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Amendment No. 5 would set an obligation on the Treasury to make any determination on the basis of generally accepted accounting practice. The national debt should be accounted for to the same standard as any other liability. In the wake of the Government's tricks to keep Network Rail off balance sheet, so causing the appalling management problems that have ensued, I regret to say that the good faith of the Government cannot be taken for granted. It is necessary to ensure that they are not tempted to disguise the extent of the cost of servicing the national debt.
Clauses 208 and 209 allow the Treasury to determine the assets of the national loans fund and the form and content of the accounts of the Consolidated Fund and the national loans fund. Again, that needs to be subject to appropriate constraint. Those are national accounts and the basis of their preparation should not be left to the determination of the Treasury without any requirement to adopt generally accepted accounting practices. It should not be possible to move assets and liabilities off balance sheet. Accounts should be accurate and prepared in accordance with accepted principles. I hope that the Minister will at least address those issues by putting on the record an undertaking on both counts.
John Healey: I welcome the generally sober way in which the hon. Member for Arundel and South Downs (Mr. Flight) has approached these matters. The amendments are directed to clauses that are of central importance to Parliament and the ability of Parliament to hold the Executive to account, and they deserve that recognition.
I shall explain why the amendments will compromise the objectives that we have for the clauses and why, if the hon. Gentleman wishes to press them to a vote, I would ask my right hon. and hon. Friends to resist. The amendments would require the Treasury to conform to generally accepted accounting practiceGAAPwhen accounting for the operations of both the Consolidated Fund and the national loans fund. There are three reasons for asking the House to resist the amendments that would put that requirement in the Bill.
FirstI hope that the hon. Gentleman will welcome and accept thisthe Government are committed to preparing their accounts in accordance with GAAP, subject to such adaptations that are necessary in the context of the public sector. That is as true for the national loans fund accruals-based account as it is for departmental resource accounts. However, as GAAP is not designed with either the particular needs of Government accounts or the complex legislative framework governing the NLF in mind, the Treasury needs the flexibility to depart from it where strict adherence to GAAP would not be sensible. This is in line with the position already accepted for the debt management account, with which the NLF is closely linked.
I can assure hon. Members that the Treasury will use its discretion responsibly and will use it in the public interest. Also, Parliament's position is properly protected because the NLF account will still be audited by the Comptroller and Auditor General, who can bring any matters of concern to the attention of Parliament.
First, the Treasury is currently discussing the format of accounts in detail with the National Audit Office, which is content with the structure of the amending clauses in the Bill. Secondly, the Government see no need at present to draw up the accounts for the Consolidated Fund on an accruals basis. As the hon. Member for Arundel and South Downs knows as well as anyone, the Consolidated Fund is essentially a bank account that receives the proceeds of taxation and funds the spending of Government Departments. The Treasury will therefore continue to account for those flows on a simple receipts and payments basis. Again, the NAO is content with this proposition, which reflects the nature of the account.
I shall give the House a further reassurance. The Treasury will set out its detailed proposals for the Public Accounts Committee and the Treasury Select Committee before making an order to abolish the requirement to produce the supplementary statements.
Thirdly, in the context of amendment No. 5, the law currently allows the Treasury to define income items as if they were interest receipts for the purposes of determining the transfer from the Consolidated Fund to the national loans fund in respect of net debt costs. However, there is no flexibility at present within the law whereby expenditure items are similarly treated. Hence we cannot at present treat discounts on gilt issues as expenditure items for the purpose of the standing service payment from the Consolidated Fund to the NLF. The proposed change rectifies that. We have discussed the proposed legislative changes and the income expenditure treatment of individual types of transaction with the NAO, which, once again, is content. In this context, GAAP has no bearing on whether a particular payment should be treated as interest for the purpose of calculating the deficit on the NLF's net debt servicing flows, as that is met by the consolidated fund. The amendment would therefore not achieve the desired effect, so I encourage the hon. Member for Arundel and South Downs not to seek to press it to a vote.
It has not been suggested by anyone, let alone the Revenue, that before paragraph 25 of schedule 21 was drafted not paying NICs on benefits not subject to such contributions was equivalent to breaking the rule. In particular, US multinationals frequently included the possibility of early vesting before the three year period in their UK-approved schemes, reflecting standard parent arrangements in the USA. For example, they would allow 25 per cent. of options to be exercised each year after the granting of rights. UK-approved schemes required Revenue approval, and many multinationals discussed early vesting with the Revenue. The tax rules were clearearly vesting resulted in an income tax charge in place of a capital gains tax change on gains that were realised. The view was that the main protection here was the fact that approved schemes were limited to a value of only £30,000 per participant.
In those circumstances, clever avoidance was not the issue. The law was the law, and the Revenue was well aware that many multinationals had such early vesting provisions. The Paymaster General told me in a recent letter that multinationals were advised in the past by the Revenue that shorter shareholding periods were not in the spirit of the rules for approved schemes. However, that was not generally the case. Some multinationals may recently have received such advice, but certainly that was not general practice going back three years. The fundamental issue is, what was the law at the time? The Government, as I said, had ample opportunity in the past four years to add an NIC employer and employee charge to the early exercise of approved share options.
Schedule 21 would clearly introduce a stealth tax, as it imposes a retrospective NIC on employers for the early exercise of options granted within the three years up to 9 April. I was greatly surprised that the Paymaster General's letter to me concluded:
I am afraid that the provision will introduce retrospective taxation as part of the Government's desperate drive for tax revenues. They have made enemies of many US multinationals, which feel that the Government have acted in bad faith. More generally, deliberate anti-avoidance usage of approved schemes has been limited, as the schemes themselves have tight limits, and circumstances do not usually allow for approved schemes to be used for such purposesthey have to be blessed by the Revenue. Penalising employees retrospectively is wrong and, moreover, there is no evidence that making the proposals prospective would result in any substantial tax cost. I urge the Government to accept one of the routes proposed in our amendments and also to recognise the truth of the situation.