperately waiting for the money that the Government promised from the New Opportunities Fund. Will the Government make up the shortfall in the Football Foundation's funding? Such questions are part and parcel of the wider issue of listed sports events and arise from the European Commission's insistence on treating football like any other business, rather than as part of the everyday fabric of life in our constituencies.
For those reasons, it is important to speak up today. My hon. Friend the Member for Feltham and Heston has done us a great service by securing this debate. I
understand that these are issues for the Department of Trade and Industry and the Department for Culture, Media and Sport, and that this is about broadcasting, but it is also about sport. Football in this country is facing a crisis. How many clubs are currently in administration? As we speak, the club in my constituency, Port Vale, is on a knife edge in terms of its membership and whether a Supporters Direct consortium, the preferred bidder, can obtain the necessary funding.
Dr. Howells : I have listened with great interest to my hon. Friend, but I want to ask her a brutal question about the administration of football clubs. It is something that I know little about, but if clubs are in the hands of incompetents who have overstretched themselves, and who have been afraid to take on issues such as wage capping, why should the Government be blackmailed into bailing out a private enterprise that cannot run itself?
Ms Walley : A brutal question deserves a brutal reply. I know that my hon. Friend's great interest is in Welsh rubgy, but the problem is the way in which big business has taken over football in this country, as has been spelled out so many times in debates in the House—I am only sorry that my hon. Friend was not present at those debates to hear the reasons why football is in such a state. There is concern that football has been damaged by big business, by the shareholders and by the winner-takes-all approach, which lacks the understanding that the football league, with its 92 clubs—one for all, and all for one—spreads across the country.
At one time, before the broadcasters and big business moved in, revenues would have been shared and the distribution of the receipts from football would have been fair. We accept that football must move into the modern world, but through the work that has been done at grassroots level, there is a different way forward. The work of this Government is putting us on the path towards ensuring that there is a future for football. Look at the number of debts that football clubs such as Huddersfield have. It is critical that we sort out a way forward, and that is part and parcel of unravelling the whole issue of broadcasting rights.
Mr. Greenway : Never mind Huddersfield Town, or even my own club, York City, Leeds United, a premier league club, is teetering on the brink of bankruptcy and the situation is extremely serious, although the Minister makes a valid argument that some clubs could be better managed.
Ms Walley : I agree that many clubs could be better managed. The important point is that many clubs that are fighting for survival and whose supporters want to ensure that they are run properly are using organisations such as Supporters Direct. It is vital that we are able to revive football in a proper fashion, which is why this whole debate about broadcasting rights is so important. If we end up with a situation in which an individual club such as Manchester United—no disrespect to Manchester United, which is obviously a successful club, if not the most successful club in the country—can get whatever price it wants on broadcasting rights, where does that leave the rest of the premier league and the football league?
We must protect our joint collective agreements for broadcasting, and we are relying on the Minister to do that in Europe. Then we can take a joint approach to football, ensure that all our clubs are managed properly and are properly accountable, and that they are not running up the sort of debts that the hon. Member for Ryedale mentioned.
I know that other hon. Members wish to speak in the debate, so I shall conclude by asking the Minister to provide some framework for preserving our 92 clubs not just for the sake of it, but because of the important role that they play in each constituency. I thank my hon. Friend the Member for Feltham and Heston for allowing us to have this debate this morning.
Mrs. Irene Adams (in the Chair): Hon. Members may wish to know that I intend to allow the winding-up speeches to commence at 10.30 am. I should, therefore, be grateful if hon. Members kept their eye on the clock, so that we can accommodate everyone.
10.4 am
Mr. John Grogan (Selby): It gives me great pleasure to make a short contribution to the debate, and I, too, congratulate my hon. Friend the Member for Feltham and Heston (Alan Keen) on securing it. There is no more passionate and convincing advocate of the value of sport in ordinary people's lives than him, and he has played a key role as chairman of the all-party group on football.
I should like to stress the importance of the renewal of the television without frontiers directive in 2003, and to sign up for what sounds like an important and convivial trip to Brussels with the hon. Member for Ryedale (Mr. Greenway) and my hon. Friend the Member for Sittingbourne and Sheppey (Mr. Wyatt), although my emphasis in that meeting might be slightly different from his. He implied that our list may be too big, but in Australia, for example, about 50 events are listed, such as the FA cup final and all the Australian national football games. I suppose that that shows how important it is to the Australian psyche to inspire new generations to come forward and beat the English. By international comparisons our list does not do too badly.
It is worth reflecting on why the television without frontiers directive is important, which relates to another point that my hon. Friend mentioned. As I understand it, the directive ensures that each member of the EU recognises the lists in the other countries. In the TV Denmark case, which went to the House of Lords, a TV company based in Britain tried to undermine the listed events in Denmark. The House of Lords found in favour of the Independent Television Commission and recognised the legality of the Danish list. It is therefore important that the Government are arguing for the renewal of the directive's provisions for listed events.
It is worth asking what would happen if there was no directive and if we did not have listed events. One has only to look back to the last football World cup, or forward to the next one, to see what happens in European countries that do not have listed events. In Spain during the last World cup, only a very few games were shown on terrestrial television; the rest were available on satellite or via digital. Germany may have
beaten Britain for the rights to stage the 2006 World cup, but at least we shall be able to watch all the games on terrestrial television. In Germany people might not be able to do that, because the deals have not yet been done and the listed events provision is not as strong as it is here. The World cup is the best example of that point. In a sense, everyone was in the stadium during the last World cup, because they could see the games. Even the smallest bar did not have to take out a subscription if it wanted to put up a television and make everyone feel part of the event, which inspired a new generation.Incidentally, I think that the rugby league challenge cup final is among the listed events largely because the rugby league argued strongly at the last review that it should be. The league saw the inclusion as a matter of prestige, and it felt that the list should not feature rugby union events only. The rugby league is anxious that the cup final, which is the crown jewel of its portfolio of events, continues to be on terrestrial television.
At some point the list will probably be reviewed. The Minister is right to say that there has not been a cacophony of demands that it be reviewed, but eventually it will be. I think that the list was reviewed in 1991 and 1998, and if the next one is seven years on from the last, it will still be in this Parliament. I should like to make two suggestions for changes in the list in the event of a review.
Tonight England play Turkey. The game is available on terrestrial television and it will get a massive audience. An equivalent game in the run-up to the last World cup was England against Germany, when we had a great 5-1 victory, which I think attracted 11 million viewers on terrestrial television. Our national games in qualifying for the European and World cup championships are not listed, as they are in Italy. For example, the Turkey game, which could be the decisive match in the qualifications for the European championships, is not listed and will be available only to those with access to subscription television. There is a case for listing the competitive games involving our national football teams, although I would not list the friendlies, such as England against Australia—that would be far too painful.
There is a case for changing the Ryder cup, which is arguably the third biggest sporting occasion, from category B to category A.
Mr. Greenway : I do not know whether the hon. Gentleman was present in the Public Gallery of the Standing Committee on the Communications Bill when we discussed these matters. I asked the Minister at least to consider adding the third day of the Ryder cup to list A. One cannot enjoy the excitement while listening to the radio—one cannot hear whether a golf ball is going to go down a hole. Undoubtedly, the nation missed a great treat last year when the European team won.
Mr. Grogan : I am very grateful for that interesting suggestion; I have not heard it before. The highlights of the Ryder cup on the BBC attracted up to 3.5 million viewers—more than double the highest audience for live coverage on Sky Sport—so there is a case for making a move in that direction.
Finally, it is not just the Government who have responsibility for listed events; it is the broadcasters as well. I agree with my hon. Friend the Member for
Sittingbourne and Sheppey that it was a great shame that no highlights of the cricket World cup were shown on any terrestrial channel. The England v. Australia game, which was of most interest to many people in this country, was seen by only 600,000 viewers. Cricket missed a trick for inspiring future generations, considering that half the population of India were watching some of the games in the cricket World cup. Very few people watched them in Britain, limiting the impact of the tournament.I believe that Channel 4 made a half-hearted bid for the rights to show the highlights. However, I do not know why it did not tell the ITC that it would have paid a fair and reasonable price, and ask the ITC to adjudicate. The English Cricket Board could also have done more to lobby for some of the highlights to be shown on terrestrial television. It signed a voluntary agreement in 1996, under the auspices of the Central Council for Physical Recreation, which said that for important sporting events the board would try to use its influence to have at least the highlights shown on terrestrial television.
Many sporting bodies—rights holders—see the advantages of having wide access to their events. Wimbledon, for example, has recently changed its policy. It is one of the listed events in this country, and it is now making an effort to ensure that at least some of the tournament is seen on terrestrial television throughout Europe. The organisers realise that its impact on the world will be so much bigger if large numbers of people can see it. The US Masters golf tournament has a similar philosophy. This matter is not of grave importance compared with the many other debates in Parliament, but it is important for the quality of life of many people.
10.13 am
Mr. Adrian Bailey (West Bromwich, West): I join others in congratulating my honourable Friend the Member for Feltham and Heston (Alan Keen) on securing this debate and on choosing this subject. When he started by talking about Welsh rugby, I realised that he was relying on the ruthless logic of his arguments rather than trying to charm the Minister. My perspective is that of a lay person, a passionate lover of sport, particularly of football. When I saw the subject of this debate, my first reaction was that the issue was arcane and technical. However, on further consideration, I realised that it was not, because literally millions of people share my perspective on sport.
I feel quite emotional when I want to watch a big sporting event. However, if I have not done the research beforehand so as to find out what channel I should watch and what I should do to access the sporting event, I find, at the last minute, that I cannot see it. If the listed events were to be changed or removed, that experience would happen on a grand scale, and a huge number of people would be affected. It is an important issue.
In examining the relationship between the media and sport, I can see that there is an obvious and genuine argument in favour of sports benefiting from the income generated from their media presentation. However,
there is also an argument about accessibility for the public and about the public's right to watch the events. There must be a balance. The present system of listed events provides such a balance. However, as far as football is concerned, I do not think that that balance is right in the negotiations between the FA premier league and the media companies. That leads, in part, to enormous dissatisfaction and disaffection among everyday football fans.I am concerned that, if we do not highlight in advance the issue of the television without frontiers directive review, profound changes could take place without anybody realising their implications for the public's reaction or the consequences of the chain reaction that would occur throughout all the sports. If listed events were to be removed—I recognise that there have been challenges to the legal position of listing events—the alternative would be a free-for-all in a deregulated market. That would not be confined to national listed events; there would be a domino effect. Major soccer clubs would then have the right to negotiate individual deals with media companies, with all the implications for national coverage and accessibility.
Such a change would have further implications. The rich clubs would get richer, and we would not have the distribution about which my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) talked. That is vital to our grassroots football and to sport in general. In fact, the knock-on effects have not been fully considered or debated, perhaps until this moment.
This debate is important because it highlights some of the issues. There are huge accessibility issues regarding listed events, which we have not fully considered. If listed events were removed, they would go largely to pay-per-view, and the people most disadvantaged would be those who are housebound—disabled people or the elderly—or those on lower incomes who could not afford to pay. That has social implications that must be highlighted.
The tension between commercial and social priorities will continue for a long time. I believe that the current corporate structure of football clubs, in particular, and possibly of other clubs, is not appropriate and does not reflect the right balance between community interests and the commercial basis on which the clubs are run. We must consider another corporate structure that would make it easier legally to defend the exemptions from the current deregulatory framework.
Ms Walley : Does my hon. Friend agree that one way forward might be for clubs in the lower divisions to become social enterprise companies?
Mr. Bailey : Absolutely. New models of community benefit companies, with asset locks and so on to deter those who might want to privatise them, are being considered. That is the way forward, but much more work needs to be done on that. As that is not the main subject of the debate, I shall not go on about it. However, if we are to have a totally deregulated market, the consequences for sport and public access to it will be devastating. One way in which we can reinforce the legal case for exemption from deregulation is to give sport clubs a different corporate status from conventional companies. That is an avenue that we should explore.
To conclude, we need to debate such issues and publicise them. We must make sure that those who consider these issues in Europe and in our courts recognise that sport is not just a commercial enterprise; it is about community, health, a way of living and enriching people's lives across the country. Access to sport cannot be determined purely by commercial and deregulatory processes.
10.21 am
Mr. Clive Betts (Sheffield, Attercliffe): The very fact that we are talking about listed sporting events is a sign that the Government recognise that sport is different—it is not simply a business and commercial activity like any other. Both the nation, through our national teams, and communities, through their clubs and local teams, have an interest in sport. That marks it out as needing to be handled and treated differently in many regards, although I accept the Minister's point that perhaps greater commercial and business common sense could be applied to how some football clubs are run. No one doubts that. I emphasise again, however, the fact that sport is different and that we should treat it as such in many ways. That is why we have the list of sporting events.
One complaint is that, by listing events and preventing the market from operating completely freely, sport loses out financially. I will confine my remarks mostly to football, which is my prime interest. One could almost argue that if we listed all the premiership and football league games and less money came in from television as a result, but the money was more fairly spread, that might be an awful lot better for the game. That remark is a bit tongue-in-cheek, but television's influence on our national game has led to many regrettable situations. I shall outline one or two of them.
The money that football has received in recent years from the admittedly excellent coverage of companies such as Sky, which have improved television coverage no end, should have greatly enhanced our national game. However, we should, collectively, scratch our heads, and one or two football chairmen should scratch theirs even harder and consider what they have allowed to happen to our game as a result of the money that has come in. Several clubs, some of which, hon. Members have named, were nearly destroyed in that process.
