Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-39)



  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,, Annex 4 Back

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