Examination of Witnesses (Questions 20-39)
MS KAREN
DUNNELL, MS
HILARY DOUGLAS,
MR DENNIS
ROBERTS AND
MR COLIN
MOWL
9 NOVEMBER 2005
Q20 Peter Viggers: It is a rather technical
manner of deciding whether or not something is under public control,
is it not?
Mr Mowl: I do not know whether
it is technical. What we are doing is following international
guidance, extremely detailed guidance and it runs to chapter after
chapter, that all countries use in compiling their national and
public sector accounts, so what we are doing is applying the same
guidance as other countries. In fact, this decision about Network
Rail was endorsed by the Statistical Office for the European Community
so it was not a decision that we did not check against the international
application of these guidelines.
Q21 Chairman: Sorry to butt in—so
why are you looking at it again, then?
Mr Mowl: We are looking at it
again because there have been changes in the institutional structure
of the industry. So we are looking at the Railways Act which changes
certain things to do with the industry and we are checking whether
they change our initial assessment of where control lies. That
is what we do with all classifications. We monitor them, so that
if the world changes to see whether it changes in a way that would
lead to a different classification decision. As we had new legislation
on the railway industry we felt it our responsibility to look
at it and, indeed, we were encouraged to do so by this Committee.
Q22 Peter Viggers: Does the Treasury
have a view as to whether something should be on-balance sheet
or off-balance sheet?
Mr Mowl: I do not know. All I
know is that, as regards on- or off-balance sheet schemes, this
is a decision taken in the context of departmental resource accounts
where, presumably, departmental accountants have a view that is
subject to scrutiny by the National Audit Office.
Q23 Peter Viggers: Does the Treasury
let its view be known?
Mr Mowl: It has not let its view
be known to me in the capacity I am in before this Committee.
I could not possibly tell you how it has let its views be known
elsewhere.
Q24 Peter Viggers: I am new to the Committee.
I wonder if you could give me an example. Let us take the PFI
to build a hospital at Portsmouth. It is two years late so far.
The construction, the building itself, is apparently subject to
a PFI of about £270 million and the overall PFI, the provisional
of surgical services, over a 30-year period, apparently £1
billion approximately. How will that show up in public accounts?
Mr Mowl: It will depend whether
it is on- or off-balance sheet and the judgment, as I understand
it, that accountants make depends on who bears the risk. If the
risk is borne by the private sector partner, it is off-balance
sheet. If it is deemed to be borne by the government, it is on-balance
sheet and, as I said earlier, that is a decision taken by professional
accountants and we in the Office are obliged by international
guidelines to follow that convention. I do not have any particular
expertise in whether a scheme should be on- or off-balance sheet,
but I understand that the decision turns on who bears the risk.
Q25 Peter Viggers: The object of a PFI
negotiation, as I understand it, is to shift the risk on to the
private contractor so that, over a 30-year period, the private
contractor takes the risk and the government is excluded from
risk which is why a reason is given that it can be off-balance
sheet. What happens if the private contractor fails? Where would
that show up in the statistics?
Mr Mowl: I am afraid I cannot
give you an answer. I do not know the answer to that question.
I would be guessing if I tried to answer it, but what I can say
in response to your previous question is that, as of 2003, about
60% of projects, PFI projects by value, were on the government's
balance sheet. So more were on the government's balance sheet
than off. That is taken from a Treasury publication in the summer
of 2003. I am afraid I do not know the current position. What
we also plan to do—and I hope the Committee will welcome
this—is that we plan to produce a briefing paper on the
treatment of PFI schemes in the national and public sector accounts
that we produce, by the end of the year. So the things I am telling
the Committee this afternoon we will set out more systematically
in more detail in a briefing paper. However, at that stage we
will not be in a position to put any numbers in as to the effect
on government debt because we will not be in that position until
some time next year, as I was explaining earlier.
Chairman: We look forward to that.