We could argue about which came first, the chicken or the egg—whether the creation of the premiership or the influx of money from Sky created the process that caused so many problems—but the two came about together. The premiership was created because of the potential to get money out of Sky under a separate deal, and the Sky money became available because of the creation of the premiership. In some ways, that dual process has destroyed the concept of the national game as one that takes place at club level. That fissure has created so many problems.
If the money had resulted in enormous benefits across the game, and had gone right down to the bottom, people would have said, "Okay, the money has gone from the top, but there has been a trickle-down effect and we support that." Many of us would argue that much of that money has been wasted on enormous salaries, not for the very best players, whom we can admire, but for a lot of second-rate imported players.
People wonder why they are being paid such salaries. That money simply goes straight out of the game. That, and the Bosman ruling, stops the money going to clubs lower down the leagues, which has stopped the development of home-grown players. They do not come up through the leagues, and those at the top do not pay money to smaller clubs to buy them. There has been that debilitating effect as well.In arguing the case for football as a whole, we should consider the fact that half the people who go to watch football in this country attend games outside the premiership. They watch their local community clubs, which is why this issue is so important.
Problems have been created, and there are splits and fissures at a number of levels. At one level, only Manchester United and Arsenal can win the premiership, although Liverpool might come back at some stage. Clubs such as Leeds and Chelsea have tried to buy their way up, but they are in the hole between the also-rans and the elite, and struggling because of their debts. At the next level, there is an enormous gap between the teams in the Nationwide league and those in the premiership, and the struggle to get one leg up into the premiership and to stay there has created a black hole into which clubs such as Leicester, Sheffield Wednesday, Coventry, Nottingham Forest, Derby and Bradford have fallen.
In the lower leagues, money is being sucked out of the clubs because of the failure to buy their players and the failure to bring on and develop players within the game as a whole. That has caused problems to clubs such as Port Vale, York and others that have been mentioned. All those problems should have been addressed, as there is so much money in football, but they have got worse and more difficult to solve over the past few years.
What should we do? That is the test for us. We can all complain and express our disappointments and concerns about such things as the nature of the game and where it has gone; the influence of television money and the fact that it goes to a handful of clubs, so it is less spread around; the fact that there is less recognition of the game as a whole as the national game; and the fact that that not everybody wants to watch Manchester United and Arsenal. If we end up with a game in which only those two sides can win the premiership—perhaps along with one or two others that come in from time to time—and that is the only real competition left, football will suffer and so will Manchester United and Arsenal.
I will briefly raise three issues. The first has been mentioned by my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley): the further proposals from the European Commission to treat football as a business that is subject to the usual rules of competition, although forcing individual clubs to negotiate their own television rights will take us backwards rather than forwards. We must at least establish the right of clubs to negotiate television deals collectively. That is very important. If we move in the direction that some in the Commission are suggesting, football will almost be finished as a competitive sport: only the very few elite clubs in this country will have real opportunities to win trophies, and clubs at the bottom of the game will die. We must resist those proposals, as they will make things worse rather than better.
Secondly, we must strongly argue for a better spread of television money within the game—the football supporters are doing that. There must be recognition of the fact that the game at the top relies on the game at the bottom, and it is important to remember that the game cannot have a head if its roots are not surviving and flourishing. I give my support to that better spread, and I am sure that other hon. Members do as well. We should argue that case positively for the health of the game as a whole: television money should be more equally spread among league clubs and not concentrated so much on the premiership.
Finally, why is no body in the national game putting forward those views? That should be the job of the Football Association, and we have to wonder whether it has any real sense of direction. It has had its problems recently, which have been articulated well. The premiership grew out of the FA, but now it is funding the FA. In that situation, I begin to wonder whether the FA can take the premiership on and face up to the consequences of proposals such as that on spreading the television money more fairly.
I say this to Ministers: let us at least again raise the possibility of looking at a statutory regulator for football. It is our national game; many people love and enjoy it, and the Government have a responsibility to it. They resisted having a statutory regulator when they last looked at the matter and created the Independent Football Commission. Given the lack of direction and control from the FA, the time has come to put a statutory regulator back on the agenda for further debate.
10.29 am
Nick Harvey (North Devon): I, too, congratulate the hon. Member for Feltham and Heston (Alan Keen) on securing the debate, which gives us the opportunity to discuss issues that are of great importance to many of our constituents. I take on board the point made by the hon. Member for Stoke-on-Trent, North (Ms Walley) that there are many more crucial subjects on Parliament's agenda, but we should not lose sight of things that are of such profound importance to the daily lives of our constituents.
Although we are notionally discussing the list of sporting events, the debate has tended to move on to the state of football. One has to say at the outset that we must recognise the limited scope for the Department for Culture, Media and Sport and for Parliament to influence many of the negotiations that we have been discussing and bemoaning. It is perfectly right that Parliament and Members of Parliament who have an interest in these matters should give an opinion, and when we meet people from the sports world we should try to convey that opinion to them, but the state is not party to many such negotiations, as they take place between the sporting world and the broadcasters. The sporting world has not always done itself many favours in them.
Take, for example, the television deal between the Nationwide league and ITV Digital. The football clubs felt a great deal of righteous indignation over the fact that a contract that they had signed would not be
honoured. Frankly, they were utterly stupid in their response to the warning signals that ITV Digital sent out. ITV Digital told them that it would go bust if they did not agree to a reduced fee. They did not believe that. ITV Digital went into receivership, and the receivers made the football clubs another proposal, saying that it was their last chance. They were too stupid to take it, and they ended up signing a deal with Sky worth less than the one offered to them by the ITV Digital receivers.I have a great deal of sympathy over the state that football is in, but in many ways football clubs have been the architects of their own misfortune. There is, I am afraid, an element of greed in the game that has done it little good. The hon. Member for Ryedale (Mr. Greenway) reminded us of the predicament of Leeds United. I am afraid that my heart does not bleed for Leeds United—let us be perfectly honest, nobody's heart bleeds for Leeds United. It got itself into this mess by going on a completely insane buying spree under the previous manager but one. That extraordinary buying spree is about equivalent to its debt. In pursuit of glory, which is what, I suppose, motivates everyone in the game, the club did things that got it into a mess.
Mr. Wyatt : Leeds United is a publicly listed company, so it has specific roles to play. It did not play them, however, and the Department of Trade and Industry could do something about that.
Nick Harvey : The hon. Gentleman makes a good point. The role of plcs behind football clubs is interesting. It takes them into the realms of normal company regulation, which may offer us scope for exerting control and bringing sanity to bear.
The list of events has undoubtedly done a great deal of good, as have the 1998 additions to it. The hon. Member for Selby (Mr. Grogan) reminded us that arrangements in this country have worked rather better than those in other countries. The rights to the last World cup and to the next one were bought by a German company, but that has not done German television viewers much good. Several hon. Members referred to the threat that each premiership club will be allowed to negotiate its own television rights, although similar attempts in Spain and Italy did not succeed, and that would be enormously damaging if it happened here.
One understands where the European Commission is coming from: if people are obsessive lovers of free market competition—it became rather voguish in the 1980s and 1990s—they get themselves into all sorts of trouble, but this matter concerns sport. Going down the road that the EU would have us go down would damage competitive sport. Competition of a quite different sort will be destroyed for the reasons that the hon. Member for Sheffield, Attercliffe (Mr. Betts) mentioned. We could reach a situation in which two clubs at most have a regular, realistic chance of winning the FA premiership. That will do nothing for competition in the sporting sense and the situation will be 10 times worse if clubs market their own television rights.
The hon. Gentleman also made good points on the aspirations of football supporters. A better divvy-up of television moneys is undoubtedly needed. I should dearly like to see the premiership's contribution to the
Nationwide league rise from 5 per cent. of revenues to 10 per cent. For all the reasons that I have given, I am not confident that that will happen. It would be much easier either if the FA was not in such a close relationship with the premiership or, better still, if the premiership was still as one with the Nationwide league. We can only hope that sanity will prevail. If parliamentarians, among others, speak up, that might be achieved.We have also heard about football fans' travel problems. They are particularly acute for those who have season tickets and make travel arrangements weeks in advance to get the cheapest fares. If a match that is notionally scheduled for a Saturday is moved to a Sunday or another day, that is unfair on such people, who dig deep into their pockets to support their clubs. It is important to give greater consideration to the plight of ordinary supporters. A good suggestion has been made about keeping one night free for the Nationwide league to be on television, or for people to watch it live and not be tempted to stay by the fireside. That, too, would require the enlightened common sense that we have seen little of in the game.
The top of the game depends on the grass roots—that is certainly the game's tradition, although it does little for the plight of the smaller clubs that the larger ones bring in indifferent players from abroad and pay them excessive wages, rather than buying players from the lower leagues as they used to.
David Beckham, too, has come out against changes in the timing of televised matches, if only because he does not like having to eat pasta at 9 am on match day to prepare for a noon kick-off. While his diet should not be our top concern, it is interesting that people at that level of the game are making such points.
The threat from Europe is serious. The Bosman ruling has already done a great deal to disrupt the natural balance of the game, and what is threatened will make it a great deal worse. We should do anything that we can to put the European Union on to a healthier course, and if that involves a trip to Europe to plead the case, timed around a good match, I am sure that either I or my hon. Friend the Member for Colchester (Bob Russell) will be only too pleased to support the endeavour.
10.38 am
Mr. John Greenway (Ryedale): I, too, congratulate the hon. Member for Feltham and Heston (Alan Keen) on securing the debate. The first live televised match that I, like him, saw was the Blackpool v. Bolton cup final. I remember that Arsenal won the league that season, and 50 years later I am still a gooner. I should also remind hon. Members that for the past 15 years I have been the president of York City football club. The last time we discussed this matter in Westminster Hall, the club had just about gone into administration—it is now out, and a supporters' trust is in charge in the boardroom. Although listed events are not as controversial as they were, the televising of sport remains a live issue, and the debate has provided us with the opportunity to reflect on it. Hon. Members have referred to the situation in the premier league; clearly, the after-effects of the collapsed ITV Digital deal with the football league are still being felt by many league clubs.
The subject of listed sporting events was discussed briefly in the Standing Committee of the Communications Bill as recently—or perhaps I should
say to the Minister, as long ago—as 23 January. How the weeks fly by! It was interesting that no one sought to amend the Bill; the Committee had a stand part debate. The existing arrangements for lists A and B seemed to be generally accepted as the settled position. It is fair to say that the group A list will always remain central to the life of the nation. Suggestions are made from time to time about how we might extend it. Some have argued that the British grand prix for Formula 1 motor racing should be on the list. I believe that day 3 of the Ryder cup should be on the A list, for the reason that I outlined in my intervention on the hon. Member for Selby (Mr. Grogan), and I think the Minister was impressed by that. I understand that the Bill allows Ofcom to review the lists and make recommendations to Ministers. I hope that what we have said today will help them to realise that we believe that some amendments may be appropriate in the years ahead.In maintaining a list at all—this was the point made by the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt)—we are likely to deprive the listed sports of the full revenue that they might have received had there been an open market for the sale of rights. When we are establishing the lists and deciding on the sporting bodies, we must strike a balance, but I recall that far more controversy surrounded this issue in the Standing Committees considering the 1990 and 1996 Broadcasting Bills than it does now. I believe that the lists are relatively settled.
The new lists A and B were introduced in June 1998 following the inclusion of listed events provisions in the 1997 TV without frontiers directive. The key point about events on list B is that they can be broadcast exclusively live only if adequate provision is made for secondary coverage. The European Commission has embarked on a review of the directive's provisions with a view to proposing any changes to the current directive at the end of this year. Listed events rules will be one of the issues discussed, although I understand that the Commission has expressed firm support for their retention. In the light of the challenge by Kirch Media of the rules relating to the TV rights for the football World cup, the Commission must consider how it can strengthen current provisions to ensure that they cannot be circumvented by rights holders in future. This debate is an opportunity for us to do that.
I have real concerns about whether the EC understands some of the issues surrounding the sale of sporting TV rights and the regulation of sport generally. Its intervention in the football transfer market has been disastrous, although when I went to see the Commissioner and two of the chefs de cabinet, we were able to ameliorate some of the worst features of the proposals. Nevertheless, its intervention in the transfer market has contributed significantly to the financial plight of many clubs in the lower leagues. No longer can we sell a player for £1 million, because at the end of the season he can walk away for nothing.
The Commission is now challenging the legality of the collective sale of rights by, for example, the premier league. I agree with all those who have said today that, if we lose this argument, it will be a disaster for English football. Yes, there are issues about the percentage of money from TV deals that should go to grassroots and lower league clubs, but we must be circumspect. Not that long ago we were arguing that the premier league
should follow Central Council of Physical Recreation guidance and pay the 5 per cent. When one adds up all the other money that the premier league sends down, it becomes clear that it is distributing more than 5 per cent. Cricket and tennis distribute 11 per cent. each. We have made real progress over the past 10 years, and I believe that more can be made. However, I cannot for the life of me see that the premier league will agree to distribute more in the immediate future when premier league clubs such as Leeds United and Chelsea are facing such severe financial difficulty.A further problem—I have much sympathy with what has been said here—is the timing of matches and the effect of live broadcast on attendance at other matches. When we have fewer Champions league fixtures next season, hopefully there will be fewer occasions on which divisions one, two and three have mid-week fixtures on nights when clubs such as Arsenal, Manchester United or Newcastle United are being shown live on television playing a top European side. That has a huge impact on the revenue from games.
However, we must accept that the current collective agreement benefits smaller clubs. Those benefits would be lost if the collective agreement was replaced by individual clubs selling their own rights. To see that, we need only look at the shambolic mess in Italy, where the serie A clubs sell their own rights. At the start of last season, some clubs could not organise their fixtures because the weaker teams had not sorted out their deals. It would be a complete disaster to have such a system, and I am astonished that the Commission has not paid greater attention to what has happened in Italy.
Such a system would, I believe, cause the break-up of the league and bankruptcies even in the premier league. It would probably lead to more games being on television, but the timing of games would probably be worse for fans. Paradoxically, the current premier league deal replicates the arrangements in list B and the directive—with live games on Sky and recorded highlights on free-to-air ITV. People might, as a result of that, begin to wonder whether the Commission really knew what it was doing, but in my view, something far more damning challenges and undermines the EC argument on the sale of collective rights. The Commission's case does not adequately take into account the consumer interest or the special characteristics of sport. Those were enshrined by EU heads of state and Governments in the Nice declaration on the specificity of sport agreed in the year 2000. The declaration explicitly recognises the principles of solidarity and the redistribution of broadcast revenues.
In other words, sport is a special case. The hon. Member for Stoke-on-Trent, North (Ms Walley) rightly drew attention to the fact that the Commission argues that the legal test applied differs between the UK courts and EC competition law. However, that misses the key point that although the legal tests differ, the findings of fact are entirely relevant, especially as the Commission claims to have taken into account the specific characteristics of English football. If it had done that, it would have reached an entirely different conclusion.
At one and the same time, we see a different part of the EC reviewing the television without frontiers directive while the Commission pushes for a treaty of Rome
amendment to strengthen the position of sport as a special case. The Government are against that, but I suggest to the Minister that they should reconsider. Also at the same time, the Commission is trying to say that the collective television rights that underpin the competition are anti-competitive. All three positions cannot be right. Sport needs greater legal certainty than at present, but we cannot, in the same breath, say that we should strengthen the exception given to sport in terms of competition law and throw the baby out with the bathwater in terms of the agreements that we already have.The hon. Member for North Devon (Nick Harvey) said that there was limited scope for Parliament and Government here. I suggest to the Minister that the Government could challenge the EC view on collective rights by praying in aid the Nice declaration and supporting the concept of a treaty amendment. I appreciate—I am a Conservative, after all—the anxiety that a treaty amendment may have other consequences, and it is not something for which we would naturally want to argue. Why should we have to rely on an EC initiative to protect our national game? However, the threat to football from another EC initiative, the challenge to collective rights sales, is real and potentially disastrous. We would not choose to pursue the matter ourselves at national level, but this is something that the EC is trying to do to us. Clearly, we have to fight back. What has come out of the debate today is the willingness of three or four of us to go and see the Commission and convey our argument. We need to know that we have the Government's support for that.
10.49 am
The Minister for Tourism, Film and Broadcasting (Dr. Kim Howells) : I congratulate my hon. Friend the Member for Feltham and Heston (Alan Keen) on securing the debate. I am well aware of his enthusiastic interest in sport and his sporting background. This debate is a reminder of the strength of feeling among hon. Members and their constituents about sport on television and the broadcasting of listed events. That is why I welcome the opportunity to debate those issues.
As hon. Members have said, sport plays an important role in our society. It provides a focus for civic and community values, which can contribute to social cohesion and regeneration. It also provides employment opportunities for people from all kinds of educational backgrounds.
As my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) made clear, the health of sport in this country depends greatly on the broadcasting sector. Top-level sport is now big business. I did not quite understand my hon. Friend's reply to my rather bellicose intervention about the way in which soccer is run but she pointed out that it has something to do with the way in which big business has elbowed its way in and tended to capture the sport. Perhaps there are ways of doing business now that did not exist 30 years ago.
The governing bodies are faced with greater financial demands than ever before. To achieve success on the world stage in any sport requires substantial investment in training and development, and people attending sporting events expect better facilities as well as greater comfort and safety than in years gone by. Television
income plays a vital role in securing those things. May I just give hon. Members a little warning? Welsh rugby now has the best stadium it has ever had. It has more coaches and more money has been spent on development and grassroots matters than ever before, but I cannot remember a rugby team as inept as the current Welsh rugby team.The desire to attain success at an international level can sometimes be confused, as an aim, with remembering what sport is about at a grassroots level. The issue is not easy and many people have wrestled with the matter in relation to Welsh rugby. English rugby has been much more successful in dealing with the matter. We have learned very painfully that moderate or even large amounts of money from broadcasters do not necessarily guarantee international success. Many other things have to be done to achieve that success, and sometimes those things are painful.
A number of major UK sports invest substantial proportions of broadcasting revenue at grassroots level under the Central Council of Physical Recreation's voluntary code on broadcasting. The hon. Member for Ryedale (Mr. Greenway) reminded us that some of the sums are large, and very welcome they are too. Signatories, including the FA, the Rugby Football Union, the Rugby Football League and the England and Wales Cricket Board, commit to invest at least 5 per cent. of broadcast income in the development of their sports, which is important.
The Government do not intervene unnecessarily in the sports broadcasting market. Our main concern is to ensure that everyone has access to the key events that have a clear national resonance. Such events are known as listed events and are protected under part IV of the Broadcasting Act 1996. Those events have a significance that cannot be measured solely in terms of their economic value relating to ticket sales and broadcasting rights. That point has been emphasised this morning. The events generate interest among those who normally may not even follow sport, and they make an important contribution to the way in which we perceive our national identities. Events such as the World cup final, the Wimbledon tennis championships and the grand national are national treasures. I understand that 10.5 million people watched the grand national when it was last run.
Mr. Greenway : It is this week.
Dr. Howells : It is. That is a huge audience by any standards. I understand that the England rugby game on Sunday had a 51 per cent. share of people watching television. That is huge, and it compares well with the very small number of viewers that watched England games when those were shown exclusively on Sky. Sky got good audiences but nothing like the audiences for terrestrial television.
Although the broadcasting rights to such occasions are owned by governing bodies, many people regard them as public property. The widespread interest that they generate is only partly a result of the efforts of the promoters; it is also, in many cases, the result of the long history of the events, and the fact that they bring together major national and international participants and involve British national teams. There is often a long
history of broadcasting such events on free-to-air television, and people have come to expect to be able to see them live without having to pay extra for the privilege.A list of events was drawn up in 1956, and it has been reviewed on several occasions since then, as my hon. Friends the Members for Sittingbourne and Sheppey (Mr. Wyatt) and for Selby (Mr. Grogan) have reminded us. The most recent revision of the list took place in 1998, when the then Secretary of State appointed an advisory group chaired by Lord Gordon of Strathblane to review the content of the list and to advise him which events should be included. I emphasise that we intend to review the list regularly, but we have no plans to do so in the immediate future, because I believe it is too soon after the last review. The list has only ever included sporting events, although I am sure that hon. Members are aware that it is possible to include other key events in national life. However, we are not considering that today.
Listing seeks to ensure that free-to-air broadcasters reaching at least 95 per cent. of the population are given a fair and reasonable opportunity to acquire the rights to broadcast live coverage of "crown jewel" events. Presently, the channels that meet those requirements are BBC 1, BBC 2, ITV 1 and Channel 4. Listing does not guarantee that any event will be broadcast live. Rights holders are not required to sell live rights and broadcasters are not obliged to purchase them or to show the events. However, the legislation ensures that where live rights are made available, they must be made available on free-to-air channels on fair and reasonable terms. The Independent Television Commission is currently responsible for ensuring compliance with the 1996 Act, and it maintains a code on the operation of the legislation, although once the Communications Bill is enacted that task will fall to Ofcom.
I was not entirely sure about the question from my hon. Friend the Member for Sittingbourne and Sheppey about internet coverage and access, but if he writes to me, I will try to answer him.
I do not want to go into the details of the Communications Bill—the hon. Member for Ryedale and I spent many weeks on it. Suffice to say that it amends the 1996 Act to give statutory effect to the two existing categories of listed events—group A and group B—and to ensure their smooth operation by the new regulator. EU member states, the European Parliament and the European Commission have also recognised the need to protect events of major importance for society and, through the TV without frontiers directive, to give mutual recognition to each other's lists. The UK's list was verified by the Commission in July 2000.
I have only a few moments left, but I want to say something about ensuring that the competition authorities in the EU recognise the gravity of the issue, about which my hon. Friend the Member for Stoke-on-Trent, North and the hon. Member for Ryedale were worried. I was a Minister with responsibility for competition for three and a half years. Every so often, competition authorities tend to get a rush of blood to the head and start looking at soccer and other issues as if they were looking at sales of washing powder.
We must be very careful about that. This might be a commodity, in the looser sense of the word, in that it is a product to be sold involving contracts, but as the hon. Member for North Devon (Nick Harvey) reminded us even more brutally than I did, some very stupid people are involved in the sales of certain contracts and properties. I hope that my hon. Friends and other hon. Members realise that we are aware of the need to communicate that.
Yemen
11 am
Keith Vaz (Leicester, East): I thank you, Mrs. Adams, for the opportunity to raise the current state of relations between Britain and Yemen. I am pleased to see the Minister here. I regard him as one of the best Ministers in the Government. He certainly has an interesting portfolio, and I admire the dedication and stamina that he has shown, especially over the past few weeks. I am also glad to see the hon. Member for Rutland and Melton (Mr. Duncan), my near neighbour, on the Opposition Front Bench, because he has a keen interest in Yemen. He is a member of the all-party group on Yemen and has frequently visited the country.
Britain and Yemen have had close relations extending over centuries. Naturally, that relationship was especially intimate between 1839 and 1967, when Yemen was a British colony. Relations between our countries are of importance not just to the Yemeni Government, who have repeatedly expressed a wish to improve and to intensify their relations with Britain, the United States, and indeed the west as a whole, but to the British Government and their citizens. At this time, it is vital that we continue to assist Yemen to combat the horrors of trans-national terrorism, which poses a threat to people's security around the globe. To defeat the common perception of Yemen as a terrorist stronghold is crucial for attracting foreign direct investment and tourists, and to improve Yemen's international trade relations. All those components are necessary if the country is to escape poverty and if development is to be advanced.
Yemen is a beautiful country situated at the southern part of the Saudi Arabian peninsula, sharing borders with Oman in the east and Saudi Arabia in the north. It has a seashore 2,000 km long. With a land area of 550,000 sq km, Yemen is slightly bigger than France. The Yemeni population currently amounts to about 19 million. Yemen has an extraordinary history and culture stretching back over 3,000 years. Its geographical and economic situation favoured the creation of one of the earliest primitive societies, which established political and economic relations with other countries of the ancient world. The legendary Queen of Sheba came from ancient Yemen.
Before I proceed, it is only appropriate that I should declare my interest. For the benefit of those hon. Members who were not present on 16 February 1999, when I previously had the opportunity to speak about Yemen in the House, I am the chairman of the all-party group on Yemen, which is just about to be re-inaugurated after a short period of inactivity.
I was born in Aden, Yemen in 1956. For economic reasons, my parents had migrated from Bombay, India, and settled in Tawai, then called Steamer Point, in British-occupied South Yemen. My mother worked as a full-time teacher in the Arab girls college in Khomaksar. My father worked as an administrator for Shell. I spent the first nine years of my life there, before leaving with my family to escape the mounting conflict.
I still feel strongly attached to Yemen, and I have vivid and happy memories of my early childhood there. I was educated at St Joseph's convent school in Aden,
and I used to sit on the beach watching the grand ships preparing to enter the Suez canal. I remember that the number one pop record at the time was "Ya Mustapha, Ya Mustapha an a by hibak Ya Mustapha." I still search the specialist record shops for it. There is as yet no cover version by Kylie Minogue.I remember looking in awe at the governor's mansion. The then governor of Aden was Richard Luce. His son served as a Member of this House, and as Sir Richard Luce became governor of Gibraltar. I met him when I was Minister for Europe. He is now the Queen's Lord Chamberlain.
My interest in Yemen has naturally remained, and I am seriously concerned about its situation, particularly its relations with Britain. I revisited that extraordinary country for the first time in 1998, when I headed a delegation of British travel industry representatives to rediscover and to encourage bilateral relations. I met President Ali Abdullah Saleh, the Ministers of Health, Culture and Justice and the Speaker of the Yemeni Assembly.
I went back in October 2000, when I was Minister of State at the Foreign Office. Although I was dealing with European matters, and Yemen is clearly not in Europe, the then Foreign Secretary, my right hon. Friend the Member for Livingston (Mr. Cook), asked me to undertake the visit. Since then, I have met Yemeni officials on several occasions.
I frequently meet the excellent ambassador to London, Mutahar Abdullah Alsaeedi, who came to see Leicester City play Sheffield United. Another visitor to the Walkers stadium on that day was the Minister for Sport, whose constituency in Sheffield has the largest number of British Yemenis in Britain, including Prince Naseem, probably the most famous person of Yemeni descent. In December last year, I met the Prime Minister Abd al-Qadir Bajammal in the House of Commons.
Yemen is a complex country and extremely difficult to understand, but to appreciate the challenges faced by its Government in their struggle against terrorism and their efforts to enhance internal security and development, I want to give a brief account of related difficulties. When British colonial rulers, after a 120-year long occupation, left the sparsely populated South Yemen in 1967, it was captured by Marxists, while the densely populated north never came under colonial rule. The country was united in 1990, but internal stability was never secured, and a civil war that lasted for roughly six months broke out in early 1994. Since then, the Government have worked hard for reconciliation between the north and south. I commend the efforts of the president and the Government.