Q26 Mr Mudie: Apart from the difficulty
with classification and the argument with classification which
I understand you to say really comes down to National Audit Office
first and then you follow on and use your protocols depending
on the decision of the National Audit Office. If they say it is
on-balance sheet, you then view it in the manner of your profession.
If that is so and it is 60% of these 700 schemes, why are you
not on top of the job? I am not being critical in saying that.
What are the problems associated with you telling this Committee
the value, et cetera, all the details of it?
Mr Mowl: I am afraid that the
reason why I cannot is that I do not have any estimates. There
are figures for the total capital value of projects, whether on-balance
sheet or off-balance sheet, but as regards the element that should
be allowed for in public sector net debts, that is not the same
figure as the total capital value of the scheme. It depends entirely
on the individual characteristic—
Q27 Mr Mudie: Could you go a bit slower?
Mr Mowl: I apologise. It is not
the first time that I have been told I speak too quickly. It is
normally in Brussels, where the translators cannot keep up with
me.
Q28 Mr Mudie: I bloody cannot, never
mind a translator!
Mr Mowl: We have to look at each
scheme individually. The contractual details can vary from scheme
to scheme because they are all negotiated individually. The calculation
we have to make therefore depends on the individual characteristics
of that particular scheme. What we have to do is to look at the
profile of payments in the individual scheme over the life of
the contract and then we have to make a calculation. It is a notional
calculation, as I explained earlier, as to whether the ongoing
payments from the government to the private sector contractor
represent a debt repayment or whether they are payments of interest.
The debt repayment will obviously reduce the initial amount of
the loan and even the initial amount of the loan is a notional
estimate that we will have to make because, as I explained earlier,
you cannot read the number we need straight off the contract.
Q29 Susan Kramer: May I ask a quick question
on this? What number do you have now in the public sector debt
calculation for PFI? The one number we know is wrong would be
zero.
Mr Mowl: Yes, I am afraid we are
in that position. May I just also—
Q30 Susan Kramer: We have a number that
we definitely know is wrong and we do not even have an attempt
at an estimated number to plug us until we get to what we think
is an accurate number in the summer.
Mr Mowl: You are quite right.
We do not think it is right that we should put numbers into circulation
where we are not clear that they are fit for the purpose. PFI
is covered in all other respects in the public sector accounts
so the capital expenditure is included in the public sector capital
expenditure, so that contributes to net borrowing. The interest
payments and the service charge are both in current expenditure,
so that affects the current balance. As regards the public finances,
full account of PFI for on-balance sheet schemes is in the current
balance which relates to the Chancellor's Golden Rule. It is in
public sector net borrowing also, but it is not in public sector
net debt, for the reasons I explained. Clearly it is a number
bigger than zero but, because these calculations have to be made
scheme by scheme, I am not in a position to give you even a "guesstimate"
because we have not attempted to make such an estimate.
Chairman: So it is more than zero. Peter?
Q31 Peter Viggers: It would not be fair,
I think, to put this to you as a question, but I just would like
to put on record that I look forward very much to seeing how ultimate
risk is handled in your assessment of PFI calculations. That is
the ultimate risk of the private contractor failing—as could
happen 10, 20 years down the road because at the moment, certainly
on off-balance sheet assessments there would be nothing in the
accounts at all.
Mr Mowl: I can go away and consult
with the government accountants and National Audit Office and
let the Committee have a note if that would be helpful, but it
may take a little while to put that note together.[2]
Q32 Kerry McCarthy: On the question of
the statutory framework, the Statistics Commission and I think
your predecessor as well expressed support for legislation. Primarily
Len Cook said that it would help define the relationship that
you have with politicians and statisticians in other departments.
Do you share that view?
Ms Dunnell: To some extent. We
already have some statistical legislation and it is a bit unco-ordinated
and I think that the issue at the moment is how to move forward
with what we have got, and the arrangements we have got, to try
to build trust and increase the perception of our independence
rather more quickly; so, for me, it is rather a question of how
long it will take to get all-encompassing legislation. Obviously,
we have ideas about priority areas and so on, but I think the
general idea is to get some very all-encompassing legislation
which in the long term is probably a good idea.