As in many former colonial states, the Government must tackle further the problems related to decentralisation. Many tribesmen stay loyal to their local leaders rather than the central Government, who struggle to rule an area that initially was artificially created by western powers. The lack of governmental control and security in some areas has been made only more difficult by the country's geographical features. The western and southern parts of the country have long coastal strips along the Red sea and the Arabian sea respectively, whereas the inlands consist of mountains and highlands with a desert area to the east, making it
easier for terrorists to pursue their illegal business, and for some tourists to be kidnapped, which has happened far too often in recent years.Despite those challenges, in the past few years, the Government of Yemen have made significant progress in the fight against terrorism and their transition towards democracy. I do not try to conceal the horrors that occurred in Yemen at the beginning of the millennium. As most of us will remember, 17 US personnel were tragically killed when a suicide bomber attacked the US naval vessel USS Cole in Aden harbour in October 2000. In the same month, four Yemenis claimed to have been behind the bomb that exploded in the British embassy.
In the wake of 11 September, however, Yemen has shown significant commitment and co-operation in the international fight against terrorism. In November 2001, President Saleh visited the United States for talks with President George W. Bush. It was agreed that Yemen would freeze bank accounts of individuals believed to be associated with al-Qaeda, and that it would arrest suspected members. In February 2002, Yemen expelled more than 100 foreign Islamic scholars, including British and French nationals, as part of a crackdown on terror and suspected al-Qaeda members. The Government have also begun to tackle the problems of decentralisation by extending security measures to all districts beyond central areas.
Unfortunately, the attack on the French supertanker Limburg on 5 October last year refocused attention on Yemen as a base for international terrorism. Only a fortnight ago, on 18 March, an American, a Canadian and a Yemeni employed at a western oil firm were shot dead in the oil-rich province of Marib, about 170 km east of Sanaa. I would like to send my condolences and those of the House to the families of all who died.
Ruling a country is not an easy task, as we know, but Yemen is certainly more difficult to rule than other countries. President Saleh has a pivotal role, balancing the wishes of those who, like him, want to fight terrorism in co-operation with the west, and the priorities of tribal leaders. He has played a fragile hand impressively, offering the west great support while reassuring his tribal supporters. In my view and that of many others, he has been a good president.
Against that reality, it is easy to comprehend why Yemen has kept a low profile in the current Iraq conflict. I am assured that the Yemeni Government do not support the Iraqi regime but have a common position with the Arab League, believing that conflict is unjust and could have been avoided by using alternative solutions in tandem with a United Nations agreement. I, of course, disagree with that view, and fully support what my right hon. Friend the Prime Minister is doing. However, I understand the position of Yemen and the Arab League.
My aim is not to dwell on current controversies, which clearly will have an effect on Yemen, but to talk about the situation in that country. As I mentioned, Yemen has not merely improved its record in combating terrorism but made gains in decentralisation. Yemen still has two parallel political systems: an ancient tribal system that is dependent on consensus, and an emerging democracy. The latter has advanced significantly. The 1997 general election, the second since the 1994
reunification, was judged to be predominantly fair and free by independent observers. Local elections were introduced in 2001.New general elections to the Yemeni Parliament will be held on 27 April, and British observers, including representatives of the British Parliament, have been invited to attend as spectators. I have accepted the ambassador's invitation to attend. However, as usual, I will take the Minister's advice on whether I should travel there. I would be glad if the Minister confirmed Foreign Office advice to all those—not just me, obviously—planning to travel to Yemen. Foreign Office travel advice has a huge effect on the tourist industry and the Yemeni Government want Yemen to be given the all-clear as soon as possible.
The majority party, the General People's Congress, has for the first time selected women candidates to represent it in the forthcoming elections. I welcome that decision. Some of the other parties, I am pleased to say, have also followed that route. Yemen, the first country in the region, has reformed its educational system extensively, eliminating the religious education programme and integrating 350,000 students into its general educational programme. Construction of a civil society has been encouraged, and several political parties, trade unions and human rights organisations have been formed. I deeply welcome all those developments and it is important that we persist. Yemen and Britain are bound together by history, and it is crucial that we should encourage and support our relations with Yemen. I acknowledge what both Governments have done recently in that respect. Dr. al-Qirdi, the Foreign Minister of Yemen, paid an official visit to the United Kingdom in March 2002, which was followed by Prime Minister Bajammal's visit in July.
In 2002, the British Government provided bilateral development assistance valued at about £2 million per annum. I have been informed that that sum is due to increase over the next few years. The Government also support Yemen indirectly—for instance, through multilateral aid programmes implemented by the World Bank—and since Yemeni unification, the European Union has committed more than Euro165 million to economic and social development.
Although those contributions are important, they are not sufficient to overcome all the problems faced by the Yemeni Government. To escape the poverty trap, Yemen must attract foreign direct investment and reduce its trade deficit. Using the most current figures available, UK exports to Yemen were valued at £73.5 million, whereas UK imports were worth only £4.8 million.
We must first help Yemen in its continuing struggle against terrorism. Only when security is complete will foreign companies be interested in investing in and trading with Yemen. At present, no British aid programme allocates funds for the fight against terrorism, and I urge the Minister to take immediate steps in that direction. The Minister may say that the Yemeni Government must demonstrate a greater will to deal with terrorism but I am assured that co-operation is available if it is asked for. In that respect, we should
remember that the president, despite local difficulties and the need to balance the various interests, has always been receptive.I would like Yemen to become part of the Commonwealth. I raised the matter with Don McKinnon, Secretary-General of the Commonwealth, when I met him 10 days ago, and I would like to hear the Government's view on the matter. I believe that it would be in Yemen's interests, but also in the interests of the Commonwealth, to have for the first time an Arab country as a member.
I hope that in his reply the Minister will be positive about the relations between Britain and Yemen, and I look forward immensely to the next ministerial visit to Yemen. It is time that Yemen took its rightful place in international affairs.
11.17 am
Mr. Alan Duncan (Rutland and Melton): I am grateful to the hon. Member for Leicester, East (Keith Vaz) and to the Minister for allowing me to speak. My plight is that, although I have visited Yemen five times in the past six years, as a Front-Bench spokesman on foreign affairs, the rules of the House forbid me initiating a debate of this sort. I am glad that the hon. Member for Leicester, East has done so, and I agree with everything that he said. It was a helpful contribution to our relations with Yemen. I agree with him, even if he cannot sing the pop song, "Ya Mustapha, Ya Mustapha".
When it comes to Yemen, a few simple points need to be made. It has many elements of democracy to commend it. There is an increasingly solid unity between north and south. There are genuine attempts in the country to rein in al-Qaeda, yet there are difficulties in applying the writ of law to all corners of what is an intensely tribal country. However, we should bear it in mind that if we demand that it curtails unhelpful activities in Yemen, it will expect us to do the same here on matters that affect it.
As the hon. Gentleman said, a good case can be made for increased aid from the Department for International Development, and I am pleased to say that the Secretary of State is giving serious consideration to doing so. There is a lot of pressure for Yemen to join the Commonwealth.
If I could make only one point, it would be this. Whenever I visit Yemen, I find that the people there feel rather neglected by this country. The hon. Gentleman is the only person who has visited Yemen in a ministerial capacity during the past six years, and Yemen is longing to revive a deeper friendship. The country has an excellent ambassador here, and in Frances Guy we have a supremely effective and brave ambassador in Yemen.
I hope, as does the hon. Gentleman, that the Minister can say some reassuring words, with some intent, to enable our relations with that important country to be revived and enhanced in the years ahead.
11.19 am
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mike O'Brien ): I congratulate my hon. Friend the Member for Leicester, East (Keith Vaz) on securing a debate on
Government relations with Yemen. I welcome the opportunity that this debate presents to discuss our relations with a country that, as others have said, receives too little public attention. Yemen is rarely in the news in the west, and when it is, it is often for the wrong reasons. That does an injustice to a country that has worked hard since the civil war in 1994 to balance its economy and work out a strategy to alleviate its poverty and that, more recently, has made considerable efforts to root out terrorism. Yemen is an ancient country making a strong commitment to enter the modern world, and it gets little credit for it. It deserves more credit.I hope to help to redress the balance to some extent today. I shall not pretend that Yemen does not face problems. Of course it does, and I shall touch on them, but if we work together, as old friends should, Yemen can have a better future. I want to talk about that long friendship, the difficulties that Yemen faces and what we can do to help.
The Republic of Yemen is a modern state formed on 22 May 1990 from the unification of the former communist South Yemen and the Arab republic of North Yemen, but Yemen has existed in one form or another for thousands of years. As my hon. Friend said, the Yemeni province of Marib may once have been the site of the legendary kingdom of the Queen of Sheba. That may help to explain why many Yemeni women are keen to be involved in the political process, a point that I shall return to if I have the chance.
Britain has had a long connection with Yemen and many of the friendships formed during the time of the Aden protectorate from 1839 to 1967 remain intact. I am pleased that we have been able to help with the restoration of the "Little Ben" clock in Aden, a fitting symbol of the timeless nature of our relations.
The origins of the Yemeni community in the United Kingdom can be traced back to 1885. It was the first Arab community to settle in the UK in any number. Yemenis have worked on board British merchant navy ships and have settled in Cardiff, London, Sheffield and Birmingham. There are now between 30,000 and 40,000 in the Yemeni community in this country. The community has been and remains an active and important part of our society. That is one reason why I hoped to repeat my hon. Friend's visit to Yemen. Indeed, I intended to go there in March. However, following the deterioration in the security situation, which was reflected in our travel advice, I was advised that it was not safe to go. I hope to visit as soon as the security situation improves. I have told our ambassador there, Frances Guy—I agree with the comments of the hon. Member for Rutland and Melton (Mr. Duncan) about her—that I intend to visit as soon as I can. Unfortunately, our travel advice is still not to go. I hope that that will change soon.
Yemen has not had an easy history. Periods of peace were punctuated by invasion and internal strife. The civil war in 1994 was a reminder of the troubled past. The divisions that remain in Yemen are the roots of modern-day problems, which are fuelled by the widespread availability of small arms. It is estimated that there are about 40 million small arms in circulation—two for every man, woman and child. That gives Yemen the dubious honour of having the highest number of weapons per capita in the world.
The wide availability of weapons undoubtedly makes Yemen an attractive staging post for terrorists, who also take advantage of the misplaced hospitality of some local tribes in areas where central Government's writ does not run. Yemen is a victim of terrorism. Al-Qaeda and groups and individuals sympathetic to its aims have operated in Yemen. The attacks on the American destroyer USS Cole and the French tanker the Limburg were undeniable proof of that. As long as that scourge remains, Yemen's reputation will be tarnished.
Security also affects trade and investment. There are good opportunities in Yemen, but companies naturally want to be sure that their investment and their staff are safe. Corruption and the legal framework also put off some would-be investors.
Some have questioned our travel advice, although I do not accept that our assessment of the security environment is too harsh, not least in the light of the tragic shootings in Marib last month and the murder of three American aid workers in Jiblah in December. However, we keep the situation under close review. I would dearly love to be able to recommend that UK nationals visit that most beautiful and fascinating of countries, but only when the security environment has improved and it is safe for them to do so.
There is light at the end of the tunnel. President Saleh has given his commitment to fight terrorism, and I welcome the actions that the Yemenis have already taken. We stand ready to help where we can. Since 1994, Yemen has taken pains to make peace with all its neighbours. The most significant agreement was that with Saudi Arabia in June 2000. The demarcation of the border continues peacefully, despite running through some of the most disputed tribal areas. That success is a great tribute to both countries.
However, defeating today's terrorists is only part of the solution. We also need to ensure that we address the causes of terrorism and extremism. Yemen is woefully underdeveloped and is one of the poorest countries in the world outside Africa. Yemen is ranked 144th out of 173 countries in the 2002 human development index. More than 15 per cent. of the population are forced to survive on less than $1 a day, and 45 per cent. have under $2 a day. Infant and maternal mortality rates are among the highest in the world. Illiteracy among women is a staggering 74.7 per cent., and 32.5 per cent among men.
The World Bank and the International Monetary Fund approved the Yemen Government's poverty reduction strategy paper at the end of July 2002. The paper sets out the major development challenges for Yemen, which are bringing population growth under control, controlling internal migration, dealing with the rapidly increasing labour market, decreasing the gender gap, enhancing opportunities for women, reducing child labour, managing diminishing water supplies, improving access to health care and education, reforming public administration, tackling endemic corruption and improving the security situation—a daunting list. However, Yemen deserves support for its efforts to tackle those problems, its attempts to decrease poverty and its hard work in improving its democracy. DFID has for many years had substantial support and investment in Yemen, and we propose to continue that.
Things are not all doom and gloom in Yemen. Yemen's achievements are not always recognised in the west, especially those to do with political reform. This
month's parliamentary elections will be Yemen's third since reunification. Yemen has made significant progress in providing a modern representative system of government. Women can vote and stand as candidates for Parliament, which is a genuine debating chamber. Opposition parties have a voice in the media. Women and men—up to 92 per cent.—are registered to vote; more than 3.5 million women, as well as nearly all the men, are registered in Yemen. That is a considerable achievement.The final list of candidates for the elections is being drawn up now, and I hope that all the political parties in Yemen will give women a chance to stand as candidates. For the first time, voters in Yemen will be faced with a simple choice between the governing party and the coalition against it. I welcome President Saleh's commitment to ensuring that the elections will be the freest and the fairest in Yemen's history. I share the dream of a safe and secure Yemen, a Yemen with an enviable democratic pedigree and strong democratic institutions, a prosperous Yemen where poverty is a thing of the past. I hope to be able to visit Yemen soon. I believe that with the support and good will of its many friends in the international community the Yemenis can make their dream of a prosperous and democratic Yemen come true.
11.29 am
Sitting suspended until Two o'clock.
Government Accounting
2 pm
Mr. Mark Hoban (Fareham): Coming just a week before the Budget, this is a timely debate. Next week the Chancellor will no doubt stress how prudent he has been, how low Government borrowing is and how he is satisfying his golden rule. Yet there is strong reason to believe that he has been able to achieve that only through sleight of hand, by relying on accounting wheezes that have led him to be dubbed the Enron Chancellor.
What is it about the Enron scandal that can be applied to the Chancellor? One of the central aspects of the Enron affair was that the transactions that the company entered into were structured in such a way that liabilities were kept off its balance sheet, so its debts were much greater than the balance sheet showed. The unravelling of those structures led to Enron's collapse and to the phrase "Enron accounting" passing into the English language. Debts were kept off the Enron balance sheet by carefully constructing transactions so that they followed the letter of United States accounting rules. Therefore, although the economic and commercial reality was that the liability or the debt was Enron's, the legal structure said that it belonged to another entity; the accounting reflected the legal form rather than the economic or commercial substance of the transaction.
It is relevant to note that because UK GAAP—generally accepted accounting practice—requires the substance of the transaction, and not its legal form, to be reported, it is commonly held that Enron could not happen here, at least not in company accounts. In that context I want to look at two areas of the Government's accounting: the treatment of the £21 billion of debt from Network Rail and the obligations placed on the private finance initiative.
I see the hon. Member for Yeovil (Mr. Laws), a former member of the Treasury Committee, here today. He did an admirable job of questioning the Government and their advisers on the accounting that lay behind Network Rail. I want to focus on the evidence presented to that Committee.
The Government's accounts are audited by the Comptroller and Auditor General, Sir John Bourn, and are prepared under UK GAAP. In Sir John's view the Strategic Rail Authority is a Government agency, with a significant equity interest in and a dominant influence over Network Rail, so Network Rail's debts should be included in the Government's accounts and, therefore, in their total debt. However, the calculation of Government debt to be used in next week's Budget and in the Red Book is based not on those figures but on a different set of figures prepared by the Office for National Statistics. Curiously, Network Rail's debt is excluded from those figures, because for this purpose it is treated as part of the private sector rather than the public sector. Why is that?
The ONS takes a more simplistic view of Network Rail's status than the National Audit Office. Its view is that, given that the majority of board members of Network Rail are drawn from the private sector, Network Rail must be part of the private sector and thus its debt is private sector debt. Therefore, this year's borrowing requirement is £21 billion lower than it
would have been if the NAO's view had been applied to that transaction. The evidence from the Treasury Committee illustrates the simplicity of the argument used to justify treating Network Rail as part of the private sector.When the Treasury Committee questioned ONS staff, the following exchange took place. The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) asked:
- "If the selection panel had happened to appoint 11 consultants from St. Thomas's Hospital, who are employees of the NHS, would that have transferred Network Rail from the private sector to the public sector?"
Mr. Robin Lynch, the head of national accounts at the ONS, said:
- "In the sense that they are members of the public sector, yes, it would."
To clarify the point, the hon. Member for Newcastle upon Tyne, Central went on to ask:
- "You have told me quite clearly that the reason Network Rail is in the private sector is that the people whom the selection panel appointed happen to be employed by the private sector, but if they had happened to pick 11 consultants from St Thomas's Hospital instead of 11 whoever they might have been, then it would have been in the public sector because the people would have been employed by the public sector?"
Mr. Lynch replied, "That is correct."
The selection panel, appointed by the Government, chose people to be part of the board of Network Rail. However, because those people are employed by the private sector, not the public sector, Network Rail is, for the purposes of the ONS, included in the private sector.
Using the opportunity presented by the rules to take a simplistic view of control, the Network Rail debt has been excluded from the Government's borrowing requirements. It appears that, for the purposes of the Government's accounts, the NAO considered the substance of the relationship between the Government and Network Rail, but for the purposes of Government statistics and therefore the Government's debt figures, the ONS focused on the form, not the substance, of the relationship. That is a clear echo of the way in which Enron prepared its accounts.
What makes the situation look worse is Sir John Bourn's answer to a question posed by the hon. Member for Yeovil. Sir John said of that case that
- "it is the first one to my knowledge where you have had the running together of these different ways of looking at the matter".
This was the first instance in which the ONS and the NAO disagreed about the treatment of an item for inclusion in the Government's accounts. We can speculate as to why that difference occurred, but I believe that it arose because the Government wanted the debt off their balance sheet, so that their borrowing numbers were lower. Rather like the Enron situation, the debt presented to the public showed a lower figure than the true extent of the Government's liabilities.
The other issue that troubles me is the private finance initiative. First, let me say that I support the PFI. It was, of course, a Conservative idea to use private sector finance for projects that would historically have been funded by the public sector. The Institute for Fiscal Studies summed up well the rationale for using PFI when it said in its "Green Budget" for 2003:
- "The only economic rationale for using the PFI is that it is hoped it will offer better value for money. Despite the fact that the private sector faces higher borrowing costs, these are expected to
- be offset by its greater operating efficiency. If this holds, the private contractor can provide a given standard of public service at a lower cost, which will, all other things remaining equal, lead to lower levels of public borrowing."
Let me return to the components of the unitary payment made under PFI. As I said, the Government pay for the use of the facility. I characterised that as rent, but equally it could be seen as a payment to acquire an asset, in the same way that we may choose to buy a car through hire purchase. At the end of the day, the car ends up with us. If the payments made under PFI are a form of finance to purchase the facility, the asset—the school, hospital or road—should be shown on the Government's balance sheet, as, crucially, should the debt financing its acquisition.
The Government will argue that the PFI payments are correctly treated and should not be deemed to be the repayment of borrowings or a method of finance. That is principally because they argue that the risk of ownership of the assets remains with the PFI operator. As a consequence, the assets and related debts required to finance those assets should remain on the PFI operator's balance sheet, not on the Government's balance sheet. That is another example of off-balance sheet financing.
Risk plays a pivotal role in the accounting treatment of PFI projects: who bears the risk depends on whose balance sheet the asset and the related debt are held on. A distinct flavour of the debate on 29 January about the Public Accounts Committee reports was that the risks were not transferred to the operator and that the public sector stands behind all these projects. My hon. Friends the Members for Tatton (Mr. Osborne) and for South Norfolk (Mr. Bacon) made comments along that line. If they are right, the justification for keeping those liabilities off the Government's balance sheet would be fatally flawed and the debt should be added to the total of the Government's liabilities. Government borrowing would increase, increasing the ratio of public sector debt to national income; the annual increase in borrowing would also be higher.
How much higher? It is hard to say. It depends on how one separates the various components within the unitary charge. The increase could be as high as the net present value of the stream of future payments on PFI projects, which is some £62 billion at the latest calculation. The IFS has looked at it differently. It says:
- "On the basis of deals signed so far, public sector net debt at the end of March 2006 would be 3.8 per cent. of national income higher if all the capital spending from PFI deals signed so far had been carried out using conventional finance."
The impact of the decision as to whether PFI projects should be on the Government's balance sheet is significant, as it will have an impact on some of those key borrowing numbers that the Chancellor will present in his Budget next week.
I wonder whether the accounting attractions of PFI mean that as many projects as possible will be pushed down this route regardless of whether it is in taxpayers' interests. The Government will cite the public sector comparator as the benchmark to ensure that that does not occur. However, during the debate on the PAC reports, my hon. Friend the Member for South Norfolk quoted an example from the redevelopment of the main MOD building in which the public sector comparator was £746.2 million and the PFI price was £746.1 million. The project met the benchmark by £100,000. That has a degree of accuracy about it that looks slightly spurious.
Indeed, when one looks below the headline number and tries to understand how the public sector comparator was reached, one finds that the Government incorporated various risk factors, as well as the cost of construction. The interaction of the risk factors and the costs could lead to that public sector comparator being, not quite any number that one would want, but certainly one from a range of values. A cynical observer might say that given the pressure to keep a lid on Government borrowings, the calculations of the public sector comparators are subject to reiteration until the right answer is obtained. The impression—perhaps exaggerated to make the point—is that if a project cannot be financed through PFI, it will not go ahead, because the Government will be loth to increase their borrowing above the number predicted by the Budget.
I hope that my concerns about PFI are clear. The accounting for these projects is dependent on the risk being borne by the operator, and who bears that risk is a matter of debate and discussion. The pressure to restrict Government borrowing adds extra pressure, implicit or otherwise, to ensure that the public sector comparator is worse value than the PFI project and therefore that more projects are financed off the Government's balance sheet. The inclusion of PFI or any element of PFI on the Government's balance sheet would significantly increase the level of Government debt.
As I said at the outset, I am broadly supportive of PFI as a concept, but there are growing doubts about how it is being used in practice. It is not surprising therefore that there are increasing calls for an inquiry into its use. Indeed, the Labour party conference supported a motion in favour of an inquiry into PFI back in October.
Mr. George Osborne (Tatton): As I understand the Labour party constitution, the conference can mandate the Labour leadership, and I believe that it mandated the leadership to conduct an investigation into PFI. Does my hon. Friend know whether the Government—of course, they are a Labour Government—have conducted that investigation into PFI or contacted the NAO, as the conference also mandated them to do?
Mr. Hoban : My hon. Friend makes an important point, and I am sure that the Financial Secretary will enlighten us about what the Government have done about the conference's call to investigate PFI projects.
What is the correct name for the Chancellor? Is it the Enron Chancellor, or the iron Chancellor? He has been able to present himself as the iron Chancellor because he is indeed the Enron Chancellor, too.
Mr. Richard Bacon (South Norfolk): While my hon. Friend is on the subject of Enron, I want to make a point. He has made powerful points about PFI; has he considered that the recent tendency of companies to go into the market to raise finance for PFI projects has included a worrying trend of failure to disclose the financial model? That increases the cost of borrowing more than would otherwise be the case—of course, we accept that borrowing will be higher. Ratings agencies, such as Standard and Poor's, have drawn attention to the fact that the opaque nature—the black box, as they call it—of many deals is actually proving a limiting factor in the market.
Mr. Hoban : My hon. Friend has raised an important issue. As he says, the opaqueness of the information supplied to credit rating agencies will lead to an increase in the interest rates paid on the debt. Clearly, because the debt is financed through payments made under the PFI contract, the taxpayer must be losing out as a consequence of that opaqueness. The black box approach works against the interests of taxpayers, rather than in their favour.
By putting the Network Rail liabilities off the Government's balance sheet, the Chancellor has been able to portray himself as prudent and cautious. By significantly increasing the scope of PFI, he has reduced today's borrowings, but he has mortgaged future revenues to pay for today's public investment. If he chose to finance the projects in a conventional way, and that was taken together with the debt of Network Rail and other contingent liabilities, Government debt could be increased by as much as £100 billion. Indeed, this year's borrowing requirement would be not £20 billion, but at least £41 billion, which would include £21 billion extra for Network Rail and an additional amount to cover the capital element of the PFI contracts signed this year.
Roger Bootle of Capital Economics has adopted another approach and valued the additional liabilities incurred by the Government at some £25 billion. He focused primarily on contingent liabilities and treated the Network Rail debt as a contingent liability, rather than an actual liability of the Government.
As the range of estimates indicates, there is a lack of transparency surrounding the treatment of the liabilities and commitments to which the Government have signed up. My hon. Friend highlighted that point when he talked about the opaqueness of the financing arrangements in relation to credit rating agencies. In light of that, it is ironic that transparency is one of the Chancellor's much vaunted principles of public finance. He says that transparency is important to an understanding of public finance, yet the presentation of the Government's current and future liabilities is, rather like Enron's, somewhat opaque. It is time that the true extent of the Government's exposure to those liabilities is made known to taxpayers and markets, so that we can all judge once and for all whether the right hon. Gentleman is the iron Chancellor or the Enron Chancellor.
2.18 pm
Sir George Young (North-West Hampshire): I commend my hon. Friend the Member for Fareham (Mr. Hoban) on his speech on this important subject and on initiating the debate. I want to step back to consider briefly three strategic issues that arise from his contribution.
First, there is what I call the profile of the problem. Although the question of what is or is not public expenditure concerns all Governments—the Conservative Government certainly grappled with what were then called the Ryrie rules—the problem is much more serious for a new Labour Government. Under a traditional Conservative approach, the philosophy was to disengage, divest control totally and put an industry wholly in the private sector, where it was neither funded nor controlled by the Government. It flowed from that that there was no question of any expenditure by the industry in question scoring as public expenditure. Thus, we do not have such debates in relation to BT, BAA, water or electricity.
Likewise, the problem did not exist for an old, traditional Labour Government. They wanted to control, and they wanted to fund. They were not bothered about borrowing or taxing—those were badges of honour—and the subject of my hon. Friend's debate also did not arise. However, there is a problem with new Labour, because it wants to control, but it does not want to fund. It wants to boast about taking Railtrack back into public ownership, but it does not want the cost to appear on the balance sheet. Hence, we have the problems raised by my hon. Friend.