Q33 Kerry McCarthy: Right; because I
thought you said you were more concerned with working within the
existing framework and establishing trust within that, but in
the longer term you are saying that you do think there is a need
for a UK Statistics Act. Most other countries have got some form
of Statistics Act in place. What would you say are the specific
disadvantages of the UK not having similar legislation? What is
the case for our adopting that?
Ms Dunnell: I think it would fulfil
the situation where the legislation that we do have is being built
up bit by bit; it would bring all that together. I think major
gaps, where legislation would be enormously helpful, are in the
whole area of access to administrative data across government
and public sector organisations. At the moment that is very inhibited
by the lack of legislation and it would bring enormous benefits
not only to the quality and the value of statistics we have, but
it would cut down the costs and it would reduce the compliance,
particularly costs on business. There are many advantages to having
legislation which would enable better sharing and use of data
across government. I think those are the main advantages, and
also bringing together the legal situation in relation to confidentiality.
Q34 Kerry McCarthy: Are there any countries
that you think provide particularly useful models for the UK?
Ms Dunnell: Off the top of my
head, I cannot think which ones, but we have done several studies
of the situation in different countries and we have got papers,
I think, on it which we could let you have. [3]There
are several different models in place.
Q35 Kerry McCarthy: Would it be fair
to say, though, it sounds as though it is not something that is
occupying a great deal of your time at the moment? It is something
that you think would be desirable for some future date, but it
is not a key priority at the moment?
Ms Dunnell: It is not occupying
a lot of my time at the moment, but I do have a team of people
who have done quite a lot of work on the whole subject and when
we start the review of the Framework document, that team will
update the work we have already done on the legislative position
as it is now and where it could get to.
Q36 Kerry McCarthy: What about the Statistics
Commission? What role would you see them having? Do you think
they should be placed on a statutory footing?
Ms Dunnell: Not necessarily. Again,
I think that the Framework document which came into being in the
year 2000—five years in some things is a very long time,
but I think in the course of working out how national statistics
and a new Commission goes about its work, it is quite a short
time. I very much want to work with the Commission to help them
to support statistics in the UK in the best possible way. I think
that there are quite a lot of things that they can be helping
to do, not necessarily needing legislation. That is my personal
view.
Q37 Kerry McCarthy: Just going back to
the code of practice that you answered the Chairman's question
on, you have been running a series of seminars, I think, communication
engagement seminars and the idea of that was to achieve full compliance
by the end of this year, by the end of 2004-05, I think, last
year. What has been the outcome?
Ms Dunnell: At the moment, it
is quite complicated because, as people have mentioned, there
are lots of separate protocols to the thing; what we have agreed
with departments is a way of reporting on how they have been doing
under each of the protocols. At the moment we are collecting that
information and pulling it together, so we should be able to report
on that in the national statistics report next year.
Q38 Kerry McCarthy: You cannot say at
this point that the exercise achieved full compliance by the end
of last year? You are still monitoring whether it did?
Ms Dunnell: We are looking at
the responses now. In terms of breaches of the code, of course
we collect any evidence of breaches of the code as we go along,
but, as we have mentioned before, it is sometimes more subtle
than that. What we are interested in now is the problems that
people have interpreting the code because if we need to, we need
to put it right.
Q39 Kerry McCarthy: What is the next
step to ensure compliance?
Ms Dunnell: I think, firstly,
we need to make sure that, where we have identified areas of misunderstanding,
that we put that right. The second step is that, as I mentioned
earlier, I am going to go around to all key departments and talk
to their chief statisticians and their permanent secretaries,
so that we get a combined view of what the code means for their
departments, what particular kinds of statistics may cause particular
kinds of problems and so on. We think we have already got meetings
fixed up with four or five departments, so we are starting that
process once this meeting is over really.
2 Ev 11 Back
3
The papers are available at the Statistics Commission's website,
www.statscom.org.uk/media-pdf/reports/LegislationtoBuildTrust.pdf,
Annex 4 Back
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