An obsession with presentation is a second issue, which is peculiar to this Administration. There are two sides to the coin that we are debating—Government expenditure and Government income raised through taxes or borrowing. We have seen repeated announcements on public expenditure, including a sensational comprehensive spending review in which the same amount was counted three times. It was widely condemned at the time, but happily not repeated. On the other side of the coin are stealth taxes, and now we are seeing their brother—stealth borrowing. Stealth taxes avoided putting up headline tax rates, but achieved the same end by eroding allowances and by hitting indirect taxes and the council tax hard. That has been taken to extremes this month with the national insurance increase. The Government have nearly run out of runway on that.
Now there is stealth borrowing, which my hon. Friend described. The debt does not appear on the balance sheet, as far as the lender to the Government is concerned, but the Government are seen to be standing behind the transaction, as far as the contractor is concerned. I recently asked a contractor about Network Rail's credit rating. He replied that, initially, it was not that good. Now, the advice given to him by the professionals is that it is okay, because the Government would not let Network Rail go under. As my hon. Friend said, the action that secured that good credit rating does not appear as a Government liability.
My third point is that other UK institutions have been less fortunate than the Government when defining potential liabilities. For example, pension funds are applying new rules that oblige them to take a pessimistic
view of their liabilities by crystallising them at a time when the stock market is low and by being obliged to increase employer and employee contributions.The best parallel for the Government is what they are doing to local government. I do not know whether the Minister has had time to look at the Local Government Bill explanatory notes, but they deal with the local government borrowing regime. On clause 18, they say, regarding local authority companies:
- "The present system ensures that authorities cannot evade the capital controls by operating through companies they own or influence. That broad principle will be preserved under the new system".
That strikes me as a different regime from what my hon. Friend described. I refer to the note on clauses 7 and 8, covering credit arrangements:
- "Credit arrangements (as defined in clause 7) will continue to be treated like borrowing under the new system . . . The definition of credit arrangements is much simpler than under the present system, relying on the accounting concept of long-term liabilities".
It appears that the Government have one rule for local government and a much more relaxed regime for central Government.
My final point is to ask what the point is in having rules—the sustained investment rule, the golden rule and the rest. They are there to convince the financial community that the Government are prudent, and to convince citizens that their Government are not overextending themselves. They are also there to establish the Administration's credibility. However, if one plays around with the figures, one may win the battle but lose the war. One may keep the figure within the limit that one has set oneself, but if that injures the rules, the trust sought in the first place becomes forfeit. The Administration's credit rating will be hit in the same way as if the figures put on the balance sheet had gone through the limits. Institutions such as the European Commission are now publicly questioning the management of our economy.
My message to the Government is that going through the procedures that we have just heard about is not worth the candle. Better to be upfront about it and to put the figures where they should be, as the financial community will come to exactly the same conclusion as it would have had the figures been concealed. It is not worth indulging in the charade that has been described to us this afternoon, and I hope that the Government bring it to a conclusion as soon as they reasonably can.
2.24 pm
Mr. George Osborne (Tatton): I join my right hon. Friend the Member for North-West Hampshire (Sir George Young) in congratulating my hon. Friend the Member for Fareham (Mr. Hoban) on securing this timely debate a week before the Budget. I also congratulate my hon. Friend on the convincing way in which he introduced the subject, covered all the bases and drew proper attention to the work of the Select Committee on the Treasury, which has been so important on this issue. He showed the extent to which some of the figures on which the Chancellor has built his economic forecasts are based on shifting sands.
In a sense, all Governments have unquantified liabilities. When I was a special adviser in the much-lamented Ministry of Agriculture, Fisheries and Food,
we discovered that there was a link between BSE and human health, and within two weeks we had more than doubled the Department's spending, increasing it by £2 billion or £3 billion. We spent that money to prop up the British beef industry, which faced complete ruin. That was not a liability in law—there was no legal requirement to prop up part of the agricultural sector, but it was a requirement in practice, because the Government were not prepared politically to allow the farming industry to go to the wall. That was an unquantified liability for which we had to pay.The foot and mouth crisis last year was also a good example of an unquantified off-balance sheet liability for the Government. They had not accounted for a foot and mouth crisis, but they had to bail out the farming industry again. A further example is that, after 11 September, they had to step in to prop up the airline industry for several weeks. It was impossible for the industry to obtain insurance, and the closure of UK airspace was bankrupting some airlines. Moreover, if, God forbid, there was a major terrorist incident in London, I have no doubt that the Government would step in to rebuild part of the city. Governments therefore have off-balance sheet unquantified liabilities, many of which will be unknown until they suddenly arise.
The difference, as my hon. Friend the Member for Fareham elucidated so well, is that the issues under discussion are quantified liabilities that we know about and that almost everyone believes should be on the Government's books. Among those who believe that are the Public Accounts Committee, of which I am a member, the Treasury Committee, of which I am not a member, and the Comptroller and Auditor General, as my hon. Friend mentioned.
Last month, the National Audit Office said that, unless at least one of those off-balance sheet liabilities is fully disclosed—namely the £21 billion owed by Network Rail—the Comptroller and Auditor General will not sign off the whole of Government accounts when they are first produced in two years' time. I suggest that that would be an embarrassment to the Treasury. It is certainly an embarrassment to the permanent secretaries of other Departments, such as the Department for Work and Pensions, when their accounts are qualified by the Comptroller and Auditor General. However, it would be a major embarrassment if the whole of Government accounts were qualified for that reason. Some have likened that to a company's auditor refusing to sign the "true and fair view" statement at the end of an annual financial statement.
I have had the pleasure of working with the Comptroller and Auditor General over the past couple of years. I read the other day in a newspaper report—I know that the Chancellor of the Exchequer is always assiduous in ensuring that his view is properly reflected in newspapers—that he is becoming increasingly irritated with the Comptroller and Auditor General. The report in The Daily Telegraph said:
- "Mr. Brown is growing increasingly irritated with Sir John, who is 69 and has been Comptroller and Auditor General since 1988. The Chancellor is said to think he is 'going on for ever' but a spokesman for Sir John said he has 'no plans to retire'."
The Chancellor is famously frustrated by people who have no plans to retire. It is interesting that he is getting irritated by the Comptroller and Auditor General.
However, as I am sure the Chancellor is aware, the Comptroller and Auditor General is beyond his grip; he is appointed by Parliament, and I am delighted that he has no plans to retire, because he is doing such an excellent job. It would be a tragedy if he retired before he had to sign off the whole of Government accounts.Why does it matter whether these large off-balance sheet liabilities of the Government are off-balance sheet? Does it involve anything more than the political rough and tumble of fiddled figures? I suggest that it matters for three reasons. The first is the credibility of key economic indicators on borrowing and public debt. Off-balance sheet liabilities add up to more than £100 billion. There are £73 billion for private finance initiative contracts; £7.5 billion for public-private partnerships for the London underground and for the letters of comfort that have been issued in that regard; and £21 billion for Network Rail borrowing.
Those are real liabilities, because if Network Rail could not honour its debts, the Government would have to step in. If the public-private partnerships in the London underground failed, the bidding companies have letters of comfort that they could call on. If the Government are locked into payments on a PFI project, they will not let it fail, and the Public Accounts Committee has seen several instances of that. The Royal Armouries museum in Leeds, which we examined in some detail, is a very good example. The effect of £100 billion off-balance sheet liability would be considerable if it was disclosed by the Government. I am assured by my hon. Friend the shadow Chief Secretary to the Treasury that net debt would rise from about 30 per cent. to more than 40 per cent. if off-balance sheet liabilities were on the books. That is significant when we judge how the Chancellor is managing the economy and public debt.
The second reason is that it is important to know where a Government's true responsibilities lie. The Select Committee on Transport, of which I am a member, has looked at Network Rail and found that there are huge problems with it. There are no proper financial controls, and it is managed by a committee of more than 100 people. It is difficult to manage a Cabinet committee of 20 people, yet Network Rail has more than 100 people, representing the stakeholders in the rail industry, running it. Its running costs are £6 billion more than expected, and they are stopping the improvements to track and the upgrades that we were promised.
The buck stops with the Government. A press notice from the National Audit Office gave the view of Sir John Bourn, the Comptroller and Auditor General. It said:
- "The Government is effectively providing security for the providers of debt finance to Network Rail and is acting as the lender of last resort in the event of financial difficulties. Therefore the Government is the party bearing the risk that would normally be borne by equity capital."
It is important in a democracy to know where responsibilities lie. If Network Rail went belly up, the Government would have to step in. We should know that in advance, and we should know what the Secretary for State for Transport is doing about Network Rail.
The third reason, which was touched on by my hon. Friend the Member for Fareham, is PFI. It is important to have proper off-balance sheet accounting, because otherwise the nature of PFI will be distorted. When PFI
was originally conceived under a Conservative Government, it was intended to be a means of bringing private sector innovation into the public sector. It was intended to be a means of incentivising risk and of transferring the risk of delivery from the public sector to the private sector. That was how the scheme was devised. However, a public authority, be it a Government Department or a council, will not now go down the PFI route for any of those reasons. Public authorities will choose PFI because they know that that is the only way that they can get their projects past the Treasury, and the Treasury can relax because the projects will not appear on its books.
Mr. Hoban : On that point, I have been told in conversations with members of my local education authority about the need for a new secondary school to cope with demand in an area of rapidly growing population. They have been advised that they would not be able to get the funding from the Government for a new school: PFI money would be required to build it. That example illustrates my hon. Friend's point.
Mr. Osborne : My hon. Friend is absolutely right.
Everyone knows that, for spending Departments and local authorities alike, the only game in town is PFI. The trouble is that they go down the PFI route not because they want the benefits of PFI nor because their projects are necessarily suited to PFI. They do not want to bring in private sector innovation, and in their heart of hearts they do not really want to transfer risk. They do not have the emotional commitment to PFI projects, which, as the Public Accounts Committee knows, is necessary to make them work.
As my hon. Friend said, such bodies use PFI because it is the only way to get a project completed. The result is that many drawbacks of PFI are being ignored. Many projects unsuitable for that route are being carried out under PFI, and that is having a hugely distorting effect on the PFI scheme. As someone who supports the scheme, I think that that is a tragedy.
The Government's off-balance sheet accounting ruses have had an effect. They are designed to do only one thing, which is to make the Chancellor's management of the economy look more prudent than it is. As I said, it undermines the credibility of key economic data. It hides the true extent of the Government's responsibilities, and it distorts PFI projects. It is the economic equivalent of dressing mutton as lamb. The problem is that the taxpayer is paying a very high price.
2.36 pm
Mr. David Laws (Yeovil): I am pleased to take part in this important debate. I add my congratulations to those expressed by other hon. Members to the hon. Member for Fareham (Mr. Hoban) on securing a debate and on choosing this subject—and on having the good fortune to raise it only a week before the Budget. It is anticipated that the Government will continue to have problems with public sector borrowing, which makes the subject particularly topical.
I also congratulate the hon. Member for Fareham on identifying the two salient issues that we need to consider today—accounting for PFI transactions and the recent accounting changes for Network Rail, and the
wider implications of that for other public sector entities such as foundation hospitals, a problem that may arise in the coming months. I also welcome the comments of other Members, including those of the right hon. Member for North-West Hampshire (Sir George Young), who said that the issue is becoming increasingly important because the traditional boundaries between the private and public sectors are becoming blurred. That point was raised in correspondence by Sir John Kingman of the Statistics Commission when trying to bring to a conclusion the unsatisfactory accounting issues surrounding the debate between the Office for National Statistics and the NAO over Network Rail.I congratulate the hon. Member for Tatton (Mr. Osborne) on bringing out the three salient issues that we need to address. The first is whether the Government's accounts are credible in their treatment of many items. The second, in respect of entities such as Network Rail, are the blurred responsibilities that arise as a result of the Government's attempts to keep some of those bodies in the public sector but at arm's length for accounting purposes. Last are the important questions that he raised about whether PFI is securing better value for money for parts of the public sector, or whether it is being used simply to massage particular debts off the balance sheet of Government and local government.
I want to cover those three issues. We need first to deal with the accessibility and accuracy of Government information in respect of off-balance sheet liabilities and the implications for Government borrowing. The second is how the Government are accounting for the achievement of value for money by the PFI scheme for different parts of the public sector. The third is the question of the Government's honesty and transparency about the debts of entities such as Network Rail.
2.39 pm
Sitting suspended for a Division in the House.
2.50 pm
Mr. Laws : First, I want to cover the accessibility and accuracy of information on the Government's off-balance sheet liabilities. Each year, particularly under this Government, and as we shall witness next week when we receive the documents, the Budget bundle has become larger and the Red Book has increased not only in cost but in size. Unfortunately, that does not necessarily mean that the information is more accessible or that all we need is included.
Will the Minister consider how information on off-balance sheet liability is displayed in the Red Book in relation not only to PFI transactions but to contingent liabilities? She will be aware that the Treasury Committee's recent report on the classification of Network Rail recommended that contingent liabilities should be reported in the Red Book. At present, they are disclosed annually in the Consolidated Fund and national loans fund account supplementary statements—documents that are not widely read, either in this place or outside it. They are usually released to the House on the last sitting day before Christmas, which is a time not best designed for them to catch the eye.
Perhaps that did not matter so much when off-balance sheet liabilities were not as significant as they are today, but, because of the Government's increasing use of such contingent liabilities, it is more important that they be reported, not merely in musty Government documents that are rarely looked at—[Interruption.] I am surprised that the Minister laughs. I do not think that many Members of Parliament have read the documents.
The Financial Secretary to the Treasury (Ruth Kelly) : I am sure that the hon. Gentleman has.
Mr. Laws : The Minister may overestimate my assiduity, but I am grateful for her comment. All of us would be better served if the information was embedded in the Red Book, which some people read, rather than in accounts that few look at.
Mr. Howard Flight (Arundel and South Downs): As the hon. Gentleman will have noted, there was no reference in the Consolidated Fund document to Network Rail or any matters that we have discussed, because there was no up-to-date information when it was published.
Mr. Laws : I agree with the hon. Gentleman. I hope that the Minister reconsiders the matter, even though the Government's response to the Select Committee report appeared to reject the proposal that a summary of contingent liability should be included in the Red Book. I am reminded that that was a unanimous recommendation by an all-party Committee with a Labour majority.
If the Government's fiscal rules matter as much as the Chancellor suggests, and if it is important that we monitor the debt-to-GDP ratio in the way that he has suggested is fundamental to his fiscal rules, how we report our debts and liabilities is important. The Government should take issues such as PFI and contingent liabilities much more seriously in their Budget documents, rather than relying on people seeing documents that are inaccessible and issued at an inconvenient time.
The second issue has been touched on in relation to PFI by a number of speakers, including the hon. Member for Tatton. If PFI is genuinely being used to transfer risk in a way that represents better value for money for the taxpayer, any sensible person should welcome it. However, there has been a concern for some time that Governments and public sector entities have sought to use PFI not because it represents better value for money but simply to get debt and Government liabilities off the balance sheet.
The Institute for Fiscal Studies covered the issue in some detail in its "Green Budget" before the 2002 Budget. In particular, the IFS looked at the proportion of capital spending in all Departments and public sector entities accounted for by PFI. It found vast differences between the former Department of the hon. Member for Tatton, the Ministry of Agriculture, Fisheries and Food, which at that stage was funding no capital
expenditure through PFI, and local government, which just over a year ago was funding about 38 per cent. of its capital expenditure through PFI.The IFS asked itself whether the excessive use of PFI by local authorities compared with Departments reflected a peculiarity of local government expenditure that made the use of PFI preferable or whether it simply reflected the fact that capital constraints on local government may be more serious and effective than those on some Departments.
The IFS, in its "Green Budget", gave this summing up:
- "The aim of meeting the Chancellor's fiscal rules should not produce an incentive to pursue PFI investment for 'balance sheet' reasons—the golden rule explicitly allows borrowing for investment".
So, there is still scope, even under this Government's fiscal rules, to expand public sector investment without breaking the golden rule. If we are finding that particular public sector entities are using PFI simply to get debt off the balance sheet, because the alternative is not practical, we may be getting bad value for Government money as deals are being skewed to deliver PFI solutions when the alternative of conventional public sector debt could be cheaper.
I have been approached several times by people from local government in the Somerset area and close by, who have expressed their concern about some PFI transactions in which they have been involved. They have formed the impression that the Government and those responsible for policing PFI transactions have been determined to ensure that the public sector comparator results in the PFI solution being chosen, even if, in their view, it is of dubious value for money compared with conventional finance.
The third issue is Government honesty and transparency in classifying new entities, particularly in respect of Network Rail. Perhaps we shall see the mirror image of that problem with foundation hospitals, because the Chancellor seems to be leading the ONS to a different solution from the one it was led to in the case of Network Rail. Commentators in the City and elsewhere were universally scornful of the ONS decision to classify Network Rail as outside the public sector. The hon. Member for Fareham was right to draw attention to the extraordinary exchanges that took place in the Treasury Committee hearings, in particular between the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) and officials appearing before the Committee, who were asked why the ONS had decided to classify Network Rail in that way. Essentially, it came down to the fact that the board of directors were chosen as individuals who could be regarded as representing the private sector or household sector, rather than the public sector, even though it is clear that the entity that stands behind the debts taken on by Network Rail can only be the taxpayer. The taxpayer is assuming that risk.
Many members of the Treasury Committee, representing all parties, shared the frustrations that were clearly experienced by the Statistics Commission during the tussle between the ONS and the NAO over the classification issue. I draw the Minister's attention to a letter from Sir John Kingman of the Statistics Commission to Sir Andrew Turnbull at the end of November 2002, in which Sir John says:
- "As you know, the Statistics Commission has been concerned for some time about the need for greater transparency over Network Rail. We believe that Parliament and the public should have access to clear, simple and consistent information."
Sir John goes on to refer, as the right hon. Member for North-West Hampshire did earlier, to the issue's growing significance for the Government:
- "In modern society the boundaries between the public and private sectors are complex and the rules and criteria, which served in simpler times, may not now be sufficient to provide the full picture."
Mr. Osborne : Although it pains me to say so, is not the Chancellor right and the Secretary of State for Health wrong about foundation hospitals? How they will be set up means that any debts they run up will be Government debts. The Treasury therefore has a legitimate interest in having some control over them. If they were set up differently, it would be a different story.
Mr. Laws : The hon. Gentleman makes an excellent point, but he tempts me on to the final page of my speech. If I may, I shall return to the issue in a moment.
Sir John Bourn's key point was that public sector accounting must put substance before form. The ONS, whether or not it has correctly interpreted European accounting standards, has come up with a solution that seems to satisfy the Government and may satisfy the technicalities of the relevant European regulations, but is completely out of keeping with the tradition of putting substance before form. The proposed solution gives the impression that what are essentially public sector debts, public sector liabilities and contingent liabilities are off the public sector balance sheet when, clearly, they should be on it.
As the Minister knows, the Select Committee report raised several other serious issues as regards Network Rail, not least how advice was sought from particular individuals about the company's classification. I return to the point that it was particularly unwise of ONS officials to take "independent" accounting advice on the issue from the head of accountancy at the Department for Transport. When such transactions are considered for other public sector entities, I hope that the Government ensure that the accounting advice offered to the ONS and others is genuinely independent of Departments with a clear interest in the conclusions to be reached.
To return to the point raised by the hon. Member for Tatton, it seems that there could be a rerun of the Network Rail issue in the context of foundation hospitals. Given the elegant way in which the Government managed to move Network Rail off the public sector balance sheet, one can imagine how easy it would be to set up similar structures for foundation hospitals. A series of individuals could then come forth from the private sector. Indeed, they might even be public sector workers acting in a private capacity,
judging by the exchanges in the Select Committee. Suddenly, a proportion of NHS capital expenditure for foundation hospitals would miraculously disappear from the public sector balance sheet.That is a tempting approach, and it would no doubt meet the standards applied by the ONS to Network Rail if one went about it in the right way, but in this instance we find the Chancellor of the Exchequer on the opposite side of the argument. Instead of being happy to facilitate the process of moving debt off the balance sheet, as we discussed in the context of Network Rail, he seems determined to block the efforts of the Secretary of State for Health, who wants to give foundation hospitals more flexibility in terms of their funding, rather than relying on central Government controls and insisting that borrowing be reported in the public sector.
It was interesting to see the chief economic adviser to the Treasury give evidence to the Treasury Committee on the Budget recently. He made patently clear the Government's view that foundation hospitals are in substance part of the public sector, and that therefore their debt must count against the Government's fiscal rules and against the growth and stability pact. It is extraordinary that the Government expect us to believe in two different models of public sector debt accountability for two potentially different organisations.
Returning to the point that the hon. Member for Tatton made, I have some sympathy for the Secretary of State for Health in this debate. For too many years, Governments of all parties have been overinclined to micro-manage such things as public borrowing and local organisations from Whitehall, instead of giving local bodies greater flexibility to set their own priorities and determine the debt that they can take on. Perhaps that is one reason for local authorities being so dependent on PFI, which accounts for 38 per cent. of their capital expenditure. One does not find such dependence in countries where local and regional government can borrow locally.
Mr. Osborne : That trend began under Lloyd George, a Liberal Chancellor, with his national insurance scheme.
Mr. Laws : I take responsibility for many things, but not for all the policies that Lloyd George pursued. He had some extremely good policies, but he went off track during the latter part of his career, just as the Conservative party has in some respects gone off track recently.
The argument between the Chancellor and the Secretary of State for Health is ongoing, as is shown by the revelation that Treasury officials have written to the ONS for clarification of its views on foundation hospitals. I hope that the ONS has written back. Perhaps the Minister can update us on the reply and say whether the ONS sides with the Treasury or with the Secretary of State for Health. I hope that through that debate we can consider how to give local authorities and other public sector entities more power to raise capital within overall prudential guidelines that take into account their assets, and not fall back on the centralised control over capital expenditure that has adversely affected the country for so long and has pushed local government into, potentially, quite expensive PFI borrowing.
We are looking for additional transparency and information from the Government on those important issues, and more consistent accounting rules between such entities as foundation hospitals and Network Rail. I hope that the Minister sheds light on the important issue that the hon. Member for Fareham has raised in today's timely debate.
3.7 pm
Mr. Howard Flight (Arundel and South Downs): May I add my congratulations to my hon. Friend the Member for Fareham (Mr. Hoban) on securing this important debate? I praise the excellent contributions from my right hon. Friend the Member for North-West Hampshire (Sir George Young), my hon. Friend the Member for Tatton (Mr. Osborne) and the hon. Member for Yeovil (Mr. Laws). I also apologise to the Financial Secretary, who might have other things on her mind, but who now has a fair barrage of arguments to answer.
The Government would be wise not to duck the issues on such crucial territory. There is no case to argue for greater transparency in the private sector, to which Higgs and the accounting reforms refer, when the public sector and the Government could do with a great deal more transparency in relation to such crucial matters. As my hon. Friend the Member for Fareham pointed out, Enron accounting is the exploitation of accounting rules to structure transactions so as to keep liabilities off-balance sheet, rather than showing the true substance. That is the essence of Sir John Bourn's point.
At the end of the day, the accounting rules, which are debatable, must be dealt with. However, I suggest that one way to ensure transparency and integrity would be for the Red Book to set out clearly the total off-balance sheet liabilities. That way, although the Chancellor could pretend that the figures were as he reported them and not off-balance sheet, what was off-balance sheet would be made absolutely clear. The people who buy Government gilts, and those who are looking to Government credit and borrowing ratios could judge for themselves.
As my hon. Friend the Member for Tatton pointed out, the Opposition do not oppose PFI. We believe that, in most cases, the private sector does things better than the public sector. Our objection is to the Government's prostituting of the PFI principle. PFI exists, as has been argued, to get things done better in the private sector when it pertains, but it has been used to force public sector investment off-balance sheet as much as possible.
We have referred to some £100 billion in total off-balance sheet, and arrived at that figure by considering the three areas, which, as has emerged from the debate, are quite separate. First, allowing for new PFI deals made this year, and for the fact that the figures in note 19 of the Red Book cover only 25 years, whereas PFI contracts are typically for 30 years, the current total liabilities for PFI are about £115 billion. The Government could negotiate a sum with a bank to remove those liabilities at their current value if they so wished, discounted, arguably, at today's interest rates. Too high a rate of interest would give a total of some £75 billion.
Secondly, there is Network Rail's £21 billion liability, to which I shall refer later. Thirdly, there are the PPP deals—the new category of PFI. One often concludes that the Government want to privatise fully, and PPP deals are the nearest that they can get to doing that. However, such deals are deeply flawed because the principle of PFI is to transfer the operating risk as far as possible. With PPP deals such as that for the tube, there is no fundamental transfer of risk when the funds can be raised only on the back of Government letters of comfort or guarantee. When I last looked at the issue, the tube guarantees on money drawn amounted to £4 billion. That figure will rise to £15 billion throughout the whole phase of the tube.
Ruth Kelly : Perhaps the hon. Gentleman will accept that the tube PPP is on-balance sheet.
Mr. Flight : Perhaps the Minister can show me another time where it is on-balance sheet. I will be delighted if she is right, but it was certainly not on-balance sheet when the deal was signed.
One can argue the figures in several ways. As has been said, Roger Bootle examined the capital figures for PFI, although they are not quite what he thought they were. Some £100 billion is now off-balance sheet. Since 1996, finance for the total PFI liabilities has approximately doubled.
I shall make some specific points about PFI. My hon. Friend the Member for Fareham mentioned Sir John Bourn's criticism that PFI rules dictate that, on principle, accounting should be on-balance sheet when the Government acquire a major property through a hire purchase arrangement that is analogous to a financial lease. However, there is something called the 90 per cent. guideline, which has served as a way of keeping it off-balance sheet. At the very least, the rules should be clarified, and I am pleased to note that the Accounting Standards Board is in the process of doing that. I understand that that will result in the need for several PFI deals to come on-balance sheet.
The joke of the public sector comparator has already been mentioned. Last year, I made the point that using a 6 per cent. discount rate was nonsense given prevailing rates of interest. I was interested to note that the rate had been reduced by 3.5 per cent. That news was slipped out over Christmas, but I thought that the point had at least been acknowledged. When I read further, however, I found that even more latitude had been given to those involved to use in whichever alliances they wanted to use it. The truth is therefore that there is no meaningful public sector comparator. Although I admit that it is difficult to achieve objectively, it is lacking in transparency and integrity to claim that there is a process when it does not exist in reality.
PFI has worked better in some areas than in others. It has worked well in hospitals and prisons, but has been a disaster in information technology. Others have raised the issue of the ridiculous legal costs that are being incurred in many PFI contracts, especially in the Treasury and the Ministry of Defence. As my hon. Friend the Member for Fareham said, there are criticisms that monolined bond documents do not contain all the information that they should; the professional costs and other legal charges involved have
been admitted. In three years' time, when we are back in power, we will have a considerable economic mess to sort out in respect of PFI.I want to complete the story of Network Rail, because there will be whole of Government accounts next year. Sir John Bourn has agreed that, this year, the Strategic Rail Authority and Network Rail accounts will be consolidated into the SRA accounts, and that there will be notes about contingent liabilities in the Department for Transport accounts. Next year, the SRA and Network Rail will be consolidated into whole of Government account figures. However, there is no agreement that they will still be included in the Red Book figures. Technically, it turns on whether the SRA and Network Rail accounts are consolidated into the Department for Transport accounts. Sir John Bourn feels passionately that they should be so consolidated under accounting standards FRS 2 and 5. As has been said, the principle is that the Government clearly have a controlling equity interest. If, as is expected, Sir John Bourn wins his accounting argument, it will blow out of the water the arguments advanced by the ONS and Len Cook—to which the hon. Member for Yeovil referred—that the directors really control the business even though the NAO regards that as mythology. Sir John has made it clear that he will not sign off the accounts if he does not believe that the accounting standards have been upheld.
I had a lengthy discussion with the NAO on foundation hospitals. My understanding is that, if a foundation hospital has the power to raise money without Government guarantee or letter of comfort and it is structured to run its own affairs, there is a perfectly proper argument that it should not be on-balance sheet. The NAO's rulings are common sense. If a public sector entity acting on an independent basis raises money without Government guarantee and it gets into trouble, it will take the administration route like the public sector. It is perfectly right and justified that it should not be on-balance sheet. However, with Network Rail, the Government have tried to have their cake and eat it and have been universally condemned.
I understand that the Government are committed to addressing unfunded public sector employee pension liabilities under FRS 17. On the basis of their valuation, that will show an unfunded liability of about £400 billion, which will be in next year's whole of Government accounts. I will be pleased if the Financial Secretary can confirm that that information will be available.
My colleagues have put all the key points and so I close by simply saying that this is, in essence, about transparency and integrity. There will be arguments about accounting rules, but if the information about the contingent liabilities on the PFI deals that the Government have entered into is easily available—be that in full clear notes in the Red Book rather than in the balance sheet—everyone can read it and come to their own conclusions. If the Chancellor does not make that information available and then forces as much as possible off-balance sheet, he will be presenting figures with a lack of integrity that will return to haunt him.
Mr. Bill O'Brien (in the Chair): Because of the time taken for the Division, this debate can continue until about 3.40.
3.20 pm
The Financial Secretary to the Treasury (Ruth Kelly) : I congratulate the hon. Member for Fareham (Mr. Hoban) on securing the debate. I listened with interest to various contributions, but I found some of the charges against the Government extraordinary, and some of the proposed remedies fringed on the absurd. One suggestion was to abandon independent accounting standards, which are widely regarded as being at the forefront of international best practice and accepted as such within the private sector. Other suggestions contradict the findings of the Comptroller and Auditor General.
Having said that, I am pleased to be given the opportunity to dispel some of the myths that have developed about the robustness of Government accounts. I am pleased that the hon. Member for Arundel and South Downs (Mr. Flight) recognised the role that accounting standards have to play in this area. The United Kingdom is one of the few countries in the world where the Government are required by statute to report their liabilities, assets and all other key financial information in the same way as companies are expected to do.
The Government Resources and Accounts Act 2000 requires the accounts of Departments and those for the whole of Government, as and when they are developed, to comply with UK generally accepted accounting practice, or GAAP, adapted only as necessary to reflect the public sector context. That follows the commitment made by the Government in the code for fiscal stability in 1998 to follow best practice accounting methods, and an even earlier commitment by the previous Administration to adopt a resource accounting and budgeting approach for the planning and accounting of the costs of resources consumed by Government.
It is also worth stressing that the Government are working hard further to improve their standards of accounting and accountability through the development of whole of Government accounts. That is a complex task that will take a number of years to complete. The publication of the whole of Government accounts will be an important landmark in fulfilling the commitments in the code for fiscal stability. For the first time, we will have GAAP-based accounts for the whole of the public sector on a consolidated basis. Whole of Government accounts will set a new standard in transparency in governmental financial reporting. On current plans, we aim to publish whole of Government accounts for 2005–06, with a consolidated central Government account being published for 2003–04 as an interim stage, again on a GAAP basis.
The plain fact is that Government accounts must comply with GAAP and the accounting standards developed by the Accounting Standards Board. Enron was, of course, supposed to comply with US GAAP and often did not. In the UK, any adaptations from GAAP are required to pass a number of important hurdles. First, the Government are required by statute to take advice from an independent advisory board—the Financial Reporting Advisory Board. The board's terms of reference require it to aim to ensure that the Government's accounting guidance follows GAAP and that any departures or modifications are fully explained and justified. Under the chairmanship of Elwyn Eilledge from the private sector, the board's membership
represents a range of key interests, including the Accounting Standards Board and the National Audit Office. The FRAB reports annually to Parliament on its activities and can highlight any instances of the Treasury not following its advice. To date, that situation has not arisen.Secondly, all Government accounts are audited by the independent Comptroller and Auditor General on Parliament's behalf. The CAG can and does qualify his audit opinion on the accounts of a Government body if he feels that the accounting guidance has not been complied with, or if in his opinion the accounts do not represent a true and fair view. In his general report for 2001–02, the CAG welcomed the significant improvement in the truth and fairness of departmental accounts, as represented by the results for 2001–02. A number of departmental resource accounts still have an audit qualification, but the Government are working hard to secure further improvements in the quality of accounts for 2002–03 and future years. It is important to bear all those considerations in mind.
Mr. Flight : Will the Minister confirm that one objective of whole of Government accounts is that what is shown in such accounts should essentially be the same as what is shown in the Red Book?
Ruth Kelly : No, they are compiled on different bases. I shall come in due course to precisely how the national accounts are calculated. To answer a previous question asked by the hon. Gentleman, I can confirm that they will show public sector pension liabilities in their fullest form, so he can be reassured on that point.
Let me deal with some of the points raised in the debate. I accept that accounting for PFI, PPPs and other complex transactions has often been controversial, but I do not accept that PFI and PPPs exist simply to move transactions off-balance sheet. That is not the case. The key question in considering any PFI project is whether it represents value for money. Balance sheet issues are irrelevant to that decision.
PFI transactions are accounted for in accordance with their substance. In accounting terms, that substance is determined by following the overriding principles set out in FRS 5, as developed by the independent Accounting Standards Board. The Government follow application note F to FRS 5 in accounting for PFI, supplemented by the Treasury taskforce technical note, which the Treasury discussed and cleared with the ASB. As a result, we have seen a number of significant PFI transactions in which the assets are on the public sector balance sheet—indeed, that is increasingly the case. All the major English prisons, most road schemes and the tube PPP are on-balance sheet.
In considering the appropriateness of accounting for PFI, I again draw right hon. and hon. Members' attention to the CAG's general report for 2001–02, which was published recently. It makes it clear that where the CAG—who, let us remember, is independent—
- "considers that the liabilities arising from financing arrangements are not correctly reflected in the financial statements of the bodies that he audits then he will qualify his opinion and report to Parliament accordingly. He has not yet had the need to do so."
- "Notwithstanding the guidance on accounting for PFI programmes . . . the National Audit Office has noted some apparent inconsistencies in accounting treatments applied to projects in different parts of the public sector. This may have an impact on Whole of Government Accounts incorporating the local authority and health sectors"?
She paints a rosy picture of the application of accounting standards and guidance, but will she recognise that there are many grey areas, and that the CAG has highlighted the way in which those standards have been applied inappropriately in some areas?
Ruth Kelly : No. I do not think that the CAG said that standards have been applied inappropriately; he said that there is room for increased sophistication in how particular assets are classified, for example. The ASB is considering how a more sophisticated approach could be applied in future. Hon. Members have accused the Government of using PFI as a tool for moving things off-balance sheet. I would say that the use of the public sector comparator and the discount rate that applies are completely irrelevant to the accounting treatment of a PFI project. The comparator is used purely to determine whether a PFI project provides value for money.
Mr. Osborne : Will the Minister give way?
Ruth Kelly : I have only a little time left, so I had better make some progress.
Mr. Flight : The Minister has 11 minutes.
Ruth Kelly : Very well, I will give way.
Mr. Osborne : I am not sure that the Minister believes what she is saying. She knows that PFI is the only game in town, as evidenced by the 121 PFI contracts that the Public Accounts Committee has considered and the words of the permanent secretaries from spending Departments. All those to whom we have spoken say that if one wants a project to get past the Treasury, that is what one has to go for. I fear that either she has not looked at what the spending Departments are doing, or she is just reading what Treasury civil servants put in front of her.
Ruth Kelly : I am certainly not doing that. I have looked at the comprehensive NAO report on PFI procurement, which shows that PFI revolutionised public sector capital procurement—before PFI, 70 per cent. of projects were late and 73 per cent. over budget, but under PFI the situation was dramatically reversed: 76 per cent. of projects were on time and 78 per cent. within budget. What is more, where projects were not delivered on time the private rather than the public sector bore the cost.
Let me turn to contingent liabilities, the other major matter that has been discussed. Another myth that has grown up is that the Government are trying somehow to
hide contingent liabilities off the balance sheet. Again, let me point out that the Government follow independent accounting standards—in this case, FRS 12 in particular—in judging whether a liability is contingent.
Mr. Laws : Does the Financial Secretary agree with Sir John Bourn that the accounting for Network Rail was a triumph of form over substance?
Ruth Kelly : I shall come to the accounting treatment of Network Rail after I have developed my argument on contingent liabilities. Under FRS 12, a liability is contingent if it is dependent on uncertain future events, cannot be estimated with sufficient reliability or is likely not to be called. If a liability satisfies that definition, it will be treated as contingent and so will not score as expenditure or borrowing.
Exactly the same treatment would apply in the private sector. Again, the treatment is subject to independent audit by the CAG. I should also stress that the Government adopt full transparency in disclosing contingent liabilities. They are fully disclosed in the notes to departmental resource accounts. In addition, Departments report contingent liabilities to Parliament if statute requires it or, if they are non-statutory, when they are over £100,000 or outside the normal course of business.
As the hon. Gentleman has already told us, a list of contingent liabilities reported to Parliament can be found in the annual supplementary statement to the Consolidated Fund and national loans fund accounts. He claims that nobody reads those, but I suggest that if he makes his case coherently, people will start to do so with more interest. Comprehensive information on contingent liabilities will be published in the whole of Government accounts. I suggest that he wait patiently for the development of those accounts.
Mr. Laws : In order to make sure that the contingent liabilities see the light of day, will the Minister undertake to move forward their publication from the day before the Christmas recess?
Ruth Kelly : I shall not comment on when the interim central Government accounts will be in place. When they have been developed for the current financial year, they will be the best source for anybody seeking a consolidated picture.
I turn to Network Rail. A lot has been said about it, not least in the Treasury Committee report published in January. It is important to remember when considering Network Rail that we are dealing with two different regimes, the GAAP-based accounts, prepared by Departments and other central bodies, and the national accounts, which are compiled by the independent ONS, following international rules for the compilation of economic statistics. We are required by EU regulation to use national accounts for economic statistics reported to the European Commission.
The CAG and the national statistician specified in their joint statement last October the different bases on which they had reached their different judgments about the classification of Network Rail. That statement made it clear that the financial statements of central
Government bodies and the national accounts are prepared for different purposes and under different sources of guidance.It is not the case that the Government and the CAG are somehow taking different positions. On a GAAP basis, Network Rail is consolidated into the accounts of the Strategic Rail Authority. In 2003–04, the SRA will be consolidated into central Government accounts. That is entirely consistent with the CAG's view. It would be wrong for the Government somehow to override the decision of the ONS. As the Government made clear in their response to the Treasury Committee report, it would be inappropriate for the Government to seek to align the different positions of the CAG and the national statistician. The Treasury will work with the ONS to ensure that the whole of Government accounts include a full and transparent reconciliation with relevant national accounts data.
In the remaining minutes I will address a few of the issues that have been raised in this debate. The right hon. Member for North-West Hampshire (Sir George Young) argued that there is a different regime operating for central Government and for local government. He believes that central Government are seeking to control local government in a way that has not happened before. However, I would argue that it is not a case of imposing one rule for local government and another for central Government. The aim is to make both GAAP-compliant. The aim of the accounting treatment should be to bring it up to what is considered to be international best practice.
Foundation hospitals have also been raised. I shall not today make an announcement on their treatment to the hon. Member for Yeovil (Mr. Laws). However, the ONS is looking at the classification of foundation hospitals for national accounts purposes. No decision has yet been reached. The Treasury is also looking at their classification for the whole of Government accounts. I assure the hon. Gentleman that we will look at the substance, not the form, of the arrangements in deciding their classification, as we have on other issues.
This has been a valuable debate. I am glad that at least the odd Member has recognised the role of accounting standards. The Government are at the forefront of international best practice in applying them. We are certainly not in the business of hiding liabilities, or of indulging in dubious accounting practices. Our commitment to best practice accounting is perhaps most clearly demonstrated by my response to the remarks of the hon. Member for Arundel and South Downs. The Government will, from this year onwards, recognise a total provision of £350 million for unfunded public sector pension scheme liabilities, in line with the Accounting Standards Board FRS 17. In that respect, the Government will be ahead of private sector practices.
Mr. Flight : Million, or billion?
Ruth Kelly : I should have said billion.
In summary, the approach that we have taken will ensure that our accounting for Government activities remains amongst the best in the world. That has to be in the interests, not only of Government and Parliament but of the millions of taxpayers and citizens whom we represent.
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